Money and Credit

Richard Tilly
University of Münster

English translation of: Richard Tilly, Geld und Kredit in: Thomas Rahlf (Ed.), Deutschland in Daten. Zeitreihen zur Historischen Statistik, Bonn: Bundeszentrale für politische Bildung 2015, pp. 212-223.

Richard Tilly, Money and Credit, in:, 10.02.2016 < >.

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All figures and tables were taken from the German book edition. The Data from all tables including the English translations of all column titles can be downloaded at A list of all english series names is also available in the documentation, pages 1931-1988.


In this volume “Money and Credit” represent a syndrome of institutions and relationships that encompass the “Financial Sector” of the economy (excluding public finance). This syndrome has a history going back to the earliest days of human civilization. It was in the nineteenth century, however, with the spread of market relationships, that the two phenomena first became a significant determinant of economic activity and, hence, also statistically measurable. For the purposes of this volume we find it suitable to divide the chapter into five sections: the quantity of money and its components; banks; central banking; capital market; and international relationships. Important links between these five phenomena, however, should not be overlooked.

The general goal of this contribution is to describe money and credit as an important quantitative dimension of the long-run development of the German economy. The selection and reconstruction of the time series is designed to illustrate the relationship. Some of the series cover a very long period – from 1835 to 2012 – and are not completely uniform in meaning for two reasons: first, using the Euro as a measure may not correctly reflect the value of the different currencies that circulated in Germany over the period; and second, the concept of central bank policy, or of money as “M1” and “M2” could be for the early period anachronistic. In addition, many of the series represent for the years up to 1950 estimates based on samples of that evidence available in quantitative form. Nevertheless, despite such drawbacks, we feel that the series reproduced here better reflect the long-run trends and structural changes in the German monetary and credit system than were hitherto available. Those trends and changes are the themes our presentation illustrates.

Generally speaking, the economic task of the institutions of the financial sector described here is to intermediate between savings and investment opportunities. In the developing market economy of Germany saving and investment goals frequently did not coincide. Financial institutions developed in order to provide economic actors with investment opportunities for their savings and other actors with the means to finance investment goals.1

The concepts of “money” and “credit” are virtually – but not completely – identical. Both encompass “financial instruments”. Money describes financial instruments that serve as generally accepted means of payment and standard of value, while credit may be described as the legal claim on money at a specified time in the future. Both concepts depend on trust. Trust in money as a general means of payment depended on the stability of its value. Since the beginning of the nineteenth century it was the state that regulated the economy´s supply of money in Germany; and owing to general awareness of its power to enforce and its relatively stability-oriented policy, the costs of information concerning the stability of money´s value were low and reassuring and thus strengthened the demand of economic actors for money (with the exception of the Great Inflation of 1918-23). Credit, on the other hand, depended on trust in the potential debtor. Since credit remained very largely a private matter, the cost of information concerning the trustworthiness of debtors remained relatively high; and the growth of debt spread more slowly than the use of money. In one respect, however, money and credit might be said to be identical: bank deposits, which soon became a form of money, were credit extended by the depositors to the bank. Their acceptance as means of payment thus depended on trust in both depositor and bank.

The Money Supply and its Components

The time series presented here illustrate the long-term relationship between the growth of the quantity of money and the economy as a whole. Figure 1 shows the series “M1”, Figure 2 the velocity of circulation of money (Gross Domestic Product/Money (as “M1” and “M2”). “Velocity” reflects how rapidly money circulates as measured in transaction values.

Fig. 1: Yearly Growth Rates of Money Stock (M1) and Gross Domestic Product
Fig. 1: Yearly Growth Rates of Money Stock (M1) and Gross Domestic Product
Fig. 2: Velocity of Circulation of Money - Gross Domestic Product / Money (as M1 and M2)
Fig. 2: Velocity of Circulation of Money – Gross Domestic Product / Money (as M1 and M2)

Both figures show that the quantity of money has tended to grow more rapidly than the economy as a whole. That long-run trend has resulted from two different forces: on the one hand, the long-run growth of domestic product reflects a growing number of transactions that are “netted out” and thus not captured by measures of domestic product; on the other hand, rising product and rising income has been accompanied by growing readiness of private persons and firms to hold money balances. Figure 2 indirectly indicates yet another important long-run tendency: the structural shift in the composition of the money supply. While “M1” reflects only demand deposits, M2 included both demand and time deposits (payable after a certain delay) and M3 both those plus money market holdings. At least as important for the nineteenth century was the marked structural decline in the share of coins and “cash” balances (shown in Figure 3) and change in the composition of what constituted “cash”.

