Credit romanticism in golden pincers - Zachary Atlas

1. The credit and monetary system.

This article is devoted to a critique of the chief representatives of the modern bourgeois-apologetic school of credit romanticist expansionists. Credit romanticists they are because, like Law and Péreire they see in credit an unrestricted driving force of production and powerful means of solving the basic contradictions of capitalism. Expansionists of credit they are because with continuous expansion of credit, with unlimited credit creativity the path "opens" for the realization of their credit-romanticist ideas. Just like old John Law "stunned the world" in the XVIIIth century with his "extravagant" ideas and "experiments" in the field of credit creativity.1

But the XXth century is not the XVIIIth century, and that's why Hahn is not simply Law, Schumpeter - is not [Henry] MacLeod and Silvio Gesell - is not Proudhon or Saint-Simon. Between old and modern bourgeois and petty-bourgeois credit romanticists there is a significant difference.

Credit romanticism appeared at the dawn of industrial capitalism, the blooming and initial period of its development, but during the whole second half of the XIXth century represented nothing more than an episodic phenomenon. Again it emerged in all countries in the period of general crisis of capitalism, in the epoch of the decay of capitalism and proletarian revolutions. The bourgeoisie and its ideologues is trying to resurrect any and all ideas, which could show that there exist still hidden forces, able to fertilize creative [**/energy], with the greatest life impulses a capitalist system, torn apart by internal contradictions, showcasing its impotent attempt to escape from them, and standing under the terrible blows of the "final, decisive" class battles.

Marx gave a comprehensive description of the old credit romantics. He pointed out the double character, immanent to the credit system, namely, "on the one hand, to develop the incentive of capitalist production, enrichment through exploitation of the labour of others, to the purest and most colossal form of gambling and swindling, and to reduce more and more the number of the few who exploit the social wealth; on the other hand, to constitute the form of transition to a new mode of production. It is this ambiguous nature, which endows the principal spokesmen of credit from Law to Isaac Péreire with the pleasant character mixture of swindler and prophet.2 "

This characterization does not apply to the modern credit romanticists. One cannot call them "prophets," because as "incentive of capitalist production" credit already fully exhausted itself, and the transitional form to a new mode of production in the USSR became a fact, known to millions around the whole globe. Modern credit-romanticists - are not "spokesmen of credit," not prophets, but on the other hand they really are "swindlers," though also in a somewhat different sense than this has been said by Marx about Law and Péreire. They are "swindlers" in theory, because they themselves do not believe in that which they say, because, overflowing with romanticism in theory, they turn their back to it in practice. Law, Péreire, Saint-Simon were consistent, from the beginning to the end. They did not create theories alone: their theories were concrete plans, economic and social programs, which they also sought to implement in practice.

Another matter is the credit romanticism of the XXth century. In theory - a "golden age of capitalism," in practice provisions and provisos, depriving this theory of all practical sense. Their theories, no matter how filtrated, logically-refined they are (Schumpeter), with whatever pseudo-scientific apparatus of new concepts they are enriched (Hahn, Sombart), are helpless in relation to scientific work, representing by itself only an ideological weapon in the hands of the bourgeoisie. Modern credit romanticism - this is one of the methods of apology of capitalism. Precisely in apology of capitalism, in proving the vitality of the capitalist system lies the main practical sense of all works of modern credit romanticists from Hahn and Schumpeter to Gesell, [Gottfried] Feder and [Şefik Hüsnü] Deymer.

True, with American credit-partisans there are elements also of actual practicality, which consists in the point that under the flag of a general idea is implemented in fact, through the Federal Reserve System, a control and pressure of large-concentrated finance capital over small enterprises and, on the other hand, full adaptation of the credit policy of the banknote-emission system to the needs of financial capital. Similar motives partly hide also behind the Hahnist theory. But for us is not key, not here the root and social background of the theory. That which characterizes the modern credit romanticists, that which differentiates them sharply from the old romanticists, is their halfheartedness, hesitancy. They seem to be afraid that their theory is taken seriously by those who possess the right to open the ambit of credit creativity, credit expansion, unrestricted credit inflation. Therefore, not ashamed in theory to paint a picture of capitalist prosperity on the basis of credit inflation, they in practice come to claim a golden limit of this expansion. Each of them in their own way deals in credit romanticism, and in their own way debunks it essentially in concrete conclusions, as practical nonsense. Hence a profound conflict of theory and practice. The concrete credit-policy and credit-organizational problems are solved by the bourgeoisie not on the basis, but against the prevailing credit theory, and such a one appears precisely the expansionist theory. This also is the complete degeneration of bourgeois economy, as a science, the ultimate degree of its vulgarization; the prevailing theory and the practice of the bourgeoisie turn out to be at different poles. Practice deprived of scientific character, reality hollowed from theory, it is abstracted from reality. "Science" turned in a pure sport, in a competition over most sophistication in proofs "within the domain of theory" of paths and methods of unrestricted credit and production expansion.

It is not so much necessary to critique modern credit romanticists, as to expose their duplicity, halfheartedness, in essence - theoretical swindle.

Werner Sombart in vol. III of "Modern capitalism" claims, that "the most interesting part of the credit problem is the question about the limits of credit, i.e. the question in which degree can credit be expanded without there arising disorder in the social structure of economy." However this is not only "the most interesting," but also the central, fundamental and general question of credit problems. In the epoch of finance capitalism this question goes beyond the frames of narrowly-credit problems. In the bourgeois literature of our days to these questions entirely is bound the general problem of the fate of capitalism. Precisely to credit is attached the meaning of powerful, sometimes fundamental, factor of stabilization and organization of capitalism.3

The problem of the boundaries or limits of credit is directly connected to the doctrine about "organized capitalism." This connection follows from one or other conception of the nature and role of credit in capitalism. One can understand credit as either a super-historical category, or, as "immanent" form of the capitalist mode of production (Marx). From this latter point of view credit in its development is conditioned and limited by the patterns [/закономерностями/the laws governing] of capitalism and cannot go beyond the inherent to the latter's contradictions.

But this Marxist viewpoint is opposed to the bourgeois conception of credit. From the point of view of the latter credit, as form of economic connection, is not at all necessarily limited by the contradictions of capitalism. On the contrary, credit "removes," eliminates the contradictions of capitalism precisely because there is no organic connection of credit with the latter. Bourgeois economists usually "open" the limits of credit with production "in general," and productive forces, regardless of their social form. And as the productive forces "in general" can develop unlimitedly, then also credit expansion has not any specific-social limits.

Hence - credit romanticism: - unlimited credit expansion, exemption from the "conventions" and "prejudices" of the monetary system, opens up unlimited capabilities[/possibilities] for the development of production forces. If between the latter and credit expansion there really exists a straight, vulgar-mechanically understood connection, then it is easy to arrive at very optimistic conclusions. Thus, for example, such "trumpery" measure, as the removal of legal restrictions of emission of bank bills by the central banks of capitalist countries, opens up, from this point of view, the capability of unlimited credit expansion and, consequently, an unlimited development of productive forces, or as the expansionists express it, provides the capability to "maintain an eternally high conjuncture." With the help of central regulation of credit expansion both the price and volume of production of separate branches can be regulated and, thus, not only be achieved a general and continuous upsurge of production, but also proportionality in the growth of its individual branches. Hence, of course, also a radical means against unemployment, as the American [John Rotherford] Bellerby believes.

Thus, the credit illusion follows directly from a determined clear bourgeois, vulgar and apologetic conception of the essence of credit and the limits of credit expansion. As soon as credit is considered outside its necessary connection with the specific capitalist conditions of productions, illusions arise of unlimited expansion of credit, "credit creativity" and the stabilization of capitalism on the basis of supreme and infinite development of productive forces.

To break these illusions, one must strike at the theoretical roots of this conception. It's necessary to prove that this understanding of the essence and limits of credit is wrong, that this conception suffers internal contradictions, the exposing of which by example of the most powerful representatives of this tendency also constitutes the task of this essay.

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"Credit economy" - according to the well-known scheme of stages of economic development of [Bruno] Hildebrand - is opposed to the system of "money economy." For Hildebrand, "credit economy" relates to "money economy" as "money economy" does to "natural economy." These are the three main historical economic systems. Thus, from the point of view of this theory, "credit economy" qualitatively is different from "money economy," it represents a completely new type of economic ties. About "credit economy" Hildebrand spoke, as about the economy of the future and linked his social illusions with this system of economy. However now in the epoch of finance capitalism, credit relations, indeed, acquired universality, and in spite of this, the Hildebrandian utopia also remained utopia. Even more than this: the contradictions, inherent in the capitalist economy, in the epoch of the highest development of credit and penetration of credit relations in all pores of the economic system, are even more exacerbated. Credit is developing on the basis of money and capitalism, contrary to the illusions of Hildebrand, with conservation of private property over the means of production, cannot be emancipated from this basis.

However relatively small the gold foundation is of the credit system, it all the same is precisely the foundation without which cannot be erected the multi-story building of the credit system. That's why the technique of study is methodologically absolutely false, which is used by Hahn in his "Economic Theory of Bank Credit."

He abstracts from money, and builds, so to speak, the "working hypothesis" of a "moneyless economy." Precisely this hypothesis helps Hahn to arrive to conclusions about an unlimited, creative role of credit expansion. Hawtrey likewise uses the hypothesis of a "credit moneyless economy," building an abstract system of "credit without money."

The methodology of Hahn and Hawtrey is as false as the counter-position by Hildebrand of a system of "money economy" to a system of "credit economy." Hawtrey and Hahn abstract from the very basis, from the very existential element of that system of economy which they analyze. That's why this abstraction is empty and methodologically false, and already for that reason alone, their whole logical construction collapses, like not having a solid basis.

The credit system very widely spreads the frames of the [money], monetary system, but this framework itself it does not destroy. "The monetary system, - Marx says, - is essentially a Catholic institution, the credit system essentially Protestant. 'The Scotch hate gold.' In the form of paper the monetary existence of commodities is only a social one. It is Faith that brings salvation. Faith in money-value as the immanent spirit of commodities, faith in the mode of production and its predestined order, faith in the individual agents of production as mere personifications of self-expanding capital. But the credit system does not emancipate itself from the basis of the monetary system any more than Protestantism has emancipated itself from the foundations of Catholicism.4 " This brilliant comparison of the monetary system with Catholicism, and the credit system - with Protestantism has a profound scientific base, which is given with the whole of Marx's analysis of capitalism. Exchange economy, in whatever degree of development we see it, comprises in itself private and social production, concrete and abstract labor, a contradiction hidden already in the very commodity, in its two poles - use-value and value, - really expressed in the conflict of commodity and money. The credit system does not eliminate this contradiction5 .

That's why "money — in the form of precious metal — remains the foundation from which the credit system, by its very nature, can never detach itself.6 " "Never" is emphasized by Marx himself: with this Marx wanted to make more prominent his [disagreement with] Saint-Simonist and Proudhonist illusions of eliminating the contradictions of exchange through credit and the conversion of money into tokens, emancipated from metal. Yet Saint-Simonist and Proudhonist illusions are alive until these days - it is enough to point to the German "social-prophet," of "creation of liberated money" - Silvio Gesell, and likewise the ideologue of "organized capitalism," of "defetishized" social relations of capitalism through means of a "rational monetary system," the [**ашиста/regulationist?] and interventionist - Rudolf Hilferding.

