6

The international economy

‘Wars are inherent in the nature of capitalism; they will only cease when the capitalist economy is abolished.’ By 1914 this had become the orthodox doctrine of the Marxists; if true, it would provide the most comprehensive explanation of the outbreak of the First World War, though it would still leave open the question as to why this particular war started at that particular moment in the mounting crisis of capitalism. The doctrine had been officially asserted at the International Socialist Congress at Stuttgart in 1907, although the long composite resolution that opened with the declaration about the inevitable links between capitalism and war went on to express a number of contradictory attitudes to a war that might come before the revolution that was to make all wars impossible.¹

The belief that capitalism made war inevitable has taken several different forms, ranging from the comparatively simple belief that industrialists – and especially armament manufacturers – provoked the war in order to make money or that businessmen encouraged their governments to take military action in order to ruin economic rivals abroad, to more sophisticated theories about the connection between economic imperialism and international conflict. Marxists have continued to maintain that the First World War was the inevitable consequence of imperialist rivalries and that these in turn were the inevitable consequences of the crisis of capitalism. Some of these theories about the connections between capitalism, imperialism and inevitable war had already been developed by radical and socialist thinkers before 1914 – by the Englishman J.A. Hobson (though he thought that capitalism could still be saved), by the Austrian Rudolf Hilferding and by Rosa Luxemburg, for example. The most influential and polemical statement of this view was that of Lenin in his pamphlet Imperialism – The Highest Stage of Capitalism, published in the midst of war in 1916. Lenin attempted to prove to those socialists – the majority – who had supported their respective governments in 1914 on the grounds that the war was one of national defence, that it was in fact an imperialist war, the direct consequence of rivalries between states whose capitalist masters were desperately looking for new fields of investment and pushing governments into imperial expansion for this purpose so that the growing rivalry for control of what was left of the pre-capitalist world had necessarily ended in armed conflict.

Most of the theories that the causes of the First World War were economic have as their basis the belief that imperial rivalries caused the war and that these rivalries in turn were caused by economic pressures, but it is not necessary to accept both assumptions; the psychological effects of imperialism certainly helped, as we shall try to show, to produce the attitude of mind that made war possible, but not all imperialist policies were inspired by direct economic interests. Moreover, other economic factors not directly related to imperialism had an influence on international relations. However, the most thoroughgoing theories of economic imperialism, such as that of Rosa Luxemburg in her Accumulation of Capital, attribute almost every development in capitalist society to the underlying influences of an all-pervasive imperialist ethos. Any examination of the suggestions that the causes of the war were primarily economic will certainly involve a discussion of imperialism.

However, we can start by looking at some of the simpler ways in which economic interests have been held responsible for the outbreak of the war. There is, for example, the view that certain industrialists stood to gain by war and that they were able to influence the decisions of their governments. Equally, it can be argued that other groups stood to lose by war, and that their influence was in favour of peace. These are not easy arguments to test, because the complicated structure of economic life in the early twentieth century makes it difficult to determine where the interests of individual industrialists and businessmen in fact lay. It is even harder to assess the extent of their influence on governments. Whereas it is obvious that the producers of steel throughout Europe profited from the increased construction of naval vessels, and we know that this sometimes led to their direct financial support of navalist propaganda, experience and effectiveness varied considerably. In Germany, for example, the great steel magnates contributed lavishly to the financing of the Navy League.² In the great port city of Hamburg, shipbuilding increased considerably as a result of Bismarckian colonial initiatives and Wilhelmine naval construction: naval orders would come to account for some 20–25 per cent of shipbuilding in the city before the war. When emigration from Germany declined in the 1890s firms such as the North German Lloyd shipping company and the Hamburg-Amerika line joined in the founding of the German-Brazilian Society in order to promote trade and emigration.³ Not surprisingly, the Navy League there was set up by those businessmen closely connected with shipbuilding-shipping magnates like Albert Ballin of the Hamburg-Amerika Line, for instance – and they were also great supporters of other patriotic, expansionist organizations like the Pan-German League, the Colonial Society (Kolonialverein) and the Army League.⁴

The British experience was quite different. The British Navy League – admittedly a smaller-scale affair than its German equivalent – relied on individual subscriptions and seems to have received only small donations from those industrialists with an interest in the construction of ships for the navy.⁵ British industrialists were inclined to be more concerned with trade and tariffs than with patriotic ginger groups. Steel manufacturers became increasingly vociferous about the unfair competition they faced from Germany and, especially, the United States. The rise of the cartel system in Germany and the formation of the United States Steel Corporation, the first ‘billion-dollar trust’, resulted in Britain’s competitors dumping cheap steel in the United Kingdom, pushing British firms out of their own domestic markets and making it impossible for them to find the capital necessary for expanding and modernizing their plants. The tariff commission established by parliament concluded that the difficulties facing British industry were not the result of natural disadvantages but arose from the ‘policies and methods of foreign countries’. New methods had to be found for safeguarding British industry: ‘such alteration must provide adequate defence of the home market and provision for finding new markets for British wares, both in foreign countries and the colonies’.⁶

Moreover, although the steel manufacturers may have welcomed government contracts for naval shipbuilding this does not mean that they necessarily wanted war. Many of them were equally or more involved in the construction of merchant ships and stood to lose money in the event of the interruption through war of international trade, since a substantial part of their production was exported to other countries. At the height of the Anglo-German naval race in 1907 Britain imported some £15 million worth of iron and steel from Germany and Germany imported over £13 million worth from England,⁷ and there were occasions when it was cheaper for British shipbuilders to buy German steel rather than British, because the high prices that German manufacturers were able to charge at home under a protective tariff enabled them to sell steel abroad at cut prices. Sometimes the foreign demand for German steel made it hard for the manufacturers to satisfy foreign customers as well as their own government: there were long and complicated negotiations between the German admiralty and Krupps, with the government trying to negotiate a lower price of steel in return for steady orders over a long period.⁸ Often manufacturers, especially in Britain, believing that government orders might fluctuate with changes of policy or strategy, were reluctant to sacrifice profits abroad for what might turn out to be short-term gains at home, and realized that the stability of their profits depended on the breadth and diversification of their market. Others, like those in the fledgling aircraft industry, pleaded with the government to regard them as an extension of the armaments industry: in 1911 a deputation that included representatives of Vickers and Handley Page met with the undersecretary of state for war to insist upon their overriding need for practical government assistance in the form of consistent military orders and a measure of industrial protectionism; because the aircraft industry would be a vital new component of a war, it should not be subject to the free play of international trade forces.⁹ Capitalist entrepreneurs actually, of course, wanted the best of both worlds: to maintain their export markets while making large profits from, for example, naval construction. Most of them failed to see that politically the two would in the long run be incompatible.

