Het economisch getij ---- Lessons about business cycles

Publication: J. Emmering (1929, Amsterdam)

First insertion on Heterodox Gazette Sam de Wolff: 20 april 2015

Originally your reviewer was not motivated to discuss Het economisch getij by Sam de Wolff. For, the Heterodox Gazette is itself a continuing review and praise of the lifework of De Wolff. But gradually yet the notion has grown, that Het economisch getij deserves a separate analysis. Perhaps this review stimulate others to once more study the ideas of De Wolff.

Although nowadays Het economisch getij has been forgotten, in 1929 when it appeared, it caused commotion among economists. At the time the quality and originality were commended. For instance, J.R.M. van den Brink, the catholic minister of economic affairs and director of the Amro bank, tells: "I bought [Het economisch getij] as one of my treasures in the beginning of the 'great depression' in a bookstall in the Oudemanhuispoort in Amsterdam. During the seventies I again began to read it" and "When as a beginning student of economics in 1934 I look out of my window, I see a row of ragged men: a daily returning row of unemployed who register at the counter of a quickly established stamp office. Then the analysis of Sam de Wolff of the long business cycle is at the front of my bookshelf!"¹

The famous economist Jan Tinbergen has just finished his studies in 1929, and then reviews Het economisch getij in the magazine De Socialistische Gids. He states: "When we finally try to summarize the meaning of this book in a few lines, then we must first say that it is a vivid book. The easy style in general and the polemic character of the various parts stimulate the interest. The power of this book, I believe, must be mainly found in the presented insights with respect to the theory of the conjuncture to beginning students and interested persons. (...) It will certainly incite many readers to ponder and it is always a good thing, when this can be said about a book". This is an enthusiastic comment from the always heart-headed Tinbergen².

Jacob van der Wijk, well-grounded in economics, and a family-friend of de Wolff, states: "The appreciation, which the work received in several foreign circles, has probably helped to favourably influence the opinion with regard to the scientific meaning of this work in the Netherlands". Cleverly, Van der Wijk cites prof. J. van Gelderen, who is commonly a critic of De Wolff: "It must be acknowledged, that (...) after Hilferding's book Das Finanzkapital and Rosa Luxemburg's Die Accumulation des Kapitals such a wide attempt, aided by and building on the performance of Marx as an economist, to obtain fruitful economus outcomes, has not been undertaken any more"³.

De Wolff undertakes in Het economisch getij the gigantic task to theoretically explain the economic conjuncture. His theory builds on the works of marxist authors (Marx and Engels, as well as successors such as Tugan Baranowsky, and the mentioned Luxemburg and Hilferding). According to De Wolff the theory of the conjuncture is not a separate discipline, but she must be developed in an integral manner with a theory of economic growth⁴. De Wolff has the advantage with regard to his marxist predecessors, that he is at home with mathematical techniques. Therefore he (as well as his congenials Jacob van der Wijk and Asse Baars) is pre-eminently qualified to modernize marxism⁵. Besides, De Wolff begins his study with collecting an enormous amount of statistical data. Here he introduces econometrics in the marxist theory.

What does the contents of Het economisch getij have to offer? The book begins with a historical survey of the development of the theory of business cycles. On p.51 an important study of the mentioned J. van Gelderen is introduced, which observes a cycle with a period of more than forty years, in addition to the short-term fluctuations. Apparently the conjuncture has a double movement⁶. Next De Wolff presents an impressive collection of statistical data. At the time the gross domestic product is not yet calculated, so that De Wolff must use more superficial indicators. Here, notably the price indices of various goods must be mentioned. De Wolff bases his arguments mainly on a composite index, namely the index number of Sauerbeck for food-stuff and materials.

The index of Sauerbeck is a measure for the conjuncture, because the hausse commonly causes inflation, and the baisse causes des-inflation or even deflation. In these empirical data De Wolff mainly studies the long-term fluctuations. For this purpose, he also analyzes alternative indices, such as the production volume of raw materials, the establishment of railroads, and the labour productivity⁷. Already on p.80 De Wolff models the long cycle in the economic tide, where he simply updates the model of Van Gelderen. Next on p.193 he also models the short cycle.. Originally, this had a period of ten years, but it shrinks, to seven years after 1900 ⁸.

Incidentally, it seems that De Wolff had made this discovery already far before 1929, and he has presented it in the article Prosperiteits- en depressieperioden from 1921 ⁹. Thus according to de Wolff the short and the long cycle both reach their trough in 1927 (see p.188). Thus he has predicted the Great Depression of 1929! Unfortunately, this success has boosted his already significant self-conceit, and also made his opponents even more vile. And indeed De Wolff is too positive here¹⁰.

