Money matters - Karl Kautsky

This part is left out from the volume with Marxist essays on money. At the time Kautsky was a member of the USDP, a split from the rightwing/nationalist majority socialists (to which Lensch and Umbreit, criticised en passant in this text, belonged). He wrote the book in the direct aftermath of the October 1917 revolution, which brought an end of the war in sight. The war would handover a legacy of monetary-economic problems to any party that would be swept into power. About this Kautsky was already thinking (he finished writing the book by March 1918). In a later 1924 article on Kautsky as a money theorist, Alfred Braunthal praised in particular this part. The directions that Kautsky offered based on Marxist analysis were quite sensible, especially in light of the disastrous hyperinflation that actually took place. (NR)

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9. The balance of payments
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This situation [of devalued paper money], which has emerged during the war, will have to be remedied by the transition economy. In this process however it comes into a grave inner conflict.

The unfavourable balance of payments of the belligerent powers stems primarily from their unfavourable balance of trade, the fact that because of shortage of labour forces the productive sectors engaged in export are paralysed, while internal consumption grows. Thus a decrease of export, an increase of import.

To make the balance of payments more favourable, now during the transition economy the matter shall be reversed, the import inhibited, the export increased. We have already discussed the material obstacles of this manipulation. How will the industry get back on track if it lacks the raw materials? It are mainly these, which claim numerous ship tonnage, not the industrial products. In order to get raw materials, the ship tonnage shall be expanded as fast as possible! And at the same time one wants to limit the import as much as possible, to improve the balance of payments.

Now it will be said, that not the foreign raw materials, but the industrial products shall be kept off. One forgets only, that this keeping away is the famous screw without end. If I by forcible means keep away industrial products from abroad, then it will respond in kind. And yet to the improvement of the trade balance pertains promotion of export.

Incidentally, a sinking currency, which raises the prices for foreign products, operates like a protective tariff; Usually more, than is desired.

We can not get enough raw materials. One does not need to fear, that their import becomes too large, but more likely, that it will remain insufficient. Only when the industrial nation has obtained the necessary raw materials, can it go ahead with aligning its export industry again and so improve its balance of trade.

But how shall one pay the raw materials? Where to take the money for them? Who himself has no money, thinks about that of others, about a loan. By borrowing from abroad one certainly can temporarily improve an unfavourable balance of payment, and simultaneously for its amount gather raw materials and through the revival of the export industry initiate an improvement in the trade balance. But one can not be sure of foreign loans. The world war will find all states very exhausted and at the same time all too eager for foreign loans, that any among them may count much on financial strengthening from abroad.

Yet one therefore does not need to despair. While from abroad nothing is to be expected, each state in its interior has available a large quantum of money, that can be used as world money, the gold treasure, which it either owns as state treasure or which it controls as treasure of the central note bank.

It belongs to the biggest errors of the money theory dominant among bankers, that they do not dare touch this gold treasure. One does not need to be an advocate of paper currency, one may certainly recognise, that gold is the indispensable basis of the money system, as measure of value as well as world money, and one can nevertheless declare the frantic clinging to the gold treasure as completely mistaken.

This clinging rests on the false view, that the value of banknotes does not depend on the ratio of their amount to the value of the circulating mass of commodities, but on the level of their metallic coverage. In reality the gold treasure exists not to keep up the value of banknotes, but as a reserve fund for payments abroad, that must be paid in gold, insofar as that they can not be evened out. Its task is precisely that: to allow payments in gold to foreign countries, that can not be settled in another way, and thus even out the balance of payment.

Certainly no state, that does not itself have the necessary number of gold mines, can constantly pay its imported commodities with gold. Even the biggest gold treasure would quickly empty in this process.

But once, at an extraordinary occasion, one may yet afford oneself a hearty grab in the cash box. For this the reserve fund is just there. The commander surely acts tactically unwise, who uses his reserves unnecessarily and prematurely. But no less so, the one who anxiously keeps them back in a moment in which they can decide the victory. If he thereby loses the battle, then it is little consolation that the reserves remained intact, to cover the retreat.

If ever an urgent necessity was given for a state, to use its gold treasure for acquisitions abroad, it is the one before which each at the end of the war by the economic situation will see themselves placed.

