I have just missed Barack Obama’s speech at the Brandenburg Gate, Berlin

Paris, 19.6.2013

because I was busy building the new MIME Internet site. Tackling the economic crisis is surely the most important task ahead and the MIME site has to be adapted to this. And surely we cannot overcome the crisis without taking the lessons of the past. So I googled for “the history of economic policy” and found a speech the Russian American economist Alexander Gerschenkron had delivered at the American Economic Association’s annual conference in 1968 in honour of Richard T. Ely, together with John Bates Clark one of the founders of the AEA in 1885. Clark and Ely had both studied at Heidelberg University under Professor Karl Knies in the 1870s. The successor to Karl Knies at that chair at Heidelberg University was Max Weber. In a paper on H.H. Gossen I have suggested that they were not only studying Gossen’s Theory of Pleasure but were actually also practicing it in the wine bars of Heidelberg. Up to now I have not received any criticism concerning this thesis although the CJE had rejected the paper but on other grounds.
But now to the economic crisis and A. Gerschenkron’s speech on “The history of economic doctrines and economic history”. There we find the following remarks about the German economic policies after the Crash of 1929.

“I should like to refer to the fateful economic policies pursued in Germany during the Great Depression of the 1930′s, because they shed at least a negative light on the problem. Until a few years ago, I believed that those policies were essentially the result of the dominant traditional views. It is in these terms that they were contemporaneously presented and defended. The deflation had to run its course, and since rigid, because monopolistically held, prices and wages obstructed that natural course, they had to be forcibly cut by government decrees and at the same time budgetary expenditures drastically reduced. For the rest, there was nothing to do but waiting, not for Lefty or Godot, but for the Pigou effect-unconsciously, that is, and ante litteram.

I have come to understand that neither received opinion nor fear of runaway inflation can be seen as the strategic factor determining the complex of policies which filled what probably has been the most dramatic chapter of modem economic history, its contents demolishing all our artificial boundaries between disciplines and becoming an integral part of general history – not of Germany, but the world. For there is little doubt that those policies opened the door of the Chancellery of the Reich to Adolf Hitler and must be regarded as the primary, and not so very remote, cause of the second World War.

“The social-democratic labor movement in Germany had moved a long way from its original position of alienated orthodoxy, the Marxian ideology having indeed become a “false consciousness” as had been clearly and candidly recognized and said by one of the outstanding leaders of the movement, Rudolf Hilferding.[Rudolf Hilferding, "Probleme der Zeit," Die Gesellschaft, vol. I: 1 (April, 1924), p. 5]. But certain parts of the ideology were dormant rather than dead, and in a critical period they returned to life. Hence, despite occasional willingness to act as a physician at the “sickbed of capitalism,” as the phrase ran, there was much talk about the depression inevitably being “the last capitalist crisis” and the imminent collapse of capitalism, as predicted by Marx or at least by Rosa Luxemburg.”

“Wilhelm Lautenbach, … a fully fledged Keynesian before Keynes’s General Theory, … understood clearly (as he wrote in 1931) that “the natural way to overcome an economic and financial state of emergency (Notstand) in the capitalist economy is not contradiction but expansion”.

…”Under his guidance, ambitious plans for public works were being prepared, which, as Edgar Salin rightly notes, were subsequently generously drawn upon by Hitler’s government in its full employment measures. Why then did the Bruening government fail to follow what surely was a most promising alternative to the sterile policies to which it remained so stubbornly attached? Now, after the publication of the memoirs by the late Hans Luther, the president of the Reichsbank in those years, the reason has been authentically explained. It is simple and rather shocking. The government did not want an improvement in the economic conditions in Germany until the Allied powers could be induced to abolish the German Reparations. It wanted a deterioration. What mattered most was to reveal ad oculos Germany’s inability to pay, and the deflationary policies were indeed excellently suited to fit that purpose. Once the goal was attained-as it was then, posthumously for the Bruening government, in the treaty of Lausanne-the plan was radically to cut the rudder and to embark upon policies of rapid reduction of unemployment. Thus neither defunct theories nor an ideology that was perhaps not quite defunct, although it should have been, but an eminently political consideration, altogether informed by nationalistic aims, appears to have guided and misguided the policies.”

Gerschenkron, Alexander. “History of Economic Doctrines and Economic History.” The American Economic Review 59, no. 2 (1969): 1–17.

It is clear that the present crisis like the one in the 1930s can only be overcome with massive investment programs on a European scale. A characteristic of the European economic crisis is that a large part of profits generated in Europe are exported and not reinvested in the European economy. This is the most important problem which has to be overcome. And I propose therefore to introduce investment contributions as part of the salaries in order to cut into these profits and to channel them into collective investment funds, controlled democratically by the labour movement in order to re-establish full employment conditions.

Unfortunately, the trade unions and the left political parties are not even ready to discuss my proposal but it is certain, either the labour movement takes up the necessary steps to establish control over capital or capital shall continue to control the labour movement. The establishing of economic democracy is not a voluntary objective; it is the actual objectively necessary economic policy to overcome the economic crisis.

Proletarians of All Countries Unite in Order to Control Capital!

Paris, June 19th, 2013

Klaus Hagendorf

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