Now that De Wolff has discovered a model for the conjuncture, he searches for a possible explanation. He starts from the marxist assumption, that in capitalism the crises have an endogenous (inherent) cause. For, he has just shown, that the conjuncture exhibits a regular pattern. Here he adds interesting statistics, which show that the conjuncture correlates with human behaviour. Thus one could suppose, that for instance a hausse forms due to a preceding birth wave! De Wolff does not believe this, and even states that marriages and births are a reaction to the conjuncture¹¹. He even makes the provocative hypothesis, that precisely during the economic prosperity the people become politically active, whereas then also many wars are started. That could contribute to the formation of the crisis.

But according to De Wolff, following the common opinion, the investments are the decisive cause of the economic conjuncture, as the driving force. The investments as a whole exhibit a certain regularity, because the machines wear out in approximately the same time. Now De Wolff wants to show, that once the investments had started with an economic wave movement. For this he uses the theory of the famour economist W.S. Jevons, who believes that the investments are encouraged by abundant harvests. The harvests depend on the meteorological conditions, and these are affected by the sun spots. And the sun spots would form with a regular time pattern. De Wolff embraces this theory, and supports her by analyzing the numbers, calculated by the astronomer R. Wolf (the so-called Relativzahlen), as a measure for the activity of the solar spots.

This also completes the explanation of the conjuncture: the solar spots give regularity to the harvests and the investments, and subsequently the depreciations of the production equipment maintain this regularity. However, the presented meteorological statistics of De Wolff leave so much room for doubt, that his explanation has hardly found any scientific approval. In short, the explanation, which De Wolff proposes for the conjuncture, is even more controversial than the conjuncture model itself. In itself this is not a disaster, because in principle completely accurate models do not exist. However, De Wolff has always believed that his argument is the absolute truth, and unfortunately this has hurt his scientific authority¹².

Next the second part of the book begins, which elaborates on the structural economic growth. This part is at least as interesting as the considerations about the conjuncture. Despite the fact that De Wolff is a staunch propagandist of the labour theory of value, here he applies the theory of marginal utility. This is partly due to the sociologist Rudolph Kuyper, who already in 1902 introduced the paradigm of marginal utility in Dutch marxism. De Wolff makes the intriguing choice to ignore the modern version of the paradigm of marginal utility, and to apply the original version, which has been developed by the German Herman Gossen. The version of Gossen uses the available time of people as the measure for the allocation of economic quantities, whereas the modern version performs calculations based on quantities of products. Thus for Gossen and De Wolff the time allocation is central, similar to Marx's approach.

It turns out that this indeed has advantages, and the approach of Gossen has recently even been revived in the work of Nobel price winner G.S. Becker. In this case the intuition of De Wolff leads to success¹³. The theory of marginal utility states, that consumption leads to pleasure (or lust, satisfaction, well-being, utility). Following Gossen, De Wolff assumes, that also the performance of labour leads to displeasure (discontent, dissatisfaction, disutility). When someone works, then he produces a useful product, but also experiences a growning feeling of displeasure. Thus one can calculate the equilibrium, where the utility and disutility exactly compensate each other. This point determines the size of the social product¹⁴. Gossen and De Wolff also describe the time allocation for the case, where someones can generate various useful products. Furthermore, De Wolff studies the time allocation for differing types of labour.

De Wolff also points out, that in capitalism there is not necessarily full employment. He distances himself from the theory of marginal productivity, which assumes an equilibrium on the labour market. Since De Wolff does not want to apply this neoclassical theory, he must invent his own theory for the labour market. And he indeed succeeds in developing a smart model, which allows tho calculate the unemployment and the gross domestic product. This model even shows how the labour market will change as a result of technological progress. This model is so powerful, that one wonders why the common textbooks do not refer to it¹⁵.

Now that De Wolff has calculated the size of the product, he starts his analysis of the economic structure. For this he uses the famous multi-sector model, which Karl Marx and Friedrich Engels present in the second volume of Das Kapital. This allows to calculate the proportions of the various branches. De Wolff creatively extends the multi-sector model to the situation, where between times the production technique can change. In other words, this model of De Wolff takes into account the rising organic composition of the production. Incidentally, it seems that De Wolff has published this model many years before, namely in his article Accumulatie en crisis from 1915 ¹⁶.

