Richard Kerschagl, Geld- und Kreditpolitik

Richard Kerschagl’s contribution to an edited textbook, published in the version dated 1931 [i.e. 1930], treats monetary and credit policy as connected instruments of capital formation, preservation, and distribution. Its three main divisions move from general principles through central-bank and currency policy to commercial banking. Selective bibliographies accompany this systematic exposition, whose comparative institutional detail addresses the reconstruction of European finance after the First World War. The organizing claim is that monetary institutions can improve the allocation of productive resources but cannot manufacture the capital on which production depends.

Kerschagl begins with a “pyramid” linking commercial-bank credit to circulating money and circulating money to central-bank reserves. Both institutions extend claims beyond their immediately available backing through confidence-based, fiduciary operations. Their elasticity depends on the distance between actual commitments and the maximum expansion permitted by law and commercial prudence. Credit quality matters as much as quantity: consumption credit rests on existing assets, production credit anticipates new goods and profitable sales, and speculative credit anticipates future capital earnings, sometimes from enterprises not yet established. Speculation can serve production, but excessive fiduciary financing makes these anticipations dangerously fragile.

This distinction supports his rejection of theories, associated especially with Albert Hahn, that make bank lending primary and deposits secondary. Kerschagl acknowledges the creation of deposit money but insists that accounting operations cannot free lending from its capital basis:

Kredite, welche nur immer wieder auf anderen Krediten aufgebaut sind, können nichts anderes sein als ungesunde Luftkredite.

English translation: Credits that are only ever built upon other credits can be nothing other than unsound credits without substance.

The objection concerns sustainable credit, not the technical possibility of multiplying claims. Bank capital, depositor confidence, circulating means of payment, and central-bank cover requirements constrain expansion. Drawing on Böhm-Bawerk, Kerschagl similarly locates the ultimate determinants of interest in the productivity of capital-assisted production rather than in money-market transactions alone. Low interest can indicate weak investment opportunities rather than abundant wealth. Production and capital supply therefore act reciprocally upon one another.

The second division compares European central banking with the Federal Reserve System. European arrangements combine centralized note issuance, reserve requirements, redemption, and money-market intervention. Kerschagl explains the Currency and Banking schools, the movement toward proportional rather than rigid issue limits, and the distinction between legally obligatory and practically maintained convertibility. Gold-exchange reserves economize on gold, earn interest, and facilitate transfers, but introduce foreign-bank and political risks. He regards their technical advantages as established while withholding a final judgment on their overall superiority.

The Federal Reserve attracts him because it incorporates major commercial banks into the currency system and regulates reserves against deposit money as well as notes. Regional organization and coordinated reserve transfers offer advantages over merely indirect European control. Yet statutory minima can become banks’ practical maxima, and layered reserve requirements can leave deposit money with very little ultimate gold backing. Institutional integration strengthens oversight without eliminating inflationary possibilities.

Throughout this discussion Kerschagl challenges mechanical accounts of discount policy. Higher interest may raise production costs, while forced inventory sales can lower prices through distress rather than productive improvement. Foreign capital flows further weaken European central banks’ control. Their influence may consequently consist more in signaling judgment than compelling adjustment. This qualified view also governs emergency assistance: intervention can be justified to prevent collapse, but only with safeguards and without violating cover requirements. International cooperation promises coordinated currency support, better information, and more effective capital allocation, rather than unrestricted monetary management.

The treatment of inflation and deflation sharpens the argument against confusing monetary manipulation with real enrichment:

Im übrigen sind alle derartigen Versuche schon aus dem Grunde zum Scheitern verurteilt, weil der Inflationsprozeß eben ein Entgüterungsprozeß ist, und es natürlich unmöglich ist, innerhalb desselben wirklich namhaften Teilen der Wirtschaft den alten Güterbezug sichern zu wollen.

English translation: Moreover, all such attempts are doomed to fail for the very reason that the inflationary process is precisely a process of depletion of goods, and it is naturally impossible within it to seek to secure the former access to goods for genuinely substantial sections of the economy.

Here the target is wage and tax indexation as protection against inflation’s general impoverishment. Initial stimulus, export advantages, and speculative gains conceal capital consumption; subsequent depreciation undermines saving and contracts. Deflation cannot reverse these losses or restore the previous distribution of wealth. Kerschagl distinguishes it from repayment of government debt to the central bank, which can improve backing and elasticity without necessarily reducing circulation. Stabilization rates and the revaluation of creditors’ claims require concrete judgments, not universal formulas. Accounts of British, French, Belgian, Italian, German, and Austrian reforms illustrate different combinations of parity adjustment, reserve reconstruction, institutional reorganization, and fiscal settlement.

The third division carries these principles into commercial banking. Its institutional survey connects savings collection, lending, mortgage finance, and overseas trade, while distinguishing national traditions from general prudential requirements. The essential balance is qualitative, not merely the equality of accounting totals:

Beispielsweise dürfen nicht schwer realisierbare Guthaben der Bank sofort fälligen Verpflichtungen gegenüberstehen, dürfen nicht ihrer Natur nach kurzfristige Gelder langfristig angelegt worden sein.

English translation: For example, bank claims that are difficult to realize must not stand against immediately due obligations, and funds that are short-term by nature must not have been invested long-term.

Adequate equity, realizable assets, cash reserves, and diversification support this balance. The account of stock exchanges explains clearing, securities, speculation, and hedging, but subordinates them to sound banking. Crisis analysis distinguishes excessive speculation, unprofitability, and illiquidity: temporary liquidity support can save a solvent institution, whereas irreversible losses require different remedies. Comparative discussions of assistance funds, supervision, deposit legislation, interim balance sheets, and independent auditors assess protection without assuming that formal regulation guarantees effective control.

Finally, bank–industry ownership ties, foreign borrowing, and competing nationalization and internationalization tendencies reveal credit policy’s wider economic setting. Short-term foreign funds require particular caution, and industrial participation complicates banks’ independence as creditors.

Man kann es jedoch als allgemeinen Grundsatz betrachten, daß das Börsengeschäft für eine solid arbeitende Großbank in normalen Zeiten nie den Charakter des tragenden Bankgeschäftes besitzen darf.

English translation: It may, however, be regarded as a general principle that stock-exchange business must never constitute the mainstay of a soundly operating large bank in normal times.

The work’s relevance lies in this sustained connection between monetary stability, productive capital, and institutional liquidity. Kerschagl advocates active coordination and selective intervention, bounded by the conviction that financial claims remain dependent on real economic resources.