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Published by EH.NET (April 2003) 
 
J. Adam Tooze, _Statistics and the German State, 1900-1945: The Making of 
Modern Economic Knowledge_. Cambridge and New York: Cambridge University 
Press, 2001. xviii + 314 pp. $65 (hardcover), ISBN: 0-521-80318-7. 
 
Reviewed for EH.NET by Mark Perlman, Department of Economics, Emeritus, 
University of Pittsburgh. <[log in to unmask]> 
 
 
I. General introduction 
 
It has been years since I last read a book that opened up such neglected 
vistas. However assessed, the first half of this book, particularly, should 
be mandatory reading for everyone interested in the history of economic 
thought if only because there is virtually no other easily-available 
description detailing the generally-unknown story of how truly brilliant 
advances in the empirical approach to macroeconomics, national accounts, 
and economic planning can be found in Inter-War and World War II Germany. 
 
Tooze, a Fellow in Economic History of Jesus College (Cambridge), details 
how the economic system generally attributed to the imaginative mind of 
Maynard Keynes had actually been designed and then successfully engineered 
a good ten years earlier during the Weimar Republic. Why was it unknown? 
Largely because the genius who designed it had character flaws that led him 
not only to embrace Nazism but also to play his cards badly in that party's 
game. 
 
A. The dearth of information about the history of empirical economics 
 
Professional economists by and large are totally unaware of the fascinating 
literature describing the development of the empirical approach to their 
subject, a literature comprising both a variety of attempts to quantify 
economic activities and the use of generalized economic episodes to 
characterize economic growth and the evolution of economic organization. I 
need only cite a general ignorance of the wealth of material found in the 
nineteen carefully-edited professionally-executed volumes of the Report of 
the United States Industrial Commission, 1898-1901, surveying how modern 
industrial capitalism was reshaping the American economy to make my point 
-- a point further sharpened by recalling that it was their work on this 
Commission which sharpened both the knowledge and awareness of the lacunae 
of information that eventually surfaced in the original and analytically 
important approaches pioneered by Thorstein Veblen and John R. Commons (cf. 
North, 1899; Lindsay, 1901; and Perlman, 1958). 
 
The experts working for the Commission focused on the growth of industrial 
gigantism, not only in the United States but in several European countries 
as well. In Germany, in particular, there was also an emerging literature 
by such worthies as Eduard Bernstein, Max Weber, Lujo Brentano, and Werner 
Sombart, all of whom characterized the then emerging capitalism as a shift 
from artisan- or shop-capitalism to High or Finance Capitalism -- the kind 
of thing which in America led to the formation of the United States Steel 
Corporation and in Germany to similarly large conglomerates, including 
cartels. 
 
Yet, the American statistical efforts, such as those of the Harvard 
Economic Research Committee (remembered these days by so few even though it 
was responsible for founding the _Review of Economic Statistics_, later 
retitled _Review of Economics and Statistics_), and even the 1933 efforts 
at national income determination by the U.S. Department of Commerce with 
the help of the National Bureau of Economic Research pale by comparison 
with what was undertaken and to an amazing degree realized by a group of 
German statistical entrepreneurs. Immediately after World War I, throughout 
the 1920s, and carrying through the worst years of the Great Depression, 
the German efforts in the end resulted in titanic technocratic power 
struggles during the several phases of the Third Reich (1933-1936, 
1936-1939, 1939-1942, 1942-45). 
 
