From: Albrecht Ritschl < ritschl[at] >

Subject: FORUM: Do we need a new economic history of Germany?

Date: Wed, 19 July 2007


Do we need a new economic history for Germany?


This contribution is by a quantitative economic historian. Nearly everything that has been said in this forum about this breed of people applies also to me. So I am probably a good choice for representing the forces of evil, and I am happy to comply and do my job.


Dismal science


First things first: the popular aversion against economics is an old one, ever since Carlyle’s dictum in 1849 (not 1839). I sympathize with this position emotionally, yet intellectually I have only limited respect for it. It is old news, it is superficial, and it leads nowhere. The condition of the criticism of economics has not improved in 150 years. Like it or not, writing about human societies without a theory of human interaction is either belles lettres (which is fine but hopefully not our subject), or it is a dead end road. I am rather unapologetic about that.


This does not mean there will ever be agreement on the appropriate economics, or the social theory that follows from it. This debate, again, is an old one: classical, neoclassical, Marxist, Freudian, Weberian, or even the Frankfurt School of Horkheimer and Adorno, have all been contenders. Mainstream economics itself has undergone major scholarly revolutions, triggered in microeconomics by the progress in game theory and the analysis of information asymmetries, in macroeconomics by the advances in the theory of stochastic processes. As a result, entire new fields with highly productive applications to economic history have emerged. This includes reputational games, which are indispensable in the analysis of informal institutions, and mechanism design, which is the toolbox for analyzing formal institutions. More recent developments include experimental game theory and neuroeconomics, which explore and challenge the axioms on which game theory was built in the 1940s by von Neumann, Morgenstern, and Nash. Again, potential applications to history abound. I am skipping the application of modern macroeconomics to history because that is my own field.


Intrigued? No? Admittedly, all this is heavily mathematical and requires a lot of intellectual investment – not to speak of the preceding brainwashing. And as one of the previous contributors wrote, it is a fact that many go into history to avoid making that investment. Thus, let me approach the issue from the other end and ask what may happen if we look at our subject – German economic history – without making use of economics. This is not to advocate that economics be used all the time, but rather to highlight the need to be explicit about theorizing.



Belief systems


(a) The invention of Germany: humanities and German 19th century intellectual discourse


I start with this issue, which is probably the farthest from my own research. Trivially, to analyze a country’s history it is a good idea to get a grip on its religious and intellectual history. In the German case, this is particularly important and at the same time problematic. It is important because of Germany’s historical role as a major producer and net exporter of belief systems and ideologies. It is problematic because the very basis of many of these systems and ideologies are now part and parcel of the historian’s heuristic toolbox. In researching German history, our mental and analytical categories themselves become part of the object we wish to study: take out Simmel and Weber, and there goes much of sociology. Take out Husserl and Heidegger, and there goes much of Foucault and his disciples. Take out Kalle und Fritzchen (i.e., Marx and Engels), and what is left of structuralism? Try also Ranke (historical-critical method), Schmoller (institutional path dependence, no iron laws of economics), or Sombart (consumer culture, among many other themes). In other words, research in German social and economic history is always at risk of becoming self-referential.


To deal with this self-referential aspect (or hermeneutic circle in the parlance of Gadamer) of writing German history using German methods, our intellectual categories themselves need to be properly contextualized before work can even begin. Otherwise, who can be sure that we are asking good questions to the material, and are not instead victimized by some (hidden or open) political agenda that our preferred intellectual hero had a hundred and something years ago? Why was Sombart so interested in consumer culture? Which exactly were the value judgments in the social sciences that Weber was leashing out against, and why? What were the natural laws in human societies that Schmoller and his precursors from the Historical School were so afraid of?


Answers to this hermeneutic exercise seem to point in one main direction: the making of the German nation state and the need to provide its ideological underpinnings – the invention of Germany, so to speak. Distinctly German approaches to law, history, and the analysis of human societies were called for, and were indeed constructed. Weber’s attack against value judgments was first directed against the economic concept of productivity – a notion with unwelcome consequences if applied e.g. to eastern German agriculture and the perceived risks of Polonization. The Historical School’s attack against natural laws in societies, as well as its support for state activism in social policy, was inextricably linked with fears of Anglo- or French-style political modernization, not to speak of a horror of working class revolution. Or read Sombart’s early work on consumerism and capitalism in the light of his 1935 “Deutscher Sozialismus” to see the connections. Research on German social and economic history of the 19th century risks falling into an intellectual trap, unless the agenda of its intellectual elites – with all their influence on our own historical thinking – is fully reflected upon.


