- The German Slump: Politics and Economics 1924-1936 by Harold James
Oxford, 469 pp, £30.00, March 1986, ISBN 0 19 821972 5
- The Making of Keynes’s General Theory by Richard Kahn
Cambridge, 327 pp, £20.00, May 1984, ISBN 0 521 25373 X
- Towards the Managed Economy: Keynes, the Treasury and the Fiscal Policy Debate of the 1930s by Roger Middleton
Methuen, 244 pp, £25.00, September 1985, ISBN 0 416 35830 6
- Keynes and his Contemporaries edited by G.C. Harcourt
Macmillan, 195 pp, £22.50, October 1985, ISBN 0 333 34687 4
- The Policy Consequences of John Maynard Keynes edited by Harold Wattel
Macmillan, 157 pp, £29.50, April 1986, ISBN 0 333 41340 7
Ramsay MacDonald christened it an ‘economic blizzard’, suggesting that the world slump of 1929-32 was an Act of God which his hapless Labour Government could not be expected to have foreseen or averted, much less mastered. John Maynard Keynes, by contrast, reached for a mechanical metaphor appropriate to the current state of the art. ‘We have magneto trouble,’ he wrote in December 1930. ‘How, then, can we start up again?’ Keynesian policies, at the time and subsequently, were presented as a magic toolkit which could not only patch up the machine but, with fine tuning, keep it running smoothly so as to develop maximum horsepower. In the enlightened post-war world, nearly everyone swore by the magic toolkit: then, faced with an old-fashioned breakdown, they swore at it.
Economists have not had much luck in applying the lessons of the last slump in order to get us out of this one. Historians have been more fortunate in using the lessons of this slump to understand the last one. In the Eighties we have a fellow-feeling for the bumbling politicians, the fumbling officials, and the stumbling economists of the inter-war period – whom we merely looked down upon in the Sixties. What can now be said about their perplexities, faced with intractable and interlocking difficulties in a real world for which no textbook adequately prepared them? And what can we make of Keynes’s confident proposal of a revolution in ‘the way the world thinks about economic problems’?
The first set of issues is addressed by Harold James in his impressive study, The German Slump. In explaining an apparent economic recovery under the Nazis, following the bankruptcy of the Weimar regime, there is a plausible argument that ‘the right blocked Keynesianism, and were only prepared to accept deficit finance dressed up in clothes (specifically, in the 1930s, military uniforms) which were acceptable to the German élites.’ James, however, writes against this view, and suggests instead that industrialists should be seen as grudgingly complaisant towards all political solutions since their power to influence political events was limited. Nor, on this reading, did such power reside elsewhere. The unions were frightened of the employers, the employers obsessed by union power, so that ‘what survived longest in the debris of Weimar corporatism was the image of the enemy.’
In a well-organised appraisal, James examines in turn five aspects of the Weimar predicament: public finance, industrial organisation, wages, agriculture, and finally the banking crisis of 1931. The picture he paints is a still-life: one of ideological immobilism, institutional ossification, social rigidities. Weimar’s attempts at crisis management led to ‘a complex network of vicious circles’, in which public spending pushed up taxes, which depressed profits, which cut investment, which caused depression, which reduced tax revenues, which intensified the crisis over public spending. Borrowing was the short-term expedient, adopted alike by openhanded Oberbür germeister like Konrad Adenauer and by big business – right up to the day of reckoning. ‘A fundamentally unsound structure required only a small push, then, to topple it,’ James argues, pointing to the ultimately inescapable consequences of instability. The collapse of confidence was more than financial. As the former socialist finance minister, Rudolf Hilferding, wrote in October 1931, ‘there is no socialist solution to the crisis, and this makes the situation unprecedentedly difficult and allows the Communists and National Socialists to grow stronger.’
For the Nazis, it was a godsend. Weimar stood for the policies that had failed before, and Hitler could hardly do worse. What was his recipe for recovery? He massaged the unemployment figures, of course, by eliminating the deadweight of married women, not to mention political opponents and Jews. But it was not all done with mirrors, nor even rubber truncheons: employment increased by over five million between January 1933 and July 1935. In a notably lucid account, James makes it clear that there was no open espousal of deficit finance. With Hitler repudiating any hint of inflation – ‘I have pledged my word’ – his economic wizard, Dr Schacht, presided over a regime of fiscal conservatism, at least on the surface. Under price controls, forced savings found their outlet in public spending, and devices like the Mefo-Bill helped conceal the costs of the rearmament programme. For it was rearmament which represented the big increase in spending and the crucial stimulus to the economy.