New Paper on The Second German Reich

The Second German Reich:

German Industrialization and the Romantic-Nationalist Tradition

Matthew Raphael Johnson

German industrialization was rapid, successful and, importantly, strongly controlled by the state. The German situation in the second half of the 19th century was that of a strong ethnic unity that had not yet achieved political or economic unity. Beginning with the Zollverein in 1834 through eventual unification, the folk-unity became a political one. Industrialization followed upon a strong articulation of the nation and the organization of a state. This created substantial differences in German development can be understood, in part, through the vision of Romantic nationalism.

I.

Industrialization is always by force. Peasants always need to be squeezed by the state to provide the surplus required for industrial investments. Force can be used in at least two ways: that of private capital controlling the state, or the state controlling capital. The British model is the former, the German, the latter. Fully aware of the oversimplification, the thesis here is generally true because the German state and its sense of ethnic unity predates the drive to industrialization, making this development unique and disproving the ideology of the “Washington Consensus” and the IMF in international politics.

The international environment was essential as well. Germany had always been a cultural unity, but only since the customs union had it taken economic form. The Zollverein was the first manifestation of this unity. It was step one in making the cultural unity a force for later development. This meant, relative to the time period, that unity and industry were required to function at the same time. The Polish partitions proved what happens if unity is not pursued.

Kaiser_Wilhelm_II_of_Germany_-_1902

II.

The middle classes have a reputation as being “progressive” in the older, British understanding of that term. In the case of 19th and early 20th century Germany, there were more complex political variables that brought the bourgeoisie into supporting the project of German ethnic unification and its industrialization. Firstly, German success in rapid industrialization was rapid evident quite early, and the prosperity and stability within this process was impressive.

Secondly, the national pride in unification and embryonic great power status also helped bring the bourgeoisie to the count their own good with that of the ethnos. Importantly, the working class had a stake in this as well, partly from the achievements of national pride and rising wages, but partly in the fact that the state intervened in private capital to gain rights for labor absent elsewhere. Wilhelm II and his predecessors forced corporations to fund welfare programs and respect the rights of labor, which became the price for state support.

From first German unification onward (that is, 1871 versus 1991), the state was central in German industrial development. The main reason for this was the fact that Germany, led by the Prussian core, needed to become England’s equal, since Albion was Germany’s primary economic and military rival from this point onward.

The state needed to foster economic development, specifically industrialization, if Germany was to receive the status of a European great power. Germany had no colonies, meaning that domestic mobilization was essential to develop. This meant that the existence of a strong state was equally crucial to Germany’s success. Furthermore, the German state was to control trade prior to World War I in order to maximize the amount of re-investment back into industry.

State organized development in Germany is one of the western world’s success stories. It relied, however, on government intervention in every aspect of German life under in the 50 years prior to the war. It was not merely economic, but cultural and religious as well. If the full mobilization of German resources was needed to industrialize, then a strong, centralized and tightly unified state and culture were necessary. Under Bismarck and afterwards, the German state sought unity as a correlate to industry. The new Germany sought to expel all of those that could disrupt the peaceful adjustment of society to this necessary process. Further, the German parliament had no power to draft legislation, only to approve or reject it. The Reichstag was kept in line through military threats, meaning that the “state” here often meant “military.”

While impressive, this kind of institutional arrangement, of itself, was insufficient. Germany was no tyranny. It had substantial public support industrialization, but here too, the state was central. The German industrialization program and centralized, semi-autocratic rule rested on a delicate political balance that comprised the military, industry and the old nobility. At the same time, the ever revolutionary bourgeoisie was also brought into this process successfully.

The Prussian core of the German state sought to industrialize in two very specific stages: First, the heavy sectors such as iron, steel and transport (specifically rail) were the indispensable foundations for the second stage, the development of both chemical and electric sectors. The success is undeniable: between 1890 and 1913, the economy grew over 600%. It is easy for middle class liberals to content themselves with such success and avoid liberal cliche’s that seemed so irrelevant at the time. In this same period, the population increased by almost 10 million people, helping to shift workers into industry, reaching about 40% by the start of the War.

The success of the Second Reich was cultural and national before it was economic. J. Kocsa writes:

Bureaucratization preceded industrialization [in Germany], and bureaucratic structures, processes, and values therefore profoundly shaped the process and character of industrialization in Germany, in contrast to Great Britain and the United States. . . As far as bureaucratic patterns were adopted, however, they made a direct contribution to the success of the business. Bureaucratic controls stressing accuracy, punctuality, and regularity tended to check the more traditional, irregular, and slow performance of the still prevailing artisan-type first- generation factory workers, and thus helped to increase the efficiency of work (Kocka, 1981: 456 and 458).