Between the ideas of Proudhon-Gesell-Hilferding, on the one hand, and MacLeod-Hahn, on the other, what is common to all of these theorists, being [apologists] of capitalism - bourgeois or petty-bourgeois ideologues, - is to ignore the most fundamental contradictions of capitalism and not to understand the essence of credit, as "an immanent form of the capitalist mode of production." The social character of labor under capitalism cannot be expressed other than in a certain thing, embodying social labor, namely - in gold. Therefore an explosion of the contradictions between private-concrete and abstract social labor in the form of crisis - is outwardly reflected in the inability to turn commodities into money. Credit does not eliminate this contradiction, because "credit-money itself is only money to the extent that it absolutely takes the place of actual money to the amount of its nominal value. Hence coercive measures, raising the rate of interest, etc., for the purpose of safeguarding the conditions of convertibility to gold... The basis, however, is given with the basis of the mode of production itself. A depreciation of credit-money would unsettle all existing relations. Therefore, the value of commodities is sacrificed for the purpose of safeguarding the fantastic and independent existence of this value in money. As money-value, it is secure only as long as money is secure. For a few millions in money, many millions in commodities must therefore be sacrificed. This is inevitable under capitalist production and constitutes one of its beauties. In former modes of production, this does not occur because, on the narrow basis upon which they stand, neither credit nor credit-money can develop greatly."("Capital ", Vol. III, part 2, 55-56 p.). We found it necessary to fully bring out this place from "Capital" because here with classical clarity and exhaustive completeness is elucidated the relation of credit money created by banks, with crises, which are not only not eliminated, but, on the contrary, acquire sharpness and universality precisely with the development of credit and credit money.

From this point of view credit as well as the so called "credit creativity" ("Kredit schöpfung") of banks is wholly and fully connected and bounded to that system of production relations (capitalist), which generated this same creativity.

"Credit creativity" can never be emancipated from "golden fetters" precisely because credit money inseparably linked with real money. If credit money - whether in the form of banknotes, acceptances or giro-payment obligations - would be emancipated from gold, as the expansionists want, as well as credit utopians, of the type Proudhon, Gesell, - then with crisis inevitably would come the depreciation of credit money, and this "would unsettle all existing relations." That is why the legislation of all capitalist countries, contrary to the consecutive demands of Nominalists, so piously guards the gold reserves of central banks and establishes solid rules covering banknotes (but in the latest practice also checking accounts) with gold, and this curbs credit expansion. But thereby in crises "the value of commodities is sacrificed (expansionists deny the necessity of this sacrifice. - Z. A.), to safeguard the fantastic and independent existence of this value in the form of money" (Marx).

Thus, the link of credit money, and, consequently, also "credit creativity" of banks with money is expressed in the fact that the by banks created "credit-money itself is only money to the extent that it absolutely takes the place (in circulation. Z.A.) of actual money to the amount of its nominal value." And as issuance is always possible above this limit, then the emitting authority must have in stock solid gold reserves, to pay with at hand[/наличным /available] gold that excess mass of credit money. Therefore the condition of gold reserves signals the direction of emission policy of banks: after all, "with a drain on gold its (credit money. - Z. A.) convertibility into money becomes problematic" (Marx), and this threatens the fall of credit money, and consequently, also "all existing relations," which neither government, nor central banks of capitalist countries can prevent.

That is why restraint of credit creativity of banks by "golden fetters" is not a tribute by legislation to metallic prejudices, but is an objective necessity. From these "golden fetters" can never be freed capitalism. But recognition of the necessity of these fetters destroys all credit illusions, because at their basis lies the assumption of independence of credit money from real money.

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When the classical (naturalist) theory of credit prevailed, then the answer to the question about limits of credit did not represent big trouble and therefore the problem was not sharpened. The answer read: bank assets are completely determined and limited by their existent liabilities [/наличные пассивы], and with the latter are understood only accumulated deposits plus assets and capital reserves of banks. The bank cannot give more than it has. Moreover the bank cannot place in lending for the long term funds that it itself received on short term (until the claim).

This theory, as we have shown in our article "The role of credit and the limits of credit expansion in capitalism,7 " was refuted not so much with logical criticism, as with the very facts. These latter clearly suggest that, firstly, the "existent liabilities" do not at all limit lending, for this latter itself creates liabilities, and, secondly, that short-term liabilities or kontokorrent liabilities of banks factually with certain boundaries are used for capital, long-term lending.

The first condition is the cornerstone of expansionist theory. However, refuting in their criticism the naturalists and proclaiming "freedom of bank creativity," the expansionists have gotten at close range before the problem of the limits of bank lending. The old limit rejected, a new limit must be found. It should be noted that in search of this new limit the expansionists do not at all show full unity: we have several solutions of this problem, with which we now familiarize.

2. Albert Hahn.

As the most "radical" leader of expansionist doctrine should be recognized, the same Hahn, who, to use Karl Diehl's expression, "in the XXth century dumbfounded the world by an extravagant theory of credit."

Hahn proclaims a perpetuum mobile of credit expansion and capitalist dynamics; as for such contradictions of capitalism, like crises and unemployment, then to eliminate them - is a mere trifle for "correct monetary policy." In a country with one credit bank, - Hahn says, - or many credit banks with a single credit policy there can not be a credit crisis... if only the bank itself does not want to cause such. 8 " Recognizing the correctness of his theory, "banks, - Hahn says, - would be able to dispose by appropriate arrangements of the harmful influence of depression (Baisse)" (ibid., 158 p.). Hahn sees two possibilities for credit regulation of the conjuncture with the goal of eliminating crises. First, banks could stifle in the very beginning of the conjuncture growth (and consequently the crisis reaction to the upsurge) through very high interest. But this capability Hahn decisively rejects, because, of course, there is no reason to delay growth of production forces. He is more impressed by the second possibility of control, namely the maintenance of eternally high conjuncture "through ever-growing credit expansion" (ibid. 159 p.).

We do not have the possibility to dismantle here such utopian proposition of Hahn for resolution of crises, as lower interest, thanks to the possibility of credit expansion until zero (and even turning interest into a "negative magnitude!") (ibid., 150 p.), or purchase by the treasury [/fiscus] of excess commodities at the warehouse, which, by the way, "has particular importance out of political and military grounds" (ibid., S. 151). The fact that Hahn proposes his dubious instrument for imperialists, - this is curious enough and telling, but for us it is important now to establish only what Hahn considers possible and even necessary for "ever-growing credit expansion."

But in fact Hahn must be well aware that so called "purchasing power," issued above the volume of existent commodity-circulation, hence, additional and redundant "purchasing power," must act inflationary. This Hahn does not deny. But he calms down with the point that if at the moment of credit expansion prices and demand exceed supply, then in the "future" occurs an equalization (ibid., S. 133), and "in general" (!) thanks to price competition there is a tendency to fall to the level of "cost price" (ibid., S. 133). This tendency does not act in relation to agricultural commodities, but credit expansion is here not the cause: The reason lies in the law of diminishing fertility. To the contrary, in relation to industrial commodities, when production develops, induced by credit expansion, connected with a transition to improved methods of production, "in the future" inevitably will take place a reduction in prices, even below the level preceding the credit expansion" (ibid., S. 138).

But these "in general" and "in the future" - are very hazy places in the conception of Hahn. Until the new commodities will be thrown into the market, created by lending of credit expansion to enterprises, many years will pass (Hahn himself says, that we are not talking about weeks, but about months, years and even decades), during which the country - sacrificed to the Hahnian illusion - will have an disrupted monetary system with all the charms of inflation. What this charm is and whether capitalist society reconciles with it during those decades, whilst to the market flows a new commodity stream, - this we leave to the judgement of the expansionists, to those of which, who have not yet lost sense of measure and reality, as well as understanding of elementary laws of circulation.

So, credit expansion promises capitalism a "golden age" of eternal and crisis-less upsurge. The only boundary, which, according to Hahn, can be encountered by credit expansion, - is available labor force. Credit expansion exhausts its capability only in the moment, when "the last labor reserves of the country have already been used"(ibid., S. 145). This limit is nothing other than the highest level of development of productive forces, as limit of every general rationalization of social economy. And the greatest "miracle" is the point that for this there turns out to be no need of any social revolution, - it is enough to use the "social recipe" of the modest banking director - Albert Hahn!

We have no need to lower down Hahn from these romantic heights to the sinful capitalist ground. This was successfully done by Hahn himself in his article "Kredit," published in the IVth edition of "Handwörterbuch der Staatswissenschaften.9 "

Superhistorical limit to credit - the productive forces "in general" - Hahn puts forward also in this paper, however, brings with it an amendment, that undermines the very foundations of his conception. "The limit (of credit expansion. - Z.A.), - Hahn says, - is achieved when even the most strong changes of distribution, - with[out] detriment to net consumption, cannot involve new labor forces into the production of goods, - a situation, towards which modern capitalist economy rarely proceeds, because conjuncture fluctuations, due to the crisis phenomena, periodically bring with them strong delay of sales and limitation of production also disturbs full use of all productive forces" (ibid., 55-56 p.).

To be sure from this phrase is fully clear the futility of that credit romanticism of Hahn, about which was spoken above. It turns out that credit "in general," "discussed purely theoretically," although also it can lead capitalism to highest development of productive forces (and consequently between production relations of capitalism and productive forces there is not any contradiction), but towards this the matter "rarely proceeds" because crises... disturb the development of productive forces! Why then all his credit-romanticist reasoning? Obviously, it is necessary only for apology of capitalism, although Hahn's argument, aimed in this direction, is refuted by the observation of the same Hahn over several concrete phenomena of capitalism.

But with this little, we can easily prove, that the above adduced theoretical "postulate" of Hahn about the independence of credit expansion from the patterns[/laws governing] of circulation, on which properly also rests his whole romanticism, is refuted in this article by the same Hahn with a determination, deserving of praise.

Hahn distinguishes non-inflationary and inflationary credit. The volume and capability for expansion of the former is contained by itself, namely is limited by the volume of savings (and this is entirely true). And "as for the ability of banks above the frames of non-inflationary credit to provide inflationary credit, then generally it must be said that this ability is valid not only as an exception, as is usually considered, but as a rule, and in the greatest volume. The last decades, especially in Germany, represents by itself nothing more than [i]one continuous period of almost uninterrupted provision of inflationary credit" (ibid., S. [?]47). Thus Hahn wants to present the economic upsurge of Germany over the past decades (before the world war), as consequence of credit inflation.

However, all this is nothing more than a tribute to credit romanticism - one of the devices of apology for capitalism, - because several facts observed by Hahn himself refute this position. We noted, that the credit-romanticism of Hahn rests on the assumption of independence of credit expansion from the patterns of circulation. Let's give the word to Hahn himself for a refutation of this central premise of his understanding. In section VI of the mentioned article under the title "Credit and crises" Hahn says, that "the conjuncture, created with credit expansion, may end or break with more or less crisis phenomena because of two reasons...". The first reason consists in the following.

