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 by Prof. Heinrich Rittershausen
MFN, the monetary freedom network got permission from: Annals of Collective economy, a trilingual magazine from Geneva (which still exists but with a very, "specialized" focus, contrasting starkly with back then when Milhaud was holding the editorial and publisher's reins), to reprint the following 1935 document
See also: "Mutua1 Marketing ; a Remedy for Unenmployment",
in the Insurance and Finance Reviews. Calcutta, 1931) (8).
This article was written in the early thirties and published by an

Proffesor of Economics in tbe University of Geneva
VOLUME 10 — 1934

a note about MFN,  the 1987 republishers
 A Banks of Issue and Banknotes
as Means for Organising Mutual Markets
 1. Need of an organisation linking production and consumption.
 2. Bill transactions.
 3. The transition to the modern credit aystem.
 4. The Scotch banknotes as the basis for the classical theory of banks of issue.
 5. The deferred proceeds from sales as a bosis for tumover credit.
 6. Turnover credit.
 7. The turnover credit operations of banks.
 8. The redemption of the banknotes issued.
 9. Note credit as exchange or conversion credit.
10. The source of the tumover credit.
I I. Elasticity and exclusion of abuses.
12. Excluding the danger of inflation oy means of the principle of free market rates for means of payments, whilst avoiding legal tender and forced currency.
13. Procuring work through turnover credit or through capital credit.
14. The concept  "monetary standard" and worked currency.
15. A danger of inflation in procuring employment is only possible where there is a forced currency.
16. Clearing operations as completing the classical system.
 B The Gradual Destructon of the Classical System from 1909 to 1932 as Cause of the Difficulties encountered in Reintegrating the Workless
1. Culmination and decline of the classical system.
2. The obecuration of the classical bank conceptions through the separation of the functions bettveen note and deposit banket—
 3. The centralisation of the banks of issue as the boundary line in the transition from banknotes to paper money.
 4. Decline and fall of the classical syatem through the abandonment of convertibility and the introduction of a forced Currency.
 5. The abandonment of convertibility and its consequences
 6. A forced currency regime, the idea of a Central Bank, and inflationiam, are identical.
 7. After the fall of the banks, followed the destruction of the German monetary system through its passing from commercial bill money to financial bill money.
 8. The Reichsbank, temporanly the largest mortgage bank, for lack of a sound banking system, present the re-employment of the workless.
 9. Fateful compensation of an inflation of financial bill money with a deflation of commercial bill money.
10. Misconceived rehabilitation of the banks augments unemployment.
  part 2 kicks in here
11. The unnecessary sacrifice of the gold and foreign exchange holdings of the Reichsbank intensified unemployment. _
12. From what quarter does inflation threaten to-day ?
13. Aggravation of the situation through the mistaken expectation of devaluation.
    (a) The Bank maintains its traditional end statutory gold purchasing rate.
    (b) Now as to the altemative way.
14. Is the Central Bank system or are free banks more favourable to increase in employment and trade recovery
15. Decline of the credit system and aggravation of the unemployment problem as the outcome of an unhealthy development during severol decades.

C The Coopensation Principle end the "Vier Gesetz-entwuerfe' (Four Draft Laws) for Reintegrating the Workless in the Economic Process 30
I. From Payment to Compensation
II. Draft Law concerning Compensation Banks    34
III. Draft Law concerning the Issue of Treasury    40
 IV. Draft Law concerning the Raising of Annuity Rates end the Lowering of Real Interest Rates
 through the Introduction of Compensatlon in Loans
 V. Draft Law concerning Calculating in Stabilised Values 46
 D Results 49
1. Principal conclusion: need of not fixing a limit to means of payment.
2. Practical part solutions: The system of Central Banks and the future of our banking and settlement systems.—
3. Limits of thc significance of turnover credif for thc solution of the unemployment problem._

Tripod tool Nedstat installed end of nov 98 but not correctly till july 99  Nedstat Counter File created in nov 98

Go see what else poetpiet can puzzle us with here
or here
or check the intro to this file and all the others
in my first batch of guest appearances
which happens to concern all sorts of currency issues.

Besides being available on microfiche this document was reprinted earlier with permission of the Director of the "Annals of Collective Economy' by MFN, the Monetary Freedom Network 1987
A number of documents in the same vein (the ones here happen to be taken from the same mag, same issue even) but all in German can be found at: with links to sites in English

MFN, the Monetary Freedom Network
is an internatlonal communication means for people who are interested in money- and payment systems different from the conventional ones. We regard the money monopoly of the State as the main cause of mass unemployment fluctuations of the market end widespread insolvency (over-indebtedness). The edltors of the MFN Newsletter advocate the positron of Decentralisn, Antimonopolists end Freedom of Experioent in the money- and banking sphere. In the relevant literature this econoolc state is called monetary freedoo (not to be confused with the "free money" movenent after Silvio Gesell; it mostly supports monopoly money even though it is called -free money- moveaent).
The criticism of today`s banks end their monopoly money is constantly increasing, particularly since the last high interest phase 1981/82 and the strongly growing unemployment during that time. Among many observers the internatlonal debt crisis produced the iopression that it will lead to a financial crash. The actual phase of relatively (I) low interest rates doesn`t solve the monetarily created problems, it only retards their further expansion. In our opinion the situation becomes really dangerous when interest rates rise clearly (in the meantime a light interest increase and the announcement of higher interest rates to come was one of the causes of the international crash at the stock exchanges). - Another million workless strongly growing right wing radicaliso end double the inso;vent coapanies are the possible consequence . But we don`t want to spread panic llterature, we'd rather supply informations about emancipating antimonopolistic money- and banking systems. Maybe the big financial crash is really cooing soon - should we wait until the State will issue new monopoly money after the same old system, just with the heads of the newest ministers of finance staring from the banknotes ?

Except for an extremely small number of persons there is a world wide lack of knowledge about independent end decentral money issuance. The absence of even the most elementary knowhow can simply be explained: since 1914 at the latest the money monopoly of the State has essentially been enforced in all countries, end in thls point oarxist, fascist end capitalistic countries don`t differ froo each other at all. The "Essentials. of the money monopoly or its conplete foro consist of a coobination of three sinqle monopolies, which relate to one monopoly commodity, i.e. the banknotes end coins of the State`s Central Bank (in today's monopoly money the coins are only banknotes printed on metal with the metal value having no significance for the payments system): Compulsory market rate (i.e. compulsory acceptance and compulsory value), Note issuing monopoly end the payee`s legal claim (title) to standerd money (today banknotes).
Since 1914 at the latest these have been the unexpressed prerequisites of the established monetary science as welf as of oost social reformers who occupied themselves with money.
Monetary freedom means Freedom of Standard, Freedom of Issuance (Freedom of Compensation) end the absence of the payee`s legal claim (title) to payment in standard money. This last freedom is the most iaportant ln the ooney - and banking sphere end has been refused by the State since at least 2000 years.
In our newsletter we will write about ooney theories (particularly about the - as we see it - most advanced one of Ulrich von Beckerath, 1882 - 1969), report about practical experioents end publish address lists of interested people, bibliographical sources, book lists end dates of events.
The Newsletter is avallable in gernan language; english literature upon request.
MFN = Siegfried Schwenke, Berlin + Theo Megalli Postfach 380161, D-8000 Munich 38.
Lecturer at the Univerdty of Frankfort o/M.
Many a scanning mistake is not ironed out yet but I thought the material urgent enough to go ahead already; help on taking the glitches out is welcome  piet
I integrated the footnotes in this colour

A) Banks of Issue and Banknotes as Means for Organising Mutual Markets.

