Economic history of Germany

Germany, made up of many different states, used to have a mainly old-style economy before the 1800s, with trade led by special free cities. But things changed quickly in the 1840s when railways were built, helping Germany grow fast and become more modern.

In 1871, under Prussian leadership, Germany became one country, and its economy grew very quickly. By 1900, Germany was the biggest economy in Europe, especially strong in making chemicals and steel. It was known for making a lot and staying competitive, often competing with the US and Britain.

After World War II, Germany's buildings and factories were destroyed, but West Germany rebuilt itself successfully. Led by Minister of Economics Ludwig Erhard, it experienced fast growth known as the economic miracle in the 1950s and 1960s. Meanwhile, East Germany followed a different path with a planned economy, and its people did not live as well.

Today, Germany has a very skilled workforce and is the biggest economy in Europe. It makes and sells a lot of high-quality goods like cars, machines, medicines, chemicals, and electrical products. In 2017, Germany's economy was worth about US$3.67 trillion.

Medieval Germany

Medieval Germany, lying on the open Northern European Plain, was divided into hundreds of different areas like kingdoms, principalities, and cities. Life was mostly about trade and working together, but there were also times of uncertainty.

Towns and cities started to grow, especially along trading routes. Cities like Cologne became very important because they were located on major rivers, making trade easier. These cities had their own rules and were governed by wealthy merchants. Craftsmen formed groups called guilds, which helped control trade in the towns.

The Hanseatic League was a group of cities that worked together to protect their trade routes and improve their businesses. They traded goods across big parts of Europe, from London to Novgorod. This helped many cities grow richer and stronger.

During this time, a terrible disease called the Black Death spread through Europe, causing many deaths. This changed life for workers, as there were fewer people, so they could ask for better pay. The loss of so many people also caused big changes in society and the economy.

Early modern Germany

Unlike many other European countries, Germany, made up of many smaller states, did not explore new parts of the world or set up colonies during the 1500s and 1600s. Because of this, its economy stayed behind others, with limited trade and resources.

The Thirty Years' War from 1618 to 1648 caused great suffering. The war disrupted life, led to many deaths, and hurt the economy badly. It took many years for Germany to recover. After this, Germany grew slowly until the 1700s, when larger states like Prussia began to see more economic growth.

In rural areas, peasants lived in villages where they worked the land. Many were tied to the land they worked, but later changes allowed them more freedom. These changes happened mostly peacefully, unlike in other places. Even after these changes, life in the villages stayed much the same, with people still respecting the nobles who led them.

Industrial Revolution

Main article: Industrialization in Germany

Before 1850, Germany was slower to develop industries than countries like the United Kingdom, France, and Belgium. But Germany had many strengths, such as skilled workers, good schools, and strong work values. By the mid-1800s, Germany began to catch up, and by 1900, it had become a world leader in industry, along with Britain and the United States.

In the 1800s, Germany changed from a society not ready for big changes to one that grew quickly. Rules and old traditions made it hard for new ideas to grow, but laws changed to let people move more freely and work in new jobs. The growth of railroads in the 1840s helped connect places, create new jobs, and spur more factories and mines. Leaders in Prussia guided much of this change after Germany united in 1871.

Trade unions

Main article: Trade unions in Germany

Trade unions in Germany have a long history, dating back to the German revolution in 1848. They continue to be very important in the country's economy and society. In 1875, the Social Democratic Party of Germany supported the formation of unions, although they were not directly connected to the party.

During the early 1930s, the main trade unions did not strongly oppose Hitler's rise to power. As Hitler took control in 1933, many workers felt discouraged due to high unemployment.

Today, the most important labor group is the German Confederation of Trade Unions (Deutscher Gewerkschaftsbund – DGB), which represents over 6 million people. There are also smaller groups, like the CGB, a Christian-based organization, representing more than 1.5 million people.

Early 20th century

In 1926, four big steel companies joined together to form the United Steel Works. This new company focused on improving management and technology, using new ways to measure success.

Before World War I, Germany’s share of world trade grew while Britain’s fell. By 1913, Germany had caught up with Britain in making things and selling them worldwide. German steel and coal production were very high, and the country led in machinery and other industries by working together through trade groups.

World War I

When World War I began in 1914, Germany quickly changed its economy to support the war. The British blockade made it hard to get supplies, but Germany used its own resources and those of places it controlled. The war caused big changes in jobs, with many people moving to work in factories making weapons. Agriculture suffered because of a lack of important materials, leading to food shortages.

Weimar Republic

After the war, the 1919 Treaty of Versailles put heavy demands on Germany. This, along with the war, led to a time of very high inflation in the early 1920s, where money lost most of its value. Things improved from 1923 to 1929, with help from loans and growing exports. But the Great Depression hit Germany hard starting in 1927, causing many people to lose jobs and leading to big political changes.

