37.2 Theme 2 - Economic change in Germany and West Germany

Breadth Frame

This is a Paper 3 breadth theme. You are not being asked to describe one government after another. You need to explain long-term economic change across 1871-1990, then judge how far government policy shaped that change.

Two linked changes run through the topic.

Manufacturing strength means Germany's ability to produce coal, iron, steel, chemicals, electrical goods, machinery, vehicles and advanced industrial exports. It was already strong before 1914, was redirected into war production under the Nazis, was destroyed and rebuilt after 1945, and became the basis of West German export success by the 1950s and 1960s.

Agriculture's slow decline means the falling relative importance of farming in output, employment and national policy. It does not mean German farming vanished. Food supply, landowners, farmers' politics, rural debt and agricultural prices remained important. But agriculture became a smaller part of a much larger industrial and service economy.

The broad chronology looks like this:

The exam issue is change with continuity. The scale, technology and markets of the economy changed enormously, but governments repeatedly faced similar problems: how to protect food producers, how to secure raw materials, how to sustain employment, how to finance the state, and how to use German industrial strength without making it politically dangerous.

Be careful with the phrase "government policy". Sometimes policy directly changed the economy, as with the 1879 tariff, the 1936 Four-Year Plan, the 1948 currency reform, or the CAP. Sometimes policy worked by creating conditions, as with European integration or Marshall Aid. Sometimes it failed because global forces were too strong, as in the Great Depression or the oil shocks.

Industrial Growth and Agricultural Decline, 1871-1914

The German Empire was founded in 1871 at a moment when industrialisation was already advancing. The new empire did not create German industry from nothing, but it gave industrial growth a more powerful framework. Germany now had a larger unified state, a common currency, a national legal structure, expanding railways, a large internal market and stronger links between capital, universities, banks, mines and factories.

Several reasons explain nineteenth-century industrial growth.

By 1914, Germany was one of the most dynamic industrial economies in Europe. Steel is a good indicator. Britain produced much more steel than Germany in the early 1870s, but Germany overtook Britain in the 1890s and by 1914 was producing far more. German chemicals and electrical engineering also became world leaders, with firms such as BASF, Bayer, Hoechst, Siemens and AEG symbolising the shift towards science-based manufacturing.

Agriculture declined in relative importance at the same time. In the early empire, farming still shaped social life, class power and electoral politics. The Junker landowning elites of eastern Prussia remained politically powerful, and many smaller farmers still worked in difficult conditions. But the economic centre of gravity was moving. The share of national output produced by agriculture fell sharply between 1870 and 1913, while industry, crafts, mining and transport generated a much larger share by the eve of the First World War. The rural population also shrank as a proportion of the total population. Germany was becoming an industrial state with a still influential agrarian bloc.

The key government turning point was the introduction of protection in 1879. Bismarck abandoned the earlier liberal movement towards freer trade and introduced tariffs on imported grain and industrial goods, especially iron. This created what historians often call the alliance of "rye and iron": eastern landowners wanted protection from cheap foreign grain, while heavy industrialists wanted protection from foreign manufactured competition.

The 1879 tariff mattered in three ways. Economically, it protected some producers and raised revenue. Socially, it helped shield agriculture from the full force of international competition, especially cheap grain from North America and Russia. Politically, it bound conservative agrarian interests and heavy industry closer to the imperial state. It did not stop agriculture's relative decline, but it slowed the pressure and kept farming politically powerful.

The second official policy is the building of a large navy from 1898 to 1914. Under Kaiser Wilhelm II and Admiral Alfred von Tirpitz, Germany passed Naval Laws in 1898 and 1900, with later expansion measures before 1914. The aim was strategic and imperial: Germany wanted a fleet that could support world-power status and challenge British assumptions about naval supremacy.

The economic impact of naval building was real but uneven. It created orders for steel, coal, engineering, armour plate, shipyards, docks and skilled labour. It helped parts of heavy industry and tied military ambition to industrial capacity. Yet it also diverted resources into armaments, increased budgetary pressures, and intensified Anglo-German rivalry. Naval policy therefore strengthened manufacturing in the short term, but it connected industrial growth to militarised competition rather than peaceful commercial expansion.

A strong judgement on 1871-1914 is that Germany's industrial growth came mainly from deep structural causes: resources, railways, banks, science, education, population and national integration. Government policy mattered, but more as accelerator, protector and customer than as the original cause. Protection helped agriculture and heavy industry, while naval building stimulated industrial orders. Neither policy prevented agriculture from losing relative importance, and both tied the economy to conservative and militarist politics.