1. Need of an organisation linking production and consumption.—It is manifestly not enough to state theoretically that the proceeds resulting from production are turned into incomes by the payment of wages end other disbursements. On the contrary, it is essential to establish a firm end continuous organised relation between production end consumption. The ideal of such an organisation might be found in a contractual agreemcnt of the individuals concerned, to obtain goods end services of every kind only from one another. Given efficient organisation. such a group could not suffer from unemployment and could therefore guarantee to find employment for its members. (see my work: Der Neubau des Deutschen Kreditsystems (The Restoration of the Cerman Credit System), February 1932) Historically, it is not such marketing groups, teut gradually developed collectivities, that play an important part. In the Middle Ages it was the village end town corporation which for centuries rendered the greatest service in organising the relations between producers and consumers. After the Middle Ages. these organisations were widely dispensed with. They were superseded by the modern economy with its many private exchange corporations, the banks. Accordingly. these should not be regarded merely as gainful undertakings. From the very beginning they had to fulfil certain functions in the common life. which were of the greatest importance for the mutual employment of citizens. One of the reading financial means used ever before the genesis of the modern banking system, was the bill of exchange. The development of banks as the paying end selling corporations of to-day out of the transactions in bills of the late Middle Ages, cannot be convenientb described here in detail. We shall therefore reconstruct this development br aesuming that it happened on an island.

2. Bill transactions.—Let us leave for a moment our modera end all too complicated environment end esamine the simple economic life on a small island. Everybody produces end everybody exchanges his products for those of the other producers. The necessary imporb are paid for by esports. In the broadeat senae, conucyancea end money are required for this. The problem of the transport of goods from place to place may be asid to be almoat entirely solved to-day. Railways and motor traffic serve this purpose. But the monetary problem is still unsolved end little understood.

How could we most satisfactorily realise monetary and credit transactions under such simple conditions. We need only assume that everything is at lirst paid for with bills. Through the safe of my product, I acquired a purchase price claim, a balance in money. The balance thus acquired is here, aa in the modern economy, the natural means of payment of the individua1, which in principle auffices everywhere. When I peraonally buy what I require from different suppliers, the latter need only receive bills from me wherein I surrender this balance to them. There auppliers, in their tum, may now utilise the balance transferred to them in order to pay for what they had bought. If the bills are made to fall due at the date of the most important annual fair, they need only be compensated at maturity, precisely as is the case now on Exchange seuIement days. Thus all setding transactions could be disposed of. Should certain tradera have bought more than they had received for their own products, the small odd amount could be paid in cash, or coin, which in moet cases would not occasion any embarrassment. It is clear that this method of payment, which had prevailed for centuries, serves best in the exchange of goods. Foreign influences could not defeat this method, provided there was no scarcity in paper end inkt

3. The transition to the modern credit aystem.—The above type of transactions presupposed that everybody belonging to this payment corporation was known to the other members end therefore could count on credit up to a certain amount. With the passing of the guilds, this fundamental condition gradually ceased to hold. A non-descript proletariat of labourers arose. These no longer received the greater part of their remuneration in free board and lodging at their master's house and a single payment at the annual fair, but were increasingly paid weekly wages in money, which was most difficult to secure in those days. The old system was not equal to the new strain imposed on- it.  3 The billa were moatly for large end uneven arnount.; they were indivisible; therefore uselesa for wage payments; end they were neither guaranteed nor due as yet. That is, they were unsuitable for a general means of payment.

4. The Scotch banknotes as the basis for the classical theory of banks of issue.—In these circumstances, from 1695 onwards, the Scottish banks of isauc created the banknote end called into being the modem monetary end credit aystem. They converted the bills made out for uneven end inconveniently large amounts into standardised notes (say, 10, 20, 50, 100 pest, mins., frcs., £s), end guaranteed them by affixing their signature, thus excluding credit risks. Such banknotes were, broadly speaking, "cut-up bills". They should not be confused with the notes of the Bank of England which originated in the deposit certificates of goldsmiths and, under Peel's Bank Act, have not yet entirely lost their character of gold deposit certificates. If the appearance of the modern factory system interrupted the circulation of the means of payment (by bills) at the point where the manufacturer wished to pass on to his anonymous band of workers the means of payment he had received for his products, the circuit wee again closed by this invention. At thia juncture, the bank converted the cumbersome bills into convenient end guaranteed notes, which then continued the process of circulation.
            We need now only add three complications—tumover credit, clearing transactions, and the monopolisation of banknotes—to find ourselves in the midst of the modem monetary and credit system end to underatand how it is possible that the workless are not allowoed to produce what they wish to consume and those in work cannot consume what they had produced.

5. The deferred proceeds from sales as a bosis for tumover credit. —To begin with, let ua examine a little more closely how the Scottiah banknotes are put into circulation end, what is even more important, how they pesa out of circulation. The manufacturer who aurrenders the bills to the bank, sella dmost invariably on credit terms. The wholesaler whom he aupplica, passes on thia credit to the retailera end thua renders fesalble the economically indiapensable storing in shops to-day, without which a selection of retail goods offered to customers end ready for delivery would not be possible. Whilst therefore the manufacturer only receives bills in exchange for hia veld producta, which perhaps mature after 2 months, he is compelled to pay at once his workmen the wages for manufacturing those products. This span of timc the Scotch bank of issue also bridged. It exchanged later-maturing bills for such as were mature forthwith. By this "diacounting'' process, it performed an invaluable aervice, one that has to be added to the standardizatson end guarantee, to which we have dready referred.

6. Turnover credit. — The bank, which discounts the customers' bills of the manufacturer end thereby converts an inconvenient into a convenient means of payment, grants credit, insamuch as it furnishes documents due at once for such as mature at a later date. It grants this credit only in its own banknotes.
            This credit is pure goods end turnover credit, aince it does not serve for loans on warehouse stocks, or for speculative and similar purposes, teut aolely for facilitating the safe of goods on short credit terms, i. e., the bridging over of the transport and sale periods. Genuine turnover credit is only granted on the proceeds of goods already sold.