Hence, several facts emerge. First, this might be an example of the connection between an ethnic nationalism that required a strongly formal element. This is to say that the ethnos, in order to operate within an international order often hostile to it, needed to develop bureaucratic structures quickly in order to survive. Poland had failed to do this at any level, and by the 1790s, the rise of the modern state literally tore it to pieces.

Secondly, that Germany unified and industrialized in an environment of great power domination. Like Russia, it was a late developer whose military and royal tradition built state structures prior to capitalist development. The existence of ethnic tradition is usually not sufficient, since this tradition needs to be protected. Third, as mentioned above, the specific virtues of bureaucracy were perfectly adapted for the needs of industrialization. Bureaucracy certainly has its evils, but in this case, the reversal of the normal development pattern worked to translate ethnic unity into full political and economic mobilization.

This is stated in a very different way by Lee:

Traditionally the Zollverein [customs union] has been accorded a major role in the direct promotion of German economic development in the nineteenth century. By demolishing internal trade barriers, it apparently intensified inner-German economic links, and contributed to the final formation of a ‘national’ market (Lee, 351: 1988).

This strongly implies that an ethnic unity existed before either the political or economic. The Zollverein did not seek a union with just anyone, but only those with its general cultural and linguistic sphere. This means that the customs union was merely manifesting a unity that had existed for some time. What was lacking until then was the political means and international impetus to make it real and to give it the required force needed to repel the arrogant British empire.

This is underscored by the following curious passage by the same author: “Nineteenth century German liberalism implicitly accepted the subordination of the individual to the moral expectations of the Volk, while Gustav Schmoller, for example, was lavish in praise of the unification and rationalization of control by bureaucratization” (Lee, 358). Such an implicit acceptance is not liberalism by definition. It derives from Romantic Nationalism and the strength that derives from its unity. Liberals might disagree on much, but the “subordination of the individual to the moral expectations of the Volk” is not one of them. Nothing could be more anti-liberal than such an acceptance.

Nevertheless, such a view is certainly a matter of historical fact. The unity of Germans could have nothing but positive results, especially in a 19th century environment where Germans were surrounded by hostile empires. This is the sense in which the industrialism here was a matter of “force” rather than a movement promoted by private capital, as in England. It is not to say that the dominance of concentrated finance capital in Britain did not force industrialization: it did. However, when the state does the forcing, it is, in the German case, done with greater respect to pubic needs than the private oligarchy elsewhere. Further, the requirement for industrialization in Russia or Germany was a matter of security, where “falling behind” was not a moral issue, but one of simple political calculation: develop industry or end up like Poland or Turkey.

This rapid development in both Russia and Germany had much in common. One aspect of this was that the state created a substantial legal set of protections for workers, including education and a strong safety net for the poor and unemployed. Russia had the added problem, however, of far greater geographical hurdles. The Russian Empire was not compact like England or Germany, and hence, industrialization was more expensive and faced more needed investment funds than the other powerful states of the time.

The funding sources of this operation were the taxes collected by military bodies and war indemnities from France as a result of the 1870-1871 war. As far as the army was concerned, it was an integrated, sizable and disciplined force. By 1880, about 75% of that force came from Prussia and reached a manpower total 14 million in 1914. German investment in the navy also expended this base, and threatened the smug colonial power of Britain. The German state also placed tariffs on both Russian and American grain, creating a prosperous farming class and creating a considerable surplus that was reinvested into continued infrastructural improvement. The educational system sought to foster the virtues that would lead to a powerful and coordinated national organism.

III.

To understand the above requires a summary of the mentality that informed it. The customs union, the sense of unity and the broad acceptance of a German state derives, generally, from Romantic nationalism. Only here does the state bureaucracy have any “raw material” to render amenable to required development goals. Nationalism in that sense hails from Germany, and thus it is reasonable to hold that the ethnic and statist vision of the monarchy took liberally from that school. Romanticism presents a coherent and compelling answer to the individualism and anarchy of the free market idea of Adam Smith and the classical school of economics he founded.

