Economic theory of bank credit PDF
Preview Economic theory of bank credit
ECONOMIC THEORY OF BANK CREDIT Economic Theory of Bank Credit L. ALBERT HAHN Translated by Clemens Matt With an Introduction by Harald Hagemann 1 3 GreatClarendonStreet,Oxford,OX26DP, UnitedKingdom OxfordUniversityPressisadepartmentoftheUniversityofOxford. ItfurtherstheUniversity’sobjectiveofexcellenceinresearch,scholarship, andeducationbypublishingworldwide.Oxfordisaregisteredtrademarkof OxfordUniversityPressintheUKandincertainothercountries ©OxfordUniversityPress2015 Introduction©HaraldHagemann Themoralrightsoftheauthorshavebeenasserted FirstEditionpublishedin2015 Impression:1 Allrightsreserved.Nopartofthispublicationmaybereproduced,storedin aretrievalsystem,ortransmitted,inanyformorbyanymeans,withoutthe priorpermissioninwritingofOxfordUniversityPress,orasexpresslypermitted bylaw,bylicenceorundertermsagreedwiththeappropriatereprographics rightsorganization.Enquiriesconcerningreproductionoutsidethescopeofthe aboveshouldbesenttotheRightsDepartment,OxfordUniversityPress,atthe addressabove Youmustnotcirculatethisworkinanyotherform andyoumustimposethissameconditiononanyacquirer PublishedintheUnitedStatesofAmericabyOxfordUniversityPress 198MadisonAvenue,NewYork,NY10016,UnitedStatesofAmerica BritishLibraryCataloguinginPublicationData Dataavailable LibraryofCongressControlNumber:2015935255 ISBN 978–0–19–872307–3 Printedandboundby CPIGroup(UK)Ltd,Croydon,CR04YY LinkstothirdpartywebsitesareprovidedbyOxfordingoodfaithand forinformationonly.Oxforddisclaimsanyresponsibilityforthematerials containedinanythirdpartywebsitereferencedinthiswork. Introduction Harald Hagemann Almostacenturyagoin1920,L.AlbertHahnpublishedthefirstedition of his Volkswirtschaftliche Theorie des Bankkredits.1 Thanks to the persistent endeavours and great enthusiasm of his translator Clemens MattthebookisavailabletoawiderEnglish-speakingaudienceforthe first time. The book had attracted many readers (but limited to the shrinking group able to read German) interested in the role of banks andcreditinmoderndebatesinmonetarymacroeconomics.AnEnglish languagetranslationofL.AlbertHahn’sEconomicTheoryofBankCredit isthereforenotonlyhighlywelcomebutlongoverdue.2 Hahnwantedtoovercometheorthodoxviewthateverycredithas to be financed by means of savings deposited in banks with his EconomicTheoryofBankCredit,whichremainedthemostimportant monograph among his many writings. He regarded the classical doctrineas adequate forthestate of development of theeconomyat thetimeoftheclassicaleconomists(ofwhomhegavehighestpraise to Ricardo) but found it most inappropriate for a modern economy with elastic money and credit supply. The central regression line of Hahn’s thought is the doctrine that ‘capital formation is not the consequenceofsavingsbutofgrantingcredit;grantingcredit logically precedescapitalaccumulation’.3 Hahnstucktothisviewuntiltheendofhislifedespitemanylater modificationsandsomefundamentalchangesinhiseconomicviews which for some modern historians of economic thought mutated a 1 LucienAlbertHahn,VolkswirtschaftlicheTheoriedesBankkredits,1sted.(Tübingen: J.C.BMohr(PaulSiebeck),1920). 2 Sofaronlyan Italiantranslation, editedbyLapoBerti,hadbeen published in 1990, as vol. 3 in a series on Economia Monetaria (edited by Professor Augusto Graziani) where the Italian translation of Hayek’s Prices and Production was pub- lishedasvol.2.SeeLucienAlbertHahn,Teoriaeconomicadelcredito,trans.anded. LapoBerti(Naples:EdizioniScientificheItaliane,1990). 