The expenditure of the gold treasure for the purchase raw materials abroad also forms the most purposeful procedure for the regulatory intervention of the state in the import. In addition to the nationalisation of the mines and large landownership and the state regulation of communal agriculture, this use of the state gold treasure offers the best possibility for the state, to order again the production process brought into disarray. This procedure, of directing the imports into certain paths, is much more purposeful, than the more inhibitory and to all corners scandalising apparatus of import bans and monopolised purchasing companies, which one advocates.

That we therewith always have in mind a democratic state, in which the bureaucracy does not govern autocratically, is self-evident.

One does not need to fear that the state with this gold export loses its entire gold treasure. The more likely risk is, that it does not get rid of it enough.

We know after all, that the money circulation in every country under certain conditions can absorb only a certain amount of gold or gold value.

If all states, with shortages in use values, proceed, from the few countries, that after the war produce surpluses, to buy these with gold, then with them a large amount of gold will pile up, for which they have no use. In a series of neutral states such signs have shown themselves already during the war.

Now money is certainly, as the learned Roscher already knew, a pleasant commodity,1 but after all only because it has the nice property that I can buy any commodity with it. Money, for which I can buy no commodities, has no longer any use value, because its sole use value is to let commodities circulate.

If the states exporting raw materials only get gold for their commodities, not products, then this may appear to them as a bad trade and then they could move to a prohibition of further gold import, in contrast to the currently prevailing practice of the ban on gold export.

But this danger constitutes of course no ground for an industrialised country, so long as countries with surpluses of raw material do not forbid gold import, to use as much as possible of its gold treasure on the acquisition of raw materials abroad. The faster, bolder, more energetic one does this, all the greater the success will be.

10. The adjustment of gold and note

If we make a plea for gold export, then therewith we do not want to justify paper currency. As a measure of value and world money gold can not be replaced, it must in every country remain the basis of the money building. For this purpose however it is not necessary, that in internal circulation gold coins again freely circulate and always are convertible at will against notes. Paper money or banknotes may constitute the exclusive means of circulation for the internal market. But they must be brought in a determined value ratio to gold and gold must at this ratio always be available against notes for purposes of industry or foreign payments.

For the solution of this task gold of course must be present in the state. But for this it does not at all require the vast gold treasures, stacked in the cellars of the major banks today. Not on the level of coverage depends the restoration of the parity between gold and note, but on the extent of the quantity of notes put into circulation.

There are several methods, to make paper money tokens equivalent again to gold. Whichever one is chosen, each has one precondition, that must be met under all circumstances. The first step which the transition economy takes, to remedy the money system, must consist in the cessation of any further expenditure of paper money tokens, whatever names they may carry. This applies to Loan Bureau Notes as much as to banknotes.

After obtaining this precondition, there are two paths, to turn the paper economy back into a gold economy. All the various proposals, to achieve this, can be derived from these two paths. One is the faster or slower raising of the value of paper money, which is to be continued so long until it is equal to the gold value. The other lies in the fixation of the value ratio between paper and gold existing with the end of the war.

On the former path the target lets itself be reached fastest in such a way, that one fixes the amount of notes in excess of the requirement of circulation and payment, takes a loan to this amount and uses its proceeds, to withdraw the corresponding number of notes from traffic. When the circulation would require 6 billion marks in gold and banknotes were expended with a nominal value of 12 billion, a bond of 6 billion would be enough, to make the banknote equivalent again to gold.

But apart from the fact, that larger loans after the war will be difficult to obtain, this would mean with the difference between gold and paper, as adopted in the above example, a sudden jump of the money value, a complete turn about of all prices. Serious disruption in commodity circulation would be the first consequence of the rectification [Sanierung], the remedy temporarily worse than the disease itself. Only where the differences were smaller, only made up a few per cent, hitherto the rectification of the money system has been accomplished through a loan.

One method, that proceeds slower, excludes violent disruptions and costs nothing, is that one simply does nothing, confines oneself, to expend no further paper money. With the development of commodity production and the increase in the population, the amount of produced and into circulation entering commodity values grows from year to year. Therewith also the need for new money. The circulation value of the circulating mass of paper money thus grows stronger every year. If this mass stays unchanged, then the value of each fraction, of each note, rises until it finally reaches the value of the homonymous gold piece.