"In a state with pure-paper currency, where there is not addressed any attention to the relation of the value of domestic to foreign money, it is possible to permanently continue the increase of the mass of money. Contrariwise, this is impossible, if in the concerned state gold currency is supported and if the state wants to maintain a determined parity of domestic to foreign money, because the circulation of money, running parallel with the increase of the monetary mass, leads by itself to short or long-term outflow of gold or convulsion of the parity of domestic to foreign money, so that from inter-currency grounds the termination becomes necessary of the growth of the monetary mass. This happens, in this way, that the mass of provided credit is limited. This in its turn is achieved by means of raising the discount rate and with this increase the cost of credit" (ibid., 57 p.).

All this leads to "the fall of industrial profit, wages, and more or less extensive unemployment" (ibid., 58 p.).

Thus credit inflation is curbed by golden pincers, which either fetter such growth of credit expansion in the very beginning, or smothers the economic upsurge at its culminating point. Hahn does not bring proof, that capitalism can do without gold currency. But this he could also not prove. And once gold currency is necessary, this signifies the baselessness also of all the theoretical arguments of Hahn, related with the unrestricted and creative role of credit expansion. But the recognition of the connection of credit expansion with gold currency is nothing but the refutation of the promoted postulate of Hahn about the independence of credit expansion from the patterns[/laws governing] of circulation. On the contrary, precisely the latter wholly and fully limits credit expansion or so called inflationary credit. And this connectedness of credit expansion with golden fetters was recognized, as we have shown, by Hahn-the practician, although also in full contradiction with Hahn-the theorist (a similar contradiction of theory and practice we will meet below in the analysis of the doctrine of Schumpeter).

Now turning to the second cause of crisis, as conclusion of credit expansion.

"But even if, - Hahn says, - a collapse of credit expansion does not follow from currency-policy grounds, then nevertheless credit expansion of its own can lead to crises. Credit expansion means, as noted, also rise of production. But protracted production upsurge is impossible if there is no corresponding expansion of consumption." If this does not happen, then crisis is inevitable. The path of credit expansion - is the path of continuous and more amplifying of the restrictions of consumption. Meanwhile, against the conception of Tugan-Baranovsky, production for the sake of production cannot be. Hence it is clear that even if unlimited credit expansion were possible (i.e. distracting from the patterns of money circulation), then the economic upsurge, induced by it, would include a contradiction in itself, inasmuch as this expansion intensifies the contradiction of production and consumption and consequently accelerates the inevitable and indepenent-of-credit-expansion crisis. And if so, it means also the development of credit expansion, carried out by Hahnian methods, has herewith its self-limitation, because the generated by it phenomenon paralyzes this expansion. Such are the necessary conclusions from the by Hahn recognized second reason, generated by credit expansion.

Recognition of these "two reasons" means, as we have shown, the utter bankruptcy of the credit romanticism of Hahn and is absolutely incompatible with the following thesis of Hahn:

"Eternal prolongation of credit conjuncture, discussed purely theoretically (!), can be achieved in such a way, that with lagging sales constantly again will arise demand, thanks to credit making solvent" (ibid., 58 p.). Of the incompatibility of this "purely theoretical" thesis with facts, evidently, also Hahn himself is aware, for in his final "practical" summary about the tasks of credit policy he says the following:

"Credit expansion is one of the strongest means - perhaps in general the most powerful means - in order through uttermost use of production forces to accelerate economic development of the country and bring it to the highest prosperity. However the path of credit expansion goes through a relative expropriation of money owners, through worsening (depreciation) of the existent money in the national economy and through the danger of crises of sales, from which modern capitalist economy also without this suffers enough. One can therefore consider the tasks of target-conscious credit policy to be to conduct the economy through the Scylla of economic decline and the Charybdis of depreciation of money and crises" (ibid., 59 p.).

This, of course, already is not credit romanticism, but wholly "reasonable discussion." But this discourse means the complete bankruptcy of the theory of Hahn in the face of concrete facts10 . The so called "object of knowledge" of the theory of Hahn is entirely cut off from the "object of experience." Credit romanticism of Hahn breaks in smithereens on the golden barrier; credit romanticism is fettered by golden pincers, and from these pincers it can be released really only by a purely metaphysical theory11 .

3. Werner Sombart.

We now turn to the theory of credit and particularly to the doctrine about limits of credit of Werner Sombart, who also paid tribute to the credit-romanticist illusions. The eclectic Sombart also in the theory of credit wholly maintains his usual style. On the one hand, he goes far beyond Hahn, considering, that also labor force is not a limit of credit expansion, and on the other hand, returns to the liability and naturalist theory, stating that "deposits are in the most part short-term and ... not suitable for lending in fixed capital" (for Anlagekredit)12 .

This as if amounts to the adoptation of the basic thesis of the naturalists - contingency of assets on existent liabilities or the prius of liabilities, in contrast to the prius of assets in Hahn. But nothing of the sort: Sombart - is a hot expansionist, even hotter than Hahn himself!

It's far from useless to familiarize with this "pitched" expansionist theory of Sombart, for here Sombart undoubtedly is original, he doesn't just copy Hahn.

Out of Sombart's held classifications of credit (classifying phenomena - in this is the talent of Sombart!) from our viewpoint's interests the most interesting and principal significance is the distinction of forms of credit by, the third classification feature, - "by the origin of credit means" (ibid., 176 p.). Here Sombart establishes that "the means, by which credit appears, i.e. the means, through which persons, who do not have money, acquire purchasing power, are formed either from public revenue, or from circulating capital, or out of nothing (aus dem Nichts): The first two types of means can be united and opposed to the third type. This latter Sombart calls with a difficult to translate term Anweisungskredit, and the first two Übertragungskredit (roughly - "transmittable credit;" ibid. p. 177). Under Anweisungskredit ("exacted," "ordered," "mandated" credit), which we will call [in Russian: 'творческим кредитом'] "creative credit" (which corresponds to the content invested by Sombart in this term)," Sombart understands what is commonly called "credit creation" [/создание кредита] (Kreditschöpfung). But Sombart considers this concept multi-signifying, and therefore unclear.

About "credit creation" one can speak in three different cases, namely when the granted credit is issued: 1) above the debtor's assets; 2) above the assets of the creditor and 3) above society's assets. With this, Sombart emphasizes, "only in the last case there is Anweisungskredit, purely creative credit" (ibid, 177-178 p.).

Thus, credit can be extended not only above the funds, which are available to borrowers and lenders, but even above "society's assets." Under this last Sombart understands not only means of production, but also labor force in that volume in which it before lending existed in society. He stresses that with the by "creative credit" provided production the purchasing power exceeds the labor force found in actual stock. This credit, hence, "always represents itself a purchasing power, which can be satisfied only by additional labor" (Sombart's emphasis. - Z.A.), and "from this follows that Anweisungskredit has very important meaning for the emergence of new capitals" (ibid., 178 p.).

So, we see that Sombart in his radicalness left Hahn himself far behind, inasmuch as he believes that through credit capitalism not only is able to liquidate unemployment, but even makes necessary the amplification of "productive labor force." Thereby Sombart ostensibly removes also the by Hahn established limit and sees in credit a directly wonderful force, creating both new labor and new capital. Here it is already as if all limits for credit expansion were completely eliminated: it is impossible to imagine a more powerful lever of progress than credit!

But such conclusions from the theory of Sombart, although they also correspond with the precise given positions, would be too hasty. Here Sombart just like Hahn and Schumpeter, pays only a tribute to economic (credit) romanticism, but realism, stemming from genuine empiricism, - is yet to come...

Turning to the problem of "limits of credit," having cardinal meaning for practical questions of economic policy of the bourgeoisie, Sombart leaves the clouds of romanticism and takes to the hard ground of reality.

"The limits of credit," he establishes in relation to: 1) credit in general, 2) "transmittable credit," 3) "creative credit." Let's examine all these three cases.

1) Here we learn that "for all types of credit the common limit is the amount of stock of existent money (Bargeldvorrat) of the country, consequently, in normal times the amount of gold stock, inasmuch as note issue is based on a well-defined quantity proportion to gold reserves." With this Sombart refers to Marx, who pointed out the inability of the credit system in capitalism to be emancipated from the metal limit. However let's note, that Marx pointed out, why this is impossible, and this impossibility, which becomes real in crises, Marx derived from the general contradictions of capitalism. Meanwhile Sombart simply lumps together on one heap the above-Hahnian illusions with Marx's theory, which, as heaven from earth, differs from these latter...

"Existent money" in modern conditions is needed in the following situations: a) for offsetting the balance of payments between countries, a) inter-bank offsetting, c) payments in small turnover, as, for example, in the tram, restaurant, theaters, etc., d) for paying wages of workers, e) for payments of farmers, especially where these are small farmers (peasants) (ibid, 181 p.). All this, of course, is entirely correct, but at the same time, very little linked, as we show below, with the romanticism of Hahn and of Sombart himself.

2) In respect to "transmittable credit" the limit lies in the existent volume of savings, and this limit can never be broken (here Sombart only repeats Hahn).

3) As for "creative credit", then such, firstly, has limits common for all types of credit, - the volume of existent money reserves; furthermore, "creative credit" has also a special border consisting in "the ability of capitalist economy to expand" (Ausdehnungsfähigkeit der kapitalistischen Wirtschaft). In turn, this "ability" is defined: a) from the subjective side as "service-capacity" (Leistungsfähigkeit) of capitalist manufacturers in the intellectual and moral sense; b) from the objective side of this "ability" is created the possibility of growth of: 1) material capital, 2 ) labor force, 3) sales; finally, c) ability to expand of the capitalist economy depends on smooth, uninterrupted work of the capitalist machine, i.e. on the correct flow of the economic process, especially on the precondition of constant proportionality of industries, so as not to have any convulsions" (Ibid, 182).

True to his, as we said, "classification method of study" Sombart here from a purely German meticulousness lists possible restrictions of credit expansion. But for all its fullness this classification of brakes of expansion still can not be recognized as satisfactory, because among all these "brakes" is not set any internal and patterned connections and not identified the conditioning and the conditioned factors.

In fact, can one really say that the limit of expansion of capitalist economy (and, consequently, credit expansion) is given by the capability of expansion of "material capital" and labor forces? This is really effective only in organized social economy, the direct purpose of which is the most rational organization of "things and people" for the most fulfillment of needs, in the given social collective of individuals. To the contrary, in a capitalist economy as the direct goal or motivating stimulus for development serves the obtainment of profit by capitalists or the possibility to create value and surplus value. If there is not this possibility, the capitalist does not obtain from the "combination" of things and people any profit, then is paralyzed also the stimulus of development, even though social needs are fulfilled only in the most insignificant degree and even though there was the existence of a mass of free "material capital" and labor forces.

