Fritz Machlup on Wagner’s Geschichte der Kredittheorien

Fritz Machlup’s December 1939 book review assesses Valentin F. Wagner’s history of credit theories as an important contribution to monetary economics. Its central judgment combines admiration for Wagner’s historical scholarship with reservations about his classification of theories. Above all, Machlup values Wagner’s reconsideration of the Banking School: ideas commonly dismissed as antiquated emerge as potentially useful explanations of the relationship between credit and trade. The review opens by recommending the book to economists unable to follow German-language scholarship:

It is decidedly worth reading and would be worth translation into English.

That recommendation rests especially on Wagner’s “friendly and intelligent interpretation” of older banking theory. Machlup connects Valentin Wagner with Adolf Wagner, whose nineteenth-century account of the Currency School–Banking School controversy also showed unusual sympathy toward the latter. The comparison establishes an intellectual affinity, not merely a shared surname: both gave serious consideration to positions that prominent contemporaries tended to reject.

Machlup identifies the book’s scope precisely as the history of credit theories, rather than monetary doctrines generally. Its organization is systematic instead of chronological, an approach he places alongside the work of Howard Ellis and Arthur Marget. Wagner begins with theories denying credit a dynamic function, then considers “kinetic theories,” reproduction credit in Marxian and other formulations, and credit creation. The discussion proceeds through theories relating credit to economic development and business cycles, concluding with compensatory credit creation and production credit. Machlup credits this breadth but finds the organizing scheme cumbersome:

His classification of credit theories is very complex and results in duplications and repetitions which make the book unnecessarily long.

The criticism concerns the presentation of the argument, not the value of the historical undertaking. Wagner’s proliferation of categories produces overlap, while his newly coined terminology resists English translation. Machlup consequently describes the progression of subjects without attempting to translate all ten chapter titles. His account suggests a substantial analytical achievement whose accessibility is reduced by its own classificatory apparatus.

The review’s conceptual center is Wagner’s challenge to the treatment of bank notes and bank deposits as economically equivalent. According to Machlup’s account, Wagner argues that insufficient differentiation between their functions exaggerates the banking system’s power to create deposits. It also obscures how deposit volumes can respond elastically to fluctuations within industrial circulation without necessarily initiating dynamic economic change. The issue is therefore not simply whether credit expands, but whether its movement independently transforms economic activity or reflects movements already occurring in trade.

Wagner finds, thus, that the Banking School was wrong in exactly the point which was accepted by modern theory (viz., that bank notes and bank deposits were of the same nature); whereas it was almost correct in exactly the point which was rejected by modern theory (viz., that the movement of bank deposits might simply picture movements of trade and that bank credit might be a non-dynamic substitute for trade credit).

This reversal gives Wagner’s historical inquiry its theoretical relevance. His rehabilitation of the Banking School is selective: he rejects its assimilation of notes and deposits while recovering its explanation of bank credit as potentially responsive to trade rather than an autonomous source of economic change. Machlup presents that distinction as the book’s strongest contribution, without declaring Wagner’s case conclusively established.

The closing assessment preserves this restraint. Machlup calls his account a “crude abstract” and acknowledges that a short review cannot adequately represent an analysis exceeding five hundred pages. Nevertheless, he judges Wagner remarkably successful in tracing credit theories from preclassical writers to contemporary English, German, French, Italian, Dutch, and Scandinavian economists. The review thus recommends the book both for its international historical reach and for its capacity to reopen a theoretical question: when does bank credit exert an independent dynamic influence, and when does it accommodate the circulation of trade?