Railway Money and Unemployment and Further Remarks Concerning Railway Money with Special Reference to the Position of the American Railways

By Dr. Walter Zander

[Taken from John Zube’s Peace Plans #9]

This paper appeared first in “Deutsches Volksrecht” (15 July 1933) and soon afterwards in pamphlet form (Verlag Sparerbund). An outline of the plan had already appeared in the above mentioned review on 17 May 1933.

This is a reprint from the English version of “Zahlungsverkehr, Einkaufsscheine and Arbeitsbeschaffung, Annalen der Gemeinwirtschaft Genf, 10, Jahrgang, Heft 1, January-July 1934, Herausgeber Edgard Milhaud. The English version was published by Williams and Norgate Ltd., London 1935, under the title: “Ending the Unemployment and Trade Crisis by the introduction of purchasing certificates and the establishment of an international clearing system”.

Permission by the author for a reprint was obtained, likewise the permission by the Annals of Collective Economy now re-named “Annals of Public and Cooperative Economy”, Liege 45, quai de Rome, Belgium, for the reprint of this article and other money reform articles by U. von Beckerath, Walter Zander and Heinrich Rittershausen, even by other publications, provided the source is mentioned in detail. Ernest Benn Ltd., Bouverie House, Fleet St., London EC4, acting for Williams & Norgate, expressed likewise no objection against a reprint of U. von Beckerath’s articles by me, nor, I do assume, to a reprint of the much shorter articles by the other authors.  Their reply did not refer to these.  No wonder, for among the wealth of literature published by this house they could not even trace the Beckerath articles although they assumed that they had been published in some selections.

The translation was made by G. Spiller, London. I changed it only slightly but do not guarantee that my alterations will always constitute an improvement on the original translation.

The Editor – John Zube


The German Reich Railway has been seriously affected by the trade depression. Its revenues shrink. And its orders for materials, etc., have had to be reduced in proportion. This, in turn, aggravates the existing depression and the railway revenues consequently drop still lower. At the same time the Railway is in an anomalous position. In view of its importance in the country’s economic life, it is expected to adopt far-reaching measures to reduce unemployment, such as placing huge orders so as to revive industry. The Railway, however, can only fulfill these expectations to a modest degree because it is doubtful whether its future revenues would suffice for meeting its obligations as regards those orders. Prudence counsels circumspection. Hence the Railway Management inclined to shift the risk involved in placing substantial orders onto the shoulders of the Central Bank (See the article in the Berliner “Boersen Courier” of 11 June 1933: “The Reich Railway and Employment”. There it is stated: “The magnitude of the orders to be placed will depend entirely on the decision of the Reichsbank President regarding their re-financing by our Central Bank.”) or, what is today its practical equivalent, the State. However, this bank of issue can undertake the financing of any schemes only in conformity with the law and with the demands of a sound currency policy, i.e., when they are covered by short term commercial bills. The Railway is only partly in a position to comply with this condition. Hence the Central Bank is generally obliged to refuse. In fact, the Railway cannot make itself responsible at present for placing big orders. It can therefore do little to augment employment.


The Railway is justified in proceeding warily. Cash purchases are out of the question in present circumstances. On the other hand the promise to pay at a future date signifies the short sale of means of payment (On this subject consult Henry Meulen, Industrial Justice through Banking Reform, London, 1917 p. 16ff.), for the Railway undertakes to deliver something at a fixed date which at the time of the promise it only hoped to obtain. Whether its hope will materialize, is uncertain. The undertaking to pay at maturity contains therefore a speculative element, which is particularly hazardous in times of depression. It is therefore obvious that the Railway must be extremely circumspect in making credit purchases i.e. in promising to pay at a later date with resources which have yet to be secured.

But the Railway may promise something else, namely, to transport commodities and persons that is, to fulfill its function as a Railway. There is nothing speculative about that. The means required for this, rolling stock and other plant, are available. This is therefore fundamentally different from a promise to pay at a future date, for in the latter case the means of payment have yet to be secured and this by having transported passengers and goods. The capacity of the Railway to act as a carrier is at any rate unquestionable.

Such is the starting point of the plan. The Railway places orders to be paid for not in legal tender (Central Bank notes ), but in transport certificates which the Railway booking offices accept at their nominal value like ready money. The Railway thus pays its contractors with warrants entitling the contractors to its own services and thus exchanges the goods it receives directly against transport mileage. The certificates are made out to the bearer and are issued in denominations convenient for free circulation. Of course, no one would be legally bound to accept such certificates in payment. There is no compulsory acceptance. They are only legal tender against the Railway which issued them. Nor have they any legal value, for they do not represent a forced currency. The market rate is an open one, but the Railway has to accept the certificates any time, at their nominal value, regardless of the market rate.


Railway money is not a new thing in Germany. When Friedrich List, just a century ago, established the Leipzig Dresden Railway, he was authorized to issue 500.000 thaler one third of the Company’s capital in  the form of “railway money certificates, subject to the provision that no obligation would arise therefrom to the State”. These certificates remained in circulation for about forty years and fully attained their object. Only after the formation of the Reich, were they, as a result of certain financial reforms, replaced by Reich treasury notes.

