Sunday, January 13, 2013

More on Heinrich Brüning's disastrous austerity policies

I recently wrote about German historian Knut Borchardt's controversial defense of Heinrich Brüning's economic policies during his Chancellorship of 1930-32.

Geschichte und Gesellschaft 1985/3 did an issue on the controversy over Borchardt's argument, featuring four major articles.

Editor Heinrich August Winkler breaks Borchardt's argument into two main points: the German economy was dangerously wounded before Brüning's Chancellorship; and, Brüning basically had no alternatives to his deflationary policies.

Charles Maier in "Die Nicht-Determinirtheit ökonomische Modelle.Überlegungen zu Knut Borchardts These von der „kranken Wirtschaft“ makes a strong argument against Borchardt. He points out that Borchardt bases his argument about labor costs being the whole problem rests on using total production costs per employee rather than the more conventional measure of cost by hour (unit of labor). This understates productivity during the period in question (1924-1932) because starting in 1924, the hours per worker were progressively and substantially reduced to such an extent that so using headcount understates productivity; it doesn't pick up the very substantial decrease in hour worked. Maier gives figures of the metal industry that the percentage of workers that worked more than 48 hours per week was 64% in 1934, going down to 34% in 1928.

Maier also shows that the portion of national income going to labor rather than capital during the Weimar Republic after 1924 looks fairly normal in international comparison. Borchardt makes much of the fact that the percentage going to labor increased after 1924.

Maier also points out that Borchardt's argument about real wages after 1924 is misleading, because in the immediate aftermath of the hyperinflation of 1923-4, conditions were very unusual and showed an artificially low real wage level in Germany. A comparison between real wages from 1913 to 1929 had Germany at a similar or lower level than the US and Britain.

Maier describes that Borchardt's argument about Brüning having no real alternatives as essentially deterministic, i.e., Borchardt argues that what did happen had to happen.

Bernd Weisbrod in "Die Befreiung von den 'Tariffesseln'" explains how closely Borchardt's arguments reflect the general view being expressed by business lobbies during the Weimar Republic. And he gives examples of how determined some business leaders were to drive down wages. This doesn't mean that all business leaders were well-disposed toward Brüning regime. On the contrary, some wanted him to be even more partisan toward capital and against labor. Weisbord also stresses the exaggerated fears of inflation expressed by business leaders and Brüning.

Gottfried Plumpe in "Wirtschaftspolitik in der Weltwirtschaftskrise.Realität und Alternative" calls into question Borchardt's argument about excessive wages and their effects, showing that especially the chemical and electrotechnical industries were very competitive in exports despite rising prices. Wages clearly weren't pricing them out of the export market.

He observes that with a depression already pushing down wages and prices, even conservative, classical economics should have told Brüning and his government that their policy of actively pushing down wages and prices further was seriously misguided.He argues further that the onset of the financial crisis in Germany in the summer of 1931 should have been a signal to Brüning to change direction away from aggressive deflation. "Die Regierung hat mögliche Alternativen nicht einmal ernsthaft erwogen," he writes. ("The government never even seriously considered possible alternatives.")

Jürgen von Kruedener in "Die Überfordung der Weimarer Republik also Sozialstaat" makes an unconvincing argument in favor of blaming labor for Weimar's economic problem s by looking at benefits costs paid by businesses. He also takes a weak stab at making the case that public social expenditures had overwhelmed the Republic.

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