this conspicuous inactivity in the area of currency policy, which contrasted so sharply with the bustling activity of the previous epoch, was not simply the difficulty and complexity that the international currency problem had developed into since the continuous drop in the price of silver. It was, rather, that the project for reforming the currency was absolutely unpopular in Austria, and even more so in Hungary. One could only imagine an implementation of currency reform by means of depressing the so-called agio22 until it disappeared completely. The fast drop of the agio, which had occurred in the first half of the 1860s as a result of the currency reform endeavors, was still an uncomfortable memory for all manufacturers. The fact that the situation had changed essentially since 1879, and that a return of the so-called gold agio at parity to the customary exchange rate for Austria was not possible, was not easy to recognize at the beginning, especially because the designation of the twenty-franc coin as an eight-florin coin gave ample cause for errors.
With the depreciation of the currency in the period 1872-87, the agrarian and industrial manufacturers both capitalized in the same manner. The increasing agio functioned like a protective tariff against the import of foreign manufactured goods, and assisted the export of domestic products like an export premium, and also benefited the debtors. Under such circumstances, support for currency reform plans could not be counted on from the industrial or agricultural circles.
The falling agio affected primarily those who had taken advantage of the previous increases. While the prices on the global market remained unchanged, the foreign exchange rate on the Viennese market dropped, and the exporter who had received 50 fl., 63/4 krona (crowns) for 100 francs in February 1887 received only 44 fl., 54½ krona in September 1890. The farmer received 10 percent less for his produce than two years previously, but taxes and mortgage interest had to be paid at the old levels.
Up until spring 1890, hope had been placed on an early backlash. The summer of the same year brought such expectations to an end. As soon as the recognition began to spread that the increase in the value of the currency was not based on temporary circumstances, and when it would stop could not be predicted, the demand for currency reform became general. In the first half of September 1890, the Austro-Hungarian Export Association dispatched a call to its members, in which it advocated for action in favor of currency reform. Rallies in favor occurred in all corners of the empire.23 In the general media, propaganda for reform was heard.
Particularly characteristic was the reversal of opinion in Hungary. Hungary had raised constant, fervent resistance to the Austrian currency reform plans, and delivered a decisive veto in November 1884 to the proposals by Austrian Finance Minister Dunajewski.24 Now, however, Hungary ardently advocated for reform. Of primary importance in this decision were the agricultural interests, particularly those of the wheat exporters; a further drop in the foreign exchange should be prevented at all costs. Therefore, the Hungarian Finance Ministry began to buy gold foreign exchange in November 1890, in order to exert pressure on the rate of the paper florin. Over the course of a few months, the Hungarian treasury had acquired about 45 million florins in gold exchange, and the desired result had not failed to occur.25
Along with the agrarian motives, however, which allowed Hungary to call for currency reform as a method to stop the “improvement” of the currency, other motives were also present. For forty years, Hungary’s politics had only one goal: the achievement of economic independence as a precursor to political independence. In the introduction of the gold currency and the implementation of specie payments, those in Budapest saw their most secure means of financially freeing themselves from the Viennese banks, increasing the prestige of Hungarian national credit abroad, and acquiring the means from international capital that were necessary for economic war with Austria.
Since 1890, hardly a single voice has been raised in Hungary against currency reform. With unique unity, the entire nation followed the political rallying cry pronounced by Alexander Wekerle,26 the most knowledgeable Magyar in monetary-related areas: truly an example of political discipline worthy of awe.27
With the reversal of opinion in Hungary, the fate of currency reform was decided. Since October 1890, no one doubted any longer that the currency reform would be tackled as soon as possible, and it was just as certain that the currency’s rate of exchange would be higher than the exchange rate prevailing on the market at that time. The following comparison shows how quickly and correctly the Viennese banking circles grasped the new situation.
On October 2, 1890, Wekerle announced in his exposé the early realization of the currency draft (which was, however, delayed as a result of the Baring Crisis).28 On October 6, he met in Vienna in order to confer with Dunajewski about currency reform. Under the influence of this news, the currency rate soared. German Reichsmarks were quoted on the Viennese market at:
| 55 fl. 10 kr. | on Oct. 1 |
| 55 fl. 52½ kr. | on Oct. 4 (Sat.) |
| 56 fl. 30 kr. | on Oct. 6 (Mon.) |
| 57 fl. 00 kr. | on Oct. 7 |
III
The question has to be asked, whether the belief in the continuing improvement of the Austrian currency, and in the general pervasiveness of which belief we detect the main reason for the swift tackling of currency reform, was not based on an error.
It must be noted in advance, however, that even if this question were to be answered affirmatively, one would not be justified thereby in accusing the initiators of currency reform of lacking foresight. Ignoring the fact that a continuation had been presumed to be highly probable of all of those circumstances that had affected the favorable pattern of the balance of payments since 1888, no one in Europe could predict around 1892 which direction the silver question would take in the United States. The majority by which the House of Representatives had voted against the freeing of silver coinage numbered:
| 131 votes | in 1878 |
| 37 votes | in 1887 |
| 17 votes | in 1890 |
| 7 votes | in 189129 |
One had to come to terms, therefore, with the fact that soon the silver proponents would achieve their goal, which they had pursued for years with an enormous energy. What result this would have for the foreign exchange rate was learned in the summer of 1890.
An examination of the exchange rates shows that the favorable pattern of the monarchy’s balance of payments has been maintained in the fifteen years that have elapsed since the beginning of the currency reform. In 1893-96, however, the exchange rate showed an unfavorable character: in fall 1893, the agio temporarily reached a level of more than 6.5 percent compared with the “relation” established in the Act of ’92. This formation of the agio was traced back to the chance coincidence of a series of unfavorable circumstances.30 Since 1896, the agio has indeed disappeared and, since this time, the exchange rates have maintained parity on average with limited fluctuations. For more than a decade, the monarchy has enjoyed, in this manner, a currency that is stable in value compared with foreign countries.
The means by which this goal was achieved, the well-known foreign exchange policy of the Austro-Hungarian Bank, was made feasible only by the favorable pattern of the balance of payments. Lotz remarked quite correctly, “the Bank can issue exchange only for as long as they can buy foreign exchange, even at a sacrifice. Foreign exchange, however, can only be obtained as long as the Austrian economy possesses foreign receivables or can acquire them through the sales of goods or securities. As long as a country can do this, then gold impoverishment due to an actual specie system absolutely need not be feared again.”31 The well-known appraisals by the Austrian Finance Ministry about the monarchy’s balance of payments yield the statistical proof for the correctness of this statement.
The great advantages that the Bank’s (justifiably praised) foreign exchange policy brought to the economy do not lie, as the naïve layman’s view perceives whenever he hears talk of suspended specie