Further in Sombart, along with labor forces and "material capital" as a limit is specified the capability of expansion of "sales." Pointed to as a special, independent of this latter factor, is the mentioned necessary "constant proportionality of production" and "smooth, uninterrupted work of the capitalist machine." But it is quite clear that these are not two independent factors, but two moments - cause and effect. It is obvious that the capability of sales, if the narodnik-luxemburgist theory of the "third person" is rejected, is conditioned by this same "proportionality of production," which in fact under capitalism is not and cannot exist. From the disproportional development of capitalism (including here disproportion between branches of production, as well as disproportion between production and consumption) follows the limited ability of sales (crisis of sales, as expression of the industrial crisis) and from this latter the inability to realize profit. With the presence of these latter "limits" of general economic expansion the other limits disappear: a) availability of labor force; b) "material capital" and c) "service-capacity of capitalist entrepreneur in the intellectual and moral sense." As soon as there is disproportion, crisis and the lack of profit - "material capital," labor force and "service-capacity of capitalist entrepreneurs" cannot limit capitalist expansion, because exactly in these moments, the first, second and the third are found in huge excess.

As we can see, Sombart simply mixed the limits of economic expansion in general and limits of specific-capitalist development, the particularity of which is precisely that it because of its internal contradictions is not able to use all available in society capability of development, and at a determined stage of evolution is transformed into a brake of economic expansion in general.

But can one say that the established by us general limits of capitalist expansion are at the same time also limits of credit expansion? Here we encounter the second mistake of Sombart -the mixture of the general limits of capitalist expansion (which therewith are incorrectly established by him) with the limits of credit expansion. This error is quite similar to the previous. The by Sombart given solution of the problem of limits of credit expansion (Anweisungskredit) - is no more than a truism. "Generally," of course, there is no doubt, that credit expansion can not give more than that which capitalist economy itself is able to give. But as capitalist economy has its own specific limits different from the general limits of economic development, so also credit-emission, i.e. "credit creativity," has its specific limits.

In its turn this mistake of Hahn as well as of Sombart is based on the false treatment of the essence and function of so called "creative credit." The only thing, that Anweisungskredit can "create" - are means of circulation, not capital and not even money, but only token money, wherewith "credit-money itself is only money to the extent that it absolutely takes the place of actual money to the amount of its nominal value. Hence coercive measures, raising the rate of interest, etc., for the purpose of safeguarding the conditions of convertibility to gold" (Marx).

That in the final light also the expansionists themselves, but in full contradiction with their own theory, but in agreement with reality, have to, though in covered form, recognize this limit, - this is not difficult to prove for the analogous Sombartist theory, as well as the theory of other expansionists - Schumpeter, Prion, Hawtrey, et al.

In Sombart this recognition is hidden behind the by him established common limit for all types of credit, and therein included "creative credit," which consists in the amount of stock of existent money, and inasmuch as the monetary system is based on gold, then in the amount of gold stock.

But recognition of this limit deprives every meaning of all other imaginary limits set by Sombart for credit expansion. Concretely this means that if the banks ceteris paribus "made" too much means of circulation, if their "purchasing power" has become significantly in excess of the existent mass of realized commodity values (expressed in gold, conseq. in the sum of commodity prices), then the reassessment of these tokens of value is inevitable. And as gold remains in former "assessment" (because its value is not affected by "creative credit"), then all begin to demand from the issuer the conversion of "signs of values" into real value - gold. As a result the gold stock is decreased, and credit expansion is replaced by credit restriction. Thus, this golden limit is not self-sufficient and terminal, against Sombart's view, but serves only as exterior expression of the disturbed proportionality of the capitalist system of production. That's why Marx speaks about the metal limit, as about an "imaginative barrier of wealth," that exactly also is lost sight of in Sombart, who here is trying to build on Marx. If the mentioned proportionality would be constantly maintained (which, as we have shown elsewhere, is not and can not be in capitalism because disproportion is inherent to capitalism), then there would not be this "imaginative barrier," because "with the development of the credit system, capitalist production continually strives to overcome... the metal barrier" (Marx).

But, having recognized this "imaginative barrier of wealth" in the quality of a limit of credit expansion, Sombart herewith put a cross also above all other falsely by him set limits, and at the same time a cross over expansionist theory itself. Because it turns out, that credit expansion is not at all related to general economic limits of economic development in general and directly, not at all with the limits of capitalist expansion, but to one thing only, to the capability of such an expansion of the credit-monetary circulation in which there were maintained a determined proportion between gold reserves and emitted means of circulation.

Insofar as disproportionality, inherent to capitalism, is manifested also in all forms of bank credit without exception, to that extent there continuously takes place this reduction and expansion of gold stock, which is falsely interpreted by theorists, as a self-sufficient limit and regulator of credit expansion. This is not a limit and not a regulator of credit expansion, but only the external form of manifestation of internal laws and contradictions of credit expansion.

But a recognition of this "imaginative" limit knocks out, as we have shown, from the theory of Sombartist the ground for romanticism. The credit romanticism of Sombart is as firmly tied by golden pincers, as the romanticism of Hahn!

4. Schumpeter and Prion.

The same failure befell also the credit romanticism of another expansionist - Schumpeter. This economist, on the one hand, recognizes, that "creative credit" or, as he puts it, "lending to production through of ad hoc created purchasing power" (which is also referred to by him as "forced saving" - gezwungenes Sparen. - Z. A.) "principally describes the method, which provides economic development in an unclosed national economy.13 " In another work he puts it even more definitely, emphasizing, that "these methods of financing ("creative credit." - Z.A.) should be considered as properly normal and even more, as the solely possible.14 "

But, on the other hand, along with this "theoretical analysis of existing things" etc., Schumpeter encounters the same limit, on which the theory of Hahn and Sombart broke, - gold. Schumpeter recognizes, that his theoretical "position is too much at variance with reality in order to be able to recommend a set out train of thought as practical credit-policy guidelines,15 and "discussing reasonably," recommends the most thorough way to bind credit expansion is the "gold brake" ("goldene Bremse"), i.e. do away with that which in theory was recognized, as "properly normal, and even more, as the only possible"!!!16 A brilliant destiny of the theory, in the recognition of the author himself, is completely overturned in practice!

But this contradiction of theory and practice is nothing other than the expression of the internal defectiveness of the theory itself. The difference between Sombart and Schumpeter is only that in the former the defectiveness of theory is expressed by inherent contradiction between elements of the theory itself, whereas in the latter the defectiveness is expressed in the contradiction between the theory (which is only in words free from contradictions) and practice (policy). Essentially invalid remain in equal degree the theory of Sombart, as well as the theory of Schumpeter.

The same must be said also about [Willi] Prion. This author in a whole number of his works, in particular in a number of articles, placed in Handworterbuch des Staatswissenschaften,17 develops purely naturalist, consonant with perspectives of classical theory on bank credit. However a whole number of positions, advanced by Prion in his work on credit policy (anthology of articles), give us reason to believe that Prion adjoined towards expansionist theory.

Rejecting the main thesis of the naturalist conception, Prion proceeds from the entirely correct position, that "banks can also provide credit without having for this to dispose of corresponding alien capital, or without having to use their own capital.18 " We know, that in this case credit should be considered as form of circulation or realization, that not any capital with this act of lending can be created, because the bank emits neither money nor capital, but means of circulation, which only legitimize the credit emission, created with the process of commercial credit.19

But Prion adheres to a different point of view. "They (banks. - Z. A.) themselves create, - Prion says, - new means of payment, which they provide to their clients under the commitment of back payment from the side of the latter. Provision of credit is associated with the creation of money, or, as can be expressed differently, through credit is issued new money. When the bank issues the new money, then the creditor in any case receives money, for him there is no difference between new money and existent loan capital: credit is for him loan capital, which serves as supplement to the earlier available to him existent capital. But furthermore, this credit signifies an increase in money capital in general: loan capital, which features in the national economy, is increased by that sum of credit" (emphasis ours .- Z. A.).20

Mixing means of circulation with money, money with capital, the credit function with capital-formation and capital-distribution with the function of capital-formation (commodity realization), Prion fully naturally walks to the most important conclusion of expansionist theory, that credit issuance is creation of capital. He argues that by lending through issued funds the volume of capital is increased of the borrowers, and, finally, that such increase of the mass of capital is fully natural].

But with the adoption of this thesis it becomes entirely unclear why the banks accumulate savings and pay for them interest, as soon as they can create capital "aus dem Nichts." If we accept this position, then one needs to throw aside as if there was no economic importance to savings and bank accumulation, to that which Hahn dared to go, who therefore proved to be more consistent, then Schumpeter, because the latter does not deny the point that "the energy, through which are saved up funds, is certainly the essential element of the fate of the nation and its future.21 "

The same inconsistency is also in Sombart, who along with "creative credit" speaks also about "übertragungskredit" ("transmittable credit"), - although by the logic of things "creative credit" completely excludes any necessity and expediency for banks and for the national economy to employ "transmittable credit."

Prion stops halfway and cannot resolve to go to the end after Hahn in the romantic heights. Similar to Schumpeter and Sombart, Prion first pays tribute to credit expansion, as the method of capital lending: "Thus, - Prion says, - credit creation (Kreditschöpfung), which is associated with increased mass of money is not only beneficial (erträglich) for the national economy, but may even be accompanied with favorable effects, because it stimulates the entrepreneurial spirit, crowns production of commodities and contributes to a proper distribution of revenue.22 "

Yet further we again encounter also in Prion the contradiction common to the whole school of expansionists, which can also be called the school of credit romanticists. Indeed from all the reasoning of Prion it seems to follow that there is a need of every encouragement to this kind of credit expansion, which has not any specific capitalist limits and for which there are not written laws of monetary circulation. Prion should have to recognize that the limit of credit is not conditioned by specific-capitalist contradictions, i.e. that the limit of credit expansion is the volume of existent labor force (Hahn) or even more than that - the potential capability for expanding that productive energy - the labor force (Sombart).

But nothing of the like is claimed by Prion, who in opposition to Schumpeter wants to "discuss reasonably" also in theory. From the given romanticist illusions Prion abruptly turns to real capabilities of using credit expansion. Asserting the necessity to finance production through Kreditschöpfung, Prion immediately warns for "passion," speaking about the "correct degree" of this lending. If "die Kreditschöpfung der richtige Mass überschreitet" (if creation of credit exceeds the correct degree"), then the beneficial effects of this wonderful "creativity" turn into its opposite and as a result a profound convulsion occurs to the whole national economy.23

This is already completely not similar to Hahn and Schumpeter (in theory). Prion cannot substantiate that very "degree," which he nevertheless recognizes. The limit of credit expansion, for Prion, thus exists, but it is unknowable, as a sort of Kantian "thing in itself"...

Leaving unknowable the objective limit of credit expansion, Prion appeals to bank "experience," which in contrast to Prionist theory subjectively constantly perceives this limit and is orientated to it. "The solvency of the bank, - he says, - determines the bank-technical (?) limit of creation of credit. It is calculated by bank policy, resting on experience" (ibid., S. 34).

