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German monetary theory in the 19th century: the neglected case of Adolf Wagner

Chaloupek Guenther, independent scholar, Austrian Chamber of Labour (retired)

If Adolf Wagner (1835-1917) still enjoys considerable reputation as one of the founders of public finance, his important contributions to monetary theory have largely fallen into oblivion – which is all the more regrettable as contributions from 19th century Germany to this area of economic research are rather insignificant, if not infamous (G.F. Knapp’s “state theory of money”). Influenced by the writings of Thomas Tooke, Wagner was a follower of the Banking School, contributing interesting arguments to the debate about endogeneity of money. Wagner was convinced that by “neglecting any other influences from modifying moments” the strict versions of the quantity theory had resulted “in great errors in theory as well as fatal mistakes in practice by suggesting fallacious acts of legislation in matters of money, credit and banking.” Most important is Wagner’s theory of financial crisis, developed around 1860, as a remarkable anticipation of modern crisis theories, though largely unnoticed even by his contemporary economists. Wagner gives a description of the stages of financial crises that contains the elements of which modern financial crisis of Minsky and Kindleberger is built: displacement, overtrading, monetary expansion, revulsion, discredit. His empirical study of the use of paper money in Austria for war finance from 1761 to 1811, as well as the measures enacted by the devaluation decree of 1811 through which the issue of paper money was stopped abruptly is of high originality. In his statistical analysis Wagner compared the time series of the volume of paper money and the agio against silver. In his early publication of 1857 Wagner also wrote about the determinants of the rate of interest. Thereby he anticipated essential elements of the Wicksellian/Austrian overinvestment theory of crisis. The contribution will discuss Wagner’s achievements in the theory of money, also by putting it in context of 19th century monetary analysis.

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Keywords: monetary theory, financial crisis, German economic theory

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