Germany's Strong Economic Growth After 1871

Germany's Strong Economic Growth After 1871

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Germany's Strong Economic Growth After 1871

In January of 1871 Wilhelm of Prussia was proclaimed Emperor of
Germany. The many German states had been unified with Prussiaat their
head, the second Reich began. This unification of Germany and the
'iron chancellor' Otto Von Bismarck then lead Germany through a period
of huge economic growth. In the space of 50 years Germany grew from a
feudal simplicity to the great power which terrorised Europe
throughout the First World War.

We must first enquire into the reasons behind the unification of
Germany. A gradual process of economic interdependence from the early
stages of the Industrial Revolution saw the Germanic states move
towards economic unification, before they engaged in political
unification. This economic growth became increasingly reliant upon the
strong bonds throughout the Germanic states. This illustrated an
emerging identity of a strong Germany separate form Austria.

Schleswig and Holstein are two German duchies (remains of old German
tribes) that were under Danish rule. In the 1840's the Danes attempted
to claim Schleswig and Holstein as being part of Denmark, rather than
them remaining as semi-independent Germanic tribes. This resulted in
uproar from German nationalists and demands for the two duchies to be
fully incorporated into the German Confederation. The confederation
consisted of thirty-eight sovereign states and four free cities and
included the five large kingdoms of Austria, Prussia, Saxony, Bavaria,
and Württemberg. In 1848, this had led to a brief war for control of
the two duchies. Christian IX of Denmark formally incorporated
Schleswig and Holstein into the Danish state; breaking the terms of
the Treaty of London, the result of the previous war. Once more this
led to an outcry amongst German nationalists and the German
Confederation mobilized an army and invaded the duchies. Following the
victory it was agreed that Austria would manage the duchy of Holstein
and that Prussia would be in charge of the day to day running of

In 1866 further arguments about the administration of
Schleswig-Holstein led to war breaking out between Austria and

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Prussia, the Austro-Prussian war. This war lasted 7 weeks and resulted
in Prussian victory over the Austrians. In beating the Austrians the
Prussians assumed the role of senior Germanic state. This led to a
clearer division between Austrian and German interests and forced the
smaller states to align themselves alongside the Prussians.

Finally the Franco-Prussian war. This resulted in the removal from
power of the French Emperor, Napoleon III and led to a wave of
Germanic Nationalism that swept through the whole of the German
Confederation. Following victory over France in January of 1871,
Prussia was able to persuade its allies within the German
confederation that unification was desirable.

With Germany unified and a new emperor Germany exploded economically.
Previous to 1871 there had been signs that Germany would industrially
take off. In 1834 the Zollverein was created. The Zollverein was a
free trade organization between the Germany states. The 300 earlier
states and the old Holy-Empire were not incorporated into any German
plans. The guild system was also on the verge of collapse, previously
only guild members could manufacture related goods. Now with a greater
demand for goods the German population threw aside this small time
manufacturing process for a greater amount of produce. On the
political side Prussia wished for unification to 'Prussianise'
Germany, quelling the rise of revolution from the working classes.
They also wanted to unify the liberals for Germany to grow richer.

Germany's economic growth stemmed from a number of causes. One of the
main physical reasons behind economic growth was the sophistication of
infrastructure. Between 1845 and 1870 5000 more miles of rail had been
built and in 1850 Germany was building her own locomotives. This
increase of rail transport created a huge demand for coal, iron and
buildings, therefore industry began on a plant style level. All of
this increased the amount of labour needed. The labour need was
fuelled by a population growth. From 35 million people in 1840 Germany
grew to 49 million people in 1875 creating a young dynamic workforce,
full of innovated ideas for the new industry. Not only was the
workforce gained from a population increase, urbanisation also added
to the need. People working in factories grew from 4% to 10%. This new
industry was taken over by early capitalists such as Essen, Krupp,
Stumun and Barsia. Krupp was a German arms dealer who fed the German
army all the way up to the end of World War II.

Economically Germany advanced in its complexity. Free trade between
states meant that export and import increased and innovations were
taken up easily. Agriculture too expanded, along with industry, but
because of a parallel population growth with America, Germany was
forced to import grain.
Iron became the major thrust of industrial growth after the
acquisition of Lorraine in 1871. By 1900 Germany had surpassed Britain
in the manufacture of steel. It was used primarily to build railroads,
a merchant fleet, machinery for domestic use and export and, of
course, armaments. The pride of this first German economic miracle was
the electrical and chemical industry.

