ABSTRACT OF PAPER
Title: Banking Crises and Lending of Last Resort in Monetary Unions of the Gold Standard Era: Reflections of Contemporaneous German and Swedish economists
Author: Trautwein Hans-Michael
Lending of last resort (LoLR) is a topical issue in the context of the global financial crisis that first culminated in the collapse of the Lehman Brothers investment bank in September 2008 and then transformed itself into the Euro debt crisis which keeps lingering on. At the core of the trouble is a systemic crisis in transnational banking which has called for massive lending of last resort by the major central banks. In the Eurozone, rescuing systemically relevant banks turned out to be particularly tricky. Due to a lack of consensus about the mandate of the European Central Bank (ECB), it was not clear from the outset to which extent banks would be saved by national bail-outs or by supranational LoLR through the ECB. Various arguments in present controversies about the ECB’s LoLR are reminiscent of debates of the 19th century that revolved around the credibility and sustainability of rules, the need for “discretion”, and trade-offs between system stability and the avoidance of moral hazard. Most of the relevant arguments can be found in British contributions to the Currency-Banking School controversy and discussions about Bagehot’s rule. However some German comments on those literatures are of particular interest in the present context of monetary union, as they were made at the time of German monetary union after 1871. How did German economists discuss banking crises and the frequent LoLR by the Reichsbank in subsequent decades. In the wider Germanic language area, we find another type of monetary union emerging in the same era. The Scandinavian Monetary Union integrated the monetary systems of Denmark, Sweden and Norway from 1873 onwards in a decentralized structure with three national central banks and three distinct currencies. How did contemporaneous Scandinavian economists discuss the handling of banking crises under this regime? This paper attempts to answer both questions with regard to reflections of German and Swedish economists on banking crises and LoLR just before and during the classical gold standard, a period stretching from the 1850s until 1914. The writers in question are Adolph Wagner, Erwin Nasse, Carl Knies, Karl Helfferich and Friedrich Bendixen on the German side, and David Davidson, Knut Wicksell and Gustav Cassel on the Swedish side. The paper reveals surprisingly high degrees of sophistication and divergence in the positions of these economists of the later 19th and early 20th century.
Registred web users only can download this paper - Go back
Please note that files available for download have not been checked for viruses. These files have been submitted by authors of the conference to this web site. Conference organisers can't accept any responsibility for damages caused to users by downloading such files.