Needless to prove that this is not a solution of the problem, but a retreat of theory before the difficult task and is far from being "in full battle order." Economic theory must reveal the objective cause to subjective actions and reveal those objective patterns, which determine bank experience. It was necessary to show at what precise point the bank, through the creation of credit, is deprived of solvency and, consequently, forced to curtail its emissions. It was necessary, further, to show when and why credit expansion becomes needed and when credit restriction needed. Therefore the appeal to subjective bank experience we consider, as the whole bankruptcy of the Prionist version of expansionist theory. This version, certainly quite "practical," likewise breaks on that same stone ([наличности/existent-]money - gold!), on which broke the versions of Schumpeter and Sombart.24

5. Hawtrey.

As for Hawtrey, whom Hahn himself unequivocally counted to his school, then in him there is in general very little romanticism, and from the beginning dominates a fully realist-practical analysis of credit .

It is true. Hawtrey acknowledges that a bank can "create credit" (which is not denied also by us) and that this stimulates the development of production. However Hawtrey relates quite sober to this ability of expansion by "credit creation" (Creation of Credit), putting credit expansion in quite narrow frames. That Hawtrey in contrast to Hahn is not a supporter of a perpetuum mobile of credit expansion, can be seen from the following of his arguments on this issue.

"It is easy to see, - Hawtrey says, - how the line of least resistance will always lead to greater and greater inflation. If an inflation of credits once begins, the consequences will be felt in a withdrawal of gold.25 " But, perhaps, the latter is not so bad, perhaps, regardless of this, one must continue the line "of least resistance"?

Nothing of the sort. Hawtrey, adhering to completely sober views, equally sober, as also the views of Schumpeter - in practice or policy. "If it tries to make up the shortage of currency (imaginary. - Z. A.) by further issues, and does not at the the same time insist on a high rate of interest, the inflation of credit will quickly be intensified, the fresh supply of currency will be steadily drained away into circulation, and the withdrawal of gold for export will continue. There will soon follow a renewed clamour for more currency, and, if the same situation is dealt with in the same way, it is inevitable that the system by which the note issue is related to the stock of gold will break. The moment the free payment of the legal tender notes in gold stops, they will begin to fall to a discount (i.e. there appears a premium on the metal. -Z. A.), and the foreign exchanges, already up to the export specie point, will become more adverse still. The failure to maintain specie payments marks the cutting adrift of the country's currency system from that of the gold-using world; it means, further, that business, which till then has been stimulated by the inflated turn-over of credit and therefore of purchasing power, begins to be disorganised by doubt as to the value of the monetary unit. Its value is palpably falling, but no one knows how rapidly it will fall: it cannot be permitted to fall indefinitely, or all measure of value will be lost, but no one knows when the limit will be reached or a recovery will begin.26 "

So in the necessity to restore exchange for gold and the necessity of credit restriction for paralyzing extreme expansion Hawtrey does not doubt. He, as we see, draws in gloomy colors the repercussions of credit inflation, as a result of excessive "credit creation." Hence the necessity for so called "control over currency." As means of this control serves the "contraction of credit," to which is devoted the special chapter of his book "Currency and credit.27 " Consequently contraction of credit is a means by which gold, having left in light of excessive credit expansion the country's borders, may be again settled in place. The contraction of credit can be achieved by direct limitation of lending, as well as by increasing the rate of interest.

However the attraction of gold from abroad is possible only in the case credit expansion did not yet decisively disorganize the system of monetary circulation: "The two conditions, - says Hawtrey, - that must be fulfilled if a high rate of interest is to attract loans from abroad are that the solvency of the borrowers and the stability of the currency must command the confidence of the foreign lenders.[117 p.]"

Hawtrey firmly is holding on to the so called "gold standard." Precisely thanks to the fact that the currencies of all "civilized" countries are based on gold, credit expansion cannot unlimitedly and excessively expand.28

The need of convertibility curbs credit expansion - that's the leitmotif of Hawtrey, wherewith, unlike Schumpeter, Hawtrey sees no need in a demarcation of "laws of theory" and "laws of life.29 "

But, having included the gold standard in the theory of credit expansion, Hawtrey in the final light turns out to be as helpless in the cardinal question about the limits of credit expansion, as the assayed above Prion.

Hawtrey seeks refuge in cash [/cash existent money/кассовой наличности]: "...When, - Hawtrey says, - a general shortage of cash does occur, this is a sign that there has been an undue expansion of credit, and that is a matter for which responsibility rests not with the individual banker but with the central bank as the representative of the State. So long as the ordinary banker takes care that his assets are good, and does not swell his loans and discounts beyond the due proportion to his deposits, he is doing his duty to society.30 "

The underlined by us space in this summarized reasoning of Hawtrey in the quote has very important meaning. The point is that Hawtrey does not at all consider cash, as a limit of extension of credit, but only as a symptom of already accomplished "unhealthy" extension of credit, wherewith directly following this is emphasized that "the ordinary banker takes care that his assets are good, and does not swell his loans and discounts beyond the due proportion to his deposits." Consequently, this must be understood so, that the general restriction of cash happens with the conservation of the "due proportion" of assets and liabilities of individual banks. This is the most interesting point about the conception of Hawtrey. Why did the expansion of credit prove "excessive" if every single banker maintained "due proportion" of assets and liabilities? The reference to cash disappears, because one asks, why cash was suddenly insufficient, as long as "due proportion" of assets and liabilities was maintained? Obviously, the former rate of cash became insufficient in light of general excessive credit expansion. At the same time this excessiveness follows from restriction of cash. Thus, the restriction of cash derives from excessive expansion of credit and excessive expansion of credit - from a restriction in cash.

In the same exact vicious circle helplessly spins our Russian expansionist - Shaposhnikov.31 It is obvious that between cash and the expansion of credit there is a functional connection, but not a causal order . If the bank increase cash, then it ceteris paribus restricts the relative volume of its lending; and if it expands the relative volume of lending, it herewith restricts cash. As for Hawtrey, he finds a way out of this vicious cycle in the same way that Prion found it - a reference to "practice" or "experience." On the other hand Hawtrey drops the responsibility for "excessive credit expansion" not on the bankers, which actually implemented this expansion, but on the "central bank, as a representative of the state", which, he says, is insufficiently "experienced" and skilful "controls" circulation by means of its credit lever. The strain of cash is converted only in a symptom of excessive expansion, but not at all in the limit of it.

By this path the indicated contradiction is removed, but then credit expansion is devoid of any real foothold, and therefore concrete limits of this expansion cannot be specified. Obtained thus is a rather strange situation: there is no doubt that there is a certain determined limit of credit expansion, on which the fluctuation of cash constantly signalizes, but in what this limit consists is a complete mystery! As for "control over circulation," then with the inability to determine a concrete limit of credit expansion, it operates through credit restriction only post factum; with this path one can only correct the accomplished "excessive" expansion of credit.

And so also Hawtrey does not solve the problem of the limit of credit expansion. But such a solution cannot be given on the basis of expansionist theory. We have seen that in this "golden barrier" abut Schumpeter, and Sombart, and Prion, and Hawtrey, and to jump through this barrier without abandoning the original point of one's conception they were not able to.

Insofar as Hawtrey, although also not sharing romanticist illusions, all the same accepts their thesis about the patterns[/закономерности/laws governing] of the development of production exclusively on the basis of "pure" credit expansion, also he is unable to determine the limits of credit expansion, for it is impossible to establish, in what precise volume production can be expanded with the given method of lending. And that "golden barrier" ("symptom"), on which Hawtrey abuts along with other expansionists, as we have seen, does not give the solution to the problem. On the contrary, recognition of this barrier cannot be regarded by us otherwise, than as the factual rejection of the starting point - patterns of expansion of production on the sole basis of credit expansion only.

6. Restoration of the "gold standard" and "credit creativity."

After the general passion for nominalism during the war, when nominalism was a suitable theory to justify paper-money inflation, in bourgeois circles there came a sobering. The principle of the "gold standard" received general, one can say, worldwide recognition. On the other hand, likewise by all the fact was recognized of indirect lending of the war in the form of inflation of bank credit.

Gustav Cassel, author of "Memoranda on the world's monetary problems," pointed out that "government finance is not the only factor to be taken account of in the process of inflation. Every extension of bank credits beyond the limit set by the fresh savings put at the disposal of banks is apt to cause inflation.32 " Inflation of bank credit - "this is in fact what has been going on since the war in a good many countries," - says G. Cassel.

Inflation during the war in all its forms has already so much managed to suck out the juices of the world economy, that the point of view Cassel has not met objections in business and government circles. In particular the inflationary impact of bank lending during the war was unanimously acknowledged at the Genoa conference and recorded in its conclusions.33

However the Genoa conference did not only proclaim the need to return to the "gold standard." The fact of active influence of bank lending on commodity prices during the war gave ground also for such conclusions, in which credit romanticism found its reflection - the idea of general regulating and stabilizing role of bank credit. In this respect it is characteristic that one will not meet any objections to the statements of chairman of the Finance Committee at the Genoa Conference, Laming Worthington Evans.

"In this sense the regulation of prices, - Evans said at the plenum of the conference of 3 May 1922, - boils down to the regulation of credit. Experience, made since the war, by the Bank of England, as well as by the Federal reserve department in the United States, once again showed us, how sensitively prices react to changes of credit conditions... ".

Finance committee of the Genoa conference recommended "coordinated world credit policy, thanks to which the big banks will get the capability to inform a more stable character of the general level of prices." The "directors" of the fate of capitalism in Genoa put forward a conception, which the "socialist" Hilferding in 1912 in the pages of the social-democratic "Neue Zeit," considered to be an absolute truth. And the same Worthington Evans saw in world credit policy a means to fight with European unemployment.34

It is known, that from the "coordination of world credit policy" absolutely nothing came out, yes also could not come out, inasmuch as there exist profound economic, and consequently, also political contradictions between imperialist states.

After new inflation outbursts in Germany and France it finally was managed to bring a stabilization of currency on the basis of the "gold standard." But to stabilize currency - this does not mean to stabilize conjuncture, and the hope of Evans to eliminate European unemployment and stabilize the conjuncture in no degree was materialized. Now, after the American stock market crash of late 1929, with the existence of the world crisis also for Evans it must have become clear that his reference to the omnipotence of the Federal Reserve system is, to put it mildly, completely unfounded...

To the "gold standard" returned all countries. For us here it is important to emphasize that the necessity to restore the "gold standard," among other things, was motivated also by the fact that it is necessary for curbing credit expansion. This is precisely the practical conclusion, to which, as we have shown, have come, though in clear contradiction with their own conception, the leaders of the expansionist school. In the report of the English committee for the study of problems of money circulation and exchange courses, the so-called "Cunliffe Committee" noted that, "judging from many years of experiment," the automatic mechanism of gold money circulation "is the sole effectual means against adverse trade balance and disproportionate growth of credit." This committee insisted that the source to cover the costs of capital investment for economic reconstruction of countries after the war would not be new credit, but only genuine savings. These costs "cannot be satisfied with the creation of new purchasing power in the form of opening bank credit to government or industry under governmental or other guarantee."