Banks, particularly investment banks gave a great stimulus to
industrialization. It was a combination of commercial enterprise,
investment, and investment trusts backed by large central banks. These
giant central banks had unprecedented voting power and influence over
their customers. They participated directly in the management of
industries, since their own officers sat on the boards of directors of
their larger client firms.
These banks also played a key role in the remarkable increase of
German trade, particularly with respect to exports. Germany rose from
4th place in exports in 1880 to second place by the turn of the
century. The ratio of finished product to total export jumped from 38%
in 1873 to 63% in 1913.
Bismarck had been opposed to colonies. But a change in trade policy
brought renewed interest in colonies. Germany thus acquired colonies
in Africa, Kiaochow in China, the Carolines and half of Samoa in 1900.
By then Germany controlled l,000,000 square miles and 13,000,000
people abroad.
The second industrial revolution was promoted by a number of important
factors. Most important of these was probably the
scientific-technological developments at the end of the century.
Another factor which propelled German industry forward was the
unification of the monetary system, made possible in part by political
unification. The Deutsche Mark was introduced in 1871, a new monetary
coinage system backed by gold. However, this system did not fully come
into use as silver coins retained their value until 1907. This along
with the influx of 4.2 billion war reparation from the French
increased economic government spenditure. However, this was also the
reason for the depression.
Cartels formed in 1870's and 1880's, these were defensive measures
against the economic crisis of 1873 and later. They were designed to
hold off the flooding of the domestic market with goods through a
reduction in production. Most of them disappeared when the depression
was over. These cartels allowed for economic increase as companies
pooled ideas and created monopolies therefore permitting them to
dictate prices, this was only in the domestic market as government had
a large say in a number of industries (state ownership). Cartels also
saw an increase in investment as companies borrowed from each other.
Pricing strategies therefore followed, destroyer pricing took out any
competition while a limit on production increased demand in turn to
increase unit price.

A universal education meant more skilled labour, more complex industry
and more advanced technologies. By 1914, 60,000 people attended

State ownership meant that profit was no longer industries aim, it
also meant that the reinvestment could be society based, boosting the
infrastructure. Another economic factor was the increased markets,
domestic and over seas. This meant alliances with trade such as
British Rolls Royce engines, and creating another job need for the
building of docks, ports and ships. By 1910 Germany produced double
Britain's steel output, and had half the size of their merchant navy.
They led the fields of chemical dyes, fertilizer, industrial acids,
motor cars and diesel on a global scale.
So we have seen the reasons behind German economic growth, what it
entailed and the causes for it. The most important of these factors
included the unification of the Germanic states, the role of Britain
as a leader allowing Germany to learn from its mistakes, the increase
of nationalism from the Franco-Prussian war, the new territories
gained with large raw material deposits such as the Ruhr region, the
upper Rhine Valley, the Neckar Valley, and Saxon. It was this Germany
that reared its head at the turn of the century to begin World War I.
The most surprising and influential economic growth that perhaps
history has ever seen.

* By 1914 the main result was increasing social and political
division. Explain why you agree or disagree with this opinion.

Did this economic growth increase social and political divisions? Even
after the huge economic growth one thing stayed the same. Germany was
still ruled by the Junkers, and aristocrats, however a new class
called industrialists has arisen.

Following the unification of Germany in 1871 the political structure
of the Second Reich was made up of 25 German states. Each of these
retained its own Prince, as each had previously been a Princedom.
These states were represented on a National Level by the Reichsrat,
legislative Parliament. The Head of State was the Kaiser. This role
was a hereditary one based upon the old Kingdom of Prussia. The Kaiser
had the right to summon the Reichstag and dismiss it as and when he
felt appropriate. He also had the power to appoint and dismiss the
Chancellor and all government ministers. It was these Ministers who
would propose legislation to the two houses of Parliament.

The Reichstag was the main legislative body. This institution was
democratically elected every 3 years, with all men over the age of 25
having the vote. This body debated issues and voted on proposed
legislation. The Reichsrat had the power to veto legislation passed by
the Reichstag.

German politics had been dominated by the middle classes and the
aristocracy in the Second Reich. Although men aged above 25 could vote
any real political power was with the nobility.

However, economic prosperity and growth led to increased urbanisation
within Germany, 60% of the populace lived in towns and cities by 1910.
This urbanisation coupled with the greater intelligence of the
workforce (universal education in 1871) led to a stronger socialist
movement during the late stages of the 19th century.

Socialism is the theory whereby social organization, production and
distribution are owned by the government to be distributed to all.

This rise in socialism was at first controlled by Bismarck. Bismarck
stemmed the rise of socialism by drawing the people away from it, and
drawing them to nationalism.

