Karl Schlesinger’s published conference discussion contribution examines two postwar risks of foreign borrowing that, he argues, Professor Bonn’s preceding report and inherited economic theory insufficiently recognize. Its structure follows these two omissions: the destabilizing memory of losses on foreign investments, and the uneven demand for imported capital during Germany’s reconstruction. Both arguments support a cautious credit policy. Borrowing that appears advantageous to individual firms can expose the economy as a whole to capital flight or a disruptive adjustment when inflows decline.
The first argument concerns investors’ experience of currency collapse and the confiscation of foreign private property. Schlesinger acknowledges that their short memories have helped international capital relations recover. Yet memories of losses can revive, and the decisive danger is not necessarily another war: it is a widespread belief that war threatens. Such expectations could drive investors to repatriate funds or transfer them to neutral countries, even at the cost of interest advantages and losses on securities. International lending therefore depends on a confidence that ordinary comparisons of yields cannot guarantee.
Schlesinger draws an explicit policy conclusion:
Dies ist eine Gefahr, welche vor dem Kriege bei Auslandsverschuldungen nicht in dem gleichen Maße bestand; es muß eine Kreditpolitik auf sie in viel höherem Maße Rücksicht nehmen wie früher, und infolgedessen muß es Pflicht jeder Instanz sein, die die Währung zu schützen hat, daß diese internationalen Verpflichtungen kein übergroßes Ausmaß annehmen, bzw. nach Möglichkeit reduziert werden.
English translation: This is a danger that did not exist to the same extent before the war in cases of foreign indebtedness; credit policy must take it into account to a much greater extent than formerly, and consequently every authority responsible for protecting the currency must have a duty to ensure that these international obligations do not become excessively large, or are reduced wherever possible.
He also rejects a reassuring distinction between short- and long-term debt. Selling long-term securities can sharply increase their capitalization yield even when the underlying loans are not immediately recalled. He suggests that German mortgage bonds yielding 12–15 percent could damage economic life approximately as severely as the withdrawal of short-term credit. The conceptual move is to treat market repricing, as well as direct withdrawal, as a channel through which foreign financing becomes destabilizing.
The second argument shifts from investors’ willingness to lend to Germany’s changing need to borrow. Schlesinger contrasts the relatively steady capital requirements of prewar overseas borrowers with Germany’s exceptional demand after ten years of deprivation and postponed investment. He expects that demand to remain abnormal briefly and then fall substantially. For this part of the argument, he expressly sets aside foreign lenders’ willingness to supply funds.
His account connects capital imports to purchasing power, domestic prices, and the trade balance. Additional purchasing power initially raises prices; once domestic prices rise sufficiently above international prices, a widening trade deficit absorbs the remaining foreign credit. A subsequent reduction in capital imports consequently requires a narrowing of that domestic price premium:
Infolgedessen wird ein Abflauen der Kapitaleinfuhr unbedingt eine große Preisreduktion am deutschen Markte notwendig machen; und jede Preisreduktion ist doch eine Krisenerscheinung!
English translation: Consequently, a slackening of capital inflows will necessarily require a substantial reduction in prices on the German market; and every reduction in prices is, after all, a manifestation of crisis!
The emphatic conclusion identifies falling prices themselves as a crisis phenomenon, without developing a separate account of their effects on employment, debt, or production. Its practical implication is nevertheless clear: even if rapidly making up deferred investment serves each entrepreneur’s interests, spreading capital imports over several years would soften the eventual downturn.
Schlesinger’s intervention thus links financial confidence with the timing of reconstruction. Its relevance lies in distinguishing private investment incentives from economy-wide stability, and contractual maturity from effective exposure to capital-market stress. His recommendation is to limit excessive foreign obligations and pace investment recovery, rather than allow an exceptional borrowing surge to dictate the subsequent adjustment.
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