The "Kiel School" refers to the group of German reform economists attached to the Kiel Institute of World Economics during the interwar period. Founded by Bernhard Harms in 1914, the Kiel Institute was headed by Adolph Lowe from 1926 to 1931. Its research associates included Hans Neisser, Jacob Marschak, Gerhard Colm and Wassily Leontief. The Kiel School was dismantled after Hitler's rise to power and its members dispersed. Many of its leading members reassembled at the New School for Social Research in New York, where, recast as the "Institute of World Affairs", they tried to carry on their pre-war research program.
The research program of the Kiel School can be summarized succinctly as "structural" theories of growth and the business cycle. Succinctly, the "structural" approach argues that the source of growth and cycles is the relationship between various sectors in the real economy. They reached into a long Central European tradition of multi-sectoral models from Marx, Tugan-Baranovsky, Spiethoff, Aftalion and Fel'dman.
In the Kiel School approach, technical progress continuously modifies the real rate of return on capital, thereby causing for sectoral maladjustments, permanent excess capacity and technological unemployment during the process of growth. The structural theories of "disproportional growth" were taken up by other German economists, notably Emil Lederer, joined the emigres of the Kiel Institute at the New School for Social Research. The "horizontally disaggregated", i.e. multi-sectoral input-output approach of the Kiel School was imported into American economics by Wassily Leontief (1941), who was himself a researcher at Kiel in the 1920s. Ragnar Nurkse's work (1934) is also associated with the Kiel approach.
The Kiel School's structural growth theory implied policy measures which were different from the conventional ones: "aggregate" measures to reduce unemployment, such as lowering wages or stimulating demand, ignored inter-sectoral difficulties, the root cause of the problem, and thus needed to be more precisely directed. As Lederer noted:
"The primitive conception that, whenever unemployment exists one could always restore equilibrium by a reduction in wages belongs into the junk-room of theory" (E. Lederer, 1931: p.32)
They argued that the only policy-effective measures would be those that were targeted to clear up sectoral problems and achieve balanced growth. This emphasis on analyzing carefully the economic impact of policy measures and long-term growth targeting was emphasized in the fiscal policy work of Gerhard Colm, perhaps the Kiel School's most successful member.
All this, of course, required a good degree of "micro" management by the government which implies a good amount of transfer of power to the State -- a prospect which the Kiel School, who suffered at the hands of the Nazis, did not relish. As such, many members of the Kiel School, notably Adolph Lowe, ventured beyond the confines of economics to other social sciences and humanities, to inform their policy analysis. Their ultimate vision was an "industrial democracy" where policy would still be "micro"-oriented, but under democratic control and responding to a well-defined set of welfare criteria.
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