During the inflation period, the German Reich Railway issued its own money, some of which was on a gold standard basis and retained its value. These were the so called Oeser notes, of which according to the “Statistisches Jahrbuch” for 1924/5 (p.313), there were in circulation on 31 December 1923, 141,9 million gold marks.

In the plan here submitted, these historical precedents have been further elaborated. It may a mentioned, finally, in this connection in that whilst these lines were being written, the Italian State Railway floated a lottery loan including among the prizes 1.000 first class monthly season tickets. The issue had a very unusual success and was at once over subscribed. It will be evident to the reader that the offer of free season tickets accords with the spirit of the present plan.


The extent of the circulation of the railway money will depend on its applicability. The starting point is the contractor who received the certificates directly from the Railway. To the degree that he can profitably utilize the services of the Railway himself that is by having persons and goods to send by rail, the certificates manifestly have value for him. This value is equivalent to the payments he would have to make for dispatching those persons and goods. If for instance, his monthly expenses for freights and passenger tickets averaged 1.600 marks he could utilize transport certificates to that value as if they were cash. Insofar the certificates have par value for him. If a large scale supplier were involved such as an ElectroTrust, it would be able to make considerable use of the certificates.

Insofar as the contractor has no use for the certificates in his business, he will dispose of them otherwise. His sub-contractors who depend on the railway services come here into consideration in the first place. He will therefore, as far as possible, place his orders on the basis of payments to be made in transport certificates. Beyond this, he can have recourse to the free market. As practically everybody depends on the railway services, the market for these certificates is extremely large. Hence not only firms come in question, but all private persons who ever wish to travel or have goods to dispatch by rail. Moreover, there is the probability that the manual and clerical workers of the contracting firms may agree to accept as part of their remuneration railway money, as they could make use of it themselves (monthly season tickets and holiday travel) or dispose of it in shops whose owners can utilize it or pass it on.

The value of the circulating certificates will be determined by the law of supply and demand. Should the market rate once fall below the nominal value say to 95% thereof, then everybody who has to use the railway services, be it to travel, now or in the near future, or to forward goods by rail, would be eager to acquire certificates, for the Railway is obliged to accept the latter at their face value, regardless of their market rate. The customer of the railway (prospective passenger or forwarder ) could thus obtain an exchange profit, in this case 5 % of his railway expenses. The incentive to acquire these certificates thus grows precisely as their market value drops and, accordingly, a fall in their value stimulates the demand for them. In turn, the growing demand will raise the market rate until the demand will slacken, that is until the nominal value is again reached. A free market rate for the railway money guarantees therefore its soundness.

Hence those who regularly use the railway, including more especially large firms, would instruct their bankers to purchase transport certificates as soon as they have fallen below par. At the stock exchange the railway money would be regularly dealt in and retail trading therein might be facilitated if, in the immediate vicinity of the railway booking offices, exchange bureaus sold railway money. The trade in transport certificates would be hence free and unlimited.

The Railway would naturally undertake not to raise its tariffs as long as the transport certificates remained in circulation, for otherwise it might deprecate the value of the certificates for its own benefit. It is obvious that it would have to safeguard commerce in this respect.


The Railway would manifestly profit by such a plan, for it could freely place orders for any materials it might require. For this purpose, it would have no longer need of legal tender, which it would have to obtain first. It could, instead, undertake to pay with a means completely at its disposal. namely transport services, Thus the Railway would secure the materials it is short of, in the easiest and most natural manner.

Instead of an empty sale of legal tender, there would be an exchange of already existing values. The financial situation of the Railway would thus be greatly eased. Here is an advantage far greater than that involved in an ordinary credit transaction, for even if the date of payment for materials received should be very liberally conceived, the Railway would be eventually obliged to offer payment in banknotes, which it must first obtain. The plan here submitted would relieve the Railway altogether of the necessity to accumulate cash. The risk is passed on to the contractor, who on his part, is in a position to bear it, since he received new additional orders he would not otherwise obtain, and since he can reimburse himself by bringing the certificates into circulation. The proposed method of settlement would thus carry with it no dubious consequences for the railway.

The Railway’s sole obligation arising out its issue of railway money, would be to undertake that all its booking offices should accept the transport certificates at any time at their face value, irrespective of their current market rate. The Railway would have only to place its services at the disposal of the certificate holders. It would be in no way bound to redeem the certificates in gold, in banknotes, or in any other way. The sole mode of redemption is their acceptance for services rendered. The issue of the transport certificates would involve therefore no risk whatever for the Railway. The certificates are completely safe against a “run”. Even should there be grave mistrust of the Railway Management, no one could claim anything beyond the right to have persons or goods transported. The worst that could happen, in the case of a heavy fall in the exchange rate of the certificates, would be that because of the cheap opportunity thus provided, more travels would be undertaken and more goods forwarded than otherwise. This could never imperil the Railway.

