The Online Library of Liberty

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• Titles In the Liberty Fund Library of the Works of Ludwig Von Mises
• Acknowledgments
• Preface
• Introduction
• Monetary and Economic Policy Problems Before, During, and After the Great War
• Part 1: Austro-hungarian Monetary and Fiscal Policy Issues Before the First World War
• Chapter 1: The Political-economic Motives of the Austrian Currency Reform 1
• Chapter 2: The Problem of Legal Resumption of Specie Payments In Austria-hungary 1
• Chapter 3: The Foreign Exchange Policy of the Austro-hungarian Bank 1
• Chapter 4: On the Problem of Legal Resumption of Specie Payments In Austria-hungary
• Chapter 5: The Fourth Issuing Right of the Austro-hungarian Bank 1
• Chapter 6: Financial Reform In Austria 1
• Chapter 7: The General Rise In Prices In the Light of Economic Theory 1
• Chapter 8: On Rising Prices and Purchasing Power Policies 1
• Chapter 9: Disturbances In the Economic Life of the Austro-hungarian Monarchy During the Years 1912-1913 1
• Part 2: Economic Policy Issues In the Midst of the Great War
• Chapter 10: On the Goals of Trade Policy 1
• Chapter 11: Inflation 1
• Chapter 12: On Paying For the Costs of War and War Loans 1
• Chapter 13: Remarks Concerning the Problem of Emigration 1
• Part 3: Austrian Fiscal and Monetary Problems In the Postwar Period
• Chapter 14: Monetary Devaluation and the National Budget 1
• Chapter 15: For the Reintroduction of Normal Stock Market Practices In Foreign Exchange Dealings 1
• Chapter 16: On Carl Menger’s Eightieth Birthday 1
• Chapter 17: How Can Austria Be Saved?
• Chapter 18: The Claims of Note Holders Upon Liquidation of the Bank 1
• Chapter 19: The Austrian Currency Problem Thirty Years Ago and Today 1
• Chapter 20: The Restoration of Austria’s Economic Situation 1
• Chapter 21: The Austrian Problem 1
• Chapter 22: The Gold-exchange Standard 1
• Chapter 23: The Social Democratic Agrarian Program 1
• Chapter 24: America and the Reconstruction of the European Economy 1
• Chapter 25: The Currency and Finances of the Federal State of Austria 1
• Chapter 26: The Economic Crisis and Lessons For Banking Policy 1
• Part 4: Interventionism, Collectivism, and Their Ideological Roots
• Chapter 27: The Economic System of Interventionism 1
• Chapter 28: Economic Order and the Political System 1
• Chapter 29: Remarks Concerning the Ideological Roots of the Monetary Catastrophe of 1923 1
• Appendixes
• Appendix A: Maxims For the Discussion of Methodological Problems In the Social Sciences: Paper Delivered At the Private Seminar 1
• Appendix B: Short Curriculum Vitae of Mayer Rachmiel Mises of Lemberg 1

CHAPTER 5

The Fourth Issuing Right of the Austro-Hungarian Bank1

The Austrian law of August 8, 1911 (Imperial Law Gazette no. 157), and the Hungarian Article of Law no. XVIII of 1911 (which are substantially the same) brought to a provisional close a disagreement that has continued for several years.2 They extended the note-issuing right [Privilegium] of the Austro-Hungarian Bank that had already expired on December 31, 1910, and which had remained in force after that date only through temporary arrangements made between the governments of both halves of the country and the Bank. Also simultaneously extended until December 31, 1917, was the coinage and currency treaty that had existed between the two countries since 1892, and which was supposed to expire at the end of 1910. The banking and monetary union, whose continued existence appeared to be in danger due to the fierce hostility of the Hungarian Independence Party, was assured at least for the short term. The status quo was also maintained in the areas of monetary and banking policy until 1917, the next crucial year when the Ausgleich3 will come up for renewal. This end to almost five years of conflict over the Bank was predictable, as there was never any doubt that an independent Hungarian central bank would not be founded on January 1, 1911. Such a solution to the Bank question would have been severely harmful for Hungarian interests, and would have been mourned from the Austrian side, as well. It was hardly likely that the governments and parliaments of both nations would have chosen such a course since it would have benefited no one and, indeed, would have resulted in severe disadvantages for the general economic development of the monarchy.