The basic structure of Romantic thought is first of all based on a rejection of rationalism. Rationalism is an approach to politics that stresses technique over ends, treating individuals and peoples are basically identical, and can be placed within scientific models that will both safeguard natural rights, or barring that, maximize production and hence, utility. Within the Classical school of economics, there are no “peoples” or nations, there are only producers and consumers. The Romantic school treats nations as individuals, seeing them as relatively unique occurrences within an organic cosmic order. What this means is that economics can never be considered apart from the social organism as an entity. Economics, as writers such as Adam Muller stressed, must become a part of society, integral with its own sense of self and specific development, and, in so doing, become part of the moral life of society (Briefs, 1941, 282). The Historical school of economics grew out of this development, and stressed the following points of its economic critique:

First, there is no single model for economic growth (Scrapanti, 2005, 110). As each society is historically and politically specific and unique, there can be no single approach to development. Russians, for example, having a harsh climate, less fertile soils, and short growing season, were forced to develop communal institutions and a strong state to offer security. The United States, relatively protected from European wars and saturated with fertile soil, developed a more libertarian conception of itself.. Both are right in their context, and, as a result, will develop two very different economies and definitions of economic growth.

Second, each community then must be seen from the inside in order to judge what is appropriate for each. For the likes of Adam Smith, the free market maximized production and utility regardless of the specifics of the people. Nationalism, on the contrary, realizes that history, climate, types of soil and geographic location all play their part in not only the economic life of the nation, but the very conception of what economic “success” will comprise. In truth, economics is not an autonomous science, but remains part of the broader moral and cultural development of the people.

“State” in the Hegelian and Romantic school is a technical term: it does not refer just to the coercive agencies of the government. “State” and “government” are contrasting terms: while the latter is basically formal and coercive, the former refers to the culture and tradition of a specific people that is only partially rationalized in the administration of government. The state refers to all those things that impinge on social order. Economics is just one of these forces, and cannot be separated from the social order (Scrapanti, 2005, 110-112).

In the work of Adam Muller, the state is the “form” of the society: the state is a manifestation of order, and not the principle of order in itself. The state (as defined above) grows and develops like any other organic entity, and the things it needs at an early phase of development is not needed later on. Law, including the functioning of the marketplace and corporate bodies should follow the needs of the people, and cannot be attenuated to abstractions (Briefs, 1947).

A nation develops as a set of corporate orders. Peasants, townsmen, merchants, government officials, religious officials, and many more all slowly develop their own sense of mission. All of these groups form a detached tradition based on historical precedent. Each evolves its own awareness of rights and duties to the common good. It is these corporate orders that will eventually form the “state” and its system of rule. The common good is developed not by individuals in an abstractly free market , but are part of the historical give and take among various corporations. There is nothing ideational here: each is specific to itself both as a corporate order as well as in forming, in mutual interaction, the common good (Briefs, 1947, 284-285).

Adam Muller, in this context, can be summarized as the rejection of private property as an “abstract” institution. There are no purely ideological rights and duties, only concrete manifestations of how the corporate orders on society have interacted over time. Property is as much a part of the commonweal and the corporate consciousness of a people as it is a part of an individual’s or family’s life.

Property, therefore, is highly complex, and may take the form of corporate property, that is, capital that can be used at will by members of a corporate organization. All property comes with of moral obligations to the corporation and the ethnos as a whole. Property is never perfectly public or private, but always a mixture of both.

Property is a social custom, not an individual right. Property or capital is only justified to the extent it benefits the society as a whole and the corporate orders that make it up. For Adam Smith, capital is justified in the context of the market, itself part of the reductionist and endlessly elastic utilitarian view Smith took from his mentor, David Hume. Capital is justified in this view in that it efficiently responds to the demands of the market. If there is a demand for product x, and certain forms of capital can efficiently and cheaply produce product x, their profit and power are justified. This is exceptionally abstract, and more importantly, gives no parameters for what an “x” might be, or whether it is good for the social body or not.

Relative to German industrialization, this view is summarized by Lee:

Public bureaucratic traditions were readily assimilated by individual industrial concerns, as a means of resolving organizational problems and even during periods of increasing liberalization in the nineteenth century, state administrators and entrepreneurs, particularly at the lower and middle levels remained closely interrelated. In specific sectors, such as the railways, the ‘mixed system’ of dual ownership strengthened the informal relationship between business and government (Lee, 1988: 359).

The Ideal of any social order can never be fully manifest by any formal organization. A criticism in that direction is merely to state a truism. Statist economies, otherwise owned in this private-state mixture, are common and are often successful. From the German and Russian examples over a century ago to the mid 20th century, the idea can be extrapolated to Japan, South Korea, Singapore, both Chinas and Belarus, just to name a few.

