Economics / History / Warfare

The Unacknowledged History of the Plundering Nation, 1870-1923

In the unfolding drama of Greece versus the Troika (the European Central Bank, the European Commission and the International Monetary Fund), another powerful actor, the Federal Republic of Germany, casts a long pall over the “negotiations.”  Considering the FRG and its antecedents have a very checkered history in relation to the rest of Europe, this blog’s authors endeavored to determine if the German influence on the “bailout” talks is promoting peace and stability.  After careful study, our conclusion is decidedly negative.

Founded on Carthaginian Peace

Any European historian or Keynesian economist should recognize Pax Romana’s solution, which Keynes himself railed against:

Thus, as soon as this view of the world is adopted and the other discarded, a demand for a Carthaginian Peace is inevitable, to the full extent of the momentary power to impose it. For Clemenceau made no pretense of considering himself bound by the Fourteen Points and left chiefly to others such concoctions as were necessary from time to time to save the scruples or the face of the President.

So far as possible, therefore, it was the policy of France to set the clock back and to undo what, since 1870, the progress of Germany had accomplished. By loss of territory and other measures her population was to be curtailed; but chiefly the economic system, upon which she depended for her new strength, the vast fabric built upon iron, coal, and transport must be destroyed. If France could seize, even in part, what Germany was compelled to drop, the inequality of strength between the two rivals for European hegemony might be remedied for many generations.

Where does one begin the modern history of Germany?  Some might argue it follows the fortunes of the Kingdom Prussia, founded in 1701.  But perhaps Keynes “since 1870” is the better date, which seems to point to the founding of the German Empire:

Nearly 150 years ago Spain’s “Glorious Revolution” of 1868 saw the deposition of Isabella II and the collapse of the first Spanish Republic. More importantly for our purposes it also unleashed within continental Europe a conflict over the succession to the Spanish throne which ultimately, through a series of circuitous events, resulted in France’s declaration of war on Prussia in July 1870. This was widely seen in France as a chance partially to even the score over Prussia’s victory during the Napoleonic wars, but in the end France’s revanchist fantasies were frustrated. By early 1871, the French army  was roundly defeated by Prussia, which during that time had unified the various German states as the German Empire under the Prussian king.

OK, Franco-Prussian War it is.  For the third time in less than 10 years, Otto von Bismarck had manipulated diplomatic dispatches to start wars (in Denmark, Austria and France) and tricked two neighboring powers (Austria first, then France) to declare war and permit Prussia to ride the the rescue of the other poor, defenseless German-speaking states.  But here Keynes’ argument falls apart:

There were at least two important results of France’s military defeat. Of minor importance for the purpose of my blog entry, but interesting nonetheless for those obsessed with modernism and with France’s late 19th Century cultural history, like me, the Franco-Prussian War will always be remembered for its role in the subsequent creation and collapse of the Paris Commune. This event left its mark on the thinking of many cherished artists and intellectuals, from Manet and Rimbaud to Proudhon and Haussman.

But the other, to me, very interesting and far more relevant consequence was the French indemnity. As part of the privilege of conquest and as a condition for ending the occupation of much of northern France, Berlin demanded war reparation payments originally proposed at 1 billion gold francs but which eventually grew to an astonishing 5 billion, at least in part because of an explicit decision by Berlin to impose a high enough burden permanently to cripple any possible French economic recovery.

To give a sense of the sheer size of this payment, usually referred to in the literature as the French indemnity, this was equal to nearly 23% of France’s 1870 GDP.(2) Germany’s economy at the time, according to Angus Maddison, was only a little larger than that of France, so Germany was the beneficiary of a transfer over three years equal to around 20% of its annual GDP. This is an extraordinarily large transfer. I believe the French indemnity was the largest reparations payment in history — German reparations after WWI were in principle larger but I don’t think Germany actually paid an amount close to this size, and certainly not relative to its GDP.