Shocks and Structural Weakness, 1914-32

The First World War did not destroy German industrial skill, but it badly distorted the economy. From 1914 to 1918, the state intervened heavily in production, labour, food distribution and raw materials. The blockade, military demands and labour shortages damaged living standards. Industry was pulled towards weapons and supplies; agriculture struggled with shortages of labour, fertiliser, horses and machinery. By 1918, Germany faced defeat, hunger, debt, inflation and political revolution.

The Weimar Republic inherited these problems. It also faced reparations, territorial losses, demobilisation, disrupted trade and the need to rebuild international confidence. The early 1920s were dominated by inflation and then hyperinflation. Industrialists with debts could sometimes benefit from inflation, but savers, pensioners, salaried workers and many small businesses suffered badly. Farmers often resisted selling food for paper money that was losing value, which worsened urban-rural tension.

Stabilisation after 1923 restored the conditions for recovery. The Rentenmark and then Reichsmark ended hyperinflation. The Dawes Plan of 1924 reorganised reparations and opened the way for American loans. Industrial production revived, and rationalisation brought modern machinery, larger firms and more efficient production. Germany's manufacturing base had not disappeared. By the later 1920s, parts of German industry again looked modern and internationally competitive.

Yet recovery was uneven. Heavy industry faced overcapacity and competition. Small firms often struggled with rationalisation. Workers could gain higher wages in some sectors, but unemployment never vanished. Most importantly for this specification topic, agriculture remained weak.

The specification highlights the slump in agricultural prices in the 1920s. This was not just a small rural problem. German agriculture faced falling prices, debt, import competition, and difficulty adjusting to a changing economy. Many farmers had borrowed for machinery, land or stock, so falling prices made debt harder to service. The return to stable money after 1923 also exposed debts that inflation had partly hidden. Governments introduced tariffs and support measures, but these could not remove the structural problem: agriculture was a declining sector trying to survive in an industrial economy.

Rural frustration mattered politically. Farmers could feel squeezed between falling prices for what they sold and the cost of industrial goods, taxes and debt repayments. Some resented urban consumers, bankers, department stores, foreign imports and Weimar politicians. Not every farmer became anti-democratic, but rural economic anxiety gave nationalist and anti-Weimar movements opportunities, especially as the Depression deepened.

The decisive break came after the Wall Street Crash of October 1929. Germany had depended heavily on short-term American lending during the mid-1920s. When credit was withdrawn and world trade contracted, firms cut output and dismissed workers. The banking crisis of 1931 deepened the collapse. Registered unemployment rose from about 1.9 million in 1929 to roughly 5.6 million in 1932. If unregistered unemployment and underemployment are included, the social crisis was even larger.

Mass unemployment from 1930 to 1932 was not only an economic statistic. It changed family life, gender relations, health, housing, political trust and attitudes to democracy. Long-term unemployment could mean loss of dignity as well as income. Young people entered adulthood with few prospects. Workers who had believed in trade unions and democratic welfare could feel abandoned. The unemployed became visible in queues, street life and political demonstrations.

Government policy made the crisis worse. Chancellor Heinrich Bruning pursued deflation: spending cuts, wage reductions, tax increases and reductions in welfare support. He wanted to defend the currency, balance the budget and demonstrate that reparations were impossible to pay. This helped Germany's diplomatic case against reparations, which were effectively ended at Lausanne in 1932, but it deepened the domestic slump. Cutting demand in a depression increased suffering and weakened confidence in parliamentary government.

The key breadth judgement for 1914-32 is that Germany still possessed industrial capacity, but the economy was repeatedly destabilised by war, inflation, foreign dependence, agricultural weakness and global depression. Agriculture's decline became politically explosive because farmers still expected protection and status. Manufacturing strength could not protect Germany when finance collapsed and government policy chose austerity over recovery.

Nazi Command Economy and War, 1933-45

The Nazi impact on the economy must be judged carefully. The regime reduced official unemployment and expanded production, but it did so by dictatorship, rearmament, exclusion, labour control and eventually plunder. Economic recovery was inseparable from preparation for war.

When Hitler became chancellor in January 1933, Germany was near the bottom of the Depression. The Nazi regime inherited some signs of possible recovery, but dictatorship allowed it to accelerate and redirect recovery. Public works, housebuilding, road schemes and state orders increased demand. The Reich Labour Service and, after 1935, conscription removed many young men from unemployment statistics. Rearmament became the most important source of demand for heavy industry, metals, machinery and chemicals.