The industrial expansion of the German economy between 1880 and 1913 was significantly more rapid than that of the United Kingdom, and substantially less volatile than that ofthe United States. Although economic historians have devoted considerable attention to explaining the differences in rates of growth between Germany and the U.K., only a very few scholars have addressed the differences in volatility between German and U.S. growth. In spite of the fact that it is primarily in comparison with the United States that the volatility of German industrial expansion appears so relatively mild, most suggested explanations for this stability, such as increased protection in Germany, or differences in financial structure or industrial Organization, have not been developed as part of an explicitly comparative analysis that attempts to account both for the severity of fluctuations in the United States and for their relative absence in Germany. Within a comparative framework, an explanation for the relative stability of German growth should at the same time be an explanation for the instabüity of U.S. growth.

This paper argues that a substantial part of the explanation for these differences in relative stability may be found in differences in the relative importance and volatility of railroad investment in the two countries during these years. This hypothesis may also provide the key to understanding why German growth was so relatively stable in comparison with its own experience in the previous several decades, and perhaps also why the U.S. experience in the late nineteenth Century appears historically to have been particularly unstable.