The Hungarian opposition to continuing the banking union was based solely and exclusively on political, and not economic, grounds. Hungary (or, more specifically, an influential group of Magyar politicians) demanded the establishment of an independent Hungarian bank, claiming that the mere existence of a common central bank was inconsistent with the status of the Kingdom of Hungary. Aside from vague national sentiments, even the most fervent advocates for a separate Hungarian Bank could not seriously assert that the banking union impaired Hungary’s economic interests.

The advantages that accrue to Hungary through the banking and monetary union with Austria were too obvious to allow for any differences of opinion on this matter. Hungary owes its unhampered access to the Austrian money and capital markets to the Bank, as well as the fact that Austrian resources are widely available to Hungary’s industries and its agricultural sector throughout its provinces. Austrian money supports Hungarian credit banks, and the sums that have flowed from Austria into the Hungarian mortgage market are astronomically high. The common central bank also serves as a primary source to satisfy Hungarian credit demands.

Beginning in 1906, the Austro-Hungarian Bank began publishing information about the territorial use of bank credit based on the location of the discount payments on the bills of exchange. Thus, the total of each region in the Bank’s bills of exchange portfolio were:

The drawdown from the Bank’s discount credit, therefore, is much larger in the Hungarian part of the empire than in the Austrian part. Without a common central bank, the interest rate in Hungary would undoubtedly be higher than is currently the case; the implications of this for the development of Hungarian industry are clear.

On the other hand, Cisleithania [Austria] had the greatest interest in the continuation of the banking union. The unity of the money and capital market assures Austrian industrial dominance over the Hungarian markets. Additionally, as long as there continues to be a common tariff area, an independent Hungarian monetary system could, under the current circumstances, bear serious consequences for Austria. However unlikely, it is possible that a separate Hungarian currency could be devalued; a falling exchange rate would hinder Austrian exports to Hungary and facilitate the importing of Hungarian goods into Austria.

Thus, the battle that was fought against the continuation of a joint central bank had to end with a complete success for the Bank’s defenders. The issuing right of the joint central bank was extended to 1917. The decision about its further continuation will be made simultaneously with the decision about the future form of the political and economic relationships between the two halves of the monarchy.

Along with the question about maintaining a joint central bank, the other question that has been at the center of banking discussions for several years has been the problem of legal resumption of specie payments. As is widely known, the currency reform initiated in 1892 has not yet come to a statutory conclusion. The “crowning” of the reform effort through the legal resumption of specie payments has yet to be fulfilled, and according to the letter of the law, the monarchy’s medium of exchange still remains a paper currency. This is because the Austro-Hungarian Bank is not obligated to redeem its notes for gold.

The actual situation is admittedly very different. For fifteen years now, the Austro-Hungarian Bank has surrendered any amount of gold and gold-backed foreign exchange demanded for commercial purposes at a price that lies below a level which would be equal to the upper gold point for specie payments, as similarly practiced in the English banking system. In fact, the Austro-Hungarian Bank is a specie-redeeming institution; the monarchy, therefore, already has enjoyed all the advantages of a regulated currency for several years.4

Thus, nothing stands in the way of the legal resumption of specie payments. It would simply represent a legal sanctioning of a long-standing practice. Economically, it would be irrelevant. However, it would have all the more meaning for the international prestige of both parts of the monarchy. The legal culmination of the transition to a gold-backed currency would give visible expression that Austria-Hungary had overcome the period of its fragmented financial management. With one blow, the value of the crown traded on the financial markets would become the value of gold. The psychological importance of that moment should not by any means be underestimated. The stimulus this would create would certainly do much to improve the monarchy’s reputation, which has been severely shaken by the domestic political events of the last several years.

