Modern Age

Title page of Wilhelm von Hörnigk’s mercantilist work 

Johann Joachim Becher, engraving by Tobias Gabriel Beck 

Screw press or balancier, from Diderot and d’Alembert’s Encyclopédie (1751 to 1772) 

Title page of Wilhelm von Schröder’s work 

Expensive wars required to uphold Austrian hegemonic interests, an outdated financial system and a poorly developed economic system were the source of the Habsburg empire’s continued financial woes. In the early 17th century, Albrecht von Wallenstein, Emperor Ferdinand II’s powerful chief imperial general, had forced friend and foe to pay tributes with the motto “war feeds war,” but at the end of the 17th century, new economic theories proposed a different approach: Austria will prevail if it wants to ("Österreich über alles, wann es nur will"), which is the title of a book Philipp Wilhelm von Hörnigk published in 1648. Next to Johann Joachim Becher and Wilhelm von Schröder, von Hörnigk prepared the ground for Austrian mercantilism. Under this policy, the state pursued the objective of reducing the trade deficit by increasing exports and accumulating precious metals in return; moreover, mercantilism postulated a promotion of domestic business and trade as the very basis for financing a powerful army. 

Wilhelm von Schröder advocated another method to stimulate the economy: In his book “Fürstliche Schatz- und Rentkammer, nebst einem notwendigen Unterrichte zum Goldmachen” (roughly paraphrased, The Royal Treasury and How to Make Money), he calls for the introduction of banknotes and paper money to provide the sovereign with “an unlimited and perpetual source of gold and finance.” 

However, Austria did not implement this suggestion and instead resorted to raising taxes in addition to the traditional sources of finance (lending against collateral, leasing and revenues from the emperor’s holdings and properties). During Charles VI’s regency (1711 to 1740), Austria borrowed from its allies and raised growing amounts of private capital to meet the rising need for public finance. The emperor’s reform activity was directed primarily toward promoting merchants and craftsme n. Changes in the coinage system consisted of efforts to standardize the appearance of coins and to modernize the minting process by introducing the screw press.

20 kreuzer Convention coin of 1776, Vienna, Maria Theresa (1740 to 1780) 

Ducat, 1765, Vienna, Francis I (1745 to 1765), minted posthumously 

Thaler,
Maria Theresa (1740 to 1780) 

The mercantilist reforms (activist economic policy, trade stimulation) rang in a new era of statist economic policies in the first half of the 18th century that had repercussions on the system of coinage. To counteract the constant danger of debasement and to standardize the currency, Empress Maria Theresa (1740 to 1780) introduced a new coinage standard. The 20 gulden standard established the value of the Cologne mark at 20 gulden or 10 thaler (the Vienna mark was set at a ratio of 5 to 6 to the Cologne mark, making it the equivalent of 24 gulden or 12 thaler). 

The support of the Bavarians for the introduction of the new coinage standard was secured first. By and by, nearly all German lands with the exception of Prussia joined the Convention. Austria had thus succeeded in laying the foundation for a widely used currency which remained in effect for more than 100 years, a step which also helped facilitate international payment transactions. 

The Convention coins remained legal tender until 1858. The design on the reverse showed a cross in the form of an x (the cross of St. Andrew). The 20 kreuzer Convention coin predominated in regular money transactions. The main coin, however, was the Convention thaler. Half of the stock of coins bore the portrait of Maria Theresa’s husband, Francis I, Duke of Lorraine; after his death in 1756, a third each of the coins in circulation displayed the portraits of Maria Theresa, Francis and Maria Theresa’s son and successor, Joseph II (1764 to 1790). 

The Maria Theresa thaler, a two gulden coin, became the most widely known coin of the period. It was highly popular in Levante trade and remained in circulation in Arabic countries and Abessinia until the end of WWII. This coin, issued in 1780, depicts Maria Theresa as a widow with a veil – it was referred to with discourteous humor by the British as “fat lady” because of the Rubenesque outlines – and was one of the most successful and long-lasting coins in monetary history.

Another important innovation introduced during Maria Theresa’s era was the copper coin. From 1760, the kreuzer, which had deteriorated into a small and impractical silver coin, was issued as a billon coin, or scheidemünze, as such 18th century coins are called. The kreuzer succeeded in superseding the miscellany of foreign divisional coins in circulation and met the need for small change with domestically produced coins. In 1779, when the Innviertel became part of Austria and the problem of the dearth of coins there had to be solved, the mint at Günzburg in the Vorderösterreich region had to manufacture 1.2 million copper kreuzer within just six weeks and ship the coins to the newly acquired region.

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  Maria Theresa, order of 1760 to issue copper coins (Münzkabinett collection of the Kunsthistorisches Museum, Vienna) 

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  Kreuzer coin, 1779, Vienna,
  Maria Theresa (1740 to 1780) 

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Title page of the patent of June 15, 1762,
on the issue of paper money. 

50-gulden Wiener Stadt-Banco-Zettel, November 1, 1784 

10-gulden Wiener Stadt-Banco-Zettel,
July 1, 1771 

1,000-gulden Wiener Stadt-Banco-Zettel,
July 1, 1771 

Costly warfare was one of the chief reasons for Austria’s still intractable financial problems. While credits provided a new avenue to meeting financing needs in the short term, they were no more than a stopgap solution, and the state’s financial condition deteriorated further. During Charles VI’s reign (1711 to 1740), the national debt burgeoned by some two-thirds to a total of some 54 million gulden. 