The armaments industry

It is, of course, the great arms firms – Krupp in Germany, Schneider-Creusot in France, Skoda in Austria-Hungary, Armstrong and Vickers in Britain – who came to be popularly regarded as the ‘Merchants of Death’ after the war for deliberately provoking wars in order to increase their profits. They were, however, only part of a complicated system of which other parts have attracted less publicity. As the technical complexity of weapons and warships increased, so more and more branches of industry were involved: for example, the great German electrical firms AEG and Siemens played as crucial, if quantitatively not so large, a part as the steel barons in the construction of the German battle fleet. Moreover, firms such as Skoda and Krupp exported many other products besides arms. Skoda, for instance, had started as a machine-tool business and, although after 1904 the arms trade became the most profitable side of the firm, it was also sending turbines to Niagara and lock gates to the Suez Canal.¹⁰ Furthermore, David Stevenson has concluded that Krupp was actually less profitable than its competitors who concentrated on production for civilian consumption, and that its ‘special relationship’ with state authorities actually impeded it from maximizing its profits.¹¹

Nevertheless, the arms firms were necessarily very closely involved with governments, both because of their interest in defence contracts at home – and even those countries in which state ordnance factories played a major part in the production of munitions needed the private sector in times of rapid expansion in armaments – and because the supply of arms to allies or potential allies became of considerable political importance. Here again, however, the situation was a complicated one. Many profitable markets for arms were provided by countries that were not themselves directly involved in the power calculations of the major states – Spain, for example, which needed arms for its campaigns in Spanish Morocco, or the countries of Latin America that needed arms to use against each other, or China, which gave a large order to Skoda for the modernization of its armed forces after the revolution of 1911. In these areas the arms firms were often demanding government support against their rivals and arguing that national prestige demanded backing for national arms firms. Schneider, for example, pressed the French government hard, and with some success, to influence the Chileans to place their orders with the French firm. Such pressure did not necessarily correspond to the interests of government foreign policy: the demands by Schneider for diplomatic support were as often directed against British as against German competitors.¹² When Italy went to war with the Ottoman Empire in 1911 much of the fleet that it faced had been built or modernized in Italy; in 1913 Vickers won from their French rivals orders for warships for Russia worth £7 million and was building a super-dreadnought for the same Turks against whom the British general staff was making war plans; in 1914, 23 vessels built in Germany were part of the Russian fleet; Krupp was developing the M-Gerät in order to smash the same Belgian fortresses that it had upgraded.¹³

Governments did, however, often try to promote or to ban arms sales in support of their policies. Holger Herwig has argued that the foundation of economic imperialism in Germany is to be found in the government’s aggressive promotion of arms sales by Krupp in South America.¹⁴ The French government urged the arms manufacturers to take advantage of new markets – Romania, for example, or Turkey during the Balkan Wars – in the hope of strengthening their influence in those countries. In the Balkans the rivalry between Krupp and Schneider reflected that between the French and German governments. In some cases the French were in a stronger position than the Germans because their available capital for foreign loans was greater, so they were able to make the issue of a loan to a foreign government conditional on their being granted a monopoly of arms sales – tactics that were used repeatedly and successfully in the case of Greece, Bulgaria and Turkey. French financial strength proved stronger than German efforts to use other forms of persuasion such as the family ties between the kaiser and the kings of Romania and Greece.

The arms manufacturers sometimes served the foreign policies of their government and they thus came to expect government support even in areas where the government had no direct interests. As with other businessmen of all nationalities, there were constant complaints that their own diplomats were doing less for them than those of other governments were doing for their rivals – French, German and British arms exporters wrote in strikingly similar terms. At the same time, diplomats of the old school who believed that trade was none of their business complained about the attention they were expected to give to businessmen and especially the arms merchants: ‘French power at every point in the world is placed at the disposition of Le Creusot’, the French minister in Belgrade grumbled in 1910.¹⁵

In general, though, governments needed arms firms more than the arms firms needed governments. The armament manufacturers clearly profited from government orders and had an important interest in maintaining a continuous long-term armament programme, as is especially clear in the case of naval construction. Yet much of their profit came from having a very wide sales network, if possible, all over the world; their main rivals were other arms firms rather than foreign governments and they were prepared to spend money on press campaigns aimed at discrediting their competitors’ products. Stimulating armaments races outside Europe could also bring profits, with or without the assistance of their own government. In 1911 the Honduran military appointed a French military adviser who, with the cooperation of the French consul, successfully competed for an order of 30,000 weapons valued at 240,000 francs; in response, the rival government of Guatemala immediately placed an order for 100,000 weapons.¹⁶ Those in the armaments industry certainly understood that such rivalries were in their interests, and that the assistance of military officers, consuls and diplomats could be most helpful to them. No one doubted that a vital mixture of politics, diplomacy, strategy and business existed both within Europe and outside it.

In some cases armaments manufacturers had direct access both officially and socially to some of those responsible for government policy and no doubt they used this both in obtaining government contracts and in their attempts to win government support in their search for export markets. The most famous examples of such important connections are found in the Krupp family in Germany, the Schneiders in France and some of the bankers who controlled Skoda in Austria. While this pressure may have had some effect on the technical aspects of governments’ defence policy, it seems to have had little influence on the more general aspects of foreign policy. Moreover, armaments manufacturers do not appear to have sought influence to a greater extent than other industrialists, financiers or investors. For governments, on the other hand, the arms manufacturers were an essential element in the conduct of their foreign policy, both in providing them with the naval and military backing for that policy and in influencing their relations with potential allies and neutrals. In the era before 1914, the sale of war materials made up two-third of German exports to the Ottoman Empire, much of which was the result of the German government’s support of arms firms.¹⁷

The direct export of arms was only a part of a much larger network of international economic relations of which one very important aspect was the role of the big banks. Marxist theory has tended to stress the importance of the banks and their domination over other forms of economic activity in the years before 1914. The growth of ‘finance capital’ – capital available for investment wherever it would produce the largest returns – meant that the banks held reserves of capital that they were able to use both to establish their control of many branches of economic life at home and to conduct their restless search for new fields of investment abroad. The domestic influence of the banks differed from one country to another, and it has been convincingly argued that the Marxist analysis – especially that of the Austrian socialist economist Rudolf Hilferding whose book Das Finanzkapital, published in 1910, particularly emphasizes the role of the banks – is based too exclusively on what was happening in Germany and Austria.¹⁸ However, about the importance of the banks’ international role there can be no doubt, nor is there any doubt about the desire of investors in Western Europe to find profitable new fields of investment. Sergei Witte, the Russian finance minister, when discussing Russia’s relations with France in 1902, expressed his opinion in terms not unlike those of the Marxist theorists:

In every country which has reached a high level of industrial and commercial development and where the political horizon is calm and cloudless, a surplus of capital is experienced… . If, in addition, small capitalists possess to a high degree the taste for saving – a taste which for many years has been innate in the French nation – the need for the export of capital becomes an absolute and ineluctable necessity.¹⁹

Although Witte has usually been regarded as a ‘westernizer’ – as this remark would suggest – and although he attempted to stimulate private enterprise in Russia, he also aimed to direct and control the private sector for the good of the state, which was at the core of the ‘great Russian empire’. Witte adamantly opposed any attempt to privatize the Russian railway network.²⁰

In the export of capital, the role of the banks was all-important. They invested their own capital directly in enterprises abroad – coal mines in Russia, gold mines in South Africa, railways in South America or whatever – but they also acted as agents for foreign governments and industrial undertakings seeking to raise loans abroad. Central and municipal governments in search of foreign loans needed banks to float those loans in the financial centres of the world: London, Paris, Berlin, Frankfurt and, by 1914, New York. The banks would advance the money and then sell to the public shares in the loan at a profit to themselves. The success of the loan depended to a large extent on the bank’s own reputation and its ability to capture the imagination of small and large holders of capital. Then again, banks would themselves often make short-term loans to foreign governments, an operation that could be profitable when the rate of interest differed from country to country: for example, in 1906 the bank rate in Berlin was 5 per cent and in Paris 3 per cent so that it would pay French banks to borrow at home and to lend to Germany.²¹ In turn, however, too much reliance on short-term foreign loans made the debtor government vulnerable since the loans were liable to be withdrawn in times of political or economic uncertainty.

These activities of the banks were necessarily closely connected to government policies. In some countries, notably France and Germany but not Britain, the government controlled which foreign securities or government stock could be publicly quoted on the stock exchange. In France, the consent of both the minister of finance and the minister of foreign affairs was required before a foreign security could be quoted on the French Bourse. This was, in effect, a political veto over the activities of French banks (which could still sell shares privately, outside the exchange) because they found it almost impossible to sell foreign stocks and bonds unless they were quoted on the Bourse. A famous example of political intervention in financial affairs was Bismarck’s ban on the Russian loan of 1887. Such government bans often had a political motive and political consequences. And the reverse was also true: when the French minister of finance, Joseph Caillaux, opposed the loan to Russia on financial grounds in 1901, he was overruled for political reasons by the minister of foreign affairs, Delcassé.²²

As in the case of the arms manufacturers, bankers and governments found themselves in a symbiotic relationship: each needed the other. Numerous examples can be found on both sides; the English house of Rothschild, for example, had in the 1880s supported Salisbury’s policy of isolating France and pushing it out of Egypt and thus financed Disraeli’s purchase of shares in the Suez Canal and floated large loans on behalf of the government of Egypt. Contrary to the suspicions of conspiracy theorists, the Rothschilds cooperated more closely with their national governments than with one another and pursued quite different investment strategies: the English house was much more conservative than the French, continuing to rely on bonds and loans, whereas their French counterparts increasingly invested in mining, heavy industry and transportation.²³ In both cases the Rothschilds, along with other investment bankers, needed the assistance and goodwill of governments as much as the governments needed the help of the banks. At the same time, the interests of governments and banks were not always identical. Although bankers individually were as much or as little susceptible to appeals to their patriotism as any other citizen, they were first and foremost in the business of making money. For example, in 1912–13 French bankers refused a loan to the Romanians on financial grounds in the face of pressure by the French government, which was hoping to detach Romania from its alliance with Germany; but in the same year the Banque de Paris et des Pays Bas insisted, in spite of government advice, on lending to Bulgaria. In the latter case both the government and the banks were constantly shifting their position: in June 1914 the French government, urged on by their Russian allies, had now decided that it might be possible to bring Bulgaria over to their side with some timely financial help, but by now the Paris bankers, themselves facing a financial recession at home, decided that there was no longer any money to be made from a Bulgarian loan and obstinately refused to back the government’s policy.²⁴

Finance and investment

The actual practice of finance and investment was far too complicated to conform to any neat theoretical model. Small ‘developing’ states, which might be assumed to welcome foreign investment in their economies, also had internal political concerns to worry about that might conflict with their international interests. Serbia rejected the initial bid of the Banque Franco-Serbe (backed by the Ottoman Bank of Paris) to provide a loan of 30 million francs to the city of Belgrade when a domestic bank, the Izvovna Banka, objected. Only when the Serbian bank failed to find the money for the loan was the French one approved (and then, in spite of a subsidy provided by the French government, the Franco-Serbe charged 3–4 per cent extra because of the uncertain political situation in Serbia). Investors feared that debtors would not honour their debts and that national governments would not compel them to; German and Hungarian consuls advised their countrymen to stop doing business in Bulgaria, in spite of Bulgaria’s adhesion to the Triple Alliance. In fact, one economic historian has argued that the xenophobic nationalism of most of the Balkan states before 1914 seriously impeded their attempts to modernize their economies by convincing foreign investors and entrepreneurs that doing business there was often dangerous and usually unprofitable. When Serbia nationalized its railways and tobacco industries in 1889–90, the Austrian Länderbank – which had been making considerable investments there – began to pour money into Bosnia instead. Ironically, considering the complaints of Serb nationalists, the greatest success story in the Balkans before the war was that of Bosnia-Herzegovina, where the average yearly industrial output between 1881 and 1914 amounted to 12.4 per cent and where the per capita income far exceeded that of the independent states of the Balkans. Almost all of this development can be attributed to Austrian investment.²⁵ Austria-Hungary mounted a determined campaign to assimilate Bosnia-Herzegovina by demonstrating its capacity to modernize the province, particularly in the realm of education by investing in the creation of state schools to take the place of religious ones.²⁶

It is in French foreign policy that the links between government and the banks are clearest, largely because of the size of French investments in other European countries. Although Britain was still the country with the largest total of overseas investment, less than 6 per cent of this was in Europe, whereas in the case of France the figure was about 62 per cent.²⁷ This did not prevent those French businessmen with an interest in the French colonies or Morocco having an influence out of all proportion to their actual financial importance, but it did mean that, because of the large amount of French money invested in other European countries, the connection between the investment policy of the banks and the foreign policy of the government was bound to be close. However much the German government would have liked to support its diplomacy by financial pressure, Germany was suffering from a permanent shortage of capital after the years of very rapid industrial expansion in the second half of the nineteenth century, whereas the French public (though sometimes criticized by nationalists for investing abroad rather than at home) still had large accumulated savings available.²⁸ By 1914 France had 50 billion francs in foreign investments, twice that of Germany. French foreign investment was second only to that of Britain, but here the pattern was different, with the largest part of British capital outside the United Kingdom going to the empire and to North and South America so that British policy in Europe was to some extent conducted independently of the kind of financial considerations that were important to the French.²⁹