Prussia had gone to war a third time to recapitalize its treasury.  Nor is this an opinion–Bismarck instead of simply stating his belief that “France being the richest country in Europe, nothing could keep her quiet but effectually to empty her pockets” wrote the damned statement down.  Keynes’ finger-wagging must have angered the French immensely in 1919 when Parisians could still clearly remember how hard it was for the La Troisième République to cough up the ransom:

Astonishingly enough France was able to raise the money very quickly, mostly in the form of two domestic bond issues in 1871 and 1872, which were heavily over-subscribed. One of the most complete studies of the French indemnity, I think, is a booklet by Arthur Monroe published in 1919.(3)  According to Monroe, the first issue of 2 billion in perpetual rentes was issued in June 1871, a mere 48 days after the treaty was signed, and was heavily oversubscribed. The second issue was even more successful:

Thirteen months after announcing the first loan the government opened subscriptions for a second, this time for three billions, again in 5 per cent rentes, but issued at 842. The response to this was astounding, for more than twelve times the amount desired was subscribed, more than half of the offers coming from foreign countries.

Monroe goes on to note that “it is no small compliment to the credit of France at this time to note that about one-third of the foreign subscriptions were from Germany,” so when we think about the net transfer to Germany, it was less than 5 billion francs. Although Monroe says that more than half the subscriptions came from outside France, and one-third of those were German, with twelve times oversubscription there is no way for me to estimate how much was actually allocated to German purchasers so I have no estimate for the amount by which the 5 billion should be adjusted.

The payments were made in the form of bills of exchange and to a lesser extent gold, silver, and bank notes, and Berlin received the full payment in 1873, two years before schedule. It was during this time that Germany went fully onto the gold standard, and obviously enough the massive indemnity made this not only possible but even easy.

April Fools!  Literally.  The Coinage Act of 1873 became effective in the United States and America transitioned to a de facto gold standard on 1 April of that year, just in time for the Vienna stock market crash on 9 May and still Germany transitioned fully to the goldmark on 9 July, setting the Panic of 1873 into full swing and ushering in the Long Depression.  God must have a sense of humor, or we all are complete idiots…

War is the Ultimate Criminal Act, it’s Armed Robbery Writ Large

The above Tom Clancy quotation is one for the ages; though the Economist recognized the sea change in 1871:

Detached observers were alarmed by this departure from the tradition of reparations for war expenses alone, the Economist observing in March 1871 that “to exact huge sums of money as the consequence of victory suggests a belief that money may next time be the object as well as the actual reward of battle.  A flavor of huckstering is introduced into the relations between States.”  Nevertheless, Bismarck insisted “France being the richest country in Europe, nothing could keep her quiet but effectually to empty her pockets.”  Overall, the German chancellor felt he had been mild: “Some moderate a victor as the Christian German does not exist in the world anymore.”

Thankfully, Bismarck was the last victorious German chancellor.  But the Economist was spot on.  Bismarck was eventually eclipsed by militaristic finance:

Economic and political factors were corroding Bismarck’s coalition, formed in 1878-9 to protect agrarian and industrial interests, (12) less than twenty years later.  An atmosphere of protracted crisis prevailed in the mid-1890s, jealousy and mistrust between the agrarian and industrial sectors of Germany’s ruling class on the one hand, fear of social revolt from below and ‘coups d’etat’ from above, aggravated by the Kaiser’s ambition for ‘personal rule’.  It was in this tense situation that the Prussian Minister of Finance, Johannes von Miquel, the ‘strong man’ in Germany at the time, returned to Bismarck’s principle of class solidarity at home and spectacular policy abroad.  In the summer of 1897 Miquel was made Vice-President of the Prussian Ministry and Tirpitz was appointed Secretary of State for the Navy.

Germany in the 1890s transitioned from Bismarck’s successful realpolitik to Miquel’s dubious weltpolitik:

