Fifteen years after the Global Financial Crisis: Recessions and Business Cycles in the History of Economic Thought

Debates about inflation and currency in the Austrian School in the last decades of the Habsburg monarchy (1892-1914)

Chaloupek Günther, independent scholar

The currency reform of 1892 coincides with the end of a long period of a declining price level in Austria. In view of historical experience, payment in specie (Barzahlung) had been introduced only on a voluntary basis in 1892. To make it obligatory required a joint decision of the parliaments of Austria and Hungary. The gradual disappearance of the agio until 1895 and the easy maintenance of payments in specie thereafter justified a more optimistic attitude towards the state’s ability to preserve monetary stability. Obligatory payment in specie was supported by Hungary and became an issue of economic policy debates in 1903, and again around 1910. Beginning in 1907, Ludwig von Mises published four articles on the currency reform of 1892. He based his arguments on careful empirical investigation which made extensive use of all available statistical material, and also of the existing literature. Mises concluded that time was ripe for legal specie payments. The main advantage would be the strengthening of international credit of the monarchy urgently needed given the monarchy’s enormous foreign debts. Moreover, it would demonstrate the reality of the currency reform’s success. Mises’ pleas were not successful, since the status quo was maintained until 1914. When the price level began to display a rising trend after the turn of the century, a debate started about the causes of the new phenomenon. Eugen von Böhm-Bawerk identified the increasing budget deficit as main cause. Mises expressed disagreement, putting the emphasis on other factors, especially a wage-price-spiral and innovations in Austria’s banking system. The contribution will present and discuss these findings in detail in comparison with contributions from other economists, and against the background of findings of economic history literature. In addition, there will be a short outlook Mises’ writings on post-World War I inflationary developments.

Area: Eshet Conference

Keywords: Austrian School, Ludwig von Mises, Böhm-Bawerk, inflation, currency stability, monetary policy

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