Download This work is distributed as a Discussion Paper by the

This work is distributed as a Discussion Paper by the
STANFORD INSTITUTE FOR ECONOMIC POLICY RESEARCH
SIEPR Discussion Paper No. 01-19
The Rise of German Protectionism in
The 1870’s:
A Macroeconomic Perspective
Asaf Zussman
Stanford University
January 2002
Stanford Institute for Economic Policy Research
Stanford University
Stanford, CA 94305
(650) 725-1874
The Stanford Institute for Economic Policy Research at Stanford University supports research bearing on
economic and public policy issues. The SIEPR Discussion Paper Series reports on research and policy
analysis conducted by researchers affiliated with the Institute. Working papers in this series reflect the views
of the authors and not necessarily those of the Stanford Institute for Economic Policy Research or Stanford
University.
THE RISE OF GERMAN PROTECTIONISM IN THE 1870S:
A MACROECONOMIC PERSPECTIVE*
Asaf Zussman
Stanford University
January, 2002
Abstract
In 1879 Germany imposed tariffs on a wide variety of industrial
and agricultural goods. The German tariff marked a turning point in the
nineteenth century European tariff history: the decades preceding it were
characterized by trade liberalization while the following decades were
characterized by return to protectionism in continental Europe. This paper
challenges the leading political-economy explanations for the adoption of
the tariff that focus on the effects of a decline in European grain prices on
Germany’s income distribution. Instead it claims that severe
macroeconomic imbalances caused by the Franco-Prussian war indemnity
played the crucial role in the rise of protectionism in Germany in the
1870s and in the eventual adoption of the “iron and rye” tariff.
* For their encouragement and helpful suggestions I would like to thank Avner Greif,
Ronald McKinnon and Romain Wacziarg.
INTRODUCTION
The years following the 1860 Cobden-Chevalier trade treaty between Britain and
France were characterized by European-wide trade liberalization.1 Inclusion of a most
favored nation clause in many of the trade treaties of the period made the spread of free
trade much easier. Germany, or more correctly its economic predecessor, the Zollverein,
was also liberalizing its trade. Then, in 1879, Germany changed its course and adopted
the “iron and rye” tariff. From this point until the outbreak of the First World War there
was a gradual return to protectionism in continental Europe. In this respect and in others
the German tariff of 1879 is considered to be a landmark event.2
What led to the adoption of the German “iron and rye” tariff? Many historians,
political scientists and economists have proposed answers to this question over the years.
The leading explanations concentrate on interest groups within Germany. Using tradetheoretic models these interest groups are defined along either sectoral or factoral lines.
The focus in this line of research is usually on the Prussian Junkers. As owners of large
grain-producing estates in Eastern Germany, so the typical story goes, their interests were
hurt by falling transatlantic and other transportation costs which translated into declining
prices of grains in European markets.3 In reaction to these developments the Junkers
successfully used their political power to pressure Chancellor Bismarck into providing
them with protection from foreign competition.
1
See Bairoch, “European Trade Policy” and Kindleberger, “Rise of Free Trade”.
2
As will be explained below, the tariff was very important in the reorganization of German politics.
3
The Junkers’ interests were hurt in the sense that the real return to land decreased as a result of the decline
in grain prices.
1
This paper challenges the empirical validity of the explanation outlined above for
the adoption of the German tariff. It offers an alternative explanation that seems to better
fit the historical record. The explanation focuses on macroeconomic developments in
Germany and claims that it possible to trace the roots of the process that led to the
adoption of the 1879 tariff to the war indemnity imposed by Bismarck on France,
following the defeat of the latter by Prussia in their 1870-1 war. The war indemnity, in
essence a very large capital inflow, translated into a massive monetary and fiscal
stimulus. This led in turn to fast growth, price inflation and other symptoms that are
typically observed in episodes of large capital inflows. When the indemnity inflows
stopped the boom turned into bust. Very low rates of growth coupled with exchange rate
overvaluation led to increasing demand for protection from a wide coalition of producers
of tradable goods. Increased demand for protection was matched by increased supply.4
Ever since the establishment of the Reich in 1871 Bismarck was interested in making the
German federal government independent in terms of tax revenues. Bismarck was more
willing to support tariffs in the second part of the 1870s because the slowdown in growth
increased the dependence of the German federal government on the member states for tax
revenues. This matching of demand and supply forces ultimately led in 1879 to the
adoption of the “iron and rye” tariff.
The rest of the paper is organized as follows. The next section summarizes and
critically evaluates the existing explanations for the adoption of the 1879 tariff. The paper
4
The paper loosely applies a common distinction between demand and supply forces in the adoption of
tariffs. On the demand side there are private sector interests that ask for tariff protection; on the supply side
there is the government that decides on the magnitude and coverage of tariff protection. For discussion of
the general structure of political-economy models of tariffs see Rodrik, “Political Economy”.
2
then turns to an analysis of the effects of the Franco-Prussian war indemnity on the
German economy and of the connection between those effects and the rise of the
protectionist coalition. The last section briefly summarizes the main arguments of the
paper and suggests directions for further research.
EXISTING EXPLANATIONS OF THE 1879 TARIFF
The leading political-economy explanations of the tariff rely on trade-theoretic
models and focus on the changing income distribution among German interest groups.
More specifically the claim is that falling transatlantic and other transportation costs led
to a decline in European grain prices. As owners of large grain-producing estates the
Junkers were hurt by the decline in grain prices and therefore became the leading
supporters of tariff protection.
Ronald Rogowski applies a Heckscher-Ohlin approach to analyze the adoption of the
“iron and rye” tariff.5 In his model there are three factors of production: labor, land and
capital. By Rogowski’s account until the mid-1870s Germany was relatively abundant in
labor and land and relatively scarce in capital. Falling transportation costs allowed the
massive entrance of land abundant countries (such as the United States) into the
international grain market, making Germany (presumably during the 1870s) relatively
scarce in both land and capital. As a reaction to these changing circumstances agriculture
joined industry in support of protection, leading to the adoption of the “iron and rye”
tariff in 1879.
5
Rogowski, Commerce and Coalitions.
