The necessity for ship and rail infrastructure

foolishly attempted a ‘corner’ on the entire German wheat market, planning to capitalize on the consequences of the fi nancial troubles in Argentina. This only aggravated the fi nancial panic in Germany as their scheme collapsed, bankrupting in its wake the esteemed private banking house of Hirschfeld & Wolf, and causing huge losses at the Rheinisch-Westphaelische Bank, further triggering a general run on German banks and a collapse of the Berlin stock market, lasting into the autumn of 1891.

Responding to the crisis, the Chancellor named a Commission of Inquiry of 28 eminent persons, under the chairmanship of Reichsbank President Dr. Richard Koch, to look into the causes and to propose legislative measures to prevent further such panics from occurring. The Koch Commission was composed of a broad and representative cross-section of German economic society, including representatives from industry, agriculture, universities, political parties, as well as banking and fi nance.

The result of the commission’s work, most of it voted into law by the Reichstag in the Exchange Act in June 1896, and the Depotgesetz of that July, was the most severe legislation restricting fi nancial speculation of any industrial country of the time. Futures positions in grain were prohibited. Stock market speculation possibilities were severely constrained, one result of which has been the relative absence of stock market speculation since then as a major factor affecting German economic life.

The German Exchange Act of 1896 established definitively a different form of organization of fi nance and banking in Germany from that of Britain or America—Anglo-Saxon banking. Not only this, but many London fi nancial houses reduced their activity in the restrictive German fi nancial market after the 1890s as a result of these restrictions, lessening the infl uence of City of London fi nance over German economic policy. Signifi cantly, to the present day, these fundamental differences between Anglo-Saxon banking and fi nance, and a ‘German model’ as largely practiced in Germany, Holland, Switzerland and Japan, are still somewhat visible.3

THE NECESSITY FOR SHIP AND RAIL INFRASTRUCTURE

Thus, while Britain’s national industrial and fi nance policy, especially after 1873, fostered industrial retardation of technological progress, that of Germany fostered quite the opposite. By 1900, the trends of divergence between the two countries were evident to all. But a

growing friction between Germany and England in the years before 1914 was centered on two special aspects of Germany’s impressive overall economic development. First and foremost was the dramatic emergence of Germany as a preeminent modern shipping nation, ultimately threatening the decades-long British domination of the seas.

So long as Germany did not control her own modern merchant ship fl eet, and have a navy to defend it, she could never determine her own economic affairs. Britain was still the sovereign on the world’s oceans, and intended to remain so. This was the heart of British geopolitical strategy. Under such conditions, argued an increasing majority in Germany, the nation’s economic life would be ever subject to the manipulations of a foreign shipping power for the essential terms of its vital international trade.

In 1870, the total merchant fl eet of the German Reich barely totaled 640,000 tons. The German merchant fl eet at the time was the fi fth largest in the world, behind the British, American, French and Norwegian. By 1914, Germany’s fl eet had risen to second place, just behind Britain’s and gaining rapidly.

German export goods in 1870 were subject to both the rates and the ships of other nations, above all Britain. By 1914, this had changed dramatically. Already by 1901, 9,000,000 tons on 52,000 different ships left German ports sailing under the German fl ag. By 1909, these fi gures had increased to 65,000 vessels totaling 13,000,000 tons under the German fl ag. In this time, fully 70 per cent of all German trade was dependent on the sea. Control of the terms of this trade was clearly vital for the economic security of Germany. But few in London fi nance and shipping circles welcomed that prospect.

The parallel developments in German steel and engineering were directly applied to construction of a modern merchant shipping fl eet. Replacement of sailing ships with steam propulsion and of wooden hulls, fi rst with iron reinforcement and later with steel hulls, allowed Germany’s merchant fl eet to become larger and more effi cient. In 1891, the German fl eet could count three steamers of size over 7,000 DWT (dead weight tons). By 1914, the German fl ag carried fi ve steamers above 20,000 DWT, nine between 15,000 and 20,000 DWT, and 66 between 7,000 and 10,000 DWT.

During this time, German sea transport developed with extraordinary rapidity and effi ciency. By 1914, two large companies, the HamburgAmerican and the North German Lloyd, held some 40 per cent of all Germany’s commercial marine fl eet. Organization, economies of scale

and emphasis on construction of the most effi cient and modern ships were the secrets of the spectacular growth during this period.

A French observer of the day, commenting on the extraordinary success of German marine transport in this period, noted,

It is this concentration which makes possible the rapid amortization of capital and, in consequence, the ‘scrapping’ of ships which have become old, the perpetual rejuvenation of the floating machinery. You do not fi nd in the German mercantile marine old vessels of thirty or forty years. What the German industries, properly speaking—metallurgy, electro-technique, etc.—secure by standardized production, the German merchant service obtains by the frequency and regularity of sailings … In the case of the Germans, the creation of shipping lines does not follow trade, it precedes it, and in preceding it, it brings it into existence.4

Following the fi nal incorporation of Hamburg into the German Reich in 1888, Hamburg, and later Bremen-Bremerhaven, became the centers for construction of the most modern and efficient port facilities in all Europe, drawing the rail freight of much of central Europe north, to be shipped out to world markets. Through establishment of a national infrastructure policy that encouraged the cheapest possible transport communications, Germany in the decade and a half before 1914 expanded its shipping presence throughout the world, including the traditional market monopolies of Britain’s colonies and other traditional ‘spheres of infl uence’, such as Egypt and even the Americas. In 1897, little more than one year after the Reichstag passed the restrictive fi nancial speculation controls, Grand Admiral von Tirpitz announced the fi rst German naval construction program, which the Reichstag approved in 1898, followed in 1900 by a second law doubling the number of naval ships to be built.

By 1906, Britain had launched a superior new, all-big-gun battleship class, with the Dreadnought, which was swifter and carried more fi repower than any existing battleship. In response, Germany in 1906 passed a little-publicized law mandating replacement of the German naval fl eet every 20 years. By 1909, to the astonishment of the British, Germany launched its Nassau series with four ships superior to the Dreadnought class ships; these were soon superseded by both British and German shipbuilders with an even more advanced Super Dreadnought series. Britain had never imagined that Germany could develop such a modern fl eet in its own naval yards, and in such a

short time. Reviewing the background of the 1914 Great War in an Oxford University lecture in 1951, Sir Llewellyn Woodward tersely stated, ‘Germany, like every other power, was free to build for herself as large a fl eet as she might wish. The question was one of expediency and of realist calculation. A German battle fl eet could not be other than a challenge to Great Britain, the dominant sea power.’5

It was becoming clear to some in Britain by about 1910 that dramatic remedies would be required to deal with the awesome German economic emergence. For the fi rst time, as we shall now see, petroleum also emerged as a signifi cant factor in the geopolitical calculus of war.