The advent of corporate limited liability in Prussia 1843

Corporate limited liability has a long and contentious history, stretching back to the mid-19th century and beyond. Initially being hailed as one of the decisive legal invention of our age, recently scholars have highlighted the negative effects of curtailing liability. This in turn has inspired research in the historical origins of liability. While the debate on the adoption of limited liability for joint stock companies in Britain and the United States in the 19th century is comparatively well documented, little is known about the contemporary German debate. Thus, this paper aims to shed light on the debate within the Prussian Government which surrounded the Stock Corporation Act of 1843. Drawing on primary sources of the debate within the Prussian administration in the course of the legislative process, it tries to examine whether limited liability was indeed seen as a prerequisite for the existence of joint-stock companies as its supporters claim. I find that in line with British and American experience limited liability was not universally seen as a necessary condition for incorporated joint-stock companies. In fact, the course of the debate suggests that limited liability was finally introduced because the administration wrongly assumed that joint stock companies always comprised a large number of shareholders with little equity each, being obviously unaware of the possibility of joint stock companies being dominated by large shareholders and institutional investors. Moreover, limited liability for shareholders was regarded as being similar to that of passive sleeping partners, a justification that seems problematic in the light of today's virtually all powerful institutional investors. --

Silvio Gesell: 'a strange, unduly neglected' monetary theorist

Given the renewed interest in negative interest rates as method for removing the floor to nominal interest rates, this article offers a concise review of Gesell's life, work and its place in the history of economic thought. It provides a brief biographical sketch of Gesell, demonstrating both his relative prominence as a social reformer during the interwar years as well as his close affiliation with anarchism. The article then gives a concise summary of Gesell's theory of effective demand and interest as expounded in the Natural Economic Order, the former being neglected by most scholars working on the subject. Finally, it is demonstrated that Keynes endorsement of Gesell as a strange, unduly neglected prophet is another piece of evidence for rejecting Hick's classic interpretation of the General Theory. If one takes Keynes extensive discussion of Gesell's theory of interest as a key for understanding the General Theory, Keynes main innovation of General Theory becomes a monetary theory of interest based on uncertainty that results in liquidity preference. The limited literature on Keynes' link to Gesell, published mainly in the 1940s, has however been widely ignored in the debate about the General Theory. --History of Economic Thought,Theory of Interest,Negative Interest Rates,John Maynard Keynes,Silvio Gesell

Silvio Gesell: 'a strange, unduly neglected' monetary theorist

Given the renewed interest in negative interest rates as method for removing the floor to nominal interest rates, this article offers a concise review of Gesell's life, work and its place in the history of economic thought. It provides a brief biographical sketch of Gesell, demonstrating both his relative prominence as a social reformer during the interwar years as well as his close affiliation with anarchism. The article then gives a concise summary of Gesell's theory of effective demand and interest as expounded in the Natural Economic Order, the former being neglected by most scholars working on the subject. Finally, it is demonstrated that Keynes endorsement of Gesell as a strange, unduly neglected prophet is another piece of evidence for rejecting Hick's classic interpretation of the General Theory. If one takes Keynes extensive discussion of Gesell's theory of interest as a key for understanding the General Theory, Keynes main innovation of General Theory becomes a monetary theory of interest based on uncertainty that results in liquidity preference. The limited literature on Keynes' link to Gesell, published mainly in the 1940s, has however been widely ignored in the debate about the General Theory

The advent of corporate limited liability in Prussia 1843

Corporate limited liability has a long and contentious history, stretching back to the mid-19th century and beyond. Initially being hailed as one of the decisive legal invention of our age, recently scholars have highlighted the negative effects of curtailing liability. This in turn has inspired research in the historical origins of liability. While the debate on the adoption of limited liability for joint stock companies in Britain and the United States in the 19th century is comparatively well documented, little is known about the contemporary German debate. Thus, this paper aims to shed light on the debate within the Prussian Government which surrounded the Stock Corporation Act of 1843. Drawing on primary sources of the debate within the Prussian administration in the course of the legislative process, it tries to examine whether limited liability was indeed seen as a prerequisite for the existence of joint-stock companies as its supporters claim. I find that in line with British and American experience limited liability was not universally seen as a necessary condition for incorporated joint-stock companies. In fact, the course of the debate suggests that limited liability was finally introduced because the administration wrongly assumed that joint stock companies always comprised a large number of shareholders with little equity each, being obviously unaware of the possibility of joint stock companies being dominated by large shareholders and institutional investors. Moreover, limited liability for shareholders was regarded as being similar to that of passive sleeping partners, a justification that seems problematic in the light of today's virtually all powerful institutional investors

