German Economy

Figure 1.--

Germany is the heart of Europe in both a geographic and economic sence. Germany as part of the European Union is today the driving force in the European economy.

Economic Sectors


Agriculture is important to the German economy and until the late-19th century was the most importaht sector of the economy. This began to change in the mid-19th century as Germany negan to industrialize. While the importance of agriculture began to decline, agricultural policy began to become a contentious nature. Mixd in with the purely conomic issue was the Eastern Question. German nobels, the famous Junkers, owned large estates in the East which were often worked by ethnuc Poles. Areas of eastern Germany wre acquired in the Polish Paritions (18th century). Germans did jnot want to work on the landed estayes nd sought jobs in the industrial economy. And along with this process, more ethnic Poles were buying land. This in partiular concerned Chancellot Bismarck. This concern with the land and ethnicity was an issue well before the NAZIs seized power. Another development is that unlike industry, German agriculture did not modernize or mechanize. This was a matter of some concern because by the end of the century, Germany was no longer self sufficent in food production. Germany had to import increasing quntities of food to feed its expnding industrial work force. This prioved to be a serious wekness with the outbreak of World War I. fter the German offensive filed on the Marne (September 1914),the Royal Navy blockade gradually impaired the German wr effort by cutting off food and raw materials. The German Government failed to maintain agricultural production as it drafted farm workers. After the War farm policies became highly controversial and famers organized to seek Government upport. Under Weimar, support mesures were passed which hile aiding farmers actully alloed farmers to forefo decessionsthar woud have led to a more oriductive farm economy. The NAZIs continued this approach ad achieved considerble suppot in rural areas. An estimated 80 percent of Germany's land is still used for agriculture and forestry. Since the end of World War II. German agiculture has undergone profound structural changes. This has primarily meant a rationialzation of the sector by the closure of small farms and the estblishment of larger farms where modern methods and mechanizayion can be employed. The number of farms in West German have declined sharply since the War. Farmers have acquired motor vehickes and mechnized equipment. In he immediate post-War era, a farmer produced food for bout 10 people. Today modern German farm workers produced food for over 100 people. While it is still less than major farm countries like America and Canada, but a huge increase over pre-War Germany. While German farms are now larger, they are still largely family operated. The situation in the east is somewhat different in that for more than four decades it was controlled by Communist authorities. This ended with the fall of Communism (1989), but adjusting to free markets has taken some time. At about the same time, the developing Europen Union (EU) began to assume greater influence in the agriculy\ture policies of member states and the creation of a Common Agricultural Policy. The EU assumed responsibility in a wide range of areas, especially market and price policy, foreign trade policy, and structural policy. EU agricultural reforms cut market price supports, replacing artificial prices with government subsidies, and put stricter controls on output volume (1992).


Germany at the time of World War I had largest and most efficent industrial economy in Europe. The Industrial Revolution began in Britain (mid-18th century). Germany did not begin to industrialize until well after the Napleonic Wars (1799-18-15). The German states in the 18th century inclusing Prussia was aargely agricultural country with a very small industrial base compared to Britain and France. We begin to see substanyial industrial activity (1850s). Even before unification, the Germans began forming customs unions to create a large donestic market. The process once begun, however, moved very quickly. The German economy underwent an astonisly rapid economic transformation from agriculture to industry. This process prived different than the much slower industrialization of Britain. British industrialization was virtually entirely the result of private invetors pursuing their own personal intersts without Government direction. This was not the case in Germany. The Prussian state and subsequently the Imperial Government provide state financing to direct industrial development in ways that would support the German Army. The German railways system developed with military needs in mind. Germany was thus a recently developed European superpower. Industrial development and German unification (1871) made Germany the single most poweful European country. A major factor in Germany;s industrial deelopment was the country's emphasis on steel promoted by the Imperial Government. Resources from Alsace- Lorraine, especially iron ore, gained in the Frnco-Prussian ar (1870-71) expanded Germany's steel manufcturing capacity. Germany was the largest European steel producer (late-19th century) and this supported the development of many other indudries. Industrialkization brought increasing rivalry with Britain (1890s onwards). German and British manufactures were competing for markets around the world. German merchant ships also competed with Britain's carrying trade. While cometing with each other, they were all each other's best customer. [Papayoanou, p. 42.]

Labor Policy

Academic and Research Complex

Economic History

The Germany economy since the fall of Rome has been important, but not dominant in the European economy. Germany was prevented from dominating Europe when during the medieval Europe unlike surronding ststes, a unified German state did not coalese because of differences between the imperial government and the papacy which empowered the German princes to establish their own nation states. This politicial division had economic consequences. After the Napoleonic Wars as Germany moved toward unification, the industrial revolution which fundamentally transforned Britain began to take hold in Germany. This led to a period of rapid growth, especially in western Germany centered on the Ruhr Valley. Rapid economic growth and associated social transformatiion brought with it some destabilizing consequences. Germany transsformed it self from a conservative agrarian society to a modern industrial society. This change occurred on a regiojnal basis. Much of Germany, particularly eastern Germany remained agrarian and traditional. The industrial revolution proceeeded differently in Germany than Western Europe, especially Britain and America. There was a much greater level of government control and regulation. The economic outlook which developed in Germany as a result of the greater government role has shaped modern German policies and played a role in German support for international economic integration. Even before political unification, the German states began moving toward economic union through the Zollverein and customs unions. The Zollverein was in fact the first critical step toward German unification. It was crucial stimulant for economic development as Germany wasindustrializing. It helped created need markets for expanding industrial firms. German was unified by Prussia and the Hohenzollerns. This meant that the ruling elite included Germans with many traditioinal values, including Prussian militarism. And the industrial power of Germany gave the conservative German elites with values different than the emerging democratic states to the west enormous power. At the same time, the German working class was being radicalized with Marxist doctrine. This created substantial social disparities between modern cities and conservative small towns and rural areas. Unification and the establishment of Imperial Germany (the Second Reich) to standardize trade regulations on a national basis, although the Germn states still retained considerable authority. A national currency system, the Deutches Mark based on the gold standard, was a another key step. One economist writes, The German states “cleared a path to an international currency unification on the gold basis, which for the whole period up to the World War proved of the greatest importance for the rapid expansion of world trade.” The German imperial monarchy influebced by the Prussiam military tradition chose to convert a Balkan crisis into a world war (1914). The War demolished the evolving European economic system. German economic instability after the war (1920s), partially due to the punative Versailles Treaty and the Depression (1930s) led to another German military attempt to dominate Europe, this time with horrendous racial goals. In the aftermath, tghe future of Germany and Europe itself was at issue. The choice was between the Soviet totalitarian, Marrxist model and the American democratic capitalist model. The issue was decided by the free market policies adopted by German politicans and American occupation authorities. The result was the German Economic Miracle (1950s) and the move toward European unification (1960s) which had led to the European Union.


Hanby, Alonzo. For the Survival of Democracy.

Papayoanou, Paul A. "Interdependence, Institutions, and the Balance of Power: Britain, Germany, and World War I," International Security Vol. 20, No. 4 (Spring 1996), pp. 42-76.


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Created: 8:38 AM 12/16/2012
Last updated: 8:38 AM 12/16/2012