Hans Bayer: Review of Diagnose und Prognose als wirtschaftswissenschaftliche Methodenprobleme (1964)

Hans Bayer’s 1964 journal book review examines the proceedings edited by Herbert Giersch and Knut Borchardt, published in 1962 as volume 25 of the Schriften des Vereins für Socialpolitik. Bayer presents economic diagnosis and forecasting as essential resources for policy while emphasizing the methodological difficulties of their application. His assessment proceeds through selected contributions, connecting questions about forecasting techniques to questions about policy objectives, intervention, and judgment.

The review begins with the distinctive character of the meeting whose proceedings the volume records:

Die Arbeitstagung des Vereins für Socialpolitik zur Erörterung der Aufgaben und Methoden der Wirtschaftswissenschaft unserer Zeit war die erste in ihrer Art.

English translation: The working conference of the Verein für Socialpolitik to discuss the tasks and methods of economics in our time was the first of its kind.

Drawing on Fritz Neumark’s preface, Bayer describes a round-table arrangement supported by previously circulated papers and discussion statements. Its purpose was to enable a deeper scientific exchange. The organization matters to his assessment because methodological problems are approached through discussion among economists, rather than merely through the presentation of separate results. The proceedings make both existing knowledge and unresolved disagreements available for further examination.

Bayer then follows Giersch’s introduction in explaining the practical origins of the theme. Economic policy asks economists to analyze existing conditions and processes, but diagnosis alone cannot tell policymakers what their decisions will accomplish. The need for prognosis arises from the distinction between developments that would occur without intervention and developments that particular measures might produce:

Darüber hinaus hat der Wirtschaftspolitiker ein dringendes Bedürfnis zu erfahren, wie sich die Situation voraussichtlich weiter entwickeln wird, wenn keine Eingriffe erfolgen, und welche Wirkungen welche Maßnahmen wahrscheinlich haben werden.

English translation: Beyond this, the economic policymaker has an urgent need to know how the situation is likely to develop further if no interventions occur, and which measures will probably have which effects.

Forecasting consequently serves two related purposes: anticipating the course of events and assessing possible interventions. Neither purpose eliminates uncertainty. Instead, prognosis supplies the conditional knowledge needed to compare alternatives. This practical orientation gives coherence to the volume’s methodological range.

Das Gesamtthema ist in drei Fragenkreise aufgegliedert: Methodologie und Praxis der Konjunkturforschung; Methodenprobleme bei der Vorausschätzung langfristiger Entwicklungen; Wirtschaftsprognose und Wirtschaftspolitik.

English translation: The overall topic is divided into three sets of questions: methodology and practice of business-cycle research; methodological problems in forecasting long-term developments; economic forecasting and economic policy.

Within this framework, Bayer gives particular attention to growth and structural change. He accepts the premise that cyclical fluctuations have become less important in the modern economy and welcomes the extension of the discussion to growth processes. His treatment of sectoral forecasting shows why an aggregate projection may be insufficient: expectations about the economy as a whole must also be related to differentiated developments within individual industries.

W. Bauer’s contribution supplies a central example. Bayer distinguishes three approaches: isolated sectoral models that take aggregate variables as externally supplied inputs; isolated models using only sector-specific variables; and sectoral projections incorporated into a complete macroeconomic system. These approaches differ in how they connect an industry’s prospective development with the wider economy. Bayer stresses that projecting individual industries presents difficulties beyond those involved in forecasting aggregate quantities.

The importance assigned to such projections depends on the objectives and instruments of government policy. Bayer nevertheless endorses Bauer’s argument that sectoral analysis need not presuppose dirigiste growth policy. Even policymakers who reject that approach can benefit from understanding how a desired rate of aggregate growth would alter economic structure, or how different growth assumptions would change the projected outcome. The analytical value of forecasting is therefore distinguishable from any particular commitment to intervention.

Jan Tinbergen’s contribution moves the discussion toward the timing of policy. Policymakers must specify objectives and instruments, but they cannot act effectively simply by recognizing that present conditions depart from their goals. Knowledge of economic conditions arrives with a delay, while measures require time to implement and to take effect. Forecasting becomes necessary because action must address the situation likely to exist when its effects occur, not merely the situation already observed.

Bayer also highlights the possibility that forecasts influence the events they predict. A credible prediction of crisis may contribute to its emergence, whereas reassurance during a depression may limit its severity. Prognosis is thus potentially part of the economic process itself. The perceived objectivity of the forecaster matters not only to the assessment of a prediction but also to its practical effects.

Gerhard Colm’s contribution provides a complementary warning against treating forecasts as automatic policy instructions. Bayer presents growth and stability as central policy tasks and approves the use of hypothetical forecasts, while emphasizing the risks of oversimplified application. Colm’s map analogy expresses the distinction: a forecast can help a decision-maker assess attainable goals, possible routes, and suitable instruments without determining the choice among them.

The distinction between recession-related and chronic unemployment illustrates this dependence on diagnosis. Tax reduction may be central to a response to declining production and rising unemployment, yet secondary when unemployment is chronic. An instrument’s significance cannot be read directly from a general forecast; it depends on the character of the problem and the objectives pursued.

Bayer’s positive conclusion therefore joins practical confidence with methodological openness. He values both the forecasting possibilities already available and the prospects for improving them. His account of Salin’s closing observation treats continued disagreement as a reason for further reflection. Forecasting can clarify structural consequences and support timely action without settling political choices or bringing scientific debate to an end.