Fig. 3: Coins and Cash Money as Share of M1 - in Percent
Fig. 3: Coins and Cash Money as Share of M1 – in Percent

The clearness of the long-run structural changes in the composition of money makes it somewhat easier to accept certain uncertainties that lie in the estimates of the money supply offered here. They also point to another change that deserves attention: the growing importance of deposits as a form of money reflected the growing presence and weight of banks in the monetary system – topic of our next section.

Table 1: Quantity of Money in Germany and its Components, 1835 to 2012
Table 1: Quantity of Money in Germany and its Components, 1835 to 2012


At the beginning of the nineteenth century very few banks in the modern sense existed. By the end of the century, however, they had become a familiar institution: in 1913 roughly 5,000 banks or bank-like institutions according to one estimate.2 In the 1970s their growth slowed, but with around 40,000 bank offices it covered the entire country and had integrated an overwhelming share of households and firms in its network. A good measure of the economic weight of banks is the value of their total assets in relation to the Gross Domestic Product.

Fig. 4: Total Bank Assets as Share of Gross Domestic Product (corrected version)
Fig. 4: Total Bank Assets as Share of Gross Domestic Product (corrected version)

The Figure confirms the view that in market economies the bank sector has tended – except for war and world crises – to grow more rapidly than the aggregate economy. This relation has value for international comparisons, possibly also as an indicator of potential financial fragility.

Banks served not only as payments administrators but as purveyors of credit; and, indeed, the raison d étre behind the mobilization of savings they achieved – in part created by their own loans – was satisfaction of the economy´s needs for credit. Figure 5 depicts the growth of bank credit, showing its growing weight and the typical peace-time increase relative to the economy, also the dramatic declines caused by war and world crisis.

Fig. 5: Total Volume of Bank Credit as Share of Gross Domestic Product (corrected version)
Fig. 5: Total Volume of Bank Credit as Share of Gross Domestic Product (corrected version)
Table 2: Banks
Table 2: Banks

Over the nineteenth century the German banks developed into so-called “universal banks”, institutions that combined normal lending and deposit business with an active role in the capital market, the credit banks (and many private banking firms) in the securities market, the savings banks in the market for real estate and housing. That the banks could offer their customers access to these capital markets enhanced their importance as sources of credit in the German economy. Use of the capital markets benefited not only the finance of long-term industrial investment but also promoted the development of public infra-structure projects and housing both of these important prerequisites for economic growth. In crises times of course, as in the 1930s, that market could even magnify financial problem; but in both long periods of peace its importance and weight in the economy grew.

During the two long periods of peace before 1914 and after 1945 the German capital markets showed a growing capacity to absorb both equity and debt securities issued by German businesses and government bodies. The sharp declines shown after both wars we can attribute to the enormous destruction of German financial wealth which came with the currency reforms that followed. Problems of valuation, however, may have also played a role, especially after 1945. Finally, we note that in international comparative perspective, the German capital markets, owing to the relatively great weight of bank credit, contributed much less to the economy´s overall financial needs than in other countries, for example, the United Kingdom or the USA.3

As used here “bonds” refer to all forms of long-term debt that pay interest and require repayment of the original sum borrowed.

Fig. 6: German Shares and Bonds in Relation to Gross Domestic Product (in Percent) (corrected version)
Fig. 6: German Shares and Bonds in Relation to Gross Domestic Product (in Percent) (corrected version)

Central Bank Policy

Central banks have become an important institution in many countries over the past 50 years or so; and they have played a major role as regulator and stabilizing influence in national monetary and credit systems as well as internationally. For most of the nineteenth century few countries had central banks. In Germany in the 1860s, the government-controlled Prussian Bank began to show signs of central bank behavior; and towards the century´s end, the German Reichsbank, its replacement, definitely sought to influence the monetary system and to serve as lender of last resort and as custodian of the country´s gold reserves. This brief article cannot attempt to offer proof of the effectiveness of the bank´s policy. Suffice it to say that (1) in both war periods the Reichsbank became largely an instrument of public finance, both periods ending in a total collapse of the country´s currency; and (2) in long-run trend the growth of central bank money kept in step with the growth of the economy´s overall money supply.