Nevertheless, the suggestion that the Austro-Hungarian Bank be legally obligated to redeem its notes with specie is met with strong opposition in Austria (though not in Hungary). This antagonism is a consequence of the inflationary tendencies that have repeatedly played a large role in the history of the Austrian currency. The “theory” about the alleged advantages of an “isolated” monetary system for the setting of the rate of interest is as popular in Austria today as it was three or four decades ago. A bank that is not obligated to redeem its notes in specie, one hears, can emancipate itself from any need to consider the international monetary situation when setting its own official rate of discount. According to this theory, it can allow any degree of “tension” to exist between its central bank rate and that of foreign central bank institutions without any concern, because no gold could be withdrawn from its bank. As early as a generation ago, Wilhelm von Lucam, who served as secretary general of the Austro-Hungarian Bank for many years, laid this error completely to rest; since that time, distinguished authors have repeated his rebuttal. However, serious scientific works are unable to convince those who refuse to come face-to-face with their arguments.

Seven years ago the publication of Knapp’s The State Theory of Money offered renewed confidence to the opponents of a gold-backed currency. In Austria, a small literature appeared in brochures, the daily newspapers, and in popular reviews that fought with zeal and passion against the legal resumption of specie payments. Knapp, and his followers to a greater extent than himself, misconceived the essence of the often-referred-to foreign exchange policy of the Austro-Hungarian Bank. They have neither acknowledged nor refuted the criticisms leveled against their views.5 Regardless of this, however, essays constantly fill the columns of the daily newspapers and economic weeklies promoting Austria-Hungary’s “modern” monetary system and reproaching the monetary institutions of all other countries in the world as being backward. It is characteristic of many authors from this group that the monetary history of the last twenty years, in terms of the developments in America, Asia, and India, has completely escaped them. It is self-evident that they are conversant neither with the literature on monetary theory nor the most recent works about the gold exchange standard. They hardly know anything about Carl Menger,6 William Stanley Jevons,7 Leon Walras,8 Friedrich von Wieser,9 J. Laurence Laughlin,10 or David Kinley.11

Among the opponents of the legal resumption of specie payments, Walther Federn, in a certain sense, temporarily held a special position. Federn held the view that the current legal situation offered the Austro-Hungarian Bank the opportunity to leave unsatisfied any demand for foreign exchange for so-called interest rate arbitrage, and to limit the release of foreign exchange solely for the “legitimate” needs of importers and those persons and corporations owing debt payments abroad.

According to Federn, the Bank also availed itself of the following possibility. The foreign exchange rate cannot increase beyond a desired level when foreign exchange is not supplied for short-term investment abroad, because when the foreign exchange rate is above a certain level, the demand for foreign exchange for this purpose decreases of its own accord. This was an argument against the legal resumption of specie payments that would have carried considerable authority if it had been valid. I believe that I have produced the proof for the incorrectness of this and similar claims in the above-cited articles, and more recently in another publication.12 The Austro-Hungarian Bank has not (at least prior to the autumn of 1911, during which its policy suffered a fiasco) attempted to deny issuing foreign exchange for use in interest rate arbitrage.

In addition, Federn has surrendered his original viewpoint on the question of the Bank’s policy. In an essay13 that appeared last year there was missing his claim that an increase in the foreign exchange rate does not occur in spite of the Bank’s refusing to issue foreign exchange. Instead, Federn tried to demonstrate that, in fact, the foreign exchange rate on the Vienna bourse often increased above the upper gold point, and that, as a consequence, the Austrian currency did not have a stable value. It is quite difficult to debate with an author who constantly changes his views. Perhaps in another setting I will return to Federn’s statements and reveal their deficiencies to those people for whom they may not have been obvious up to now.

As could be expected under the circumstances, the Austrian government has had to deal with the opposition to the legal resumption of specie payments. Quite unlike in the Upper House of the Austrian Parliament, it would have been completely futile to attempt to gain agreement on a new issuing right for the Bank in the Austrian House of Deputies [the Lower House] that would have included the legal resumption of specie payments.14

On the other hand, the Hungarian government had to insist (likewise due to parliamentary considerations) that the status quo be moved at least slightly in the direction of a legal resumption of cash payments, because in Hungary there was a general desire for the legal completion of the task for currency reform. The Hungarian politicians are more closely linked to business life and banking transactions than their Austrian counterparts; they do not underestimate the significance of the legal resumption of specie payments for easing Hungary’s access into the money markets of the West.

