Economic Theory of Bank Credit

Hahn, L. Albert; Matt, Clemens; Hagemann, Harald

doi:10.1093/acprof:oso/9780198723073.001.0001

Cited by 11 publications

(4 citation statements)

References 52 publications

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“…The entrepreneurial growth model sees money (bank credit) created in response to entrepreneurial demand (Schumpeter, 1934) with money creation being endogenous rather than exogenous to the system (Hahn, 1920). The role of money creation in this framework is to support economic growth – to support the entrepreneur’s need for finance.…”

Section: First-order Entrepreneurship Issuesmentioning

confidence: 99%

Shock Therapy and Entrepreneurial Flare #Brexit

Culkin

Simmons

2019

IJEBR

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Much has been written about trade deal opportunities after Brexit (e.g. Minford et al, 2017; Singham & Tylecote, 2018) but much less about envisaged "supply side mechanisms" that would translate a Brexit shock into improved UK competitive performance. Indications as to the supply side mechanisms involved can be found in some pro Brexit writings and speeches and revolve around cutting regulation and reducing taxation, to spur innovation entrepreneurship. We contend that these measures align to a broad set of policy measures associated with Economic Shock Therapy, the Laffer Curve and the associated "Washington Consensus" (Williamson, 2005). We are looking to stimulate a conversation around whether these measures are most likely to stimulate entrepreneurial innovation and growth. We open by contrasting these concepts to growth equilibrium dynamics drawn from Wicksell, Keynes and Schumpeter-and by implication dynamic Walrasian General Equilibrium-to pose the question, is entrepreneur led growth best led via slashing regulations and taxes or by focusing on correcting existing market failures? This Viewpoint article is intended to promote controversy and debate as to which "supply side measures" are most effective in enabling entrepreneurial growth. Design/methodology/approach-We briefly review the pro Brexiteer economic framework and relate this to broader Economic Shock Therapy and Laffer Curve concepts; how these have been applied and how some argue they can become "supply side" enablers in a positive Brexit innovation and entrepreneurship transformation. By drawing upon fundamental economic relationships such as Wicksell's 1898 "Natural Rate of Interest," we highlight the importance of information asymmetry and regulatory distortion in financial markets, resulting in some entrepreneurs (and associated innovations) failing to receive the capital their project merit. We pose the question, whether Shock Therapy, Laffer Curve type tax cuts and any Brexit "bonfire of regulation" will raise entrepreneurial growth and success. Findings-Both Shock Therapy and Laffer Curve inspired tax cuts have a patchy record of success, despite notable achievements in post 1991 Poland. We stress entrepreneurs drive innovation and growth, and a key support to them requires correcting "access to finance" market failures. It is questionable if Economic Shocks contribute anything to resolving this fundamental problem. Originality/value-We open the supply side debate on anticipated "Brexit Transformation" in the context of long standing (some maybe long forgotten) theoretical understandings, thereby posing the question as to whether potential Brexit related deregulation, tax cuts and "Economic Shock" therapy are likely to raise entrepreneurial competitive advantage and success rates. Market failure in financial market support for small firm growth and innovation needs are highlighted. Arguably, economic growth and innovation would be better sustained by addressing these failures, than introducing the "unknowns" and risks associated with a su...

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Section: First-order Entrepreneurship Issuesmentioning

confidence: 99%

Shock Therapy and Entrepreneurial Flare #Brexit

Culkin

Simmons

2019

IJEBR

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“…If this is recognised, we argue that credit theory thus reaches a 'third stage'. Just as the beginning of so-called modern credit theory in Germany is associated with the publication of Albert Hahn's Economic Theory of Bank Credit [1920[2015], we would date the beginning of this 'third era' to the middle of the thirties, when A. Hahn's one-sided approach was overcome by the works of W. Lautenbach. These works completed the circle by demonstrating that, particularly for the aggregate economy, deposits can very well be a decisive factor in determining how much of any new lending actually shows up as an expansion in the volume of credit.…”

Section: Liabilities Toward Banks (Including Central Banks) Banknotesmentioning

confidence: 99%

The arithmetic relations between total expenditure and the resulting current and financial account balances as determinants of the revenue-related need for means of payment in an economy

Stützel¹

2017

European Journal of Economics and Economic Policies: Intervention

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Introductory note by the translators: In the following paragraphs, Stützel derives some balance mechanic relationships between revenue and expenditure surpluses, on the one hand, and the volume of credit necessary to finance these, on the other. He then moves on to consider the balance sheet of the banking sector and its relationships with the volume of credit. Insights from both exercises are subsequently used to synthesise the 'orthodox' and 'modern' theories of credit. The few parts of Stützel (1958Stützel ( [1978: 208-219) which were excluded from the translation are the ones in which Stützel directly refers to other parts of the book which are not translated here, as well as some footnotes referring to issues or publications which were topical at the time at which Stützel was writing but which are of very limited interest for our purposes. Furthermore, we omit a short passage in which Stützel briefly introduces the 'straddle effect', a concept which is important in his discussion of the quantity theory of money (ibid.: 229-255) but which does not feature any further in the section we are translating. For more on the quantity equation from a balance mechanics perspective, see Tarne (2016). The text below is a direct translation from Stützel without any changes or amendments, including Stützel's use of emphases and quotation marks.

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“…In Germany, practitioners such as Lautenbach (for example, Lautenbach 1952), who worked at the German economics ministry from the 1920s until 1934 and who would become Stützel's teacher and main influence, as well as theorists such as Föhl (1937), had been working to develop a novel way of macroeconomic thinking. Like Keynes in the Treatise on Money (1930), these economists were strongly influenced by 'German credit theory' and credit mechanics as pioneered by Wicksell (1898Wicksell ( [1936), and further developed by Hahn (1920Hahn ( [2015). Furthermore, they were working at a time when historical developments such as the Great Depression, tendencies of national economies to isolate themselves into closed 'trade empires', and the German reparation problem both necessitated and facilitated the recognition of macroeconomic accounting relations and their implications.…”

Section: Historical Backgroundmentioning

confidence: 99%

A third era of credit theory? Endogenous money from Wolfgang Stützel's balance mechanics perspective*

Ellermann

Lindner²,

Reissl

et al. 2017

European Journal of Economics and Economic Policies: Intervention

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We present an introduction to the translation of a part of the stock-flow consistent (SFC) framework published by the German economist Wolfgang Stützel in 1958, which follows in this issue. While not a quantitative model, Stützel's 'balance mechanics' has some features which still stand out today when compared with contemporary SFC literature. Among these strengths is an accounting decomposition of all economic transactions along three dimensions and a careful distinction between propositions which are true at different levels of aggregation, so as to avoid fallacies of composition. We argue that 'balance mechanics' provides value added, both as a didactic tool and as a complement to formal SFC modelling exercises, since it can be used to assess the validity and coherence of economic propositions. We demonstrate this claim by translating a section on the so-called 'third stage of credit theory' in the translation that follows this introductory paper. Therein, Stützel synthesises the two opposing positions in the controversy on the causal priority of deposits versus loans in banking.

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Economic Theory of Bank Credit

Abstract: -In the mid-1920s L. Albert Hahn's Economic Theory of Bank Credit (1920)

Cited by 11 publications

References 52 publications

Shock Therapy and Entrepreneurial Flare #Brexit

Shock Therapy and Entrepreneurial Flare #Brexit

The arithmetic relations between total expenditure and the resulting current and financial account balances as determinants of the revenue-related need for means of payment in an economy

A third era of credit theory? Endogenous money from Wolfgang Stützel's balance mechanics perspective*

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