3
Peter Gourevitch (implicitly) applies a specific factors model approach to explain the
adoption of the 1879 tariff.6 According to Gourevitch the demand for tariff protection
came from a coalition of specific factors owners. The Junkers, who were motivated by a
decline in grain prices and held a prominent position in German politics, led this
coalition. Gourevitch allows for a large number of sectors in his analysis to capture the
sectoral conflicts of interest that characterized the German political-economic map in the
1870s. For example he claims that grain-producing agricultural sub-sectors (led by the
Junkers) tended to support imposition of tariffs on grains while grain-using agricultural
sub-sectors (such as animal husbandry) tended to oppose such a move.7
Many other accounts of the tariff agree with Rogowski’s and Gourevitch’s line of
argument. The German 1879 tariff is often considered in the literature as the first in a
series of European tariffs (including in Germany itself) resulting from agriculture’s
demand to protect itself from the effects of increasing integration in the international
economy. As such the “iron and rye” tariff is perceived as an early example of a
backlash against globalization.8 Despite the popularity of this approach the literature
often neglects to empirically substantiate the central pillar of the argument – the decline
in German, and more generally European, grain prices. The empirical analysis conducted
below finds no support for the “grain invasion” story in the case of Germany.9
The first part of the empirical strategy employed here in order to substantiate the
claim made above is estimation of the potential (counter-factual) price shock that the
6
Gourevitch, Politics in Hard Times.
7
This distinction was stressed earlier in Gerschenkron, Bread and Democracy.
8
See O’Rourke, “European Grain Invasion” and O’Rourke and Williamson, Glabalization and History.
9
The term “grain invasion” is borrowed from O’Rourke, “European Grain Invasion”.
4
“grain invasion” would have implied for Germany’s grain producers if this country had
not adopted a protectionist policy. This counter-factual shock is simply the changes,
during the 1870-1913 period, in the real prices of grains in the European market weighted
according to the relative importance of each grain in Germany at the start of the period.10
The behavior of European grain prices will be proxied by the behavior of grain prices in
the UK and Denmark. Unlike most other European countries the UK and Denmark did
not impose tariffs on grains during the period under investigation. Thus British and
Danish grain prices reflect, in first approximation, the prices of grains in the European
market.11 If there was indeed a substantial decline in real grain prices in Europe during
the 1870-1913 period it should be reflected in British and Danish data.12
Table 1 displays the average annual percentage change in the nominal and real price
of wheat, barley and oats in the UK during the1870-1913 period and of these three grains
and rye in Denmark during the 1876-1913 period.13 Since prices of other goods were
changing over time it is clear that attention should be focused on the behavior of real,
rather than nominal, prices of grains. Real prices were obtained by alternatively deflating
10
Following O’Rourke, “European Grain Invasion”, the investigation is limited to the 1870-1913 period.
11
The issue of the validity of the approximation is discussed below.
12
Despite the tariffs it imposed, Germany was a net importer of all grains starting from 1874. Britain was a
net importer of all grains during the period. Denmark was a net importer of wheat, rye and oats but a net
exporter of barley in the first part of the period. This difference implies that Denmark is expected to have
experienced a smaller decline in the price of barley relative to Britain during the period.
13
Rye prices are unavailable for the UK. Wholesale prices are unavailable for Denmark prior to 1876 and
therefore the period examined in this case is 1876-1913.
5
nominal grain prices with the UK’s and Denmark’s GDP deflator, consumer price index
(CPI) and wholesale price index (WPI).14
The table clearly shows that the degree of price decline varies with the type of price
deflator: for both countries the largest declines are recorded when the GDP deflator is
used to derive real prices, followed by the CPI and then the WPI. The dependence of
results on the choice of deflator tends to raise the question: which deflator should be used
to deflate nominal grain prices? There is one very good reason why the WPI should be
used to deflate nominal grain prices.15 Relative to the WPI, the CPI and the GDP deflator
contain a much larger non-tradable component. The pattern of price behavior that was
observed in Table 1 therefore implies that the price of non-tradables relative to tradables
was rising in both countries during the periods under examination. Why was the relative
price of non-tradables rising over time in both the United Kingdom and Denmark? This
pattern of behavior of relative prices is quite common. It is usually attributed in the
international macroeconomics literature to a positive productivity growth differential
between the tradable and the non-tradable sectors in the economy.16 The “grain invasion”
14
See Appendix 1 for data sources and methods.
15
Kindleberger, “Group Behavior” [p. 31], who examines the behavior of real grain prices in Denmark
during the 1873-1896 period, chose to use the WPI to deflate the nominal prices of grains.
16
This argument is known as the Balassa-Samuelson hypothesis. A related argument, due to Baumol and
Bowen, is known as the “cost disease” – the tendency of the relative price of services to increase over time.
The original references are Balassa, “The Purchasing-Power Doctrine”, Baumol and Bowen “On the
Performing Arts” and Samuelson “Theoretical Notes”. For an excellent review of the relevant literature see
Froot and Rogoff, “Perspectives on PPP”. Canzoneri et. al. “Relative Labor Productivity” is a recent article
providing evidence on a long-run trend increase in the relative price of non-tradables in OECD countries.
6
argument is about declining transportation costs, not about productivity growth
differentials between sectors. In order to isolate better the effects of the “transportation
revolution” on real prices a relatively tradable price index should be used to deflate
nominal grain prices. In this respect the WPI is the appropriate choice. Using the CPI or
the GDP deflator, on the other hand, will create a downward bias in the measurement of
real grain price changes.17
Figures 1 and 2 display the behavior of the real (WPI
deflated) grain prices in the UK and Denmark during the periods under investigation.
The lack of a substantial decline in the prices of grains (with the possible exception of
wheat) is apparent in both figures.
Table 1 shows that the degree of price decline varies also with the type of grain being
examined. In the UK the real price of wheat has decreased most, followed by barley and
oats. In Denmark the real price of wheat has decreased most, followed by oats, barley
and rye. What was the relative importance of these four grains in Germany at the start of
the “grain invasion”? Table 2 answers this question by displaying data for 1870 on the
shares in land under cultivation and the shares in production of wheat, barley, oats and
rye, the four most important grains in Germany. The table makes it very clear that
according to both criteria the most important grain was by far rye, followed by oats,
barley and wheat.
It is now possible to estimate the counter-factual price shock that we set out to obtain
by combining the data on changes in European real (WPI deflated) grain prices with the
17
Another reason why the WPI should be used to deflate nominal grain prices is that the “grain invasion”
argument is trade-theoretic. This implies a need to analyze the behavior of the prices of grains relative to
the prices of other tradable goods. In this respect the WPI again seems to be a more appropriate choice.