The flow of capital sometimes followed political directions, sometimes it moved according to its own forces. Savings that led to investments, profitable companies that sought to expand their holdings and establish footholds for the future by transcending the limits of national boundaries led to confusion and contradictions that make it difficult to support simplistic conclusions about the impact of investment on diplomacy. The ‘poor little Belgium’ of First World War legend (and propaganda) included a number of industrial giants that acted in ways not dissimilar to those in Germany, Britain and France. The Belgian Société de la Providence Russe and the Société Métallurgique Russe-Belge saw Russia as a profitable field for future growth. The Providence had coal mines in the Bakhmut district, iron mines in Krivoi Rog, and a steel mill and blast furnace in Mariupol on the Sea of Azov. The Russe-Belge, which had even more extensive investments, anticipated future ‘multinationals’ when it mixed Russian and Belgian capital, management and labour.³⁰

More than any other of the international alignments before 1914, the Franco-Russian alliance was held together by financial as well as political and strategic ties. Even if the conclusion of the alliance in 1893 was originally the result of strategic and political pressures on both sides, its negotiation coincided with the launching of the first big series of Russian loans on the French money market. The first loans to the Russian government in 1888, 1889 and 1890 were followed by French investment in other sectors of the Russian economy – municipal loans, railways, mines and industrial enterprises of all kinds – so that by 1914 about a quarter of all French foreign investments were in Russia.³¹ Financial ties on this scale were bound to have political consequences, quite apart from the specific conditions attached to some of the loans, such as the construction of strategic railways or the promise of orders for French firms. The banks that were encouraging their customers to put their money into Russian bonds or mines or railways had everything to gain by projecting an image of Russia as a strong, politically stable and economically expanding country – a worthwhile ally, in short. In spite of attacks on Russian autocracy and oppression by the Left in France and in spite of recurrent refusals by the Rothschilds and other Jewish bankers to participate in Russian loans because of Russian ill treatment of the Jews, confidence in Russia remained surprisingly high right down to the outbreak of war, and indeed right down to 1917.

The Russians were, in turn, able to use French finance to promote foreign policies and economic interests abroad that were of little or no concern to France or the Franco-Russian alliance. One Russian foreign minister, Count Mikhail Muraviev, aimed to expand to the Persian Gulf by encouraging Russian commerce and shipping and saw the possibility of using a loan to Persia ‘as a weapon in our hands for fortifying our economic position and strengthening the political hold of Russia [over Persia] to the detriment of Britain’.³² In 1900 a Russo-Persian agreement was reached for a loan of some £2,250,000 payable at 5 per cent over 75 years, partly to pay off previous loans made by the British Imperial Bank to Persia. An important condition of the loan stipulated that the current 10-year prohibition on the granting of concessions for railway construction in Persia would be extended for another 10 years, thereby forestalling British and German ambitions. Ironically, the Russians were able to use their ability to finance in order to enjoy an advantage over the supposedly superior British: the secretary of state for India complained to the viceroy that the Persians had only turned to the Russians because they could not get the financial assistance they sought from Britain; he complained that the chancellor of the exchequer ‘lacked imagination’ when it came to dealing with oriental countries.³³ The clearest example of the inextricable ties between French diplomacy, Russian financial needs and the necessity of creating a certain image of Russia abroad can be found in the negotiations for the loan of 1906, which the Russian prime minister, Witte, described as ‘the great loan which saved Russia’.³⁴ The war between Russia and Japan had broken out in January 1904, and in May the Russians had, by offering a high rate of interest, succeeded in floating a loan in France in spite of the uncertainty of their situation. The French government had also insisted that the Germans should not participate in the loan. By 1905, however, it was clear that Russia was defeated, and this, together with growing internal unrest, made a further loan very difficult. By the end of the year, as the revolutionary movement grew in intensity, capital was being withdrawn from Russia at an alarming rate. For the Russian government, trying to recover from the political and economic consequences of the defeat by Japan and revolution at home, a large loan was essential; for the foreign investors the choice appeared to be either to put more money into Russia in the hope of saving their earlier stakes (the value of Russian bonds had plunged dramatically during the war) or else to lose everything if Russia were to lapse into revolution, anarchy and bankruptcy. The diplomatic consequences were also complicated and important.

In the spring of 1905, the Moroccan crisis had created serious tension and, indeed, talk of war between France and Germany. In the subsequent negotiations about an international conference on Morocco and at the Conference of Algeciras itself, both the French and the German governments were trying to use Russia’s urgent need of money as a way of obtaining Russian diplomatic support over Morocco. The German government hoped that the prospect of a German loan might persuade the Russian government to use its influence in Paris to make the French give way on some of the German demands about the future status of Morocco. The French equally made it clear that a loan to Russia would depend on wholehearted Russian support of their position at the Algeciras conference. The French bankers were hesitating on financial grounds about further long-term commitments to Russia, and French government approval was essential if the loan were to stand any chance of success. Thus, although Witte would have preferred an international loan with German as well as French participants, he was forced to choose a loan from France alone. The German government forbade any further financial discussions with Russia, and Russia gave France wholehearted support at Algeciras. It was not therefore surprising that, when the Russian representative came to Paris to conclude the final negotiations, Poincaré, at that time minister of finance, noted:

It is the payment of a debt which he has come to claim from France. He talked about the services rendered at Algeciras in a tone which was almost embarrassing for me. He complained of the demands of the French banks which are, it is true, rather avaricious.³⁵

The success of the loan of April 1906 did much to help Russian recovery from the disasters of the previous two years and seemed to be an affirmation of France’s confidence in its ally. It was certainly seen as such on the Left: Maxim Gorki complained that France was no longer the mother of Liberty but rather a woman kept by bankers.³⁶ And when in 1907 the British government made its agreement with Russia, a group of leading intellectuals, including Bernard Shaw and John Galsworthy, wrote to The Times pointing out that

the proposed agreement will have the effect of strengthening the Russian credit and enabling the Government to appeal successfully to Europe for another loan over which representatives of the Russian people will have no control, and which will be employed only to strengthen the position of the autocracy against them. We also fear that, relying on this improved credit and closer relations between the governments, the English people may be tempted to invest largely in Russian Government stock – an investment likely to influence our political attitude towards Russia and other powers as already seen in the case of France.³⁷

Their forebodings about British investments in Russia were perhaps exaggerated (although more British capital was invested in Russia by 1914 than in any other European country), but they were right to recognize the close connections between international credit and the public image of a particular nation.