7. The turnover credit operations of banks.—The banknotes thus put into circulation represent the counter-value of the goods i veld by the manufacturer, teut which have not yet reached the ultimate conaumer. lf the manufacturer veld gooda for 100.000 pest (marke, francs, £s) end discounted, accordingly, bills to the same amount and therewith paid wages for an equal amount (Simplified recording to the classical equation (re the equation of: income from production, see my work Arbeitslosigkeit und Kapitalbildung (Unemployment end ccumulation of Capital), 1930, chapter 11), these 100.000 pes. of wage money must remain in circulation until the day the wage-earners decide to go shopping. Naturally, until that day the products remain unbought by the ultimate consumer. On the day that the ultimate consumer has made his purchase, the goods cease circulating and the reflow of the banknotes begins. The goods have been removed from the: shopkeeper's shelves end require no longer to be financed. In their turn, the shopkeepers immediately use the banknotes taken to pay their wholesalers, end these pay the manufacturere out of that income, who, again. repay therewith the credit granted by the bank. Hence the circulating period of the veld goods starts approximately when the corresponding wages are being paid end finisbes at the point when the goods have been bought by the ultimate consumer, when the banknotes in the pockets of the workmen have been speet end have begun to flow bacl- to their initial reservoir. The circulating period of the goods, that of the goods bill,—that is, the period of the goods credit end the arcu ating period of the banknotes,—must have been conceived as approximately the same in the classical bank ideal. Through the time of production of the goods coinciding with that of the money, end that of the passing of the goods with the passing of the money out of circulation,—which banking theory has always stipulated end which, until 1914, was realised in the operations of the Reichsbank. (see Elster, Ad. Wagner, Lexis, Bendixen, Schacht, end others)—a far more precise qualitative regulation of the monetary circulation, as well as much more certain exclusion of undesirable credit dernands, is achieved than can ever,
 (Bendixen in particular hau unfortunately connected this theory with a forced currency end with a combating of the quantitative theory although only a refinement of that theory is needed. Thereby he unnecesaariiy exposed juat bsaic conception to the moet serious reproaches) be offered by the currency theory end the price level policy, especially after the ruinous experiences of the last few years. It is therefore the task of auch a bank to grant bill credit for just as many days as the notes ordinarily remain in the pockets of the wage receiver (which is conditioned by the division of expenses in the private households during the whole wage period), plus the period covering the reflux of the notes from the shopkeeper to the bank. Should the wholesaler, or any other links in the chain, feel inclined to invest passingly the money received, the maturing of the bill will prevent him from impeding the rapid reflux of the notes. Many bank directors will, it is truc, not agree that to-day also the operations of a credit bank ought acarcely to differ from the above process, as will soon be shown; for, if they did, they would have to admit that their operations in parcels of shares, in large-scale credits, and other such <operations>, do not possess the significance they would like to ascribe to them.

8. The redemption of the banknotes issued. — By what methods does our ideal turnover credit bank redeem its banknotes? Not through keeping a hoard of gold—like a goldsmith's bank which issues gold deposit certificates, in the speculative trope that holders of these might retain the notes for a long time (Bank of England)—, teut simply through a kind of redemption, subject to the return of the bill held. This type of redemption is rothing else teut the cancellation of the first act of exchange. The credits have been granted for a period corresponding to the time taken for the goods to make their way from the factory gate to the ultimate consumer. They become due when the stocks have been veld. The manufacturers are also ready end forced to repay (because they have been paid end are bound to redeem the discounted bills) end the bank simply annuls the original exchange transaction. On the surrender of the bank 'notes, it returns the bill documents now paid fort In a word it exchanges bills for notes, having previoualy exchanged notes for bills: that is, it performs the reverse operation. If the bank issues its notes in the manner here indicated, it requires no gold reserve. The note circulation will be sound if the bank declares  6 that it will always accept its own notes in payments to itself end if it takes care, by only granting short-term credits and only granting credit for the proceeds of sales to trustworthy debtors, that at its counters a great many payment shall be received continually. The secret of the value of such free notes lies in that there is an uninterrupted demand for them, because notes are incessantly required for making paymen" due to the bank.

9. Note credit as exchange or conversion credit.—According to the marvellous classical scheme, a turnover credit is therefore only an exchange or conversion credit, inasmuch as inconvenient means of payment are converted into convenient ones, or purchase price claims are converted into claima against a bank. The numerous obstacles impeding the smooth working of our present,day credit system could not arise here, since the discount or exchange credits, to repeat it once more, are granted for only as many days as it would take the goods starting from the factory gate to reach the ultimate consumer. This period coincides with the number of days during which the wage-earners retain the notes in order to possess mean? of payment during the whole wage period.

10. The source of the tumover credit.—It is therefore the group of note-holders who fin ance the total turn over of gooda from producer to consumer. This group has as much purchasing power, as there are goods in transit end in the hands of wholesalers end retailers. Through holding the notes, the note-owners extend to the banks as much credit as is required for financing these goods. As 100 pest (marke, frcs., £s) are disbursed in notes by the shopping note-holders, 100 pest worth of goods are paid for end require no longer financing. The note circulation ia correspondingb reduced, and credit is diminished by 100 pest to the bank and from the bank. The exchange of goods is thus financed out of a source which is adequate as regards amount and duration and is inevitably correlated as to yield.

11. Elasticity and exclusion of abuses.—Perennially as much money is created as goods are produced, and as regularly as much money is withdrawn from circulation as goods are consumed. lt need never happen that in all branches goods are aimultaneously unsaleable because of a deficiency of money, because the "augmentation of the available money" threatens an inflation, etc. Lack or superfluity of turnover credit is here precluded, since rising sales by manufacturers produce additional bill material as well as additional amount in banknotes in the pockets of the additionally engaged workers during the wage period (and vice versa), so long as no serious technical mistakes are made. Deflation is out of the question under this system, since the banks will vie with one another in order to grant advances for the very limited genuine demands for goods, with the result that the interest rates for sound credit could not measurable exceed the simple manipulation costs of the banks. Nor is exaggeration possible, although there is no metalic cover, for on the day that the notes return, the proceeds of the goods sold reach the bank. On that day the notes are returned to the bank by individuals desirous of repaying credits just due. The notes will be re-exchanged, as the bonds of a mortgage bank are debited to the current account, which are presented in natura by the mortgage debtor for amortisation purposes. This is only a case of credit transformation, not of credit creation. lndeed, mortgage banks are incapable of producing an inflation if they are only engaged in converting difficult, fungible mortgages into easy, fungible mortgage bonds, that is, in providing a better form for an existing claim. Every abuse, every step beyond, spelle inflation. Apsrt from transformed credit, there is only created credit, which a1u~aga portends inflation. Only the absolute restriction to transformation excludea inflation.