This path was adopted for example by the United States of America after the great civil war, which lasted from April 1861 to May 1865, and which caused state expenditures, estimated for 1861/62 at 68 million dollars, eventually to run up to 1900 million dollars (about 8 billion marks) in 1864/65. One took recourse to tax increases and loans. Beside that, to the expenditure of paper money. In the year 1862 one put 78 million dollars of state paper money (called Greenbacks for the green backside) into circulation, in 1864 already 415 million were expended. The result was increasing devaluation of money, a rise of prices. In July 1864 the premium on gold reached 185 per cent.

After the war one tried, not all of a sudden, but gradually, to reduce the amount of Greenbacks, by withdrawing up to 4 million dollars every month. However this measure met with resistance, it was abandoned, from 1868 onward the number of Greenbacks has essentially remained the same. It was then 328 million dollars. Their value increased from year to year, the United States grew into the initially too wide clothing, until it finally suited it. In 1879 the gold and paper dollar were equal to each other. Until then the deficiencies of the paper economy had to be endured.

It can not be assumed, that any of the countries involved today in the war will experience in peacetime such a rapid boom, as America back then. The victory over the slave owners in the South had opened to the farmers of the North wide land areas, virgin soil, which also with superficial effort without fertilisation initially yielded abundant crops. A wide domain for new labour forces opened itself there and attracted many immigrants from the eastern States as well as from Europe. The era of the flooding of Europe with American cereals and meat was initiated precisely in the time from 1864 to 1879. From 1860 to 1880 the population of the United States grew from 31 to 50 million, the number of farms doubled from 2 million to 4 million, wheat production increased from 173 to 499 million bushels.

For such a recovery in Europe all preconditions are missing, the abundant land just as the abundant people. The drop in births will everywhere gain the strength of the French one, the migration movement of workers will withdraw more labour forces from Europe, than supply. The only country, in which in the coming years similar conditions as in the United States after the civil war should be given, will be Russia.

The gradual, painless growing of European capitalism into the wide paper-clothing, which it draped instead of its tight fitting gold armour, is thus a just as dubious thing, as the gradual growing into the co-operative commonwealth.2

Could we not however accelerate the rise of the value of paper money, in the way, it initially has been tried in the United States, that one each month withdraws a certain amount of paper money and so gradually without catastrophe raises its value? As we have already seen, this procedure met resistance. Why?

We have already noted above, that a series of elements of the population are interested in the sinking of money value, thus in a rising of prices. The prices, that rise, are the paper prices domestically, not the gold prices in world traffic. Since wages do not increase in the same proportion, as the prices of products, the latter can, measured in gold, despite the price rise even be produced cheaper, than under otherwise equal conditions the products in a country with a gold currency. So the sinking value of paper money can operate like a protective tariff. On the other hand the declining value of money helps the debtors, who pay the interests on and reimburse the loans, that they took, if they are long-term, in debased money. The victims are the creditors. The opposite effect is exerted of course by the rising value of money, which is expressed in falling prices. The protective tariff minded industrialists felt themselves in the United States just as much disadvantaged, as the peasants, who had taken up their mortgages with bad money and now had to reimburse them and pay the interests with higher-valued money.

The workers however gain with sinking prices, since the price of their labour does not change as easily as that of the other commodities. However the wage labourers in America had not yet arrived at a policy of their own, many of them still felt themselves to be future industrial capitalists or as farmers and followed their policy.

In Europe that will this time not happen so easily. The workers will find absolutely no taste in the rise of prices and joyfully welcome a fall of prices. But they will reflect much, whether they desire for this purpose an artificial rise of money value by measures, that bring about a new burden on the state and therewith also on the workers. That would be true of any retraction of paper money tokens by the state, whether it is mediated by a loan or not. The state gets, apart from its profitable economic enterprises, into the possession of money only by taxes or loans. If it wants to remove 100 million paper money a month, then it must first get hold of these 100 million by a tax, if it does not finance them by a loan. And these 100 million, which it only takes in, shall not however expend again, mean a deduction from its income, thus, if the latter is not to be diminished, a tax increase.

And who will have the gain with the transaction? Not the workers, since their wages in the face of the sudden large unemployment will lose their otherwise conservative slow movement only all too much. Sure to gain are all those, who during the war have become creditors, either the state or private persons, as well as the war profiteers. When in a country the value of paper money is only still fifty per cent of the gold value and by retraction of one half of the paper notes it is made full-valued, then that would mean a doubling of the war profits and the debt rates, and in fact at the expense of the state, which in turn lives at the expense of the workers.