In these circumstances the placing of orders will be facilitated for the Railway. The country’s productive activity would thus rise and with it the Railways turnover. Incidentally, this might lead to a fall in costs and therefore to an increase in possible profits.

In order to strengthen its credit, the Railway would be in any case anxious to increase as far as possible the circulation of its own money. It would therefore induce firms under its influence to accept the certificates in payment. In this category, might be placed hotels, restaurants, workshops, canteens, ports, and shipping offices. That, for competitive reasons, would in turn induce enterprises not controlled by the Railway, also to accept the certificates. There is hence every probability that railway money would not only be accepted in the refreshment rooms of railway stations, but in restaurants generally, so long as the possibility exists of making use of the certificates or of passing them on. The circulation of the certificates might therefore be a very considerable one.

When the certificate issued by the Railway returns to the railway offices in the form of payments made for passenger tickets and freight costs, its mission would be at an end. The circle is closed. The Railway, having rendered in services an equivalent for the materials it had received, the transport certificate would now have to be destroyed.


It might be argued that the Railway would have to re‑issue the certificates returned to it in order to meet its various obligations and that thereupon the price of the certificates would fall and their issue become altogether purposeless. The objection is invalid. It is founded on a crass misapprehension. It overlooks the fact that the sequence of the contemplated financial operations is just the opposite to that averred by the objectors In issuing transport certificates, the Railway would have no intention of distributing them gratis, but would use them for covering necessary expenditure. For instance, with their aid it might purchase signal lamps. In this way it would come into possession of the signal tamps without having to offer legal tender currency notes. When the certificates had found their way back, then the mutual accounts would have been closed. The Railway would have the signal lamps and the contractor, having made use of the certificates, would have been paid. The transaction would be thus liquidated and the Railway must destroy the returned certificates.

It is a mistake to suppose that the Railway would be obliged to reissue the Certificates for the purpose of purchasing signal lamps. On the contrary, the signal lamps would have been already acquired and paid for. No more means of payment would be required for the acquisition of these signal lamps. There would therefore be neither a need nor a possibility for the repeated issue of the returned notes. The certificates issued by the Railway had been already expended by it ‑ the common use of the language expresses this clearly ‑ and could not therefore be re‑issued, for no one could make use of one and the same note twice over.

What of the present system? Here the Railway has first to acquire legal tender bank notes by selling transport mileage. If it succeeds in this, it may expend the banknotes thus acquired for the purchase of signal lamps. The process is therefore just the reverse of that implied in the system of railway money. This also holds where, as is customary, the signal Lamps are obtained on a credit basis for in this case, too, the Railway can only settle its account regarding the signal lamps after having acquired the necessary legal tender means of payment by marketing its transport services. Even in this case the Railway has to use the notes received at its offices to cover its expenditure. Railway money dispenses with all this. The signal lamps are already paid for when the certificates return to the Railway. A deficiency in cash takings, consequently, does not take place. To assume the contrary, is to misapprehend the principles underlying the contemplated transactions.

Evidently, in utilizing its transport certificates, the Railway would have to allow for its general financial situation. It would therefore plan no purchases whose kind and extent it could not afford. On the contrary, it would concentrate ­to begin with on securing with them such materials as are indispensable for the efficient working of its system ‑ i.e., coal, oil, other fuels, urgent replacements including coaches and engines, etc. Subsequently, less urgent needs could be satisfied. There would be also the possibility of avoiding the dismissal of workers and officials and of reductions of wages and salaries which might otherwise be necessary by an arrangement with those affected, if legally admissible, to receive part of their remuneration in railway money.

Indeed, once railway money freely circulated, the repeal of the recent reductions in wages and salaries and the return to the conditions prevailing in 1929, might become practicable. However, these are not questions regarding the nature of railway money itself but the uses to which it might be put. The Railway Management would be folly competent to deal with the latter point.


For the value of the certificates, the amount issued is of decided importance. This aspect should be therefore closely examined. A legally fixed upper limit for the issue does not appear desirable. Such limits are necessary in the case of bank notes which are legal tender, for then there is nothing to indicate whether too many or too few bank notes are circulating. All is different, however, where there is an open market rate. It would always show whether the market can accept still more.

The fixing of an upper limit at any time should be hence left to the issuing office on whom the full responsibility should rest. Still, estimates as to the maximum quantity that might be reasonably brought into circulation, are possible. The amount of the capital invested is no adequate measure as list imagined.[1] The general turnover would be a more accurate gauge. This alone can suggest the amount of railway money that might be profitably issued. It is evident that the number of the certificates should not be greater than can conveniently return to the Railway booking offices, for if the reflux is disturbed and blockages occur, the value of the certificates would necessarily be reduced. Assuming an annual railway turnover of about 3.000 million marks this roughly may have been the turnover of the German Reichsbahn during the last year an issue of 1.000 million marks would not seem exaggerated.  Naturally, the amount of the issue would be governed by the amount of the railway money that had streamed back, that is, it would be issued not all at once but continuously, in strict accordance with its actual employability. On the above assumption, about 80 million marks, for instance, might be issued monthly. But the open market rate should govern every step taken. As soon as the market rate fell below a certain minimum value, say 95%, further issues would have to be immediately stopped, apart from the actual difficulty for the Railway of bringing fresh certificates into circulation at a discount. The stoppage would at once lead to a reduction of the circulation. The certificates already issued would stream back and the market rate, as a result of the increased demand and the suspension of issues, would soon return to par. To the extent that a legal regulation of an upper limit can at all come into consideration, this would have to consist in prescribing that the issue of railway money should be suspended as soon as the market rate has fallen to the above-mentioned percentage.