Fig. 7: Money Stock (M1) and Central Bank Money in Germany, 1850-1999 (in Bill. Euro)
Fig. 7: Money Stock (M1) and Central Bank Money in Germany, 1850-1999 (in Bill. Euro)

During “normal” periods of peace (the nineteenth century and until the 1930s) central banking policy consisted largely of changes in the discount rate in the money market, whereby the country´s balance of payments as well as its level of economic activity served as criteria for such changes. In the post-1945 period, further “policy instruments” were added, but the goal, the level of macro-economic activity to influence, remained roughly the same. The relative stability of the German mark since the 1950s represented in large part a measure of the effectiveness of German central banking policy.

Table 3: Central Bank
Table 3: Central Bank

Capital Market

Evaluation of neither that policy nor of the monetary system as a whole can do without consideration of interest rates, i.e., the price dimension of the system. Here we offer three long series: the discount and money market interest rates and the latter for the London market (U.K.). Those rates obviously reflect the interplay of supply and demand in those markets.

Fig. 8: Interest Rates , Germany and Great Britain - in Percent
Fig. 8: Interest Rates , Germany and Great Britain – in Percent

The only series covering the entire period is the German discount rate, but the main three historical “phases” of German economic history are clearly recognizable. The changing role of British and German money market rates is also obvious: in the nineteenth century, German rates clearly exceeded British ones; but since 1950 the positions were reversed. This is also true of long-term rates (not shown here).

Table 4: Capital Market
Table 4: Capital Market

International Financial Relations

In all three phases of the long time period covered here, the German monetary system developed strong international financial links which deserve attention. Their growing importance reflected both the increasing weight of German foreign trade and the relative attractiveness of foreign and domestic investment. Time series that cover the entire period from the 19th to the 21st century were not available, unfortunately. For lack of a better indicator, we use “net capital movements” as measured in the balance of payments (on this measure see also the contribution by Nikolaus Wolf in Zahlen). In spite of certain shortcomings, it gives us an informative overview of the three “phases” of German economic history. The Figure__ below shows what is intended.

Fig. 9: German Kapital Exports (Negative Capital Movements) as Percent of Gross Domestic Product, 1870-2012
Fig. 9: German Kapital Exports (Negative Capital Movements) as Percent of Gross Domestic Product, 1870-2012

During the Wilhelminian period until 1914 Germany was one of the world´s most important exporter of capital (perhaps third, behind Great Britain and France). Between the two world wars, in contrast, it became one of the world´s most important debtor countries. In the last, post-1945 period, finally, its status as capital exporter and importer shifted, though here, thanks to changes in the value of money, the graphic reproduction appear somewhat distorted.

Table 5: International Financial Relations
Table 5: International Financial Relations

Further Reading

  • Karl-Erich Born: Geld und Banken im 19. und 20. Jahrhundert, Stuttgart 1977.
  • Carsten Burhop: Die Kreditbanken in der Gründerzeit, Stuttgart 2004.
  • Lothar Gall u. a.: Die Deutsche Bank 1870–1995, München 1995.
  • Carl-Ludwig Holtfrerich: Der Finanzplatz Frankfurt, München 1999.
  • Sidney Homer / Richard Sylla: A History of Interest Rates, 3. Au ., New Brunswick (USA) 1996.
  • Jörg Lichter: Preußische Notenbankpolitik in der Formationsphase des Zentralbanksystems 1844 bis 1857, Berlin 1999.
  • Michael North: Das Geld und seine Geschichte, München 1994.
  • Bernd Sprenger: Geldmengenänderungen in Deutschland im Zeitalter der Industrialisierung (1835–1913), Köln 1982.
  • Richard Tilly: Geld und Kredit in der Wirtschaftsgeschichte, Stuttgart 2003.
  • Christoph Wetzel: Die Auswirkungen des Reichsbörsengesetzes von 1896 auf die E ektenbörsen im Deutschen Reich, insbesondere auf die Berliner Fondsbörse, Münster 1996.


In general, for the period up to about 1945 the most useful sources were a publication of the Bundesbank4 and the work of Walter G. Hoffmann.5 For the period of the Federal Republic two publications by the German Bundesbank were the most important sources. The second volume of this publication contains the time series and is available online in “histat” (“Geld”). For the subsequent period up to 2012 it was essential to draw on the time series available in the online data bank of the German Bundesbank.