12. Excluding the danger of inflation by means of the principle of free market rate for means of payments, whilst avoiding legal tender and forced currency. —The restriction to transformed credits demands effective protective measures, to prevent its becoming a barren principle, compliance with which is left to the discretion of the banken The Scottish system recogniaes man's infirmity end is distinguiahed from all other systems in that it technically excludes inflation by an organisational measure, i. e., by arranging for a free market rate for banknotes, which contrasts both with legal tender and forced currency, both of which meen not the amelioration, teut the deterioration, of banknotes. Once the bank issues too many banknotes that is, once it makes other advances than for the purchase price claims of goods transactions or grants longer credit periode it is no longer able to redeem them by a re-exchange. It must then seek to pay in cash, gold, foreign exchange, etc., obtained somehow, when the notes return. If there is measurable abuse, the notes are discounted, since there is an insufficiency of maturities to call forth the necessary demand for them. The notes of this bank depreciate by comparison with other sound circulating means of payment. They are reluctantly accepted at perhaps 90 or 70 % of their face value. Such a bank is precluded from granting fresh credits, since the applicant for a credit would only receive 70 % since he would risk having to repay the depreciated credit at 100 % end since his employees would decline to accept such unsound means of payment. Notes of this order would be refused, just as cheques drawn on insolvent banks are refused.    8

13. Procuring work through turnover credit or through capital credit.—Time end again we meet with the assertion that the procuring of work through a sound exchange of consumable goods by means of credit grants has an inflationary effect. The question is therefore of decisive importance. If the workers are not to be, or cannot be, employed through investments in virtue' of the latent accumulation of capital, we must provide that the unemployed should produce themselves those goods which they want to consume and that they should be placed in a position to consume what they have produced. To realise this, sound banks and turnover credit are prime necessities. Means of production end tools are available in abundance in the shape mostly  of shut-down works, etc. Moreover, factories still at work and agricultural undertakings would be quite willing to engage men if their markets could be extended. Markets, again, would the
forthcoming the moment when such unemployed were set to work in those factories, for in that moment they would receive wages or additional income which they would speed (and thereby multiply orders). Such income would at first be drawn from bank advances, until the money circuit is completed (this rendering possible a goods circuit), until the money has flown
back to the bank of issue, and until the goods have been
consumed. Advances and note issues must precede they cannot follow the turnover of goods, for otherwise owing to lack of means of payment, there could be no such turnover. When the money circuit is closed and the goods have been consumed, the game cen begin again. Hence an unintermittent (continuous?) process of exchange is set going, whereby in most countries three-quarters of the population lives, namely, by
mutual production and primarily mutual marketing. If the  prevailing depression was initiated in most countries by an obstruction of the process of investment and capital accumulation, it has been greatly aggravated by the resulting increased;  obstructions in the turnover end exchange processes.
             Every attempt to procure employment by this method tends to be thwarted by the argument of a threatened inflation. This is the more to be deplored, as the method is apparently the easiest and the most natural to be contemplated. It does not presuppose a prolonged indebtedness with all its attendant dangers; neither customers nor banks run greater risks; and the turnover credit is mostly repaid within a few weeks. The workless are not employed just once, for one or two years, at a cost of several milliards; but they are re-intregrated permanently in the naturel process of production. That a healthy process of capital accumulation and of investment are also self-perpetusung although requiring longer periode of time, the present writer has shown in his Arbeitslosigheit und Kapitalbildung (Unemployment end Accumulation of Capital), 1930; but the continuity is here more difficult to recognise, more dangerous, and less popular, a reason for laying stress primarily on having recourse once more to the turnover process, the basis of our whole economie life and the presupposition of thrift end investing.

14. The concept  "monetary standard" and worked currency. —In order to appraise at its proper value the argument of a danger of inflation, which is constantly raised against every proposal of procuring employment by means of the organisation of turnover credits, we are obliged to analyse these basic concepts and to call attention to certain aspects which have been insufficiently studied by the monetary conjuncturd-theoretical school of the last few decades, although they were in the ascendant before the War in all the larger countries of the Continent, from Germany to Spain.

The monetary standard means only the statutory declaration that the legal unit measure of value is called by this or that name, say "mark '' or "pound sterling" and is regarded as equal in value to so many grammes of fine gold. The best parallel instance is the measure of length, which is called metre, end represents the length of a platinum bar kept in a deep cellar in Paris. Al1 metre measures the world over, which are longer or shorter than this bar, are spurious and are not therefore legal metres. Similarly, all German Reichsmark notes, which are worth less or more than the statutorily fixed amount of gold, are spurious and not therefore Reichsmarks. Such being the case, it seems inconceivable how inflation could arise at all. The metre parallel explains this also—e. g., if the Govemment, in order to aid the textile industry, passed a law that a metre measure need only be made of pine-wood in order to be a legal metre measure. Inflation starts with the "compulsory metre". The dishonest trader who shortens a metre measure in order to obtain more money for a bale of cloth, cannot be interfered with; for in every prosecution the court would have to admit that the quantity of cloth had been correctly measured inasmuch as legally prescribed pinewood metres had been used. This abuse could by no means be stopped by smashing the platinum bar in Paris (or by abolishing the gold standard), but solely by recking the Act conferring legal protection on any other metre measures than the original platinum metre kept in Paris.
              Similarly, inflation of the currency cen only occur when certain paper means of payment are declared legal tender, in which case, even if their value is only 90, they have to be accepted at 100, that is, when they are once declared forced currency. lt is inconceivable how the standerd m
changed by some ironmonger selling spurious metre measures, And I can as little understand how the gold standerd of my country could be inflated by some bank issuing private notes the value of which is only 90 or 80. Note-holders, of course, cen be cheated, but a general rise in prices cannot occur. At moet, when convertibility is not provided for, somebody may hasten to use the notes for payment (at their nominal value) to the bank, with the result that the bank's bill debtors will exhibit a keen demand for these notes. However, if the bill material is bad, if the bills have to be constantly prolonged because the bank has granted long-term credits or because the debtors have experienced pecuniary embarrassments which they have not disclosed, there is no use for such depreciated notes: no demand exists that might force them up to par in a few hours. A lasting diacount is hence created (as has repeatedly happened in the history of banks of issue); the bank is paralysed; its insolvency is imminent; end other banks take its place.