(b) On survival: the 20th century reinvention of Germany

We still do not know enough about the intellectual forces behind German social and economic history during the years 1918-45. From what we do know, two clear tendencies can be discerned. First, there is an intellectual break with the traditions emanating from the Historical School that can hardly be overstated. Second, the hermeneutic problem in dealing with 19th century Germany abruptly disappears. While the 19th century intellectually was about distinctly German approaches to law, sociology, economics, and history, now the distinctly German thing became an almost universal preponderance of sociobiology in its most radical version. Wherever we look, from anthropology to medicine, from law to geography, it is all about race, eugenics, and survival. While 19th century German thinking became the international gold standard in the social sciences, the intellectual forces driving early 20th century Germany are all but forgotten, dwarfed by the monsters they helped to create. Only in recent years have systematic attempts been made to excavate the intellectual foundations of Nazism (yes they existed. The mere mentioning of this fact breaks a taboo that still held up firmly when I was a student).


(c) Counterfactuals as a founding myth: the invention of West Germany

From the ashes of 1945 emerged a Germany with its intellectual history replaced, almost as if a lobotomy had been applied. New roots were grown instead, extending somewhat toward economic liberalism and strongly toward Catholic social doctrines. Not that these had been entirely irrelevant in German history, but clearly the mainstream was elsewhere. True to tradition, even a new belief system was created, called Soziale Marktwirtschaft. No one has ever found out what exactly it means, but the attempt to do so has created a huge literature that is still growing. Much of this research is, again, self-referential.


Doing German economic history without economics is fascinating and potentially very rewarding. But it is also risky. Again, the risk comes in through the backdoor of economics, viz., Germany’s very high production rate of economic and sociological belief systems. Dismiss economics and you may still be fine. Dismiss also a critical discussion of Germany’s belief systems and be almost sure to get caught up in serious misinterpretations. Examples abound.



Those boring numbers: the new economic history of Germany


One attraction of mainstream economics for analyzing German economic history is that it puts the researcher on the safe side: the homo oeconomicus is quite definitely not a German concept, it is so preciously “undeutsch”. To be sure, much of Germany’s fascinating intellectual history gets lost when proceeding this way. But there is no hermeneutic circle.


In Germany, making the boring numbers speak is still a young and less than well established tradition. In contrast to the U.S., German economic history never experienced a Cliometric revolution. What “deserved to go” according to Rubin’s opening contribution to the Forum, did in fact not arrive to Germany until quite recently. And when it did arrive, this was more the consequence of institutional changes in German academia than a break with older paradigms.


So what is going on in German quantitative economic history? Let me start with a classic, German financial and banking history in the 19th century. Tim Guinnane has famously provided the economics to analyze the rise of Germany’s cooperative banking system.[1] Largely an outgrowth of rural self-help organizations, the Raiffeisen microcredit system spread out over most of Germany and still exists today. Indeed, Germany’s cooperative banking sector, as well as its equally fragmented public banking system, accounted for a large share of the German banking market.[2] Microcredit has become a prominent issue, being studied widely by development economists and capturing the attention of politicians. German cooperative banking is the classical historical showcase. In class, Guinanne’s research comes across as highly informal and is hence easy to teach. The mathematics and the (rather involved) game theory run entirely behind the screen saver. No class on German financial history can afford to miss this.


From this research, Gerschenkron’s idea that universal banking drove and controlled industrialization in Germany emerges seriously damaged. It is further damaged by Caroline Fohlin, who in a new book has collected and deepened her previous research on German relationship banking.[3] The central result is that there is no evidence to support the hypothesis that financial markets in Wilhelminian Germany did not work properly, or were suffocated by universal banks trying to control firms’ access to credit. Firms without obvious links to a “Hausbank” or partner bank did just as well as those using relationship banking. Yet Fohlin’s research has not remained unchallenged. In a large project whose results are now gradually being published, Carsten Burhop has extended critical banking series back to the 1840s, and finds evidence that large banks did have a favorable impact on German industrialization .[4] It seems that the debate is set to continue.


