From: Albrecht Ritschl < ritschl[at]wiwi.hu-berlin.de
>
Subject: FORUM: Do we need a new economic
history of Germany?
Date: Wed, 19 July 2007
Do
we need a new economic history for Germany?
This contribution is by a quantitative
economic historian. Nearly everything that has been said in this forum about
this breed of people applies also to me. So I am probably a good choice for
representing the forces of evil, and I am happy to comply and do my job.
Dismal science
First things first: the popular aversion
against economics is an old one, ever since Carlyle’s dictum in 1849 (not
1839). I sympathize with this position emotionally, yet intellectually I have
only limited respect for it. It is old news, it is superficial, and it leads
nowhere. The condition of the criticism of economics has not improved in 150
years. Like it or not, writing about human societies without a theory of human
interaction is either belles lettres (which is fine but hopefully not
our subject), or it is a dead end road. I am rather unapologetic about that.
This does not mean there will ever be
agreement on the appropriate economics, or the social theory that follows from
it. This debate, again, is an old one: classical, neoclassical, Marxist,
Freudian, Weberian, or even the Frankfurt School of Horkheimer and Adorno, have
all been contenders. Mainstream economics itself has undergone major scholarly
revolutions, triggered in microeconomics by the progress in game theory and the
analysis of information asymmetries, in macroeconomics by the advances in the
theory of stochastic processes. As a result, entire new fields with highly
productive applications to economic history have emerged. This includes
reputational games, which are indispensable in the analysis of informal
institutions, and mechanism design, which is the toolbox for analyzing formal
institutions. More recent developments include experimental game theory and
neuroeconomics, which explore and challenge the axioms on which game theory was
built in the 1940s by von Neumann, Morgenstern, and Nash. Again, potential
applications to history abound. I am skipping the application of modern
macroeconomics to history because that is my own field.
Intrigued? No? Admittedly, all this is
heavily mathematical and requires a lot of intellectual investment – not to
speak of the preceding brainwashing. And as one of the previous contributors
wrote, it is a fact that many go into history to avoid making that investment.
Thus, let me approach the issue from the other end and ask what may happen if
we look at our subject – German economic history – without making use of
economics. This is not to advocate that economics be used all the time, but
rather to highlight the need to be explicit about theorizing.
Belief systems
(a) The invention of Germany: humanities and
German 19th century intellectual discourse
I start with this issue, which is probably
the farthest from my own research. Trivially, to analyze a country’s history it
is a good idea to get a grip on its religious and intellectual history. In the
German case, this is particularly important and at the same time problematic.
It is important because of Germany’s historical role as a major producer and
net exporter of belief systems and ideologies. It is problematic because the
very basis of many of these systems and ideologies are now part and parcel of
the historian’s heuristic toolbox. In researching German history, our mental
and analytical categories themselves become part of the object we wish to
study: take out Simmel and Weber, and there goes much of sociology. Take out
Husserl and Heidegger, and there goes much of Foucault and his disciples. Take
out Kalle und Fritzchen (i.e., Marx and Engels), and what is left of
structuralism? Try also Ranke (historical-critical method), Schmoller
(institutional path dependence, no iron laws of economics), or Sombart
(consumer culture, among many other themes). In other words, research in German
social and economic history is always at risk of becoming self-referential.
To deal with this self-referential aspect (or
hermeneutic circle in the parlance of Gadamer) of writing German history using
German methods, our intellectual categories themselves need to be properly
contextualized before work can even begin. Otherwise, who can be sure that we
are asking good questions to the material, and are not instead victimized by
some (hidden or open) political agenda that our preferred intellectual hero had
a hundred and something years ago? Why was Sombart so interested in consumer
culture? Which exactly were the value judgments in the social sciences that
Weber was leashing out against, and why? What were the natural laws in human
societies that Schmoller and his precursors from the Historical School were so
afraid of?
Answers to this hermeneutic exercise seem to
point in one main direction: the making of the German nation state and the need
to provide its ideological underpinnings – the invention of Germany, so to
speak. Distinctly German approaches to law, history, and the analysis of human
societies were called for, and were indeed constructed. Weber’s attack against
value judgments was first directed against the economic concept of productivity
– a notion with unwelcome consequences if applied e.g. to eastern German
agriculture and the perceived risks of Polonization. The Historical School’s
attack against natural laws in societies, as well as its support for state
activism in social policy, was inextricably linked with fears of Anglo- or
French-style political modernization, not to speak of a horror of working class
revolution. Or read Sombart’s early work on consumerism and capitalism in the
light of his 1935 “Deutscher Sozialismus” to see the connections. Research on
German social and economic history of the 19th century risks falling
into an intellectual trap, unless the agenda of its intellectual elites – with
all their influence on our own historical thinking – is fully reflected upon.