The greatest stress should be laid on the returned certificates being immediately destroyed. On no account should they be brought again into circulation. As at the Bank of England, every note should be permitted to be issued only once. If fresh parcels of notes are to be issued, the principles above enunciated would have to be respected and it would have to be made quite clear that it is a question of a new issue and not a matter of putting into circulation again certificates previously issued. The notes would therefore be numbered consecutively and there would have to be daily reports of the numbers issued and of those destroyed.

If the notes keep circulating, it may be confidently assumed that a considerable proportion of them would continue to circulate and would therefore not return. The experience of the Saxon railway money makes this assumption feasible. But an alert management will not be tempted thereby to issue more notes than could actually be returned and will thus avoid any possibility of the notes depreciating. However, even if the limit here set were once overstepped, the Railway and not the public would suffer. The Railway would be in the position of a theatre which had sold its tickets at too low a price.


The particulars of the railway money are the following:

Each certificate would have to state that at every railway booking office and at any time it will be accepted in payment, at its face value.

Here the question arises how the face value is to be fixed. This involves a general problem of settlement techniques. The matter will, accordingly, depend on what monetary standard prevails in the country where the railway money is issued. In most cases the gold standard would be the basis. The railway money would in that case be made out in, say, gold mark or gold pound. In this connection we ought to avoid the very common confusion of the notes of the central bank of issue, with the currency unit itself. In principle the note of the central bank of issue, as for example the pound note, should be distinguished from the currency unit, the gold pound. If this difference is already recognized  in a country, the railway money would be naturally also based on the gold unit. Thus the stable value notes issued in 1923 by the German Reich Railway were based on gold.

If the above distinction is not drawn and if it be impracticable when introducing railway money to apply the principles of a genuine stable value reckoning, then it should be linked to the notes of the central bank of issue. The notes would express, for instance, dollars and pounds, meaning by that paper dollars and paper pounds. In that case the value fluctuations of the notes of the central bank of issue would manifestly be reflected in the railway money. Should, for example, the value of the pound note continue to fall, the value of English railway money relating to the pound note, would correspondingly fall. The linkage with the notes of the central bank of issue, instead of with the currency unit itself, would be especially advisable where commerce and particularly the Railway transacts its business on the basis of these notes.

There remains, lastly, the possibility of basing the nominal value neither on the currency unit nor on bank notes, but on transport mileage. Then the railway tariff would needs have to be on the same basis. This mode of calculation would correspond to the “rye mark”, the “book mark” & similar standards of value of the inflation period.

In every case where the nominal value cannot be determined in gold, a fixed minimum of transport mileage will have to be guaranteed. This would afford an effective protection against depreciation.

The denominations of the railway money must allow to permit the maximum circulation. They should be therefore as small as possible and as for the rest correspond to the existing monetary denominations. If necessary, small change might be issued by the Railway. All aspects decisive for the manufacture of money tokens, especially those relating to protection against forgeries, are to be taken care of. One should strive for a corresponding extension of legislative protection.

Finally, steps would have to be taken to introduce dealings in railway money on all official exchanges.


The realization of the plan here proposed would enable the Railway to place more and larger orders than heretofore, for the Railway would be no longer dependent on the amount of legal tender it has at its disposal. Indeed, the orders it might place would be only limited by the passengers and freights it could transport. The exchange of services would become to that extent independent of the note monopoly of the central bank of issue. The situation is similar to a medical doctor, being short of money, undertaking to treat a sick tailor, similarly situated, in exchange for an overcoat. Legal tender is not displaced thereby. It is rather that an exchange of commodities has become possible, where no such exchange could have been possible if it had depended on the supply of legal tender money. The indissoluble bond subsisting between exchange of commodities and means of payment, which has in the last few years been seriously misconceived, think in this respect particularly of the international debts! becomes obvious here. Money proves to be, what it really is, not a self-contained something, but a means of payment that is a means for facilitating the exchange of goods, a means to provide employment. To which should be added that the money issued by the Railway would necessarily return to it in other words, would increase the Railway’s turnover to the same extent as it furthered the general exchange of goods by the orders it placed.