The French investment in Russia was, as René Girault has pointed out, an investment in the tsarist regime, and from an economic point of view the decision to put money into Russia in spite of its precarious position in 1906 paid off.³⁸ Over the next eight years Russian industrial expansion seemed to justify French policy, and with the increasing pace of Russian rearmament after 1909 the need for further loans grew. At the same time French financiers were increasing their hold over other sectors of the Russian economy, such as coal mining. This close economic relationship was not without difficulties. Russian nationalists were complaining of foreign influence and foreign profiteers in Russia, and one of the points on President Poincaré’s agenda when he visited St Petersburg in July 1914 was a court case against the French-directed coal syndicate for breaches of the Russian monopoly laws. Nevertheless, whatever the long-term effect of this nationalist reaction in Russia might have been if war had not come in 1914, the links between finance and strategy were for the moment growing closer. The loan of November 1913 was intended to increase Russia’s railway network, including new lines – to be completed by 1918 – required for increasing the speed of Russia’s mobilization in the west.

During the negotiations for a further loan, early in 1914, the point was raised again by the French representatives who pressed for an immediate start on building the lines in question, while the Russians tried to avoid being tied too closely to the construction of specific railway lines and stressed the economic importance of strengthening the railway network generally. The French banks at this point were also anxious to invest in a new Russian loan, since for internal political reasons a big French government loan had just been abandoned so that substantial capital was immediately available. By early 1914, therefore, financial, strategic and political interests had all coincided to make the Franco-Russian alliance closer than ever before. In the interaction of politics and economics that combined to consolidate the alliance, it is hard to point to either factor as more important than the other. Rather, each encouraged the other. Once the political framework of the alliance had been established, both the governments and the businessmen found themselves more and more committed to working within that framework, and the economic desirability of keeping the Germans out of a share in Russian loans or the Russian arms market reinforced the tendency to think in terms of two rival power blocs. By 1914 almost half of the Russian debt was financed by British and French investors.³⁹ The financiers did not make the Franco-Russian alliance, but they were quick to see the advantages, psychological as much as practical, that it provided. The politicians and generals did not initially take the interests of the financiers into consideration when they made the alliance, but they were quick to see how financial links could serve their diplomatic and strategic purposes. In Russia, the state directly controlled very significant industrial assets, enabling it to counter the influence of capitalists whether they be Russian or foreign. Instead of investors, bankers and entrepreneurs giving direction to the state in Russia, they were carefully kept at arm’s length; the state used them, rather than the reverse.⁴⁰

The financial strength of the French made them desirable partners economically. This led, in certain areas and enterprises, notably Morocco and the Baghdad railway project, to some temporary cooperation between Germany and France. After the Moroccan crisis of 1905–6, the German government had come to realize that for the moment not much was to be gained by directly challenging France’s position there. During the next few years – generally a period of détente between the two countries – both governments were anxious to reach some sort of agreement on their various economic interests in Morocco: for example, by encouraging the formation of a Franco-German consortium to exploit the (somewhat exaggerated) mineral wealth of Morocco. This attempt at international cooperation between the German firms of Krupp and Thyssen and the French Union des Mines Marocaines broke down, not because of any immediate change in government policy, but because a rival German group, the Mannesmann brothers, were themselves trying to win exclusive control of mining rights in Morocco. In 1910 they launched an effective publicity campaign to convince the foreign ministry to support their ambitions;⁴¹ they gained the support of one of the important German nationalist pressure groups, the Alldeutscher Verband, and were thus able to present themselves as working for the good of Germany and to claim that the German government was bargaining away Germany’s interests to the French.⁴² The German government encouraged the banker and industrialist Walther Rathenau to mediate between the two rival groups, but the Mannesmanns turned down his proposals and the German government decided to give up its support for the Franco-German consortium.⁴³

The Agadir crisis in the summer of 1911 had profound effects on the economic relations between the two countries.⁴⁴ French national emotions were as strongly aroused as German, and with the renewed fear of war much French short-term capital was withdrawn from Germany, a policy encouraged by the French government. At the same time, the French were becoming uncomfortably aware of the extent of German economic penetration of France over the past few years. The German industrialists were worried that their own sources of iron ore were running out and Thyssen and others were accordingly extending their interests in French Lorraine and acquiring control over iron mines in Normandy. The French government became stricter in its control over the granting of mining concessions to foreigners as well as causing considerable annoyance by the strict application of new customs regulations on imports from Germany. Although many financial, industrial and commercial links remained at the outbreak of war – some of them surreptitiously maintained via Switzerland even during the war – in the mood of enhanced nationalism on both sides of the Rhine these were now subjected to closer scrutiny by the governments and public than ever before. Politics were taking precedence over economics, and profitable economic links were no longer necessarily maintaining peaceful relations between the two countries.

The French government’s awareness of the connections between investment policy and foreign policy sometimes raised problems. If, for example, the French government refused to admit an Italian loan to the Paris Bourse, would this make the Italians even more dependent on Germany? Or, if they did allow an Italian loan to be floated in France, could this be used as a means of influencing Italian foreign policy and weakening the alliance with Germany and Austria-Hungary? In 1904–6, when the Italian government needed a foreign loan as a basis for converting earlier government stock, the French ambassador in Rome was constantly reminding both the Italian finance minister and his own government of the value of this particular card: ‘Italy must reply to the confidence which we would show in facilitating a major financial operation with a final and decisive mark of confidence by supporting France in the political sphere.’ ⁴⁵ Two years later, when the Germans were becoming very doubtful about Italy’s loyalty to the alliance with Germany, the German ambassador in Rome was complaining that ‘Our financial weakness compared to the financial power of France is certainly one of the major reasons which explains the Francophilia of many influential circles in Italy’.⁴⁶ But it was not always easy for the French to use their financial influence effectively. The Germans directly controlled two major Italian banks, the Banca Commerciale Italiana and the Credito Italiano, which themselves controlled major steel factories, shipyards and electrical firms.⁴⁷ Alignments in foreign policy established a certain pattern of relationships in other spheres: when in 1908 the French tried to link a loan to Italy with an undertaking from the Italians to order artillery from French firms, the negotiations broke down because the Italian army could not and would not mix the new French types of weapons with the old German ones, at a time when anyway there was still confusion about which of Krupp’s models should be adopted.⁴⁸ In the event, during the struggle between interventionists and neutralists in 1914–15 that ended with Italy’s entry into the war on the side of France and Britain, these economic considerations seem to have counted for very little and what carried Italy into the war was an emotional movement (helped, it is true, by discreet French subsidies to the Italian press) that bore little relation to Italy’s economic interests or indeed its economic capacities.