Indeed, German financial and corporate history currently sees a lot of activity. Joerg Baten and his group at Tuebingen have studied firm creation, mergers and stock market efficiency in the late 19th century, and a whole flow of papers from this project is nearing publication or has already come out.[5] Burhop has embarked on a new project to study the efficiency of early corporate R & D, notably of patents by company employees and their remuneration. All this research is going to produce large amounts of new data at the corporate level, going beyond mere usage of the important new stock market indices of Ronge (a retrospective DAX) and Eube (a much broader S & P 500-type index).[6]


Other fields of German 19th century history are coming back more slowly. Mark Spoerer’s important monograph on the Prussian tax system reopens the case for major malfunctions in consumer taxation, with far-reaching implications.[7] In a remarkable book, Oliver Grant is reconsidering German exceptionalism in labor markets, notably the low increase in wages during the late 19th century.[8] His main finding, underpinned by lots of fine econometrics, is that demographics played a major role, and that agricultural protectionism is only partly to blame. Again, the political economy of agricultural labor in late Imperial Germany is a fast growing field, with a number of contributions to be expected in the near future.


The macroeconomic history of Imperial Germany has traditionally been plagued by an abundance of low-quality data. Burhop and Wolff reexamined four different series of national product and suggested a compromise estimate, as well as a compromise business cycle chronology. Their work also had implications for international benchmark comparisons of German productivity.[9] A new debate about the levels and fluctuations of German aggregate output and income seems to be developing here.


Much of the scholarly debate about the two World Wars and Germany’s interwar years can be arranged along the lines of domestic versus international distributional conflict. The standard view of Kocka and others that World War I marked a sharp redistribution towards capital, of which the 1918 revolution was only a correction, has been seriously challenged.[10] The issue here is that the focus on war profiteering in previous research had introduced sample selection bias: profits were indeed high in the armament industry. But once the perspective is widened to include other industries, the picture that emerges is that of redistribution of rents across industries, not from workers to capital.


Redistribution towards labor after 1918 was a controversial issue in the older literature, ever since Knut Borchardt claimed that collective bargaining and the expansion of the welfare state contributed to the demise of the Weimar Republic. The debate soon boiled down to the unavoidable nitty-gritty of measurement problems. Again, Germany’s notoriously unreliable national product and income series play a role here. The picture that has emerged in recent research is that throughout World War I, the German economy suffered a major productivity setback, from which it had barely recovered in 1929. Combining this with the political attempt to sustain wage levels on par with Britain resulted in a major profit squeeze. Work by Spoerer on corporate profits, obtained from archival sources on tax audits, has generated reliable evidence at the firm level.[11] Along with depressed profits in the 1920s, this research also documents a breathtaking profit surge in the 1930s. These findings have recently been complemented by Fabien Dell with results on the personal distribution of income.[12] These data document how income inequality narrowed during the 1920s, and rapidly widened again in the 1930s to reach pre-war levels in 1938. Both pieces thus disprove recent claims that Nazism was essentially a cozy socialist arrangement [13] – and impressively demonstrate the corrective function of numbers if discourse goes astray. Interestingly, postwar German data suggest a downturn both in profit rates and in income inequality with respect to their 1913 and 1938 levels. Only in recent years have both started to creep up again.


The international dimension of distributional conflict during and between Germany’s world wars is essentially defined by three areas. These are, in turn, reparations and Germany’s foreign debt default of 1933, Germany’s wartime economic exploitation of Europe, and (although itself part of postwar history) the restitution issue.