For another method, to align paper and gold with each other, old Tsarist Russia offers us a good example.

The wars against revolutionary France and Napoleon had prompted it, to expend enormous amounts of paper money. This was greatly devalued, in 1815 426 paper rubles were worth the same as 100 silver rubles. After the war one attempted, to retract the excessive amount of paper money. For that however soon the forces lacked. One did not succeed, to suppress the premium on silver to more than 350. Finally one decided, to recognise this condition as definite and to freeze it. In 1839 it was stipulated, that from then on 350 paper rubles are to be counted equal to 100 silver rubles and paper notes would always be converted in this ratio to silver. Therewith the difference in prices in metal and paper money was not repealed, but both were brought into a determined, fixed relation with each other, the mischiefs of excessive paper money eliminated, which result from the fact, that its value is not determined by the relatively stable value of the money metal, but by the eternally fluctuating circulation value [Zirkulationswert] of the commodity world.3

This method, the so called devaluation, simply sets fast, what is the reality. It can be carried out anytime, by one step and without any burden on the state and the taxpayers. It brings back to the internal and external market the same measure of value and a compliance of prices, but admittedly in such a way, that it embeds the difference between metal prices on the world market and the domestic paper prices into this country itself. Yet precisely thereby the transition to a pure metal currency is prepared and facilitated.

Of course this new dual currency can not be destined for perpetuity. It is a real transition economy. It would be too fatuous, if one wanted to permanently call a paper note [Papierzettel] a ruble note [Rubelschein], when it is worth only a third of the metal ruble. One will try, to retract the old paper rubles, but this measure has a different meaning, than the earlier discussed method of retraction. It now does not bring value appreciation of paper money with it. It also does not need to cause any expense
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It is not necessary, to redeem the old notes [Scheine] (in the fixed ratio) for bright gold. It is sufficient, when one redeems them at this ratio against banknotes, which in their turn always stand equal, on par with gold.

With the in 1839 started Russian monetary reform, of which we spoke, such 'state credit notes' were already introduced in 1841 and declared the only valid [gültigen] paper money in 1843.

Despite all these advantages also devaluation encounters great qualms and strong opposition. It is the best method, to quickly turn off all disruptions in commodity circulation, that spring from the contradiction between a special internal and another, on the world market valid, measure of value and means of circulation. But what about the payments, that were stipulated before the onset of the devaluation? Commodities, that now come onto the market, will have two prices, a paper and a metal one. With the previously agreed payments such a doubling of the value expression has not been undertaken. Are they to be paid in gold or in paper? In a different fashion the same difficulty repeats itself, which we learned already with the raising of the money value by withdrawal of paper money. If the payments are all to be settled in paper, then, if we take the Russian relation between money metal and paper from 1839 as a basis, everyone, who before the war placed a money deposit or lent a money sum, will instead of 100 rubles receive back only 30. If in contrast the payments are all to be discharged in gold or banknotes equivalent to gold, then everyone, who towards the end of the war deposited a sum of money at a bank or lent it (the purchase of a security comes to the same thing), after the executed devaluation sees this sum increased threefold.

The one scenario will be perceived as an unmerited robbing in favour of the debtor, the other as a still less merited gift to the creditor.

We do not yet know, how the money relations will be at the end of the war, how the ratio of paper and gold will look in the individual states. We abstain for a number of reasons, from making specific proposals here. One thing however already today can be said with certainty: With the regulation of money relations not only theoretical ambiguities will play a major role, which are nowhere more prevalent than in this field, but also very real and well-understood conflicting interests of powerful classes and cliques will here collide and make from the currency question one of the politically most intense and most contested areas of the transition economy.

11. Money shortage

Still one question we have to deal with, no doubt the most difficult problem of the transition economy. If so far we have investigated, how the quality of the money is to be improved, then now it is to be asked, where to take the quantities, which the transition economy will require. How will it procure the necessary money?

No capitalist enterprise can begin without money, all capital must be present first in money form, before it takes other forms. If John the Evangelist said, in the beginning was the logos, the 'word' or probably better the 'world reason'; if Faust exclaimed in contrast to this: In the beginning was the deed, then the capitalist says, in the beginning was the money.