The two conflicting tendencies are reconciled by a compromise in the new Bank Law. The suspension of the Bank’s obligation to redeem its notes for specie under Article 83 remains in effect until further notice. Abrogation of the suspension may occur only in accordance with the usual procedures of an act passed by both the Austrian and Hungarian legislatures. However, the third paragraph of Article 111 of the statutes grants the Austro-Hungarian Bank the right to petition both legislatures for ending the specie suspension under Article 83 at a point in time when the Bank considers that the international financial situation is favorable for a resumption of specie payments.

In the event that the Bank makes this proposal, the Austrian government is obligated under Article V of the Bank Law to immediately enter into negotiations with the Hungarian government, to conduct these negotiations with all expediency, and in accordance with established procedures of the Hungarian government. Identical drafts are to be submitted in both houses of the Parliament, on the appointed day, for approval of the Austro-Hungarian Bank’s petition for ending specie suspension under Article 83. The approval of this petition is granted by affirmative decisions in both houses of Parliament. A negative decision by just one of the two houses results in the denial of the approval of this petition. If within a period of four weeks from the time the draft has been submitted during the parliamentary session no decision is reached by one of the two houses, then the petition is considered approved by that respective house or both houses of the Parliament.

These provisions, which are analogously covered by Hungarian law (with one inconsequential difference), are extremely idiosyncratic in the context of the constitutional relationship between the two halves of the monarchy. The underlying motive is clear, considering the obstructionist elements that currently influence both the Austrian and Hungarian parliamentary systems.

The constitutional objections to this procedure should be partially eliminated in Austria by the provisions of the special law of August 8, 1911 (Imperial Law Gazette [Reichsgesetzblatt] no. 158), that was announced on the same day as the Bank Law. This law instituted a series of special provisions to assure the government’s businesslike handling of the draft submitted to the House of Deputies, based on the Austro-Hungarian Bank’s petition for abolishing specie suspension under Article 83 of the Bank Statutes. The president of the House has to immediately assign the draft (without a first reading) to the committee appointed for the preliminary discussion. The committee has to submit a written report about the draft to the full House within a period of no more than one week. The president must, without objections, place the committee’s report as the first item on the agenda of the session immediately following the dissemination of the report; and it must be the first item on the agenda for every subsequent session of the House until a decision has been reached.

If the committee has not submitted a report within the one-week period, then the president must, likewise without objections, present the government draft for a final resolution as the first item on the agenda of the session occurring immediately after the expiration of the deadline set for the committee; and it must be the first item on the agenda for every subsequent session of the House. If debate over the draft extends up to the third day prior to the expiration of the four-week period set by Article V of the Bank Law, then the president must declare the debate closed, whether or not the delegate who has the floor has finished his remarks and whether or not there are still delegates registered to speak on the issue. The president must, at the latest, call the vote the next day after debate has been closed.

It is not our task to address the constitutional aspects of these provisions. From a purely economic point of view, the new Bank issuing right offers plenty that is of interest.

Article 1 of the Bank Statutes obligates the Bank to ensure, with all means at its disposal, that the price of foreign exchange reflects the value of its banknotes, and that this remains stable over time. The value of the Bank’s notes shall also correspond to the legal mint parity price of the crown currency. In the case that the Bank does not meet this obligation (i.e., for as long as suspension of specie payments continues), its noncompliance will result in the Bank losing its issuing privilege in accordance with paragraph 2 of Article 111, insofar as this is not superseded by a “higher power” recognized by both governments. An exception is made for a temporary suspension of the Bank’s obligation if there has occurred a lawful decree simultaneously approved in both nations of the monarchy.

The Gordian thought processes that led to this provision in the Bank Statutes can be understood only in the context of the polarized views that exist in the two parts of the monarchy over legal resumption of specie payments. Indeed, it was aimed at somehow legally sanctioning the status quo of de facto specie payments without employing the (in Austria) unpopular idea of specie redemption of notes. Each of the two governments could return home as victor rather than vanquished from the debate over the Bank Act.

Obviously, that was not completely achieved, because what in the plain language of the law would have constituted a decision equivalent to the Bank being given the obligation to institute specie payments was not achieved in this provision. Foreign countries will continue to consider the value of the crown as not being equal to its gold par value, and will view Austrian and Hungarian credit as being substandard.

