The bank acceptance was a kind of bank bill issued by the bank to the company that was to be financed. This company could then use the bank acceptance as a bill of exchange to pay suppliers and customers. In a sense, it was an imitation of a real bill, but only a poor one. A bank does not produce consumer goods and is, therefore, excluded from issuing commercial bills. A real bill was only considered reasonable when there was a producer standing ready to deliver goods to clear the bill.

Banks would create an asset for anticipated coverage, issuing shares in the respective pre‐​financed company. But, as is obvious, anticipation of coverage is not coverage in the true sense of the word. Given that the future is unknown and the coverage on settlement day uncertain, it is a tightrope act that may or may not work out. Nevertheless, banks managed to get bank acceptances into circulation. (After all, they stimulate economic expansion!) But this “growth” was provided for by assets that were not entirely covered by already produced and saved goods; it was credit money expansion at its finest. Through these bank acceptances, banks were able to expand their balance sheet without possessing equivalent value.

So even back then, because of instruments such as bank acceptances, money was more and more a form of credit money while less and less based on real savings. Like fiat currency, bank acceptances relied on the full faith and credit of the institution, albeit in this case that of the banks rather than that of the government.

As a result of credit money expansion tools such as bank acceptances systematic inequalities were intensified already back then. Because of something called the “Cantillon Effect,” people in proximity to the source of credit money expansion are better of than people farther away. Money is not neutral, but every change in the money supply also changes the structure of an economy. Newly created money is distributed neither evenly nor simultaneously among the population. This means that some investors and consumers benefit from early access to newly created credit money while others suffer. It’s hardly surprising that various forms of socialism emerged as a counter‐​reaction within Germany and broader Europe.

Today, our society is feeling the burn from excessive expansion in credit money, same as happened to the industrial banks established by entrepreneurs like Escher in the 19th century. Because of credit money expansion, billions or even trillions in unbacked debt securities are floating around the global financial system. These are issued in the form of securities, which creates an incentive to keep as large an amount as possible permanently outstanding. Paying down debt in today’s system means shrinking balance sheets, which means falling asset prices. Similar to bank acceptances, something is issued as a security, the coverage of which is not guaranteed by goods already created or capital already saved. Rather, securities are put into circulation in anticipation of goods to be produced and capital to be accumulated. Financial institutions can thus extend their balance sheets without having to provide real value in return. Thus, there is always more “money” available than there are real assets. This inevitably leads to distortion after distortion. The magnitude of this was about to be revealed when the financial crisis of 2008 hit, but because central banks around the world intervened, the fiasco didn’t fully manifest. But the question remains: Did central banks really sooth the pain by providing more of the same drug that caused the problems in the first place?

Today, these far‐​reaching distortions of credit expansion, which not only affect the economy but also the environment and society, are generally ignored. Because of that oversight, the political debates over the flaws in the global financial economy go round and round in circles without addressing the underlying flaws in the system. Meanwhile, public frustration with the inability of the political class to fix the economy grows. That said, deriving a normative judgment of these kinds of monetary phenomena is not as trivial as one might think. The expansion of credit money is, of course, incredibly stimulating for the economy and has created enormous prosperity — or, at least, the perception or even the illusion of prosperity on paper.

Yet the world in which we live is deeply paradoxical and saturated with dilemmas that cannot be perfectly resolved. The very fact that the structures of the world today are shaped by this debt‐​financed expansion of credit money is due to a paradoxical event. In Europe, decentralism and tax competition, which are generally regarded as instruments restricting public financing, have helped the latter to achieve a breakthrough. The pressures of decentralization and tax competition have driven states to optimize returns. The result: the innovation of credit money expansion in European public finance. One can argue that it has been this competition that has driven European countries into adopting the “fine art” of credit money expansion. On the other hand, it may be a Faustian bargain, paradox heaped upon paradox.

In conclusion, the expansion of credit money, with all its manifold distortions and encumbering consequences for society at large, may be the most terrible as well as the most fruitful catastrophe of the modern financial era. As the poet and polymath Johann Wolfgang von Goethe recognized in his Maximen und Reflexionen15: