Friedrich August von Hayek: Review of Heinrich Mannstaedt’s Ein kritischer Beitrag zur Theorie des Bankkredites (1927)

Hayek’s short review situates Mannstaedt’s pamphlet within the German debate provoked by Albert Hahn’s theories of bank credit and the business cycle. He credits Hahn with restoring a fundamental problem of the market economy to theoretical attention, while ranking Mannstaedt’s critique among the best responses. His praise concerns its method: it challenges Hahn through the internal development of his reasoning, rather than by appealing to apparently contrary facts.

Er zeichnet sich vor allem dadurch aus, daß er die Ansichten Hahns in dem streng theoretischen Sinn nimmt, in dem sie ihr Verfasser zweifellos verstanden wissen wollte, und sie nicht etwa durch Anführung widersprechender Tatsachen, sondern durch konsequentere Durchführung der gleichen Gedankengänge zu widerlegen sucht.

English translation: It is distinguished above all by the fact that it takes Hahn's views in the strictly theoretical sense in which their author doubtless wished them to be understood, and seeks to refute them not by adducing contradictory facts, but by carrying through the same trains of thought more consistently.

The review first examines Hahn’s distinction between cashless and purely cash economies. Hayek endorses Mannstaedt’s more consistent treatment of this distinction as a refutation of Hahn’s claimed contrast in the nature of bank credit across the two systems. He adds a specific objection: in a cashless economy, Hahn’s separation of primary and secondary banks cannot hold. Expanded lending may withdraw deposits from an individual bank, but not from banks collectively; consequently, every bank can create new credit. The conceptual move is to distinguish the constraints facing one institution from those facing the banking system as a whole.

Hayek then turns from Hahn’s starting assumptions to the two propositions he regards as the theory’s core: the productive effect of credit expansion and the explanation of interest as a risk premium. Although Mannstaedt argues from Gustav Cassel’s theoretical premises, Hayek judges his objections applicable across modern theoretical schools. The decisive issue is the relationship between credit creation, saving, and real capital formation:

Namentlich die nachdrückliche Darlegung, daß Kreditschaffung nie die Spartätigkeit als Grundbedingung der Realkapitalbildung ersetzen, sondern höchstens einen Anstoß dazu geben kann, der nur unter gewissen Bedingungen diesen Erfolg erzielen wird, sollte nirgends auf Widerspruch stoßen.

English translation: In particular, the emphatic demonstration that credit creation can never replace saving as the fundamental condition of the formation of real capital, but can at most give an impulse toward it which will achieve that result only under certain conditions, ought nowhere to meet with contradiction.

Credit creation, on this account, can at most stimulate the saving required for real capital formation; it cannot replace it, and even its stimulating effect is conditional. Hayek closes by dismissing Hahn’s interest theory without developing a separate argument against it. The review’s significance lies in its concise conjunction of methodological and substantive judgments: an effective critique must pursue monetary theory on its own conceptual ground, while refusing to identify the creation of bank credit with the creation of real capital.