agreement that the fall in the agio2 would not come to an end by itself: indeed, it would continue at an increased rate in future years if a change in the currency did not occur at the appropriate time. This view found its most ardent supporter in Hertzka,3 who articulated that opinion in the investigations of the currency commission. If the monarchy persisted with a nonconvertible currency, the florin would continue to increase in value until finally it would equal the gold value of the pound sterling by the end of the nineteenth century.4 Most of the individuals who had their say during the proceedings of the currency commission shared this view; Minister of Finance Steinbach5 repeatedly expressed a similar opinion, for example, in the session of the House of Representatives on July 14, 1892. The generally widespread belief in the continuing “improvement” in the value of the Austrian currency was one of the most effective motives for the accelerated initiation of a reform of the currency.6
The majority saw the most important reason behind the increase in the value of the currency in the fact that there was a legal limit on the maximum quantity of state notes in circulation and a suspension of silver coinage for private uses. This meant that within the monarchy increases in the quantity of the currency could no longer match increases in the demand for currency. This argument, which was an application of the quantity theory to Austrian circumstances, primarily relied upon the fact that the quantity of currency in circulation within the monarchy remained considerably below the quantity in circulation in other countries.
According to O. Haupt, the currency in circulation within the Austro-Hungarian Monarchy amounted to 779 million florins at the end of 1885, which represented a per capita circulation of 20.10 fl. In the most important countries, the per capita money in circulation at the end of 1885, in francs, was [25 shown opposite—Ed.].
Austria was ranked twelfth place with respect to the relative size of the monetary system. However, this factor alone does not absolutely
| France | 234.80 |
| Netherlands | 148.70 |
| United States | 112.90 |
| Belgium | 102.50 |
| Great Britain | 98.55 |
| Germany | 91.05 |
| Spain | 86.70 |
| Switzerland | 77.70 |
| Denmark | 77.20 |
| Portugal | 74.50 |
| Italy | 58.30 |
| Austro-Hungary | 41.25 |
| Sweden | 36.90 |
| Rumania | 32.20 |
| Norway | 29.80 |
| Russia | 27.557 |
justify the conclusion that Austro-Hungary’s money in circulation failed to correspond to the demand for it. It is obvious that those Western countries where capitalistic development had advanced far ahead of the Danube Empire had a larger demand for money. In addition, it is not surprising that Italy had a larger quantity of money in circulation than was in the Austro-Hungarian Monarchy, considering that in 1885 Italy was experiencing a period of growing paper money inflation and an increasing agio. It is equally inappropriate to compare the monarchy’s circumstances with those in Spain and Portugal.
The proponents of the quantity theory laid the primary responsibility on the fact that the Austro-Hungarian monetary system lacked the possibility for a currency expansion starting in 1879, and in a certain sense already beginning in 1867.
Admittedly, an increase in the monarchy’s monetary gold reserves was practically excluded. Because gold was not a part of the Austrian currency system, it could only be employed (aside from its use for the payment of customs duties and in some business transactions) as a backing for the notes issued by the Austrian-Hungarian National Bank. However, due to the decline in the price of silver, the Austro-Hungarian Bank could not increase its gold reserves without incurring a loss; in the period from December 31, 1877, to August 10, 1892, these reserves grew by a mere 401.65 kg.8
Since the abolishment of silver coinage for private uses in the spring of 1879, silver face-value coins were minted only for government uses. In the years 1884-91, silver face-value coins were minted at an average annual value of 7 million florins. The entire amount of silver face-value coins minted between 1876 and 1891 amounted to 226.6 million florins. The Austro-Hungarian Bank’s silver holdings increased from 66.6 million florins at the end of 1875 to up to 166.7 million florins at the end of 1891.
The legal limitation on state notes in circulation to 312 million florins was a particular characteristic of the Austrian monetary constitution, under which the quantity of short-term, interest-bearing treasury bills in circulation, and the sum of state notes and interest-bearing treasury bills was prohibited from exceeding a combined amount of 412 million florins. Within this limit, however, the decrease in the quantity of Saltworks notes9 was replaced with an increase in the circulation of state notes. The possibility always existed for satisfying the increasing demand for currency in circulation within this limit through an expansion of state notes in circulation. And beginning in 1888 we see a constant increase in the quantity of these notes in circulation. The entire state note circulation amounted to:
| Million florins | At the end of the year |
|---|---|
| 336.8 | 1888 |
| 357.2 | 1889 |
| 370.4 | 1890 |
| 378.8 | 1891 |
Although until the fourth privilege of the Austro-Hungarian Bank went into effect the quantity of notes in circulation not backed by precious metals was strictly limited to 200 million, the number of bank-notes in circulation increased from 247 million florins at the end of 1867 to 391 million florins at the end of 1887. The system adopted in the Austro-Hungarian Bank’s fourth privilege of an indirect limitation offered a freer scope to the expansion of notes in circulation. It amounted to:10
| Tax-free note limitation | Notes in circulation | Tax-free bank-note reserves | |
|---|---|---|---|
| Average for the year | Millions of Austrian florins | ||
| 1888 | 433 | 385 | 49 |
| 1889 | 443 | 399 | 43 |
| 1890 | 449 | 416 | 33 |
| 1891 | 453 | 421 | 32 |
The entire paper money in circulation (state- and banknotes) amounted to:
| Millions of Austrian florins | At the end of the year |
|---|---|
| 762.5 | 1888 |
| 834.0 | 1889 |
This corresponded to a total increase of 71.5 million and an average annual increase of 23.8 million florins. That this increase in the quantity of paper money in circulation did not lag behind the increasing demand for it, or at least not far behind, is shown by a comparison of the numbers from the period after the inauguration of the currency reform. Since then, it is generally accepted that the increase in currency in circulation completely satisfied the needs of business. The monarchy’s money in circulation amounted to:
| Million crowns | At the end of the year |
|---|---|
| 1728.0 | 1892 |
| 2279.1 | 1904 |
This represents a total increase of 551 million and an average annual increase of 45.9 million crowns. The average annual increase of money in circulation was thus not larger in the period after 1892 than it was in the years immediately preceding that year.
In light of these facts, the claim that Austrian currency in circulation lacked the possibility for expansion cannot be maintained. However, to conclude that the increase in the currency in circulation satisfied the developing and increasing demand for it would be equally invalid. Such a conclusion would be prohibited because the statistical evidence is completely lacking for determining what were the required amounts of currency in circulation. Irrespective of this, however, even with the presumption of a domestic contraction, a direct causal relationship between such a contraction and an increase in the international value of the currency could not be determined.
It must be acknowledged that as the domestic currency in circulation becomes scarcer, this initially leads to a contraction of credit and an increase in the cost of borrowing, and has the further result of bringing about a fall in the prices of goods.