Miquel, who had been a friend and follower of Karl Marx in 1848-9, had become the leading spokesman of the Conservative faction in the National Liberal Party, representing mainly industrial interests.  But he pleaded for the protection also of agrarians, because he saw in them the strongest pillar of the monarchy and conservative structure.  Industry was, however, indispensable for modern power politics.  This is why, in view of the coming General Elections of 1898, he wished to renew the former alliance of agriculture and industry of 1878-9 and Bismarck’s ‘Kartell’ of 1887, thus forming a common front of all Conservative forces against Social Democracy and left-wing Liberalism.  Miquel found an arousing battle-cry in ‘rallying all productive classes’ (‘Sammlung der produktiven Stande’) around the imperial throne and in ‘Weltpolitik’.  To unite the possessing classes in their common economic and political interest, it was necessary, however, to act in strict conformity with the Constitution.  The Liberal elements of the middle classes might react strongly when confronted with a return to playing with open repression, ‘coups d’etat’, etc.
As compensation for forgoing political adventures at home, Miquel stressed possibilities abroad.  He was not only for strengthening ‘national sentiments by treating the Poles harshly, and this even against the Centre party’, but also for bringing questions of foreign policy before the Reichstag to a greater extent than before.
He [Miquel] had entertained the hope that colonial policy would turn our attention outwards, but this had happened only to a limited extent.  We would therefore have to introduce questions of foreign policy into the Reichstag, for in foreign affairs the sentiments of the nation would usually be united.  Our undeniable successes in foreign policy would make a good impression in the Reichstag debates, and political divisions would thus be moderated. (13)
A breathtaking foreign policy was intended to unite the nation and, through ‘mobilization of the masses’ would increase her power.  Miquel’s reasoning agreed on this point with an observation made by Holstein in late 1894.  While criticizing the Kaiser’s tendency to personal rule in a letter to Wilhelm’s close friend Eulenburg, he agreed with Eulenburg that ‘a successful war would have a very salutary effect’.  But Holstein added: ‘there is little prospect now of a defensive war, because no one wants to do anything to us.’ (14)  Holstein saw dismal consequences arising from a German war of aggression.  Bulow, the future Secretary of State and Chancellor, who had been drawn into the discussion by Eulenburg, put the issue even more sharply:
The way to win popular support for the monarchy was to revive the ‘national idea’.  A victorious war would of course solve many problems, just as the wars of 1866 and 1870 had rescued the dynasty from the steady decline which had begun in 1848.  On the other hand, an unsuccessful war would mean the end of the dynasty because, after Bismarck’s attacks, ‘our Kaiser cannot afford to have any major setbacks’. (15)

Germany became the victim of her own success, hoping to recapture Bismarck’s lightning in a bottle long after Europe had become attuned to the Teutonic charade.  In 1914 the Deutches Heer (Germany Army, now abbreviated DH) invaded Belgium and Luxembourg (violating the two nations’ neutrality as required in the 1839 and 1867 Treaties of London) and extracted a heavy toll in the service of weltpolitik:

Among Bissing’s first acts was to order the Belgian provincial councils, which had not met since the invasion, to approve a “war contribution” of 35 million francs a month, or 420 million a year. This was greater than Belgium’s direct-taxation revenue in 1914, 354 million francs. To fund the contributions, every month, banks would buy special bonds with paper currency the provinces must guarantee, which would flood the country with weak paper. Legal opinion had never discussed exactions this large, but though experts accepted levies, the only concept remotely similar, they usually enjoined the occupier to defray local expenses at most and consider ability to pay. Usages of War for once agreed with Westlake, saying that an occupier could not recoup the cost of war by taking private property, “even though the war was forced upon him.” Even Maximilien von Sandt, the occupation’s chief civilian official, urged Berlin to demand less, to avoid awkward questions in the Reichstag and objections based on international law. He estimated that the contribution exceeded what the occupation needed by so much that roughly one-fourth of the money would end up in the imperial treasury.

Nevertheless, Bissing directed the councils to ratify the contribution,, which had been raised to 480 million francs, or 40 million a month. He promised that if they did, he would ask for no more contributions, and that the Massenguter receipts would be paid promptly. Behind the carrot lurked a stick, for Lumm told the banks that if they refused to cooperate, he would confiscate their deposits. They consented to float the bonds.

