Great War Economics, Part 1
Reenter the economic angle. Almost any study of German First World War economic performance inevitably gravitates to the 1923 hyperinflation…
The German government also funded its Great War through inflation. By war’s end, money in circulation had risen fourfold. Prices were up 140%. Yet, on international exchange, the German mark had not suffered as much as one might expect. The German government looked at this with encouragement and promptly attempted to manufacture a complete economic recovery through inflation. Incredibly, by 1923, the mark had fallen to one-trillionth of its 1914 gold value. The US dollar was then equal to 4.2 trillion marks. It was an example of currency destruction that remains legendary in the history of the world — all made possible by a central bank that obliged the government and monetized its war debt.
…which is unfortunate as the German economy of 1914-18 deserves to stand on its own record (and despite how . The German Great War economic record reflects very poorly on Erich Ludendorff and Paul Hindenburg.
Even a century on, the British blockade is much-maligned:
The British policy was in contravention of international law on two major points.4 First, in regard to the character of the blockade, it violated the Declaration of Paris of 1856, which Britain itself had signed, and which, among other things, permitted “close” but not “distant” blockades. A belligerent was allowed to station ships near the three-mile limit to stop traffic with an enemy’s ports; it was not allowed simply to declare areas of the high seas comprising the approaches to the enemy’s coast to be off-limits.
This is what Britain did on November 3,1914, when it announced, allegedly in response to the discovery of a German ship unloading mines off the English coast, that henceforth the whole of the North Sea was a military area, which would be mined and into which neutral ships proceeded “at their own peril.” Similar measures in regard to the English Channel insured that neutral ships would be forced to put into British ports for sailing instructions or to take on British pilots. During this time they could easily be searched, obviating the requirement of searching them on the high seas.
Really? That’s the best you can come up with, Mises Daily? A German battlecruiser squadron under Hipper bombarded Great Yarmouth on 3 November 1914, and clearly Hipper’s screening cruisers were laying minefields because the British submarine D5 struck one dropped by SMS Stralsund and sank. Moreover, when the German vessels were returning to port SMS Yorck blundered into a ‘friendly’ minefield, struck two and sank. A month later Hipper and his battlecruisers returned to shell Scarborough, Hartlepool and Whitby.
Two days prior to the Yarmouth raid, Admiral Maximilian Reichsgraf Spee’s East Asia Squadron, having evacuated its vessels from their Tsingtao, China base prior to the British/Japanese siege, had sunk Admiral Christopher Cradock’s two cruisers with all hands off Coronel, Chile. Combined with the British shock at the September demonstration of the torpedo’s devastating power when Otto Weddigen’s U-9 sank three cruisers in a single engagement and another cruiser assigned to the Northern Patrol three weeks later…
The loss of three British cruisers to one German submarine, on 22 September 1914, foreshadowed the sinking of the cruiser Hawke of the Tenth Cruiser Squadron on 15 October 1914.
Coupled with the losses, discontent was spreading through the navy because the blockade seemed completely ineffective.
…the Royal Navy was in an extremely foul mood in early November; despite British battlecruisers annihilating Spee’s squadron in early December and Wilhelm forbidding Kaiserliche Marine probes after the bloody Battle of Dogger Bank, the RN clamped the blockade millstone tight around the KM’s neck.
The ‘distant’ blockade might seem brutal in retrospect, but by the 1910s close blockades had become needlessly risky, if not suicidal:
By the early twentieth century technological developments–notably the magnetic mine, the torpedo, submarines and powerful coastal guns–were collectively making close blockade virtually impossible. This left Britain with the hazardous and untried alternative of distant blockade, which entailed leaving the main fleet in northern harbours such as Scapa Flow or Rosyth, mining Germany’s exits through the Channel and North Sea and intercepting enemy and neutral shipping by cruiser patrols.
Hazardous? As opposed to what? Sailing recklessly through minefields to assault Wilhelmshaven?