(b) On survival: the 20th century
reinvention of Germany
We still do not know enough about the
intellectual forces behind German social and economic history during the years
1918-45. From what we do know, two clear tendencies can be discerned. First,
there is an intellectual break with the traditions emanating from the
Historical School that can hardly be overstated. Second, the hermeneutic
problem in dealing with 19th century Germany abruptly disappears.
While the 19th century intellectually was about distinctly German
approaches to law, sociology, economics, and history, now the distinctly German
thing became an almost universal preponderance of sociobiology in its most
radical version. Wherever we look, from anthropology to medicine, from law to
geography, it is all about race, eugenics, and survival. While 19th
century German thinking became the international gold standard in the social
sciences, the intellectual forces driving early 20th century Germany
are all but forgotten, dwarfed by the monsters they helped to create. Only in
recent years have systematic attempts been made to excavate the intellectual
foundations of Nazism (yes they existed. The mere mentioning of this fact
breaks a taboo that still held up firmly when I was a student).
(c) Counterfactuals as a founding myth: the
invention of West Germany
From the ashes of 1945 emerged a Germany with
its intellectual history replaced, almost as if a lobotomy had been applied.
New roots were grown instead, extending somewhat toward economic liberalism and
strongly toward Catholic social doctrines. Not that these had been entirely
irrelevant in German history, but clearly the mainstream was elsewhere. True to
tradition, even a new belief system was created, called Soziale
Marktwirtschaft. No one has ever found out what exactly it means, but the
attempt to do so has created a huge literature that is still growing. Much of
this research is, again, self-referential.
Doing German economic history without
economics is fascinating and potentially very rewarding. But it is also risky.
Again, the risk comes in through the backdoor of economics, viz., Germany’s
very high production rate of economic and sociological belief systems. Dismiss
economics and you may still be fine. Dismiss also a critical discussion of
Germany’s belief systems and be almost sure to get caught up in serious
misinterpretations. Examples abound.
Those boring numbers: the new economic
history of Germany
One attraction of mainstream economics for
analyzing German economic history is that it puts the researcher on the safe
side: the homo oeconomicus is quite definitely not a German concept, it is so
preciously “undeutsch”. To be sure, much of Germany’s fascinating intellectual
history gets lost when proceeding this way. But there is no hermeneutic circle.
In Germany, making the boring numbers speak
is still a young and less than well established tradition. In contrast to the
U.S., German economic history never experienced a Cliometric revolution. What
“deserved to go” according to Rubin’s opening contribution to the Forum, did in
fact not arrive to Germany until quite recently. And when it did arrive, this
was more the consequence of institutional changes in German academia than a
break with older paradigms.
So what is going on in
German quantitative economic history? Let me start with a classic, German
financial and banking history in the 19th century. Tim Guinnane has
famously provided the economics to analyze the rise of Germany’s cooperative
banking system.[1] Largely an outgrowth of rural self-help
organizations, the Raiffeisen microcredit system spread out over most of
Germany and still exists today. Indeed, Germany’s cooperative banking sector,
as well as its equally fragmented public banking system, accounted for a large
share of the German banking market.[2] Microcredit has become
a prominent issue, being studied widely by development economists and capturing
the attention of politicians. German cooperative banking is the classical
historical showcase. In class, Guinanne’s research comes across as highly
informal and is hence easy to teach. The mathematics and the (rather involved)
game theory run entirely behind the screen saver. No class on German financial
history can afford to miss this.
From this research,
Gerschenkron’s idea that universal banking drove and controlled
industrialization in Germany emerges seriously damaged. It is further damaged
by Caroline Fohlin, who in a new book has collected and deepened her previous
research on German relationship banking.[3] The central
result is that there is no evidence to support the hypothesis that financial
markets in Wilhelminian Germany did not work properly, or were suffocated by
universal banks trying to control firms’ access to credit. Firms without
obvious links to a “Hausbank” or partner bank did just as well as those using
relationship banking. Yet Fohlin’s research has not remained unchallenged. In a
large project whose results are now gradually being published, Carsten Burhop
has extended critical banking series back to the 1840s, and finds evidence that
large banks did have a favorable impact on German industrialization .[4] It seems that the debate is set to continue.
