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From Old Regime to Industrial State: A History of German Industrialization from the Eighteenth Century to World War I

Author(s):Tilly, Richard H.
Kopsidis, Michael
Reviewer(s):Wegge, Simone A.

Published by EH.Net (September 2022).

Richard H. Tilly and Michael Kopsidis. From Old Regime to Industrial State: A History of German Industrialization from the Eighteenth Century to World War I. Chicago: University of Chicago Press, 2020. 327 pp. $75 (cloth), ISBN 978-0226725437.

Reviewed for EH.Net by Simone A. Wegge, Department of Economics, College of Staten Island and the Graduate Center, City University of New York.

 

Richard H. Tilly and Michael Kopsidis have produced an interesting new book and effectively present an updated history of German industrialization. They cover a wide range of topics including agricultural innovation, demographic change, labor markets, entrepreneurial activity, patent activity, regulation, banking developments and more and provide a roadmap for most of the main events in the history of German industrialization in the two centuries leading up to the First World War. While doing so they draw on their own research as well as much new scholarship in Germany economic history. The reference section, at almost 40 pages, emphasizes the authors’ extensive and deep reading and serves as an excellent source for works in both English and German on the topics of German industrialization and economic growth.

The monograph is broken up into four parts, the first part describing Germany in the eighteenth century, the second part early industrialization, the third part the growth of industrial capitalism up to the 1870s, and the fourth and concluding section Germany’s takeoff as an industrial power from unification in 1871 to the year 1914.

One of the more interesting sections of Part I is Chapter 2, which provides an intensive account of industrialization in three important economic regions in Germany, Saxony, the Ruhr/Rhine region and Württemberg. All three had vibrant proto-industrial textile sectors in the eighteenth century, and this feature seemed to be important for rapid industrialization in both Saxony and the Ruhr/Rhine region but not in Württemberg. One thus cannot conclude that an active proto-industry necessarily led “directly to industrialization” (p. 57). Interestingly, Württemberg is one of the most industrialized parts of the German economy today. Chapter 4 is the other highlight of Part I and explains reforms in agrarian property rights and citizens’ rights, the adoption of compulsory schooling, the decline in the power of guilds accompanied by the rise of manufacturers, and the ascendancy of the bureaucratic Prussian state. This chapter is crucial, as it helps one to understand the overwhelming influence of Prussian customs and institutions on the rest of Germany. Note that “unification of Germany in 1871” is considered by some to be an oxymoron for a “Prussian takeover.”

A valuable section of Part II is the material (Chapter 5) on the Zollverein, the common market that evolved between various German states in the decades leading up to 1871. Incorporating research from Dumke (1981, 1984) and more recent work from Keller & Shuie (2014), Tilly and Kopsidis argue that the main effects of the Zollverein were not tariff protection, as Friedrich List had claimed in 1841, but were instead to eliminate internal trade barriers and to expand and integrate markets. The authors also cite intriguing work from Ploeckl (2009) to show that the development of the Zollverein was a complicated sequential game that Prussia devised in the interest of bringing all its neighboring states into the fold.

The authors round off Part II with a discussion of the financial and agricultural crises that culminated in a hunger crisis in the mid-1840s and eventually the 1848 Revolution; they argue that a significant result was that the bourgeoisie gained political power but that not much else changed for the vast majority of people in German regions, most of whom were farmers, laborers and artisans. The authors are very much focused on Prussia, where in 1807 with the Prussian Edict (p. 70), many farmers were able to pay off obligations and benefit from a more modern semblance of land ownership (Bauernbefreiung or “farmer emancipation”) and thus a more market-oriented rural economy. In various parts of Germany, however, this transformation took place in later decades: for example, in Bavaria farmers were first given the option in 1848 of paying off obligations in 1848; in the Electorate of Hesse-Cassel legislation to this effect was passed in 1832 and finalized in 1848. The authors may be underestimating the positive effects of the 1848 Revolution for a sizable number of German farmers outside of Prussia (p. 118). In general, the topic of Bauerbefreiung in understudied, and there are other possible connections that economic historians will find interesting: many farmers used loans to achieve these economic freedoms, which may have in turn spurred on the founding of more local credit institutions in the 1830s and 1840s.

