2003 EDITION Monographs of official statistics Papers and proceedings of the colloquium on the history of business-cycle analysis THEME 1 General EUROPEAN statistics COMMISSION 1 Europe Direct is a service to help you find answers to your questions about the European Union New freephone number: 00 800 6 7 8 9 10 11 A great deal of additional information on the European Union is available on the Internet. It can be accessed through the Europa server (http://europa.eu.int). Luxembourg: Office for Official Publications of the European Communities, 2003 ISBN 92-894-5668-X ISSN 1725-5406 © European Communities, 2003 Monographs of official statistics Papers and proceedings of the colloquium on the history of business-cycle analysis Edited by: Dominique Ladiray Acknowledgements This publication has been realised thanks to the support of 2SDA company. It contains the proceedings of the second colloquium on modern tools for business-cycle analysis. The subject of the colloquium was the history of business-cycle analysis. Project management and coordination were ensured by Gian Luigi Mazzi and Klaus Reeh. Eurostat would like to thank all the actors involved in the writing and preparation of this publication: The authors of the different papers of the publication · Michel Armatte (Université Paris IX - Dauphine) · Marcel Boumans (NIAS and University of Amsterdam) · Alain Carry (CNRS) · Alain Desrosières (INSEE) · Jacky Fayolle (OFCE) · Einar Lie (University of Oslo) · Mary S. Morgan (London School of Economics and University of Amsterdam) · J. Adam Tooze (University of Cambridge and Jesus College) The Eurostat support and organisation team · Nelly Da Silva · Jane Schofield 2SDA team · Sylvie Da Silva (rereading of the text) · Madeleine Larue (desktop publishing) · Gabriella Manganelli (general coordination) The views expressed in the publication are those of the authors and do not necessarily reflect the opinion of the European Commission. Introduction Why a Eurostat colloquium about the history of business-cycle analysis? Business cycles are always attracting a lot of public attention. The oldest example that I know of comes from the Bible (Genesis 41,29). Joseph had to interpret the Pharaoh's dream and came up with a simple business- cycle model: the total length of the cycle is 14 years, 7 abundant years followed by 7 lean years. In his capa- city as political adviser Josef suggested to the Pharaoh not only a theory (at that time yet to be tested empi- rically), but also a business-cycle policy to cope with the ups and downs. His 'Josephian stabilisation policy' is in stark contrast to what has become 'Keynesian stabilisation policy'. Josef suggested public savings while Keynes proposed public dissavings. These days, no doubt, our business-cycle models and our stabilisation policies are a little bit more sophisti- cated. This has also a lot to do with replacing dreams by statistics, of course not so much by agricultural sta- tistics, but by a set of macroeconomic statistics. We at Eurostat are fully aware that official (and non-official) statistics play an important role in dealing with the business-cycle phenomenon. The business cycle has always been (remember the biblical example) and will continue to be a theoretical construction. The cycle takes shape only through concepts and information, these days less dreams and more statistics. We, the statisticians, are called upon by business-cycle theorists and empiricists to provide the necessary information. Our statistics allow theorists and empiricists to discuss the business-cycle phenomenon in many ways: on the basis of reference cycles and diffusion indices derived as synthetic indicators from a large num- ber of leading, concurrent, or lagging series chosen for their supposed relevance for the business cycle; on the basis of a macroeconomic aggregate such as gross domestic product or industrial production as deviation from a trend; as a degree of capacity utilisation in relation to full capacity compiled either by a full employment rate combined with labour productivity measure or by capital stock combined with capital productivity mea- sure or any combination thereof; or last, but not least: as the result of a univariate or mulitvariate time-series analysis. Both theorist and empiricist exert considerable influence on policy-makers. They do it directly. Most budgeta- ry forecasts are based on a cyclical analysis. They do it also indirectly. Financial markets are very responsi- ve to business-cycle analysis and policy-makers cannot ignore financial markets these days. The quality of the work of theorist and empiricist is influenced by the quality of their statistical information. Statistics matter and statisticians should be aware of their role. We here at Eurostat are definitely very much aware of the importance of our role, but we are at the same time also newcomers to the business of compiling regularly according to a strict schedule high-quality