7
data on production shares of grains in Germany.18 As a reminder, this weighted grain
price change reflects the potential shock that German grain growers would have been
subjected to if the government had not imposed tariffs on grains. The counter-factual
price shock turns out to be positive: real grain prices would have increased by 0.08
percent per year! The “grain invasion” argument thus seems to be invalid for Germany.19
Before moving ahead with the empirical investigation there is a need to take into
account an additional consideration. This has to do with the fact that, as was mentioned
above, following Germany’s imposition of the “iron and rye” tariff in 1879 there was an
upward trend in European tariffs on grains. As some of the countries imposing tariffs
were relatively large their actions must have generated a downward pressure on the
international prices of grains.20 One can therefore claim that there is a bias in favor of
finding evidence of declining grain prices in the UK and Denmark during the 1870-1913
period. If despite this bias no decline in real grain prices was found, the conclusion that
18
European grain prices are proxied by Danish grain prices. It was not possible to conduct this exercise
with British data due to the unavailability of British price data for rye, the most important grain in German
agriculture. Nevertheless it is reasonable to assume that performing the same exercise using the UK’s data
would not have yielded much different results, as Table 1 clearly demonstrates the similarity between the
behavior of grain prices in Denmark and in the UK. Table 2 makes it clear that using the shares in land
under cultivation instead of the shares in production would not have made much of a difference either.
19
Using the GDP deflator and the CPI instead of the WPI yields very small weighted average price declines
of 0.15 and 0.09 percent per year, respectively.
20
The magnitude of the decline in international grain prices depends in principle on the relative importance
in the market of the tariff-imposing countries and the height of the tariffs imposed by them. The more
important the role of those countries in the market and the higher the tariffs the lower the international price
would be.
8
the “grain invasion” story lacks empirical support for Germany seems even more
warranted.
The surprising lack of evidence in support of the “grain invasion” argument during
the entire 1870-1913 period implies that if there was a decline in the real price of grains
prior to the adoption of the “iron and rye” tariff it must have been transitory.
Nevertheless it is interesting to examine the data for this period which is displayed in
Table 3. The top part of the table establishes that during the 1870-8 period the nominal
and the real price of all three grains increased in the UK, regardless of the choice of
deflator.21 The bottom part of Table 3 examines grain price behavior in Germany during
the 1870-78 period. It establishes that relative to other tradable goods the price of wheat,
barley, oats and rye actually increased in Germany prior to the adoption of the “iron and
rye” tariff. The fact that real grain prices exhibit an increase when the WPI is used as
deflator while they exhibit a decrease when the GDP deflator and the CPI are used for
that purpose implies that the relative price of non-tradables increased in Germany during
the 1870-78 period. This pattern of behavior of relative prices can be interpreted as an
appreciation of the German real exchange rate, a subject that will be discussed at length
in the following sections.
To sum up, the conclusion that the “grain invasion” explanation of the 1879 German
tariff lacks empirical support seems warranted both when long-term and shorter-term
grain price movements are analyzed. The paper will now move on to present and
evaluate other leading explanations of the “iron and rye” tariff.
21
Due to the data limitations mentioned above the corresponding figures were not computed for Denmark.
9
An alternative demand side explanation for the adoption of the 1879 tariff, on which
later sections will build, focuses on macroeconomic developments in Germany.
Specifically the claim made in some accounts is that the economic slump in Germany in
the second part of the 1870s played a crucial role in the formation of the protectionist
coalition. The argument linking economic downturns and rising protectionism has been
formalized in the literature, an example being the work of Giulio Gallarotti.22
Gallarotti’s hypothesis is that there exists an inverse relationship between movements in
tariffs and the level of economic activity within a nation. More precisely, tariff changes
occurring in periods of high economic activity will show a downward tendency, those
occurring in periods of low activity will tend upward. The logic of the argument is that in
times of economic decline demand for protection increases while the cost for the
government (in terms of political support) of providing it falls, thus paving the way for
protectionist legislation. The reverse is true in times of economic prosperity. Gallarotti
statistically tests his theory on several countries, concentrating on the nineteenth century.
One of the cases that conform to his hypothesis is the simultaneous economic decline and
increase in tariffs in the second part of the 1870s in Germany.23 What is lacking in this
line of argument is causality: what led to the economic decline in the second part of the
1870? The next sections attempt to answer this question.
22
Gallaroti, “Business-Cycle Model”.
23
Correlation between levels of protection and macroeconomic performance was found in other studies.
For example, Bohara and Kaempfer [“Tariff Endogeneity”] empirically investigate the tariff history of the
United States and find that tariffs are Granger-caused by unemployment, real-GNP and other
macroeconomic variables.
10
A prominent line of research on the supply side of the 1879 tariff, which will also be
built upon in later sections, emphasizes the role of the tariff as a source of government
tax revenues.24 The second German Reich, established in 1871, had a federal structure.
According to the German constitution the federal government had in essence only one
independent source of revenues: indirect taxes. These consisted of customs and excise
taxes, of which the most important were consumption taxes on such goods as liquor,
sugar, beer, salt and tobacco. Any shortfall in revenues from indirect taxes was covered
by contributions from the German states, which, on their part, mostly relied on direct
taxation.25 It is argued that Bismarck was dissatisfied with this system of taxation mainly
because it weakened the federal government’s position relative to the states.26 Thus
according to proponents of this approach Bismarck imposed the “iron and rye” tariff in
order to provide the German federal government with an independent source of income.27
The tariff as source of revenue argument seems to make sense. But then the question
is of timing – why did Bismarck decide on adopting the tariff towards the end of 1870s
24
This argument is made most forcefully by John M. Hobson, The Wealth of States, chapter 2, and by
Dawson, Protectionism in Germany. See also Borchardt, Perspectives, pp. 7-8.
25
The German tax system is analyzed in detail in Schremmmer, “Taxation,” and in Hobson Wealth of
States.
26
See, for example, Dawson, Protectionism in Germany.
27
An interesting point to note with respect to the tariff as revenue source argument is that, unlike the tariff
as a protective instrument argument, it can only be valid for moderate levels of protection. Moderate levels
of tariffs offer both protection and revenues. In contrast, very high levels of tariffs offer only protection but
very little revenue if at all. As will be seen later, the 1879 tariff provided for very moderate rates of
protection, a fact that is consistent with both arguments.
11
and not earlier? The German tax system was put in place by the 1871 constitution and
according to many accounts Bismarck was dissatisfied with it already then. Bismarck’s
position all along was that the system was supposed to be temporary, the dependence of
the federal government on states’ contributions eliminated with the introduction of an
indirect federal tax at a later stage. So why did he not act earlier? The following sections
will offer a macroeconomic rationale for the timing of the tax reform.