B. Studenski, the background of national accounts, and his ignoring  
the Weimar experience 
 
The standard historical treatment of the evolution of national account 
systems, country by country, is Paul Studenski's 1958 _The Income of 
Nations_, corrected and expanded in 1961 into two volumes, one historical 
and the other analytical. Presumably because of the absence of ready access 
to the data, Studenski's study is silent on German developments during the 
Nazi period. His silence regarding the brilliant developments during the 
Weimar Republic may possibly be ascribed to the unfortunate condition that 
Ernest Wagemann, the brilliant architect of the system, became a willing 
convert to Nazism -- with the celebration of his achievements being 
consequently muted to such a point of silence that he is not mentioned 
either in the New Palgrave nor in Mark Blaug's _Who's Who in Economics_ 
(third edition). Indeed, the only popularly known "key" to the true 
situation may have been Maynard Keynes's articulated enthusiasm for what 
the German empirical macroeconomic system had achieved as  
expressed in the German translation of his 1937 Introduction to the 
_General Theory_. Here one should defer to Bertram Schefold's frustration 
at not being able to find the original English version of that Introduction 
-- as Keynes was apparently not fluent in German, it could be that the 
translator took liberties with what appeared over Keynes's signature. What 
the Royal Economic Society published as this Introduction, Schefold 
reports, bears significant differences  
from what was originally printed in German (Schefold, 1980) 
 
II. The Layout of Tooze's Study 
 
The organization of this study is essentially chronological with seven 
chapters plus an intriguing introduction and a conclusion that deals with 
the loose ends after the 1945 surrender and advances the author's view of 
the critical role of centralized statistical collection and analysis in 
giving the Nazis such total control over the Germany economy. 
 
As Tooze reports the story of German macroeconomic planning, it is based on 
the insights of a series of quasi-geniuses whose capacities to envision the 
importance of national accounts in national economic programming were 
immense; their propensity to engage in careers of bureaucratic piracy was 
no less impressive. While it is a replay of the old story of intellectuals 
and their need for patrons, what makes the book so fascinating to this 
reviewer is the surfeit of talent that was wasted because it was the Nazi 
Party rather than the German state that virtually all of them came to 
serve. 
 
Tooze starts by reviewing the industrial statistics of the Hohenzollern 
state, an approach based on a concept of the small business as the 
principal economic-output unit. Only during World War I was it realized 
that the German economy had been transformed into High Capitalism -- that 
is, large industrial firms dominating the national capacity to produce -- a 
realization really to be credited to Walter Rathenau, an industrial genius 
from the electrical industry who became the organizer of German wartime 
production. Rathenau was the Weimar Republic's foreign minister and was 
assassinated by a Nazi for the double sins of having negotiated the 
post-war Reparations program and being a Jew. 
 
After that war the development of what we would, ourselves, term a modern 
analytical approach, but one based on empiricism as well as diagrammatic 
conceptualization, was largely the work of Ernst Wagemann, a Chilean-born 
German whose flamboyant dress, personal behavior, and propensity for 
politicking took him through numerous political fights first within the 
Weimar governments and then through the first years of the Third Reich. 
Reading Tooze's account of Wagemann's self-education, his recognition that 
a total and continuous national accounting system had to replace 
business-cycle indicators from specific industry data, his capacity for 
predicting the need for reflation, and his insights into the roles of 
public investment and demand-management becomes increasingly fascinating. 
As head of the Weimar government's Statistical Office in Berlin he created 
a semi-independent institute on business cycles. Seemingly as professional 
as the afore-mentioned Harvard Committee and the National Bureau of 
Economic Research, that institute managed to gain the effective cooperation 
of both the trade unions and the employers' federations largely as the 
result of Wagemann's adroit political footwork. 
 
III. Macroeconomic controls and the rise of Nazi power 
 
All went well until the Great Crash hit Germany; Wagemann clearly 
understood (earlier and more thoroughly than Maynard Keynes) that what was 
needed was reflation, something solidly opposed by the banks and by the 
leadership of the Weimar government under Heinrich Brüning. Chancellor 
Brüning, like many political leaders then (and now), thought that the way 
out of the Depression involved simply a reduction of industrial production 
costs (first wages and then prices). This course put him in head-on 
collision with the trade unions, who referred constantly to Wagemann's 
monthly Real Price Index to show that the industrial workers were the ones 
clearly bearing the brunt of Brüning's program -- particularly since 
Brüning was committed to keeping agricultural prices high. The result was 
the time-honored practice of shooting at the messenger carrying the bad 
news. Brüning's fury at Wagemann (the messenger) became personal. 
 