3 With this priority of credit creation over capital formation Hahn starts the explanationofhisowntheoryincontrasttothetraditionaldoctrine.Hahn,Volks- wirtschaftlicheTheoriedesBankkredits,1sted.,p.120. vi Introduction ‘precursorofKeynesianism’intooneof‘themonetaristcounterrevo- lution’.4 He concludes the condensed autobiographical survey of his development as a theorist over half a century by pointing to the fundamental principle of his business cycle and employment theory (which,however,needstobeappliedwithcare):‘Everycreditexpan- sion causes an increase in production, as a consequence to a shift in distribution. Credit draws the goods from a nirvana, in which they wouldremainwithoutthecreditexpansion’.5 A second edition of Hahn’s book was published in completely unaltered form (in which even the many misprints of the names of famous economists were not corrected) shortly after the end of the period of hyperinflation and currency reforms in Germany and Austria in 1924.6 Theauthorrevealsintheprefacethatalackoftime was the reason for publishing an unaltered reprint. Hahn also vainly refers to the fact ‘that almost every economic seminar at German universitiesdiscussed my book in detail’ which contributed to a quick sell-outofthefirsteditionwhilstalsocomplainingthathiscontribution hadbeenwidelyneglectedormisunderstoodbythegreatmajorityofthe economics profession. Despite Hahn’s dissatisfaction, his Economic Theory of Bank Credit had become one of the most influential and certainly the most controversial book on monetary economics in the German-speakingworldofthemidandlate1920s. InhiscriticalbutrespectfulreviewarticleofHahn’sbook,Gottfried Haberler came to the conclusion that ‘Albert Hahn undoubtedly deservesaprominentplaceinthehistoryofthemostrecentGerman monetarytheory’butalso‘thatoflateaHahnliteraturehasdeveloped, inasmuchasscarcelya bookispublishedtodayonmoneyandcredit thatdoesnotdiscussHahn’steachingsatlength’.7BothHaberler’sand 4 Donald J. Boudreaux and George A. Selgin, ‘L. Albert Hahn: a precursor of Keynesianism and the Monetarist counterrevolution’, History of Political Economy 22,no.2,(1990):261–79. 5 LucienAlbertHahn,FünfzigJahrezwischenInflationundDeflation[FiftyYears betweenInflationandDeflation](Tübingen:J.C.BMohr(PaulSiebeck),1963).p.13 and Lucien Albert Hahn, Volkswirtschaftliche Theorie des Bankkredits, 3rd ed. (Tübingen:J.C.BMohr(PaulSiebeck),1930),pp.125–6. 6 Lucien Albert Hahn, Volkswirtschaftliche Theorie des Bankkredits, 2nd ed. (Tübingen:J.C.BMohr(PaulSiebeck),1924). 7 Gottfried Haberler, ‘Albert Hahns Volkswirtschaftliche Theorie des Bankkre- dits’[AlbertHahn’seconomic theory ofbankcredit], ArchivfürSozialwissenschaft undSozialpolitk57(1927):803–20,p.803.TheGermanreviewarticlefrom1927was translated in 1949 as a substantially reduced version and printed in Lucien Albert Introduction vii von Bortkiewicz’s8 reviews of the first edition are some of the most insightful contributions to the contemporary ‘Hahn literature’. The proud author of the Economic Theory of Bank Credit himself exten- sively refers to this body of literature in his preface to the third and substantially revised edition, which was published in vastly different economic conditions at the beginning of the deflationary Great Depressionin1930. HAHN’S BIOGRAPHY Hahn’s academic life and his scholarly contributions are strongly interlinkedwithhisentrepreneuriallifeandhissuccessasapractical banker.9 One can therefore understand Hahn’s Economic