ECONOMIC CONSEQUENCES OF THE WAR INDEMNITY
In July 1870 a war broke out between Prussia and France. The Prussians won a swift
victory and in January 1871 the two sides signed an armistice agreement.28 A formal
peace treaty was ratified in Frankfurt in May 1871. According to the Frankfurt treaty the
French, as the losing side, had to pay a five billion Francs war indemnity, a very
significant sum for both countries as will be shown below.
Bismarck’s goal in
demanding a large indemnity was to weaken France and to postpone its recovery from the
defeat by Prussia. The treaty set up a payment schedule and tied payments with the
return to France of land conquered by the Prussians. The French were eager to have the
conquered land returned to them and therefore finished paying the indemnity by
September 1873, half a year ahead of schedule. Total monetary indemnity payments
summed up to about 1.2 billion Francs in 1871, 1.8 billion Francs in 1872 and 2 billion
Francs in 1873.29
28
The same month saw the establishment of the second German Reich.
29
The story of the war indemnity is told in detail in Kindleberger, Financial History and in Monroe,
“French Indemnity”. Analysis of the indemnity’s economic effects can be found in the above mentioned
12
In essence the war indemnity constituted a large capital inflow. In order to put
this inflow in comparative historical perspective Figure 3 contrasts the magnitude of the
inflows into Germany in the early 1870s with the capital inflows into Asian countries that
suffered from a severe balance of payments and economic crisis in the second part of
1990s.30 This group of Asian countries consists of Indonesia, Korea, Malaysia, the
Philippines and Thailand. The figure contrasts the share of the inflows in national output
in the two episodes, for the years 1871-3 in the German case and for 1994-6, the three
years preceding the beginning of the crisis, in the Asian case. The figure demonstrates
that in each of the three years the share of inflows in output was higher during the 1870s
episode than in the 1990s episode. For the three years period the average share of
inflows in output was 8.1 percent during the German 1870s episode while the
corresponding figure for the Asian 1990s episode was only 4.5 percent. The French
indemnity inflows into Germany in the early 1870s were thus clearly of substantial
magnitude.
Expecting to receive large amounts of gold from France as part of the war
indemnity, Germany adopted the gold standard in three stages from 1871 to 1873.31 This
fact is of importance to the analysis because in an open economy operating under the
gold standard, as is the case under a fixed exchange rate regime, prices and not the
exchange rate do most of the adjustment to shocks that hit the economy. The gold
sources and in Gavin, “Intertemporal Dimensions”. None of these sources links the indemnity to the rise of
protectionism in Germany.
30
31
See data appendix for sources.
Stolper, German Economy, pp. 18-20. Britain was at the time the only other country on the gold
standard. Most other major countries were on a bimetallic standard.
13
standard, like a fixed exchange rate system, does not allow for active monetary policy.
When this fact is combined with the reluctance of governments of the period to use
stabilizing fiscal policy they together imply relatively large output fluctuations following
exogenous shocks.32 On the other hand it has to be noted that under the gold standard
there is an automatic system of adjustment to shocks to the balance of payments, the
price-specie-flow mechanism, which tends to mitigate to some degree output
fluctuations.33
The German government, which directly received the indemnity payments, used
the windfall income quickly with spending on military expansion, railway construction
and other projects at the federal and state levels.34 Figure 4 displays total real central
German government expenditures from 1872 to 1877/8.35
32
The figure dramatically
A similar argument is made in Obstfeld, “Global Capital Market”. Interestingly, according to Barkin
[Controversy, p. 34] in 1876 an organization of landowners diagnosed the gold standard as the root of
agriculture’s difficulties during that period. Barkin claims that the Junkers started to support tariffs on
grains only when it became clear that Bismarck opposed a shift to a bimetallic system.
33
The mechanism works as follows: a balance of payments surplus increases the gold reserves in the
central bank and leads to an increase in the money supply. The consequent increase in prices leads to real
exchange rate appreciation, decrease in net exports and a decline in the original balance of payments
surplus.
34
Craig, Germany, p. 80 and Monroe, “French Indemnity,” pp. 274-5. One can argue that following the
war the Germans in any case would have had to modernize their army and improve the railway system.
Yet it is difficult to imagine that they would have spent the same amounts on such projects and in such a
short period of time without having in their hands the French indemnity.
35
Data is not available prior to 1872. The year 1872 was used as a base for comparison (i.e. 1872=100).
See data appendix for sources.
14
illustrates the drop in federal government expenditures from the 1872-3 period to the
1874-78/9 period. Average real expenditures during the 1874-78/79 period were less
than half of the corresponding figure for the years 1872-3.
How did the indemnity inflows affect the German economy? The recent crises in
emerging markets yielded a large literature that deals with the economic consequences of
large inflows and can therefore help us look for answers to this question.36 According to
this literature the typical initial effects of large capital inflows are acceleration of output
growth, increase in the rate of inflation, real exchange rate appreciation, increase in
money supply and rising stock market prices. Frequently when the capital inflows stop
or even change direction these patterns are reversed: output growth slows down,
deflationary pressures appear, the real exchange rate depreciates, money growth slows
down and stock market prices decline.
To examine whether the German economy exhibited such patterns in the 1870s
Table 4 presents data on the behavior of key macroeconomic indicators: real net national
product, consumer and wholesale price indices, real exchange rate, bank notes in
circulation and stock market index. The table displays the average annual rates of change
for these variables in three time periods: the pre-inflow 1860-70 period, which serves as a
benchmark for comparison, the 1871-74 inflow period, and the post-inflow, pre-tariff,
1875-78 period.37
36
See the survey article by Lopez-Mejia. Calvo, Leiderman and Reinhart stress similar themes in a pre-
Asian crisis article.
37
The “inflow period” was extended to include 1874 in order to allow for lagged effects.
15
Table 4 establishes that the German economy clearly exhibited the typical
symptoms of a boom-bust cycle associated with large capital inflows that suddenly stop.
Net national product growth accelerated from an average of about two percents per year
in the 1860-70 period to more than six percents in the inflow period and then dropped
sharply to less than one percent afterwards. There was a burst of inflation followed by a
deflationary process. Consumer price inflation went up from an average of one and a half
percent per year in the 1860-70 period to almost seven percents during the inflow episode
and then turned into a rate of deflation of almost three percents in the post-inflow period.