The interaction of French financial strength, German shortage of capital and the respective diplomatic alignments of the two countries can be clearly seen in the case of Austria-Hungary. Some 25 per cent of Germany’s investments in Europe were in Austria-Hungary, and Austrian dependence on Germany increased in the years immediately before the war when money was needed for armaments and for meeting the cost of the military measures taken by the Monarchy during the Balkan Wars. Psychologically, many Austrians were unhappy at their country’s status as the weaker partner in the alliance with Germany. They were also worried that Germany was making inroads into Austro-Hungarian markets in the Balkans. Austria had responded to Serbia’s increased support of agitation by Serbo-Croats within the Empire by launching a commercial campaign against it. This included strict veterinary regulations against Serbian pig imports that produced the ‘pig war’ of 1906–10, with terrible short-term results for Serbia and bad long-term results for Austria-Hungary; Serbia eventually found other outlets, especially in Germany, which resulted in the loss of Austria’s grip on the Serbian economy as well as increasing Serb hatred of the monarchy. Many Austrians were annoyed that Germany had profited from the trade war and had in fact replaced Austria as Serbia’s principal trading partner.⁴⁹ In particular, many Hungarians, ever since the major constitutional crisis of 1905, would have welcomed an opportunity of substituting French financial support for what seemed to them too great a dependence on Berlin and Vienna. This was a prospect that especially alarmed the Germans, and several attempts by Hungarian governmental and municipal authorities to negotiate loans with French banks were vetoed by the foreign ministry in Vienna under German pressure.

On the eve of the war this feeling of helpless dependence was intensified: Austrian financiers were worried whether Germany could produce the finance they required and then resented it when they did. ‘Austria has the misfortune’, the director of a leading Austrian bank said in 1912, ‘to have allies which are no use to her in the financial field’. He himself was, he told the German ambassador, ‘a warm and confirmed supporter of the alliance with Germany, but it could not be denied that at the moment Austria was, at least financially, suffering from the alliance’.⁵⁰ In practice the Austrians had no choice. In spite of discussions with the French banks about a number of possible loans, the French government, with strong approval from the Russians, refused to allow the Austrian and Hungarian governments and other public bodies to float loans, some of which were intended for military and naval armament, on the Paris stock market. German financiers were not particularly enthusiastic about loans to Austria at a time when capital was extremely short in Germany. However, the German foreign ministry insisted that loans to Austria must go through, even it if it meant postponing loans to Turkey and Greece, which would, the bankers thought, have been more profitable from the point of view of bringing in orders for German goods. Jagow, the state secretary at the German foreign ministry, emphasized the political importance of the loan, since a refusal would ‘provide a powerful propaganda weapon for the agitation against the Triple Alliance which has recently emerged inspired by our enemies abroad, and would have unfortunate results’.⁵¹

In spite of the Austro-German financial collaboration, even in July 1914 some Austrian bankers had not given up hope of collaboration with France: on 20 July a representative of the Viennese banks was reporting that Viviani was favourable to the idea of launching an Austrian loan in the autumn. The Austrian foreign ministry remained remarkably uninterested in the banks except when pressed by the Germans, while the bankers were more anxious to have advance warning from the foreign ministry of possible international crises so as to gauge their effects on the stock exchange than to take the initiative in foreign policy. The information they obtained was not always accurate: in March 1914 the secretary general of the Bank of Austria-Hungary could declare:

Without wishing to play the prophet, I must however note that recently semi-official declarations have succeeded each other, and we also have from well-informed private sources news which allows us to conclude that at least in the near future we need not fear that peace will be disturbed.⁵²

Or were some Austrian government circles as surprised by the July Crisis as the bankers were?

In the functioning of both the Franco-Russian and the German-Austrian alliances, the investment policy of the banks was serving the foreign policy of the governments. In the case of French financial help to Russia this was by and large a profitable operation. German investment in Austria, however, called for certain financial sacrifices. In other areas where foreign ministries hoped to use financial policy to support their foreign policy – Turkey, the Balkans or Morocco, for example – the financial profit and loss is harder to establish and depended not only on the interest on loans but also on the orders for goods that were often a central condition of a loan, and that, since in many cases the banks had a large share in the factories making goods for export, also brought profits to the banks. Bankers were in the business primarily to make money for themselves and their clients, but in the intricate system of international finance that had developed with the growth of industrial capitalism in Europe, the relations between bankers and governments were probably closer than governments’ relations with any other interest group. Sometimes bankers pressed for government action – in recovering debts in Egypt, for example, or in enforcing the ‘open door’ in China. Sometimes governments pressed banks to invest for political reasons in areas where the financial advantages were not immediately apparent.

These relations were made easier by the fact that in most of the major European countries bankers were closer socially to the men who exercised political power than most other businessmen, although the fact that they were in a position to press their views on politicians does not necessarily mean that they in fact did so. Still, they were often part of the same social world: Rouvier, the French prime minister at the time of the first Moroccan crisis, was himself a leading banker, and the German government used his financial acquaintances in Germany to reinforce their warnings to the French government in 1905. Lord Rosebery, the British prime minister in 1894–5, was married to a Rothschild heiress. Both Kiderlen-Wächter and Bethmann Hollweg came from banking families. Sir Ernest Cassel, a German-born financier living in London, was a prominent member of King Edward VII’s circle of friends. Friedrich von Holstein, the most influential figure in the German foreign ministry in the decade before 1906, was a close friend of Paul von Schwabach, the head of the Bleichröder bank, whose founder, Gerson Bleichröder, had been Bismarck’s personal financial adviser and one of the few Jews to be raised to the Prussian nobility. Tisza, the Hungarian prime minister in 1914, was a great friend of the head of one of the leading bankers in Budapest, even if in the rigidly divided social system of Austria the Vienna bankers, unless they were Rothschilds, were relegated to the ‘second society’. The Warburg banking house in Hamburg had close relations with the foreign ministry; its head, Max Warburg, was invited to be a guest of the kaiser at the Kiel regatta and was shocked, when meeting the kaiser at a dinner in Hamburg in June 1914, to hear him talking about the possibility of a preventive war against France.⁵³ The international bankers were in a paradoxical position, symbolic perhaps of the whole capitalist system in Europe before 1914. On the one hand, through their close collaboration with governments, they encouraged by their investment policy the consolidation of alliances and the growth of colonial rivalries. On the other hand, they benefited by the flow of international trade and had an interest in maintaining it uninterrupted by international tension. They had close family and personal ties with foreign banks: the Rothschilds were the most famous of the international dynasties, but the Warburgs of Hamburg, for example, were related by marriage to two of the senior partners of the New York banking house Kuhn, Loeb, and to one of the directors of the Russian firm of Gunzburg. In the crisis of July 1914, the head of the London Rothschilds was using, although unsuccessfully, all his influence to persuade The Times to stop advocating British support for France and Russia; and one of the most powerful factors working against British intervention was the conviction expressed by Grey on 31 July that ‘the commercial and financial situation was extremely serious’, and that ‘there was danger of a complete collapse that would involve everyone in ruin’.⁵⁴