Indeed, German financial
and corporate history currently sees a lot of activity. Joerg Baten and his
group at Tuebingen have studied firm creation, mergers and stock market
efficiency in the late 19th century, and a whole flow of papers from
this project is nearing publication or has already come out.[5]
Burhop has embarked on a new project to study the efficiency of early corporate
R & D, notably of patents by company employees and their remuneration. All
this research is going to produce large amounts of new data at the corporate
level, going beyond mere usage of the important new stock market indices of Ronge
(a retrospective DAX) and Eube (a much broader S & P 500-type index).[6]
Other fields of German 19th
century history are coming back more slowly. Mark Spoerer’s important monograph
on the Prussian tax system reopens the case for major malfunctions in consumer
taxation, with far-reaching implications.[7] In a remarkable
book, Oliver Grant is reconsidering German exceptionalism in labor markets,
notably the low increase in wages during the late 19th century.[8] His main finding, underpinned by lots of fine econometrics,
is that demographics played a major role, and that agricultural protectionism
is only partly to blame. Again, the political economy of agricultural labor in
late Imperial Germany is a fast growing field, with a number of contributions
to be expected in the near future.
The macroeconomic history
of Imperial Germany has traditionally been plagued by an abundance of
low-quality data. Burhop and Wolff reexamined four different series of national
product and suggested a compromise estimate, as well as a compromise business
cycle chronology. Their work also had implications for international benchmark
comparisons of German productivity.[9] A new debate about the
levels and fluctuations of German aggregate output and income seems to be
developing here.
Much of the scholarly
debate about the two World Wars and Germany’s interwar years can be arranged
along the lines of domestic versus international distributional conflict. The
standard view of Kocka and others that World War I marked a sharp
redistribution towards capital, of which the 1918 revolution was only a
correction, has been seriously challenged.[10] The issue here
is that the focus on war profiteering in previous research had introduced
sample selection bias: profits were indeed high in the armament industry. But
once the perspective is widened to include other industries, the picture that
emerges is that of redistribution of rents across industries, not from workers
to capital.
Redistribution towards
labor after 1918 was a controversial issue in the older literature, ever since
Knut Borchardt claimed that collective bargaining and the expansion of the
welfare state contributed to the demise of the Weimar Republic. The debate soon
boiled down to the unavoidable nitty-gritty of measurement problems. Again,
Germany’s notoriously unreliable national product and income series play a role
here. The picture that has emerged in recent research is that throughout World
War I, the German economy suffered a major productivity setback, from which it
had barely recovered in 1929. Combining this with the political attempt to
sustain wage levels on par with Britain resulted in a major profit squeeze.
Work by Spoerer on corporate profits, obtained from archival sources on tax
audits, has generated reliable evidence at the firm level.[11]
Along with depressed profits in the 1920s, this research also documents a
breathtaking profit surge in the 1930s. These findings have recently been
complemented by Fabien Dell with results on the personal distribution of
income.[12] These data document how income inequality
narrowed during the 1920s, and rapidly widened again in the 1930s to reach
pre-war levels in 1938. Both pieces thus disprove recent claims that Nazism was
essentially a cozy socialist arrangement [13] – and
impressively demonstrate the corrective function of numbers if discourse goes
astray. Interestingly, postwar German data suggest a downturn both in profit
rates and in income inequality with respect to their 1913 and 1938 levels. Only
in recent years have both started to creep up again.
The international dimension of distributional
conflict during and between Germany’s world wars is essentially defined by
three areas. These are, in turn, reparations and Germany’s foreign debt default
of 1933, Germany’s wartime economic exploitation of Europe, and (although
itself part of postwar history) the restitution issue.
