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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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