Theory of Bank Credit better with awareness of his biography. Lucien Albert HahnwasbornintoafamilyofprivatebankersinFrankfurtamMain on October 12, 1889.10 After finishing high school at the Goethe- Gymnasium,HahnbeganstudyingmedicineatFreiburgbeforechan- gingtolawatHeidelbergandMarburgwherehereceivedhisPhDin 1912. The First World War interrupted the completion of his legal educationwhichhecouldonlyfinalizeatthecourtofjusticeinBerlin in 1919. In the same year he succeeded his sick father Albert (who died in 1921) on the management board of the family bank. The BankhausL.AlbertHahn,foundedbyhisgreat-grandfatherin1821, Hahn, The Economics of Illusion: A Critical Analysis of Contemporary Economic TheoryandPolicy(NewYork:SquierPublishing,1949). 8 Ludwig von Bortkiewicz, ‘Das Wesen, die Grenzen und die Wirkungen des Bankkredits’[TheEssence,BoundariesandEffectsofBankCredit],Weltwirtschaft- lichesArchiv17(1922):70–89. 9 See also Jan-Otmar Hesse, ‘Some Relationships between a Scholar's and an Entrepreneur’sLife:TheBiographyofL.AlbertHahn’,HistoryofPoliticalEconomy 39,AnnualSupplement(2007):215–33. 10 For details on Hahn’s biography see Bernd Kulla, ‘Hahn, Ludwig Albert’, in Biographisches Handbuch der deutschsprachigen wirtschaftswissenschaftlichen Emi- gration nach 1933, vol. 1, edited by Harald Hagemann and Claus-Dieter Krohn (Munich:K.G.Saur,1999);Hesse,‘SomeRelationshipsbetweenaScholar’sandan Entrepreneur’sLife:TheBiographyofL.AlbertHahn’andmostinformativeMichael Hauck,ed.,AlbertHahn.EinverstoßenerSohnFrankfurts,BankierundWissenschaft- ler. Eine Dokumentation [Albert Hahn: A Purged Son of Frankfurt, Banker and Scholar:ADocumentation](FrankfurtamMain:Societäts-Verlag,2009). viii Introduction hadbecomeapubliccompany,theDeutscheEffecten-undWechsel- Bankin1872,inwhichtheHahnfamilyheldthemajorityofshares. Hahnhadalreadypublishedjournalarticlesoneconomicproblems duringtheFirstWorldWar11andacquiredasecondPhD,thistimein economics from the University of Marburg in 1919. His thesis is entitledDerGegenstanddesGeld-undKapitalmarktesindermodernen Wirtschaft.EinBeitragzurTheoriedesBankgeschäfts12andformedthe basis of his widely expanded Economic Theory of Bank Credit which was published in the subsequent year. In retrospect the author con- sidered the results of his doctoral thesis as ‘extremely unorthodox’13 andthebookas‘fullofyouthfulenthusiasmandconvincedofhaving discoveredthepathtopermanentprosperity’.14 Hahn, who aimed for a better theoretical understanding of his practical activities as a leading private banker, had now found his roleas‘atheorizingpractitioner’.15WhereastheEconomicTheoryof BankCreditwasheavilycriticisedbymanycontemporaryeconomists asan ‘apotheosis ofcredit creation’,16theinsightsof theauthor into the essence and the consequences of hyperinflation helped to main- tainthecapitalofthebankunderthedirectionofHahnandhisuncle Ludwig.Theprofessionalbankerfeltacompulsiontobecome‘atleast an avocational theoretician’17 who published regularly in scholarly journals.18 Furthermore, Hahn contributed frequently to economic periodicals and the best newspapers, exerting some influence on the bankingcommunityandthepublicpolicydebate. 11 For a complete bibliography, see Hahn, Fünfzig Jahre zwischen Inflation und Deflation,pp.241–7. 12 LucienAlbertHahn,‘DerGegenstanddesGeld-undKapitalmarktesindermo- dernenWirschaft:EinBeitragzurTheoriedesBankgeschäfts’[TheObjectoftheMoney and Capital Market in the Modern Economy: A Contribution to the Theory of the BankingBusiness],ArchivfürSozialwissenschaftundSozialpolitik46(1919):pp.163–215. 