Railway money would be based on the same principle as paper money and bank notes generally. That does not involve that a paper certificate must be eventually redeemed in gold or silver, as has often been contended. In our day when the greater number of the worlds paper currencies have become de facto or de jure inconvertible, no one could seriously defend the opinion that the value of the notes depends on their convertibility into metallic currencies, for in that case those notes would be void of value. Their value in fact lies in their utility. In the last resort it rests on the fact that the agencies of the issuer are always prepared to accept them in payment at their face value. Every note-issuing bank must therefore in any case accept its own notes in settlements, especially if it does not redeem them with specie. Hence everyone who owes the bank of issue anything, can liquidate his debt with notes issued by this bank. This is the sole basis for the value of inconvertible bank notes. We ought not to be deceived by the fact that today most bank notes are guaranteed as to their value because Governments accept them at their face value in payment of taxes and have thus provided them with the so‑called “tax‑foundation” (Steuerfundation). The decisive feature, however, is their return to the issuing agency, This return flow is the final guarantee of their utility and therefore of their value.

If the principles of a correct issuing procedure are respected, there must always be someone who is interested to obtain the certificates, be it, as in the case of banknotes, for redeeming a discounted bill or, as in the present case, for the payment of services rendered by the railway. The principle of utility has become more widely acknowledged in our day. Thus the German Reich is not bound to redeem in cash the tax certificates created in 1932. Their value rests, according to the plain text of the Act, solely on the provision that the tax authorities must accept them in payment of taxes.

If the Railway issued notes in payment for its orders, this means nothing but that, in return, it would be ready to accept its own obligations in payments due to it. The supplier passes on the certificates he receives to his business associates until they reach those who can utilize them in payment for the transport costs. When a single traveler pays for his ticket with the certificate issued by the railway, he settles by clearing with the railway that part of the supplier’s claim which to the amount of the face value of the certificate has been transferred to him. The circulating railway notes prove therefore to be portions of the claims of the contractors entitling them to payment for the goods they delivered and it is therefore natural that the Railway, as a recipient of the goods, should always and everywhere accept them at their face value, regardless of their market rate, in payment for the services it can render in return. All this brings out clearly the clearing ­idea which is also inherent in every bank note, as the final and most essential factor.

In this sense we may say that the Railway would pay its debts with its own money. The more it succeeded in doing this, the less would be its costs that is the more the Railway would prosper. If we once think through this case to its theoretical conclusion and assume that the Railway could cover all its expenditure with its own money, it would not need to trouble about securing cash or credit and it could in this way reach a height of prosperity only circumscribed by the services it could render.


To the degree that the Railway issued its own money, it would become independent of the central bank of issue. This is not only of importance in view of the great difficulties which most central banks of issue have to face. It is desirable in and of itself, for there are always decided advantages in being independent of an undertaking not subject to our control.

There is still another aspect, however. According to present day legislative provisions the amount issued in bank notes partly depends on the gold reserves held by the central bank of issue. That means that fresh monetary transactions cannot be undertaken if they should entail an increase of the minimum legal cover. This relation to the gold reserve of the central bank of issue ceases to exist when enterprises, such as the Railway, may conclude transactions which are neither directly nor indirectly financed by the bank of issue. There need not be a dependency on the Central Bank’s gold reserve when there is no obligation to redeem the notes with specie. Where there is an exchange of goods or services there, as has been shown, such convertibility obligation is irrelevant. The Railway can pay formaterials with transport mileage, without the need of moving hither and thither even a single piece of gold. This holds even when the value of all services that of the goods as well as that of the mileage are measured in gold, i.e., where there is a gold standard. The following fundamental observations are pertinent. The complete centralization of currency maters in central banks of issue has not fulfilled the expectations which were associated with it, especially in Germany, after the creation of the Reich. At all events nobody believes that centralization could have averted trade depressions. On the contrary, the grave economic crisis of today has developed under the aegis of the centralized system and the suspicion cannot be avoided that its intensity is bound up with that system. There is therefore a growing clamor favoring, on principle, a return to decentralization. Nor is this a problem to be dealt with regionally. More important that that would be an objective decentralization, such as would be introduced for instance by railway money. Serious dangers are undoubtedly inherent in a monopoly for the issue of means of payment. It confers a rarity value on currency, and it would be therefore advisable to make an attempt to cautiously reduce this monopoly, at least in one direction by empowering the issue of railway money.

In this connection it is significant that the Communist Manifesto of 1847 regarded the complete centralization of the issue of notes as an effective means of expropriating the middle class and for this very reason favoured centralization, Therefore it says literally in the Communist Manifesto:

“The proletariat will use its political supremacy, to wrest by degrees all capital from the bourgeoisie, to centralize all instruments of production in the hands of the State, i.e., of the proletariat organized as the ruling class; and to increase the total of productive forces as rapidly as possible.

“Of course, in the beginning this cannot be effected except by means of despotic inroads on the rights of property and on the conditions of bourgeois production; by means of measures, therefore which appear economically insufficient and untenable, but which, in the course of the development, outstrip themselves, necessitate further inroads upon the old social order, and are unavoidable as a means of entirely revolutionizing the mode of production.

“These measures will, of course, be different in different countries.

“Nevertheless, in the most advanced countries, the following will be pretty generally applicable:

“…5. Centralization of credit in the hands of the State bank with State capital and an exclusive monopoly”.

In 1848 this demand was expressed even more clearly in a leaflet issued by the Communist Party under point 10. There it runs:

“The private banks will be replaced by a State Bank whose notes will be legal tender.”