Before he can begin, to produce and gain surplus value, he must have money to build the factory, to buy the equipment, to purchase raw materials, to pay wages.

Since money is the starting point of each capital, often enough money and capital are confused, and yet not all money transforms into capital, and the money, that is converted to commercial or industrial capital, therewith fulfils its transformation into a commodity, ceases, to be money. Again only recently Umbreit teaches us:

To the means of labour primarily belong the raw materials, then the companies and thirdly the capitals.

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Raw materials and 'companies' are of course in the hands of capitalists also capital. By 'capital', which Umbreit names as a third type of means of labour (he portends means of production), only money can be understood; that money, which is used for wage payments. Money is of course neither a means of labour in particular nor a means of production in general, but always only a means of circulation. The third factor, which next to raw materials (labour objects) and means of labour appears in production, is not money, but the labour force, which is bought with money, just like the machinery and raw material.

The capitalist must thus have money, before he starts the production of commodities. But the money is, despite the alchemy of the paper economy, not created from nothing. It is obtained by the sale of commodities. So at the beginning is not money, but the commodity. Yet how to produce it without money?

The problem comes down to the question: What was first, the egg or the chicken? Once the capitalist economy is in progress, there takes place a continuous juxtaposition of production of commodities, the transformation of commodities into money and of money into commodities, which serve consumption or new production. Of none of these transactions one can say, that they are fulfilled sooner than the other, constitute a beginning.

The beginning of capitalist production as such presupposed however indeed the accumulation of money. It is no accident, that it starts with the age of discoveries, thus with the newer colonial policy. The capture and gathering of the gold and silver masses, that had been for thousands of years uncovered and stacked by the inhabitants of individual parts of America and India, often just for the joy of glitter, this constituted the money basis of capitalism, the 'primitive accumulation' of capital in money form.

Still beyond the beginnings of the capitalist mode of production, still at the time of mercantilism, up until into the eighteenth century, the piling up of gold in the country was held as the quintessence of all economic wisdom.

Once the capitalist mode of production is in progress, then the question, whether money or commodity signifies the starting point of capitalist production, loses any sense. But it resurfaces again, once the continuity of the production process is considerably broken. That has since the beginning of the capitalist mode of production never been so deep and so generally the case, as in the present war. Upon its conclusion it will be clear, that at the beginning of each capitalist production process money stands and the question will become acute: where to get the money to get the halted production branches back in motion?

To answer it, also already the spirit of primitive accumulation is summoned. The desire, to gather the necessary money by war reparations, is born of this spirit.

Since we investigate the transition economy from the international, not the national point of view, this solution to the money question gets no consideration from us.

Where else however to take the money?

The amount of money cannot be multiplied at will, it is under determined conditions a determined size, the commodity value takes in undisturbed commodity circulation on the money form, in order to finally change again into the form of a new commodity.

The sum of available money is thus determined by the sum of commodity values, which have assumed money form and have not yet completed the reconversion into new commodities. The proceeds from all sold commodities, that are not yet used on the purchase of new products, is the sum of the actual money that can exist in various forms, as coin, banknote, bill of exchange, cheque, book claim. More than this money the capitalist class cannot have. The credit system can not multiply this size, it merely allows, to capitalistically use it more intensively and thereby indeed expand also commodity production and therewith the amount of available money.

Capital however can not put the whole, respectively available money, that is disposable to it, back into production. The capitalist wants to live, live well. For this purpose he functions as a capitalist, and he has an entourage of unproductive beings, which also wants to live. The money, that these layers spend for their consumption, can not be used as capital.

The rest of the money, of which a part replaces the value of worn out means of production, and another represents accumulated surplus value, is not as a whole directly put back into his company by the industrial capitalist. A huge and ever-growing part is transformed into loan capital, is temporarily provided by the commercial and industrial capitalists to a particular class of money capitalists. We have already seen, how increasingly all the not immediately into commodities reconverted money is deposited in the banks and how on the other hand each capitalist enterprise increasingly operates with loan capital.

On the quantity of available loan capital increasingly depends the progress of the capitalist production process. When the capitalist speaks of money, he has mainly loan capital in mind. If more loan capital is offered, than required, then money is liquid; if more is demanded, than is offered, then money scarcity prevails. In the latter case the interest rate is set high, the capitalist complains, that money is expensive. With low interest rates in contrast the money is cheap. With the money value this has nothing to do. And just as little with the amount of available money signs. Certainly however the abundance and shortage of money stands in close and constant interaction with the production process.