So, the committee Cunliffe did not soar in the clouds of credit romanticism and, fully aware of the vital interests of capitalism, demanded the same "golden brake" for credit expansion of banks, the necessity of which, as we have shown, was recognized also by Schumpeter. This "brake" is, of course, absolutely necessary for capitalism, because without actual money - gold - there can be neither credit, nor capitalism in general. But this very "gold standard" and "control over circulation," which on the basis of the former must bring central emitting banks, to put a cross over the illusions of the credit romanticists, also in its turn, gives rise to new contradictions, which we cannot here consider.

7. Goodliffe, Lampe and the "ethics" of the naturalists.

As we have shown, expansionists, starting with broad and attractive credit-romanticist illusions, encounter the contradictions which credit expansion brings with it. To eliminate these contradictions they, as practicians, recommended such measures, which bind credit expansion, thereby undermine credit romanticism.

Unlike the expansionists the largest part of the naturalists do not suffer the credit-romanticist disease. They are strict "realists" and do not give to credit the significance of central regulator of economic dynamics. Credit - is "just" a special way to transfer things from hand to hand - and nothing more. What kind of credit creation can be spoken of? "You cannot, - says Walter Goodliffe, - create a credit: 'ex nihilo nihil fit,' and apart from its basic commodity or service, credit - and money which is credit made visible - is nothing worth. There must be an exchangeable something from which a credit derives, and any medium representative of such credit can only be valuable while that something exists, and is available.35 "

In order to immediately dissociate from the illusions of credit of MacLeod, Goodliffe as a motto of the first chapter of his work chose a phrase from [William Arthur] Shaw: "You cannot create a Credit." But this "saying" carries a purely declarative character and has "academic" significance in the worst sense of this word. The same declarative character carries the indictment by Goodliffe of "instruments of bank credit" (credit money. - Z. A.) that they are, supposedly, "bad," surrogate money. This is motivated by the point that the specified "instruments" lack the attributes of "sound money": "they are not issued by constitutional authority, are not based on the national credit, nor does parliament exercise any control on their issue.36 "

But a fact remains a fact: let Shaw say to the bankers "you cannot create credit," these bankers create "credit instruments" and are widely used by them for their active banking operations. To deny this fact is impossible, - it is known to any capitalist. But from the point of view of Goodliffe such type of operations of bankers can not furnish entrepreneurs capital - they render them only "temporary support" under fully sound security.

In light of the necessity to keep one's assets in liquid form, "no bank can loan its credit to customers with safety, unless the security pledged is not only sound but readily realisable in the open market; and no borrower can with safety employ bank credit for other than temporary purposes without incurring grave risk should the credit be withdrawn.37 "

But is this the case in reality, is it true, that banks "loan their credit" only for temporary purposes? The theory of Goodliffe, as also of all naturalists, is in conflict with reality, since practically there is no possibility to distinguish between "financing" and "lending." And if so, then there is no possibility to restrict the use of the by banks created "credit instruments" only to "temporary purposes," and not to long-term financing of industry.

This is the reality, and the comical thing is that, acknowledging this latter, Goodliffe expresses "regret" that this is the case. "However, unfortunately (sic!), the demarcation of the bounds between commerce and finance, under the existing system, is so complex and involved, that it is difficult to differentiate the use of bank credit for finance - which concerns only the employment of capital, and for commerce - the actual exchange of products, with which alone currency is concerned.38 "

Ethics we set aside: let's grant Goodliffe regret apropos this - science before this has no concern. The latter can not but be interested in the following. If the by Goodliffe marked differentiation of bank credit in reality is completely unfeasible, if the banks emit means of circulation, finance from these funds industry, then how is it possible to deny credit expansion in the sense of Hahn- Schumpeter-Hawtrey? Of what consists after this the declaration, with which Goodlife began? And further, if the naturalist acknowledges the fact of financing of industry through issuance of currency by banks (on which also rests the whole conception of expansionists), then where is the limit of "credit creativity" or credit expansion? To what boundaries can the banks expand this "creative credit" shamefacedly recognized by some of the latest naturalists?

On this question in recent German literature tries to give an exhaustive answer a naturalist of, we would put it, "latest formation" (i.e. acknowledging the noted fact) - Lampe. This author made an extensive criticism (albeit rather confusingly) of the "economic theory of bank credit" of Albert Hahn. Of course, this criticism should have included in itself a positive answer to the question of boundaries of credit expansion, which could be opposed to the solution of this problem by the expansionists.

Lampe favorably differs from other naturalists, in that he straightly speaks about "credit creation" by banks, as about a fact. This saves him from those frills to which commonly resort the naturalists. Lampe points to the volume of reserves of the social product and to the "economic possibilities to deliver for restoration of the social product an equivalent order (of the product. - -Z.A.).39 " In these limits credit expansion does not lead to inflation, and the latter Lampe believes, in opposition to the expansionists, is harmful, inasmuch as it disturbs the equilibrium of the national economy.

Further Lampe notes, that in case of financing of industry through ad hoc created purchasing power, either consumer demand must be decreased (or, as he expresses it, - "there must be an abstraction of demand from the social product") in the amount, taken by the receivers of credit; or these products must be replaced by others. Both of these possibilities Lampe denies. "On the one hand, the demand for life-necessity products is highly inelastic; on the other hand, the capability of reproduction of these products in a given production period is insignificant. Consequently, with these two facts are set very narrow limits of credit creation.40 "

Credit expansion (in the sense of Hahn-Schumpeter) can be based, mainly, on the reserves of the social product: "when the stock due to additional demand of the receivers of credit, will be threatened by exhaustion, and manufacturers present high demand for means of production, then from the supply side will act a trend of raising prices,41 " wherewith this trend will carry a purely inflationary character and therefore would have from the point of view of Lampe a negative meaning.

Lampe comes to conclusions, in which there is quite a lot of "common sense" and which are a completely natural reaction against the theoretical liberties of the expansionists. In his summary Lampe says:

"Even with a significance taken in the abstract of study assumptions - the 'law of slow turnover,42 ' and 'plan-conformable economic leadership' - a "golden age of economy" cannot be achieved by unlimited credit creation. Any illusions, connected with credit creation, collapse completely, if it is considered, that credit creation exactly disturbs the "harmonious combination of the social product," prompting the disturbance of the equilibrium of the movement of labor forces, while the "law of slow turnover," counteracted in each of the given cases, by the inflationary tendencies of credit creation, is completely indeterminate.43 "

Here, indeed, are found the desired words. Lampe, along with Karl Diehle,44 quite rightly recognizes the illusion of a "golden age" of capitalism, created after Macleodist recipes. And it is likewise true that this "harmonious combination of the social product" (i.e. proportionality of social production) in certain conditions can be disturbed by inflationary tendencies, caused by "credit creativity."

But can these trends be eliminated? Is it possible to confine credit expansion within the frame of limits, the defined by Lampe "reserves of the social product," etc.? Naturalists and Lampe along with them answer positively to this question. And it's necessary to observe that the views of Lampe in this question do not rise above the vulgar notions even of the same Goodliffe. The whole matter allegedly lies in the bad mode of activity of bankers and in the dangerous theoreticians, who justify this mode of activity. Instead of objective analysis of social factors, stemming from the very nature of the capitalist mode of production and causing the given "abnormal" (!) mode of activities of bankers, Lampe raises the normative question: "this" in capitalism can not and should not be!

Here is his last word: "credit through savings (Spar-Kredite), if also at all the additionally, productively applied purchasing power can be filled in, then in any case only in an insignificant volume and always with a threat to the flow of economic life.45 "

Such a normative ethical approach to the problem of credit expansion and its limits is received by modern German naturalists from their predecessors. Still Kniess, who gave a critique of MacLeod, came to the same conclusions. Proceeding from a concept of credit, as transfer of things etc., Knies set for credit a "material border," - the limit of the expansion of credit, from his point of view, is real capital in its natural form of means of production;46 so above the sum of national accumulation - savings banks neither can, nor should provide credit to their clients.

In later literature, for example, in Spiethoff or Beckerath, the same motive is repeated: to create credit and with it expand production isn't allowed, because banks should not through their issuance finance industry, if they do not want to bear responsibility for the severe consequences of a "foolish" policy of credit inflation.

Spiethoff came to the conclusion that the credit market may feed "formal purchasing power (acceptances, notes, paper money) only temporarily, and always with undoubted dangers to the national economy.47 "

Likewise also Beckerath in his study of "money and capital markets," noting the inadmissibility of the use of means of the money market for needs of the capital market, points to the dangers that are involved in this kind of policy,48 as though on the latter the patterns of capitalist dynamics actually depend. But how little Lampe adds to Beckerath, and this second - to Spiethoff, - and, finally, the last - to the old Knies! As an immutable tradition of vulgar economy, it looks at the surface of the monetary-credit sphere of contradictions of capitalism and, by virtue of its limited bourgeois horizon, does not see their real roots.

**
*

The normative approach to the problem of credit expansion is proper likewise to American theorists and practicians of the naturalist direction. Take, for example, a fairly typical address of W.A. Scott in "Investment Bankers' Association of America." Scott categorically claimed, that "when commercial banks create their own demand obligations, either in the form of checking accounts or notes against investment securities, they are creating an obligation that they may not be able to meet." This he explains with the point that funds, which bankers use in these cases, are inadequate for the purpose, namely: "however productive the enterprises may be, which these securities represent, they only after a series of years, bring into existence an amount of production sufficient to offset the initial investment."

So, the use of "credit creativity," i.e. to create termless debt obligations, with investment goals is not allowed; the exclusive purpose of these funds, as Scott notes further, - is meeting operating commercial needs, for example, to discount commercial paper, which in the shortest term is paid by debtors.

However Scott, like also the other Americans, has to admit that the reality is not such, as it is wanted by him. Bankers exactly are widely involved with investments through the creation of their own obligations.

"The result of such loans, - Scott says, - is overexpansion or inflation of credit, i.e. the banks have created obligations against themselves which they are not able to meet in the normal course of business. So long as business is prosperous all goes well; but as soon as there is a break somewhere in the industrial system and borrowers for investement uses are unable to pay, serious trouble follows (panic)... Forced liquidation is a necessary outcome of overexpansion of credit caused by the exchange of investment securities for checking accounts, and if such forced liquidation is general throughout a country and attempted on a large scale, then... commercial crisis is inevitable.49 "

A similar view was expressed by H.M. Geiger in the book "Financial Readjustment" (1915). He also sees in the practice of lending through creation of "obligations on demand" the cause of "many sleepless nights for bankers.50 " But is it possible to eliminate this "insomnia" of bankers, is it possible to prevent crises? [Earle P.] Carman51 sees all evil in the point of the prevalent in America practice of credit obligations, the so called "promissory notes," represent themselves "a combination of commercial and investment credit." And since obligations on demand shouldn't, if they want to sleep peacefully, be used by bankers, - then Carman sees salvation in the rejection of promissory notes and "book credit" (the creation of checking accounts. - Z. A.) and a transition to the European method of lending for drafts.52

But in Carman certainly is an outdated picture about "European lending practices." Also in Germany and in England the weight of draft lending is falling, and increasingly the dominant form of lending becomes checking accounts. On the other hand, the transformation of capitalist banks from "commercial" to "investment" banks, which happened recently in America and named by Louis Brandeis a "revolutionary change" in banking matters,53 in equal degree is innate also to European capitalism. After the publication of the study of [Adolf] Weber ("Depositen - und Spekulationsbanken") and of Wieser ("Der finanzielle Aufbau der englischen Industrie"), one can no longer talk not only about "European" in general, but not even of "English" lending practices, in contrast to the American, i.e. mixed "investment-commercial methods."