The third part of the book delves into the actual industrialization of Germany up to 1870. Leading sectors like railroads, iron and steel, and coal mining expanded in the 1850s up to the crisis period of 1857 and again, after a downturn, in the late 1860s. The authors describe the development as a “cyclical phenomenon,” something they attribute to the work of Spree (1977), who emphasizes the linkages between sectors, both forward and backward ones, with railroads being the “initiator” and the chief consumer of German finished iron production. Since it was expensive to move coal, the location of coal deposits played a determinative role in the location of industries, which Gutberlet (2014) expands on. The takeoff of German industry was helped by two regulatory developments: first, Prussia paved the way for limited liability corporations in 1843; secondly, this option was available to most of the rest of Germany (“German-wide”) with the 1861 ADHGB (Allgemeine Deutsches Handelsgesetzbuch) legislation on business laws (p. 122).

Other sections of Part III handle the changes to labor and capital markets as well the increase in agricultural outputs in the takeoff period. A final chapter addresses changes in the banking sector, where the authors highlight first, the emergence of universal banks as arising at their inception as a way to finance railroads and secondly, the growth of German savings banks and credit cooperatives, which made a difference in encouraging savings and financing local economic activities.

The fourth and final section of the book, Part IV, covers the period from 1871 to 1914. Chapters 12 and 13 are especially interesting, as they get into the weeds of German industrialization and describe the takeoff period. It is a remarkable story, such that by 1907 Germany was ahead of the United Kingdom in various heavy industries, including the chemical, engineering, metals, and iron and steel industries. GDP per capita was still higher in the U.K. in 1914 though, given that the British were more productive in other sectors, such as in mining, clothing, textile, and food & beverage.

A particular important event was the passage of the German Patent Law, which established the German Imperial Patent Office in 1871. The authors use the recent research of Streb et al. (2006) on “valuable patents” to describe four waves of innovations involving steam and railroads in the first wave, chemical and dyestuffs in the second wave, pharmaceuticals and fertilizers in the third wave and electricity in the fourth. Besides emphasizing patents, economic historians have debated as to whether entrepreneurial skills or scale economies were more relevant, and the author come down on the side of the latter, stressing the rise of cartels. Advanced industrialization also required skilled and knowledgeable workers, and the story of how German industry, in cooperation with German vocational schools and technical universities, invested in human capital, is also told here. By 1900, on an annual basis Germany was producing eight times more new engineers than Britain. Industrialists increasingly turned to the corporation as a form of legal organization for their firms, with 80% of large firms in the latter years of the nineteenth century organized as such (p. 186). After 1892, many small firms took advantage of the new legal form of the GMbH (Gesellschaft mit beschränkter Haftung), designed for a private limited liability companies or partnerships (Guinnane, 2021).

Chapter 13 continues with this story of takeoff and describes in more detail financial developments. The introduction in 1873 of a national currency, the German mark, and the establishment in 1876 of a central bank, the Reichsbank, are two notable events. By the 1880s, and especially with the Company Law of 1884, which paved the way for a greater role for banks that supplied capital, banks were very much involved in monitoring the firms they financed: the markets, for instance, viewed firms more favorably when their bankers served on their corporate boards, something that is still practiced today. These big banks evolved into large universal banks and held a lot of capital.

Tilly and Kopsidis claim that this setup and universal banks’ “diversified branching network and close ties to the Reichsbank” were effective in bringing more stability to the banking sector of Germany, a stark contrast to the U.S. banking system prior to 1913 before the creation of the Federal Reserve Bank (p. 200). The literature on Germany’s universal banks and their involvement in German industrialization is extensive, and Tilly and Kopsidis cite many recent scholarly works on this topic (e.g., Burhop 2006; Fohlin, 2007).

There is much to learn in this book. If I have quibbles, it is that the authors ignore significant parts of Germany. The book focuses heavily on Prussia and the regions that developed faster, Westphalia and Saxony. Less attention though is paid to areas like Bavaria and Baden, or to Württemberg in the takeoff period. Regions like Hessen, Schleswig-Holstein, Mecklenburg, and Thuringia are missing in the index. To discuss a less developed area of Germany, Tilly and Kopsidis repeatedly draw on the example of the East Elbian parts of Prussia, some of which is today Poland and quite removed from the rest of Germany. There were however other “backwaters,” the authors’ term that they could have drawn on. Of course, no single book can be everything to everybody. For a discussion in English of relative economic development and backwardness across all German regions, readers should refer to Oliver Grant’s 2005 monograph.