15. A danger of inflation in procuring employment is only possible where there is a forced currency. — This principle cannot be too much stressed against the argument of a danger of inflation. All accessory means of payment which are not legal tender, can, where there is abuse or an excessive issue, only compass their own ruin,but never that of the legal currency. Nor can the problem of a double currency standerd arise where such free means of payment are involved, as little as in the case of payment by cheque. Monetary standerd end means of payment should be sharply distinguished. Gresham's law relates only to the coexistence of two inconvertible forced currencies, not to means of payment having a free market rate.
             With non-compulsory private means of payment one can as little inflate as one could destroy the value of shares on the ahare market by means of depreciated shares. If X. issued for 100 million pest worthless shares of a Giganta Company end finds buyers, these unfortunate folk have certainly lost their money. It is not obvious, however, how the market rate of the Dye or Red Tinto shares could be lowered thereby. Indeed, this illustration shows that the Dye shares could only be depreciated if the Government statutorily declared the Giganta shares legd tender; if, to pursue the simile, it declared the shares as deliverable for Dye shares. The latter shares would then depreciate greatly end Gresham's law would come into operation by driving off the market the old end solid Dye shares. Precisely as on the share market, so on the money market, the multiplication of convertible substitutes for gold cen never depreciate the currency, as was also illustrated by the example of the metre measure.
          The leading money theorists have espressed themselves unequivocally on this subject. Consult, among others, Knapp, Staatliche Theorie dea Geldes (State Theory of Money), 4th edition, p. 161; von Mises, Theorie des Geldes und der Umlaufsmittel (Theory of Money and of Circulating Media), 1924, p. 331; Adolf Wagner, Zettelbankpolitik (Banks of Issue Policy), 1873, p. 36; Lexis, Handlvörterbuch der Staatswissenschaften (Encyclopaedia of State Sciences), 3rd edition, article "Scheck", etc.; Carl Menger, Encycl. just cited, article "Geld", vol. 4, pp. 601 603; J. G. Courcelle Seneuil, La Banque libre (The Free Bank), Paris, 1067; de Viti de Marco, Finanzwissenschaft (Science of Finance), 1931: see also the Acts concerning the Kgl. Giro u. Lehn-Banco (1765), the Royal Prussian Bank and the Reichsbank until 1910 (explicit general rejection of legal tender); R. Just, Goldinflation, Jena, 1921, p. 113 ff.; Dr. Walter Zander, n Railway Money end Unemployment , Annals of Collective Economy 1933; U. von Beckerath, <` The Realisation of the Milhaud Proposals n, Annals, etc., 1934; (the 2 last mentioned documents are reproduced as another part of this first batch of guest appearances here as well); Henri Meulen, Industrial Justice through Banking Reform, London, 1917; etc. Even Lord Overstone stated that if he mismanaged his private bank he would be ruined, teut the public would auffer little. If, however, the Bank of England were guilty of a serious mistake, the Bank could save itself [by means of legal tender] but not without inflicting untold suffering on the community as a whole.
             In the interest of increasing employment. it is urgently necessary to revive the doctrine of a free market rate. Probably the period from 1815 to 1844 in England, with its theory beacd entirely on legal tender, expressed a casual lapse of the money theorists, precisely as in the post-war period we are now passing through. The above cited authors, whom for lack of space we cannot quote, advance remarkable end decisive proofs for this supposition.

16. Clearing operations as completing the classical system.— In principle, this originally Scotch credit end banknote system— this system of well-considered reciprocal procuring of work— does not differ in the least from the simplest bill operations, which were our starting-point. The clearing operations which we are now to describe, only signal a refinement end not a deviation from the idee that banks are organisahons intended to facilitate the mutuaI safe of goods, end nothing else.
              We have thus far assumed that the entire payment circuit is effected by means of banknotes. To-day, however, we see a large proportion of payment8 made by the far simpler end cheaper non-cash method of cheques. For example, the retailer, through whose hands pass nearly 40 out of the 45 milliard marks of income from wages end salaries in Germany (1927), does not trouble to despatch the banknotes he has taken to his suppliers: in registered letters, but on the following day he paya in the day's takinga at his bank end utilises the credit balance thua created for remithng cheques to his suppliers. While at formers the circuit for perhaps 90 % of the ready money circulating was—first stage: bank, wages department at the factory, wageearner, shop; second stage: shop, wholesaler, manufacturer, bank,—to-day only the first half of this circuit ia aerved by
 ready money, since the shopkeeper returns the notes he receives ` directly to the bank end thus abruptly closes the circuit. The shopkeeper, to be aure, does not pay this money into the act count of the manufacturer, who, when the banknotes were issued originally, was debited with the exchange credit, teut into his own. The credit transaction is therefore by no meana ;; concluded with the paying in at the bank, teut only transformed. In this way the deposits at the bank rise by exactly the amount ; that the banknote circulation has diminished on the same day.
 With these collateral liabilities, the granting of credits is continued. These new giro deposits, which supersede the second stage of the classical circuit scheme, travel now, in the shape of cheques, through the long chain of banking accounts of the suppliers and sub-suppliers, until they finally reach the banking account of the original manufacturer. At this point the bank credit, which formed the starting-point of. the note circulation, is repaid. Simultaneoualy the giro deposits drop to the original amount. A closer examination suggests that to-day the cash
 circulation in Cermany lasts about 11 days and the connected giro circulation through the multitudinous giro centres, another 15 days. This implies that in the case of such credits, the credit periods would have to be fixed at 26 days on the average.
       To-day, accordingly, it is,no longer the banknote holders who by means of their notes (which signify a credit grant) elastically finance the circulation of goods, for almost three-fifths of the credit possibilities are derived at present from the holders of permanently alheted giro accounts. Note circulation end giro deposits combined have, however, remained aa elastic as the note circulation by itself. Both originate from an exchange credit end disappear through its redemption. Both are independent of the amount of savings deposits and of capital accumulation in a country, as well as of credits drawn from abroad. It is therefore inadmissible to speak of the necessity of drawing on foreign business capital. They involve no basic change as compared with the simple scheme of early bill operations, teut, as we stated, only a refinement thereof.

-B) The Gradual Destruction of the Classical System
from 1909 to 1932 as Cause of the Difficulties encountered in Re-integrating the workless.

1. Culmination and decline of the classical system. —With the development of giro end cheque transactiona, which however are yet capable of considerable extenaion (aa we have explicitly insisted), the classica! system could be regarded as eseentially completed. It was in operation in Europe for over a century, without reading to serious inflations or abuses. It has survived economie crises, such as that of 1857, which were equal to that of to-day. It has therefore proved its value. How the decline end fall of this once famous system is to be explained, must remain untold here. Does it not often happen that enormous successes leed to complacent inaction, to the replacement of reading personalities by representative ones, until the most intrepid leader finds it perhaps too difficult to arrest the decline of what had been long established ?

2. The obscuration of the classical bank conceptions through the separation of the functions between note and deposit banks— Let us confine ourselves here to a description of German conditions, although in England, France, Spain, Italy, and the United States the process of development has taken almost the same course, as the reader can readily ascertain. Just as in the case of the rise, so in that of the decline, the general outlines alone need be noted, since it is only a question here of the bearing of a century's development on the catastrophic position of the banks at the present day.
           The first downward step assuredly resulted from the~ separation of the issue of notes from deposit bank business, which distinguishes already externally present-day banking operations from the old Scottish banking system. This brings us to the system of central banks of issue to be found in almost all countries to-day, a system pictured as an incomparable achievement of the human spirit, teut which is likely to be abandoned within half-a-century end to moulder thenceforth as a scarcely intelligible conception in the lumber-room of history. The separation of functions is in the main a historie product. By the side of the banks of issue, which discounted bills end also accepted deposits, arose in most countries (Apart from Scotland end Canada. nese, in pursuance of normative Acts, have successfully retained until to-day the system of the free issue of notes by all banks. since the world war, however, this Act has unfortunately been debased bv a forced currency, the notes having become lesal tender) large joint stock banks fostering deposit transactions, end as a counterpart, credit operations (originally a simple financing of turnover, teut without the rigour that the names of the associated with bill transactions), and developing enormously. They could naturally finance only the last three-fifths of the goods turnover according to the classical system, inasmuch as they could only seize for themselves a portion of the non-cash part of the payments made. With regard to the cash portion, they remained dependent on the banks of issue. This obscured for the first time the simple structure of the classicaI system. The banks of issue became thus "banks of banks". To-day they issue about 80% of their notes no longer to businessmen whose orders for raw materials and goods turnover they can ascertain from their accounts, but to banks which assure them bill issuers sound so well that they would even unseen stand surety with their endorsement, an assertion that has almost nothing to do with the contemplated exchange transaction—with the conversion of the proceeds of sales into means of payment—and already embodies the fatal substitution of the principle of security for the turnover principle. The large scale deposit banks of to-day do not present all commercial bills to the bank, but only some end these sopratically, when they are in need of cash. The bank of issue thus loses all effective control. Lastly, they offer their customers cash credit end hence businessmen have forgotten to deposit bills, whilst, on the contrary, the banks of issue used to insist on the old principle of the commercial bill. Hence the banks of issue had eventually to be satisfied when they received obvious financial bills, aa good bill material had become very scarce. The bank of isaue had, accordingly, to "feel'' what number of notea should be issued, since it had lost direct contact with the processes of exchange in business. It became a cash supply centre for thc reading banks. It was not the bank of issue which determined how much it was to issue, but the reading banks fetched as much as they needed. This led to the now shoreless and now restricted issue of notes, which characterises the non-bankable paper money in contrast to banknotes. That, in turn, brought into deserved ill-repute this dangerous type of means of payment which discourages the re-employment of the workless.