A similar pattern characterizes the behavior of the wholesale price index, although in this
case the inflation rate was lower during the inflow period while the deflation rate was
higher during the post-inflow period.38
During the inflow episode the German trade weighted real exchange rate
appreciated by an average annual rate of almost three percents. Then it rebounded with
an average annual depreciation rate of more than four percents.39
Bank notes in
circulation, a proxy for money supply, exhibited a rapid rate of growth of thirteen
38
As will be recalled from the discussion in the previous section, this differential behavior of the WPI and
the CPI implies an increase in the relative price of non-tradables in both the inflow and the post-inflow
periods. The real exchange rate is sometimes defined as the relative price of non-tradable goods, so the
increase in the relative price of non-tradables in the two sub-periods could be equivalently interpreted as
real exchange rate appreciation. Below I concentrate on a different measure of the real exchange rate that
is more relevant for the analysis of international competitiveness.
39
It is possible that the workings of the price-specie-flow mechanism played a role in the rebounding of the
real exchange rate. The initial real exchange rate appreciation and loss of competitiveness had probably led
to a loss of gold reserves and a decrease in the money supply, which translated in turn into falling prices
and real exchange rate depreciation.
16
percents during the inflow episode and then declined sharply at an average annual rate of
ten percents in the 1875-8 period. A similar boom-bust pattern is reflected in the
movement of the stock market composite index. From an annual rate of increase of three
percents in the 1860-70 period it went up to more than six percents in the inflow period
and then sharply decreased to a decline of ten percent in the post-inflow period.
To sum up, the evidence clearly shows that the German economy displayed a
pattern of macroeconomic imbalances that is typically observed in episodes of large
capital inflows that suddenly stop.40 The question that will now be addressed is how
were these macroeconomic developments related to the rise of protectionism in Germany
in the 1870s.
40
The connection between the boom-bust cycle and the indemnity was not lost to observers at the time.
Monroe, “French Indemnity” [p. 281] claims that the downturn in the post-inflow period was so acute that
rumors circulated about the German government considering the return of the indemnity to France. How
serious were those rumors is difficult to say. An alternative explanation for the German boom-bust cycle
mentioned in the literature focuses on the stock market. It asserts that the euphoria in Germany after the
defeat of France and the establishment of the second Reich led to the development of a stock market
bubble, which ultimately burst in 1873. According to this view the collapse of the stock market was what
led to the slowdown in economic growth. Although one cannot completely discount this explanation, it
seems reasonable to assume, as is done in this paper, that the indemnity inflows played the crucial role in
the development of the boom-bust cycle. The rise in the stock market must have been driven, at least in
part, by the inflows.
17
MACROECONOMIC IMBALANCES AND PROTECTIONISM
The story of the events leading to the adoption of the “iron and rye” tariff in 1879
has been told many times before.41 The purpose of this section is not to reiterate in detail
what has been written before about the subject but to highlight important developments in
the rise of protectionism in Germany in the 1870s and to offer a new interpretation of
these events. This section claims that macroeconomic imbalances associated with the
French war indemnity played the crucial role in the process leading to the adoption of the
“iron and rye” tariff. In essence, the explanation for the tariff set forth below ties
together, builds on and strengthens the tariff as a reaction to an economic downturn
argument and the tariff as source of revenue argument.
In the early part of the 1870s Germany enjoyed an economic boom. The main
causal factor behind the boom was the French war indemnity. The indemnity inflows
translated into a simultaneous monetary and fiscal stimulus and the consequent increase
in aggregate demand had the expected textbook effects: output growth and rising prices.
Given the fact that Germany was under the gold standard the rising prices translated
directly into real exchange rate appreciation. The economic boom and the enthusiasm
following the defeat of France also led to a very rapid increase in the prices of stocks.42
In those “good times” resistance to tariff liberalization was minimal. Germany has been
liberalizing its tariff from the early 1860s. By 1873 there was no tariff protection for
41
42
The most detailed account of the events of the period is Lambi, Free Trade and Protection in Germany
The speculative activity in Germany was assisted by relaxation of some legal constraints on the
establishment of joint-stock companies. This expressed itself in the meteoric rise in the number of jointstock companies during the period: from 410 in June 1870 to 2,267 at the end of 1874. Ashley, Modern
Tariff History, p. 42.
18
agricultural and industrial goods except for some duties on iron, due to be abolished by
1877.43 Most members of the government, civil servants and members of the two houses
of parliament supported free trade.44
In 1873 and 1874 things changed dramatically. The indemnity inflows stopped
and consequently aggregate demand declined. Consequently, output and prices now
started to move in an opposite direction. As Figure 5 shows, Germany’s net national
product (NNP) growth rate, which fluctuated around 6 percents in the 1871-4 period, was
negative in 1875, 1876 and 1877. Only in 1878 did Germany again experience positive
growth. Prices also plummeted, as was shown in table 4.
The worst hit sector in the German economy was, by most accounts, the iron and
steel sector. Such an outcome could have been expected, as this sector benefited most
from the increase in government expenditures financed by the war indemnity, especially
from the expenditures directed at railroads and fortifications. The real (WPI deflated)
price of iron increased by almost forty percent from 1870 to 1873 and then dropped by
almost forty percent from 1873 to 1876. On the quantity side the response was similar.
Production of raw iron increased by 61 percent from 1870 to 1873 and then dropped by
16 percent from 1873 to 1876.45 It has been claimed that at the end of the economic
boom the production of iron in Germany was so large that it could have satisfied the
whole world’s demand; consequently when the boom turned into bust the industry
suffered from extreme excess-capacity.46
43
Ashley, Modern Tariff Policy, pp. 37-42.
44
Henderson, Rise of German Industrial Power, p. 213.\
45
See Appendix 1 for sources.
46
Dawson, Protectionism, p. 39.
19
It is therefore not surprising that the iron and steel industry led the way in
demanding assistance from the government. The establishment, in 1873, of the Union of
Iron and Steel Manufactures is frequently mentioned in the historical literature as the first
step in the organized protectionist campaign.
Initially the iron and steel industry
refrained from demanding a tariff increase and only asked for maintenance of the existing
duties on iron.
