This is one point I cannot reconcile with my anarchist/libertarian views on economics. Allegedly economic development and wealth comes from greater freedom, which explains the USA, UK, Netherlands, Switzerland, etc.
But why is Germany such an industrial powerhouse? Why do it's companies dominate it's respective areas? From what I read, Prussia was an almost absolutist state well focused only on the standing of it's Junker Elite. I would have thought then than industrialization came from the free cities and small principalities in the West, but I don't know.
Can anybody clear this up for me?
It has to be understood that "Germany" was never a purely monolithic State as often represented, and still isn't to this day.
While the Prussian State surely became hegemonic in virtue of its military might and diplomatic skills it would have achieved little. In spite of various modernization plans Prussia proper was still largely an agricultural economy. It became an economic powerhouse just by swallowing the whole Rheinland, the most popolous and wealthiest area where most of the heavy industries were located. This came about mostly as an aftermath of the Napoleonic tornado when Prussia's diehard stance against Imperial France was richly rewarded at the Congress of Vienna. This was a decision the Hapsburg Empire would much regret later. Much to Friederich Wilhelm III's credit he rejected the rabidly conservative stances taken by many sovereigns of the era and set about a series of administrative reforms that would insure Prussia's prosperity for the century to come. Part of this can be traced to Friederich William's personal goals: most of his energies were taken up by his long-time ambition to peacefully reunite the Reformed and Protestant Churches. As he was so preoccupied he had little time to devote to more earthly matters.
One of the last acts of his rule was the Zollverein (custom union) of 1834. This came about from two factors. First of all was the elimination of internal trade barriers. As an inheritance of the old peculiar German situation, Prussia and her neighbors had inherited litterally hundreds of barriers, often hampering trade between neighboring cities belonging to same State. This was of course something that simply could not be tolerated, if for no other reason that it put Prussia, now owning the prosperous Rheinland, in a position of disavantage when confronted with France and England, both of which had long eliminated or rationalized internal trade barriers. Count Von Bluow was the driving force behind this reform. This system slowly expanded to include most German States and free cities. Sweden also joined with a free trade agreement. In 1867 the system was completely overhauled following the Austro-Prussian War and the new balance of power in Central Europe. The second factor was the will to put a restrain on English trade. Under the Continental system imposed by France, traders of seaside ports (particularly Hamburg) profited immensely from "smuggling" goods from England into the Empire. It must be said that the French authorities were perfectly aware of this but "let this happen" and contented themselves with levying periodic fines on the "smugglers" and jailing a few culprits for a week or two. After 1815 trade continued, increasing in volume: smugglers had grown very skilled at avoiding trade barriers and were very hard to catch. Of course this was seen as an unacceptable state of affairs and the various Zollverein reforms aimed at turning smuggling into regulated trade, which of course could be taxed and turned into a profit for the State. If you can't beat them, turn them into allies.
It must be said that the Junkers caste of Prussia proper had little sympathy for the industralized Rheinland. While it provided the bulk of funding for their beloved army, not to mention most of the armaments needed for their grandiose expansions, they saw it as little more than an hotbed of "liberals", much harder to control than the peasants they were accustomed to. Also the great industrial families of the Rheinland, whose influence and wealth grew enormously after 1815, were seen as serious rivals to their monopoly on political power. Still in 1915 Junkers officers were bitterly complaining that the great expansion of the army meant meant recruits drawn from the industrialized cities (hence suspected "liberals" and "Socialists") were far outnumbering Prussian peasants, regarded as much superior "soldier material".
Inter-State jealousy was also always an issue. Prussia never forgave Ludwig II, the "mad king of Bavaria", for desperately trying to avoid the 1870 war with France and for sternly resisting the great army expansion Prussian Junkers were trying to push on the rest of the Empire. Much of the malicious mythology about this eccentric but harmless (and rightly much beloved by his subjects) character was painted by Prussian propaganda and it's now widely believed the "swimming accident" which ended his life was really nothing more than political assasination planned in Potsdam.
Monarchy is waaaaaaaaaaayyyyyyyy better than democracy at choosing economically good policies. See Hoppe's argument.
Let's get into the specifics, and not these generalities like "industrial powerhouse" and "greater freedom".
Please mention in specific terms how or what certain industries in Bismarck's Germany were producing better, and what kind of legislations they were under, and how it compared to the same industries in other countries at the time and what legislations they were under.
If we can't know what the question is, how can we give an answer?
Germany, prior the period after the Second World War, has always been economically inferior to more politically liberal countries, as far as I know (including Great Britain and the United States). What was the degree of growth between 1870 and 1910 in Germany, as compared to the United States and Great Britain? In comparison, by how much did standards of living rise in Germany during this time?
Germany's economy was among the first to liberalize in Europe. Its liberalization started immediately after the Napoleonic Wars under finance minister (and adherent of Adam Smith) Friedrich von Motz. Serfdom was abolished. And Prussia established a customs union (zollverein) which gradually eliminated nearly all the trade barriers within Germany, and maintained only a weak one surrounding Germany.
Prussia had a primitive economy based on exportation of grain. It turned into an economic power when it was awarded prosperous lands on the Rheine for its role in defeating Napoleon. Germany on the eve of WWI had 30-40% less GDP per capita than the UK. However it had a considerably larger population.
The paradox of imperialism allowed the more liberal Prussian monarchy to conquer all the other German states and unify Germany into a single empire, all the while Britain was declining increasingly into socialism.
The fallacies of intellectual communism, a compilation - On the nature of power
Hey Lil, I remember the zollverein been mentioned on a history class during high school!
Early Prussia was poor. We're talking about north Poland and Konigsberg. The only real asset was the hanseatic cities. It was only the later inclusion of Germanic states that made it seem as a whole better than it really was.
The simple answer is that the concept of economic development being caused by increased freedom is false. Economic development is driven by the accumulation of knowledge, availability of labour and raw materials and the build up of capital goods over time.
What was it that allowed Germany to accumulate knowledge more quickly and comprehensively than certain other countries, such as Britain? I think it was a relative lack of copyright and IP. i.e. Freedom.
What about building up capitol goods over time? Doesn't that require respect for property rights?
Economic freedom is still freedom, you know. Democracy is not.
That said, Imperial Germany was not significantly less 'democratic' than Britain at the time of the First World War... Western propaganda notwithstanding.
Germany had a very effective public education system that was, for many years, the envy of the world.
Capital goods were owned mostly by the noble elite (Junkers) and industry was heavily oriented towards armament production.
Economic freedom is often necessary for wealth creation, but I believe the OP was referring to a more general type of freedom, which isn't necessary to create wealth (see China).
Didn't most trades in Europe (western/eastern) had to go through Germany back in the day? Capitalism is a society of traders. I suppose back in the day Germany was a trading ground between Eastern and Western Europe, where goods and ideas exchange more often than other European nations.
Of course, I'm guessing!