Richard Reisch, Die wirtschaftliche Bedeutung des Kredits im Lichte von Theorie und Praxis (1928)

Richard Reisch’s published lecture, delivered to the Niederösterreichischer Gewerbeverein in Vienna on 23 March 1928, examines the productive uses and limits of credit from the standpoint of an economist and president of the Austrian National Bank. Its organizing problem is the gap between credit’s apparent power to create purchasing capacity and its dependence on existing wealth, trustworthy promises, and available goods. Moving from definition through banking mechanics to investment finance and speculation, Reisch challenges both popular demands for unrestricted cheap credit and theoretical accounts that make credit an autonomous source of prosperity.

His principal antagonist is L. Albert Hahn, whom he associates with a revival of errors previously advanced by Macleod. Schumpeter, Fisher, and Keynes also appear as theorists who, in differing degrees, overestimate credit’s economic influence. Reisch begins instead with a deliberately restricted definition:

Ich verstehe unter Kredit die verkehrswirtschaftliche Tatsache, daß ein wirtschaftliches Gut von einer Person auf die andere übertragen wird gegen das bloße Versprechen der späteren Rückstellung dieses wirtschaftlichen Gutes.

English translation: By credit I understand the fact, within an exchange economy, that an economic good is transferred from one person to another against the mere promise of the subsequent return of that economic good.

The defining elements are deferred repayment and confidence in its performance. Credit thus belongs to the broader practice of calculating with the future, which already underlies saving, production, and exchange. Its distinctive banking form arises when institutions issue payment promises exceeding their immediately available cash. Reisch acknowledges this capacity explicitly: his objection is not that banks cannot create purchasing power, but that their capacity to promise must not be confused with unlimited capacity to perform.

Cashless settlement provides the first test of this distinction. Transfers, cheques, and clearing economize on currency and precious-metal reserves, while simplifying payments. Nevertheless, acceptance of bank balances rests on confidence earned through actual performance, adequate assets, and responsible management. Reisch therefore treats cashless payment as a technical improvement rather than a release from ordinary credit constraints. Banks remain liable for payments and suffer losses if borrowers cannot provide cover.

He likewise disputes the proposition that one bank’s loan necessarily generates an indefinitely expanding succession of deposits. Following a buyer’s credit-financed payment to a supplier, he argues that interbank balances are cleared and the supplier’s receipts commonly extinguish earlier debts. Commercial transactions repay credit as well as employ it. This argument supports his wider insistence that lending depends on borrowers’ realizable wealth, not simply on an abstract possibility of creating account balances. Even unsecured lending generally presupposes assets; genuinely personal credit is exceptional.

The lecture’s central conceptual division separates short-term bank credit from long-term investment finance. Commercial bills are valuable because the transactions underlying them should generate repayment, because bill law strengthens enforcement, and because rediscounting provides banks with liquidity. Finance bills used for permanent investment may possess the same legal form without the same economic capacity for prompt liquidation. The difference is one of economic duration, not merely documentary appearance.

Die Wahrheit liegt, wie so oft, zwischen diesen beiden Extremen.

English translation: The truth lies, as so often, between these two extremes.

The extremes here are the denial of any necessary relationship between credit and saving, and the reduction of all credit to the transfer of prior savings. Reisch accepts that banks can temporarily create additional purchasing power. Permanent investment, however, requires durable savings whose owners relinquish a fixed monetary repayment claim and accept the risks of securities ownership. Both markets supply current purchasing power, but on different terms. He regards funded investment credit as economically more important than bank credit and consequently assigns saving a decisive developmental role.

This distinction leads from monetary mechanisms to material limits:

Der Kredit an sich ist daher kein wirtschaftliches Gut und kann auch keine produktive Kraft entfalten, er vermag nur durch das Medium vorhandener wirtschaftlicher Güter zu wirken.

English translation: Credit in itself is therefore not an economic good and cannot exert any productive power either; it can operate only through the medium of existing economic goods.

Credit nevertheless promotes production indirectly by transferring purchasing power to entrepreneurs or temporarily creating it for them. Their demand can redirect resources and enable improved production. What credit cannot do is abolish limits imposed by available goods and labour. Longer production processes require sufficient resources to sustain activity until finished products become available.

Excessive expansion can therefore raise input prices, invalidate business calculations, and force unfinished or unprofitable investments into distressed sales. Yet Reisch resists explaining crises chiefly through bank credit or bank interest rates. He considers contractual credit expansion more self-correcting than state monetary inflation and locates major dangers in excessive long-term commitments and securities-market reversals. He qualifies this separation by acknowledging bridge financing and other connections between the markets.

His concluding practical warning concerns loans secured by securities. Such collateral is unobjectionable when it supports ordinary productive business; borrowing against securities to buy further securities can instead make investments appear permanently funded when they remain sustained by bank credit. His discussion of American broker lending and favourable borrowing rates identifies a mechanism through which speculative leverage obscures the true availability of savings.

The final appeal joins institutional discipline to personal responsibility:

Das Kreditproblem ist nämlich nicht nur ein wirtschaftliches, sondern auch ein moralisches, beruht doch der Kredit zum guten Teil auf dem Vertrauen in das gegebene Wort, auf den Charaktereigenschaften der Kreditnehmer, überhaupt auf der sittlichen Kraft der Selbstbeherrschung und Selbstbeschränkung.

English translation: The credit problem is, indeed, not only an economic but also a moral one, since credit rests to a considerable extent on trust in the pledged word, on borrowers’ character traits, and generally on the moral strength of self-control and self-restraint.

The central bank cannot safeguard credit alone. Lenders and borrowers must understand its limits and govern their conduct accordingly. The lecture’s enduring interest lies in this conjunction of payment mechanics, maturity discipline, real-resource constraints, and speculative financing: credit enables economic reorganization, but neither creates wealth independently nor removes the need for saving and restraint.