This demand of the Communist Manifesto has since become law. Central banks of issue have been established and the notes emitted by them, as Marx and Engels demanded, were made legal tender. If to that is added that the middle class in agreement again with the Communist Manifesto, has been to a large extent expropriated by the trade depression then the maintenance of the monopoly in a deliberately anti‑communist commonwealth appears at least dubious. Concerning this, it is of the utmost interest that Bismarck’s official financiat adviser Dr, Michaelis, was a declared opponent of the note monopoly and jestingly referred to the “State Bank theologians for whom the bank note is the symbol of an all-wise Providence and an impartial Justice“.[2] Thus the idea, whereon the plan here submitted is based, is by no means new and it is highly instructive to see to what extent Michaelis already expressed similar views. Thus he, too, disagreed with forced currencies and explicitly stated that the convertibility of paper money is of in any way connected with its function as a medium of exchange. He says literally (ibid):

“To escape mystification, let us divest all kinds of paper money of all the adventitious attributes which have obscured its nature. First, we must certainly dismiss the idea of it as a forced currency, next its bill characteristics as well as its peculiarity that somewhere someone must deliver precious metals for it. For, since it is to act as a means of payment in the exchange of every kind of commodity, its intrinsic nature does not necessarily imply that somebody is obliged to furnish in return for it a certain quantity of silver or gold.”

Indeed, Michaelis goes further and explains that the value of paper notes lies in the obligation of the issuing agency to accept them in payment at their face value. He continues, “What is left, therefore, is a piece of paper which may be made use of in the place of cash when making purchases or settling accounts. And the question is: what ought to be the nature of this piece of paper if it is to circulate without impropriety where gold and silver are the ruling medium of exchange and express prices? And he concludes:

“So we must take refuge, then, in a final declaration to be found on every paper thaler. … This declaration is to the effect that the paper thaler ‘will be accepted by the Treasury for payments of the value of one thaler’.

“Thus the paper thaler is a receipt for services rendered, for which the counter service has yet to be offered ‑ a true medium of exchange,”

The classical English science of finance also accords with the basic conception of railway money. It may suffice here to quote MacLeod who, in his “Elements of Banking” (London, Longmans, 1897; p. 110), instructively states for our case:

“All credit is a promise to pay something in future. And that ‘something’, whatever it may be, is the value of the promise. That something need not be money. It may be something else. … It may be a promise to do anything As an example of this we may take a postage stamp, which is a promise by the State, to carry a letter. And this service is the value of the stamp. Now everyone knows that a postage stamp is a valuable thing, It passes currently as small change. People take postage stamps as equivalent to pence because, they often wish to send letters by post. Postage stamps are credit.”

Railway money would contribute to restore the natural relationship, where exchange of services is primary and bank notes are secondary. Today, on the contrary, not infrequently, urgently desired transactions remain in abeyance, mainly because there is a lack of currency notes and the central bank of issue cannot augment the supply. In reality, the medium of exchange should be governed by possible turnover and not the turnover by the available means of exchange.


At last, the question may be raised whether the issue of railway money might lead to inflation.

No intricate explanations are necessary here. Every judicious person is aware that an inflation presupposes a forced currency and that without the latter the former is impossible.

(See Rittershausen, “Das andere System” ‑ The Other System ‑, 1932, p. 12ff.; and Zander: “Der Kampf der Wertpapierbesitzer”  ‑ The Battle of the Owners of Securities ‑, Berlin, 1933, and in the explanation to: Vier Gesetzentwuerfe zur Bekaempfung der’ Deflation, Verhinderung der Inflation and Senkung des Zinses” ‑ Four Legislative Drafts for Combating Deflation, Preventing Inflation, and Lowering the Interest Rate,  1932 and Best,  “Ueber die Vier Gesetzentwuerfe” ‑ Concerning the Four Legislative Drafts – , Berlin 1933 p 13. )

The standard of value, the alteration of which is the principal sign of an inflation, remains entirely unchanged where the notes are governed by free market rates. The value is determined legislatively according to the unit of value, that is in Germany , at the present moment, according to the price of gold. At the most, the value of the railway notes with free market rating would be changing. At the worst when contrary to the principles enunciated in this paper, more notes are issued than can conveniently flow back to the booking offices, the notes would depreciate in value. But the standard of value, that is the Reichsmark as the price of a legislatively fixed weight of gold, would not be affected thereby, That the issue of railway money should be forthwith suspended when there is a fall in its market rate, has been already stressed. However, with the suspension of the issue, the circulation would drop and the railway money would thus prove its above described capacity to regain its balance.

Nor would average prices be raised by the issue of railway money, for there would be no fear of a unilateral or arbitrary multiplication of note circulation. On the contrary, each transport certificate would be a receipt for an actual turnover of goods which has already taken place, It is based on a genuine trade with goods. By means of the money it issued, the Railway would merely convert the supplier’s claim into a readily utilizable medium of exchange and would replace an inconvenient by a convenient medium.