The German navy never really found a satisfactory solution to the problem of the distant blockade, even though it was apparent even before the war that the British would pursue this strategy. They had expected to wear down British forces engaged in a close blockade through mines and submarines, until the balance of strength permitted the German battle fleet to risk an encounter under favorable circumstances. The Germans would also send out minelayers and submarines that could operate along the British coast. But, beyond this, they were frustrated should the British not present themselves as targets in the Heligoland Bight. This predicament is reflected in a famous unanswered question by Admiral Alfred von Tirpitz, the Secretary of State of the Reichsmarineamt, to the commander of the High Sea Fleet in May 1914: “What will you do if they do not come?”
Amateurs. Germany was very new to naval warfare in the 1910s, having lacked a navy 65 years earlier during First Schleswig War (and thus any defense against the Danish blockade). Britain had linked her destiny to the ocean since at least 1588, and had become extremely adept at winning wars at sea in the centuries the Royal Navy had ruled the waves since crushing the Spanish Armada. Still, the Germans can thank their own submarines for the RN committing to the ‘distant’ blockade concept:
Following the loss of the Hawke the Tenth Cruiser Squadron had been withdrawn from its southern patrol area.
Actually just one submarine–U-9 (which started the British submarine panic when it had sunk the cruisers Aboukir, Hogue and Cressy on 22 September) sank Hawke on Weddigen’s following patrol.
The force worked north of the Shetland Islands and extended patrols to the coast of Norway, while smaller trawlers and minesweepers intercepted traffic passing through the Orkney Islands. [Admiral John] Jellicoe’s critical proposal was that all intercepted traffic would be diverted into one of several ports of examination in the north of Britain. These included Kirkwall in the Orkneys, which was already the main base of examination, Lerwick and Swarbucks Minn in the Shetland Islands, and Stornoway for those vessels stopped off the western coast of the British Isles between the Hebrides and Scotland. This system came into effect at the turn of the month. Jellicoe’s new system was an improvement over the original blockade scheme in that the force was farther north, which decreased its vulnerability to submarine attack. The old prewar conflict between distant and close blockades was put to rest by the threat of losses to submarines.
Tirpitz had been caught flat-footed by Jellicoe’s accommodation to the U-boat threat, the Grand Admiral and his subordinates befuddled when the Royal Navy declined to follow the Light Brigade into the Valley of Death. So, what was the second-most powerful navy in the world to do?
The Germans also do not appear to have made any serious effort to attack the ships enforcing the blockade. Certainly the armed merchant cruisers would have been relatively easy targets for a real warship.
Close, but no cigar. Sending German surface forces against the Northern Patrol would play into Jellicoe’s plan for the dreadnought-heavy Grand Fleet based at Scapa Flow, an anchorage just north of the Scottish northern coastline. In regards to either the Northern of Dover (southern) Patrols, the Royal Navy was not above sending vastly more powerful vessels to smash attacking German warships. Doveton Sturdee’s battlecruisers killed Spee and his squadron at the Falklands after the German had the temerity to defeat a RN cruiser squadron off Chile. The Seventh Cruiser squadron, which included Weddigen’s torpedo victims Aboukir, Hogue and Cressy, was known as the ‘Live-Bait Squadron’–designed to draw German attackers under the guns of the Home Fleet’s dozens of battleships; so using surface combatants against the Dover Patrol would have only set off the Kaiserliche Marine’s second-most-powerful adversary:
To maintain the blockades, the British divided their Home Fleet into two Battle Fleets. The Channel Fleet guarded and operated in the English Channel and the Grand Fleet covered the North Sea basing itself at Scapa Flow. Smaller cruiser squadrons carried out patrols and offensive sweeps between the two fleets and could call on the larger force if they were engaged by the German High Seas Fleet. Admiral Sir John Jellicoe was appointed Commander in Chief of in August 1914 and was said to be the only man on either side who could lose ‘the Great War’ in an afternoon, such was the critical value of the Royal Navy.
This also definitively answers Chancellor Bethmann-Hollweg’s question why Britain went to war over a ‘scrap of paper’ (the German violation of the Treaty of London when they invaded Belgium)–the UK saw the High Seas Fleet as an existential threat. Did Tirpitz or Hipper have a plan to counter the British forces arrayed to contain them?
Rear-Admiral Franz von Hipper, commanding of the German battle-cruiser squadron, did elaborate in November 1914 on a proposal submitted by one of his captains to sortie with the four newest battle-cruisers to attack trade and overwhelm any cruisers protecting that trade. But this plan was directed at sending ships either to the West Indies or to the South Atlantic to operate on the trade routes, not attacking the blockaders. It was never implemented, largely because of insoluble logistical difficulties.