Wagemann (a technocrat through and through) was indifferent to who his 
supporters were and had few or no qualms about joining the Nazi Party -- a 
group whose economic game was quite consistent with his own ideas that the 
economy should be fine-tuned. 
 
True, others in the statistical establishment played the same political 
game, and the influence of Wagemann, whose only real ties were with 
Goering, proved over time to be even less than tenuous. Early on he lost 
out to Wilhelm Leisse (who was even closer to Goering). Later both lost out 
to Walter Grävell. And eventually Grävell's star was eclipsed by Albert 
Speer's man, Hans Kehrl, the only one who was not professionally a 
statistician. Speer ended up running the German economy until the end of 
the Third Reich largely along the lines that Wagemann had originally drawn. 
 
IV. Efficiency, totalitarianism, and individual liberty 
 
Tooze's account of the odyssey of German national accounts includes a 
broader perspective on the role of organized data analysis in individual 
liberty or oppression. Tooze opposes the argument of Götz Aly and 
Karl-Heinz Roth, two German scholars who concluded in their 1984 _Die 
Restlose Erfassung: Volkszählen, Indentifizieren, Aussondern in 
Nationalsozialismus_ that it was the excellence of data-reporting 
(comprehensiveness as well as speedy availability) that gave the Nazis 
their complete control over the German economy and thus enabled them to 
sharpen it so well that it engaged Europe for more than ten years on a 
totally destructive course. 
 
Tooze's alternative thought is that a will to totalitarian control is not 
so much a technocratic but a philosophical problem. This difference could 
well lead to another reconsideration of the pros and cons of Ned Ludd's 
true place in history (or even Robert Oppenheimer's purported second 
thoughts just after that the Trinity explosion on July 16, 1945). 
 
More to the point, however, in this reviewer's judgment is the question of 
the purpose of national accounts, a topic well worth considering and one 
which led Simon Kuznets to denounce what his quondam student, Milton 
Gilbert, and others at the Bureau of Economic Analysis had produced 
(Kuznets, 1947; but also see Perlman, 1987 and Kapuria-Foreman and Perlman, 
1995). In the 1920s Wagemann seems to have had the idea of using National 
Accounts to construct contracyclical government investment programs. But by 
the Nazi period his purpose was to increase military output -- 
incidentally, the same that James Meade and Richard Stone had when the 
British War Cabinet assigned them a similar problem in 1940. 
 
References: 
 
Kapuria-Foreman, Vibha and Mark Perlman, "An Economic Historian's 
Economist: Remembering Simon Kuznets," _Economic Journal_, 105 (Nov. 1995): 
1524-47. 
 
Kuznets, Simon (1948). "Discussion of the New Department of Commerce Income 
Series," _Review of Economics and Statistics_, 30 (August), 151-79. 
 
Lindsay, Samuel M. (1901). "A Colossal Inquiry Completed: The Three-Years- 
Work of the United States Industrial Commission," _American Monthly Review 
of Reviews_, XXIV, 711-18. 
 
North, S.N.D. (1899). "The Industrial Commission," _North American Review_, 
CLXVIII, 708-19. 
 
Perlman, Mark ([1958], 1976). _Labor Union Theories in America: Background 
and Development_. Westport, CT: Greenwood Press. 
 
Perlman, Mark ([1987], 1996). "Political Purpose and the National 
Accounts," in _The Character of Economic Thought, Economic Characters, and 
Economic Institutions: Selected Essays_. Ann Arbor: University of Michigan 
Press, pp. 207-40. 
 
Schefold, Bertram (1980). "The General Theory for a Totalitarian State? A 
Note on Keynes's Preface to the German Edition of 1936." _Cambridge Journal 
of Economics_, Vol. 4, pp. 175-76. 
 
Studenski, Paul ([1958] 1961). _The Income of Nations_, part one, _History_ 
(with corrections and emendations), part two, _Theory and Methodology_. 
 
 
Mark Perlman is University Professor of Economics (Emeritus) at the 
University of Pittsburgh. His _The Character of Economic Thought, Economic 
Characters, and Economic Institutions: Selected Essays_ was published by 
the University of Michigan Press in 1996. 
 
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