The international links of bankers and businessmen were sometimes used for confidential diplomatic negotiations. The visit to Berlin of Lord Haldane in 1912 for talks about naval disarmament had been preceded by contacts between Albert Ballin, the head of the Hamburg-Amerika steamship line, and the financier Sir Ernest Cassel. Ballin was anxious to improve Anglo-German relations and to this end had supported the clandestine purchase of a controlling interest in the London Tribune newspaper at a price of £40,000 – the largest sum ever expended by Germany for the purpose of influencing foreign opinion.⁵⁵ Ballin was in London during the July Crisis and was invited by Cassel to meet Churchill and Haldane at dinner on the 24th, where he sounded out the British ministers about possible conditions for Britain’s neutrality in the event of war. Nevertheless, in spite of their intimate connections with government, both Ballin and Warburg felt powerless to influence decisions being taken during the July Crisis.⁵⁶ Many people believed that the existence of this network of personal and business contacts all over Europe would in fact make war impossible since no one stood to gain by a war. ‘There are in Europe at present too many pacifist forces’, the Belgian socialist leader Emile Vandervelde said when asked about the danger of war in 1911, ‘starting with the Jewish capitalists who give financial support to many governments’.⁵⁷ Norman Angell, the English publicist, argued in his best-selling book The Great Illusion (1909) that war would bring economic disaster to victor and vanquished alike and that ‘the capitalist has no country, and he knows, if he be of the modern type, that arms and conquests and jugglery with frontiers serve no ends of his, and may very well defeat them’.⁵⁸ Angell regarded financiers as the guardians of peace and believed that capitalism favoured cosmopolitanism and peaceful trade.

Trade and commerce

The nature of economic life at the beginning of the twentieth century was such that international trading and financial links often had ambivalent political effects. Whereas there were still many businessmen who believed in the classical liberal doctrine that the growth of international trade would inevitably make wars impossible, others, faced by falling profits and intense competition, were becoming increasingly nationalistic in outlook and increasingly anxious for governments to safeguard their interests by imposing protective tariffs or giving them stronger diplomatic and in some cases, at least in disputed colonial territories, military support. By the end of the nineteenth century all the leading European states except Great Britain had adopted protective tariffs, the scale and nature of which were the subject of bitter domestic political disputes. The stability of the conservative bloc on which German governments relied for their parliamentary support depended on a tough and recurrent bargaining process between agrarians and industrialists. In Russia, one advocate of protectionist tariffs, E.I. Ragozin, denounced the agrarians who were satisfied with Russia’s role as ‘the granary of Europe’, which meant that Russia was doomed to remain ‘some kind of colony in relationship to Europe, as India or Canada are to England’.⁵⁹ Protectionist policies were also bound to have an effect on international relations. Although their effect was often mitigated by commercial treaties and ‘most-favoured-nation’ clauses that automatically accorded to other trading partners concessions negotiated with individual foreign countries, tariffs became an important diplomatic weapon. The renewal of Italy’s adherence to the Triple Alliance in 1891, for instance, was largely dependent on the simultaneous signature of a commercial treaty acceptable to Italy.⁶⁰

A large state could use a discriminatory tariff to try to impose its will on a small country, as the Austrians did during their ‘pig war’ with Serbia to protest against Serbian proposals for a close economic union with Bulgaria, and in order to make the Serbs continue to buy arms from Skoda and not from Schneider-Creusot. In fact, this was a total failure for Austria, and its attempt to impose its will by banning Serbian exports only led to Serbia finding markets elsewhere, thus reducing its dependence on Austria and increasing Serb hostility to the Habsburg Monarchy. In every country there were special interests that led to complaints that they were particularly harmed by specific items in other states’ tariffs, but these anxieties tended to become of international political importance only when the relations between states were strained for other reasons. The French did not take much notice of the new German tariff that came into force in 1906 during the period of comparatively good relations between 1906 and 1910, and only began complaining seriously when those relations deteriorated, while in the hostile atmosphere after the Agadir crisis German complaints about the unfriendly and bureaucratic attitude of French customs officers towards German exporters increased sharply, so that economic disagreements helped to augment the growing ill feeling between the two nations.

The discussions about the renewal of Germany’s commercial treaties, signed in 1904–5 and due to end in 1917, not only illustrate some of the serious economic and political problems facing Germany on the eve of the war but also contributed to the sharply increasing antagonism between Germany and Russia. At the beginning of 1914 a recession was beginning to be felt in Germany, and this increased the internal strains between those manufacturers who wanted access to as wide a market as possible and who were ready to consider lowering tariff barriers in the hope of increasing trade, and the people, largely in the agricultural sector in which the Prussian landowners were the most prominent, who were insisting on the maintenance if not the increase of the existing protective tariffs.

In the spring of 1914 the official policy of the government was that the existing tariff policy was sufficient to safeguard the interests of both German industry and agriculture, and that they should try to renew the commercial treaties on the existing terms; this was in fact something that the Russians were not prepared to do.⁶¹ Their industrial progress over the previous few years had increased their confidence in their own economic strength as well as increasing the resentment that Russian nationalists felt at the control of their economy by foreigners. They remembered that the commercial treaty with Germany had been negotiated during the war with Japan at the moment of Russia’s greatest weakness, and they disliked it for emotional as well as practical reasons. In particular, the Germans had increased their export of rye to Russia and Scandinavia, partly because a concealed government subsidy had enabled them to keep their price down. The Russians wished to reduce the imports of German grain and make their own exports more competitive, and accordingly in June 1914 they introduced a new and heavy duty on the import of foreign grain. Even before the diplomatic crisis of July 1914 there was talk on both sides of the frontier of the ‘coming great economic duel between Russia and Germany’.⁶²

In Britain too there had been recurrent anxiety over the past 20 years about an economic duel with Germany.⁶³ In both countries there had been complaints of unfair competition and fears of discrimination. For the British there were practical reasons for anxiety, but rather on general grounds than because of a particular threat from Germany. The British share of world trade was failing: both the United States and Germany were catching up with British production of iron and steel, while the strength of Britain’s older industries had meant that it was slower in developing some of the newer industries and technology. (From the purely economic point of view the United States was at least as dangerous a rival as Germany, yet there was no talk of a growing antagonism between the two countries.) In some areas Anglo-German trade relations were improving, and in fact, as Zara Steiner pointed out, between 1904 and 1914 Britain became Germany’s best customer and Germany was Britain’s second-best market.⁶⁴ Particular industries in Britain suffered from the German tariff approved in 1902 and introduced in 1906, notably machinery and textiles. However, as the most recent and comprehensive study of the relationship between the economy, empire and international rivalry concludes, the most fundamental need of British economic interests was peace:

The whole intricate web of financial and commercial interests of which London was the centre depended upon adhering to an economic orthodoxy which would be severely tested and could even be overthrown by a protracted war or a sustained high level of defence expenditure.