Short answer, no. OK, the Kaiser became very reticent to risk Germany’s surface forces after Dogger Bank on 24 January 1915, so this plan was probably DOA in Berlin or Spa (OHL). Not to mention the Royal Navy would have pursued the German battlecruisers, no longer protected by minefields and shore guns near their home ports, relentlessly in the open ocean and annihilated them like Spee. Did the German admiralty have plans to pierce the blockade using any other new wonder-weapon?
German submarines were responsible for sinking some of the ships belonging to the Northern Patrol, but this seemed to be more the result of fortuitous encounters rather than an organized campaign.
Or it is a failure to notice the British began patrolling much farther north after U-9 sank HMS Hawke.
Once the submarine campaign began in earnest, the German objective would have been destroying tonnage, not targeting warships.
In other words, U-boats weren’t charged with piercing the British blockade. Instead they were trying out-blockade Britain…without first wresting command of the sea from the Royal Navy. Did Tirpitz and his colleagues understand the consequences of making the U-boat objectives so narrow?
Even Tirpitz, the man who had played such a large role in building the High Sea Fleet–centered on battleships as a challenge to Britain at sea–proposed a submarine blockade, as well as minelaying in the Thames, and sending cruisers out into the Atlantic to attack British trade.
Rather than break the British blockade, Germany felt confident “imposing” a completely separate blockade; i.e. revenge. Nope, Germany’s admirals lacked understanding completely.
…it was a N-A-V-A-L Blockade.
Somehow historians in the century since the Great War was fought have mistaken the British blockade for being strictly a weapon used to upend the German economy, which entirely misses that by the war’s 1914 outbreak Kaiser Wilhelm II and Admiral Tirpitz had built the Kaiserliche Marine from a token force with no capital ships at all to the second most powerful surface fleet in the world over the previous 2.4 decades. Again, in any European war the UK was destined to be enemies with Germany so long as the High Seas Fleet was a danger to the Home Fleet and by extension the British Isles.
However, the danger posed by coastal artillery batteries, mines and torpedoes (every British battleship destroyed by the Central Powers during the First World War was sunk by one or a combination of the three) could not be overstated. Beyond the threat the actual weapons were to any and all vessels (especially mines–the explosives were an equal-opportunity killer which even managed to blow up Titanic‘s sister ship HMHS Britannic, the largest ship sunk until the 1940s), the Royal Navy had to contend with the effect the naval war would have on national morale. The British public took the loss of their capital ships (battlecruisers and battleships, vessels whose loss could spell the end of the British Empire) personally and the destruction of the only dreadnought sunk by the Germans during the war, HMS Audacious, by a mine from the SS Berlin on 27 October 1914 was thought to be so jarring Jellicoe proposed keeping the sinking under wraps which the the Admiralty did until three days after the 1918 armistice. Two months later German torpedoes became proven battleship-killers when U-24 hit HMS Formidable twice, killing hundreds in the sinking on New Years Day.
By the dawn of 1915, it was clear a ‘distant’ blockade was necessary to protect not only the Royal Navy’s cruisers but its capital ships. Nevertheless, Germany suffered a severe setback early in the war at sea:
By the end of the first month of the war the Royal Navy had swept the German merchant marine from the seas. The result was a major economic dislocation for Germany, a key goal for the Royal Navy’s pre-war planning.
It is important to note the RN would directly benefit from an immediate German economic disaster. The two countries had been locked since 1897 in a struggle between shipyards, to wrest command of the seas by building the most capital ships; an arms race that had redoubled in fury nine years in when HMS Dreadnought’s design made all previous battleships obsolete and strangely leveled the naval playing field (in 1906 the capital ship clash essentially reset to 1 versus 0 when all previous construction became immaterial).
