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Statistics and the German State, 1900-1945: The Making of Modern Economic Knowledge

Author(s):Tooze, J. Adam
Reviewer(s):Perlman, Mark

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.

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 Br?ning. Chancellor Br?ning, 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 Br?ning’s program

– particularly since Br?ning was committed to keeping agricultural prices

high. The result was the time-honored practice of shooting at the messenger

carrying the bad news. Br?ning’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 Gr?vell. And

eventually Gr?vell’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 G?tz Aly and Karl-Heinz Roth, two

German scholars who concluded in their 1984 Die Restlose Erfassung:

Volksz?hlen, 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.

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):Europe
Time Period(s):20th Century: Pre WWII