I won’t go into the reparations issue and its economic repercussions, which is connected also with my own work. Scholarly debate has moved away from interpreting the historical evidence in terms of the transfer problem, and has instead embraced the incentives of large but difficult to enforce reparations for German policy making. Not everyone agrees; significant strands of the discussion still interpret the historical evidence of Germany’s unfolding payments crisis of 1931 to 1933 in terms of more traditional theory.[14]


Much recent work has been done on the Nazi economy. With several coauthors, Rainer Fremdling has thoroughly revised the secret industrial census of 1936. Among the surprising findings is the large significance of German aircraft industry, which already back then was about equal in size to the auto industry. To the same extent, the received picture of the Nazi recovery as a story about cars and roads must be revised, unless motorization is understood to include also airfields and warplanes.[15] Adam Tooze’s brilliant recent book provides a wonderful synopsis to the uninitiated, and is a thoughtful contribution to the discussion.[16] Current debates essentially focus on the incentives for industry to collaborate, and new emphasis has been placed on the large amount to which the Nazi administration employed carrots, not sticks, in making entrepreneurs play along. These included elaborate incentive contracts and links between access to profitable projects and the willingness to use slave labor.[17] Still, much of this research is still on its way towards publication. What emerges is a new interpretation of the Nazi war machinery that stresses continuity over abrupt changes, and that demystifies previous claims of an armaments miracle in the second half of World War II.


Major tasks still lie ahead for a quantitatively oriented economic history of the postwar period. Paradoxically, this is partly due to the dramatic improvement in data quality from 1950 on – at least for West Germany. For the East, a flourishing literature has developed that seeks to iron out the worst pitfalls in data quality.[18] For the big issues like the sources of postwar growth, there is still little new research that goes beyond the old myths, be it the reconstruction hypothesis propagated by the left or the insistence on the economic miracle as a consequence of Erhard’s postwar reforms.[19] There has been significant work on the international aspects of postwar Germany, notably the foreign debt settlement of 1953, on reparations, and on the Marshall Plan.[20] Still, putting the Wirtschaftswunder, as well as West Germany’s long prosperity, in its proper place in history continues to be a big unresolved issue that should be next on the agenda.


Albrecht Ritschl

Humboldt University / London School of Economics (beginning September 2007)



[1] Timothy Guinnane (2001), "Cooperatives As Information Machines: German Rural Credit Cooperatives, 1883-1914," Journal of Economic History 61 (2), 366-389.


[2] Timothy Guinnane (2002), "Delegated Monitors, Large and Small: Germany's Banking System, 1800-1914," Journal of Economic Literature 40 (1), 73-124.


[3] Caroline Fohlin (2006), Finance Capitalism and Germany's Rise to Industrial Power, Cambridge: Cambridge University Press.


[4] Carsten Burhop (2006), “Did Banks Cause the German Industrialization?” Explorations in Economic History 43 (1), 39-63,


[5] Joerg Baten (2004), “Creating Firms for a New Century: Determinants of Firm Creation around 1900,” European Review of Economic History 7(3), 301-329; Gerhard Kling (2006), “The Long-term Impact of Mergers and the Emergence of a Merger Wave in pre-World War I Germany,” Explorations in Economic History 43, 667-688; Markus Baltzer (2006), “Cross-listed Stocks as an Information Vehicle of Speculation: Evidence from European Cross-listings in the Early 1870s”, European Review of Economic History 10 (3), 301-32.


[6] Ulrich Ronge (2002), Die langfristige Rendite deutscher Standardaktien, Bern: Peter Lang; Steffen Eube (1998), Der Aktienmarkt in Deutschland vor dem Ersten Weltkrieg, Frankfurt: Knapp.


[7] Mark Spoerer (2004), Steuerlast, Steuerinzidenz und Steuerwettbewerb. Verteilungswirkungen der Besteuerung in Preußen und Württemberg (1815-1913), Berlin: Akademie-Verlag


[8] Oliver Grant (2005), Migration and Inequality in Germany 1870-1913, Oxford: Oxford University Press.


[9] Carsten Burhop and Guntram Wolff (2005), “A Compromise Estimate of the Net National Product and the Business Cycle in Germany, 1851-1913,” Journal of Economic History 65, 613-657; Stephen Broadberry and Carsten Burhop (2007), ”Comparative Productivity in British and German Manufacturing Before World War II: Reconciling Direct Benchmark Estimates and Time Series Projections,” Journal of Economic History 67(3), forthcoming.


[10] Jörg Baten and Rainer Schulz (2005), “Making Profits in War-Time: German Industrial and Service Companies' Profits During WWI and Their Implications,” Economic History Review 58, 34-56; Albrecht Ritschl (2005), “The Pity of Peace: Germany's War Economy, 1914-1918 and Beyond,” in Stephen Broadberry and Mark Harrison, eds., The Economics of World War I, Cambridge: Cambridge University Press.