Massenguter translates as “mass good,” which appears to be a reference to coal supplies—“all material and other goods which are produced or manufactured in large quantities, of which coal is the life blood.” Coal became a key commodity the Belgians and French would accept as payment for reparations postwar.  Naturally, the DH quickly reneged on Lumm’s and Bissing’s promises:

Belgium had become an occupied country and the German mark was introduced as legal tender. There was a fixed exchange rate against the Belgian franc, with 1 mark being worth 1.25 francs. In the interim, the National Bank had shipped its metal stocks, printing plates and banknotes via Antwerp to the Bank of England in London for safe-keeping. The occupying power ordered the Belgian government in Le Havre to fetch everything back to Belgium. The government refused, and the Germans then withdrew the National Bank’s right of issue. The Governor Théophile de Lantsheere was officially removed from office. Vice-Governor Leon Van der Rest took over his duties for the occupying power. The right of issue was entrusted to Société Générale, which set up an issuance department for the purpose. Although Société Générale was the issuer, its banknotes were printed on the presses belonging to the National Bank. These banknotes appeared in circulation from January 1915 and also comprised six denominations ranging from 1 to 1000 francs.

As described above, the population hoarded banknotes as well as coins. Moreover, the Royal Mint’s workshops were idle and all metal was needed for the war industry. In addition, the bank moratorium blocked deposits and the Germans had appropriated the cash stocks of many financial institutions. Finally, owing to the transport problems inherent in the war, it was difficult for banknotes to reach the provinces. That naturally led to a shortage of cash. As a result, more than 600 municipal authorities were forced to issue their own banknotes. This was known as emergency money. The commonest denominations were 1, 2 and 5 francs, or smaller than 1 franc. The primary purpose of the emergency money was therefore to remedy the shortage of small coins. The municipal authorities also used emergency money to pay their staff and to support refugees, the unemployed and the needy. This emergency money was used for military remuneration as well, and to pay the war contributions imposed by the Germans. In addition, there were organisations providing food and assistance that issued food vouchers and cash vouchers, and there were firms and factories that issued wage vouchers and shopping coupons.

Bismarck had bequeathed an ugly legacy in which German military adventures were in the service of securing ever more Francophone Indemnities.  Not that the DH soldiers limit themselves to just plundering Belgian currency:

Besides machines, raw materials and money, the occupiers were seizing food. In November and December [1914], they ordered anyone who possessed any of five different kinds of grain, flour, potatoes, other vegetables or livestock to declare them on pain of seizure. The rest was simple. One Liege commune yielded up everything from livestock to fodder to blacksmiths’ and carpenters’ tools to fuel to clothes and shoes to butter, bacon, wine, coffee and sausages. The officer who had remarked on the war’s “horrible bad joke” said of Passchendaele in late November that “only a month ago, this country might have been rich; there were cattle and pigs in plenty.” Now, requisitions had emptied the place. “We have taken every horse, every car; all the petrol, all the railway-trucks, all the houses, coal, paraffin, and electricity, have been devoted to our exclusive use.”

On 16 October, Whitlock cabled Wilson that in “two weeks the civil population of Belgium, already in misery, will face starvation.” Eleven days later, his alarm made front-page headlines in the New York Times. By then, more than a million Belgians were said to be in the bread line, and the country had a three-week supply at most, less in Brussels. Namur had no flour, Flanders was running short because of having to feed the returning refugees, and famine was menacing the poorer parts of north Linburg. The head of the Belgian committee estimated that feeding his country would require eighty thousand tons of food every month, four times the earlier appraisal.

…and had no qualms about starving the Luxembourgers:

Under the occupiers, Luxembourgers suffered terrible deprivation. With the borders sealed, food could not be brought into the country. Despite the importance of agriculture in the Grand Duchy, food was in short supply and by the end of 1914 soup kitchens were set up all around the country.

“I reckon most of the capital city got at least one meal per week from soup kitchens,” said David, adding that it was rumoured Switzerland donated a herd of 100 goats to breed and provide food. “Most didn’t live long enough,” he said.

“Wait…Oh, alright, the German soldiers had a lot to answer for,” a reader might interject.  “It isn’t like the Imperial German Army had a choice…”

Bull$%^&.  Germany had annexed Alsace and Lorraine after the Franco-Prussian War, and could have struck France from these territories in August 1914 without invading two neutral nations.  In fact, France counterattacked into Alsace in an attempt to liberate its lost territories under its Plan XVII (and getting thrown back in disarray by German forces) and advanced into Belgium only after Brussels asked the French Army to come to its rescue; on account that the DH had begun waging its illegal war against Belgium.  Luxembourg never saw French troops; they did not resist the DH and were liberated by the Americans.

