L. Albert Hahn, Transfer, Wechselkurse, Kapitalwanderungen (1929)

Hahn’s scientific conference discussion contribution examines how international capital movements alter the transfer of German reparations. Returning to a factor excluded from the preceding discussion’s isolating method, he argues that foreign lending is not merely an external supplement to transfer: the transfer mechanism itself can attract it. Exchange-rate movements and monetary contraction encourage capital inflows that cushion adjustment without necessarily eliminating its pressures. His argument proceeds from this monetary mechanism to distinctions between raising and transferring reparations, then to the practical significance of transfer protection.

The starting point is an economy whose production and trade have not yet adjusted to reparations payments. The reparations agent purchases foreign exchange before additional foreign-exchange earnings exist. Gold or foreign exchange consequently leaves the Reichsbank, while the domestic purchasing power exchanged for it is extinguished. Exchange rates rise toward the upper gold point, and domestic means of payment contract. These developments encourage adjustment in goods markets, but Hahn’s distinctive concern is their simultaneous effect on money markets.

A higher exchange rate makes foreign borrowing appear cheaper when borrowers expect repayment after a return to parity. Hahn’s expressly schematic example shows why this anticipated repayment advantage matters especially for short-term credit: a half-percentage-point exchange gain can offset a month’s interest on a loan carrying six percent annually, but reduces the annual cost of a year-long loan much less. Meanwhile, domestic monetary contraction raises German interest rates. Foreign money becomes comparatively cheaper just as domestic money becomes dearer.

The Reichsbank’s discount increase is therefore not necessarily an independent initiative to impose deflation. Foreign-exchange purchases have already created the contraction; the bank raises its rate to prevent increased rediscounting from replacing the purchasing power withdrawn. Together, exchange-rate incentives and higher domestic interest attract what Hahn calls a reparations-induced, ad hoc inflow, distinguished from borrowing generated by ordinary investment demand.

Es ist also nicht richtig, wenn man gelegentlich gesagt hat, daß dieses Auslandsgeld die Umstellung hindert — es verzögert sie nur.

English translation: It is therefore incorrect when it has occasionally been said that this foreign money prevents the adjustment—it merely delays it.

This distinction supports Hahn’s account of a transitional mechanism. Foreign credit checks excessive initial deflation, but the higher exchange rate and the interest differential needed to attract funds remain. How long the transition lasts depends on resistance to adjustment in goods markets. Rapid adjustment restores foreign-exchange earnings and domestic purchasing power; persistent resistance prolongs dependence on foreign lending. Hahn places the likely outcome between these extremes rather than specifying its duration.

He then replaces his initial hypothetical economy without ordinary capital inflows with Germany’s actual position: domestic interest rates have attracted foreign funds since stabilization. Here he separates the fiscal raising of reparations from their external transfer.

Die Reparationsaufbringung kann Kapitalentzug bedeuten, sie muß es nicht.

English translation: Raising reparations can mean a withdrawal of capital; it need not do so.

Taxation withdraws purchasing power, but does not necessarily consume existing capital. It may reduce consumption instead, although it can also impede future capital formation. Conversely, Hahn accepts that foreign loans have largely enabled actual transfers to date. What he rejects is the inference that transfer without them must therefore be impossible: the historical financing pattern does not settle that counterfactual question.

Nor does an interruption of ordinary lending necessarily produce an unmediated transfer crisis. If German interest rates fall during a depression, reparations-related contraction can raise them back to the level attracting foreign credit. If foreign lenders demand higher rates instead, the adjustment occurs at a higher domestic interest level. These schematic cases make the cause of a lending interruption central to its consequences.

Hahn accordingly doubts both the effectiveness of capital restrictions and the assumption that further indebtedness is inherently harmful. Restrictions on banks would encourage alternative intermediaries and make foreign funds more expensive. The relevant economic test is productive return:

Nicht ob eine Weiterverschuldung eintritt, sondern ob das neu investierte Kapital höher als die Zinssätze rentiert, ist das Kriterium für die Erwünschtheit der Weiterverschuldung.

English translation: The criterion for whether further indebtedness is desirable is not whether further indebtedness occurs, but whether the newly invested capital yields a return higher than the interest rates.

The conclusion identifies the political stake: what protection against transfer obligations actually guarantees. Hahn distinguishes protection of the currency, protection against the domestic burden of raising reparations, and protection against transfer-induced crises.

Rein wörtlich genommen garantiert die Transferschutzklausel nur Währungsschutz und nicht Krisenschutz.

English translation: Taken strictly literally, the transfer-protection clause guarantees only currency protection, not protection against crises.

Currency protection may never become operative because discount increases attract foreign funds before parity or reserves are endangered. Hahn also doubts that the clause can politically be transformed into relief from the fiscal burden. Crisis protection remains less certain: serious disturbances are possible, but may not become severe enough to secure suspension of purchases. His closing formulation gives offsetting capital inflows stronger anti-deflationary force than his earlier account of partial cushioning. Nevertheless, the central conclusion remains qualified: a mechanism that sustains external payments does not necessarily spare the domestic economy disruption, and economic hardship does not automatically activate legal protection.