Next De Wolff states, that a rising stock of capital goods will necessarily lead to a rising labour productivity. It is too complex to include this in his model, and therefore De Wolff is forced to use a qualitative argument. A rising productivity corresponds to a rising exploitation, certainly when she occurs in the branch of end consumption (food). The Wolff argues: when the exploitation increases, then the entrepreneur keeps a larger share of his production. His surplus value increases. According to De Wolff the entrepreneur can not invest his extra-profit without at the same time distorting the proportions of production. Thus he proves by negative demonstration, that a continuous rise of the rate of surplus value is impossible. The consequence is, that the rate of surplus value can only increase by means of shocks. In this manner De Wolff also offers a theoretical explanation for the occurrence of crises.

In conclusion: suppose that there would be no regularity in the solar spots, which cause periodic investments. Even then the investments can not occur in a continuous manner, because this would permanently disrupt the proportions in the production process. Therefore the waves of investments are discomforting but necessary moments of innovation, which subsequently allow the economy to proceed in fixed structural proportions for some time. Nonetheless, the proof of this theory of step-wise development of the rate of surplus value looks a bit problematic. It raises more questions than it solves¹⁷.

It must be regretted that after the appearance of Het economische getij De Wolff has not published a follow-up study. However, it was no longer the time. For, shortly thereafter in Germany fascism seized power. Therefore the German social-democracy disappeared, which had been such an important source of inspiration for De Wolff. And the future vision of a socialist society lost its credibility. Moreover, fascism was a direct existential threat for De Wolff and his Jewish community. It motivated De Wolff to spend more time on social activities, such as Zionism.

Your reviewer believes that the overall balance of Het economisch getij is clearly positive. De Wolff has presented a rich collection of statistical data of the conjuncture. His models remain original and creative. They are not all convincing, but yet some of his ideas are ahead of his time. This is particularly the case, when De Wolff revives the time allocation according to Gossen. Worthy of praise is also the marxist multi-sector scheme, and his statement that the scheme is not reconcilable with a rising labour productivity. Your reviewer prefers to see Het economisch getij as more than merely a curiosity. The book has sufficient quality to qualify as a scientific work - despite its deficiencies. Economists who study the conjuncture can still find interesting and relevant material in this book.

