Schlesinger’s wartime lecture explains inflation and the agio by tracing how war finance moves through the monetary circuit. He rejects explanations that merely enumerate scarcity, blockade, speculation, or weaker capital imports, because they do not show where the new purchasing power enters and how it persists. The argument is therefore deliberately abstract: not a statistical description of Austria-Hungary or Germany, but an openly schematic construction whose contours, he warns, nowhere coincide with reality.
Innerhalb einer kurzen Studie kann die wirtschaftliche Entwicklung nicht in all ihren Windungen verfolgt werden; darum kann ich hier nur ein stark stilisiertes Bild der Kriegswirtschaft bieten, dessen Konturen mit denen der Wirklichkeit in keinem einzigen Punkte übereinstimmen.
English translation: Within a short study the economic development cannot be traced in all its windings; therefore I can here offer only a strongly stylized picture of the war economy, whose contours coincide with those of reality at not a single point.
Within this simplified market model, money received from sales is spent again at the next market, while velocity is assumed stable. Scarcity first raises prices because the same monetary demand confronts a reduced supply of goods: production falls through military mobilization, territorial loss, and the disruption of international division of labour. Yet Schlesinger’s key distinction is between a one-time rise and a continuing process. Scarcity can lift the price level, but it cannot by itself explain cumulative depreciation.
Die Produktionsabnahme allein würde die Preise für die ganze Kriegsdauer nur auf einen gewissen höheren Stand heben, ohne eine progressive Teuerung zu verursachen; aber der zweite Faktor und der aus ihm entspringende Dritte treiben die Preise immer weiter empor.
English translation: The decline in production alone would raise prices only to a certain higher level for the entire duration of the war, without causing a progressive inflation; but the second factor and the third arising from it drive prices ever further upward.
The continuing impulse comes from the fiscal form of the war. If the state financed war needs entirely by current taxation, it would withdraw from civilians the same purchasing power it later spent through soldiers, dependents, and suppliers. But war expenditure is instead met by new or newly mobilized purchasing power. These payments become incomes, return to the market, and are followed by further state issues. Inflation thus functions as an indirect fiscal device: the state acquires goods by creating demand that forces private consumers to yield real resources through higher prices and curtailed consumption.
Der Staat muß wenigstens vorübergehend zu einer eigentümlichen indirekten Steuer greifen, welche die individuellen Einkommen nicht unmittelbar und physisch ergreift, sondern ihnen durch Emission neuen Geldes eine Quote ihrer Kaufkraft entzieht.
English translation: The state must, at least temporarily, resort to a peculiar indirect tax, which does not seize individual incomes directly and physically, but instead withdraws from them a portion of their purchasing power through the issue of new money.
Schlesinger then complicates this upward mechanism by emphasizing offsets. The sale of stocks and the suspension of ordinary capital replacement release goods and, more importantly, withdraw purchasing power. Owners who cannot replace inventories or machinery, and who hesitate to invest under wartime uncertainty, often repay bank debts, hoard, or buy war loans. War loans therefore do not independently neutralize inflation; they indicate that private holders have refrained from pressing their money claims upon goods markets. In the German case, the surprisingly limited expansion of paper circulation is explained by such withdrawals: reimported foreign assets, redirected savings, amortization funds, proceeds from stock liquidation, and forced saving under dearness and rationing. Schlesinger also separates financial debt from real impoverishment. Some war costs are losses of stocks, foreign claims, and capital maintenance; others are postponed consumption or foregone accumulation. Postwar debt is therefore not automatically national ruin, but partly a distributional and accounting problem if productive capacity can be restored.
The same monetary logic governs his account of the exchange rate. The agio is not a separate mystery caused by any single wartime inconvenience. It follows from the relation between domestic and foreign price levels. If domestic prices rise faster than foreign prices, imports become attractive and exports less attractive at the old exchange rate. Unless gold exports or capital inflows cover the deficit, the currency must depreciate until the balance of payments is restored.
Der wesentlichste Grund des Agios ist die Steigerung des inländischen Preisniveaus gegenüber dem ausländischen; ein sekundärer Faktor ist der Umstand, daß für viele Güter, deren Export unter den herrschenden Preis- und Agioverhältnissen rentabel wäre, Ausfuhrverbote bestehen.
English translation: The chief cause of the agio is the rise of the domestic price level relative to the foreign one; a secondary factor is the circumstance that export prohibitions exist for many goods whose export would be profitable under the prevailing price and agio conditions.
Export prohibitions aggravate depreciation by preventing profitable sales abroad, while blockade may work in the opposite direction by preventing imports. Capital inflows, especially the repatriation of foreign investments, are best understood as brakes on the agio rather than as ordinary parallel causes; when they weaken, domestic inflation appears more fully in exchange. Hence Germany’s lower agio is linked to its temporary ability to draw on foreign assets, and Schlesinger treats gold reserves as instruments meant precisely for such critical balance-of-payments moments.
The policy conclusion is pragmatic. Restoring an old parity is less urgent than restoring calculability, avoiding a deflationary collapse, and obtaining the foreign capital needed to renew productive equipment. The central task is stated plainly:
Die erste Aufgabe ist die, die Valuta überhaupt je eher und je sicherer zu stabilisieren, damit der wirtschaftlichen Betätigung die feste Basis für ihre Kalkulationen geboten werde.
English translation: The first task is to stabilize the currency at all, as quickly and as securely as possible, so that economic activity may be given the firm basis for its calculations.
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