The success of the British naval blockade was mostly a psychological phenomenon–partly in the fact that the Germans were just as reticent to risk losing their capital ships as the British were, but moreover a pervading general sense of fear in most German sailors:
It was rather the general threat of the Royal Navy, not the blockade itself, that kept German ships in port. Maurice Hankey, secretary of the CID, summed this up in his observations on the opening months of naval warfare. He asserted that the simple fact that the Royal Navy had command of the sea rendered German maritime trade impossible. This deterrent effect was evident in the first days of the war. For example, on 9 August 1914, 22 German trawlers lay idle at Bergen in Norway. By November a much more complete appraisal of the deterrent value of the Royal Navy showed 221 German merchant vessels idle in German ports, 245 detained in Allied ports, and 1,059 laid up in neutral ports. The bulk of Germany’s maritime fleet was paralyzed for the duration of the war.
There would be no German blockade-running smugglers in this war. The High Seas Fleet reticence extended to the German merchant marine, both withdrawing from blue-water operations by February 1915. The First World War at sea had descended into a battle between British dreadnoughts and German U-boats, personified by HMS Dreadnought herself ramming U-29, Otto Weddigen’s new command, on 18 March 1915 and killing all hands.
Command-of-the-Sea Royal Navy…
The Dover (English Channel) and Northern (Scotland-Orkney-Shetland to Norway) Patrols…
…backed up with the immense power of the Channel and Grand Fleets were a relatively simple mechanism for bottling up the Germans at Wilhelmshaven. The Kiel canal enabled the German navy to operate in the Baltic without having to make the hazardous trek around the Jutland peninsula, but otherwise the High Seas Fleet was trapped from 1914 to 1918. The fact that the German merchant fleet was also trapped was merely an added bonus in the eyes of Whitehall.
This presented the Germans with two options–actively challenge the Royal Navy with the objective to break the blockade, or passively hope the fortunes of war turn to your favor. The Kaiserliche Marine believed there was a third option:
The result was the German declaration of 4 February 1915 that, effective 18 February, the waters around Great Britain and Ireland, including the entire English Channel, constituted a military area in which every enemy merchant ship might be destroyed even if it was not possible to provide for the safety of passengers and crew. Even neutral vessels might be attacked, because of the alleged misuse by the British of neutral flags, or because of accidents of naval war. This marked the start of the German submarine campaign as a counter-blockade around Britain and France.
Not even close. In a cruiser war, the KM turns their attention to merchant shipping. In response to having their fleet trapped when the Kaiser attached a leash after Dogger Bank, Germany commits itself to a strategy two steps removed from piracy.
…versus Privateer Kaiserliche Marine
The German announcement of 4 February was worse than pointless. All Entente vessels, civilian and military alike, were fair game prior to 1915. Entente and neutral ships alike also faced the lethal, indiscriminate threat from naval mines; announcing that Walther Schwieger in U-20 is gunning for RMS Lusitania only increased the odds that neutrals from the Americas wouldn’t sit on the sidelines for the duration of the war.
Unrestricted submarine warfare had a 0% chance of breaking the British blockade unless it was unleashed against the cruisers enforcing the quarantine. The German failure to even try to engage in blockade running (let alone directly attack the British blockaders) petty much doomed the Kaiserliche Marine to irrelevance throughout the war; though modern historians too often miss the fact that commerce raiding is considerably less effective than smuggling when it comes to blockade busting. A century on, the 5,000 Allied vessels that First World War German submarines sent to the bottom is held up as a remarkable achievement…
Just looking at how many ships U-boats attacked during each war, it’s evident that the number of ships hit by submarines in the 1910s surpasses the totals of the 1940s:
The chart on the right-hand side also shows that submarine effectiveness from 1943 onward took a big dive, so to speak. From that year on, the Allied countermeasures against U-boats became so effective that the German submarines really became the prey rather than the hunters. U-boat losses also increased dramatically after 1943, a trend also seen during WWI but not on such a stark scale:
…making their Second World War descendants seem amateurish…
By observing the graphs above, it would seem that the submarine campaign against the Allies was way more effective in the First World War than in the Second, especially since the German Navy only commissioned a smaller force of 375 boats during the first war compared to the 1,154 submarines of the second war.
…against the elite undersea pioneers of the 1910s that almost single-handedly won the war for Germany…
178 U-boats were lost, with nearly 5,000 men killed, which equals a casualty rate of above one third – a heavy blood toll for some striking successes.
