Can anyone point to data on the size of the german military and its effect on the german (and Japanese) economy following WWII?

Good article, makes a lot of interesting points about Germany. However, it may overgeneralize from the experience of a handful of countries over the course of only 15 years. In Understanding Capitalism, Samuel Bowles’ presents persuasive evidence that, over a 50 year time span, social democratic countries (including Germany) have generally outperformed “Anglo-American” capitalist countries on a host of scales, including GDP growth and labor productivity growth.

Mikey: yes. What helped fight inflation was mostly, um, stopping inflation (i.e. the printing press). Relabeling the money and cutting off a zero helped psychologically I think (as most people don’t really know what inflation is, but they notice the high prices).

Bruce: there are two things to that. One is that it worked well over those 50 years in Germany. But as Robert Formaini writes, a good part of that is due to the good foundation we had decades ago. Since the ’70s the government has stifled us with tons of laws and regulations and skyhigh taxes. So my wish is that we return to the system we had back then and stop the current craze.

The second point is that though we chased away lots of good scientists and other intellectuals during the ’20s and ’30s, we still had lots of excellent engineers and business administrators that helped build the country’s big companies, cars and everything else. That trend is diminishing, as modern MBAs seem much less conservative and tons of businesses collapse all of a sudden by riding on new hypes instead of on solid numbers. The ’68 student “revolutions” basically abolished quality and put mediocre people in professors’ seats and other “establishment” positions, so those people are in charge now.

Altogether it worked well the last 50 years, but it worked abysmally the last 20 (or 10-15) years, so we need to do something!

I bet it’s not worth mentioning that central bankers in all those Anglo-Saxon countries have been driving up consumer debt like crazy for the past 15 years in order to ‘stimulate economic growth’. And I guess it’s not worth mentionning that Germany rapidly caught up economically after WWII until in the 80′s it was thought that America was ‘over’.

But I don’t expect a Federal Reserve Economist to pay respect to facts and stuff.

Certainly, Germany is the feeble leader of an old and prostrated Europe. Unfortunately, the teachings of professor Mises seem far from being accepted among political leaders and also in the university circles. Political parties, both right and left viewed, agree (some of them) in the necessity of restructuring the Welfare State, but never in the need of dismantling it. The concept of a network society (widely described by sociologist Manuel Castells, formerly in Stanford University now in Catalan UOC University) doesn’t match entirely with free market economics. Instead, he views the Finnish Model as the example to be followed. Greetings from Manresa (Catalonia-Spain-Europe), where Saint Ignatius from Loyola wrote his Sipiritual Exercises in 1522.

It is true that every developed economy for some time has been “interventionist”.

Mises’s argument, I believe first made in the 1920s, is that interventionist measures logically can not produce the desired ends. As one example, you can not make a product more affordable by putting a price cap on the good, since the price cap will inevitably create a shortage, which basic supply/demand theory demonstrates will lead to higher prices. If the interventionists are consistent and serious about trying to reduce the price of the good, and if they ignore the failed results of their initial measure, they will then proceed to attempt to regulate the prices of the inputs of this product, with the same counterproductive results. And so on throughout the production process. The interventionists could require non-specific inputs to be shifted from the production of other goods to the production of the initial good, but this would only create shortages and higher prices for the other goods, while taking more and more control of production away from private enterprise and bringing it under the control of the state.

In reality, interventionism is not always consistently pursued, and the hampered market economy manages to produce more and better goods and services in industries where there is comparatively less central planning, so the relatively free market economies manage to muddle along. Also, I believe it is accurate to state that every major Western economy is more interventionist today than100 years ago, as the bankruptcy of previous interventionist measures produces a call from many for more interventionism, just as Mises explained.

Mises was not wrong regarding interventionism. In fact his detailed elucidation of the counter-to-purpose nature of interventionist measures is arguably one of his significant contributions to economic science.

Bruce,

My initial comment on this posting was:

“All this talk about the supposed ‘third way’.

Many years ago Mises demonstrated that there is no third way; interventionism is an inherently unstable system because the means utilized are not capable of producing the desired ends. If interventionist policies are consistently pursued, all other things remaining equal, the economy will eventually be centrally planned. And as Mises also demonstrated many years ago, a truly socialist economy can not exist except at the household or primitive tribal level. Under true socialism, the vast majority of human beings would not be alive.”

My characterization of Mises’s position was, as noted above, qualified by the phrases “consistently pursued” and “all other things remaining equal”. And I again reiterate, from a logical perspective, Mises’s argument that interventionism is unstable because the means are not capable of achieving the professed ends has not been refuted. Mises never argued that interventionist economies can not and do not exist. What he logically demonstrated is their inherent instability.

Also, using historical experience to attempt to prove or disprove a logical proposition is, in Mises’s system of thought, not correct. In fact, the opposite is the correct approach: i.e., historical events are explained and interpreted through the application of correct theory. Mises wrote extensively (as did Rothbard) on this matter in “Human Action” and especially in “Theory and History”.

Francisco,

If “central planning” simply means that a country has a central bank, then it’s a truism to say that interventionism leads to central planning.

For most people, however, “central planning” means a system where the government sets most prices and mandates production goals for most sectors. I supposed you can define “central planning” however you please, but Mises defined it the ordinary way. And when defined that way, his thesis that interventionism inevitably leads to central planning clearly was false.

Or do you really believe that Mises was infallible? Was he the Pope of economics?

That article peddles a series of simplistic half-truths that have become part of a standard line of apologetics for the naked emperor of the social sciences: economics. Anyone with more than a superficial command of the economic history knows that
the German response to the great depression had little or nothing to do with the supposed dearth of economic theorists of a neoclassical variety in that country. With just a little reading you would know that there were many German marginalist economists working in Germany between 1900 and 1940–Dietzel, Conrad, Wagner, Eucken and Schumpeter come to mind (the latter holding a professorship at Bonn in the 1920s). So these are simply fairy tales retold ad nauseam by economists who wished they had some relevance for the world. F.A. Hayek was particularly keen to retell these stories. The fact remains that it was heterodox thinking (and in the case of the Nazis) willful and ruthless disregard of economic “fundamentals” (i.e., guns and butter) that ended the depression in Germany. As Keynes himself later observed, Germany was the first country to recover from the depression. The Brüning government which preceded the Nazis was committed to the very orthodox remedy of deflation between 1930-33, one that Hayek himself prescribed to his own great later embarrassment (he never forgave Keynes for getting this right). One of the last countries to pull out of the depression was France, then also pursuing a policy defending gold convertibility of the franc. There is an inverse relationship between higher education in economics and economic performance. Britain bwteeen 1890 and 1990 is a case in point. An endless retinue of highly-respected economists advised various British governments in these years (Edgeworth, Pigou, Marshall, Beveridge, Robins, Hicks etc.) and yet the British drove their economy into the ground. By comparison, Germany did rather better, perhaps because neoclassical and Keynesian economists were kept at arms length from the levers of power. Economics as a discipline is completely irrelevant to technological change, wealth creation and overall material prosperity. I recommend Roger Middleton’s “Charlatans of Saviours” or Steve Keen’s “Debunking Economics” for further reading.