Indeed, it may even be anticipated that the increase in the exchange of goods and services would lead to a drop in average prices. On the other hand, there would be no longer any so‑called forced sales, that is sales due to a deficiency in the means of payment and yielding an unjustifiably low return.


The adoption of the present plan would tend to raise the country’s wealth through increasing the turnover of goods and personal services and would, by the introduction of a free market rate for money, safeguard stable value reckoning in the legal currency unit. It would benefit both equally, the businessman and the investor, and substantially contribute to safeguarding the currency. It is manifest that the principle here advocated need not be confined to the Railway. It might feasibly be extended to other leading undertakings (shipping lines, general transport companies, electricity companies, etc.). It could possibly even be extended to the introduction of a general State paper money to be accepted at all governmental revenue centres, this naturally, like the old Prussian “Kassenanweisungen”, without entailing compulsory acceptance or a forced currency. The transformation of the tax certificates along these lines has already been proposed; but that may be left to a later date. To start with, it might suffice to apply the principle within a restricted field, as we have done.


By Dr. W. Zander, Berlin

(Reprinted from the above quoted volume “Ending the Unemployment and Trade crisis”)


Division of labour is the foundation of the modern economic system. This division presupposes an exchange of services among those concerned if serious business disturbances are to be avoided. That exchange, however, is today gravely impeded. Everywhere, exchangeable values and mutual wants abound, but actual exchange meets with obstacles.

In a primitive economy, existing values are directly exchanged. In our modern economy money serves as the medium of exchange. But the notes of the central banks are not capable of facilitating exchanges to the degree demanded by the requirements and productivity of the present day. This results from their very nature, According to the prevailing conception a banknote is a substitute for metallic money (gold). Its value is said to reside in the fact that the central bank redeems it or buys it at a standard rate, Hence the quantity of notes that may be issued is limited by the metallic store at the disposal of the central bank. Add to which that in most countries banknotes are legal tender, that is, that they also represent the measure of value. Hence any multiplication of notes which might lead to depreciation, jeopardizes the whole monetary system of a country. Accordingly, no responsible director of a central bank would assist in a multiplication of such note circulation.

It is quite possible that, regarded from the standpoint of convertibility, the existing means of payment suffice, but that, from the standpoint of the exchange or services, they are wholly inadequate. The reverse may also occur. Thus the gold reserve of the Bank of France, for instance, would be far too large to serve as a basis for the exchange of services in a small village. The redemption fund does therefore not necessarily correspond to the economic requirements.

In our modern economy, not even the largest gold reserve would suffice to satisfy all exchange demands. Indeed, the world’s aggregate stock of gold would probably be insufficient to transact the multitude of all the exchanges of services of a moderately large territory. Actually, the mass of business is transacted not through the medium of gold or banknotes, but by other means of payment such as bills, cheques, transfers, and above all by mutual clearing. However, all these credit adjuncts are finally convertible into legal tender and are therefore ultimately anchored in the convertible notes of the central bank and in the idea of convertibility. In and of itself the exchange of goods is nevertheless independent of the magnitude of the central banks gold reserves. It can and must take place even when here is no cover at the bank or even when the central bank is paralyzed by war, revolution, or the illiquidity of its assets. Exchange transactions create their own means of payment, provided that compulsory legal measures or currency monopolies as in bolshevist Russia, where these are extremely developed but as they exist more or less in every country today do not prevent this.

Exchange certificates, the nature of which we describe in the next paragraph, constitute such a medium of exchange: They are independent of the central bank and its reserves; Their object is merely to facilitate exchanges. Naturally, no one is bound to accept them nor have they a legally settled value, Only the parties responsible for their issue, are obliged to redeem them. They are therefore nothing but a medium of payment and exercise no influence on the legally fixed standard of value. Hence the amount of exchange money current is nowise dependent on its convertibility into gold or banknotes of the central bank but exclusively on the magnitude of the exchange transactions which actually took place. Accordingly, exchange money is able to satisfy the immense demand for a medium capable of facilitating exchanges, i.e., for means of payment without thereby in any way affecting the standard of value.

If consequently, exchange transactions as such are independent of a gold reserve, then there is no necessary correlation between redeemable banknotes and exchanges. Such banknotes facilitate exchange transactions to the extent that they are a substitute for gold, for gold is the commodity for which all other commodities may be exchanged. The exchange certificate, on the other hand, is no substitute for gold. Its relation to exchange transactions is hence of a different nature. The exchange certificate represents an acknowledgement of the value of services received by the party issuing it and entitles therefore its holder to corresponding and immediate counter-services It expresses the essence of a genuine barter relation and has no other function than to facilitate exchanges.

