The emergence of capitalism in Gemany is also a much later development. Till the middle of the nineteenth century apart from being politically divided Germany also industrially quite backward.
Her economy worked through the guild system, under which the artisans were prohibited from carrying on a trade in the countryside without undergoing apprenticeship through the guild. No doubt, certain reforms were introduced to weaken the hold of the guilds but they continued to occupy a prominent position.
Another factor which contributed to the delay in the development of capitalism in Germany was that the majority of the people were engaged in agriculture and were not favourably disposed to the adoption of the new industrial techniques. The poverty of the people, and continuous warfare prevented the accumulation of capital and thus obstructed the development of capitalism.
Lack of banking facilities also hampered its development. The other factors which were responsible for the slow progress of capitalism in Germany included lack of a colonial empire and an efficient mercantile marine. As a result of the above factors Germany could not make any industrial advancement and consequently the growth of capitalism was delayed.
It was only around 1835 with the formation of the Zollverein (the Customs Union) that the industrial development of Germany was accelerated. According to Clapham, “The acceleration in German industrial development which is preceptible from about 1835, and conspicuous from about 1845, was certainly conceited with the creation of the Zollverein in 1834.
But how much was it due to the Zollverein, how much to better to roads and the first railways, how much to that of spread of knowledge which no tariff can stop, cannot be determined… No doubt the events of 1834 were a true case of prosperity. But they were not only one of many, and their strength cannot be measured.”
The huge war indemnity which Germany received from France following her victory in the Franco-Prussian War, also provided a great fillip to the growth of capitalism in Germany. It provided a tremendous boom to the business activities.
This is evident from the fact that as compared to the period 1826 to 1870 when stock companies had an aggregate capital of only 3.1 billion Marks, between 1870 and 1874, 857 new companies were established with a capital of 3.3 billion Marks.
A new phase in the development of capitalism in Germany set in after her unification in 1871. This is popularly known as an era of export capitalism. Before the unification of Germany, the German industries were mainly producing for the home market. After 1871 the emphasis shifted to the capture of world markets and the country witnessed rapid industrialization.
This was accompanied by the swift movement of population from the rural to urban areas. The rapid development of industries in Germany was made possible by the combination of a number of factors, viz. availability of coal and iron-ore in abundance; the acquisition of the iron-fields of Lorraine after the Franco-Prussian War which placed vast reserves of iron ores at the disposal of Germany and greatly assisted in the expansion of the iron industry.
In the rapid development of coal and iron industry the government played a significant role by providing cheap railway rates. The experience of England was also fully utilized. Germany also made remarkable progress in chemical and electrical industries. It is noteworthy that Germany achieved industrialization at the most rapid speed.
The growth of an effective banking system in Germany also greatly contributed to the growth of capitalism in Germany. However, it may be noted that the German banking system fundamentally differed from the British and American banking system in so far as the German banks combined in themselves the functions of commercial banks, investment
bank and investment trust.
Further, the major funds of the banks were used for direct loans to commercial and industrial enterprise. The banks also played a significant role in German’s economic and political expansion outside her frontiers by financing her foreign trade. Above all, they played a significant role in freeing the German business from dependence on the British banks.
The German banks set up a number of branches abroad and made capital investments in foreign countries, specially in Near East, Latin America and Far East. The various devices employed for foreign investments included founding of commercial and industrial companies, participation in foreign companies, purchase of foreign securities. It has been assessed that on the eve of World War I, Germany had invested approximately 40 billion Marks in foreign countries.