More than 12,000,000 tons of shipping (5,000 ships) had been sunk by U-boats, with the loss of 15,000 lives. 60% of that tonnage was sunk by 22 commanders, the most successful ones were:
Lothar von Arnauld de la Periere 454,000 tons Walther Forstmann 380,000 tons Max Valentiner 300,000 tons Otto Steinbrinck 290,000 tons Hans Rose 214,000 tons Reinhold Saltzwedel 170,000 tons Waldemar Kophamel 149,000 tons
These men were followed by 40 others with sinkings over 100,000 tons.
Note If you’d like to see how these commanders compare to their World War Two counterparts check this out.
…though perhaps the argument is the 1940s submariners weren’t easily distracted like their forefathers:
The U-boats of WWII seem to have hunted after larger game than their forefathers. For example, it wasn’t below a U-boat captain in WWI to sink fishing boats or sailing vessels with his deck gun, but by WWII those weren’t considered worthwhile targets. The ships hit graphs above include all types of ships — large and small. The German submarines of WWII, though, sank more total tonnage than their predecessors (12.8 million in WWI compared to 14.0 million in WWII).
History is far too kind to U-boat commanders in both wars. They did not realize it at the time, but their boats functioned little differently than previous-centuries privateers. Britain, France, the Netherlands, Portugal, Russia and Spain were no strangers to the commerce raider phenomenon–issuing letters of marque had been a staple throughout the second millennium, where privateers took thousands of merchant prizes in times of open conflict and piracy took thousands more in the scattered weeks between Europe’s decades–long wars. While the effects on trade were immense, the military effectiveness of privateers was another story. Atlantic Europe in particular was used to major trade disruptions during wartime, with Britain singled out both due to the size of her massive empire and Whitehall’s tendency to order the Royal Navy into battle against multiple adversaries at once.
Despite forming six coalitions and devoting two decades to disarm Napoleon, the RN still managed to impose a clenching blockade on a coast on the opposite side of the Atlantic in 1814 before landing marines and burning Washington, D.C. to the ground. The situation for the Americans seemed hopeless, until the guns of the U.S. Navy were factored in:
In Europe, Napoleon’s bloody defeat at the Battle of Leipzig in October 1813 proved a decisive turning point in the long and costly Napoleonic Wars. Within just a few short months, the Allies would occupy Paris, exiling Napoleon from his throne. Finally, it seemed, Europe might have peace.
But the implications of Napoleon’s defeat were not limited to Europe. Shifting fortunes across the Atlantic meant that thousands of battle-hardened British regulars would be freed up to fight in North America. With the 1814 campaign season set to begin, and thousands of experienced redcoats soon to arrive on Canadian shores, American military commanders must have felt a sense of foreboding.
Lake Champlain in upstate New York would serve as the staging point for the renewed British invasion of the United States. Sir George Prevost, the governor general of Canada, intended to march his 10,000 British troops southward through Plattsburgh to Albany, effectively isolating New England from the rest of the country. British Naval forces would support Prevost’s infantry by controlling the lake and pressuring Plattsburgh from its harbor side.
The American forces at Plattsburgh were severely undermanned, and a single American naval squadron patrolled the lake. With much riding on the invasion, the British had assembled a formidable force on land and sea. And the campaign’s initial developments were encouraging for the British: on September 11, 1814, with land forces prepared to assault Plattsburgh, British sailors inflicted what appeared to be crippling damage to the American flagship, leaving it unable to fire from the side facing the enemy vessel—a disastrous consequence for any warship in battle.
But in an astonishing maneuver, the American crew used cables to bring their ship around, presenting a new, undamaged broadside against the British flagship. The ensuing American attack was devastating, and the crippled British vessel surrendered along with the remainder of the British squadron.
British sailors would later remark that Lord Nelson’s victory against the French and Spanish at Trafalgar was a “mere flea bite” compared to this furious naval action at Lake Champlain. Sir Prevost, believing that his land invasion would falter without control of Lake Champlain, began a retreat north.
Fought with a razor-thin margin, the American victory on Lake Champlain was one of the most decisive moments of the war. It saved the Americans from conquest, and in the process substantially weakened British claims for territorial concessions during the Ghent peace talks.
