Oskar Morgenstern, “Schlesinger, Karl” (1968)

Oskar Morgenstern’s biographical encyclopedia entry presents Karl Schlesinger (1889–1938) as an important monetary theorist whose intellectual influence exceeded both his published output and his professional recognition. The entry moves from his life and position in Vienna’s economic community to his contributions to mathematical equilibrium theory, money, exchange rates, and bank credit, before returning to the problem of his neglected reputation. Its central distinction is between visible academic standing and substantive intellectual achievement: Schlesinger’s career shows how theoretical innovation could emerge outside universities and circulate through personal discussion without securing proportionate recognition.

Born in Budapest, Schlesinger moved to Vienna after Béla Kun’s communist revolution of 1919. A wealthy financier serving on industrial and financial boards, he never held an academic appointment, but became a respected participant in the Vienna Economic Society. Morgenstern records that he committed suicide on the day Hitler took possession of Vienna. Alongside this compressed account of political displacement and death, the entry identifies a material obstacle to his intellectual reception: his major monetary work, Theorie der Geld- und Kreditwirtschaft (1914), was not readily available when he arrived in Vienna. Its limited direct influence therefore did not simply reflect the quality or originality of its arguments.

Morgenstern first establishes Schlesinger’s importance through his engagement with mathematics. His early use of mathematical reasoning was unusual in contemporary German-language monetary economics. In the 1930s he studied mathematics with Abraham Wald and proposed a modification of the Walras–Cassel production system:

This problem concerned Schlesinger's modification of the Walras-Cassel system of production equations by introducing the notion that all factors of production-not only the scarce ones-have to be considered and that whether a factor is scarce or free depends on the demand functions.

The conceptual move was to make scarcity depend on the economic system’s demand conditions, rather than treating the division between scarce and free factors as given beforehand. Morgenstern connects this proposal to Wald’s subsequent work on the determinacy of Walrasian equilibrium. He also preserves a qualification concerning priority: Schlesinger acknowledged an earlier similar suggestion by Zeuthen. Karl Menger’s mathematical colloquium provided the setting for these discussions, placing Schlesinger’s contribution within a collaborative intellectual network.

Monetary theory nevertheless remains the entry’s principal subject. Morgenstern places Schlesinger beside Wicksell as an immediate follower who advanced Walras’s theory of money. The crucial extension concerns why individuals hold monetary balances:

Schlesinger stressed that in addition to the indirect utility of money derived from its ability ultimately to provide desired consumers' goods, cash balances also have a direct utility.

This distinction makes holding money an object of choice, not merely an intermediate step toward purchasing goods. Schlesinger introduced uncertainty by distinguishing payments with fixed future due dates from those whose timing was uncertain. The latter allowed individuals to maximize utility through their choice between retaining cash and buying goods. He also distinguished an increase in the number of transactions, which could permit economies in relative cash holdings, from an increase in their magnitude, which would not have the same effect. Morgenstern credits him with an excess-demand equation for money virtually identical to one commonly attributed to Keynes, while cautiously describing him as “probably” the first to develop the equilibrium rate of interest.

The entry then extends this account from individual balances to international currency values and banking systems. Schlesinger’s 1916 pamphlet stated purchasing power parity in terms of the quotient of domestic and foreign general price levels. Morgenstern also reports his proposition that foreign borrowing could change the equilibrium exchange rate only if used to reduce the issuing bank’s indebtedness. These claims receive brief exposition; the entry gives more analytical detail to Schlesinger’s 1931 review of Felix Somary’s Bankpolitik.

That review modeled credit creation among equal banks, assuming cash reserves against deposits and payments made partly in cash and partly by check. Schlesinger followed the effects of additional metal or banknotes through credit expansion toward equilibrium, deriving formulas for debtors, creditors, and the system overall, while examining checks returning to their point of origin.

Several of his restrictive assumptions can be relaxed, but the whole approach is an early model for careful, rigorous analysis of monetary operations.

Morgenstern thus values the analysis for its disciplined tracing of monetary circulation without presenting its assumptions as unrestricted descriptions of actual banking. Practical judgment also appears in Schlesinger’s support for Austrian controls on capital movements during the international financial crisis of the 1930s, coupled with opposition to exchange control as then practiced.

The conclusion brings these analytical achievements back to the discrepancy between contribution and reputation. Morgenstern notes later recognition by Wagner and Patinkin, but also emphasizes Schlesinger’s participation in Viennese discussions of capital, business cycles, and general equilibrium, often conducted informally in coffee houses. His financial and administrative experience supplied a practical counterweight to theoretical reasoning.

Thus, his considerable influence on Viennese economics was far greater than his few publications might indicate.

The entry’s lasting significance lies in this account of influence: mathematical originality, monetary insight, practical experience, and sustained conversation together constituted an economic contribution that publication counts and academic appointments could not adequately register.