I won’t go into the
reparations issue and its economic repercussions, which is connected also with
my own work. Scholarly debate has moved away from interpreting the historical
evidence in terms of the transfer problem, and has instead embraced the
incentives of large but difficult to enforce reparations for German policy
making. Not everyone agrees; significant strands of the discussion still
interpret the historical evidence of Germany’s unfolding payments crisis of
1931 to 1933 in terms of more traditional theory.[14]
Much recent work has been
done on the Nazi economy. With several coauthors, Rainer Fremdling has
thoroughly revised the secret industrial census of 1936. Among the surprising
findings is the large significance of German aircraft industry, which already
back then was about equal in size to the auto industry. To the same extent, the
received picture of the Nazi recovery as a story about cars and roads must be
revised, unless motorization is understood to include also airfields and
warplanes.[15] Adam Tooze’s brilliant recent book provides a
wonderful synopsis to the uninitiated, and is a thoughtful contribution to the
discussion.[16] Current debates essentially focus on the
incentives for industry to collaborate, and new emphasis has been placed on the
large amount to which the Nazi administration employed carrots, not sticks, in
making entrepreneurs play along. These included elaborate incentive contracts
and links between access to profitable projects and the willingness to use
slave labor.[17] Still, much of this research is still on
its way towards publication. What emerges is a new interpretation of the Nazi
war machinery that stresses continuity over abrupt changes, and that
demystifies previous claims of an armaments miracle in the second half of World
War II.
Major tasks still lie
ahead for a quantitatively oriented economic history of the postwar period.
Paradoxically, this is partly due to the dramatic improvement in data quality
from 1950 on – at least for West Germany. For the East, a flourishing
literature has developed that seeks to iron out the worst pitfalls in data
quality.[18] For the big issues like the sources of postwar
growth, there is still little new research that goes beyond the old myths, be
it the reconstruction hypothesis propagated by the left or the insistence on
the economic miracle as a consequence of Erhard’s postwar reforms.[19]
There has been significant work on the international aspects of postwar
Germany, notably the foreign debt settlement of 1953, on reparations, and on
the Marshall Plan.[20] Still, putting the Wirtschaftswunder, as well as West
Germany’s long prosperity, in its proper place in history continues to be a big
unresolved issue that should be next on the agenda.
Albrecht Ritschl
Humboldt University / London School of
Economics (beginning September 2007)
Notes
[1]
Timothy Guinnane (2001), "Cooperatives As Information Machines: German
Rural Credit Cooperatives, 1883-1914," Journal
of Economic History 61 (2), 366-389.
[2]
Timothy Guinnane (2002), "Delegated
Monitors, Large and Small: Germany's Banking System, 1800-1914,"
Journal of Economic Literature
40 (1), 73-124.
[3]
Caroline Fohlin (2006), Finance
Capitalism and Germany's Rise to Industrial Power, Cambridge: Cambridge
University Press.
[4] Carsten
Burhop (2006), “Did Banks Cause the German Industrialization?” Explorations in Economic History 43 (1),
39-63,
[5] Joerg
Baten (2004), “Creating
Firms for a New Century: Determinants of Firm Creation around 1900,”
European Review of Economic History
7(3), 301-329; Gerhard Kling (2006), “The Long-term Impact of Mergers and the
Emergence of a Merger Wave in pre-World War I Germany,” Explorations in Economic History 43, 667-688; Markus Baltzer
(2006), “Cross-listed Stocks as an Information Vehicle of Speculation: Evidence
from European Cross-listings in the Early 1870s”, European
Review of Economic History 10 (3), 301-32.
[6]
Ulrich Ronge (2002), Die langfristige
Rendite deutscher Standardaktien, Bern: Peter Lang; Steffen Eube (1998), Der Aktienmarkt in Deutschland vor dem
Ersten Weltkrieg, Frankfurt: Knapp.
[7] Mark
Spoerer (2004), Steuerlast,
Steuerinzidenz und Steuerwettbewerb. Verteilungswirkungen der Besteuerung in
Preußen und Württemberg (1815-1913), Berlin: Akademie-Verlag
[8]
Oliver Grant (2005), Migration and
Inequality in Germany 1870-1913, Oxford: Oxford University Press.
[9]
Carsten Burhop and Guntram Wolff (2005), “A Compromise Estimate of the Net
National Product and the Business Cycle in Germany, 1851-1913,” Journal of Economic History 65, 613-657;
Stephen Broadberry and Carsten Burhop (2007), ”Comparative Productivity in
British and German Manufacturing Before World War II: Reconciling Direct
Benchmark Estimates and Time Series Projections,” Journal of Economic History 67(3), forthcoming.
[10]
Jörg Baten and Rainer Schulz (2005), “Making Profits in War-Time: German
Industrial and Service Companies' Profits During WWI and Their Implications,” Economic History Review 58, 34-56;
Albrecht Ritschl (2005), “The Pity of Peace: Germany's War Economy, 1914-1918
and Beyond,” in Stephen Broadberry and Mark Harrison, eds., The Economics of World War I, Cambridge:
Cambridge University Press.
