468. Connection of the commercial and the political development of Germany.—Standing next to England in the extent of its commerce about 1900 is a country which at the beginning of the century, if not among the last, was certainly far below the leaders. This country is Germany. We shall have to note, in this sketch of commercial development in the nineteenth century, two remarkable examples of commercial expansion. One of them, furnished by the United States, was due to the spread of a people, originally small, over a great area rich in resources. The other, furnished by Germany, was due to different causes. The Germans of 1800 occupied a territory not greatly different from that which composed the Germany of 1900, and to which nature has given but a moderate endowment of resources. There was no Germany at the earlier date, however; the people were divided up among a great number of petty states, and their economic forces were cramped thereby so as to hinder their development. The commercial progress of the century has depended largely on the reform of these political conditions.

469. Summary of the political development.—It will be necessary, therefore, in the following pages, to refer frequently to the events of political history, and for the convenience of the reader a brief summary is here given of the course of that history. The Napoleonic wars wiped out the smallest and most backward of the German states, reducing the number from over three hundred to about forty. Then, until near the middle of the century, progress depended on negotiations between these states by which the worst effects of their separation were removed. In 1848 a liberal movement reformed the government of some of the important states on modern lines, and strengthened the demand for a unified Germany, leaving still undecided, however, the question whether Prussia or Austria was to be the leading state. The war of 1866 between the two states gave the leadership to Prussia; and the war of 1870 with France led finally to the foundation of the modern German Empire, under which at last the people found room for commercial expansion and advanced with astonishing rapidity.

470. Conditions of Germany about 1815.—In spite of the service which Napoleon did Germany by abolishing the smallest states, the country was still splintered into pieces in 1815. A network of tariff frontiers covered the land, cutting the great rivers and the natural high-roads of commerce, and preventing the movement of wares. Not only did each state have its own tariff; some had internal tariffs in addition. The single state of Prussia had altogether some sixty tariffs. Some of the states were made of scattered pieces, interspersed among the territories of their neighbors; even a small state might consist of eight or ten fragments. A merchant, to reach the center of the country from the national frontier, crossed about sixteen tariff boundaries.

Not only the customs tariffs consumed time and money. The separatism which they represented spread into all parts of the organization; there were seventeen different postal systems in the country; nearly threescore different laws on bills of exchange; hundreds of different coins.

471. Backwardness of commerce and manufactures.—The difficulties of internal commerce were so great that the life of the people was arranged in large part to enable them to exist without trade. Most of the people were engaged in agriculture and supplied themselves with nearly all the necessaries of life. Manufactures were still carried on almost exclusively by scattered artisans. The German governments still clung to the old ideas of the gild system and public regulation. Little by little these ideas fell into the background in the first half of the nineteenth century, but it is important to note that they were still a living force in Germany when England had discarded them and was in the full rush of the developing factory system.

472. Factories dependent on antiquated sources of power.—Hindered in development by the persistence of old institutions, and by the lack of any considerable market for the product, German manufactures remained on the same stage on which they had been for centuries previously. Even the textile and mining industries were conducted according to the time-honored methods of the past; little progress had been made in the application of machinery, and the steam-engine was practically unknown. In Electoral Saxony, the seat now of a great cotton and woolen manufacture, all spinning was done by hand up to 1786, and in 1812 the small factories were still dependent on this source of power. The factories of medium size got their power from oxen and horses; only the large factories were run by water; and no spinning was as yet done entirely by steam.

473. Commerce small, and marked by the export of raw materials.—No statistics exist which would give an accurate picture of the development of German commerce in the early part of the nineteenth century, but we can gain some idea of its backwardness from an estimate made for so late a date as 1842. At this time German foreign trade was little over one-tenth of what it was in 1900, and it must have been considerably less in earlier years, before the reforms which will be described immediately. The fact that the country was predominantly agricultural is shown in the fact that the most important items in export were raw materials and foodstuffs, especially grain. The industrial population had not advanced far enough to work up even the raw wool produced in the country, of which considerable quantities were exported to England. Germany did export, it is true, a number of manufactured wares, but they were in general those which could be made from raw materials produced at home, and in the manufacture of which cheap hand labor was still the important factor. In the products, however, affected by the improvements which had been introduced in English factories, Germany confessed her weakness, and purchased large quantities of yarn and iron of English manufacturers for use inside the country.