Herein lies the crucial difference between exchange certificates and the notes of the central bank: the banknotes may and the certificates must produce exchanges, whence the superiority of the latter. The objection that banknotes standardize the modes of settlement and are therefore preferable to certificates, is not convincing, for the objection is only partly valid, inasmuch as the standard, of value remains also the same with certificates. In fact, the exchange certificates of all countries might be based on the same standard of value, e.g., on a certain quantity of fine gold (e.g. 1 or 10 grams). In this way international monetary settlements might be made uniform by the system of exchange certificates (goods warrants or purchasing certificates –The Ed) and placed on a stable value basis. Moreover, such certificates would not need to be subject to foreign exchange legislation, for not being convertible into gold, they could never result in gold shipments. It should be finally observed that by far the largest and most important part of all means of payment, viz., bills, cheques, and, foremost, clearing transactions, are even today still unsocialized and unstandardized, and are therefore, like exchange certificates, subject to fluctuations according to prevailing circumstances.


In its application, the certificate system is by no means restricted to short-term credits, for there is the possibility of applying it to medium and long-term credits. Thus railway companies might issue annuities or bonds, redeemable or yielding interest not in legal tender, but through being accepted in payment at the railway booking offices. These securities would closely resemble the tax certificates of the German Reich. For this purpose it would be opportune to entitle the holders of railway money to convert it into railway annuities, Thus there would be established a buffer organization for the acceptance of railway money and facilities would be created for the Railway for obtaining long term credits.


The American railways have been especially hard hit by the depression. In December 1932, they addressed an appeal to the American people and its governments, wherein they made clear the hopelessness of their situation According to that appeal, about 30% of their staffs had been dismissed since 1929 and die wages of those who remained were severely cut. Some 4.000 factories employing about 150.000 workers were entirety or almost closed owing to reduced railway orders. Thousands of smaller towns were prejudicially affected by this and altogether some 14 million inhabitants of the United States directly of indirectly suffered through the railway crisis. Nor has the situation much improved since. (See January Report 1934 of the National City Bank of New York.)

The alleviating measures proposed so far appear to be inadequate. It is by no means enough to encourage railway travel by offering more comfortably furnished coaches. Traffic receipts fell, not because railway coaches were not luxuriously fitted but because the public was short of money. The taxing of the railways may aggravate their financial situation but this will not be a decisive factor. The same holds true of competition with other forms of transport, for it may be safely assumed that the railways have still an important part to play in the economic life of the United States. Nor is the nationalization of the railway likely to increase the goods traffic, as the experience of bolshevist Russia proves.

All these proposals ignore the problem of the medium of payment and yet without solving this problem, that of an unimpeded exchange of goods is insoluble.

Hence our suggestion to consider the issue of railway money as proposed above with a view of thereby solving the grave problem facing the railways. The possibilities would be great for the United States in this respect.

The depreciation of dollar notes is here of special significance. It would be advisable that the railway money issued should be based on some permanent standard of value, preferably the gold dollar. (This equally applies now that the dollar has been re‑stabilized, for it is inherently desirable to have a unit of computation which is independent of the political exigencies of the day.) As a minimum, a guaranty of a certain freight‑mileage should be granted. After last year’s events, public opinion in the United States will appreciate and rally to an unfluctuating medium of payment. The issue of unfluctuating railway annuities, embodying a freight‑mileage guaranty, might be also recommended. If one of the American railway companies had carried out such a plan a year ago, an extraordinary demand would have arisen for its certificates and it could have thus floated a big loan bearing no interest.

Nor should it be forgotten that America, too, has known railway money. Thus in 1834 the Georgia Railroad Company brought into circulation more than its total capital in railway notes and the Baltimore and Ohio Railroad Company issued notes which could be converted into the municipal loans of Baltimore. These experiments were, however not successful, and accordingly in 1845 the State of Maryland prohibited the issue of railway money altogether. But these failures are easily explained. At the time of issue, the Railways in question were not yet constructed; at all events not yet operating. By means of this money, it was hoped to build the railways. Hence the sole fundamental presupposition for the issue of exchange certificates was lacking, namely the possibility of tendering the railway money at the railway booking offices. There was no return current and the depreciation of the money followed therefore as a matter of course. The money issued in those circumstances has consequently scarcely more than the name in common with the money here proposed. In this connection it is interesting to note that in the case of the Leipzig Dresden Railway, the Saxon Government, which was intimately conversant with the peculiarities of paper money; only granted permission to issue railway money after the railway was running. In view of the numerous railway companies in the United States, it would be, to begin with, preferable for one company only to apply our proposal. If the experiment succeeded, the companies might form themselves into larger groups and organize a clearing house bank for the issue of railway certificates.

There is also the following possibility. According to press reports, the American Government is not averse to assisting the railways financially That assistance might consist in the government agreeing to accept railway money in tax payments. This would facilitate matters for the Administration and would provide another important use for railway money (tax foundation). About a century ago the State of New York proceeded once in a similar manner as regards the payment of canal dues.

[1] Compare his work: “Ueber ein Saechsisches Eisenbahnsystem als Grundlage eines allgemeinen deutschen Eisenbahnsystems sowie den Prospektus des Eisenbahnkomitees zu Leipzig an das Publikum”. complete works, Hobbing, 3/1 S. 167 f ., 3/2 S. 65 8.

[2] Michaelis, “Volkswirtschaftliche Schriften” ‑ Economic Works ‑ , Berlin, 1873= vol. 2, p. 272, “On Paper Currency”.