[11] Mark Spoerer (1996), Von Scheingewinnen zum Rüstungsboom. Die Eigenkapitalrentabilität der deutschen Industrieaktiengesellschaften 1925-1941,  Stuttgart: Steiner.


[12] Fabien Dell (2005), “Top Incomes in Germany and Switzerland Over the Twentieth Century”, Journal of the European Economic Association 3, (2-3), 412-421.


[13] Goetz Aly (2005), Hilters Volksstaat: Raub, Rassenkrieg und nationaler Sozialismus, Frankfurt: Fischer.


[14] Albrecht Ritschl (2002), Deutschlands Krise und Konjunktur, 1924-1934. Binnenkonjunktur, Auslandsverschuldung und Reparationsproblem zwischen Dawes-Plan und Transfersperre, Berlin: Akademie-Verlag; Thomas Ferguson and Peter Temin (2003), “Made in Germany: the Currency Crisis of 1931”, Research in Economic History 31, 1-53; Isabel Schnabel (2004), “The German Twin Crisis of 1931”, Journal of Economic History 64, 822-871.


[15] Rainer Fremdling and Reiner Staeglin (2003), “Die Industrieerhebung von 1936: Ein Input-Output-Ansatz zur Rekonstruktion der volkswirtschaftlichen Gesamtrechnung für Deutschland im 19. und 20. Jahrhundert,” Vierteljahrschrift für Sozial- und Wirtschaftsgeschichte 90, 416-428; Herman de Jong and Rainer Fremdling (2007), “British and German Manufacturing Compared. A New Benchmark for 1935/36 Based on Double Deflated Value Added”, Journal of Economic History 67 (3), forthcoming. On arming the Luftwaffe, see also the important monograph of Lutz Budrass (1998), Flugzeugindustrie und Luftrüstung in Deutschland 1918-1945, Düsseldorf: Droste.


[16] J. Adam Tooze (2006), The Wages of Destruction: The Making and Breaking of the Nazi Economy, London: Penguin.


[17] Jochen Streb (2003), “Can Politicians Speed Up Long-Term Technological Change? Some Insights From a Comparison of the German and US-American Synthetic Rubber Programs Before, During, and After World War II,” Essays in Economic & Business History 21 (1), 33-49; Jonas Scherner, “‘Ohne Rücksicht auf Kosten’? Eine Analyse von Investitionsverträgen zwischen Staat und Unternehmen im ‘Dritten Reich’ am Beispiel des Förderprämienverfahrens und des Zuschussvertrags.” Jahrbuch für Wirtschaftsgeschichte 2004, 167-88; Christoph Buchheim and Jonas Scherner (2006), “The Role of Private Property in the Nazi Economy: The Case of Industry,” Journal of Economic History 66 (2), 390-416; Jonas Scherner and Jochen Streb (2006), “Das Ende eines Mythos? Albert Speer und das so genannte Rüstungswunder,”  Vierteljahrschrift für Sozial- und Wirtschaftsgeschichte, 93, 172-96; Mark Spoerer (2006), “Der Faktor Arbeit in den besetzten Ostgebieten im Widerstreit ökonomischer und ideologischer Interessen,” Mitteilungen der Gemeinsamen Kommission für die Erforschung der jüngeren Geschichte der deutsch-russischen Beziehungen 2, 68-93.


[18] See Jaap Sleifer (2003), Planning Ahead and Falling Behind: The East German Economy in Comparison with West Germany, 1936-2002, Berlin: Akademie-Verlag; André Steiner (1999), Die DDR-Wirtschaftsreform der sechziger Jahre: Konflikt zwischen Effizienz- und Machtkalkül; Berlin: Akademie Verlag.


[19] On the former, see Werner Abelshauser (2004), Deutsche Wirtschaftsgeschichte seit 1945, Munich: Beck; for the latter, see Herbert Giersch, Karl-Heinz Paqué, and Holger Schmieding. The Fading Miracle. Cambridge: Cambridge University Press, 1992.


[20] See the literature reviewed by Tim Guinnane (2004), "Financial Vergangenheitsbewältigung: The 1953 London Debt Agreement." Yale Economic Growth Center Discussion Paper No. 880.


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