If it is very busy, if prosperity reigns, then everyone is looking to take advantage of the good economic cycle. Then the capitalists clamour for money, to expand their facilities and exploit the existing ones as intensively as possible. All commodities coming on the market are immediately turned into money, this however also turned back immediately into commodities, the period very shortened, in which the created commodity values remain in money form. The demand for loan capital increases enormously, without that this increases accordingly. Money is tight. And yet there is brilliant earning and the lucky winners throw the money with full hands out the window. Never does so much money get "among the people" – and among what kind of people! – as in times of such money scarcity.

In times of stagnation the opposite occurs, there money becomes very liquid and yet everyone curtails himself, misery takes over.

Thus with money scarcity one should not immediately think about a shortage. Yet it would be equally wrong, to regard it always as a sign of prosperity. It can arise from the most different causes. So it is also a feature of panic, lack of confidence, where the capitalists prefer to let their money lie without interest as treasure at home, instead of loaning it against interest.

It also makes a large difference, whether the money is used as circulating or fixed capital. The circulating capital, raw materials and wages, turns over rapidly, comes already after months, perhaps after weeks back to its starting point as money, is not withdrawn from the money market for long. It is different with the fixed capital, machines, buildings. It often takes years, until they are completed, meanwhile the capital remains completely withdrawn from commodity circulation. And also after completion it comes only piecemeal bit by bit, depending on the extent of its wear and therewith value-release, back to its starting point. When a building costs 20 million and each year in the value of its product or its income a twentieth of its total value reappears and is changed into money form, and when the construction of the building took 2 years, then 22 years will pass, before the spent money again completely flowed back to the money market.

But once the buildings are finished, then they take up, except for repair and maintenance purposes, no more money, they now supply every year more money to the money market, than they take from it, expand thus the available money.

Now how did the money relations configure themselves during the war?

A series of companies were completely halted. Thus many small businesses in the most different areas, that could not be continued without the person of their owner. As soon as the owners were drafted into military service, their companies stood still. In addition entire branches of industry were paralysed, for example in many countries the overseas shipping, or the construction industry with all its numerous auxillary industries. We have in mind here only the activities for the civilian population. Those for military need are another matter.

The money, which the contractors held ready for the purchase of building material, payment of wages and so on, or was held ready by banks for them, was not applied. What they or their auxiliary industries possessed of materials, was sold, nothing new bought. Thus mere transformation of commodity into money, not of money into commodity, mere increase of money.

Like the in machine-products through the wear of a machine transferred values must be used, to eventually buy a new machine, if the production process is to continue undiminished, so also a part of the sum of the house rents in one country, which represents not ground rent, but replacement for the wear of the houses, must be used again for their repair or to build new houses, if a housing shortage is not to occur. During the war both occurred. The house rents were paid as before, but their proceeds, or a money sum similar to these proceeds of other capitalists than the homeowners, were not again used for the production of new houses, thus not turned into commodity, neither by the owners themselves, nor by the building contractors, who otherwise indirectly through the banks received the necessary money for house construction.

Other branches of production were cut off from the supply of raw materials. They processed the available raw material, sold all their supplies, bought however no further material anymore, and when they finally ceased production, they paid also no more wages. So they too merely turned commodity into money and not money back into commodity. A large part of the textile industry as well as furniture fabrication belongs to this group.

A third group is formed by branches of production, that are independent of the raw materials from abroad. These mainly include the producers of raw materials themselves, agriculture, mines, heavy industry. They not only continue to produce, they produce with increased profits. The prices of their products rise, not only because of the fall of the money value, but also, because the disruption of traffic increases their monopolistic power, to raise prices above the values and prices of production. Their costs of production did not increase to the same extent. Their labour forces are in part prisoners of war, who cost little.

Also the wages of the domestic workers have remained as a rule behind commodity prices. Men were replaced by women and children and therewith labour protection laws suspended. Certainly by over-exertion the productivity of labour is reduced, but not immediately. Temporarily production is increased thereby. The costs of the entrepreneur fall or rise but little, while the proceeds of their products grow tremendously.