Moreover, Germany clearly had designs on the two neutral nations.  The German Empire grew out of the Pan-German movement, which remained alive and well within the German invasion forces.  DH General Moritz Bissing, the military governor of occupied Belgium from 1914 to his death in 1917 implemented the Imperial Flamenpolitik (Flemish policy) that endeavored to cleave Belgium into separate Flemish and Walloon states.  German Chancellor Bethmann-Hollweg went so far as to encourage Flemish politicians to declare independence and integrate into the Empire.  In fact, during the war the only German-speaking populations that were not occupied by the Central Powers were Liechtenstein and Switzerland.  So convenient that the German Empire did not trigger the war…

First World War Weltpolitik


Thinking about this led me to an interesting question. We know that part of the reason large postwar reparations were such an unreasonable and irresponsible demand was the dire, shrunken state of the German economy after World War I. So how does Greece compare? The answer startled me:

Maddison Project, Eurostat

Austerity, it turns out, has devastated Greece just about as much as defeat in total war devastated imperial Germany.

Notice Krugman’s dataset begins with 1913.  The Imperial German economy had been devastated prior to the outbreak of the war.  Yes, I have found corroborating evidence:

World War I indeed dealt a severe and persistent blow to Germany’s output, labour input and productivity. Mobilisation in the summer of 1914 reduced the workforce, and the sudden shift away from civilian to military uses of national product induced considerable unemployment for a while. In the aggregate, output suffered a persistent decline that was not to be reversed until well into the hyperinflation of 1920-23.
All of the datasets are curious, but Table 5 is intriguing:
Table 5
Production of Selected Goods and Industries, 1913=100
                           1913 1914 1915 1916 1917 1918
Mining               100 84 78 86 90 83
Iron and Steel   100 78 68 61 83 53
Materials            100 88 69 59 58 35
Textiles               100 87 65 27 22 17
Metals                 100 89 72 113 155 234
Construction     100 68 30 10 4 4
Cereals               100 88 71 72 49 57
Sources: Wagenführ [1933]
Holtfrerich [1986, p. 180]

Only in the case of non-ferrous metal production did German war production exceed the 1913 baseline.  There is a quite simple answer to why this occurred–Germany had built itself into oblivion, cratering its economy in the service of weapons manufacturing:

The German tax system permitted no nationwide direct taxes and the upper classes refused to submit to democratic finance, unlike the more flexible British. Also, beginning in 1911, the sleeping giant, the German Army, slowly awakened. Since the 1890s, the army, which saw deterrence of domestic disorder as one of its main functions, had deliberately limited its growth. Burgeoning population growth, especially in cities, meant there were both more workers than loyal peasants in its ranks and more members of the bourgeoisie in its officer corps, since the traditional supply of aristocratic officers was shrinking in proportion. Militaristic pressure groups, more fearful of Germany’s powerful neighbors than of insurrection, began to clamor for army expansion. By 1911, the navy was taking one-third of the defense budget. Tirpitz realized the army would now be a formidable competitor for scarce tax revenues.

This really sounds familiar, doesn’t it?  Germany bashing Greece over the head for its economic “sins” in 2015 takes arrogance to new heights considering why Deutchland shot itself in the foot a century ago:

‘Weltpolitik’ therefore came into existence as a red herring of the ruling classes to distract the middle and working classes from social and political problems at home, at the risk of war and of losing war, monarchy and all.  But short-term economic and political advantages were more attractive than warnings of possible defeat.  ‘Weltpolitik’, basically an enterprise of national demagogy, also became a vested economic interest: the building of a large battle fleet brought quick and long-term profits for the steel industry in general and the Krupps in particular.  The building programme of the fleet gave work to the steel industry, the capacity of which had been inflated far beyond the needs of the German market. (16)  Krupp, therefore, was mainly responsible for founding and financing the ‘Flottenverein’ (Naval League) in 1898, which, hand in glove with Tirpitz at the Naval Office, organized powerful agitation for the building of a modern battle fleet. (17)  German university professors were amongst the most persuasive agitators.  At the same time, the German middle classes were favoured by economic measures, while political and administrative pressure on the Poles was again taken up, in contrast to Caprivi’s policy and in conformity with Miuel’s programme. (18) 
The battle fleet was an instrument of the German middle class ‘par excellence’.  It was both a symbol and vehicle of collective and individual power and prestige, for the Empire and for individual members of the German middle class as naval officers.  Thus, the fleet was not just a whim of an eccentric Kaiser, but represented the massive economic interests and social aspirations of the most prosperous and dynamic elements of German society.  Politically, the building of the battle fleet now resulted in the same conflict that Bismarck had had with parliament over the modernization and expansion of the Prussian army in the early 1860s.  Then, the army had been Bismarck’s most spectacular instrument for the creation of the German Empire.  Now, Tirpitz wanted to repeat Bismarck’s coup by forging his Kaiser an instrument for the Empire’s ‘Weltpolitik’.