1. See p.74 in Zoeken naar een 'heilstaat' (1984, Elsevier) by J.R.M. van den Brink. (back)
2. See p.8 in the reprint Het ekonomiese getij (1929, N.V. De Arbeiderspers) by J. Tinbergen. The article is originally published in De Socialistische Gids. (back)
3. See p.9 and p.24 in Strijdkracht door wetensmacht (1938, N.V. De Arbeiderspers), edited by J. van der Wijk. Sam de Wolff himself mentions on p.234 and further in his autobiography Voor het land van belofte (1978, SUN) several less flattering reviews. In particular he is irritated by the critical comments of two of his old congenials, namely Rudolph Kuyper and Jacob van Gelderen. Kuyper has written in a correspondence course: "What does it help us to have a collection of insufficient and sloppy facts and premature conclusions? It is obvious, that De Wolff tried to present new scientific ideas, and did not reserve the time and rest to publish a better conceived work". And: "We must not forget, that this book is the work of an author, who does not have the time to be completely devoted to science, but for his income is dependent on business activities, outside of a job as a theoretician. One must reflect many times, before making fun of the deficits of this book". This is indeed not nice. But on p.7 in Strijdkracht door wetensmacht also Jacob van der Wijk, the family-friend of De Wolff, writes: "De Wolff is not a Doctor. In fact, he does not even have a master's degree, he belongs to the category of failed students, which is so common among the first generations of socialist leaders - no one other than Karl Kautsky, our predecessor, belonged to it! The explanation of this phenomenon is quite simple: there was a lack of intellectuals (...) and therefore they were valuable for our movement, and this value was exploited to such a degree, that many failed in their professional study". Moreover, since the beginning of the twentieth century economics developed in such a fast pace, that autodidacts and laymen fell behind. According to Frank Kalshoven on p.199 in Over marxistische economie in Nederland (1993, Thesis Publishers), Van Gelderen has written a review of sixty pages in De Socialistische Gids. It would have ended the friendship with De Wolff.
   Incidentally, at the time the social-democratic world was so small, that everybody knew each other. This led to various personal aversions. It reminds of a joke. On the Day of Atonement, Moishe meets his former friend and now enemy in the synagoge. In a mood of reconciliation he approaches him and extends his hand. He says: "I wish you everything which you wish me". The other reacts: "You start again, do you?" (back)
4. On p.9 in the reprint Het ekonomiese getij Tinbergen states: "[The question of growth] is part of the structural problems, which do not belong to the actual analysis of the conjuncture. (...) The causes, which commonly lead to fluctuations, can be distinguished clearly from others, which merely explain the general level of the production. When it is statistically much easier to determine the changes in some variables than the variables themselves, the limitation to changes is naturally recommended". However, modern science favours the approach of De Wolff, and uses an integral model for growth and the conjuncture. Incidentally, on various moments the review by Tinbergen shows, that in 1929 his economic insights do not yet have the later depth. It is a youth work. That is a pity, because the book of De Wolff deserves better. Incidentally it must be noted, that your reviewer does not agree with the statement of Tinbergen, that Het economisch getij is a book for beginners. On the contrary, the book is at times not easily accessible. (back)
5. On p.230 in Voor het land van belofte De Wolff writes about Baars: "Apparently in this matter mathematics was not desired. Therefore the then very revolutionary engineer A. Baars, who moreover due to his mathematical and scientific education ought to be unbiased against such attempts, immediately decided to criticize me about this approach. He wrote: 'Marx states the facts, which De Wolff presents in the same manner in his article, explicitely with regard to the capitalist practice, so that they are logically explained. De Wolff wanted to construct a mathematical formula around it, and therefore had to distort the simple reality in an unrecognizable manner'." It is clear that De wolff is attacked by the right and by the extreme left. Incidentally, later Baars would himself make a rather deficient attempt to mathematically model the conjuncture. (back)
6. The study of Van Gelderen dates from 1913, and thus has been published (in De Nieuwe Tijd) before the related work of the famous Russian economist Kondratieff. De Wolff points out, that the marxist economist Parvus (the pseudonym of the Russian A.I. Helphand) had already earlier discovered a long Sturm und Drang period in the conjuncture. Apparently the honour of the discovery goes to those, who shout loudest. (back)
7. The modern study of business cycles also uses many indicators. Some of them are preceding (for instance anti-cyclical), and others are simultaneous or lagging behind. See p.18 in The business cycle (1991, Princeton University Press) by H.J. Sherman, a book that in many ways is similar to Het economisch getij. (back)
8. Jaap van Duijn turns this into a caricature by supposing on p.24 in Trends en cycli (2008, Balans), that the shrinking would continue in a linear manner. He concludes rather mockingly, that in the model the crisis will eventually become permanent, namely in 1994. De Wolff is still haunted by derision, half a century after his death. (back)
9. See p.232 in Voor het land van belofte. The concerned magazine is De Socialistische Gids. In 1924 is article is included in the festive volume Der lebendige Marxismus in honour of Karl Kautsky. (back)
10. The problem with such studies is, that fluctuations resemble anything, that is imaginable - more or less like each person will see something different in the shape of an inkspot or a cloud. Therefore Tinbergen rightly (this time) warns on p.9 of the reprint Het ekonomiese getij: "Incidentally, some facts can be presented, which make one ponder, namely (1) that the cycle in the United States has a much shorter duration (3 or 4 years), and (2) that also in Europe sometimes very short cycles have occurred, especially the German one of 1925-1926". Sherman assumes in The business cycle, that the period of the short-term fluctuations can vary significantly in duration. When one definitely wants to describe the conjuncture in mathematical formulas, then the quality must be demonstrated by calculating the statistical correlation coefficients. Then one disposes of an objective measure. (back)