To finance the expense incurred by the Seven Years’ War against Prussia to regain Silesia, in 1762 Maria Theresa elected to issue paper money for the first time in Austrian history to procure additional funds for the war without jeopardizing the coinage standard. The issue of the paper money was entrusted to Wiener-Stadt-Banco, a bank that had been used time and again to redeem the national debt. A share of state revenues was earmarked as collateral for the 12 million gulden worth of non-interest-bearing bank notes. These bank notes, known as Banco-Zettel, were eligible for use for any type of payment; Banco-Zettel worth 200 gulden or more were also exchangeable for imperial bonds at 5% interest. 

While there was no obligation to accept Banco-Zettel as legal tender, there was no doubt that they would be redeemed for silver coin on presentation, so that the Banco-Zettel at times even commanded a premium of 1% to 2 1/2% on silver coins. Banco-Zettel were issued again in 1771 and 1785.

500-gulden Wiener Stadt-Banco-Zettel,
June 1, 1806 

24 kreuzer, 1800, Vienna,
Francis II (I) (1792 to 1835) 

The Bankruptcy Patent of February 20, 1811 

Redemption coupon worth 1 gulden Convention coin, March 1, 1811 

In the wake of the campaign against the Turks in 1788 and the war against France during the French Revolution (from 1792), Austria experienced serious financial difficulties. Public expenditure, which had come to approximately 90 million gulden before the Turkish war, skyrocketed to 572 million gulden in 1798. Emperor Francis II (1792 to 1835) opted to print more paper money as the only way out of this dilemma. In a first run, this was done clandestinely, and in 1796 new Banco-Zettel were issued. Only one year later, the volume of Banco-Zettel in circulation had risen to 74 million gulden, and a price for the Banco-Zettel had to be officially fixed. 

As the volume of paper money burgeoned, gold and silver coins grew scarce, a problem which gave rise to the minting of coins whose silver value was lower than their face value first and later to the issue of Banco-Zettel copper fractional coins. 

The inflation of the money supply reached dangerous proportions in 1800 and 1806, after more paper money had been issued. The reparation payments imposed on Austria by the Peace of Schönbrunn concluded in 1809 fueled inflation further. In 1810, the volume of Banco-Zettel in circulation exceeded 1 billion gulden. In December 1810, the government imposed a moratorium on all payment obligations in coin. Just three months later, on February 20, 1811, Austria had to declare national bankruptcy. The Banco-Zettel and the Banco-Zettel divisional coins were to be exchanged for exchange coupons also referred to as “Vienna currency” at a rate of 1 to 5.

The state coffers were severely strained by the many wars and the Congress of Vienna in 1814–15, making it necessary to issue paper money once again soon after the Banco-Zettel had been exchanged for Vienna currency. The volume of Vienna currency exchange coupons made it necessary to call the new paper money issues “anticipation coupons” (Antizipationsscheine), as they were covered by tax revenue not yet collected. 

In May 1815 Austria began to put the monetary system on a sound footing. The Privilegirte Oesterreichische National-Bank was founded June 1, 1816. Modeled on the French and English central banks, the Privilegirte Oesterreichische National-Bank was an independent stock company vested with the right to issue banknotes; it succeeded in stabilizing the monetary system. While the new central bank was exploited to finance the chronic budget deficit, it succeeded in keeping a lid on the expansion of the money supply. By 1847, the Vienna currency exchange coupons had been almost wholly exchanged for Convention coins, and after a 25-year pause, it became possible to mint gold and silver coins again. 

The inflation of the money supply was an inevitable consequence of the wars, one which aggravated the social tensions and economic problems in the country. The citizens lost 90% of their wealth on account of the devaluation caused by the rise in the volume of paper money in circulation, the redistribution of incomes, the outflow of assets abroad, and the monetary reconstruction which followed.

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  Redemption coupon worth 5 gulden Convention coin, April 16, 1813 

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  Stock of Privilegirte oesterreichische National-Bank made out to Ludwig van Beethoven 

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  Redemption coupon worth 5 gulden Convention coin, July 1, 1816 

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  Redemption coupon worth 1,000 gulden Convention coin, June 13, 1825, issued January 1, 1831 

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  Redemption coupon worth 100 gulden Convention coin, January 1, 1841, issued January 1, 1842, designed by Peter Fendi 

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After the successful consolidation of the monetary system, the revolution of 1848 represented a renewed disruption. The money supply shot up. In May, the redemption of banknotes in silver was suspended, making paper money legal tender, i.e. acceptance of paper money was declared a legal obligation (it was declared fiat, or fiduciary, money). 

Whereas the state resorted to issuing banknotes to cover the cost of quelling the revolution and of the wars with Hungary and Italy, the municipalities and citizens issued notgeld (emergency money) to cope with the lack of change. Tokens of brass, lead, tin, copper and even glass, leather, wood and cardboard were circulated. By prohibiting the acceptance of such privately issued token coinages and by issuing sufficient amounts of official divisional coins, the imperial treasurer managed to regain control of the monetary system before the end of 1848.

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  Redemption coupon worth ¼ gulden Convention coin, May 25, 1848 

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  Redemption coupon worth ½ gulden Convention coin, May 25, 1848 

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  Circular prohibiting the use of banknotes issued by the Hungarian national revolutionary government 

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  Hat Krajcer (6 kreuzer), Nagybanya mint, 1849, Francis Joseph I (1848 to 1916) 

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