Nazi economy

Main article: Economy of Nazi Germany

During the time of Hitler from 1933 to 1945, Germany's economy grew quickly. The government gave a lot of money to help certain industries, especially those that made Germany stronger militarily and less dependent on other countries. During the war, Germany used resources and people from places it had taken over to keep its economy going.

Even though many places were damaged by the war, Germany's factories kept growing until the end of the war. After Germany lost the war, it had to start over again from nothing, with everything destroyed and needing to be rebuilt.

Post-World War II

Further information: World War II reparations

The years right after World War II were very hard for Germany. Many people had to leave their homes, and millions of Germans moved in from places far away. It took a long time for everyone to get back to normal. Food was scarce, and life was much harder than before. Money lost most of its value, making it difficult for people to save or pay off debts.

Even with help from the Marshall Plan, some factories were taken apart. In 1949, leader Konrad Adenauer asked the countries controlling Germany to stop this, saying it did not make sense to encourage growth while also taking away factories. By 1950, many restrictions were eased, and Germany began to rebuild.

Economist Ludwig Erhard helped create a new currency called the Deutsche Mark in 1948. This new money helped set the stage for West Germany's economy to grow again.

Marshall Plan and productivity

Further information: Marshall Plan § West Germany

The Marshall Plan helped West Germany modernise its businesses from 1948 to 1950. This support allowed Germany to quickly return to making goods to sell to other countries. Without this help, it would have taken longer to recover, and farming would have played a bigger role.

After 1950, Germany started to produce more than Britain in many areas. This was helped by better use of resources, government policies that encouraged growth, and improvements in education to train workers.

Social market economy

The German economy is known as a "social market economy." This means it values both strong business activity and caring for people. Free business is very important for keeping the economy healthy, but the government helps make sure that workers and others are protected, too.

Germany also believes in having a well-organized system that is not controlled too tightly by the government. Over time, the government has taken on more roles in supporting industries, especially after events like German reunification. Today, the German economy tries to balance growth with fairness and support for everyone.

Economic miracle and beyond

See also: Wirtschaftswunder

After World War II, West Germany began to rebuild its economy with help from many sources. This included support from the Marshall Plan, resources used for Korean War production, and the hard work of German people who were ready to work for lower wages until things improved.

The West German economy grew very fast starting in 1950. By 1960, the amount of goods made had more than doubled compared to 1950. The number of people with jobs also went up, and fewer people were out of work.

The government made changes to help workers and improve social programs. In 1957, a new central bank, the Deutsche Bundesbank, was created to help manage money better. New rules were also made to stop big companies from taking too much control.

Even though the economy kept growing, it did not grow as fast as it did in the early years. There were times when things slowed down, especially after the Berlin Wall was built in 1961, which stopped workers from coming from East Germany. New leaders tried different ways to keep the economy strong.

In the late 1980s, the West German economy started to grow faster again. By 1989, the amount of goods made had grown to its highest level in ten years, and fewer people were out of work. This showed that the new economic plans were working.

In 1990, Germany reunited, which brought new challenges and changes to the economy as West and East Germany worked together.

German reunification and its aftermath

Main article: Economic history of the German reunification

After the reunification of Germany, a lot of money—over 2 trillion marks—was used to help the eastern part of the country. This money was for changing the eastern part to work like a market economy and fixing problems with the environment. By 2011, things were going slowly for the eastern part, while the western and southern parts of Germany were growing fast. There were also many more people without jobs in the east, sometimes more than 15 out of every 100 people. Some experts think that too much help from the government made things take longer to get better.

21st century

In the 1990s, Germany's strong economy slowed down, and it was sometimes called "the sick man of Europe." There was a short economic decline in 2003, and unemployment stayed high, especially in the eastern parts of the country. The worldwide Great Recession from 2008 to 2010 caused a quick drop in how much money Germany was making, but the country recovered faster than most others.

Germany's economy did well because it sold a lot of goods to other countries. In 2011, Germany sold goods worth over €1 trillion ($1.3 trillion), which was the most ever. Many people had jobs, with the number reaching 41.6 million. Germany is especially good at making machines, cars, chemicals, and metals, as well as wind turbines and solar power technology.

Since 2022, Germany has had to change how it gets its energy because of the international sanctions against the Russian invasion of Ukraine. Before, Germany got a lot of its gas from Russia, but now it has to find other sources, which has made energy more expensive. In late 2023, Germany's economy became the third largest in the world, after the United States and China, and it is the largest in Europe.

Historical evolution of German GDP