Historical and Philosophical Background

The economic and social situation in the German Federal Republic cannot be understood without some knowledge of German history.1 It is only possible here to indicate very briefly some of the main trends which have contributed to the post-1945 situation. The course of Germany’s history since the beginning of the nineteenth century has been dominated by its late unification, and the way in which that unification was accomplished. At the beginning of the century, Germany was divided into thirty-nine virtually independent states. This had important economic consequences. Since each state levied tariffs on goods passing its frontiers, the development of trade and industry was hampered, and German manufacturers found it difficult to compete with Great Britain. These circumstances influenced the doctrines of the most eminent German economist of the early nineteenth century, Friedrich List (1789–1846). To encourage the growth of industry, he pleaded for a freeing of trade between the German states, and the building of a national railway system — as well as improved education and political freedom. However he rejected the view of the British ‘classical’ economists that free trade was always beneficial, arguing that a relatively under-developed country like Germany needed a (modest) protective tariff until it had built up its competitive strength.