Johannes Miquel (a disciple of Karl Marx no less) had created the first incarnation of VPK in the twentieth century, and merely managed to destroy his country’s economy in the process; perhaps the only reason historians overlook Miquel and his odious weltpolitik as a prime contributor to the outbreak of the First World War is due to Miquel’s death occurred 13 years before the First Battle of the Marne.

The Big Lie

Thomas Laqueur in his 2013 review of Christopher Clark’s The Sleepwalkers savages Barbara Tuchman’s The Guns of August:

Fifty years ago, Barbara Tuchman’s bestseller The Guns of August taught a generation of Americans about the origins of the First World War: the war, she wrote, was unnecessary, meaningless and stupid, begun by overwhelmed, misguided and occasionally mendacious statesmen and diplomats who stumbled into a catastrophe whose horrors they couldn’t begin to imagine – ‘home before the leaves fall,’ they thought. It was in many ways a book for its time.

Tuchman’s story begins with Edward VII’s funeral on 20 May 1910. The king’s sister-in-law, the empress consort of Russia, Maria Feodorovna, wife of Alexander III, was there. So was the Archduke Franz Ferdinand, heir apparent to the aged Emperor Franz Joseph of Austria. And so was Edward’s least favourite nephew, Wilhelm II of Germany. Wilhelm loved and admired the British and they loved the kaiser: to him, the Times said, belongs ‘the first place among all the foreign mourners’; even when relations were ‘strained’, he ‘never lost his popularity amongst us’. Four years before Armageddon the German emperor was decidedly not the antichrist he would become. The book ends with the Battle of the Marne – ‘one of the decisive battles of the war’ – which ended the German hope for a quick victory and set the stage for four years of deadlock and misery.

Laqueur was incensed that Tuchman largely overlooked the Balkans:

Tuchman says nothing about Austria-Hungary and Serbia on the eve of the war, and nothing about the Russo-Austrian and Serbo-Austrian fronts once it began. ‘The inexhaustible problem of the Balkans divides itself naturally from the rest of the war,’ she thinks, and in any case nothing much happened there in the period she covers. More surprising is that in the first third of the book there isn’t a word about Serbia. The assassination of the archduke in Sarajevo on 28 June 1914 goes by in two sentences, one of which, a quotation from the oracular Bismarck, may be all she needs: ‘some damn foolish thing in the Balkans’ would ignite the next war.

Why was this story so compelling in the 1960s? I think because at the height of the Cold War the world needed and embraced a morality tale of the sort Tuchman offered. It goes like this. In 1914, two opposing power blocs, each in the process of a massive and historically unprecedented military build-up, came to feel that it was more dangerous not to respond militarily to a relatively minor incident at the periphery of Europe than it was to do so. The precise nature of each stage of the July Crisis, or of earlier crises, is less important to Tuchman’s cautionary tale than the dénouement: the failure of the great power blocs to negotiate their differences and the catastrophe that this failure unleashed. For the generation immediately following the Second World War, Hiroshima and Nagasaki, and the hydrogen bomb that the Russians exploded in 1961, little was left to the imagination about what could happen if a mistake on the order of 1914 were made again.