Over this almost 50-year period several notable political changes at the federal level occurred. German reunification (or “Prussian takeover”) took place in 1871 under Chancellor Otto Bismarck, who served in this role until 1890. Alongside the chancellor was the German monarch, consisting of a series of German emperors who stemmed from the House of Hohenzollern and who had ruled Prussia before 1871. The monarchy lasted from 1871 to 1918, at which point the political organization of German was switched to a republic. Did any of this matter? Tilly and Kopsidis do not say too much, although they briefly discuss the rise of tensions with other nations as Germany’s economic interests grew beyond its borders. It bears mentioning, however obvious, that Germany did not fight in any great war between 1872 and 1913, and this all helped provide stability that enabled entrepreneurs to innovate and businesses to grow.

The authors of From Old Regime to Industrial State cover much ground and discuss the many angles of economic growth, including patents, technological change, infrastructure development, education and occupational training, customs unions, evolving market structures, financial development and the rise of universal banks, agricultural productivity, and more. There is much here to absorb – the story of German economic development from many angles. That this monograph is written in English and not in German is a plus as it makes it accessible to a much larger audience. The authors’ engagement in many debates about the history of German economic growth, as well as the extensive references to so many different scholarly works, especially recent ones, makes this work further valuable.

For historians of the industrial revolution, contemplating Germany’s rise to an efficient, innovative and productive industrial economy is a must. Tilly and Kopsidis provide a fresh perspective on German economic history by considering many previous explanations and using the most recent scholarship, their own work as well as their deep reading into the subject matter. In sum, this work is a very important addition to the fields of historical economic growth and industrialization.

References

Burhop, C. 2006. “Did Banks Cause the German Industrialization?” Explorations in Economic History 43: 39-63.

Dumke, R. 1981. “Die wirtschaftlichen Folgen des Zollvereins.“ In W. Abelshauser & D. Petzina, eds., Deutsche Wirtschaftsgeschichte im Industriezeitalter. Düsseldorf: Athenäum-Verlag, pp. 241-73.

Dumke, R. 1984. “Der Deutsche Zollverein als Modell ökonomischer Integration.“ In H. Berding, ed., Wirtschaftliche und politische Integration in Europa im 19. und 20. Jahrhundert. Göttingen, Germany: Vandenhoeck & Ruprecht, pp 71-101.

Fohlin, C. 2007. Finance Capitalism and Germany’s Rise to Industrial Power. Cambridge: Cambridge University Press.

Grant, O. 2005. Migration and Inequality in Germany, 1870 – 1913. Oxford: Oxford University Press.

Guinnane, T. 2021. Creating a New Legal Form: The GmBH.” Business History Review 95 (1): 3-32.

Gutberlet, T. 2013. “Mechanization, Transportation and the Location of Industry in Germany 1846- 1907.” Ph.D. Diss., University of Arizona.

Keller, W., and C. Shiue. 2014. “Endogenous Formation of Free Trade Agreements: Evidence from the Zollverein’s Impact on Market Integration.” Journal of Economic History 74, 1168-204

List, F. 1841. Das nationale System der Politischen Ökonomie.Stuttgart: Cotta.

Ploeckl, F. 2009. “The Zollverein and the Sequence of a Customs Union. Australian Economic History Review 33: 277-300.

Spree, R. 1977. Die Wachstumzyklen der deutschen Wirtschaft von 1840 bis 1880. Berlin: Dunker & Humboldt.

Spree, R. 2011. Die Industrialisierung Deutchslands im 19. Jahrhundert. Online publication. www.rspress.wordpress.com.

Streb, J., J. Baten, and S. Yin. 2006. “Technological and Geographical Spillover.” Economic History Review 59: 347-73.

 

Simone A. Wegge is Professor and Chairperson at the Department of Economics at the College of Staten Island and a member of the doctoral faculty at the Graduate Center, both of the City University of New York. Her recent publications include “Inheritance Institutions and Landholding Inequality in Nineteenth-Century Germany: Village-Level Evidence from Hesse-Cassel” (Journal of Economic History, 2021), and, with Tyler Anbinder and Cormac Ó Gráda, “Networks and Opportunities: A Digital History of Ireland’s Great Famine Refugees in New York” (American Historical Review, 2019).

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Subject(s):Economic Development, Growth, and Aggregate Productivity
Economywide Country Studies and Comparative History
Industry: Manufacturing and Construction
Geographic Area(s):Europe
Time Period(s):18th Century
19th Century
20th Century: Pre WWII