11. A joke illustrates how this goes. Leip asks Siadian, the marriage broker: "I need a husband for my daughter Essie. He does not need to be rich, because she is it. Handsome is not necessary, because she is it. Intelligent is unnecessary, because that she is also. But he must definitely be decent!" (back)
12. Your reviewer wants to discuss Het economisch getij, and not Sam de Wolff himself. Nonetheless, this theory of solar spots is surprising. On p.15 in Strijdkracht door wetensmacht Van der Wijk tells: "These facts made him, although he had almost completed the final form of his book, decide to thoroughly study, what is known about the frequency of solar spots in the meteorological literature. (...) Due to the large divergence in the opinions of the meteorologists, it turned out that this study was quite difficult for a layman in this field, but the way in which he surmounted these difficulties (...) is to me one of the most brilliant examples of his creativity and perseverance". This does not give a scientific impression. Tinbergen accepts on p.5 of Het ekonomiese getij the explanation of the sun spots, and finds her unimportant. (back)
13. De Wolff does not state what his source is. So it is conceivable, that he did not study the work of Gossen, but of one of his successors. Anyway, your reviewer does not know the original book (Entwickelung der Gesetze des menschlichen Verkehrs und der daraus fließenden Regeln für menschliches Handeln, published in 1854) of Gossen, but onbtains his information from the publication Gossens Theorie der Zeitallokation im Lichte neuerer Theorien (2000, University of Munich) by Daniel Dohrn. At the moment of writing the article of Dohrn is available on the internet. According to Kalshoven on p.176 and further in Over marxistische economie in Nederland De Wolff has published an article about the allocation of time already in De Socialistische Gids of 1925, namely Beschouwingen over de waardeleer. Kalshoven sees on p.201 little use in measuring the utility in units of labour time. He argues: "Not only does the meaning of the concept of socially necessary labour time become totally unclear, when we want to apply it beyond the frame of a substantial theory, but it is moreover difficult to conceive how individuals must apply this (by definition super-individual, social) concept for - like De Wolff wants - making individual evaluations". This is a matter of taste. Marx uses in his theory the social use value, and this represents the utility of an average person. So the concept of utility is not alien to marxism. In previous columns your reviewer has not referred to the study of Kalshoven, because he acquired it only a year ago. (back)
14. This theme remembers of a funny joke. A rabbi refers in his sermon to the interdiction of working on Sabbath, or having open shops. The next day the rabbi meets a shopkeeper, who frequently infringes this interdiction. The shopkeeper gives him a large sum for the poor. The rabbi asks: "Did my sermon impress you so?" The shopkeeper answers: "Not really, but it did impress my competitors. These are now so afraid, that for the moment they will close their shops on Sabbath. That is worth something to me". (back)
15. On p.6 and p.10 in the reprint Het ekonomiese getij, Tinbergen is positive about the model. However, your reviewer observes a strange consequence. For, the model supposes, that a falling wage level will make the size of the willing professional population shrink. That suggest that the unemployment is voluntary, and actually may not be called unemployment. But De Wolff is also a marxist, who assumes that there is a permanent reserve army of unemployed. In such a situation of structural unemployment the labour market is not cleared. In other words, the unemployment is involuntary. In fact these two opinions are difficult to combine, because there would be sufficient forcedly unemployed to fill the vacancies of the voluntarily resigning worker. This can only be reconciled by means of weird constructions, for instance trade unions which keep the "scabs" from the created vacancies. Kalshoven also states on p.192 in Over marxistische economie in Nederland that in this model the workers voluntarily leave the labour market, so that there is no involuntary unemployment. (back)
16. See p.226 and further in Voor het land van belofte. The article has been published in the recalcitrant magazine De Nieuwe Tijd. Incidentally, note that in such schemes the possible existence of a general rate of profit is ignored. More modern solutions for the same problem can be found in Leninist books, for instance chapter 9 in Volkswirtschaftlicher Reproduktionsprozeß und dynamische Modelle (1973, Verlag Die Wirtschaft) by Eva Müller, or chapter 6 in Ökonomisch-mathematische Methoden und Modelle (1965, Verlag Die Wirtschaft) by V.S. Nemchinov. (back)
17. On p.8 in the reprint Het ekonomiese getij, Tinbergen calls the argument "not very clear". He stresses that De Wolff in his argument assumes that the general rate of profit is constant. And he objects: "The law of the equal average profit rate is a law, which, when it is indeed valid, only holds for states of equilibrium. So i.m.o. the only conclusion can be, that the continuous increase of the rate of surplus value can not occur as a sequence of equilibria. But yet it can occur. Non-equilibrium states can also occur in a completely continuous manner". Your reviewer adds, that in the multi-sector model of De Wolff there is no general rate of profit at all. So the model itself denies the free flow of capital between branches. A comment of Van der Wijk on p.23 of Strijdkracht door wetensmacht concerning the invention of this proof by negative demonstration of the step-wise development of the rate of surplus value is of interest: "In this respect the reader will certainly be interested to hear, that the attempts of De Wolff to explain the conjuncture originally aimed to find a direct proof. He even believed that he had found such a proof, with opportunities for performing calculations. But then he discovered a mathematical error, which made that proof invalid. A week after reporting this unpleasant discovery, he had a more pleasant message: then he had found the proof [by negative demonstration]".
    A joke can support the latter situation. Levi says: "Each friday God reveals himself to our rabbi". Borech asks: "How do you know that?" Levi: "He has told me so himself". Boruch: " And what when he is lying?" Levi: "Impossible. Do you think, that a man, who obtains revelations from God, would lie?" (back)