From a technical legal viewpoint, the frequently discussed item in the Bank Statutes concerning the parity value of the currency can hardly be described as successful. Even the style in which it is expressed is quite awkward. As is highlighted in the report about the reasons for the law, it is not meant to force the Bank to guarantee that the foreign exchange rate constantly coincides with the mint parity of the currency. Instead, henceforth, the Bank’s legal obligation would be to maintain its current practice, which it has followed for years without legal compulsion, of not allowing the foreign exchange rate to rise above the upper gold point. Thus, the Bank must continue to pursue the same policies that it has followed up to the present; in the future (as has currently been the case), it must simply ensure that the upper gold point is not exceeded. In other words, it must guarantee that there occur no significant fluctuations in the foreign exchange rate above the currency’s mint parity. A shrewd loophole was left open, wherein the range in which the foreign exchange rate might vary above the mint parity was not defined in this law or elsewhere.

It is superfluous and contradictory to all legal terminology if, as it is expressly noted in Article 111, the Bank does not lose its issuing rights when it fails to comply with the obligation to uphold the exchange rate parity, other than in situations in which a temporary suspension has been decreed in a lawful manner in both nations of the monarchy. It appears that during the compilation of the Bank Statutes, the legal rule “lex posterior derogat priori”15 was completely forgotten.

According to Article 83, paragraph 2 of the Bank Statutes, there does not occur a loss of issuing rights due to failure to comply with this obligation after the resumption of specie payments, if it is prevented from doing so by a higher power recognized as such by both governments. The official report points out that there could be cases in which the Bank might be prevented by insurmountable external circumstances from meeting its obligations to redeem its notes, and a temporary cessation of note redemption could not be immediately decreed in a lawful fashion. The official report also indicates that there also could be similarly valid reasons in regard to the Bank’s failure to meet its obligation to maintain the exchange rate parity. In practice, this gives both governments the authority to relieve the Bank at any time of its obligation to maintain the foreign exchange parity, and its obligation to make specie payments. Due to the vagueness of the term “higher power” applied within the area of finance, it may well be possible for the governments to find any pretext for such a suspension of the Bank Act. Any deterioration in the balance of payments can be viewed, with a stretch of the imagination, as being an act by a higher power. It is, however, hardly to be feared that the governments will misuse the authority that has been placed in their hands.

By far the most important innovation in the Bank Law is the expansion of the tax-free quota for the issuance of banknotes. In 1887, the Austro-Hungarian Bank’s second issuing right broke with the system of strictly limiting the number of banknotes in circulation; this system had been introduced by Plener’s Bank Act of December 27, 1862, in the manner set by Peel’s Bank Act.16 The second issuing right declared that any issuance of banknotes not backed by precious metals in excess of the 200 million florins (Austrian currency) quota was subject to a tax of 5 percent on any notes in circulation exceeding that maximum.

Since that time the quota of 400 million crown notes has not been increased, and has remained at that level for almost five decades.17 In recent years, the issuance of notes in excess of 400 million crowns has occurred primarily in the autumn months. In 1907, there were no fewer than 21 times when the total number of notes in circulation was in excess of that maximum amount. The new Bank Statute expands the tax-free note quota from 400 million crowns up to 600 million crowns. Whatever significance this expansion of the tax-free quota of notes will have on the financial markets cannot be discussed here in any detail. Doubtless the effect will not be as harmless as is asserted in the official report, which leaves quite a bit to be desired on these points.

In any case, it is deplorable that the Bank Statute did not establish, as the German model does, that the quota of notes be determined at a higher level for the end of the quarters as opposed to the average level during the year. The official report cited the German provision and included as a quasi explanation that the quarterly deadlines (at the end of March, July, September, and December) regularly bring certain tensions on the German financial markets. The report remains silent as to the question (which surely would have merited a detailed explanation) about whether it has been ascertained that the same deadlines cause tension on the Austrian markets.

Indicating yet another tendency, an amendment has been made to the regulations concerning the backing of notes in circulation. In the agreements made incidental to the conferral of the third issuing right in 1899 between the two governments and the Bank, the Bank was allowed to employ an amount of 401,305 million crowns in national gold coins (that has originally been supplied by the two governments) to cover the ten- and twenty-crown notes that had been issued in place of an equivalent amount of state notes. The Bank was not allowed to include this amount, which formed 40 percent of the precious metal backing of its notes, in the summary of its specie reserves.