It also lobbied, unsuccessfully, for more government expenditures,
especially on railroads, as a (pre-Keynes) “Keynesian” measure to get Germany out of
the slump.47
During the next several years the pro-tariff coalition widened. A noteworthy step
in the organization of the protectionist movement was the formation, in 1876, of the
Central Union of German Manufacturers. This protectionist organization now included
other industries, in addition to the iron and steel, such as chemicals, sugar, cotton
spinning, linen and leather. What was the common denominator among the participants
in this very wide coalition? The answer is that they were all producers of tradable goods
(i.e. import competing and exporting sectors). Why did they support protection? There
are several reasons. First, producers of tradable goods were among those hurt by the
severe economic decline in Germany in the second part of the 1870s. Second, the
overvaluation of the currency was hurting producers of tradable goods. Figure 6 displays
the behavior of the trade-weighted real exchange rate during the 1870-78 period. The
figure clearly demonstrates the overvaluation of the currency (taking 1870 as a base for
comparison) during the mid-1870s. Third, the exporting industries potentially suffered
also from decreased demand in foreign markets due to a slowdown in the economies of
47
Kitchen, Political Economy of Germany, p. 145
20
Germany’s major trading partners. Table 5 displays the average annual growth rate of
national output in Germany and its main trading partners in three sub-periods: 1860-70
(included to facilitate historical comparison), 1871-74 and 1875-78. The table establishes
that in most of Germany’s major trading partners there was indeed a slowdown between
the 1871-74 period and the 1875-8 period. But it is also clear that in none of these
countries was the slowdown, if it occurred at all, so dramatic as in Germany.
In short, macroeconomic developments adversely affected a wide spectrum of
producers of tradable goods and led them to seek tariff protection.
Obviously, not all
producers of tradable goods had the same position. Many considerations influenced the
attitudes of different sectors, such as the degree to which demand declined for the
sector’s products, the degree of the sector’s dependence on imported intermediate goods
and the perceived likelihood of foreign retaliation in a specific sector. Yet the width of
the protectionist coalition leaves no doubt that it had very little to do with changing
patterns of comparative advantage and much to do with the adverse macroeconomic
circumstances.
The Junkers joined the protectionist coalition relatively late, in 1876-7. This
might be related to the fact that by the time they joined the coalition there were already
signs that Bismarck was leaning towards the option of tariffs.48 Once the Junkers jumped
on the bandwagon it became easier for the protectionist coalition to achieve victory
because the Junkers possessed considerable amount of political power. The stage was set
for Bismarck to make his decision.
48
One sign of this was the changing makeup of his close circle of advisors, which became less liberal.
21
The major reason behind Bismarck’s decision to support the cause of the
protectionist campaign was his desire to have an independent source of indirect taxation.
Figure 7 offers some evidence supporting this argument. It displays the behavior, during
the 1872-1878/9 period, of the federal government’s two main revenue sources: (1)
consumption tax and customs and (2) contributions from the states.49
The figure
indicates that as revenues from the consumption tax and customs dwindled in the second
part of the 1870s, contributions from the states increased.
Why did the federal
government’s revenues from indirect taxes decrease during the second part of the 1870s?
The reason for the fall in indirect taxes was the slowdown in economic growth. The need
to increase contributions to compensate for the shortfall in indirect taxes during the
economic slump increased the burden on the German states, which must have also
suffered from the economic downturn.
The increasing burden on the states and the
consequent increased tension within the German federal structure helped to motivate
Bismarck to act when he did.
Evidence that Bismarck wanted the tariffs to replace states’ contributions comes
from the Chancellor himself, in a letter from December 1878 addressed to the committee
that was appointed to consider the revision of the tariff.50 In the letter Bismarck claims
that the financial object of the tariff reform was to be the reduction of direct and the
increase of indirect taxation. He added that according to his calculations if the future
import duties were to average five percents ad-valorem the increased revenue would
49
Data is not available prior to 1872. See Appendix 1 for sources.
50
Ashley, Protectionism in Germany, pp. 44-45.
22
amount to about seventy million marks, which as can be seen in Figure 7, was almost
exactly the amount of the German states’ contributions in 1878-9.
In May and June 1878 there were two attempts to assassinate the emperor,
Wilhelm I. This gave Bismarck the excuse to dissolve the parliament and to hold general
elections, which led to a marked swing to the right in the Reichstag. Now there was a
large pro-tariff majority in the parliament.51 The time was right for Bismarck to make the
final push for adoption of the tariff. With the support of the government the Reichstag
approved the “iron and rye” tariff in July 1879. Moderate levels of tariffs were imposed
on various industrial and agricultural goods.52 The tariff bill received Imperial assent on
July 7th 1879, and under it part of the new tariff came into operation at once, part on
October 1st, 1879, and the remainder on January 1st, 1880.53
51
During the 1870s Bismarck reluctantly had to rely on the support of the liberals, most of which supported
free trade. The swing to right in the 1878 Reichstag elections relieved Bismarck from the need to rely on
the liberals and allowed him to form a center-right coalition. The importance of the 1878 elections is
manifested by the fact that this center-right coalition survived until the First World War. See for example,
Craig, Germany, Feuchtwanger, Imperial Germany and Sturmer, German Empire.
52
The wide spectrum of goods covered by the tariff reflected the width of the protectionist coalition. The
tariff dealt with 43 groups of commodities. A partial list of items includes: wheat, rye, oats, barley, maize,
flour, meat, pigs, oxen, sheep, iron and steel goods and semi-manufactured goods, machinery, glass, yarns
and textiles. Exemption from tariff was given to some raw materials. The ad-valorem equivalents of the
specific tariff imposed were in the range of 6 to 8 percents for grains and somewhat higher for industrial
goods.
53
Bismarck’s desire to gain financial independence for the federal government was eventually frustrated to
some extent by the “Frankenstein clause” of 1879, which essentially determined that any excess of customs
revenues over a given threshold level was to be refunded by the federal government to the member states.
23
CONCLUSION
The actions of Chancellor Bismarck begin and end this paper’s story. In 1871
Bismarck imposed a war indemnity on France. In 1879 he levied tariffs on “iron and
rye”.
The war indemnity, in essence a very large capital inflow, translated into a
massive monetary and fiscal stimulus. The consequent increase in aggregate demand led
to the creation of an economic boom. When the indemnity inflows stopped the boom
turned into bust and the protectionist campaign began. German producers of tradable
goods suffered from decreased domestic demand and exchange rate overvaluation. At
the same time the decrease in tax revenues due to the economic slump increased the
tension within the German federal system and Bismarck’s desire for an independent
source of revenues. The 1879 tariff was thus the direct result of the increased demand
for protection from a wide spectrum of domestic producers and the increased willingness
of Bismarck to supply it.
The return to protectionism in continental Europe that started with the 1879
German tariff is widely considered as an example of a backlash against globalization.
This paper has shown that the German tariff itself was not adopted as a reaction to
globalization but was rather a consequence of a country-specific macroeconomic shock.
