however, that such a drop in prices can be only for those goods that cannot be exported. A decline in the prices of these goods in terms of the domestic currency will not result in foreigners offering higher prices for bonds on the Viennese market. This could be brought about only by a reduction in the prices of exported goods. This could occur only if as a result of the fall in other domestic prices the production of exported goods increased to such an extent that their prices fell due to their increase in supply. The increase in the rate of exchange that would result, however, as a consequence of this increased supply of exportable goods could be neither considerable nor of significant duration, because the decline in their prices would be transferred to the global market within a short period of time. Then any motive that foreigners would have to offer higher prices for Austrian bonds would slip away.11
It is not possible, given the current underdeveloped state of monetary theory and the lack of statistical data, to arrive at any certain conclusions about what influence the limit on increases in currency in circulation may have had on the value of money through its impact on the prices of goods. In other respects, the impact on the foreign exchange rate due to the limit on the maximum quantity of state notes in circulation and the administrative suspension of silver coinage can be determined with certainty: in fact, it was a means of securing the credit of the monarchy. The strictness with which the two governments of Austria-Hungary followed the conservative rules of its currency policy reestablished trust in the two financial administrations’ fulfillment of its monetary obligations, especially after this had been severely shaken both domestically and abroad by the events of 1797-1866. The danger of an inflationary increase in the supply of paper money, much like the danger of a return to a silver-backed currency, retreated into the distance.
The improvement in the creditworthiness of the currency went hand in hand with the strengthened creditworthiness of the government bonds. This was considerably influenced by the gradual disappearance of the threat of war, which had risked the peaceful development of our fatherland since the Congress of Berlin.12
Without a doubt, a war with one of the Great Powers would have forced Austria to resort to a new issue of paper money emissions, to renewed borrowing through the issuing of premium bonds, and perhaps also to a reduction in bond coupon payments, which would have destroyed the national credit for a long time.
The average annual rate of Austrian 4 percent gold bonds on the Berlin exchange rose from 61.05 percent in 1877 to 93.50 percent in 1886. Following a downturn in 1877 to 89.67 percent (during the Bulgarian Question),13 the upward movement continued. The annual average amounted to:
| 90.46% | in 1888 |
| 94.09% | in 1889 |
| 95.12% | in 1890 |
| 95.69% | in 1891 |
| 104.55% | in 1897 |
The rate for Hungarian gold bonds was increasing as well. The rate of return on the 6 percent gold bond amounted to (calculated according to the average annual rate) 7.9 percent in 1877, and that of the 4 percent gold bond amounted to 4.4 percent in 1891.14
As long as the concern continued regarding peace in Europe, speculation countered an increase in the note value. Out of fear of a decline in the Austrian currency, investors avoided accumulating large amounts in Austrian cash assets and preferred to deposit their liquid assets in gold bills of exchange. The disappearance of the risk of war allowed such a speculative collecting of gold exchanges to appear superfluous, and the pressure that the domestic speculative demand for gold had exerted on the currency market dropped off.15
If one item in the monarchy’s balance of payments improved in this way, other entries show a favorable pattern as well.
The Austro-Hungarian trade balance for imports and exports amounted to:
| Excess imports | Excess exports | |
|---|---|---|
| In the years | Millions of Austrian florins | |
| 1869-1873 | 475.7 | — |
| 1874-1878 | — | 151.7 |
| 1879-1883 | — | 532.3 |
| 1884-1888 | — | 652.5 |
The excess exports in the import-export trade amounted to:
| Millions of Austrian florins | In the year |
|---|---|
| 114.2 | 1885 |
| 159.4 | 1886 |
| 104.3 | 1887 |
| 195.7 | 1888 |
| 177.0 | 1889 |
| 160.7 | 1890 |
| 173.8 | 1891 |
Starting in 1889, Austro-Hungarian investments began to immigrate back from abroad. The unfavorable effect that a capital migration of this type is able to exert on the balance of payments, and through this on the bond rate, was alleviated by the fact that new government borrowing by both governments had practically come to a halt in 1889. The domestic demands for investment were extensive enough to take up the funds flowing back into the country without disturbing the currency or bond markets.16
According to Sax,17 the positive balance in the balance of payments amounted to:
| 57 million Austrian florins | in 1889 |
| 40 million Austrian florins | in 1890 |
| 54 million Austrian florins | in 1891 |
The favorable pattern of the balance of payments explains the general improvement in the Austrian currency in the four-year period that began in the summer of 1888. The exceptionally low rate for foreign bonds in the third quarter of 1890 can be traced back to a particular cause: the Sherman Act of July 14, 1890.18
Since the Bland-Allison Act (February 28, 1878),19 agitation by silver proponents in the United States had decreased and, following a break of several years, only resumed in 1889 with new vigor. The movement’s goal was the freeing of silver coinage; however, all that the silver proponents were able to achieve was the Sherman Act of July 14, 1890. An unparalleled bull market speculation was linked to the American agitation. The silver price in London was quoted at:
| 42 5/8d. | on Oct. 1, 1889 |
| 49 ½d. | on Jul. 14, 1890 |
| 51 ¼d. | on Aug. 13, 1890 (treasury began silver purchases) |
| 54 5/8d. | on Sept. 3 and 4, 1890 (highest price) |
These bull market movements influenced the Viennese foreign exchange and currency markets. The German Reichsmark was quoted on the Vienna exchange at:
| 57.32½ fl. | on Jul. 1, 1890 |
| 56.75 fl. | on Aug. 1, 1890 |
| 55.80 fl. | on Aug. 18, 1890 |
| 54.37 fl. | on Sept. 2, 1890 (lowest price) |
As an aside, it should be noted that circumstances similar to these, which had caused the improvement in the Austrian currency, also drove up the price of the ruble. In this case as well, favorable balance of payments, political quiet both domestically and abroad, and the silver bull market of 1890 were of primary importance. The quote for 100 credit rubles on the Berlin exchange was:
| 162.25 marks | on Mar. 7, 1888 |
| 216.40 marks | on Oct. 1, 1888 |
| 219.40 marks | on Jan. 1, 1890 |
| 262.30 marks | on Sept. 15, 1890 |
| 238.00 marks | on Dec. 1, 1890 |
II
The decrease in the agio placed the currency question, which had been dealt with only tepidly for years, back on the agenda.
It is true that, following the unfavorable events of 1848/49 and 1859, the financial administration immediately and energetically tackled the organization of the subverted monetary system; it aimed with vigor and skill at eliminating the forced exchange after the Prussian War, which wrecked the large-scale plans of the elder Plener20 in the same fashion that the French War a few years previously had destroyed similar endeavors by Bruck.21 No serious steps for reforming the currency were undertaken