Laqueur doesn’t mention weltpolitik and I don’t recall Clark mentioning Miquel’s folly in The Sleepwalkers, but the attempts to recast Germany’s culpability from 1914 as a pan-European tragedy does a great disservice.  History websites still claim the Serbian Campaign was the first invasion during the war and it began on 28 July 1914, leading to war with Russia on 1 August.  It is still odd to me that declarations of war are so often mistaken for commencement of actual hostilities:

The shocking, black-and-white photograph, taken on the edge of a Serbian village just days after it was invaded by the massed forces of the Austro-Hungarian army in the late summer of 1914, is not the only one of its kind. In this one, a line of Serbian men in civilian clothes are attached to posts: possibly dead already, possibly awaiting execution by firing squad.

There are others. In one, three women in colourful peasant costumes and four men in dark suits are trussed up like helpless game birds on crucifix-shaped poles, their faces covered with white blindfolds, while soldiers stand nearby, rifles in hand. In a third, the civilians, also blindfolded, are kneeling in a semi-circle, each tied to a small post, while the firing squad takes aim.

These photographs were almost certainly taken by members of the Austro-Hungarian army. They allow only fleeting glimpses of the horror experienced by civilians almost immediately after the invasion of Serbia began on 12 August 1914.

The Austro-Hungarian Army invaded Serbia on 12 August 1914, tens days after the DH had overrun Luxembourg.  The Russians first struck against East Prussia five days later, the war in the East officially commencing with the Battle of Stallupönen on 17 August 1914.  Christopher Clark in The Sleepwalkers sets 4 August 1914 as the point of no return, which coincided with the DH invasion of Belgium.  I can see where Tuchman was coming from in 1962–the clash of arms began on the Western, not Eastern Front.

Why?  Weltpolitik, of course.  Miquel’s strategy grew from Bismarck’s triumphs during the unification wars.  Weltpolitik clearly was influencing Count Alfred Schlieffen when he came up with his Aufmarsch I Plan in 1905 (a German whose name is oddly remembered unlike Miquel’s considering Schlieffen died a year and a half before the DH marched West).  Visions of another French Indemnity must have been dancing through Finance Minister Hermann Kühn’s head during the July Crisis…

The Panic of 1914

…and yes, there is abundant evidence that an economic crisis drew European leaders to choose war over peaceful means.  The planet was beset by an epic financial crisis:

The financial markets took the assassination of Archduke Franz Ferdinand of Austria in Sarajevo on 28 June in their stride. After all, the diplomatic crises of the previous three summers had been defused. But Austria’s presentation of an ultimatum to Serbia on Thursday 23 July transformed perceptions of the risk of a major European war. This “Minsky moment” triggered a scramble for cash. Continental stock exchanges were deluged with selling orders and banks besieged by depositors. They closed their doors. Governments mobilised for war and imposed drastic controls to safeguard their banking system and national finances.

The week beginning Monday 27 July saw the breakdown of the City’s foreign exchange and discount markets, and culminated in the closure of the London Stock Exchange on Friday 31 July. It stayed shut for five months. Long queues formed at the Bank of England of people changing Bank notes for gold sovereigns. It looked like a run on the Bank was underway. And it was believed that a run on the banks had begun.


There had been no pre-war planning for such a crisis. Time was bought by the declaration of an unprecedented four-day Bank Holiday. During the break, at 11 pm on Tuesday 4 August, Britain went to war. The initial emergency containment measures were massive infusions of liquidity by the central bank plus a hike in the discount rate from 3 per cent to 10 per cent, following established crisis management doctrine. Then came novel policy measures: a “general moratorium” on contracted payments (which allowed banks to refuse to pay out deposits), and the introduction of hastily printed small denomination currency notes issued by the Treasury (not the Bank of England). When the banks reopened on Friday 7 August there was no run. The crisis had been contained.Had worst fears been realised — mass failures among City financial firms and the banks requiring state bail-outs — the crisis might have assumed the magnitude and prominence of a financial catastrophe. But that did not happen in Britain. Hence there was no downfall of a major financial institution or prominent individual depriving the crisis of an iconic victim. The reason was massive and unprecedented state intervention. But that looked like wartime controls rather than financial crisis resolution.

The financial crisis of 1914 was also a global crisis. More than 50 countries or colonies experienced bank runs and asset crashes. For six weeks during August and early September every stock exchange in the world was closed, with the exception of New Zealand, Tokyo and the Denver Colorado Mining Exchange.