The analysis conducted in the paper has shown that relative to the prices of other tradable
goods European grain prices did not decline by much, if at all, during the 1870-1913
period. The fact that other countries had different production structures from Germany’s
(and thus were subjected to a different price shock) notwithstanding, it seems that the
results presented in this paper call for some reconsideration of the traditional view of latenineteenth-century European tariff history.
24
APPENDIX 1 - DATA
Below is an alphabetical list of variables used in the analysis. For each variable the
country coverage, source of data and method of computation are indicated.
- Banknote Circulation (Germany)
Source: Mitchell, International Historical Statistics: Europe, Table G1
- Capital Inflows into Asian Crisis Countries (Indonesia, South Korea, Malaysia, the
Philippines and Thailand).
Data on net private capital inflows in billions of US dollars into these countries are from
the World Economic Outlook database, May 2001. Data on gross domestic product
(current prices) in US dollars are from the same source. The share of inflows in output
was computed by dividing total inflows by total output for the five countries as a group.
- Consumer Price Index (Denmark, Germany and the UK)
Source: Mitchell, International Historical Statistics: Europe, Table H2.
- External Trade – Shares (Germany)
External trade (by value) with main trading partners is from Mitchell, International
Historical Statistics: Europe, Table E2. Data is available from 1880 onwards. The series
for the US starts at 1882. The Netherlands and Russia, which were at the time among
Germany’s main trading partners, do not have WPI data (needed to compute the trade
weighted real exchange rate) for the 1870-78 period and thus were dropped from the
calculations. The shares of each country in Germany’s external trade (imports plus
exports) out of the total for the seven major trading partners in 1882 were (in %): Austria:
- 25.43, Belgium – 12.55, France – 18.01, Italy – 3.90, Sweden – 2.79, UK – 27.91, USA
– 9.42. The total value of imports plus exports of these countries out of the grand total
was 51.56 percent in 1882.
- External Trade – Total (Germany)
Data on Germany’s imports and exports (excluding precious metals) in the 1872-1878
period is from Arthur E. Monroe, “The French Indemnity of 1871 and its Effects,” Table
1.
- Government Expenditures (Germany)
Central Government expenditures are from Mitchell, International Historical Statistics:
Europe, Table G5. The series starts at 1872. In the years 1872-5 the fiscal year was
January to December. From 1876 on the fiscal year was April-March. Thus the figure
for the fiscal year 1876-7 contained originally data for 15 months and was therefore
adjusted down proportionally. The German NNP deflator was used to derive real central
government expenditures.
- Grain Prices (Denmark, Germany and the UK)
Nominal grain prices for Germany are from Walther G. Hoffmann , Das Wachstum der
Deutschen Wirtschaft seit der Mitte des 19. Jahrhunderts, Table 135, p. 552, columns 14. Nominal grain prices for Denmark and the UK are from Kevin H. O’Rourke, “The
European Grain Invasion,” Appendix Table 1.2
25
- Grain Acreage and Total Production (Germany)
Grain acreage (in 1000 acres) for wheat, rye, barley and oats in 1870 is from Walther G.
Hoffmann , Das Wachstum der Deutschen Wirtschaft seit der Mitte des 19. Jahrhunderts,
Table 48, p. 272, columns 1, 3, 4 and 5, respectively. Share of each grain was computed
relative to the total of the four grains.
Total production (in 1000 tons) for wheat, rye, barley and oats in 1870 is from the same
source, Table 58, p. 284, columns 1, 3, 4 and 5, respectively. Share of each grain was
computed relative to the total of the four grains.
- Indemnity Inflows (Germany)
The French Franc value of transfers to Germany by calendar year (1871 to 1873) are
from Charles P. Kindleberger, A Financial History of Western Europe, pp. 238-242.
These were converted to German Marks using the nominal Franc/Mark exchange rate.
- Iron Prices (Germany)
Nominal iron prices are from Hoffmann , Das Wachstum der Deutschen Wirtschaft seit
der Mitte des 19. Jahrhunderts, Table 140, p. 572, column 6.
- Iron Production (Germany)
Raw iron production is from Hoffmann , Das Wachstum der Deutschen Wirtschaft seit
der Mitte des 19. Jahrhunderts, Table 68, p. 353, column 1.
- Nominal Exchange Rates (selected countries)
Nominal
Exchange
rate
data
is
from
Global
Financial
Data
(http://www.globalfindata.com) annual files. The original data reports the exchange rates
of domestic currencies against the US dollar. These were converted into exchange rates
against the German mark using cross-rates.
- Output (selected countries)
The data on output at constant prices for France (GDP), Denmark (GDP), Germany
(NNP), Italy (GNP), Sweden (GDP) and the UK (GDP) is from B.R. Mitchell,
International Historical Statistics: Europe, Table J1. Italy has data only for the 1861-78
period. GDP at constant prices for Austria and Belgium is from Angus Maddison,
Dynamic Forces in Capitalist Development, Tables A5 and A6. Austria has data only for
the year 1860 and then for the 1870-78 period. Thus for Austria the average annual
change for the 1860-70 period was computed by dividing the 1870 by the 1860 value of
GDP, taking natural logarithm, and dividing by 10. For the US the source for GNP at
constant prices is B.R. Mitchell, International Historical Statistics: The Americas, Table
J1.
- Output Price Deflators (Denmark, Germany and the UK)
GDP deflators for Denmark and the UK and NNP deflator for Germany were obtained
using the respective current and constant price output series.
- Real Exchange Rate (Germany)
The series reported in the paper is trade-weighted and based on the wholesale price index.
It was derived in the following way. First a separate German real exchange rate series
was derived relative to each of Germany’s main trading partners by multiplying the
nominal exchange rate of Germany against the trading partner by the trading partner’s
wholesale price index and then dividing the product by Germany’s wholesale price index.
In the next step the series was converted, for each country separately, to a base year of
1870 (i.e. 1870=100). The trade-weighted real exchange rate was finally obtained by
multiplying the indexed real exchange rate series for each country by that country’s trade
26
share. Since price data for Austria’s WPI is available from 1867 onwards only, the real
exchange rate series is also available for that limited period.
- Stock Market Index (Germany)
Annual data on the CDAX composite stock price index was obtained from Global
Financial Data (http://www.globalfindata.com)
- Tax Revenues (Germany)
Data on indirect Reich tax revenues from consumption taxes and marticular contributions
is from Wilhelm Gerloff, Die Finanz- und Zollpolitik des Deutschen Reiches, Jena:
Gustav Fischer, 1913, pp. 98-99. Data is available beginning on 1872. Adjustment for
the change in the fiscal year was done in the same way as in the government expenditure
data.
