Money, Banks and Finance in Economic Thought

Money and Banking in Austrian Cameralism – J.H.G Justi and Joseph von Sonnenfels

Chaloupek Günther, independent scholar

Both authors of 18th century cameralism wrote extensively about the role of money in the national economy. Their theoretical views appear highly indebted to Hume, Montesquieu and other English and French authors. As devoted mercantilists, they discussed possibilities for reconciling undesired effects of changes in the quantity of money on prices and effects on economic activity and welfare, in theory as well as for economic policy. Both Justi and Sonnenfels were convinced that a low rate of interest was an indispensable contribution to the promotion of economic welfare “of the state”. In this context, they also analyze the impact of credit and substitutes for money (Umlaufsmittel). The paper will devote special attention to the banking projects put forward by Justi (1717-1771) and Sonnenfels (1733-1817). Justi considered money surrogates as instrumental to ensure swift circulation of money for easy turnover of consumption goods and for financing current external trade; to facilitate credit for capital investments, and to facilitate public credit. For banks, he considered it essential to uphold liquidity at any time. He proposed a banking institute that combined fire insurance and mortgage credit, with insurance premiums as source of liquidity; and also a state bank which would combine the issue of certificates for savings deposits which would function as money surrogates, thus assuming the additional function of an acceptance house for bills of exchange. Sonnenfels thought that “disturbances” in the circulation of money, most importantly due to withdrawal of money from circulation, was the main cause of high rates of interest. As a consequence, policies should aim at recycling money into circulation, which he considered the essential function of banks, which can issue money surrogates. Warned by the experience of Law’s bank project, he emphasized that the state had to undertake all possible efforts to ensure confidence of the public into money surrogates. The best way to guarantee the liquidity of the bank was state ownership, which would have the additional advantage that no equity capital would have to be raised for the bank for which the “credit of the state” would provide sufficient funding. Sonnenfels argues that the issue of bank money would only meet the demands of circulation (Tooke!) and thus belittles the risk of excessive money creation. In the contribution, the theories will be confronted with the reality of Austria’s monetary system which had just begun to experiment with paper money on a modest scale in the 1760’s.

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Keywords: camerlism, banks, paper money