3. The centralisation of the banks of issue as the boundary line in the transition from banknotes to paper money.—Simultaneously with this development, proceeded the centralisation of the issue of notes. The State entered into close relations with one of the banks of issue, granting it privileges, entrusting it with its money transactions, end accepting its notes at its pay offices. The notes of such a bank were bound to gein an undesirable diffusion, which was no longer solely due to the bank exchanging the daily proceeds from the sales of goods and the bills based thereon into a more convenient means of payment, teut also to some extent to the credit of the State. This bank became the "Central Bank of Issue", the other banks of issue either disappearing or losing their old status.
              This monopoly, which is unapproached in any other field, could never have maintained itself, if it had not offered the Exchequer — as distinguished from the country— immense advantages. Fr. Knapp describes the frequently recurring case where the State, when financially embarrassed, exploits this rich bank as a source of credit. When the Central Bank, half constrained, grants its "guardian", the State, large credits, which have nothing to do with a turnover of goods, the question arises: "How is it eventually to redeern the banknotes ?" It frankly cannot—that is, because the State cannot repay on the day when the notes are presented for payment, after 26 days, say. Knapp continues: "The State is fully aware of this. Accordingly, it decrees that the bank is released from the obligation to redeem them. It declares these notes to be lega1 tender and thus the notes have to be accepted universally at their face value. By means of this amazing procedure, mostly regarded as an unfortunate mischance, the following becomes clear to the disinterested spectator. The money circulation ... does not cease, although the currency has changed its character. It consists no longer of specie, teut of paper.... The State economy has deteriorated into a ' paper economy. (4th edition, pp. 120, 129. However, Knapp by no meane opposed to a forced currency which, curiously enough, is to-day regarded  manifestly excellent, as until 1909 it was unanimously condemned.  Hence Carl Rosch rightly contends in his Kredit-inflation (Jena, 1927), that banknotes which are accepted at public pay offices end are legal tender, not banknotes, but simply State paper money. (p. 24.)) The legal tender, represented by "banknotes" having a forced rate, obeys quite other laws than the turnover bank rhoney of private under, takings described in this paper. It may be, more especially, limitlessly multiplied; it cannot be refused; and is therefore extremely inflational.

4. Decline and fall of the classical system through the abandonment of convertibility and the introduction of a forced Currency. —Thus even for those who cannot always see eye to eye with him, F. Knapp, the postmaster of German monetary theory, in a convincing and impressive manner, described in the decade preceding the War the approaching downfall of the classical credit system, which soon afterwards was realised in Germany and in almost all other countries except France. In 1909, Germany legislatively provided that the Reich banknotes should be legal tender. Henceforth everybody had to accept them nilly-willy at 100%, even when they dropped below the; gold value of a claim. The obligation to redeem them, the last frail barrier, fell in 1914. After the War, when the German economy was recovering,—just when it was most desirable to return to the sound pre-war maxime in order to expedite the recovery and to avoid spurious credits and untransferable reparation payments,—there was apparently not even a demand for the abolition of the forced currency. And the less important obligation to redeem banknotes, only existed for about a year, from 17 May 1930 to 13 July 1931, at a time when the burden of the foreign short-term indebtedness was already on the point of crushing the German credit system. In such a desperate situation, the redemption policy could not develop its hearing powers, since the free market rate and the realisation of its significance were missing.

5. The abandonment of convertibility and its consequences.— So long as this obligation was in force, or, to quote again Knapp, "so long as the bank is bound to redeem its notes in money emitted by the State, the latter had to take no further steps in order to relegate the banknotes to their accessory position", (p. 125.) That is, in the circumstances other precautions against inflation were unnecessary inasmuch as inflation is only possible where a forced currency prevails. After the abolition of convertibility, special brakes became necessary: the gold brake, or gold cover, and the unreliable and always lagging price statistics; end eventually, when both these had proved unavailing, the foreign exchange brake. Thus the classical conception, whose rehabilitation is an urgent necessity end which looks upon money end credit transactions as an expedient for stimulating the safe of goods, is abandoned in favour of a quite different type of money, i.e., paper money (in contrast with banknotes), whose peculiarity it is to oscillate irresponsibly between inflation end deflation, which alone is liable to the notorious eccentricities of 1923 end 1931/32, and which only attends "casually" to the financing of turnover, necessarily without achieving substantial results.

