Kurt Richebächer died two weeks ago at his home in Cannes, France, at 88 years old. R.I.P.
One of our greatest complaints is the way the modern world pays homage to its dead. When a good man finally has the mud tossed on his face, he is almost instantly forgotten; so little notice is taken, it hardly seems worth dying. Meanwhile, those who are widely mourned and greatly regretted usually don’t deserve it. When Paris Hilton dies, for example, America will probably declare three days of national mourning and hang black crepe on the capitol.
Kurt Richebächer met his end with hardly an “ave” from anyone but friends and family. We pause to remember him here for both sentimental reasons and practical ones. On the sentimental side, we remember him as an old friend and fellow idealist. On the practical side he, and practically he alone, understood the worldwide economic boom for what it really is – a sham.
Kurt Richebächer was born at the wrong time, in the wrong place. He came into this life in the middle of WWI, on the losing side. He was a young man when another losing war got underway. He was one of the generation who were plucked up by the Wehrmacht in ‘39…and lucky to still be alive by ‘45. Kurt was lucky, in a way. He suffered a disabling accident while still in training. He spent the entire war in various military hospitals, unable to walk; the rest of his life he walked only with a cane. Doctors didn’t know exactly what was wrong with him; at one point German military officials threatened to prosecute him for malingering. Had Kurt’s father, a Nazi party member, not intervened, he might have been shot. Instead, in his hospital bed, he began to read economics.
The classical economics texts Kurt read made sense to him. They described not merely the world as it was, but the world as it ought to be. They emphasised discipline, hard work, and capital formation as the essential elements of wealth creation. And they warned against excess credit and inflation as if they were loose women and demon rum; both were sure to lead to ruin.
The war over, Germany threw off the bad advice of its American overseers. The deutschemark was made a rock-hard currency. Germans clove to the old economics. The country prospered. And Kurt Richebächer rose to be chief economist for Dresdner Bank.
But then, in the 1970s, classical economics – known as the Austrian School today – was going out of style, even in Germany. Economists – those in the United States and Britain – found they could upgrade their trade. Instead of merely reminding people of the old, un-yielding truths they began offering new tricks and innovations. They promised not merely to explain how the world works, but to make it work better…by taking the devil out of it and making it a more agreeable place. Using their new tools, econometrics and statistical analysis, they believed they could manage an economy in such a way that full employment and steady growth could be achieved, then maintained forever.
Kurt saw the new trends in his profession as dangerous; he regarded their proponents as quacks.
“You anglo-saxons…” he said to us once… “you just have no concept of financial discipline. Just look what you are doing – at every level. In Europe, we have high levels of state debt, but at the individual and business level, our balance sheets are pretty strong. But in almost every English-speaking country, people borrow for everything.
“All this emphasis on statistics and calculations…,” he went on, rapping his silver-handled cane on the table for emphasis, “without a proper theory, it is all nonsense. And your economists seem to have no theory at all…they just think they can manipulate the system in order to get whatever outcome they want. They think economic growth comes from consumer spending and that they can control consumer spending by adjusting lending rates. It is unbelievable that anyone takes this seriously. It is capital formation that really matters. A rich society is one with a great stock of capital…one that builds capital and puts it to work to create more capital. A rich society is not one where people consume. Just the opposite. It is not what is consumed that creates wealth; it is what is NOT consumed. Yet, all the Anglo-Saxons focus on motivating consumers to consume. And now they are consuming more than they make. I tell you, in 70 years of studying economics, I have never seen such nonsense.
“I have always thought it was the duty of each generation to leave the next one a little better off. That means, each generation has to consume less than it produces. It has to leave a little something extra. The problem, you see, is not an economic one…what we are doing to our children with this use of credit and debt is deeply immoral. It is wrong. It is wrong to burden the future with our mistakes, our conceits, our ambitions. This is what we are doing, and it is shameful.”
Kurt warned against the bubble in tech stocks in the late ’90s. Then, he warned against the great bubble in housing. In September 2001, he wrote: “The new housing boom is another rapidly inflating asset bubble financed by the same loose money practices that fuelled the stock market bubble.”
In one of his final letters, he concluded, “The recklessness of both borrowers and lenders has vastly exceeded our imagination.”
He went on to predict “that the housing bubble – together with the bond and stock bubbles – will invariably implode in the foreseeable future, plunging the US economy into a protracted, deep recession.”
Paul Volker once remarked that the challenge of modern central bankers “is to prove Kurt Richebächer wrong”. Instead, they are proving him right.
Markets and Money