Emil Lederer’s journal article examines the uncertain relationship between capital formation, credit scarcity, and high interest rates in Germany. Its three sections move from the channels of accumulation to the interpretation of interest rates and finally to public finance. Lederer challenges the inference that expensive credit proves insufficient capital formation and that greater business profitability would therefore supply the remedy. His central distinction is between the economy’s total accumulation and the capital actually offered on the market. Their relationship depends on self-financing, technical change, investment failures, and the distribution of credit demand. Statistical uncertainty is consequently not a preliminary inconvenience: it undermines confident diagnoses and policy prescriptions.
The opening survey distinguishes relatively measurable savings deposits and securities issues from less visible investment out of business profits. Bank deposits cannot simply be counted as savings, since lending itself can create corresponding deposits. Nor can accounting categories reliably separate replacement from new investment. Under rapid technical change, replacing depreciated equipment may also improve competitiveness and productive efficiency. Lederer identifies the assumption behind the conventional distinction:
Es liegt eben dem Begriff der Abschreibung die Vorstellung einer in kürzeren Zeiträumen technisch stabilen Produktionsmethode zugrunde. Dieser Begriff bedarf also für den Zustand einer hochgradig dynamischen Wirtschaft einer anderen Formulierung.
English translation: The concept of depreciation rests precisely on the assumption of a production method that is technically stable over shorter periods. This concept therefore requires a different formulation for the condition of a highly dynamic economy.
Depreciation allowances may thus satisfy investment needs without appearing as additional accumulation. Even increases in productive capacity provide an uncertain measure of investment expenditure. Lederer cites estimates of twelve billion marks in material capital growth for 1927, but treats such figures as provisional evidence rather than a resolution of the conceptual problem. His discussion of foreign capital similarly distinguishes identifiable borrowing from uncertain securities purchases and inadequately measured offsetting claims. Foreign indebtedness represents domestic real capital formation only insofar as the funds have not financed consumption.
Capital flight requires an equally careful differentiation. Moving German securities into a foreign safe does not itself diminish the domestic capital supply if their owner continues to spend and reinvest the income at home. Selling German assets to acquire foreign ones has different consequences, although purchases by foreign investors may offset the withdrawal. Large unbalanced outflows would threaten exchange reserves and produce conspicuous exchange-rate and interest-rate pressures. Lederer therefore suspects that genuine capital flight is often overstated, while acknowledging that concealment from tax authorities may be substantial. He also questions the productive value of retail refurbishment compelled by overcrowded competition: expenditure need not increase either turnover or the social product.
The decline in visible accumulation during 1929 does not settle whether necessary investment went unfunded or earlier expansion had already created excessive capacity. Moreover, high credit demand need not represent demand for new fixed investment. Retailers whose working capital remained depleted after inflation shifted inventory-holding onto industry, increasing manufacturers’ borrowing needs. Nominally short-term loans could require repeated renewal because repayment from operating receipts was not realistically imminent. Failed investments further depleted effective capital provision: self-financed failures wasted accumulated resources, while credit-financed failures immobilized bank funds. The resulting scarcity also revealed weaknesses in capitalist self-regulation.
The second section explains why the interest rate cannot transparently measure aggregate accumulation:
Der Zinsfuß ergibt sich aus dem Verhältnis der Kapitalbeträge, welche auf dem betreffenden Markte nachgefragt und angeboten werden.
English translation: The rate of interest results from the relationship between the amounts of capital demanded and supplied on the market in question.
Self-financing removes both supply and demand from that market. Established firms can reinvest profits internally, whereas other enterprises and new businesses must borrow at prevailing rates. Internal investment may remain rational even when its identifiable return falls below the market rate, because it preserves competitiveness or improves the profitability of existing equipment. Indeed, the incremental return may be impossible to isolate: the reorganized business constitutes a changed economic unit, and its earnings cannot simply be apportioned between old and new capital.
This division can nevertheless channel funds into uses that would not justify borrowing at market rates. It also makes foreign funds a larger share of the capital available to market-dependent borrowers. Lederer’s numerical example demonstrates how an interruption of foreign lending can then raise interest rates disproportionately:
So überhöht die Spaltung des Marktes den Effekt einer verringerten Kapitalversorgung¹).
English translation: Thus the division of the market magnifies the effect of a reduced supply of capital¹).
The accompanying footnote qualifies the example: estimates for 1928 imply a smaller actual effect than the schematic illustration suggests. Lederer also regards the allocation of savings to housing as socially desirable, while recognizing that it may intensify industrial and commercial credit scarcity. His argument concerns the organization and destination of accumulation, not merely its quantity.
The final section turns this analysis into a political argument about financial stability. Lederer rejects exaggerated expectations from tax redistribution, especially where tax shifting is ignored. Public borrowing matters because urgent government credit demand responds little to higher rates; reducing it can therefore relieve market pressure effectively. Orderly budgets and the elimination of recurrent cash shortages are also defensive necessities:
Da der Kapitalmarkt heute Schauplatz des politischen und sogar des Klassenkampfes geworden ist, ist es verbrecherischer Leichtsinn, sich dem Gegner gefesselt auszuliefern.
English translation: Since the capital market has today become an arena of political struggle and even of class struggle, it is criminal recklessness to surrender oneself bound to the opponent.
Fiscal equilibrium becomes, in this setting, a socialist demand rather than an abandonment of socialist policy. Vienna illustrates the possibility of pursuing such policy while securing its financial foundations. Lederer links capital flight partly to fear of renewed inflation, nourished by political agitation and deficit finance, and concludes that normal conditions require renewed foreign capital relations on a sound basis. The article’s enduring analytical contribution is to distinguish aggregate accumulation from market liquidity and credit allocation, showing why a high interest rate cannot by itself explain the economy’s capital problem.
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