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Railroads and German Economic Growth: A Leading Sector Analysis with a Comparison to the United States and Great Britain

Published online by Cambridge University Press:  11 May 2010

Rainer Fremdling
Rainer Fremdling
Affiliation:
University of Münster and University of Pennsylvania
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Abstract

The aim of this article is to investigate the railroads' contribution to German economic growth from the 1840s to the 1870s. The analysis focuses on background linkage effects. It is shown that the emergence of the modern German iron industry was due to the railroads' demand for iron products. A comparison with the United States reveals the considerably greater importance of German railroad construction for its domestic iron industry from 1840 to 1860. The British iron industry not only profited from domestic railroad construction but benefited significantly from railroad construction abroad, a fact too often neglected.

Type
Articles
Information
The Journal of Economic History , Volume 37 , Issue 3 , September 1977 , pp. 583 - 604
Copyright
Copyright © The Economic History Association 1977

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References

1 Rostow, Walt W., The Process of Economic Growth (2nd ed.; New York, 1962), pp. 302, 303.Google Scholar

2 Fogel, Robert W., Railroads and American Economic Growth: Essays in Econometric History (Baltimore, 1964)Google Scholar; Fishlow, Albert, American Railroads and the Transformation of the Ante-Bellum Economy (Cambridge, Mass., 1965).Google Scholar

3 Fogel, Railroads, p. 234.

4 Ibid., pp. 234 ff.

5 Ibid., p. 236.

6 On leading sector analysis see Rostow, Walt W., The Stages of Economic Growth (2nd ed.; Cambridge, Mass., 1971).Google Scholar

7 In the German case the appropriate social saving approach would be a comparison between the transportation costs of traditional transport media (mainiy wagons) and those of the railroad. During the period from the late 1830s to the 1870s inland navigation was no alternative to a railroad system, the main reasons being institutional constraints (the particularism of 39 independent states) and the structure of the demand for transportation services (goods with high value-weight ratios and passengers). This is why there was no noteworthy canal construction before the railroad era in Germany, in contrast to Britain, France, and the United States. Not before the demand for the transportation of bulky commodities had developed sufficiently-due in part to the forward linkages of the railroad-could resources be saved by building canals, as was done toward the end of the nineteenth century. Thus it turns out that the only medium that could offer the necessary transportation at a sufficiently low cost for German industrialization was the railroad. Although Fogel's calculation of the social saving attributed to the American railroads shows that this transport medium was not necessary to provide low cost transportation, it was sufficient. And it is sufficiency, not necessity, that bestows importance on historical events. On this problem, see the contribution by Fenoaltea, Stefano, “The Discipline and They: Notes on Counterfactual Methodology and the ‘New’ Economic History,” The Journal of European Economic History, 2 (Winter 1973), 729–46.Google Scholar

8 On the forward linkage effects see Fremdling, Rainer, Eisenbahnen und deutsches Wirtschaftswachstum, 1840–1879: Ein Beitrag zur EntwicMungstheorie und zur Theqrie der Infrastruktur (Dortmund, 1975), pp. 55 ff.Google Scholar

9 Hirschman, Albert O., The Strategy of Economic Development (New Haven, 1958), p. 100.Google Scholar

10 Gewerbe includes mining, manufacturing and handicrafts, trade, banking, insurance, and transport (with the exclusion of railroads and post).

11 Capital stock is defined as cumulative net investment. For the data on railroad capital stock from 1840 see Fremdling, Eisenbahnen, p. 28; for the capital stock of Germany since 1850 see Hoffmann, Walther G., Grumbach, F., and Hesse, H., Das Wachstum der deutschen Wirtschaft seit der Mitte des 19. Jahrhunderts (Berlin, Heidelberg, and New York, 1965), pp. 251 f.Google Scholar

12 Fremdling, Eisenbahnen, p. 32.

13 Richard H. Tilly, “Capital Formation in Germany in the Nineteenth Century,” draft for the Cambridge Economic History of Europe, Vol. VII (forthcoming).

14 Fremdling, Eisenbahnen, p. 48; U.S. Bureau of the Census, Historical Statistics of the United States, Colonial Times to 1970, Pt. 2 (Washington, D.C., 1975), p. 731.Google Scholar

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16 See, for example, Oechelhäuser, Wilhelm, Vergleichende Statistik der Eisen-Industrie aller Lander und Erörterung ihrer ökonomischen Lage im Zollverein (Berlin, 1852)Google Scholar; Bosak, Klaus Werner, Die Geschichte der Walzwerktechnik und die Entwicklung der Walzwerkindustrie im 19. Jahrhundert in Deutschland bis zur Wirtschaftskrisis 1873 (doctoral diss.; Hannover, 1970)Google Scholar; Wagenblass, Horst, Der Eisenbahnbau und das Wachstum der deutschen Eisen- und Maschinenbauindustrie, 1835–1860: Ein Beitrag zur Geschichte der Industrialisierung Deutschlands (Stuttgart, 1973).Google Scholar

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18 Ibid., pp. 23 ff.

