After the Congress of Vienna, the 35 princedoms and the four free cities of the German territory29 sovereignly administrated their customs duties, their weights and measures and their currency system30� Metallic coins in circulation were many, because those already numerous of the
28 These considerations are presented by Einaudi, Luca, “Monetary Unions and Free Riders: The Case of the Latin Monetary Union (1865-78)”, in Rivista di storia economica, No� 3, dicembre 1997, p� 327-362�
29 The arrangement of the numerous German States was so complex that dragged on since the Congress of Vienna until 1819, when in Frankfurt the agreement was signed, ratifying the boundaries of the medium and small States, and setting up a German Confederation (which lasted, with some changes of members, until the Prussian victory over Austria in 1866), made up of 39 State entities against the previous 350� See, in particular: Mann, Golo, Storia della Germania moderna, Firenze, Sansoni, 1964; Carrié, René Albrecht, Storia diplomatica d’Europa, 1815-1968, Rome-Bari, Laterza, 1978�
30 Cf� Bogart, Ernest Ludlow, Storia economica dell’Europa, 1760-1939, Turin, Unione tipografico-editrice torinese, 1968, p� 216�
German Confederation States were added with English, Danish, French and Russian ones31�
Therefore, the metallic circulation was variegated� It prevailed the silver standard, but the weights and names of the coins were different and there were two units of reference adopted by a certain number of States: the thaler in the Northern States – including Prussia –, the florin in the Southern States – including Austria� Even within the two bench marks prevailed chaos: denominations or number of pieces which could be minted with the unit of weight of the referent fine metal fluctuated32�
This system created many difficulties for the process of industrialization that Germany was facing at that time, a process already hampered by the division of the country into many state entities� In particular, the Prussian territories as agreed by the Treaty of Vienna sprawled across Northern Germany, but their economic development was hampered by antiquarian tariff barriers� Within Prussia there were sixty-seven different tariffs and thirteen non-Prussian enclaves, each with a different fiscal system� Internal customs duties in Prussia were abolished in 1818: the customs union, the Zollverein, was born�
One of the enclaves was induced by the Prussian Finance Minister, Friedrich von Motz, to hand over its customs administration in 1819;
six other small States followed suit in 1822� Other German States, perceiving the economic strength that was accruing to Prussia, formed unions of their owns in 1828, but, as the resources of the Prussian union were greater, they too were forced into the Zollverein by the end of 1833�
More States joined in following eleven years, although the great seaports such as Hamburg and Bremen were strong enough to remain outside�
The problem of free movement of goods had already placed after the birth of the Confederation, in the wake of the ideas of the economist Friedrich List33, who was calling for the overthrow of the complex grid
31 In the first half of the nineteenth century, a shortage of banknotes, which made up only 3% of the money circulating in Germany, was opposing to this variety of metallic money� Cf� De Simone, Ennio, Storia della banca: dalle origini ai nostri giorni, Napoli, Arte Tipografica, 1987, p� 175�
32 Cf� Schor, op. cit., p� 20�
33 Born in Reutlingen (Württemberg) in 1789, List taught at the University of Tübingen, a position he had to leave in 1818 because frowned upon by the government for its economic doctrines� In fact, he advocated the need to break down trade barriers among German States and abolish the doctrine of free trade in relations with foreign countries, saying that Germany could give rise to a domestic industry only through protectionism; once the industry had grown sufficiently to cope with international competition it could return to free trade� Cf� Fauri, op. cit., p� 16-17� In 1819, the General Association of German Industrialists and Traders introduced, under
made by dozens of customs duties, also present within a same country�
Initiated by Prussia in 1818 with the goal of eliminating all internal barriers and enclosing the entire State into a single customs border, the Zollverein arrived to a final shape on 1 January 1834 and soon also standardizing weights, measures, and currencies within the States (excluding Austria) and thus forming the basis of a “quite national” economy34�
With the realization of the customs union, disadvantages arising from monetary fragmentation became evident35� The Southern States, related to florin, felt more than others the need to standardize their coinage:
this is why on 25 August 1837 they promoted the Munich Convention, which led to the adoption of a common currency� The Munich Treaty among the States of Southern Germany adopted silver as the base of the agreement and the florin was used as a common count unit, omitting any rule about the circulating currencies�
On 30 July 1838, the Dresden Convention36, or Münzverein, was ratified: noting the common adoption of the thaler by the Northern States, the Dresden Convention recognized the persistence of two monetary zones at 1�75 gulden per thaler, creating the first monetary union covering most of German territory� The Union was of a traditional type, based on the silver standard, on independent local issues following common rules, and did not include paper money� A common coin of 2 thalers equaling 3�5 gulden was introduced, but was too cumbersome to become popular; it weighed 37�12 grams and was the heaviest silver coin circulating in Europe at the time� Its failure was sealed by the nickname “Champagne thaler”37�
his suggestion, a petition in favor of the Customs Union and the establishment of a common external tariff� In 1820, he was elected deputy, but was later expelled and forced to a temporary exile in America between 1825 and 1832� However, his theories were spread in the German Confederation, and were decisive for the birth of the Zollverein� Theoretician of the “economic nationalism”, in 1841 he published his most famous work, Das Nationale System der Politischen Ökonomie (Il sistema nazionale dell’economia politica, Turin, UTET, 1936; Milan, Isedi, 1972), in which he insisted on the close link between economics and politics and defended the national economic independence� He died in 1846 in Kufstein�
34 Cf� Hamerow, Theodore S�, Restoration, Revolution, Reaction: Economics and Politics in Germany, 1815-1871, Princeton, Princeton University Press, 1958; Tilly, Richard H�, On the History of German Monetary Union, in From the Athenian Tetradrachm to the Euro, cit�, p� 42-58; Rössner, Philipp Robinson, “Monetary Instability, Lack of Integration, and the Curse of a Commodity Money Standard� The German Lands, c� 1400-1900 A�D�”, in Credit and Capital Markets – Kredit und Kapital, Vol� 47, No� 2, 2014, p� 297-340�
35 Cf� De Simone, op. cit., p� 175�
36 Cf� Droulers, op. cit., p� 47-49�
37 Cf� Henderson, William O�, The Zollverein, Cambridge, Cambridge University Press, 1939�
A proposal by Saxony to adopt a single coinage based on the mark was rejected by the other German States wishing to retain the attributes, as well as the substance, of monetary sovereignty�
Therefore, the agreement did not unify the coinage in the Zollverein, but managed to keep it simple38: it set a permanently fixed exchange rate between the two monetary zones of the customs union, it imposed the silver standard, it adopted a system based on the dual currency, with fixed exchange rates between the currency of the customs union and the currency of each country and each country accepted the common currency of the Zollverein alongside its own currencies as a tool endowed with liberating power�
The immediate effect was the acceleration of the industrial process�
Economic integration also strengthened the national consciousness in the German States, making the political unity a scenario much more likely� Germany began to exhibit all the characteristics of a nation-State�
The next step towards monetary unification of the German-speaking countries came with the Treaty of Vienna (January 1857): with that Treaty, Austria finally managed to become a member of the Münzverein, despite its weaker fiscal and monetary situation and its long-standing depreciated inconvertible paper currency� It had to accept the return to full convertibility into silver of its bank notes and the dominant role of the Prussian thaler in the Union39, the Vereinsthaler, at a rate of 1�75 gulden and 1�5 Austrian florins� Prussia had blocked the Austrian accession, as part of its bid for open supremacy over Germany, but Austria still held the presidency of the Diet of the Confederation40�
Divergent economic conditions and the war of 1859 with Italy forced Austria to suspend convertibility again after only one year� It could not stand the discipline of limited seigneurage income� After suffering defeat in the Austro-Prussian war of 1866, Austria was given the opportunity to remain in the Münzverein, but the year after opted out in order to reach an agreement with France� Entering into the LMU seemed to offer access to the Parisian capital market, to a large international currency agreement, and was also part of a new military alliance against Prussia�
The French government, however, never ratified the provisional Franco-Austrian monetary convention of 1867, worried by the consequences of
38 Cf� Schor, op. cit., p� 22-23; Bogart, op. cit., p� 216�
39 Cf� North, op. cit., p� 190; Olszak, op. cit., p� 28-29�
40 Cf� Einaudi, Luca, “‘The Generous Utopia of Yesterday Can Become the Practical Achievement of Tomorrow’: 1000 Years of Monetary Union in Europe”, in National Institute Economic Review, Vol� 172, 2000, p� 90-104, specifically p� 94-95�
Austrian inconvertibility and by the request to abandon bimetallism for the gold standard�
The GMU lasted only until 13 June 1867, when, following the defeat in the war against Prussia, Austria was forced to withdraw from the Treaty41�
The last step towards the currency union came in 1871, with the founding of the Reich and the appearance of a new monetary unit, the gold mark, accounting for one third of the Prussian thaler� Two years later, picking up the recommendations coming from the business world, it was adopted the gold standard� The fact was favored by the payment made by France to the Reich for the reparations of war amounting to 5 billion gold francs42� It was decided the minting of a gold coin from 20 brands, which became the main currency of the Reich, when, in 1873, it introduced the imperial gold currency and declared the old regional currencies out of circulation as of 1 January 187643�
Unlike what happened with the Latin Monetary Union, the Germanic Monetary Union was produced by the customs union and formed the basis for the political unification44