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Capitalist transformation without political participation: German capitalism in the first half of the 19th century

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  • Wegner, Gerhard

Abstract

The paper analyzes the political economy of capitalist transformation in Germany during the first half of the 19th century. Current approaches in institutional economics stress the dependency of economic and political institutions in 'open access orders', which makes economic freedom without political freedom unsustainable. However, the emergence of capitalism in the German states after 1806 gives an example that economic freedom can precede political freedom, which implies that the political power of the 'dominant coalition' remains intact for a longer period of time. The paper argues that the German transformation towards modern capitalism was in stigated by competition among the European states; it was conducive to the monopolization of the coercive power of the state. This competition drove a wedge between the interests of the monarch and his supporting dominant coalition (landed gentry). Accordingly, the monarch had to find a bargain which established capitalist institutions in order to promote economic growth without compromising the interests of the landed gentry. Namely the public administration in Prussia which was deeply influenced by Adam Smith's ideas organized that bargain; it established economic freedom in various sectors but took the economic interests of the landed gentry into account. At the same time, public administration and the legal system gained more independence from the monarch. In various aspects the sweeping institutional change was Pareto-superior for groups, which made capitalism also acceptable for the elite group. Later institutional improvements have relaxed still existing constraints so that high industrialization which brought the German economy to the top of international markets could take place.

Suggested Citation

  • Wegner, Gerhard, 2013. "Capitalist transformation without political participation: German capitalism in the first half of the 19th century," Freiburg Discussion Papers on Constitutional Economics 13/14, Walter Eucken Institut e.V..
  • Handle: RePEc:zbw:aluord:1314
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    1. Daron Acemoglu & Davide Cantoni & Simon Johnson & James A. Robinson, 2011. "The Consequences of Radical Reform: The French Revolution," American Economic Review, American Economic Association, vol. 101(7), pages 3286-3307, December.
    2. O'Rourke, Kevin H, 2000. "Tariffs and Growth in the Late 19th Century," Economic Journal, Royal Economic Society, vol. 110(463), pages 456-483, April.
    3. Daron Acemoglu & James A. Robinson, 2008. "Persistence of Power, Elites, and Institutions," American Economic Review, American Economic Association, vol. 98(1), pages 267-293, March.
    4. Wegner, Gerhard, 2012. "Ökonomischer Liberalismus als politische Theorie," Untersuchungen zur Ordnungstheorie und Ordnungspolitik, Mohr Siebeck, Tübingen;Walter Eucken Institut, Freiburg, Germany, edition 1, volume 62, number urn:isbn:9783161510342.
    5. Weingast, Barry R, 1995. "The Economic Role of Political Institutions: Market-Preserving Federalism and Economic Development," Journal of Law, Economics, and Organization, Oxford University Press, vol. 11(1), pages 1-31, April.
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    Cited by:

    1. Martin Uebele & Daniel Gallardo-Albarrán, 2015. "Paving the way to modernity: Prussian roads and grain market integration in Westphalia, 1821-1855," Scandinavian Economic History Review, Taylor & Francis Journals, vol. 63(1), pages 69-92, March.

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