474. Formation of the Zollverein (customs union).—Such conditions called forth, naturally, remonstrances from the mercantile classes. Business men and manufacturers in all parts of Germany began soon after 1815 to agitate for a reform. We must content ourselves with noting only the main steps. Tariffs inside the separate states were reformed, and the navigation of the great rivers was made easier. Finally, and most important, the separate states began to draw together in groups, forming a customs-union (Zollverein), with a common tariff on the frontier and with free trade inside. The movement, slow at first, culminated rapidly in 1828, when three such groups were formed, one in the North (Prussia and others), one in the South (Bavaria and Würtemberg), and a third including states from central Germany to the coast. No state liked to remain isolated when consolidation had once begun. Out of this transition stage there had developed by 1834 one great union, embracing about two-thirds of the area and population out of which the German Empire was later to be formed. From this time the union grew more slowly, but the people within it could now afford to wait, utilizing its new commercial opportunities, and confident that the other Germans could not long resist its attractions.

475. Development following the formation of the Zollverein.—The introduction of free trade inside of Germany was opposed then, as the establishment of free trade in the world at large would be now, by producers who feared the competition of others in the same line of business. Some producers lost by the change, and were compelled to seek other lines of work. Many manufacturers, however, who opposed the change because they feared it would hurt them, found that it led actually to a great increase in prosperity; it extended their market and gave a rich reward to those who best served their customers. German manufactures developed and began to supply a demand which before had been met by purchases abroad. The importation of foreign manufactures was checked, while there was an increase in the imports of raw and half manufactured materials (dyes, coal, iron) and of colonial products (sugar, coffee), indicating a growth in industrial power and in welfare. The non-industrial population gained both as consumers, by the better supply of manufactured wares, and as producers, selling products to the developing industrial class.

476. Protection and the free-trade movement.—The tariff of the Zollverein of 1834, based on the liberal Prussian tariff of 1818, was less restrictive and less complicated than that of most of the European states of the time. Duties which had been moderate, however, at the time when they were framed, became protective or prohibitory as prices fell; and some changes toward protection were made consciously to stimulate manufactures or to retaliate against other countries. About the middle of the century the current set in the other direction. Germany was still an agricultural country, exporting grain, and the agricultural classes secured the aid of merchants and of political liberals in a contest for lower duties.

477. Political factors in the tariff question.—The free-trade movement was curiously intermixed with matters of national politics, especially the question which was acute from 1848 to 1866, whether Prussia or Austria was to lead in the unification of Germany. Austria had not entered the Zollverein, partly because the Austrian government had retained the protective or prohibitive duties of the previous century, and was unwilling to reduce them by entering the German customs union. It was the policy of Prussia, therefore, to keep the duties low and to make them even lower, that Austria might be excluded from influence on the other German states. Neglecting the details, which are extremely complicated, we may note only the result, which was a victory for Prussian statesmanship and for the free-trade party. Treaties with France and with many other states reduced the duties far in the direction of free trade.

478. Reaction in customs policy after the founding of the German Empire.—At the time of the foundation of the German Empire, therefore, the tariff was low and the free trade movement was in the ascendant. The free traders gained one more victory, in 1873, by securing the abolition of the duties on iron; and in 1877 about 95 per cent of all imports entered duty free. This victory of the free traders was their last. The founding of the empire stimulated the growth of national feeling, and “Germany for the Germans” was a rallying cry of which the protectionist made good use. A great commercial crisis, following the war and the expenditure of the huge indemnity received from France, caused urgent demands for relief from the manufacturers who had greatly extended their works and found now that they could not market the product at profitable prices. Of the iron producers it was said that one-third could continue under the existing tariff, that one-third could continue only with the aid of protection, and that one-third were bound to be ruined whether they received protection or not.

479. Return to protection in 1879.—Even the agricultural classes now joined the protectionists; they found their foreign market appropriated and their home market threatened by grain imports from Russia, America, and India; they were largely in debt and were paying the heavier taxes of the empire. Finally, political factors united with the economic to induce a change. Bismarck found it politic to reverse his position and to advocate protection instead of low duties or free trade; with remarkable adroitness he engineered the change which was realized in the tariff of 1879. The existing duties on manufactures were raised; old duties which had been abolished were restored; and duties protecting agricultural products were introduced. This tariff, with changes which we shall notice later, has formed the basis of the existing tariff.

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