6. A forced currency regime, the idea of a Central Bank, and inflationiam, are identical. —This dangerous and economically injurious forced currency regime (see on this subject the Cerman Bank Enquiry of 1908) would never have been introduced if, in addition to its advantages for the Exchequer, it had not possessed a peculiarity against which objective considerations could not prevail, namely that, according to current beliefs, the financing of war was impossible without a "strong Central Bank". In 1909, accordingly, as a preparatory measure for a possible war, Germany, following the precedent set by other countries, declared the Reich banknotes to be legal tender. During the discussion relating to the establishment of Central Banks, it was repeatedly stressed in all countries how important in the case of war (France set the example. Compare Prof. Rist's authoritative world.) a strong Central Bank of Issue would be. By virtue of these arguments the purely economie arguments which mostly favoured decentralisation, were silenced in all countries. (Mises is of the same opinion (Theorie, etc., 2nd edition. 1924, p. 408): "Apart from the aspect of financial readiness for war, the reasons adduced in favour of centralisation, monopolisation, end Governments supervision of the banks of issue in particular and currency banks in general are all untenable. During the last few years banking literature has to such an extent lost itself in technical trade details, left out of account economic considerations, and been influenced by insipid statistical argumente that we have to return to the ideas... that were prevalent two or three generations back, ... The control of the banks of issue was supposed to be designed to protect poor and ignorant folk against suffering losses from bank crashes. We need only mention this argument to prove its feebleness . No banking policy could have been more disadvantageous to individuals modestly situatted than that of State policy during recent years.) As a matter of fact, free banks of issue were conaidered as not "strong" enough for war purpoaes juat beeanae they could not inflate. They were unable to grant the State war credits because in four weeks' time they would be bankrupt as the result of their adventurous exp,eriment in inflation. It was overlooked, as Frh. von Stein (1812) said, that in a properly managed State with paper money having a free market rate, we should have a far atronger and less dangerous means of financing a war. Behind the drive towards a "strong Central Bank" was hidden the desire to produce an inflation, and this could only be compassed by the abolition of convertibility end the introdue, tion of a forced currency. Ideologically end historically, the idee of a Central Bank end inflation;sm are inseparable. It is henee not surprising that Gessel end many other supporters of the Central Bank system recommend to-day the dropping of the gold standard, thus openly avowing that they are inflationists. Every determined opponent of inflation must in the last resort, be an opponent of a "strong Central Bank", because this inevitable encourages a forced currency regime end therewith inflation. On the same ground, he must desire the return of the conditions prevailing prior to 1909 when, for good reasons, the German economy passed through an unprecedented period of prosperity, without having been menaced by inflation.

7. After the fall of the banks, followed the destruction of the German monetary system through its passing from commercial bill money to financial bill money.—Associated with this longprepared downfall, is the catastrophic collapse that we shall now describe. Down to the summer of 1931, the Reichsbank complied with §§ 28, 25, par. 6 end 21 of the Banking Act. These limit the operations of the Reichsbank quite definitely, namely in the main to discounting bills maturing after at most 3 months, which, with gold and certain classes of cheques, may alone count as note cover. § 28 reads: ~l (a) 40% gold cover; (b) for the remainder, discounted bills or cheques, whieh comply with the requirernents espressed in § 21. ,, Now § 21, close of par. 2, provides: "The billa discounted by the Bank shall only be good commereial bills", end Dr. Hjelmar Schacht refers to this important provision as follows in his commentary (p. 142):
            "ln view of the object of the banks of issue, the already previously applied principle that the bills discounted by the Bank shall be only good commereial bills, is espressly laid down in the new Banking Act. Thereby the Bank is prohibited from discounting other bills, e.g., so-called financial and credit bills or bills that serve speculative purposes". The provisions relating to penalties refer also to these two paragraphs, which proves the special importance attached to them.
            Thus the Bank of Issue Act permits only two kinds of banknotes. To set the matter in a clear light, in accordanee with the terminology of § 28, we may designate these, after G. Ramin, as gold money end commercial bill money. ( See the excellent report of the Gerrnan Festmark Bank in Berlin of January 1932 also Francois Marsal, Encyclopedie de banque et de bourse, vol. 1, p. 33.)
            Contrary to these provisions, the Reichsbank, since the credit crisis of 1931, discounted financial bills to the amount of 2.000 million marke. as is generally known and as is demonstrated by the creation of the Acceptance and Guarantee Bank. These financial bills were accepted in order to maintain the solvency of the illiquid credit banks which had gone too far with the deposit system. In this case the Reichsbank did not grant advances on the proceeds of sales, teut took over the illiquid assets of the reading banks end of the savings banks, assets which do not liquidate themselves teut require continuous prolongation, contrary to the 3 montha' principle of the Act. ln addition, the Bank granted long term credits to the amount of 1.300 million marks to municipalities end their savings banks. Since the Bank was not authorised to grant these credits either, it masked these illiquid loans by transforming them into bills and by the utilisation of the Acceptance end Guarantee Bank which was specially created for circumventing the law. Thereby a further provision of the Banking Act wee infringed, hr § 25, par. 6, provides that the Reichebank may not, either indirectly or directly, grant any credits whatever to the Reich, its component States, and the municipalities, apart from a cash credit of 100 million marks and a protective bill discount of 400 million marks (§ 21, nos. 2a end 3g). Moreover, the Bank neglected everything necessary for ensuring the disappearance of the illegal end dangerous financid bill money end re-establishing legal conditions.

8. The Reichsbank, temporanly the largest mortgage bank, for lack of a sound banking system, present the re-employment of the workless. —Through the Reichsbank ignoring from 1931 to March 1933 the provisions of the Banking Act end issuing financial bill money for half or two-thirds of its note circulation, a prolonged moratorium for the banks was, it is true, avoided, without, however, improving the situation of these institutions end the industries and working masscs dependent on them. The vanished deposits were replaced by obligations towards the Reichsbank. The Bank became in a sense the largest depositor in the banks end was forced to taking no action. It became increasingly dependent on the banks. The debtors could pay less because the goods turnover steadily diminished end because, therefore, sound turnover credits could no longer be adequately financed. {Compare on this subject, e.g., the statements made by Dr. Schacht.) Nothing remained save the forcible seizure of the means of production, that is, of the factories, the land, etc., which could yleld practically rothing end which led to the total depreciation of all book items end to the ever-increasing embitterment of the conespondingly swdling masses of unemployed.
TABLE 1.  (Editor's note: sorry I'm not about to make sense of this table again, .........I will scan it as an image upon request OK?)
 It showed 6 columns:
one for time,
one for the number of employed according to the (purged) statistics of the aiclcnesa (sickness; a hard one to figure out untill you grasp the morphs of scanbloops) funds,
one for those receiving unemployment insurance,
one for allowances and crisis assistence,
one for welfare employed according to the district care committees. (The numbers of recognised welfare unemployed, ascertained at the same time at the employrnent exchanges are uniformly smaller.)
and a final one for the total number of employed at the employment exchanges. 20
    Henceforth the Reichsbank made advances on real property and not on goods turnover. For a time, therefore, it was thck largest German mortgage bank end ita notes at that period might be accurately described as standardised and non-interest yiedding mortgage bonds. The German banks, dependent as they were on the Reichsbank, were thereby also paralysed. A banking system for facilitating the circulation of goods and organising, the mutual securing of employment, was lacking. In consequence, under the influence of these end other mistakes, the number of unemployed in Germany rose to 6 million. If we include the statistically not recorded—the eliminated unemployed, the number rises to some 8 million. (See above tablet) Of their members of trede unions, 45 % were eventually workless.
Below, we shall continue listing the factors that explain their slump in turnover credit, as this was the cause of these terrible disasters.