That's why the "key of salvation" of Carman, proposed in his time for American bankers, is very, very rusty, and therefore unusable. To this fact, so called "Combined work", i.e. the universalism of credit methods of capitalist banks, we tried to provide a theoretical basis.54 From our point of view, the propositions by the above mentioned American authors to restrict credit expansion with the goal of healing the "insomnia" of bankers, i.e. prevention of crises (as though the cause of crises is in credit expansion!) by a framework of purely "commercial credit" and refusal of financing ("investment credit"), are absolutely unfeasible. Such a restriction contradicts the specific patterns of the money market and bank credit and in general testifies to the vulgar, purely superficial perception and explanation of the contradictions, which volens-nolens are observed by bourgeois practicians and theorists.

Naturalists observe the contradictions of capitalism, manifested in bank credit and believe them to be results from incorrect modus operandi (incorrect methods of lending) of bankers. From this their simple and naive recipes of healing the diseases of capitalism, their normative approach to the problem of limits of credit expansion. They do not understand a simple thing, namely, that these contradictions are inherent to capitalism, and that therefore, regardless of the "modus operandi" of bankers, credit, as one of the immanent forms of the capitalist mode of production cannot but include these contradictions in itself. Precisely these objective contradictions of capitalism condition the subjective actions of bankers, which the naturalist "condemn" with as much vigor as naivety, not realizing that another "mode of action" of bankers is at all impossible!

What is the substantive difference between expansionist and naturalists in the given question? Both one and the other cannot, of course, not detect the real contradictions of bank credit. But both one and the other deny the necessity of these contradictions.

However they deny these contradictions in different ways. Marx found that "banking and credit become... the most potent means of driving capitalist production beyond its own limits, and one of the most effective vehicles of crises and swindle..55 " The abnormality of credit from the point of view of both directions consists of the point that from time to time there take place "crises and swindle," whose presence is impossible to deny. The naturalists believe that crises occur due to improper credit policy of bankers, which should not bring capitalist mode of production beyond its own limits. The expansionists, conversely, see the abnormality of the situation in the point that limits are artificially placed to credit expansion; they seek salvation (only in theory) in unrestricted credit expansion to "drive capitalist production beyond its own limits" and with this finish with the contradictions of this mode of production. They want to eliminate the contradictions of credit of one or another credit policy.

But neither restrictive, nor expansionist policy are in a state to eliminate the contradictions of credit and the credit system. These contradictions exist and will exist for as long as the capitalist mode of production, generator of these contradictions, is preserved.

The correct answer to the question about the limits of credit can be given only on the basis of Marx's doctrine about the cyclical motion of capitalism and the dialectical connection in this process of the basis of productive capital and the superstructure of loan capital. As a positive treatment of this problem is beyond the scope of our essay, we confine ourselves to the most general characteristics of this position, proceeding of which we have criticized bourgeois theorists.

The general limits of credit emission are exactly specified by Marx (see previous quote from "Capital" [Vol.III, ch.36] on p. 207 - Z. A.). But the limits of credit emission should not be confused with limits of credit in general,56 with limits of credit expansion, which we understand not at all in the Hahnian sense (i.e. as credit inflation); this expansion signifies expansion of credit in general, regardless of its sources and its funds, for example, accumulated or emitted. What are the limits of credit expansion understood like this?

These limits are given by the concrete capabilities of the expansion of productive capital in the given segment of a cycle. It's obvious, that these limits reach a maximum, with an upsurge, a minimum - with crisis and depression. In the epoch of industrial capitalism the "highest limit of credit is identical with the fullest employment of industrial capital, i.e. the utmost exertion of its reproductive power without regard to the limits of consumption." (Marx, Capital Vol. III, Part 2, page 21, ed. 1923. These words of Marx were said in an analysis of commercial credit, but they are valid in the determination of the limit of credit in general on a given segment of the cycle).

If in consequence of the basic contradiction between the social character of capitalist production and private appropriation, at a known point of the upsurge with necessity comes crisis, then this signifies the exhaustion in the given cycle all the possibilities of the expansion of productive capital and, consequently, likewise the possibilities of expansion of credit. Hence - sharp squeeze of credit. With stagnation in business, i.e. depression, the limits of credit remain narrowed to the minimum, and in that moment it [becomes] impossible to use for lending not only emitted, but also accumulated funds. Here we have abundance of loan capital, which finds no application, because both production and circulation are squeezed and, consequently, also the limits of credit are squeezed.

If there is a depression or crisis, then so called Kreditschöpfung cannot help, because the pattern of the movement of loan capital in the final light is conditioned by the pattern of the movement of industrial capital, and not vice versa.

Insofar as there is an upsurge, which never and not in any case the banks themselves by their "creativity aus dem Nichts" can create, there is an expansion of the limits of credit, and banks use all of their capabilities, [i]accumulation, as well as emission, in the bounds, permitted by the patterns of money circulation/i] (i.e. with preservation of free convertibility of credit money into gold, for which it is necessary to maintain a determined proportion of gold reserves to the emitted credit to ensure this convertibility), for expansion of productive capital, for the "fullest employment of industrial capital without regard to the limits of consumption" (Marx).

But here we have not the mechanical expansion of credit as direct reflection of expanding industrial capital (naturalist theory), and not the reverse - the expansion of industrial capital because of the expansion of credit (expansionist theory), but both one and the other, i.e. the dialectical process of interacting basis and superstructure. This dialectical process is clearly formulated by Marx: "A mutual interaction takes place here. The development of the production process extends the credit, and credit leads to an extension of industrial and commercial operations..57 "

Superstructure (loan capital, the credit system) is conditioned by the basis, but only in the final analysis, which means that, contrary to the mechanistic naturalist theory of the classics credit affects production, though contrary to expansionist theory, credit is conditioned by the patterns of capitalist production and cannot go beyond the frame of the latter's intrinsic contradictions.

Credit accelerates and enhances the upsurge, but at the same time aggravates and exacerbates the crisis. And contrary to the two basic bourgeois theories of credit and conjuncture, credit cannot but play this double role in the cyclic motion of capitalism. Contrary to the naturalists, credit and "credit creativity" cannot but force the upsurge (naturalists "condemn" precisely such conduct of banks), but, contrary to the expansionists (who praise this "creativity") expansion of credit, credit "creativity," facilitating expansion of production, cannot call forth a perpetuum mobile of this upsurge, because it only develops the inherent contradictions of capitalism and with necessity leads to crisis, consequently, to sharp narrowing of the limits of credit expansion, which in upsurge were widely extended. From this is clear that bankers are governed by credit and its limits. These limits are the patterns of the cyclical movement of capitalism and that contradictory movement of real and loan capital which is exhaustively described by Marx: banks can only better or worse adapt to these patterns, but against all bourgeois credit romanticists, they can not overcome these patterns. Bank policy and bank legislation, [of course affects] the cyclical movement of production, but they do not affect it as to cancel the immanent patterns of this movement. Here [**] example, "ignorant and mistaken bank legislation, such as that of 1844-45, can intensify this money crisis. But no kind of bank legislation can eliminate a crisis.58 " Thus the limits of credit, against the naturalists, [are not] conditioned only to accumulation, against the expansionists - credit expansion is not unlimited, but strictly bound by the fundamental patterns of the cyclical movement of capitalism, including in this the patterns of production, and of circulation, and distribution, and consumption, as [a single] unity - of the process of reproduction.

