Introduction

This book contains five essays on various aspects of German economic history from 1880 to 1979. There are three reasons why Germany, rather than another industrial country, was chosen for this study. First, the German economy was subject to larger shocks than most other industrial countries during the period under analysis. The largest shocks were the very great destruction caused by the two world wars and the ensuing territorial losses and the hyperinflation of 1919 to 1923. Thus German developments and their accurate measurement represented in some periods almost a controlled experiment and can therefore be considered as ideal to study and test economic theories. Because of the slow adjustment of the private sector to these shocks, the German economy experienced long periods of disequilibrium; therefore in building the models and in formulating the hypothesis to test, disequilibrium was introduced explicitly. The three-equation monthly model of inflation, exchange rate changes and money supply growth built to study the hyperinflation of the early 1920s (Chapter 3), the four-equation quarterly model to explain changes in nominal income before and during the great depression of 1929-33 (Chapter 4) and the sixteen-equation annual macroeconomic model estimated for one hundred years (Chapter 5), all rely heavily on Wymer’s (1972, 1976) and Bergstrom and Wymer’s (1976) work on the specification and estimation of disequilibrium growth models with neoclassical long-term properties. The dynamic properties of these three models are determined by the adjustment of actual quantities and prices to partial equilibrium levels. Lags are assumed to be related to transaction costs, uncertainty and, in general, all real-world frictions.