9) Fateful compensation of an inflation of financial bill money with a deflatiion of commercial bill money.
If so much financial bill money had been issued in normal times, an inflation would have been inevitable. That at the time there was no inflation, is due to the fact that a corresponding amount of sound commercial bill money had been displaced. In order to save the many shady credits, an abnormal deflationary constriction of commercial bill money was organised. Since turnover credit is as indispensable for the safe of goods as freighting by railway or motor lorry, the goods turnover was perilously interfered with. Thus about a third of the country's total goods turnover wasi stopped in order to meet the categorical demands of institutions; that did not serve the interests of the collectivity end so as to save their directors, whose debit balances could not be examined because some of them declared themselves to be experts end even resorted to scientific arguments. Owing to the forced unsaleability of goods end the consequent mess unemployment, solid undertakings were led in such numbers to the odge of the economie precipice that the whole of the assets of the banks were in jeopardy. The remedial measure recommended by selfish, ingenuous, end scientifically untrained "experts" proved a destructive measure of the first order for the banks this to such an extent that not even the private fortunes of the bank directors could be protected, for the disaster asaumed unanticipated dimensions and spread 1ightning-like.
                It was supposed that a high interest rate would cause a rapid reflux of financial bill money. Accordingly, there was a demand that the discount rate should be raised to 30 %. But it was forgotten that in the case of financial bill money, which has been the origin of all inflations yet experienced the effective reflux of commercial bill money is of necessity absent, since the involved credits are long-term ones. The pernicious consequence of this mistaken theory of the advantages accruing from a high interest rate was, that this enormous discount rak of sometimes 15 %, end later 10 end 7 %, was also applied to commercial bill money, which contributed still further to the deflationary paralysis of the exchange of goods. Hence in 1932, Germany was placed before the alternative of either a primitive barser of goods or a radical break with the present system by retuming to the principles of credit approved by long experience.

10. Misconceived rehabilitation of the banks augments unemployment.—The Reichsbank thus came to the rescue of tottering banks, end this suggested that the State was behind them. This "quasi State guarantee", led the population, when the crisis was at its height, to withdraw their balances from the sound banks that aimed at increasing turnover end employment. Furthermore, the sound undertakings were saddled with the cost of this assistance to the banks, amounting to 1.500 million marks in taxes, whilst the unsound banks were almost, or entirely, exempt from paying taxers. The penalising of efficient undertakings end of finding work for the workless was attended in the succeeding years by the worst conaequences. A large proportion of the most reliable medium end small producers, on whom Germany's wealth in men end workers end its strength more especially in export had depended, were crushed out, whilst speculative concerns, managed by economically inexpert persons end sustaining greater end greater losses, carried on, until here also Dr. Schacht, in the spring of 1933, came to the rescue.
         Dr. Luther had taken over early in 1930 from Dr. Schacht, President of the Reichsbank, a sound Reichsbank, holding almost 3.000 million marks in gold end foreign exchange end ample reserves. On 31 December 1931, according to its balance sheet, the Reichsbank still disposed of the following imposing holdings in gold end foreign exchange:—
 1. Cold holding, unencumbered (bars, domestic end foreign coins):
 (a) in the bank safes                             1.993.550.688  marks
 (b) in foreign Central Banks                    222.230.965
 2. Holdings in foreign bills and cheques  290.733.661
Holdings in foreign exchange, total  2.506.515.314 marks

Dr. Luther took over these holdings. When he departed end handed back the management to Dr. Schacht, he bequeathed him an institute—decrepit, encumbered with financial bills end bad credits, deprived of its reserves, holding only 200 million marks in gold end foreign exchange—which was quite incapable of financing the exchange of goods in Germany as demanded by the Banking Act, and which was therefore face to face with immense unemployment end numberless collapsing firms.
           At the inception of the banking crisis in 1931, the Reichsbank had virtually no debts end no liabilities abroad, precisely like the four small private banks of issue. Hence the withdrawal of foreign credits from Germany could not affect it in any way. The majority of the 800 private bankers, the independent South German Banks with their branches, (E.g., the Bavarian Mortgage nnd Bill Ban}, with 130 branches.) two large-scale Berlin banks possessing no branches, the 2.100 cooperative banks, end a large portion of the 3.200 savings banks and municipal banks —in number over nine-tenths of the German banks, —were equally welf prepared to meet the foreign exchange problern resulting from the sudden recall of 10.000 million marks of foreign bank credits. The three large-scale Berlin banks, with their 1.300 branches, a few mismanaged municipal banks, and a comparatively small number of less important institutions , had taken up immense amounts in foreign short-term credits end, against all the rules, lent them out on long-term conditions. In July 1931, the Reichsbank end the Government were faced by the problem whether they were to support the 35.000 sound banks end bank branches which regulated the exchange of goods end the finding of work among 20 million economically active individuals end leave to the judgment of the courts the over-indebted end illiquid Berlin large-scale banks, or the reverse. According to the information published by the economie and statistical section of the Reichsbank regarding the Banking Enquiry of 1933, the number of German ban}s end their branches, ek., were aa follows at the close of 1931:

1. Private credit banks, in the shape of joint stock companies:
1. Berlin large-scale banks.....(a) without branches.....(sound) ......(b) with branches .......
2. Other joint stock banks, among them 50 with branches .........
3. Oversea bankers.... (3) end special bank (62)......
11. Private bankers, say ....
III. Cooperative banks (6.8 million members)
1. Workere' banks .......................
2. Industrial credit cooperatives ......
3. Agriculturai credit cooperatives ..
4. Consumers' cooperatives, with savings facilities
IV. Public credit institutions:
1. State banks end giro centres, of which 27 having branches ......
2. District banks ...........................
3. Municipal banks end Saxon giro centres .................................
4. 9avinge banks ........................
Grand total                                                          39.344
WHICH CONCLUDES TABLE 11.     once again sorry about omitting almost all numbers.....
According to the above table, the 35.000 banks end branch banks comprised about two-third end thc three unsound largescale banks, etc., about one-third of the aggregate number. The large-scale banks were primarily interested in the reading manufacturing firms, of which, according to the official statistics of 1925, there were 66 employing severally more than 5.000 workers end jointly only 559.000 workem, whilst the total number of those gainfully occupied in Germany at the time was between 25 end 30 million.
        On the basis of an experience of economie depressions ranging over more than 150 years, the German Banking Act, by its provisions and penal clauses, bound the Reichabank only to grant credit to sound banks and this only for turnover and the securing of work through the exchange of goods end services, whilst leaving the unsound banks to their fase. However, the Reichebank end the Government were of a different mind. They slighted the Banking Act, which was designed to prevent such abuses. They aided the unsound banks with approximately 2.000 million marks in subventions and tax money. In this way they offered a masked State guarantee to the unsound banks end indirectly deprived the sound banks of their customers. They declared that "Germany's" credit wee at stake; that "Germany" had contracted the debts; that a "run on Germany" had broken out; whilst actually only the credit of a few ill-managed banks with bank debts abroad, had been shaker. These, as was natural, were called on by their careless creditors in England, Holland, the United States, etc., to repay their debts. Partly to conceal the state of affaies, reparations were dragged in. These were surely reprehenaible end foolish, teut they could not hide the nefariousness of the banking methods which were shunned by the great majority of the German banks. Thus thousands of banks and bank branches were sacrificed to save a few who were in the good books of the State. When the critical deciaiona were under discussion, the sound bank groups were not consulted. In fact, the three unsound banks were identified with the "German banking system "
kicking IMF addictions part two