Richard Reisch, “Hahns Volkswirtschaftliche Theorie des Bankkredits” (1931)

Reisch’s review of the third edition of Hahn’s Volkswirtschaftliche Theorie des Bankkredits is a compact critique of credit absolutism. He grants Hahn’s brilliance and the book’s stimulus, but argues that its memorable paradoxes outrun its qualifications. The central fault is the elevation of bank credit into the ruling force of economic life:

den der unbedingten Suprematie des Kredites gegenüber allen anderen Faktoren der wirtschaftlichen Entwicklung.

English translation: that of the unconditional supremacy of credit over all other factors of economic development.

Reisch first challenges Hahn’s abstractions. A wholly cashless economy is, even by Hahn’s admission, unreal; used as more than a limiting case, it hides rather than explains the monetary unit, confidence, clearing, and redemption. Likewise, the metaphor of a national creditorhood confuses different relations. A bank balance is a claim on the bank; purchasing power over goods is not thereby identical with a seller’s debt to the money-holder. Reisch’s objection is not that banks cannot create means of payment, but that Hahn treats the book entry too much as if it were the whole economic fact.

His central correction is that deposit creation remains tied to payment obligations. Banks may lend beyond immediately available cash because clearing, incoming funds, reserves, collateral, and central-bank facilities make performance probable. But to create claims against oneself is not to abolish the need to satisfy them.

Forderungen gegen sich selbst zu schaffen, die niemals erfüllt werden müssen, wäre allerdings leicht und bequem; aber wer wird sich mit derartigen Forderungen begnügen?

English translation: To create claims against oneself that never have to be honored would indeed be easy and convenient; but who will content himself with such claims?

From this point Reisch reconstructs the institutional discipline that Hahn’s argument weakens. Bank credit is bounded by liquidity, confidence, reserve policy, the quality and purpose of loans, and the maturity structure of assets and liabilities. Extreme cases, such as universal liquidation, do not prove that liquidity is irrelevant; the real question is the degree of liquidity compatible with development and security. Reisch also insists on the economic difference between short commercial credit and long capital credit. Operating needs and durable investment cannot be merged under the single heading of credit without obscuring the sources of crisis.

The review is most appreciative when Hahn analyzes the power of banks to create purchasing power and thereby influence prices, employment, interest, production, and the allocation of goods. Reisch accepts this as the book’s genuine achievement:

Das Verdienst des Buches liegt darin, daß es in dankenswerter Weise das Moment herausarbeitet, daß die Banken über die vorhandenen Zahlungsmittel hinaus neue Kaufkraft schaffen

English translation: The merit of the book lies in its bringing out, in a commendable way, the fact that banks create new purchasing power beyond the existing means of payment.

The dispute is over the leap from influence to supremacy. Hahn’s suggestion that credit can call forth goods that would otherwise remain unproduced appears to Reisch as an inflationist illusion. Credit can transfer command over goods, mobilize savings, and alter the timing and direction of production; it cannot replace the real goods, tools, labor, and subsistence required for longer productive processes. Reisch therefore restores the priority of capital as a concrete stock of means, not merely an accounting power generated by banks.

The conclusion is deliberately balanced. Hahn’s book must be read because it compels economists to take endogenous bank money seriously. Yet it is dangerous where it blurs inflationary and noninflationary expansion, minimizes the constraint of the note bank, and underestimates the distributive and political effects of inflation on money-holders and rentiers.

Niemals aber vermag inflatorischer Kredit „Güter aus dem Nichts zu ziehen“.

English translation: Never, however, is inflationary credit able to "draw goods out of nothing."

Reisch’s lasting point is that bank money creation is real but not sovereign. Accounting creation is constrained by redemption, liquidity, confidence, maturity, and above all by the prior availability of real resources. His review thus accepts Hahn’s provocation while refusing its metaphysical enlargement of credit into an independent source of wealth.