statistics for business-cycle analysis. This has to do very much with the profound political and economic changes in the EU. Economic and monetary union is now in full swing, 12 Member States have adopted the euro with notes and coins now introduced. This is why the euro-area business cycle is about to become a phenomenon that is attracting ever more the attention of theorists and empiricists. Euro-zone business-cycle analysis is on, but 5 euro-zone business-cycle statistics have yet to be as good as the national statistics used by business-cycle analysts when looking at the phenomenon from a national angle. For us, the statisticians, it is very important to have an understanding of the work and of the thinking of the business-cycle analysis community, of theorists and empiricists alike. Only a good understanding of their needs will allow us to suggest relevant statistics and prepare them adequately. Such an understanding should, of course, not be confined to current practices. A look at the history of business-cycle analysis is of particular importance as this field is under permanent change. Modern business-cycle analysis started with synthetic indicators, then came the more economic ones getting ever more sophisticated, now synthetic indi- cators have become once again more fashionable, albeit with a different content. We have equally seen the rise of time series analysis with each failure having led to a further methodological improvement. Everything seems to go these days, therefore we have to offer something for everybody. Business-cycle analysts will have to come to grips with the euro-zone cycle and we the EU statisticians have to help them. Some quite difficult questions are awaiting a satisfactory answer in this context. Is the euro-zone cycle best perceived as a condensation of national cycles? Or are national cycles mere variants of a euro- zone cycle? What about lead-lag structures among economies? Consequently there are quite good reasons to look at the history of business-cycle analysis when we are trying to meet the EMU challenge. I am very happy that we were able to bring together a group of historians of renown and hope that EU statisticians, in Eurostat as well as in national statistical institutes, will be able to profit from this colloquium. Klaus Reeh 6 TABLE OF CONTENTS Acknowledgments 3 Introduction 5 Jacky Fayolle 9 The study of cycles and business analysis in the history of economic thought Michel Armatte 45 Cycles and barometers: historical insights into the relationship between an object and its measurement Alain Carry 75 Kondratieff on how to convince people that long-term economics exists Marcel Boumans 109 Tibergen's busines cycle analysis Einar Lie, Olav Bjerkholt 127 Business-cycle analysis in Norway until the 1950s Alain Desrosières 149 The short-term economic analyst, the national accountant, the econometrician and the planner: controversies about forecasting in France and the Netherlands (1930-80) Mary S. Morgan 175 Business cycle: representation and measurement J. Adam Tooze 191 Macroeconomics denied: german business-cycle research 1925-45 7 EUROSTAT COLLOQUIUM HISTORY OF BUSINESS CYCLE ANALYSIS Luxembourg, 12 November 2001 THE STUDY OF CYCLES AND BUSINESS ANALYSIS IN THE HISTORY OF ECONOMIC THOUGHT Jacky Fayolle Deputy director at OFCE Studies Department Observatoire Francais de la Conjoncture Economique E-mail: [email protected] 9 TABLE OF CONTENTS 1. Period I: positivist cohabitation 12 2. Period II: the agnostic breakaway 21 2.1 The inauguration and consolidation of an empirical traditions 21 2.2 Theoretical activism 25 2.2.1 Frisch: analysis 26 2.2.2 Haberler: synthesis 26 2.2.3 Schumpeter: the breath of history 27 3. Period III: professionalisation under the Keynesian influence 29 3.1 the master’s institutions... 29 3.2 ... and the doubts of his heirs 31 4. Period IV: the cycle between determinism and uncertainty 37 4.1 Disparate conceptions of the cycle 38 4.2 The difficulty of methodological tranparency 39 5. Outline of a contemporary view of the cycle problem 41 6. Bibliographical references 43 10 "In France, sad to say but unfortunately all too well confirmed by our numerous revolutions, our attitude to government is hardly chivalrous. We rely on and applaud it so long as it serves our purposes, or perhaps more accurately, so long as it allows us to serve them ourselves, but as soon as things become difficult and troublesome, most often through our own fault, we cease trusting it. After having taken a wrong turning we call upon government for advice, or – twisting and turning on our bed of pain – demand reforms that are some- times absurd, which are always regarded as cure-alls and are only a pretext for showing our discontent. The ill-advised and dangerous habit of attributing every good to government during years of prosperity results, by an effect of contrast, in its being accused and blamed for everything that goes wrong at times of crisis.