20 Prussia, , Ministerium fur Handel, Gewerbe und offentliche Arbeiten, Statistische Nachrichten von den Preussischen Eisenbahnen, Vol. 1–27 (Berlin, 1855–80)Google Scholar. All newly purchased locomotives are referred to in a special section of each volume.

21 Ernst Engel, “Das Zeitalter des Dampfes in technisch-statistischer Beleuchtung,” Zeitschrift des Koniglich Preussischen Statistischen Bureaus (1880), p. 122.

22 Cf. Fishlow, American Railroads, pp. 150 ff.

23 Engel, “Zeitalter des Dampfes,” p. 122.

24 Fogel, Railroads, pp. 147 ff., and Fishlow, American Railroads, pp. 132 ff.

25 Fogel, Railroads, p. 199.

26 Fishlow, American Railroads, pp. 132 ff., 143.

27 Ibid., pp. 140 f., and Fogel, Railroads, pp. 147 ff.

28 Ibid., pp. 190 ff. Nevertheless, potential domestic suppliers are shown their own market opportunities.

29 The rails in operation in a given year caused an increase in pig iron consumption approximately three years before opening the line. (On the gestation period see Fremdling, Eisenbahnen, pp. 101 f. and pp. 150 ff.) Thus the consumption of rails estimated for the year of opening a railroad line could be reckoned three years backwards and be compared as pig iron equivalents to total pig iron consumption and production.

30 Wagenblass, Der Eisenbahnbau, pp. 24 ff. and pp. 44 ff. His detailed analysis at the level of single iron processing plants supports the results presented in this article.

31 Ibid., p. 85, and Banfield, Thomas C., Industry of the Rhine, 2 (London, 1848Google Scholar; rpt., New York, 1969), pp. 48, 236 f.

32 Wagenblass, Der Eisenbahnbau, p. 171 f.

33 See Sering, Max, Geschichte der preussisch-deutschen Eisenzölle von 1818 bis zur Gegenwart (Leipzig, 1882), pp. 292 f., 300 f.Google Scholar

34 Ibid.

35 The same sources and calculation methods were used as for Table 3. Since in this period more rails were exported than imported, the consumption of imported rails is neglected.

36 On pig iron production see Marchand, Hans, Sakularstatistik der deutschen Eisenindustrie (Essen, 1939), p. 115.Google Scholar

37 Wagenblass, Der Eisenbahnbau, pp. 49 ff.; Bosak, Walzwerkindustrie, pp. 160 ff.; Banfield, Industry, pp. 236 f.

38 Holtfrerich, Carl-Ludwig, Quantitative Wirtschaftsgeschichte des Ruhrkohlenbergbaus im 19. Jahrhundert (Dortmund, 1973), p. 157.Google Scholar

39 Marchand, Sakularstatistik, p. 39.

40 Wagenblass, Der Eisenbahnbau, pp. 118 ff., and Bosak, Walzwerkindustrie, pp. 195 f.

41 Holtfrerich, Ruhrkohlenbergbau, p. 24.

42 Fremdling, Eisenbahnen, pp. 60 ff.

43 Sering, Eisenzolle, pp. 19 ff.

44 Cameron, Rondo E., France and the Economic Development of Europe, 1800–1914 (Princeton, 1961), p. 369.Google Scholar

45 Ibid., pp. 369–71, 387 ff.; Banfield, Industry, pp. 48, 236f.; Henderson, W. O., Britain and Industrial Europe, 1750–1870 (2nd ed.; Leicester, 1965), pp. 139–60Google Scholar; Landes, David S., The Unbound Prometheus (Cambridge, 1969), pp. 147–50.Google Scholar

46 Fogel, Railroads, pp. 129 ff. and Fishlow, American Railroads, pp. 132 ff.

47 Ibid., pp. 142, 145 ff.

48 Ibid., p. 134.

49 Taussig, F. W., “The Tariff, 1830–1860,” Quarterly Journal of Economics, 2 (1888), 324 ff.CrossRefGoogle Scholar

50 Ibid., pp. 325 f.

51 Ibid., p. 325.

52 Engerman, Stanley, “The American Tariff, British Exports and American Iron Production, 1840–1860,” in McCloskey, Donald N., ed., Essays on a Mature Economy: Britain After 1840 (London, 1971), pp. 22, 25.Google Scholar

53 Sering, Eisenzölle, pp. 19 ff.

54 Documentation for statements in this and the following paragraph may be found in ibid., pp. 50–73.

55 For the lower duties on Belgian pig and bar iron exports to Germany, see ibid., pp. 69, 81.

58 Lévy-Leboyer, Maurice, Les Banques européennes et l'industrialisation internationale dans la première moitié du XIXe siècle (Paris, 1964), pp. 49, 65, 95, 169–71, 410fGoogle Scholar. He demonstrates this upstream industrialization mainly by the textile industry and partly by the metal industry; e. g., the cotton industry in Alsace “progressed by upstream integration from printing to weaving, spinning, machine-building and chemicals” (Crouzet, Francois, “Western Europe and Great Britain: ‘Catching Up’ in the First Half of the Nineteenth Century,” in Youngson, A. J., ed., Economic Development in the Long Run [London, 1972], p. 122)Google Scholar; Lévy-Leboyer, Banques, p. 95.