The “unknown” 27 July 1914 crisis has been covered by the BBC and the Telegraph a century after the crash and the effect of the Aldrich-Vreeland Emergency Currency on American markets during the crisis has been explored by William L. Silber, but the source of the financial panic was obscured:

In 1906, Adm. Sir John Fisher’s revolutionary HMS Dreadnought rendered existing battleships obsolete and triggered a naval arms race between the two greatest industrial powers of Europe. The competition pitted their economic, political, and organizational systems against each other. Both sides, the British implicitly and the Germans explicitly, agreed that, if conflict came, it would focus on the North Sea. The island of Great Britain was a barrier that made the North Sea a virtual cul-de-sac: Germany had access to the open ocean only to the south, through the narrow English Channel, or seven hundred nautical miles to the north, between the Shetland Islands and the Norwegian coastal archipelago. Nautical geography, therefore, favored the British.

Well protected from invasion by its intimidating fleet and its island status, Britain had required only a small, well-trained volunteer army suited to its traditional task of defending the empire abroad, apart from larger wars in the Crimea and South Africa. Germany was substantially larger in population and needed a conscript army of millions to wage any anticipated war with its powerful continental neighbors, France and Russia.

In Britain, parliament regularly authorized annual appropriations for building warships. In Germany, Adm. Alfred von Tirpitz, State Secretary of the Imperial Navy Office, devised a long-term law in 1898, amended in 1900, 1906, 1908, and 1912, committing the Reichstag to fund construction of three capital ships per year, usually two battleships and one battlecruiser, with automatic replacement after twenty years. Partly in response to Dreadnought, the 1908 amendment stipulated four ships annually, to revert to two in 1912. Britain and Germany both had technologically advanced naval armaments industries. After 1906, ships grew substantially in size and catastrophically in costs.

The British were nearly bankrupt from building battleships, and the rest of Europe was afflicted with battlewagon fever…

By early 1912, both Austria and Italy were beginning Dreadnought programs. Nominally, Italy was allied with Germany and Austria. The British Admiralty knew Italy and Austria were building primarily against each other, but reduced British forces in the Mediterranean put the empire’s communications at risk unless French help were available in the event of war.

…and Germany in effect had already gone bankrupt:

Even before the war, the battle fleet had disastrous results for the German Empire in other respects.  The sums invested for building and modernizing it were so high that the expansion of the army, which should have formed the basis for a purely defensive policy, practically stagnated up to 1912.
Really, were the Germans just a bunch of boneheads?  One-third of the Empire’s defense budget was being swallowed up by the naval building scheme (which Tirpitz was daft enough to believe would be automatically funded in perpetuity) while the DH was preparing for a two-front war
Roots of the Hyperinflation
Either way, Germany reacted to the 1914 financial crisis by canceling the goldmark and replacing it with the papiermark on 4 August 1914, the same day the DH crashed into Belgium.  In the final insult, Tirpitz’s men revolted against the five commands to sortie of the High Seas Fleet suicidally against the Grand Fleet (something about honor or such) in 1918, leading to the revolution that deposed the Hohenzollern dynasty and collapsed both the German Empire and the Prussian Kingdom.  Way to go weltpolitik
This directly led to the 1923 hyperinflation, in that the papiermark had to be issued due to the immense damage the naval race/weltpolitik had inflicted on the German economy and the designs to rob the French treasury again turned the tables on the Germans at the Treaty of Versailles.  Repeated German defaults on the reparations led to the January 1923 invasion of the Ruhr, triggering the hyperinflation.  On one hand, the Belgian/French occupation seemed for naught, given the ascendance of the Nazis a decade later.  On the other, Germany’s economic damage was almost entirely self-inflicted.
God German history is depressing…

3 thoughts on “The Unacknowledged History of the Plundering Nation, 1870-1923

  1. Pingback: First Giant German Failure | In The Corner, Mumbling and Drooling

  2. Pingback: First Great German Failure | In The Corner, Mumbling and Drooling

  3. Pingback: The July Crisis: Erich Ludendorff, 1918 | In The Corner, Mumbling and Drooling

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