The state becomes a valuable economic actor when the society is ethnically unified. This underlying unity can then be activated by a state that seeks the good of the society, at least in the sense of general security. On the other hand, when the state oversees a society with no unity (or when the state is just the tool of economic powers), then state action is either ineffectual, harmful, or worse, just an arm of private interests at the expense of everyone else. Britain, the US and the EU are examples of this. Germany shows that the alternative of ethnic nationalism, one stressing unity and moral uniformity, worked for the improvement of the Volk in general (at least by comparison), since the state and its desire for unity came before the economic elite were powerful.

National-Romanticism understands demand and supply as not just quantitative ideas, but also as social ones. Demand for the wrong things, such as junk foods, luxury cars or heroin will damage the society. Demand for foreign things in a local culture can help destroy that culture, and a part of history can be lost or forgotten. Therefore, it is the role of the state (broadly considered) to ensure that the economy helps the growth of the moral order and define “progress” only within it. The state, in this sense, has every responsibility to make certain colas do not rot the stomachs of their people, or that McDonald’s does not clog the arteries of national progress.

The key issue is balance: while individual and corporate initiative cannot be suppressed, neither can the legitimate interests of the whole. But in approaching the economic life of a nation, one must truly become an expert in their history and way of life. Only here can the guilds, classes and orders make historical sense and thus, develop only within this context. Societies can never be considered as merely economic units, or even as simple bearers of a stagnant tradition. They are always a growing, vibrant organism where each element is dependent on every other one. The consequence is that economics is moral, social and political, and each of these fields must borrow from each other in the making of policy and law.

IV.

The Second Reich relied on the state that not only to create the economic foundations of its existence, but the Prussian ethnos is the foundation of all, not the economy. It was the German idea that led to the rational evolution of heavy industry, not the reverse. The middle and working class counteracted socialist turbulence in the German 19th century. The conclusion here is that nationalism was the cause, not an effect, of industrialization.

The defeats inflicted on France and Austria made it easy to see the army as a force for for national unity and prosperity rather than a force for despotism. Austrian power was clearly inferior to that of the German, making the Prussian foundation far more desirable than an Austrian-led unity which had been proposed earlier. Lee writes,

Undoubtedly the overall political environment affected economic development, with the state’s legislative, administrative, and entrepreneurial function generating a constant process of interaction with the economy. . . Whether in the sphere of educational provision, taxation, tariff and patent policy, or the provision of an appropriate legal and administrative framework for stimulating innovation, the role of the state could often be crucial (Lee, 1988: 358-359).

The state helped foster the political balance of power within Germany, which was made much easier by a popular army. The middle class saw unification as a source of strength, a large, strong and increasingly wealthy internal market is really all one needs to buy off middle class votes. It was tough to argue with Wilhelm’s predecessors not just because of state power, but that this power brought strength, purpose and prosperity to the older group of small and vulnerable princedoms.

Even more, the sense of encirclement from the arrogant British power, using Russia and France as proxies, brought the German state to become the core of the Central Powers by 1912. This sense of vulnerability was also important for creating national unity so important to state-led development. The British, as a result, needed the bloodbath of World War I so as to keep Germany and Russia from challenging England. London bet that St. Petersburg and Berlin would fight each other to exhaustion. Albion screamed for blood since neither the Russian “Scythians” nor the German “Huns” were thought capable of challenging her. London’s worse nightmare was a Russo-German alliance, one that would have changed global history in fundamental ways.

The German state was at the center of German development in the 19th century and the very early 20th century. It not only created its own material foundation, but also created the social unity so critical to this kind of development. State unity, national purpose, unification and cultural tradition was central to this, and were as critical as the forces of industrial planning or political compromise. The success here, albeit destroyed by England’s diabolical loathing for human life, should give pause to those who believe the “free market” alone can bring success.

 


Bibliography:

Pierenkemper, Toni (2004) The German Economy in the 19th Century. Berghahn Books.

Briefs, Goetz (1941). “The Economic Philosophy of Romanticism.” The Journal of the History of Ideas. 2, 279-300.

Tipton, Frank (2003) The History of Modern Germany from 1815. Continuum.

Scrapanti, Ernesto (2005). An Outline of the History of Economic Thought. Oxford University Press

Riou, Jeanne (2004) Imagination in German Romanticism: Re-thinking the Self and Its Environment. Peter Lang

Lee, WR (1988) Economic Development and the State in Nineteenth-Century Germany. The Economic History Review, New Series, 41(3): 346-367

Kocka, J (1981) Capitalism and Bureaucracy in German Industrialization before 1914. The Economic History Review, New Series, 34(3): 453-468

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