Treatment of the topic “money supply” drew heavily on the useful contribution by Bernd Sprenger.6 The early role of the Prussian Bank as “central bank” drew on contributions by Friedrich Thorwart und Curt Schauer.7 The German Reichsbank published useful series on money market interest rates for the period from 1876 to 19138; Ernst Wagemann authored a long series on discount rates up to 1929 (available online), while data covering the movement of German exchange rates in the period up to 1914 (Table 5) came from a publication by Jürgen Schneider and Oskar Schwarzer.9 Some of the time series on rates of interest (Table 5) came from the book by Sidney Homer and Richard Sylla,10 the German series “yield on capital” (Table 4) was in a publication by Otto Donner,11 estimates of total bank assets (in Table 2) drew on an article by Carl Holtfrerich,12 and the stock market turnover (Table 4) came from an estimate by Christoph Wetzel.13

The briefness of this article has limited it to no more than a few examples of the topics and questions that the underlying times series can be used to investigate. Potential users, in any case, will have to recognize certain of their shortcomings. Thus, a study of the “money supply” or some other bank-based variable will need to note the absence of information on private bankers – up to 1870 of great importance. Some of the data problems have been identified in the source tables, but possible changes were not always verifiable. Ambitious studies of money and credit that use these tables will doubtless need to draw on further, perhaps more detailed sources. With this study we hope to have offered a useful starting point.


  1. Strictly speaking, financial intermediation occurs whenever a discrepancy between expenditure and income emerges in the private sector. On the one hand, surpluses require asset acquisition; on the other hand, deficits cannot take place without use of somebody´s savings, voluntarily or involuntarily. On this see R. Tilly, Geld und Kredit in der Wirtschaftsgeschichte (Stuttgart, 2003), P. 15.
  2. In 1835 around 400 firms were known as „money dealers“, several dozen of which were probably true bankers, and in addition a few hundred savings banks. For 1913 we have the above-cited 5000 “banks” plus perhaps 15000 rural credit cooperatives. See on this Deutsche Bundesbank: Deutsches Geld und Bankwesen in Zahlen 1876-1975. Frankfurt a.M., 1976, P. 67.
  3. On this see Raymond Goldsmith, Comparative National Balance Sheets. A Study of Twenty Countries, Chicago, 1985; and Tilly, Geld und Kredit, p. 210.
  4. Deutsche Bundesbank (Ed.), Deutsches Geld- und Bankwesen in Zahlen, 1876-1975 (Frankfurt/M, 1976).
  5. Walther G. Hoffmann et al,, Das Wachstum der deutschen Wirtschaft seit der Mitte des 19. Jahrhunderts. Berlin, u.a. 1965.
  6. Bernd Sprenger, Geldmengenänderungen in Deutschland im Zeitalter der Industrialisierung (1835-1913) (Cologne, 1982).
  7. Friedrich Thorwart, „Die Entwicklung des Banknotenumlaufs in Deutschland, 1851-1880“, Jahrbücher für Nationalökonomie und Statistik, 7 (1883); Curt Schauer, Die Preußische Bank (Halle, 1912).
  8. Deutsche Reichsbank: Geldmarktzinssätze im In- und Ausland 1876-1913 (Table 227, in „Vergleichende Notenbankstatistik. London/Berlin 1925.
  9. Ernst Wagemann, Diskontsatz, 1820 bis 1929, in: histat. Zeitreihen zum Bereich „Geld“; Jürgen Schneider und Oskar Schwarzer, Statistik der Geld- und Wechselkurse in Deutschland (1815-1913). Quellen und Forschungen zur historischen Statistik von Deutschland, Bd. 11. St Katharinen, 1990.
  10. Sidney Homer/Richard Sylla: A History of Interest Rates, 3d Edition. New Brunswick (USA), 1996.
  11. Otto Donner, „Die Kursbildung am Aktienmarkt. Deutsches Reich von 1870 bis 1934“, Vierteljahresheft zur Konjunkturforschung. Sonderheft 36, Berlin, 1934.
  12. Carl-Ludwig Holtfrerich, „Zur Entwicklung der deutschen Bankenstruktur“ in: Deutscher Sparkassen- und Giroverband (Eds), Standortbestimmung. Entwicklungslinie der deutschen Kreditwirtschaft. Stuttgart, 1984.
  13. Christoph Wetzel, Die Auswirkungen des Reichsbörsengesetzes von 1896 auf die Effektenbörsen im Deutschen Reich, insbes. auf die Berliner Fondsbörse. Münster, 1996.