[11]
Mark Spoerer (1996), Von Scheingewinnen
zum Rüstungsboom. Die Eigenkapitalrentabilität der deutschen
Industrieaktiengesellschaften 1925-1941,
Stuttgart: Steiner.
[12] Fabien
Dell (2005), “Top Incomes in Germany and Switzerland Over the Twentieth
Century”, Journal of the European
Economic Association 3, (2-3), 412-421.
[13]
Goetz Aly (2005), Hilters Volksstaat:
Raub, Rassenkrieg und nationaler Sozialismus, Frankfurt: Fischer.
[14]
Albrecht Ritschl (2002), Deutschlands
Krise und Konjunktur, 1924-1934. Binnenkonjunktur, Auslandsverschuldung und
Reparationsproblem zwischen Dawes-Plan und Transfersperre, Berlin:
Akademie-Verlag; Thomas Ferguson and Peter Temin (2003), “Made in Germany: the
Currency Crisis of 1931”, Research in
Economic History 31, 1-53; Isabel Schnabel (2004), “The German Twin Crisis
of 1931”, Journal of Economic History
64, 822-871.
[15]
Rainer Fremdling and Reiner Staeglin (2003), “Die Industrieerhebung von 1936:
Ein Input-Output-Ansatz zur Rekonstruktion der volkswirtschaftlichen
Gesamtrechnung für Deutschland im 19. und 20. Jahrhundert,” Vierteljahrschrift für Sozial- und Wirtschaftsgeschichte
90, 416-428; Herman de Jong and Rainer Fremdling (2007), “British and German
Manufacturing Compared. A New Benchmark for 1935/36 Based on Double Deflated
Value Added”, Journal of Economic History
67 (3), forthcoming. On arming the Luftwaffe, see also the important monograph
of Lutz Budrass (1998), Flugzeugindustrie
und Luftrüstung in Deutschland 1918-1945, Düsseldorf: Droste.
[16] J.
Adam Tooze (2006), The Wages of
Destruction: The Making and Breaking of the Nazi Economy, London: Penguin.
[17]
Jochen Streb (2003), “Can Politicians Speed Up Long-Term Technological Change?
Some Insights From a Comparison of the German and US-American Synthetic Rubber Programs
Before, During, and After World War II,” Essays
in Economic & Business History 21 (1), 33-49; Jonas Scherner, “‘Ohne
Rücksicht auf Kosten’? Eine Analyse von Investitionsverträgen zwischen Staat
und Unternehmen im ‘Dritten Reich’ am Beispiel des Förderprämienverfahrens und
des Zuschussvertrags.” Jahrbuch für
Wirtschaftsgeschichte 2004, 167-88; Christoph Buchheim and Jonas Scherner
(2006), “The Role of Private Property in the Nazi Economy: The Case of
Industry,” Journal of Economic History
66 (2), 390-416; Jonas Scherner and Jochen Streb (2006), “Das Ende eines
Mythos? Albert Speer und das so genannte Rüstungswunder,” Vierteljahrschrift für Sozial- und
Wirtschaftsgeschichte, 93, 172-96; Mark Spoerer (2006), “Der Faktor Arbeit
in den besetzten Ostgebieten im Widerstreit ökonomischer und ideologischer
Interessen,” Mitteilungen der Gemeinsamen
Kommission für die Erforschung der jüngeren Geschichte der deutsch-russischen
Beziehungen 2, 68-93.
[18]
See Jaap Sleifer (2003), Planning Ahead
and Falling Behind: The East German Economy in Comparison with West Germany,
1936-2002, Berlin: Akademie-Verlag; André Steiner (1999), Die DDR-Wirtschaftsreform der sechziger Jahre: Konflikt zwischen
Effizienz- und Machtkalkül; Berlin: Akademie Verlag.
[19] On
the former, see Werner Abelshauser (2004), Deutsche
Wirtschaftsgeschichte seit 1945, Munich: Beck; for the latter, see Herbert
Giersch, Karl-Heinz Paqué, and Holger Schmieding. The Fading Miracle. Cambridge: Cambridge University Press, 1992.
[20]
See the literature reviewed by Tim Guinnane (2004), "Financial
Vergangenheitsbewältigung: The 1953 London Debt Agreement." Yale Economic
Growth Center Discussion Paper No. 880.