• 1['кредитного творчества' from 'Der schöpferische Kredit' or also 'Kreditschöpfung' (творческому кредиту), which I tried to consistently translate (from the Russian) as 'creative credit.' This is a mere translator's footnote. All square brackets are mine and mostly are used for when a word was illegible, when I give an educated guess, add a possibly better alternative translation and so on. - Noa Rodman]
• 2K. Marx, Capital, Vol. III, part 1, 1922, 427 p.
• 3The idea of credit regulation of the conjuncture in recent times is developed and promoted in England by the so called "Cambridge school of economists." T. [Theodore Emanuel] Gregory in the journal "Economica" (1924) [No. 11, June, 163-175 p., Recent Theories of Currency Reform] formulated the basic principles of this school of which we mention the following three principles: 1) Stabilization is to be attained by watching credit-creation rather than currency-creation; 2) control of credit enables short-run as well as long-run stabilization to be achieved. That is, the trade cycle is controllable at will, through credit control, even if the trade cycle is not caused by the manipulation of credit; 3) the appropriate instrument of control is the central bank of a given country, the appropriate methods being the use of the bank rate of discount, supplemented or reinforced by open market operations. In application this method should be orientated not only on the condition of bank reserves and exchange courses, but also by the indicators of commodity prices, unemployment, state of production, movement of foreign trade, etc. On this platform stand, as Gregory notes, the significant [**/principles] of the economists. In what degree the ideas of the Cambridge school are real, the example of America shows. Under the existence of the Federal Reserve system in the USA in the end of 1929 bursts a grandiose crisis. And this, regardless of the fact that the Federal Reserve Board had a fine-tuned apparatus of conjuncture supervision. But all the conjuncture barometers let down the American stabilizers. This could not be otherwise: the so called "social indicators" of the Cambridge school record already accomplished phenomena and give a signal to the central bank about [**/the direction] of credit policy in order to keep safe its gold reserve and prevent bankruptcy, but not in order to "stabilize the conjuncture."
• 4Marx, Capital, Vol. III, part 2, ch. 35, 130 p.
• 5"The banking system shows, furthermore, by substituting various forms of circulating credit in place of money, that money is in reality nothing but a particular expression of the social character of labour and its products, which, however, as antithetical to the basis of private production, must always appear in the last analysis as a thing, a special commodity, alongside other commodities" (Marx, Capital, Vol. III, part 2, ch. 36, 144-145 p.).
• 6Marx, Capital Vol. III, part 2, ch. 36, 143 p.
• 7"Pod Znamenem Markiszma, No. 2 and 3, 1928.
• 8Albert Hahn - Volkswirtschaftliche Theorie des Bankkredits, 1920, S.174.
• 9This article was included in a collection of journal articles of Hahn called "Geld und Kredit," Tübingen, 1924. We cite this article after the mentioned collection. This article appeared in Russian translation in the anthology of NKF "Credit and banks," M., 1929.
• 10R. Stucken likewise notes that Hahn and Schumpeter in their latest publications more significantly already determine limits of credit creativity, - at least, for countries with gold currency, - than in their previous works. With this, from the point of view of Stucken, is eliminated some vulnerable for critique places (Angriffspunkte) from their doctrine (See Weltwirtschaftliche Archiv, Bd. 30, Heft 1, 1929, S. 202.). This is said too softly: in fact these Angriffspunkte of their doctrine are places of the necessary and essential elements of their common theoretical conception. And if so, then we cannot speak about the correction of some mistaken places of their theory, but about the bankruptcy of the entire conception as a whole
• 11In analogy with Hahn's social-credit illusions has come forward in German literature Feder. "In any case, - Feder says, - we believe that this form of financing (on the recipe of Hahn. - 3. A.) opens before us unforeseen and grandiose possibilities in relation to use of the natural wealth of the country, improvement of the means of connection, etc. .. Every people is wealthy insofar as it can organize its labor (our emphasis - Z.A.). According to Feder, capitalist society, regulated with the correct credit policy and generous credit emission, is able best of all to organize social labor and, consequently, lead to most social wealth! (Feder, Der Kommende Steuerstreik, S. 107).
• 12W. Sombart. Der moderne Kapitalismus, Bd. III, Halbband I, München. 1927, S. 185. This volume of "Modern capitalism" recently appeared in Russian translation in an edition of GIZ.
• 13J. Schumpeter, Theorie der wirtschaftlichen Entwicklung, S. 214.
• 14J. Schumpeter, Die goldene Bremse an der Kreditmaschine "Kreditwirtschaft," S. 87.
• 15Ibid, S. 98.
• 16In detail we analyzed Schumpeter's theory of credit in our article, '"The role of credit, etc." in - "Under the Banner of Marxism," No. 3 in 1928.
• 17See also the anthology "Credit and banks," edition NKF, 1929, Prion's article "Basic problems of banking policy" and " The organization and the foundation of operations of commercial banks."
• 18Dr. W. Prion, Kreditpolitik. Berlin, 1926.
• 19See our article "Toward a theory of bank credit" in "Under the banner of marxism," No. 6 and 7-8 in 1929.
• 20Ibid, S. 29-30.
• 21"Kreditwirtschaft," I Theil, S. 85.
• 22Prion, Die Kreditpolitik, S. 32.
• 23Prion, Die Kreditpolitik, S. 32.
• 24In recent German literature appeared a new work of [Hans] Honegger ("Der schöpferische Kredit," Jena, 1929. Aufl. G. Eischen), whose author defends the conception of the expansionist school and gives an anti-critique to Weber, Zaffe, Manstaot. In his positive part Honegger is more than weak and not convincing. The by him given solution of the central problem of the limit of credit in general boils down to the point that credit, based on national economic confidence, cannot cross this limit in trust. If in the national economy created credit instruments is above this limit, there arises "credit uncertainty" (Kreditunsicherheit) that binds the capability of further "credit creativity" ("Der schöpferische Kredit," S. 92) Such a "solution" to this problem is very vague and hazy. Stucken in his review of Honegger's work (in Weltwirtschaftliche Archiv, Bd. 30, N. II) indicated, that the disappearance of trust in credit payment means is a consequence of restrictions of credit expansion as a result of inflation. However, also falling confidence in the "credit instrument" and restriction of credit expansion are the consequence of deeper reasons, that are neither noted by Stucken nor by Honegger. But Stucken, of course, is quite right that the limits of credit expansion cannot be found in confidence, as a purely psychological factor , because this factor itself is objectively-economically conditioned. Moreover in Honegger is obtained a clear "vicious circle." Confidence falls as the result of excessive credit expansion, and expansion is excessive because the limit of trust is broken. In general expansion is excessive because it is excessive!
• 25R.G. Hawtrey. Currency and Credit, 2nd ed. , London, 1923, page 133.[page 128 in 1919 ed.]
• 26Ibid. 134 p.[129 p.]
• 27The action of credit contraction (so called credit restriction), induced by previous excessive expansion of credit, Hawtrey depicts as follows: "The contraction of the consumers' outlay is proportioned to the restraint on production, and the restraint on production is governed by the restriction of the merchant's purchases. If the home dealers alone are subject to the contraction of credit, the restraint on production is only partial; if home dealers and export dealers are both subject to it, the restraint is complete. This gradual diminution of the consumers' outlay is of the essence of currency control. If the consumers' delay has become excessive this is due to a too profuse creation of credit . In the first instance a credit expansion stimulates production; it is when production ceases to respond easily to the stimulus that prices begin to rise. Inflation consists in the spread of the infection of high prices through production to the consumers' income and thus to the consumers' outlay. When the whole productive machine is working at a high level of money values, and markets become unduly attractive to foreign trade commodities, imports increase, exports decrease, and a balance of indebtdness has to be paid. If matters are allowed to drift, the balance is paid in gold till the gold is exhausted. A contraction of credit , by impelling merchants to increase their sales and to diminish their purchases, helps to effect an immediate redress of the adverse balance of indebtedness and to preserve the stock of gold from further depletion. But a radical cure cannot be effected till the cause of the disorder has been removed, i.e., till the high level of money values has been reduced"(ibid., 121 p. [114]).

  With this Hawtrey correctly notes that when analyzing the impact of credit contraction on circulation and production one must take into account the country's relationship with foreign credit systems: "Thus the attachment of a portion of the mercantile community to a foreign banking system weakens the effect of the contraction of credit upon production." (p. 115 [111]). "A country, whose foreign trade is all or nearly all financed abroad, has less power of stimulating exports and repelling imports by means of a credit contraction."(p. 117 [113])

• 28Hawtrey gives a thorough analysis of international fluctuations of gold and the role of credit in this process. Here are not installed the "lending points," i.e. margins of discrepancy in interest rates of different countries in one and the same period of time. "As a result of the general prevalence of the gold standard, rates of interest in different centres are linked together. They are free, however, to vary within limits, "lending points" as it were, not unlike the specie (gold - Z. A.) points of the foreign exhanges. If an extra 1 % on a three months' bill is just enough to attract a French lender to the English market, then the English bank rate cannot be more than 1 % above the French. Should the difference exceed this limit the remittances from Paris to London would speedily necessitate a rise in the French rate." But this tendency operates only in case the gold standard is not broken; with the existence of that latter there may also take place counteracting factors (Currency and Credit, p. 122 [p. 117-118])
• 29Hawtrey considers convertibility of banknotes and deposits for gold an universal means against excessive credit expansion. Therefore he objects against artificial restrictions of credit expansion of deposit banks. He sides with bank liberalism and warmly defends the principle of laisser faire. "One bank, - Hawtrey says, - cannot be more liberal than the rest in granting and discounting bills without having to meet an adverse balance at the Clearing-House. This operates as an automatic check on the inflation of credit . One bank may, it is true, adopt a lower standard of cash reserves than another, and may increase its profits at the expense of its power to maintain cash payments. But the narrower its margin of cash the less scope it has for inflating its loans. If its reserve is already cut down to the minimum sufficient for its day-to-day needs, the slightest laxity in the extension of loans will put it in difficulties and compel it to borrow"(p. 208 [203-4]). Thus Hawtrey believes that every banker, shall be interested stakeholder to maintain the necessary level of his reserves availability and accordingly restrain his credit expansion, and "where he to reduce his reserve, he would only hamper his own freedom." From this Hawtrey quite consistently comes to the denial of the expediency of legislative regulation of the reserves of deposit banks, adopted in the USA in connection with the establishment of the Federal Reserve system. He believes that with this system "just at the time when banks ought to be using their reserves, they cannot pay them out without reducing them below the legal proportion;" moreover, "the serious weakness in the system is that it does nothing to prevent that inflation of credit which leads to the depletion of the reserves" (ibid., p. 209 [204]). Of course, the Fed. Res. system can neither prevent general, nor credit crises, which can take place with compliant (before the moment of pressure) reserves. However also Hawtrey himself cannot offer anything for the prevention of not only general, but also specifically-credit crises, because his liberal principle in the domain of banking activities opens wide a scope for the deployment of capitalist disproportionalities.
• 30Ibid, 207 p.[202]
• 31Considering that the limits of credit expansion to be cash secured deposits and checking accounts ("Credit and conjuncture" in "Questions of conjuncture", vol. III, ch.1, p. 27), [Nikolai Nikolaevich] Shaposhnikov herewith uses as sole evidence a reference to Hawtrey! But Hawtrey talks about restriction of cash as about a symptom of excessive credit expansion, which is not one and the same thing!
• 32G. Cassel, The world's monetary problems, 1922, p. 16 [25]
• 33See "Proceedings of the Genoa conference," ed. Narkomindela, M. 1922, page 107.
• 34"Proceedings of the Genoa conference," M. 1922, page 335.
• 35Walter Goodliffe, Credit and Currency: national and international, Westminister, 1927, page 2.
• 36Ibid., p. 30
• 37Ibid., p. 32
• 38Ibidem. p. 34
• 39[Adolf] Lampe, Zur Theorie des Sparprozesses und der Kreditschöpfung, Jena. 1926.
• 40Ibid., S. 129.
• 41Ibid., S. 128.
• 42"Law of slow turnover" - so we translate the formulation of Zwiedineck-Südenhorsl "Trägheitsgesetz des Verkehrs." This "law" consists of the point that in economic turnover there is inherently a certain resistance to oscillations of prices ("Preisbewegung") provoked by these or other factors (see [Otto v.] Zwiedineck-Südenhorsl "Kritisches Positives zur Preislehre." Zeitschrift d. Ges. Staatswissenschaften. 1908. S. 84
• 43Cited work, S. 129.
• 44Karl Diehle, Theoretische Nationalëkonomie, III Bd. Jena, 1927, pages 582-595.
• 45Cited work, S. 130.
• 46[Karl] Knies, Der Kredit, II Theil, S. 213.
• 47Spiethoff, A., Die äussere Ordnung des Kapitals- und Geldmarktes "Schmollers Jahrbuch," 1909. H.H., S. 30-31
• 48Beckerath. Geldmarkt und Kapitalmarkt, Jena, 1916, S. 110.
• 49[Results of Investments Loaning by Commercial Banks. William A. Scott] Cited in the anthology of H.G. Moulton, Principles of Banking, Part II, "Banking," 1917, page 459 [774]
• 50in Moulton, p. 451. [The Misuse of Commercial Bank Funds.]
• 51The Change in Credit Methods made Necessary by the Federal Reserve Act. [The advantage of the draft over the promissory note in commerical banking] in Moulton, 451 p.
• 52in Moulton, p. 451-452.
• 53Louis D. Brandeis, Other People's Money and How the Bankers use it, 1914. 26-27 p.
• 54See our article "Money market and the contradictions of bank credit" in the journal "Vestnik of the Communist Academy," Vol. XXXIV and XXXV in 1929 and 1930. [Денежный рынок и противоречия банковского кредита]
• 55Marx, Capital, vol. III, part 2, p. 148.
• 56We consider it necessary to note that in our earlier articles on the subject of credit in the journal "Under the banner of Marxism," and in "Vestnik Komacademy" the problem of limits of credit was considered largely one-sidedly, as a problem of limits of credit emission, and in consequence of this was incorrect.
• 57Marx, Capital, Vol. III, Part 2, I, ed. 1923
• 58Ibid., page 114.
• 59K. Marx, Capital, vol. I, page 596.