In short, extensive U.S. Navy commerce raiding during the War if 1812 had far less success at countering the British juggernaut than the actions of Master Commandant Thomas Macdonough and one naval squadron on the Great Lakes. Commerce raiding makes weak naval forces feel like they are accomplishing something, but in reality only demonstrates powerlessness. Trade had taken on outsized importance to Germany prior to the war:
In 1915 Deutschland needed a resumption of neutral merchant vessels visiting German-friendly ports. With their own merchantmen trapped by the blockade, the best way the U-boats could improve their own country’s war effort (short of sinking blockade cruisers) would involve capturing Entente shipping and bringing the steamers to a Central Powers port…impossible because of the North Sea blockade.
Ultimately, the Germans didn’t understand the game. Tirpitz acknowledged as much after the war. Britain’s command of the sea was never in doubt during the war, and its blockade was designed to ensure its supremacy. The U-boat campaign wasn’t really capable of enforcing a blockade–the 350 submarines or so were far too few in number to starve out the British. When faced with minefields, Q-ships and the convoy system all First World War submarines (British subs in the Baltic faced the same countermeasures) were shown to have limited effectiveness.
Paths Not Taken–Would It Have Mattered?
Should Germany have challenged Britain directly? The chances of success were certainly greater than the path actually taken in the 1910s, but the odds were still not good. The Royal Navy became immense during the war, and always enjoyed crushing superiority in number of surface forces. Under the surface, U-boats appear at first to have all the advantages, except most only carried six torpedoes…
…which were prioritized for armed, large and/or hazardous targets. Submarines in the Great War usually attacked by surfacing and engaging ships with their deck guns, something not feasible with three hundred or so U-boats patrolling against 3,727 vessels in the Auxiliary Patrol Service. Worst of all, the first prototype sonar sets (known as ASDIC) were undergoing testing with the Anti-Submarine Division of the British Naval Staff in 1917. A more aggressive U-boat campaign almost certainly would have been met with 407 redeployed destroyers armed with experimental ASDIC and newly-introduced depth charges.
Any way you cut it, the Kaiserliche Marine was seriously outclassed and outgunned. Their failure at imposing and piercing blockade was only eclipsed by their boneheaded alienation of their surface sailors after Jutland. Strangely enough, the British blockade performance wasn’t so hot before Jutland:
The Blockade’s Effectiveness
In evaluation the effect of the Allied blockade, one must conclude that at first the blockade did not work well at all. After a year of war Admiral John Jellicoe, on examining the statistics of the neutral trade, complained that exports of cotton had increased “to a still more remarkable degree during 1915” and that most of the cotton in excess of normal consumption was going to Germany. He also complained that, of ships sent in to Kirkwall and Lerwick in recent weeks, only 13 percent were sent south for further examination and probably many of the latter were eventually allowed to proceed unhindered.
Rear-Admiral Consett argued that British trade with Scandinavia had continued unchecked for two years, and agreements that this trade would not benefit Germany had been openly and continuously violated. All analysis and statements that proved trade was passing to Germany was disregarded.
Norway, Sweden and Denmark were neutral, but felt free to pass through any surplus of trade across the Baltic. I’ll save the suspense–Germany was not the hardest-hit nation when it came to famine during the war and postwar:
Famine was common in what was (and would again become) the Eastern Front:
Hunger stalked the civilian populations of all the combatant nations. Agriculture and food distribution suffered from strains imposed by the war and naval blockades reduced food imports. Some countries met this threat more successfully than others.
The war took men and horses away from farm work. Imports of nitrate fertilizers were hit. Reduced agricultural output forced up prices and encouraged hoarding. Governments responded by putting price controls on staple foodstuffs. Food queues formed of women and children became a common sight in cities across Europe.
In Russia and Turkey the distribution of food broke down. The Russian revolution had its origins in urban food riots. In Turkey many starved. Austria-Hungary eventually succumbed to the same calamity.
Germany introduced numerous government controls on food production and sale, but these proved to be badly thought out and worsened the effects of the British naval blockade. Substitute foodstuffs were produced from a variety of unappetising ingredients, but their nutritional value was negligible and Germans became increasingly malnourished from 1916 onwards.
Okay, what changed in 1916?