Perspectives on Modern German Economic History and Policy.
Borchardt's essays are essentially on the macroeconomy and, while largely unstated as such, there is a theme. This is that modern German macroeconomic history is best understood on a continuum from 1850 to 1980, with the events from 1914 to 1948 treated as exceptions dictated more by political than economic factors. This is convincing, although the evidence is neither complete nor up-to-date.
Beginning about the middle of the book is a series of essays on German growth and cycles covering roughly a hundred year period. In his discussion of changes in the nature of the business cycle over this period, Borchardt is influenced mostly by descriptive "models" of the cycle, as in the so-called "growth cycle." He argues that growth cycles are not new and predominate in the pre-1914 period and that they are not currently milder. The "demonstrations" are undoubtedly correct as far as the data take one, but the absence of any economic theory (e.g., real business cycle theory) mars this discussion. We seldom talk of growth cycles anymore, either. This paper also analyzes price indices, share prices, the investment ratio, interest rates, and unemployment, in a loose collection of indicators that gives one an idea of the data that are available.
Borchardt's essay on trends, cycles, and random events in 20th century Germany has an even broader theme. This essay is directed to a lay audience, apparently, and offers merely a statistical theory that focuses on regularities. His point is to emphasize that cyclical episodes (e.g., the Weimar cycle) ought to be imbedded in long-term trends (and long-standing cyclical data) rather than studied in isolation, as is the fashion in much of the German literature. This seems correct. He does propose a "structural break" hypothesis, with the major breaks in 1914 and 1945-48. This brings in politics, of course. Incidentally here Borchardt makes the interesting point that the abnormal profits of capitalists during the early Nazi years are typical of economic recoveries from depression and not some capitalist bias of National Socialism.
In his study of the growth of the Federal Republic of Germany, Borchardt proposes, sensibly, that it is importantly a continuation of 19th century growth. In this case, the rapid post-War growth is attributed to reconstruction rather than recovery, until the rate reverts to trend. How did they do it? Human capital, apparently, continued to grow on a trend, but the reproducible capital stock did not. Much of the latter was destroyed in the two wars. The physical capital recovered very quickly, making up the losses starting in 1948. Borchardt argues that the depletion of the capital stock "created opportunities for investors"; this is both an optimistic and a useful idea. Apparently money growth has little to do with the acceleration of the economy, but other factors, such as the rapid (relative) shrinking of the agricultural sector, more rapid growth in consumption, and foreign trade, did. Finally, he argues, there was even a tendency for the economic structure to revert to the trends up to 1913 (here he is referring to bureaucracy, union growth, and concentration, mainly). One thing he properly dismisses as a factor in rapid growth is "demand management policy."
There are four concluding essays on the German macroeconomy in the inter-War period. The broad theme is that political factors had a lot to do with the economic results; this is embedded in a discussion of international events, so the discussion, while on a low level technically, is not overly nationalistic. Borchardt's view is that the Weimar Republic failed because it was too populist. Its attempts to influence employment resulted in inflation. Inflation, in fact, is not explained by monetary factors but by struggles over the distribution of income; he is quite explicit about this. He seems, unfortunately, to have shifted easily from a result (inflation, especially rapid and unexpected inflation, changes the distribution in favor of debtors and against creditors) to a cause without even the slightest attempt to analyze the alternatives. His discussion of the causes of the depression in Germany is more conventional, although he is nowhere very explicit about this. His story, and story it is, emphasizes the troubles of the Weimar government, which had stimulated consumption at the expense of investment and fostered an air of overspeculation. The crash itself was inevitable and made worse by recurring international crises and bank failures. In this process, the Weimar government was unable to act because of its political problems and because of the prevailing (non-Keynesian) economics of the time. Included in this list of politically-dominated decisions was the attempt to maintain the Mark at parity even after the British Pound was floated in 1931). Fiscal policy was also not an option because the legislation was not in place and the government was very shaky after the elections in 1930. Prior to that there would have been no reason to act since there was no reason to think this was an unusual event. Most of this is reasonable, although the documentation is very thin and, unfortunately, key graphs are next to impossible to read.
Much less satisfactory, at least to this reader, are the four essays on the 19th century. Borchardt seems to think that the period from the end of the Napoleonic Wars to the mid-1830s was chronically depressed for Germany. This is probably untrue. He also argues, in an essay on the "supply and demand for protection," that protection arrives with deep depression and free trade with expansion. Since there are few deep depressions in this entire period (1815 to 1913), this does not seem very useful. In any case, it is both unlikely and unproved in statistical terms. In discussing regional disparities in growth, Borchardt's material is interesting, but badly out of date. So too is his essay on investment in education in 19th century Germany, although here one is struck with Borchardt's adroit use of a human capital model, pretty much at the time it appeared in the American literature. Finally, Borchardt takes on the literature that argues there was a capital shortage in the first half of the 19th century. Here he argues that there was adequate capital, at least potentially, and that the problem of slow capital formation (if such there was!) lies elsewhere.
On the whole, this collection of essays is informed, controversial, and thorough. Its failings in terms of clear statistical presentations and modelling should not detract from its usefulness as an introduction to a fascinating literature. It could certainly serve as supplementary reading for a modern European Economic History course.
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|Publication:||Southern Economic Journal|
|Article Type:||Book Review|
|Date:||Oct 1, 1992|
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