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 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.