57 Ibid., p. 65; Crouzet, “Catching Up,” pp. 121 ff.; and Pollard, Sidney, “Industrialization and the European Economy,” The Economic History Review, 26 (Nov. 1973), 643.CrossRefGoogle Scholar

58 Crouzet, “Catching Up,” p. 121.

59 See Cameron, France, p. 387 f., using this example to stress “the importance of domestic demand … as a stimulus to development.”

60 Crouzet, “Catching Up,” p. 123.

61 Unfortunately, reliable data on the proportion of pig iron made with different fuels are available only from 1851 onwards for Prussia and from 1854 onwards for the United States (Marchand, Sdkularstatistik, p. 39, and Temin, Peter, Iron and Steel in Nineteenth-Century America: An Economic Inquiry [Cambridge, Mass., 1964], p. 268)Google Scholar. The data seem to contradict the above statement since the proportion of pig iron made with charcoal does not become significantly lower in Prussia than in the United States until 1856. Railroad construction in the United States, however, started earlier and on a far greater scale. Therefore the actual or potential derived demand for pig iron made with mineral fuel must have appeared earlier and on a higher level in the United States than in Germany.

62 Temin, Iron and Steel; Fogel, Robert W. and Engerman, Stanley L., “A Model for the Explanation of Industrial Expansion During the Nineteenth Century: With an Application to the American Iron Industry,” Journal of Political Economy, 77 (May/June, 1969), 306–28CrossRefGoogle Scholar; Engerman, “American Tariff”; see also Walsh, William D., The Diffusion of Technological Change in the Pennsylvania Pig Iron Industry, 1850–1870 (New York, 1975).Google Scholar

63 Temin, Iron and Steel, pp. 22 ff.; Fogel/Engerman, “Industrial Expansion,” pp. 315 ff.; and Engerman, “American Tariff,” pp. 21 f.

64 Ibid., pp. 22 ff.

65 Temin, Iron and Steel, pp. 22, 25, 29 ff., and Fogel/Engerman, “Industrial Expansion,” pp. 325, 328. See also Fishlow, American Railroads, pp. 144 f.

66 Of course, this implies an earlier exploitation of the natural resources of the west side of the Allegheny Mountains. At this point I follow Hunter's argument, as expressed by Temin, that “there was no impediment to the production of coke pig iron from the supply side, that coal, knowledge, and transportation were available, but the lack of demand for coke pig iron made its manufacture unprofitable” (Temin, Iron and Steel, p. 55).

67 For the data see Fogel, Railroads, pp. 192, 194. The dominance of rail imports over pig iron imports in Germany between 1845 and 1849 can be explained by the still existing lack of capacity in the iron processing industry to meet the demand during these peak years. A comparable expansion of the railroad network was not achieved until the late 1850s.

68 Mitchell, Brian R., “The Coming of the Railway and United Kingdom Economic Growth,” in Reed, M. C., ed., Railways in the Victorian Economy (New York, 1968), pp. 13–32Google Scholar; Wray Vamplew, “The Railways and the Iron Industry: A Study of Their Relationship in Scotland,” ibid., pp. 33–75; Hawke, Gary R., Railways and Economic Growth in England and Wales, 1840–1870 (Oxford, 1970).Google Scholar

69 Ibid., p. 245.

70 Ibid., p. 240.

71 Mitchell, “Coming of the Railway,” p. 22.

72 Vamplew, “Railways,” p. 64, at least mentions this problem.

73 Mitchell, “Coming of the Railway,” p. 22.

74 The extrapolation is based on the rail imports of Germany and France. Whereas France had high protective tariffs on rail imports, and Germany's production of rails expanded rather rapidly, most other nations were far more dependent on rail imports than those two countries.

75 For further information see the notes for Table 7. This procedure is likely to underestimate significantly the true amount of British pig iron exports that satisfied railroad needs. Not only is railroad construction outside Europe and the United States neglected, but above all the ratio applied is based on rail exports alone, which constituted only a part of all exported railroad iron.

76 Table 7 and Mitchell, Brian R. and Deane, Phyllis, Abstract of British Historical Statistics (Cambridge, 1972), pp. 146 f.Google Scholar

77 Fogel's statement reads: “The most important implication of this study is that no single innovation was vital for economic growth during the nineteenth century” (Railroads, p. 234). For a more complete analysis, see Fremdling, Eisenbahnen.

78 Ibid., p. 235.

79 Fishlow, American Railroads, p. x.

80 A recent econometric study on the cyclical pattern of the German growth process between 1840 and 1880 reinforces the dominant role of the railroad: Spree, Reinhard, Zur Analyse der Zyklizität des Wachstums der deutschen Wirtschaft von 1840–1880 (Berlin, to be published in 1977).Google Scholar