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Chapter 25 The Currency and Finances of the Federal State of Austria The basic ideas of the reconstruction plan that federal Chancellor Dr. Seipel decided to carry out when he assumed his duties in summer 1922 were extremely clear and simple: the rejection of any further use of the printing press to fund state finances, restoration of a balanced budget, and fixing the gold value of the crown. It was a complete repudiation of the inflationary and capital-consuming policies that were implemented in the first days of the war, and which the postwar government —being dependent as it was on the destructionist mood of the masses—had carried to an extreme. The difference between Seipel’s policies and the policies inaugurated by the Social Democratic Chancellor Renner in 1918 is seen most clearly with the use they respectively made of foreign loans. The relief credits that foreign governments granted to Renner and his successors , and against which they pledged Austria’s national property, were in the form of foodstuffs; their price was debited against the Austrian state. The government sold these provisions to the populace at prices below their cost of production. The proceeds from their sale were used to finance current government expenditures, not to repay 1. [This article was originally published in German in Deutsche Wirtschaftszeitung, vol. 25 (September 20, 1928).—Ed.] 2. [Ignaz Seipel (1876–1932) was a Roman Catholic prelate and head of the Christian Social Party in Austria. He twice served as chancellor of Austria (1922–24 and 1926–29). In general he followed a policy of social welfarism and interventionism, but he opposed the more directly socialist policies advocated by the Austrian Social Democratic Party during this time. He most especially opposed the inflationary policies of the immediate post–World War I period in Austria , and was able to bring the inflation to an end in 1922–23 with the financial and supervising assistance of the League of Nations.—Ed.] 3. [See Chapter 10, “On the Goals of Trade Policy,” footnote 23.—Ed.] 288  selected writings of ludwig von mises the debt. The state loans received by Seipel, by contrast, were used for investments. The stabilization of the gold value of the Austrian crown was completely successful. The rate of exchange was stabilized at 14,400 paper crowns = 1 gold crown. Under the law of December 20, 1924, the official designation schilling was introduced for 10,000 paper crowns and the designation groschen for the hundredth part of a schilling. The Austrian National Bank is holding strictly to the regulations of the Bank Law. There is absolutely no use of the Bank, indirectly or directly, for the purposes of fiscal management. The Austrian National Bank, which began its activity in January 1923, is obligated to cover the entire quantity of banknotes in circulation and those liabilities immediately payable on demand (minus the debt of the federal government) with its specie reserves; both currency and foreign exchange may be included for this purpose, at the rate of 20 percent during the first five years, 24 percent during the following five years, and at one-third thereafter. At the end of 1927, in fact, there were quantities of precious metals and foreign exchange worth about 830 million schillings at the discretionary possession of the Austrian National Bank, meaning that 80 percent of the notes in circulation and giro obligations were fully covered. The Austrian National Bank actually is not required to redeem its notes in specie. It has the obligation to make sure, by all means at its command, that until the redemption of the banknotes in metal becomes legally required, there should be no decline in the gold value of its notes. Obviously, it can fulfill this obligation in no other way than by actually exchanging its banknotes for foreign exchange at the legal, stabilized rate of exchange (one dollar = 7.10 schillings or one kilogram of fine gold = 4723.20 schillings), and from which parity it does not deviate by more than the gold points beyond which it would be profitable to import or export gold. In order to fulfill this obligation the Austrian National Bank follows the policy that, decades ago, Wilhelm 4. [See Ludwig von Mises, “The Direction of Austrian Financial Policy: A Retrospective and Prospective View,” (1935) in Richard M. Ebeling, ed., Selected Writings of Ludwig von Mises, vol. 2, Between the Two World Wars: Monetary Disorder, Interventionism, Socialism, and the Great Depression (Indianapolis: Liberty Fund, 2002), pp. 286–93...

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