'..von Havenstein embarked on one of the biggest debt monetization efforts ever. He set off a vicious spiral, and eventually became unable to extricate the Reichsbank from its course.'<blockquote>'Reichsbank president Rudolf von Havenstein was partial to Georg Friedrich Knapp's theory of chartalism. Knapp published 'The State Theory of Money' in 1895, a screed that put forward a statist view of money, arguing in favor of fiat money, not least because it allegedly made a default by the government 'impossible' (interested readers can download the English translation of the
book in pdf form here). The crude inflationism of the chartalist theory can be seen as a logical extension to the German 'historical school' of economic thought. This school held that since every phase of history is unique, there are no fixed economic laws, and hence there could be no universally valid economic theory. Instead, every historical period needed to be studied empirically, and the economic laws governing a certain period had to be discovered in this manner. If this vaguely reminds you of Hegel and Marx, it should. Although Marx hated the Prussian establishment from whence the historical school sprang, he also believed in historical determinism, in the Hegelian idea that every new period of history would by necessity be 'better' than the ones preceding it.
Knapp's chartalism was the idea that the 'modern world' no longer needed a market-chosen commodity money, but could be better planned with state-issued tokens that derived their value purely by force of law, i.e., fiat money. Today, the whole world is living Knapp's dream, or perhaps we should rather say, Knapp's nightmare. Chartalism has been revived, using the somewhat more spiffy sounding moniker '
modern monetary theory', but it is still the same crude inflationism. Not surprisingly, Knapp was also a major influence on J.M. Keynes.
Under the influence of Knapp's theory and that of advisors who were likewise partial to it, von Havenstein embarked on one of the biggest debt monetization efforts ever. He set off a vicious spiral, and eventually became unable to extricate the Reichsbank from its course. The flaw of the chartalist tenet regarding the impossibility of government default soon became apparent. The German Mark descended into utter worthlessness, destroying the lives of all those depending on fixed incomes, from pensioners to widows and orphans, while enriching a select few, such as Germany's 'inflation king' Hugo Stinnes.'
- Acting Man,
Remembering Weimar.., September 20th, 2011</blockquote>
'..the structural damage the last credit boom has wrought..'<blockquote>'As we have noted many times before, we are beginning to think that the structural damage the last credit boom has wrought may well have been so grave that the economy's pool of real funding is now in serious trouble. Putting it differently, the degree of discoordination in the economy's productive structure, the amount of capital malinvestment and the amount of capital consumption that have attended the last iteration of the boom may have severely impaired the economy's capacity to create real wealth. If this is in fact the case, then it won't matter how much more monetary pumping is thrown at the depression. The effects will simply be weaker and weaker with every new round, with seeming recoveries becoming ever more fleeting.'
- Acting Man,
Waiting for a Trigger And the Illusions of Bank Accounting, September 21st, 2011</blockquote>
Context<blockquote>
The Austrian School; Fear the Boom, not the Bust - Critique of Marxism'..America..' - '..credit excess .. detrimental effects on the .. economy.''Our version of subprime in the US..' - Cheng Siwei</blockquote>