13 LucienAlbertHahn,FünfzigJahrezwischenInflationundDeflation,p.4. 14 Lucien Albert Hahn, ‘Die Grundirrtümer in Lord Keynes’ General Theory of Employment,InterestandMoney’[ThefundamentalerrorsinLordKeynes’General TheoryofEmployment,InterestandMoney],Ordo2(1949):pp.170–90,p.171. 15 LucienAlbertHahn,FünfzigJahrezwischenInflationundDeflation,p.1. 16 See,forexample,HowardS.Ellis,GermanMonetaryTheory1905–1933(Cam- bridge,MA:HarvardUniversityPress,1934),p.329. 17 LucienAlbertHahn,FünfzigJahrezwischenInflationundDeflation,p.3. 18 ThecollectedessayscomprisingHahn’smostimportantarticlesarepublishedin LucienAlbertHahn,GeldundKredit[MoneyandCredit],(Tübingen;J.C.BMohr, 1924)andLucienAlbertHahn,GeldundKredit:NeueFolge.[MoneyandCredit:New Series],(Tübingen:J.C.BMohr,1929). Introduction ix Businesscyclesbecameadominantresearchthemeintheinterwar period. In 1925, a more systematic empirical analysis started with thefoundationof theGerman InstituteforBusiness CycleResearch, today’s DIW, in Berlin. In the subsequent year Hahn initiated the foundation of the Frankfurter Gesellschaft für Konjunkturforschung (FrankfurtSocietyforResearchonBusinessCycles)whichwasfinan- cially supported by the Frankfurt Chamber of Commerce. The Frankfurt Society was chaired by Hahn’s friend Eugen Altschul19 and strongly cooperated with the faculty members of the Goethe University.Thefocusonthemethodologicalfoundationsofempirical researchonbusinesscyclesbecameitstrademark.Thisisexemplified by Oskar Anderson’s20 critical assessment of the index of general business conditions like the ‘barometric’ approach to forecasting of theHarvardCommitteeonEconomicResearchandwhichlaunched animportantpublicationseries.21In1928,Hahnreceivedanhonor- aryprofessorshipfromtheGoetheUniversityforhiscontributionsto monetaryeconomics.Hahnlecturedregularlyonmoneyandcreditat theFacultyofEconomicsandSocialSciencesfromspring1929.This cametoanabruptendfouryearslaterinspring1933whenHahnwas amongthenineteenmembersoftheFacultyofEconomicsandtheSocial Sciences of Goethe University who were dismissed for racial and/or politicalreasonsonthebasisoftheRestorationofCivilServiceAct,an ActpromulgatedbytheNazisonlysevenweeksaftertheirrisetopower on 7 April 1933. The list included among others such outstanding scholars as Henryk Grossmann, Carl Grünberg, Adolf Löwe, Karl Mannheim,FritzNeumark,FranzOppenheimer,andKarlPribram.22 19 Hahn refers twice to Altschul’s work (Hahn, Volkswirtschaftliche Theorie des Bankkredits,3rded.,p.148andp.152),thuswhenheemphasisedthat‘Thecredit volumehasincreasedtwelvefoldintheperiodof1870to1910’(footnote1inchapter [2.*]C). 20 Oskar Anderson, Zur Problematik der empirisch-statistischen Konjunktur- forschung [On the Problems of the Empirical-statistical Business Cycle Research] (Bonn:VerlagKurtSchröder,1929). 21 ForamoredetailedanalysisoftheFrankfurtSocietyforResearchonBusiness Cycles see Bernd Kulla, Die Anfänge der empirischen Konjunkturforschung in Deutschland 1925–33 [The Beginning of Empirical Business Cycle Research in Germany](Berlin:Duncker&Humblot,1996),pp.163–80. 22 Forafulllistseep.443inJan-OtmarHesse,‘DieFrankfurterWirtschafts-und SozialwissenschaftlicheFakultätzwischen1933und1945’[TheFacultyofEconomic andSocialSciencesinFrankfurtfrom1933to1945],inWirtschaftsundSozialwis- senschaftlerinFrankfurtamMain,ed.BertramSchefold,2nded.(Marburg:Metro- polis,2004):pp.440–63.
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