Article VI of the Bank Law Amendment abrogates this limitation. At the same time, the previous limitations on the issuing of ten- and twenty-crown notes are dropped. In their place appeared a provision (Article 82 of the Bank Statutes) that to cover transactions of less than fifty crowns, twenty- and ten-crown banknotes can be issued in any amount mutually agreed to by the two finance ministers. Due to this, banknotes in denominations of twenty and ten crowns will become a permanent institution. This corresponds to the principles first promulgated in the specie payment guidelines of 1903, and which stand in contradiction to straightforwardly adopting the English and German institutions, which were envisioned by the legislators of 1892 and 1899.

Also taken from the 1903 guidelines was authorization for the Bank to include in its calculation of specie reserves an amount up to 60 million crowns in holdings of foreign exchange and foreign banknotes that are payable in gold or an equivalent precious-metal-backed currency.

From a financial perspective, the expansion of the tax-free note quota was partly a compensation for the increased share of the Bank’s net profits taken by both governments in the monarchy. In general, the provisions concerning the division of the Bank’s net profit remained unchanged, though with a modification. Previously, the two governments received two-thirds of the net profits whenever common stockholdings exceeded 7 percent of the equity capital; in the future, the two governments under those circumstances will receive three-quarters of the net profits. In addition, the Bank is obligated to establish twenty new subsidiaries, ten in Austria and ten in Hungary, at locations determined by the ministers of finance.

In general, nothing was changed in the Bank’s time-tested organization: it remains as it had been until 1917, and hopefully will remain so long into the future. And there are a few provisions about the handling of the gold reserves at the expiration of the issuing right in 1917, as a reminder that that possibility must be kept in mind in all calculations about the future.

Foreign judgments of the situation following the passage of the new note issue right will likely conclude that little success has been made in solving the Bank question. Fault will be found with the complicated parliamentary procedures preceding the future resumption of specie payments, and with many other details and aspects of the new issuing right. This is completely aside from the fact that foreign opinion will hardly be able to comprehend why the new issuing right fails to validate the de facto situation of specie payments by sanctioning the legal resumption of specie payments.

Anyone who completely understands the situation in the monarchy will in no way agree with such a disparaging judgment. For it is indeed the truth that the Bank’s issuing right, in spite of all its defects, unquestionably demonstrates a full and complete success for the Austrian ideal of the nation-state. An important part of imperial unity was secured for the coming years. What that will mean, and how the diplomatic and political success of the two governments is to be estimated, can only be answered by those worthy to judge, those who truly understand the parties in Cisleithania and Transleithania [Austria and Hungary], ruled as they are by rallying cries and only seldom guided by dispassionate logic.

[1. ][This article originally was published in German in the Zeitschrift für Volkswirtschaft, Sozialpolitik und Verwaltung, vol. 21 (1912).—Ed.]

[2. ]In addition to the numerous articles in the daily and professional press, see especially the parliamentary materials relating to the government bill, including a report on the reasons for the fourth privilege (No. 1043 of the supplements to the stenographic protocols of the House of Deputies, Session XX, 1910). A representative overview of the reform and a rich bibliographic list are contained in Zuckerkandl’s appendix to “Österreichisch-Ungarische Bank” in the Handwörterbuch der Staatswissenschaften, vol. 8, pp. 1186-91. [Robert Zuckerkandl, “The Austro-Hungarian Bank,” in Banking in Russia, Austria-Hungary, the Netherlands, and Japan (Washington, D.C.: Government Printing Office, 1911), pp. 55-118, but without the accompanying bibliography in the original German.—Ed.]

[3. ][The Ausgleich, or “Compromise,” of 1867 refers to the agreement under which the Austrian Empire was transformed into the Austro-Hungarian Empire. Hungary was recognized as a self-governing nation within the empire, with the two halves sharing a common defense, and a customs and monetary union under the authority of the Habsburg emperor, Francis Joseph. The “Compromise” was to be renewed every ten years.-Ed.]

[4. ]See my remarks in the Schmollerschen Jahrbuch, vols. 33 and 34. [See “The Problem of Legal Resumption of Specie Payments in Austria-Hungary” and “On the Problem of Legal Resumption of Specie Payments in Austria-Hungary,” Chapters 2 and 4 in the present volume.—Ed.]