- Grain Imports and Exports (Denmark, Germany and the United Kingdom)
Imports and exports data for Germany and the UK are from George J. Broomhall, The
Corn Trade Year Book, London: St Mary’s Chamber, 1904. The series reported start at
either 1870 or 1871 and end at 1903. The reference to Denmark’s net imports and
exports is from O’Rourke, “European Grain Invasion,” p. 781.
- Wholesale Price Index (selected countries)
For all European countries the data on the wholesale price index is from Mitchell,
International Historical Statistics: Europe, Table H1. Austria has data only for the 186778 period while Italy has data only for the 1861-78 period. US wholesale price index is
from Mitchell, International Historical Statistics: The Americas, Table H1.
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29
TABLES
TABLE 1: CHANGES IN GRAIN PRICES IN THE UK AND DENMARK
1870-1913
(AVERAGE ANNUAL CHANGE IN %)
PERIOD
DEFLATOR WHEAT BARLEY OATS
NONE
-0.30
-0.21
-0.08
GDP
-0.43
-0.34
-0.21
UK
1870-1913
CPI
-0.22
-0.04
0.07
WPI
-0.09
0.10
0.22
NONE
-0.44
-0.08
-0.10
GDP
-0.47
-0.15
-0.20
DENMARK 1876-1913
CPI
-0.44
-0.08
-0.13
WPI
-0.21
0.10
0.02
RYE
N/A
N/A
N/A
N/A
0.16
-0.02
0.03
0.19
Source: see Appendix 1.
TABLE 2: SHARES OF GRAIN ACREAGE AND PRODUCTION IN GERMANY,
1870
(SHARE OF EACH GRAIN IN TOTAL, IN %)
ACREAGE
PRODUCTION
WHEAT
12.3
13.2
BARLEY
12.9
14.8
OATS
29.1
28.0
RYE
45.6
44.0
Source: see Appendix 1.
TABLE 3: REAL GRAIN PRICES IN THE UK AND GERMANY
1870-1878
(AVERAGE ANNUAL CHANGE IN %)
THE UK
GERMANY
DEFLATOR
NONE
GDP
CPI
WPI
NONE
NNP
CPI
WPI
WHEAT
0.91
0.78
1.38
0.97
0.69
-0.30
-1.28
1.64
Source: see Appendix 1.
30
BARLEY
2.29
2.19
3.06
2.56
0.80
-0.17
-1.15
1.92
OATS
1.13
1.13
1.98
1.55
-0.29
-1.11
-2.07
1.32
RYE
N/A
N/A
N/A
N/A
0.33
-0.71
-1.70
1.28
TABLE 4: MACROECONOMIC STATISTICS FOR GERMANY, 1860-78
(AVERAGE ANNUAL CHANGE IN %)
1860-70
2.13
1.41
-0.17
-0.19a
6.59
3.14
REAL NET NATIONAL PRODUCT
CONSUMER PRICE INDEX
WHOLESALE PRICE INDEX
REAL EXCHANGE RATE
BANKNOTES IN CIRCULATION
STOCK MARKET INDEX
1871-74
6.32
6.95
5.32
-2.90
12.55
6.59
1875-78
0.60
-2.88
-7.18
4.44
-9.63
-9.99
Source: see Appendix 1. Note: a – 1867-70 average.
TABLE 5: GROWTH RATE OF NATIONAL OUTPUT, 1860-78
(AVERAGE ANNUAL CHANGE IN %)
GERMANY
AUSTRIA
BELGIUM
FRANCE
ITALY
SWEDEN
THE UK
USA
1860-70
2.13
1.12
2.38
2.03
1.05a
2.89
3.08
3.34
1871-74
6.32
2.55
2.57
2.57
0.80
4.14
2.13
5.61
1875-78
0.60
2.38
1.31
-0.20
1.16
0.94
1.09
5.50
Source: see Appendix 1. Note: a – 1861-70 average
31
wheat
barley
oats
1913
1912
1911
1910
1909
1908
1907
1906
1905
1904
1903
1902
1901
1900
1899
1898
1897
1896
1895
1894
1893
1892
1891
1890
1889
1888
1887
1886
1885
1884
1883
1882
1881
1880
1879
1878
1877
1876
1875
1874
1873
1872
1871
1870
FIGURE 1: REAL (WPI DEFLATED) GRAIN PRICES IN THE UK, 1870-1913 (1870=100)
130.00
120.00
110.00
100.00
90.00
80.00
70.00
60.00
wheat
barley
oats
rye
1913
1912
1911
1910
1909
1908
1907
1906
1905
1904
1903
1902
1901
1900
1899
1898
1897
1896
1895
1894
1893
1892
1891
1890
1889
1888
1887
1886
1885
1884
1883
1882
1881
1880
1879
1878
1877
1876
FIGURE 2: REAL (WPI DEFLATED) GRAIN PRICES IN DENMARK, 1876-1913 (1876=100)
130.00
120.00
110.00
100.00
90.00
80.00
70.00
60.00
FIGURE 3: MAGNITUDE OF INFLOW RELATIVE TO NATIONAL PRODUCT (IN %)
GERMANY 1871-73 VS. ASIAN CRISIS COUNTRIES 1994-96
10
9
8
7
6
5
4
3
2
1
0
1871/1994
1872/1995
GERMANY
ASIAN CRISIS COUNTRIES
1873/1996
FIGURE 4: REAL CENTRAL GOVERNMENT EXPENDITURES IN GERMANY, 1872-78/9 (1872=100)
100.00
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
1872
1873
1874
1875
1876/7
1877/8
1878/9
FIGURE 5: GERMANY'S NET NATIONAL PRODUCT GROWTH RATE, 1871-8
12.00
10.00
8.00
6.00
4.00
2.00
0.00
-2.00
1871
1872
1873
1874
1875
1876
1877
1878
FIGURE 6: GERMANY'S TRADE WEIGHTED REAL EXCHANGE RATE, 1870-78 (1870=100)
108.00
104.00
100.00
96.00
92.00
88.00
84.00
1870
1871
1872
1873
1874
1875
1876
1877
1878
FIGURE 7: MAIN REVENUE SOURCES OF THE GERMAN CENTRAL GOVERNMENT
(IN MILLION MARKS), 1872-78/9
260
85
255
80
CONSUMPTION TAX AND CUSTOMS
(LEFT SCALE)
250
75
245
70
240
65
235
60
230
STATES' CONTRIBUTIONS
(RIGHT SCALE)
55
225
50
220
1872
1873
1874
1875
1876/7
1877/8
1878/9