Thus increase the money incomes of the entrepreneurs of those branches of production. A part of this is spent on increased personal consumption, turned into commodity. The other part should be used for the renewal of the production apparatus. But for that the preconditions are lacking, products and workers. No fertiliser, no feeding stuff, no machines are purchased, all inessential repairs deferred, new constructions are disregarded. Also here more is sold than bought.

Matters are peculiar with the wage earners. The wage usually does not exceed, what the worker needs to maintain his labour force and his family. The money, that he receives as wage, is spend before long, he does not augment the money mass in the country.

Meanwhile also the worker must, as we have seen, for certain occasions collect "treasure," in times of prosperity also a spare penny for times of unemployment. These sums of money never reach a level, that would allow the working class, with their savings to buy out the capitalist class, like the saving-apostles formerly thought, but they can still reach substantial figures and mostly find in the saving-unions a shelter.

The war has greatly increased the amount of such savings. The personal consumption of the workers population, as the biggest part of the civil population, apart from the war profiteers, has badly diminished. This signifies no increase in the money supply there, where the restriction resulted from the lack of money, which is either a result of unemployment or the reduction of labour and therewith the wage, or a consequence of the fact, that the wage did not rise as fast, as the prices of life necessities.

But the prices may rise faster than wages, and still the money expenditure of the working class family decline, when it has no opportunity, to buy the things that have become more expensive.

How is the situation then of the working class family? House rents rose relatively little. Clothes, furniture, household goods have become infinitely more expensive, but can not be had. Beer and tobacco are rare, the pubs give hardly anymore opportunity, to spend money. The working class family is often reduced, the man in the field, he consumes nothing of the family's income. Instead wife and child make money.

We ignore here the support of families of war participants, as we here primarily, as already said, only discuss money relations, that result from the configuration of the production process under the influence of the war, but without the intervention of war management. Even apart from these supports the incomes of not a few working families exceeds their expenditures, not because of their prosperity, but precisely because of their misery.

The paucity, of which they suffer, remains the same materially, whether it is the result of a lack of money or commodities. Economy-wise however this makes a difference. For in the latter case the money supply is thereby increased in the country. There is labour power sold as a commodity and only a part of the therefor released money is turned again into new commodities.

Of course, compared to the sums, that accumulate with the capitalists, the increase of money through the forced consumption restraint of the working class enters the picture but little.

Thus by the most various methods a lot more commodities are sold than purchased –, as already noted, within the process of production for the civil population. These accumulate ever more money, whose amount rises all the more, the longer the war lasts. The available money by now would have reached a tremendous dimension, had it not found a taker, who turned it back into commodities after all. But the same war, that engendered this money liquidity, needs it. Here it finds the money, without which it can not be waged. Again as in the times of the Thirty Years' War, war nourishes war, only we find the primitive methods of the natural economy transformed into those of the money economy. But in both cases it is the nourishment of the war by the war, which economy-wise makes possible and explains its long duration. Only one saw in the times of the natural economy the consequences clearer than today, where the fog of the money system enshrouds them.

The money, that becomes available, the state draws to itself, in part, by far the least, in the form of taxes, in part in the form of loans. Like otherwise the industrial capitalists, it too uses the money either to pay wages (or soldiers' pay) or for the purchase of commodities. However both no longer serve the process of production, but that of destruction.

The money, that is used as capital in the production process, returns in the course of commodity circulation to its original owner, to enlarge the surplus value. The money, that is expended not as capital, but for the purchase of means of consumption, is spent forever, the buyer never gets to see it again.

The state has spent the money in the war in the latter manner, but the capitalist, who handed his money for that, wants to have it back, he wants to see it transformed into capital. This need is met by the loan form. He gets for his money a security.

We have treated such securities already above, where we talked of fictitious capital.5

Already in peacetime the capitalists had loved, to turn the sums of money that they collected by the nature of their business, into fictitious capital.

Let us remember, what we said about the necessity, in which every capitalist, yes anyone within the capitalist mode of production, is placed, to occasionally set aside money treasure of a certain volume. He deposits the money at interest in a bank. But the interest which the bank pays him, is low. It yields a higher interest rate, if he buys fictitious capital, securities, and stores those with the bank.

