Development and Underdevelopment in the History of Economic Thought

Karl Helfferich and Rudolf Hilferding on Georg Friedrich Knapp's "State Theory of Money": Monetary Theories during the German Hyperinflation of 1923

Greitens Jan, DHBW

Through MMT, which stands itself in its tradition, Georg Friedrich Knapp has come back into the focus of the current monetary discussions. This was before at the beginning of the 20th century after he had published his "State Theory of Money" in 1905. This phase also includes inflation in Germany, which peaked in 1923, and it is helpful to recall the arguments of this discussion. Knapp presented a theory on the nature of money, which is primarily of a legal character. He defines money as a "creature of the legal order." The principle "Mark = Mark" describes his nominalistic monetary theory. However, he opposed monetary state financing and favored balanced governmental budgets. His student, Karl Helfferich, was the most influential monetary theorist in the first decades of the 20th century in the German Reich. He stood between his teacher's nominalistic theory and his metallistic principles. Therefore he sees Knapp's view as the ideal state at the end of development and his approach as a practical necessity. The Marxist Rudolf Hilferding is eclectic in his monetary theory. His ideas changed between 1905, when he dealt intensively with Knapp, via "Finance Capital" (1910) to the essay "Geld und Ware" (1912). He moved closer towards nominalistic ideas. During inflation, Helfferich, a representative of the Balance of Payments Theory, and Hilferding, who argues more in terms of Quantity Theory of Money, also represented opposite positions in the political debate on the reasons and solutions for the inflation. The relationship between the three authors is complicated. While Helfferich and Knapp were personally close, they were theoretically far apart - even if Helfferich wanted to mask this. On the other hand, Hilferding and Helfferich were closer on some practical points (e.g., the necessity of a gold-based currency), but personally attacked each other violently.


Keywords: Modern Monetary Theory, Knapp, Hilferding, Helfferich, State Theory of Money, Hyperinflation