Capturing reality – Two examples of the interplay of statistics and inductive theorising in the German Historical School of Economics

Abstract

The development and conceptualisation of statistics and economics are closely linked. Historically, a variety of different concepts of statistics have been advocated by different (schools of) economists, ranging from the use of statistics as a mere means of mass observation and description to the application of complex mathematical models from which causalities were inferred. The use of statistics depended on how economists defined the purpose of economic studies as well as their understanding of the type of knowledge that can and should be generated in economics. Throughout history, different fields of application dominated the discussion and further development of concepts of statistics. In the 19th century, statistics developed in particular as researchers turned their attention to the quantitative study of the “society”. At the beginning of the 20th century, the study of business cycles encouraged the advancement of statistics. This dissertation examines two examples of the conception and use of statistics in the 1860s/70s and the second half of the 1920s by economists in the tradition of German historical economics. Georg Friedrich Knapp (1842-1926) was a central figure of the German Younger Historical School of Economics. His “historical-realistic” concept of economics and the social sciences that envisaged a factual, objective and apolitical investigation of the economy and the society was shaped in particular by his early work on statistics (1865-1874). While he favoured the holistic and descriptive understanding of German statistics, which accounted for the historical peculiarity of empirical observations and was shared by the economists of the Younger Historical School, he distanced himself in part from the “historical-ethical” research programme of its leader, Gustav Schmoller (1838-1917). Knapp demanded the extension of quantitative statistical observation even to such spheres, like the investigation of morality, which seemed to be reserved mainly to philosophical investigations and refrained from normative presuppositions to empirical observation, like the idea of an ongoing cultural progress. In order to enhance the scientific rigour of statistical studies in German economics, he developed a formal-mathematical theory of population statistics that provided a systematic framework for ordering and analysing population data. Knapp applied this approach of organising knowledge even to his monetary theory, in which he provided a taxonomy of historical monetary constitutions and adhered to the requirements of scientific rigour that he developed in his formal treatises on statistics. This “statistical mode” of scientific investigation pervaded his entire work. Since the late 1910s, statistical business cycle research internationally developed into a dominant field of economics. Its results were made accessible to official and private stake-holders via a rising number of statistical barometers. In 1926, Kurt Singer (1886-1962) and the renowned German business cycle researcher Arthur Spiethoff (1873-1957) introduced a regular statistical business cycle reporting to the Hamburg-based economic weekly “Wirtschaftsdienst. Weltwirtschaftliche Nachrichten” that consisted of two complementary pillars – the “Wirtschaftsbarometer” and the reports “Zur Lage”. Spiethoff’s business cycle theory provided the main analytical and interpretive framework for the business cycle reporting of the Wirtschaftsdienst between 1926 and 1930. His theory was based on a comprehensive empirical study of business cycles in the 19th and early 20th century up to World War I. From this study, Spiethoff derived a small number of empirical indicators that described the typical course of the cycle. These indicators were prioritised in the Wirtschaftsbarometer and the reports Zur Lage for the assessment of the overall economic situation. When the data series of the Wirtschaftsbarometer deviated from the expected typical course, the authors at the Wirtschaftsdienst reflected on the weaknesses of the suggested empirical indicators, but still decidedly adhered to Spiethoff’s general approach and his explanation of business cycles. Singer demarcated the business cycle analysis of the Wirtschaftsdienst from other approaches that were applied in Germany since the mid-1920s. In 1926, he sharply criticised the work of the “Institut für Konjuntkurforschung” in Berlin, led by Ernst Wagemann (1884-1956) and thereby initiated a debate with Adolf Löwe (1893-1995), who headed the department for business cycle research at the “Königliches Institut für Seeverkehr und Weltwirtschaft” in Kiel, about the appropriate way to conduct business cycle research. Singer’s critique and his demarcation appear to be exaggerated against the background of similarities in the model cycle and the assessment of the overall economic situation in the publications of the IfK and the Wirtschaftsdienst. Strategic considerations and personal interests are part of the explanation of Singer’s attack on Wagemann and the IfK. A further important explanation lies in substantial differences in the methodological standpoints of all three involved parties. In fact, the dispute between Singer and Löwe can be regarded as being embedded in a more general controversy about the reorganisation and reorientation of German economics after World War I and the breakdown of the German Younger Historical School of Economics. With favouring an inductive and holistic business cycle theory, which refrained from mathematical-statistical reasoning, Spiethoff and Singer adhered closest to the tradition of German statistics and German historical economics. Wagemann aligned the work of the IfK to American empiricism and focused on formal-statistical reasoning. Löwe’s endeavour to combine deductive theorising with mathematical-statistical testing corresponded to the vision of upcoming econometrics. The latter two were thus moving further away from German historical economics and towards an understanding of economics as a formal and exact science.