Negative nominal interest rates: History and current proposals

Given the renewed interest in negative interest rates as a means for overcoming the zero bound on nominal interest rates, this article reviews the history of negative nominal interest rates and gives a brief survey over the current proposals that received popular attention in the wake of the financial crisis of 2007/08. It is demonstrated that taxing money proposals have a long intellectual history and that instead of being the conjecture of a monetary crank, they are a serious policy proposal. In a second step the article points out that, besides the more popular debate on a Gesell tax as a means to remove the zero bound on nominal interest rates, there is a class of neoclassical search-models that advocates a negative tax on money as efficiency enhancing. This strand of the literature has so far been largely ignored by the policy debate on negative interest rates. --negative interest rates,history of economic thought,Silvio Gesell,zero bound,search-theoretical models,monetary policy

Bad banks: The case of Germany

This paper discusses the instrument of equalisation claims, which has successfully been used in two previous German debt crises as a method for stabilizing the balance sheets of financial institutions. A modern version of this method would swap temporarily illiquid assets for government bonds with open maturit , in order to avoid the problem of evaluating the toxic assets in advance. Not only will this method save taxpayers' money, but it also upholds the market principle of liability, thereby avoiding incentives for inefficient risk-prone behaviour in the financial sector. The current German bad bank approach principally follows this approach, but severely suffers from unnecessary complexity and voluntary participation. --Financial Crisis,Bad Banks,German History,equalisation claims

Reducing the Lower Bound on Market Interest Rates

This paper critically discusses three proposals to overcome the zero interest bound, which have recently been proposed by prominent economists. We trace back the historical origins of these proposals, reaching back to the late 19th century, and comment on their theoretical and practical deficiencies. We propose a much simpler method to spur real investment in times of a deep recession, based on long term central bank loans with low but non-negative base rates. With the prospect of decreasing default risks after the recession, this measure has a similar effect like negative base rates in time of crisis. We therefore hope to convey the message that the effects of the zero interest bound can at least be mitigated without substantially changing the existing monetary regime.negative interest rates, lower zero bound, monetary policy

Bad banks: The case of Germany

This paper discusses the instrument of equalisation claims, which has successfully been used in two previous German debt crises as a method for stabilizing the balance sheets of financial institutions. A modern version of this method would swap temporarily illiquid assets for government bonds with open maturit , in order to avoid the problem of evaluating the toxic assets in advance. Not only will this method save taxpayers' money, but it also upholds the market principle of liability, thereby avoiding incentives for inefficient risk-prone behaviour in the financial sector. The current German bad bank approach principally follows this approach, but severely suffers from unnecessary complexity and voluntary participation

Walter Eucken`s principles of economic policy today

Walter Eucken was the head of the Freiburg school of economics, a circle of German ordoliberal scholars of the interwar period, whose thoughts were highly influential in the immediate post war period. Being disillusioned by what he called the age of experiments- the failure of both classical liberalism and socialism - he formulated eleven principles for what he called a market economy, in which competition would not only limit the extent of private economic power, but also lead to an efficient allocation of resources and hence to economic prosperity. Although the principles never received much international attention, in light of recent economic research on both institutions and welfare economics, the essence of Eucken's work appears to be very modern indeed. This paper highlights these parallels and proposes a reformulation of Eucken's principles against the background of modern economic theory. We thus attempt to make a contribution to the current debate on the efficient design of those institutions that shape economic activity. --

Wie sollten die angeschlagenen Banken rekapitalisiert werden?

Die Finanzkrise hat gezeigt, dass das Eigenkapital vieler Banken zu gering war. Ulrich van Suntum und Cordelius Ilgmann, Universität Münster, weisen darauf hin, dass zwar die bilanziellen Eigenkapitalquoten der Banken mittlerweile sogar höher sind als vor der Finanzkrise, aber dennoch könne von Entwarnung keine Rede sein, denn die vor der Finanzkrise üblichen Eigenkapitalquoten hätten sich als deutlich zu gering erwiesen, um systemische Zusammenbrüche zu verhindern. Das deutsche Bad-Bank-Modell habe seinen Fehler vor allem in der Freiwilligkeit der Teilnahme. Man solte bei der Bad-Bank-Lösung an dem in Deutschland bereits früher verwendeten Instrument der Ausgleichsforderungen anknüpfen. Nach Ansicht von Wolfgang Hönig, ehemals Commerzbank AG, Frankfurt, sollte zum einen die Qualität der Ratingagenturen verbessert werden. Zum anderen sollte der Staat die systemrelevanten deutschen Banken durch Stresstests daraufhin untersuchen, ob sie sanierungsbedürftig und -fähig sind. Die hierbei identifizierten B-Banken seien von Amts wegen zu sanieren. Auch Stephan Götzl, Genossenschaftsverband Bayern, möchte die staatlichen Hilfsmaßnahmen für angeschlagene Banken verpflichtend machen. Zusätzlich sollte man in Zukunft die Rahmenbedingungen so setzen, dass Banken nicht mehr zu »systemisch« – also zu groß, komplex, undurchschaubar oder international – sein können, um pleite zu gehen: Eine Bank müsse auch aus dem Markt ausscheiden können