[5. ]See my remarks in the Schmollerschen Jahrbuch, vol. 33, pp. 1027-30. [See pp. 31-82, in this volume.—Ed.]

[6. ][Carl Menger (1840-1921) was the founder of the Austrian School of economics. After working as a journalist and civil servant in the Austrian Ministry of Prices, he was appointed a professor of political economy at the University of Vienna in 1873, a position that he held until his retirement in 1903. In 1876, he was tutor for Crown Prince Rudolph, the heir to the Austrian throne who later committed suicide. He also served on the Imperial Commission on Currency Reform in 1892, which resulted in Austro-Hungary’s moving toward establishment of a gold standard.—Ed.]

[7. ][William Stanley Jevons (1835-83) was one of the developers of the theory of marginal utility, which he formulated in his 1871 book The Theory of Political Economy. He also wrote extensively on monetary theory and reform, and a sunspot theory of business cycles. He was appointed to a chair in political economy at University College, London, in 1876. He died in a drowning accident.—Ed.]

[8. ][Leon Walras (1834-1910) formulated a version of the theory of marginal utility in his 1874 book Elements of Pure Economics. Walras is also recognized as one of the early developers of mathematical general equilibrium theory. Walras also was a prominent monetary theorist who developed a “cash balance” approach for the demand for money. He was appointed to a chair in political economy at the University of Lausanne in 1870, and stepped down from his position in 1892 following a nervous breakdown.—Ed.]

[9. ][Friedrich von Wieser (1851-1926) was one of the leading members of the Austrian School of economics in the period before and immediately after the First World War. His major contributions were to the theory of marginal utility, the concept of opportunity cost, and the theory of the determination of the value of the factors of production. After serving in the Austrian civil service from 1872 to 1883, he was appointed professor of political economy at the University of Prague in the Austrian province of Bohemia. He was appointed professor of political economy at the University of Vienna in 1903, following Carl Menger’s retirement. Wieser served as minister of commerce from 1917 to 1918 in the last government of the Austro-Hungarian Empire.—Ed.]

[10. ][James Laurence Laughlin (1850-1933) was appointed in 1892 to establish an economics department at the University of Chicago. He was well known as a monetary theorist and historian who wrote widely on the gold standard. He was also an outspoken advocate of laissez-faire at a time of growing interventionist sentiments in the United States.—Ed.]

[11. ][David Kinley (1861-1944) founded the economics department at the University of Illinois at Champaign-Urbana in 1895. He was the author of Money: A Study of the Theory of the Medium of Exchange (1904). He also wrote extensively on government regulation of business in American society.—Ed.]

[12. ]Ludwig von Mises, The Theory of Money and Credit (Indianapolis: Liberty Fund, 3rd rev. ed., [1924; 1951] 1981), pp. 384-86.

[13. ]Schmollerschen Jahrbuch, vol. 25, pp. 1379ff.

[14. ][In the Austrian part of the Dual Monarchy, the parliament was composed of an Upper House (Herrenhause) that included all of the archdukes in Austria; seventy nobles selected by the emperor; seventeen archbishops and bishops of princely rank; and 140 life members appointed by the emperor in recognition of their service to the state or the church. In the early years of the twentieth century, the Lower House (Abgeordnetenhause) consisted of 425 members serving for a six-year term, who represented five “classes of electors” in each province. Eighty-five were chosen by the large landowners; twenty-five were selected by the chambers of commerce and certain industrial corporations; 118 were elected by residents in urban districts who paid over fifty florins in direct taxation; 129 were elected by inhabitants of rural areas who also paid in direct taxes at least fifty florins; and 72 were chosen by all electors who did not belong to any of the other groups, but who had residency qualification for at least six months.—Ed.]

[15. ][“More recent law abrogates an inconsistent earlier law.”—Ed.]

[16. ]See Chapter 2, “The Problem of Legal Resumption of Specie Payments in Austria-Hungary,” footnote 18.

[17. ][The 1892 Austrian Currency Reform Act converted the old florin into a new crown at the ratio of two new crowns for one old florin. Hence the 200-million-florin quota on notes issued by the Austro-Hungarian Bank that were tax-exempt became 400 million of the new crowns.—Ed.]