But what he is supposed to have lying there, is money. If he is to be able to continue his company without disruption, the securities must at all times be convertible into money, in fact into about as much money, as they cost him. He bought them not because of permanent interest enjoyment, but in order to sell them soon, preferably at a higher price. If the price fell and he needs money, he discounts them, pawns them for so long, until the price has risen again, which admittedly can cost him heavy interests.

All this assumes, that business life always moves in the same tracks, that the capitalists, who sell the securities, ever again encounter those, who buy the securities, and that simultaneously with the capitalists, who discount securities, again others step forth, who again redeem their securities and pay back the pawn sums.

If a panic or a stagnation sets in, securities are merely unilaterally offered and discounted, but not bought and redeemed, then the securities become unsaleable, then for banks the means disappear for discounting, then the capitalists are left with their fictitious capital, but they lack the money to continue their companies. They must cease them.

In the way that even an accumulation of debts can appear as an accumulation of capital, we see the distortion involved in the credit system reach its culmination. These promissory notes which were issued for a capital originally borrowed but long since spent, these paper duplicates of annihilated capital, function for their owners as capital in so far as they are saleable commodities and can therefore be transformed back into capital. (Marx 1981, pp. 607–8. One compare on the "illusory, fictitious capital" of state promissory notes for our purpose especially also pages 595–96.)

Paul Lensch believes still today, that an 'accumulation of debt is an accumulation of capital.' According to a report in Vorwärts of 25 March 1918 he told the Volksbund für Freiheit und Vaterland:

The state became (in the war) a wholly different economic factor, since it owns about a third of the national wealth as war loans.

By the fact, that Lensch instead of 'capital' says 'national wealth', the distortion of real relations becomes still more grotesque.

The great money question after the war will now be the one, of turning the mass of fictitious capital, created in the course of its duration, back into money. The occurrence, that within the production process more commodities were sold than bought, will assume the opposite direction in the transition economy. There will be very little available to sell, but a great need for money, in order to buy. Money is however, except by robbery and extortion, to be obtained only through the sale of commodities. Of those for the increase of the money, which the peacetime finds, come into consideration at first only the fictitious capitals, which the war created. Who will buy them, when all the available money is taken up by production?

Given the importance of the question one has devoted much sagacity for its solution – insofar as this importance was recognised, which still is not the case in general. We can see as our task only therein, to point out the importance of the subject. A practical solution we do have to not propose, of the proposed ones which are known to us, not one delivers us the egg of Columbus. They boil down either to borrowing from abroad, or to an increase of the money signs put into circulation.

We have already repeatedly stressed the fact, how little help from abroad each state after the war has to expect for its internal economic difficulties. Least of all in the money question. The belligerent states will be completely exhausted after the war. All the money, that is left to them, they will use themselves and have nothing to give to foreign countries. The number of neutral states is small and they will not be in much better shape.

An increase in money signs, for instance a new expenditure of Loan Bureau Notes for discounting of the securities, must be strongly warned against. They would not be able to serve as a means, to reach the sought end, but only as a means, to foil another, likewise very important and very well attainable end. They would not increase the real, in money form available value amount, certainly however make the restoration of the currency impossible. They could in no way expand the money apparatus, but to be sure markedly escalate its disorder.

We will have to make ourselves already familiar with the idea, that a single method, of rapidly increasing the amount of available money, which will be present in peacetime, does not exist.

All the more important will become the nature of the expenditure of that money. The production process will all the more quickly get back in motion, the more of the available money is expended productively, thus under the given relations as industrial real capital, for the payment of wages for industrial workers, for the purchase of means of production, and the less [is expended] unproductively, for the personal use of the capitalists and their entourage and for unproductive state purposes.

Whether one considers the problems of the transition economy according to the material or the money side, their alpha and omega always remains:

International disarmament.

• 1Marx 1976, pp. 186–7.
• 2This refers to the revisionist argument, against which Kautsky fought for example in his 1909 The road to power.
• 3Here (again) Kautsky seems to adopt Hilferding's position.]
• 4Arbeitsbeschaffung und Arbeitslosenunterstützung nach dem Kriege, in Der Tag der Heimkehr. Soziale Fragen der Übergangswirtschaft. Schriften der Gesellschaft für soziale Reform, Heft 59 (7. band, heft 4), Jena: Fischer.
• 5Section 8 of this chapter, translation included in the volume – NR.