Socialism offered the people what they thought was a better, higher
standard of life. Bismarck's legislation gave them a taster of
socialism, just enough to turn their heads from real socialism. His
legislation entitled the people of Germany to medical insurance in
1883, industrial insurance in 1884 and pensions in 1889; however all
his benefits had small print. For example the pension scheme only came
into being when the worker was 70 years old, a ripe age for an
industrial worker to reach. As Bismarck says: 'Anybody who has before
him the prospect of a pension, be it ever so small, in old age or
infirmity is much happier and more content with his lot, much more
tractable and easy to manage, than he whose future is absolutely
uncertain.' It was in this way that Bismarck masked the minds of the
people in his farcical puppet show. 'Those who like legislation, like
those who like a sausage, should never see how it is made.' Another
quote Bismarck put forward underlining his policy to the upstart

Bismarck also adopted a more severe approach to the new socialist
party. Part of the May laws saw trade unions banned, a great unifier
of the workers and a help to the spread of socialism. He banned
meetings between socialists and 45 socialist newspapers. However,
throughout all this, like martyrs, it only made the socialists cling
more ardently to their beliefs as socialism continued to grow.

In 1875 the SPD (social democratic party) formed from two major
parties had grown significantly to become the largest party in the

Year Seats held in the Reichstag

1877 12

1884 24

1890 35

1898 56

1912 110

At the beginning of economic growth those in power had little to fear
from socialism. Much of Germany could be considered to have a military
tradition at this time. The Military was of great importance to the
Second Reich throughout its inception and was much loved by many of
those with political power, particularly the Prussian aristocracy.
Generally speaking, the Second Reich was therefore a conservative
society, as illustrated by these electoral results:









German conservatives








Free conservatives








National liberal
















Left liberals








Social democrats
















Right wing splinter parties
















Bismarck also drew the nation away from socialism towards nationalism
in his foreign policies.

Bismarck continued to serve as the chancellor of Germany for two
decades after unification. Having accomplished unification, he
directed policy towards the goal of maintaining what had been
achieved. Germany had no further expansionist designs in Europe.
However, the crash of 1873 and the subsequent depression began the
gradual dissolution of Bismarck's alliance with the National Liberals
that had begun after his triumphs of 1866. In the late 1870s, Bismarck
began negotiations with the economically protectionist Conservative

Bismarck's alliance with the Prussian landowning class and powerful
industrialists and the parties representing their interests had
profound social effects. From that point on, conservative groups had
the upper hand in German society, this caused the socialist and
liberals to both oppose Bismarck.

Bismarck regarded the new German Empire as satiated, no desire to
expand further and was therefore no threat to its neighbors.

Believing that France would remain Germany's enemy Bismarck arranged
an alliance with Austria-Hungary in 1879 and one with Italy in 1882.
His triumph, however, was an alliance he formed by means of the
Reinsurance Treaty with Russia in 1887. However, even with these new
alliances Germany's attempt at the overseas colonies awoke Britain to
its fear of Germany's long term much these agreements contributed to
German security, Bismarck's plunge into the European scramble for
overseas colonies ultimately weakened it by awakening British fears
about Germany's long-term global aims.

In 1890 Bismarck was dismissed by young Kaiser Wilhelm over a dispute
about antisocialist legislation. The next chancellor was Leo von

So we can see that after the huge economic boom of 1871 and the
unification of Germany, division resulted. However this division, was
only political internationally, and social domestically on a large
scale. Obviously Germany did little to change social structure
throughout Europe but within Germany the economic struggle had changed
things. The void between the ruling Junkers and the working classes
had been crossed by the new age industrialists, however on a smaller
scale socialism had risen within Germany. This did not undermine the
strong military tradition, under Wilhelm, that would see Germany
through World War I. Politically division had been caused. The
economic development gave Germany a need for 'a place in the sun',
this inclined Britain towards Germany's long term global projects,
leading to the armaments race and World War I.

One of the main results of economic expansion by 1914 was political
division; Germany was not socially divided. On a social scale Germany
was more united than it had ever been, both as a nationalist movement
which would see the nation throughout world war I, and as a social
system. As history progresses we see class systems falling down, this
is why in the civilised west today we see far less class distinction.
Politically division was one of the main results; Germany would fight
the largest war ever seen in world history to that date. Following
Serbian rejection of a German backed Austrian ultimatum, Austria
declared war on Serbia on July 28, 1914. Russia mobilized in defence
of Serbia; Germany declared war on Russia and France, and invaded
Belgium, thereby drawing in the British, who had guaranteed Belgian
neutrality. However, these tensions had been growing up to this
period. Politically the German economy did create divisions, socially
it did not.
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