Abstract
This chapter analyses by means of simple charts and tables the long-term economic development of the German economy from 1880 to 1979. Section 1.1 describes the various phases of economic growth in relation to developments of factors of production (labour and capital). Other factors influencing economic growth, as technical progress, changes in the degree of openness of the economy, investment in human capital and changes in the terms of trade and in taxation are also dealt with in this section. Section 1.2 analyses structural changes in aggregate demand while Section 1.3 describes developments of the major items of the balance of payments in the various stages of economic growth. Section 1.4 deals with the changing role of government in the economy, and structural changes in the fiscal system, while Section 1.5 concentrates on the changes in the structure of the monetary system, on monetary policy and inflation.
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Notes
Cost of living index.
Average geometric growth rate.
The ratio of the number of students attending universities to total civilian employment increased from 1.1 per thousand in 1880 to 1.9 in 1900, 2.4 in 1910; the ratio was 4.2 per thousand in 1930, 8.3 in 1960 and increased to 37.8 in 1979 (see Table 1.4).
The production function would be modified as follows: where A’ is the growth rate of total factor productivity of labour and capital (see Bruno (1981)).
Assuming to be equal to 0.30 the value of X’ is 1.11 for the gold standard and 2.05 for the period 1950–79.
See Knoester (1983).
The latter can be considered as a proxy of the participation rate.
The major changes occurred in 1919, 1923, 1925, 1938/39 and 1945. Furthermore, in 1960 West Berlin and the Saarland were included in the official statistics.
See Table 1.7.
Dividing the standard deviation of NNP per capita by the arithmetic mean of the absolute values of its rate of change, the standard deviation drops from 1.55 in the gold standard to 0.68 in the post-Second World War period.
See Tables 1.27 and 1.29 in Section 1.4, and Table 1.35 in Section 1.5.
See Chapter 4.
Consideration of other factors besides the variability of economic policy would reinforce this point. Probably the most important other factor is the much more intense use of the labour force from 1925 to 1929 and during the Nazi period. In 1939, civilian employment was 49.9 per cent of the population, while it was 42.6 per cent in 1968.
Undiscriminating fiscal policy refers here to a policy not explicitly aimed at increasing productive investment.
See Lindbeck (1983) for an analysis of the causes of the slowdown of productivity growth in the OECD area.
The ratio of students enrolled in universities to civilian employment increased at an average geometric rate of 10.4 per cent from 1970 to 1979.
The ratio of real private consumption to NNP, used here as a proxy for the welfare of the population, declined steadily from 88.8 per cent in 1931 to 58.6 per cent in 1938. The decline in this ratio is partly due to the recovery itself and cannot therefore be attributed fully to explicit policies to reduce private consumption.
For an international comparison of long-term economic growth see also Maddison (1977).
The growth of German output was higher with respect to the growth of foreign output in the early part of the period (see also Chapter 2).
See Fratianni and Spinelli (1984).
The rearmament played a major role in this context; for example, Germany started to increase military expenditures already in 1934.
This conclusion is also confirmed by the empirical estimates of the consumption and investment functions presented in Chapter 5.
Real private wealth is defined as the sum of physical capital, central government debt deflated by the consumer price index and net foreign assets corrected for capital gains and losses due to exchange rate changes and deflated by the consumer price index (see Table 1.10 and footnote 25).
For a private consumption function in which government expenditure appears as an argument, see Bailey (1972).
The real stock of net foreign assets has been obtained by cumulating current account surpluses from 1876 as follows: where t is equal to 1876–1979, indicates the cumulation operation, CA is the current account in current marks obtained from balance of pay-ments statistics, and S and p are the dollar-mark exchange rate and the price level respectively (see also Chapter 5).
Between those two years the real stock of capital fell by 41.4 per cent, while civilian employment and population fell by 34.8 per cent and 31.6 per cent respectively.
For a given production technology, and assuming a Cobb-Douglas pro-duction function, the average product of capital is given by: and the marginal product of capital (MPK) is equal to: If the ratio of LIK increases the marginal and average products of capital also increase (see Table 1.1 for description of symbols).
Government expenditure on goods and services is defined on a national account basis; thus it excludes transfers. This choice is also due to the greater difficulties in reconstructing government expenditure according to a budgetary definition for the whole period. Even on this narrower definition, estimates of government expenditure have to be interpreted with very great caution for the war years and the hyperinflation period. For the behaviour of government expenditure including transfers, see Section 1.4.
A description of the monetary disturbances generated by the strong increase of the government deficit during the war and the hyperinflation period is given in Chapter 3.
As far as the war periods are concerned, these ratios have to be inter-preted with extreme caution owing to difficulties of reconstructing the national accounts during war periods. Ratios of expenditure to NNP as high as 90 per cent are possible when net investment and the current account are strongly negative or when part of government expenditures are financed by taxing residents of occupied territories.
For a more detailed discussion of the growth of total government expenditures, see Section 1.4.
This relationship is not satisfied in the war periods and in the 1930s probably because of exchange and trade controls.
If one excludes the surplus of 1926, caused by a recession, the average deficit was 2.96 per cent of NNP.
See Machlup (1966).
See Kindleberger (1976).
During the 1930s and the war periods, the presence of trade barriers, exchange controls and rationing must have disrupted the relationship because nart of the excess saving was hoarded in the form nf mnnev_
This conclusion has to be interpreted with caution because unit export values include indirect taxes and because of the less than full coverage of unit export values prior to 1906. In addition, the NNP deflator includes non-traded goods where technical progress is generally thought to be slower. Quality improvements of German exports which may not be fully captured in unit exports values, are a factor working in the opposite direction.
See de Cecco (1973).
For the sake of completeness it should be added that German competitiveness improved considerably after 1979 in connection with the weakness of the Deutschmark.
Exchange rates fluctuated within a band of less than 1 per cent because of low transportation and insurance costs of gold. The Reichsbank could change the transportation costs by changing the location where it would buy and sell gold (see Morgenstern (1959)).
Some minor direct intervention took place in 1923.
See Chapter 2 for a test of the hypothesis that differential productivity growth was an important determinant of the deviations of the real exchange rate from purchasing power parity during the gold standard.
In the sense that workers may have become more reluctant to pay.
International reserves of the Reichsbank as defined here, whose ratio to total assets is reported in the first column of Table 1.32, include only gold and foreign exchange holdings and exclude German coins (largely silver coins) held by the Reichsbank.
Up to 1910 the banknotes issued by the Reichsbank were not legal tender.
The other major item excluded from reserves as defined in Table 1.32 were German coins; they were 40.9 per cent of issued banknotes in 1880 but fell gradually to 10 per cent in 1913.
For a more detailed analysis of economic and monetary developments during the hyperinflation, see Chapter 3.
The rate of inflation accelerated during the gold standard period from -0.4 in the 1880s to 0.1 in the 1890s and 2.0 per cent in the period 1900–13 (cf. Table 1.39).
See Friedman and Schwartz (1963).
See Bernanke (1983).
The dynamics of hyperinflation will be analysed in Chapter 3 with the help of an econometric model.
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© 1987 Andrea Sommariva and Giuseppe Tullio
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Sommariva, A., Tullio, G. (1987). Long-Term Growth, Money and Inflation in Germany, 1880–1979: an Historical Overview. In: German Macroeconomic History, 1880–1979. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-06591-2_2
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DOI: https://doi.org/10.1007/978-1-349-06591-2_2
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