P.J. Cain and A.G. Hopkins argue that industrial interests – in spite of Britain’s nineteenth-century experience of expansion – had become much less significant than the financial and commercial ones that emphasized cooperation rather than competition.⁶⁵

Nevertheless, there was a public outcry in Britain during the depression of the 1890s, arising partly from the publication of E.E. Williams’s Made in Germany in 1896, which argued that ‘On all hands England’s industrial supremacy is tottering to its fall, and this result is largely German work’,⁶⁶ that was not so much an objective assessment of Britain’s relative industrial and commercial decline as a fear of the successful penetration by German salesmen into what had been regarded as exclusively British markets, for example in the Middle East. Complaints about the Germans’ high-pressure salesmanship were not limited to English businessmen: the French were just as sensitive to German competition, complaining that four or five representatives of French firms in Moscow were competing with 550 Germans,⁶⁷ while in 1896 Maurice Schwab published a book called Le Danger Allemand, arguing along the same lines as Williams’s book which appeared the same year. Certainly the realization of Germany’s extremely rapid industrial progress and increasing economic strength affected the attitude of foreign countries, and especially Britain, towards it but the British economy remained strong and it is a myth that technological decline led to its decreasing importance in global affairs.⁶⁸ Although economic rivalry was less important than other reasons for distrusting Germany fears of its peaceful penetration of the Ottoman Empire did heighten British fears. As a case study by Keith Hamilton has demonstrated, ‘That Germanophobia which afflicted so much of British diplomacy in the early years of the twentieth century drove their pre-emptive purchase [of the Constantinople Quays Company]’.⁶⁹ As Sir Edward Grey put it in December 1906:

The economic rivalry (and all that) do not give much offence to our people, and they admire her steady industry and genius for organization. But they do resent mischief making. They suspect the Emperor of aggressive plans of Weltpolitik, and they see that Germany is forcing the pace in armaments in order to dominate Europe and is thereby laying a horrible burden of wasteful expenditure upon all the other powers.⁷⁰

For the Germans, too, the fear of the campaign in Britain for an end of free trade and the introduction of a protective tariff has to be seen in the wider context of a belief that they were being denied their ‘place in the sun’ by the grasping British. As one nationalist conservative member of the Reichstag put it, ‘In the entire commercial stance of the English I can recognize … the clear intention to exclude Germany from the English colonies’.⁷¹ On any utilitarian or statistical balance of profit and loss, there were probably as many businessmen in each country who benefited from trade with each other as were threatened by direct competition or tariff policy. The first group tended to want better relations between Britain and Germany; the second moved from economic anxiety to political resentment. As Paul Kennedy has put it, ‘It surely is significant that neither Prussian agrarians nor Birmingham machine-makers joined the various Anglo-German friendship committees, whereas Lancashire mill-owners and Hamburg bankers did’.⁷² In the aftermath of the first Moroccan crisis, Chancellor Bülow chose to appoint a banker as the new head of the colonial section of the foreign ministry. Bernhard Dernburg had been manager of the Deutsche Treuhandgesellschaft, a subsidiary of the Deutsche Bank, where he had successfully reorganized the great coal and iron concern, the Deutsch-Luxemburgische Bergwerks-und Hüttengesellschaft.⁷³ Dernburg promised during the election campaign of 1907 that the colonies would be made profitable and a good investment for the German taxpayer; ‘colonialism’ was the main election issue and the government made significant gains, with the Social Democrats losing 38 seats.

How are we to relate this complicated network of financial and trading relations to the theory that the main causes of the war were economic? Economic considerations were not much to the fore in the minds of the politicians taking decisions in July 1914; when they were – as when the British government was faced with the possible consequences for the City of London of a complete breakdown of the foreign exchange market and the impossibility of receiving or paying debts where foreign countries were involved – they underlined the disastrous effects of war.⁷⁴ Indeed, it was taken for granted by nearly everybody in positions of responsibility all over Europe that the threat of economic collapse would be enough to end the war within a few months or even weeks. The Hungarian minister of finance thought that the war could not go on for more than three weeks – and Austro-Hungarian war production proved scarcely adequate even for that – so that their dependence on the Germans increased accordingly. The Russian plan in 1914 for expenditure on the army was based on the assumption that ‘the present political and economic circumstances of Russia’s main neighbours rule out the possibility of a long war’.⁷⁵

The economy and war planning

Before 1914, governments had worried about the financial and fiscal problems of paying for their huge armament programmes, but they had given little thought to the economic measures that would be required once war had started. Most countries had stocks of gold available to cover the cost of paying their armies on mobilization, but they had made few other preparations for war. The German government had been worried, at least since 1906, about the difficulties of keeping the population fed if imports of food from abroad were cut off. However, the minister of the interior assured them that supplies of domestic rye and potatoes would be sufficient, and nothing was done. An interdepartmental committee was set up in November 1912 – the moment at which the German government decided that war was probable – but it achieved little, mainly because the cost of stockpiling grain was very high on account of the tariff, which the agrarians would not agree to modify.⁷⁶ Also in 1912 the general staff and the Prussian Ministry of War set up a new programme for the production of munitions, partly because they had been impressed by the rate of consumption of ammunition in the Russo-Japanese War. Here again, however, the measures taken proved inadequate and all reserves of ammunition were used up after about two months of war.⁷⁷ These preparations have sometimes been used to support the argument that the Germans were deliberately planning to start a war; all they really show, however, is that from 1912 onwards they were expecting a war and preparing for it, which is not necessarily the same as saying that they were going to provoke it themselves, though it does not exclude this either.⁷⁸ The desultory discussions about food and ammunition supply do, nevertheless, show clearly that the Germans had little conception of what the war would eventually be like or of its possible length.

Nor had any of the other belligerent states taken into account the economic consequences and needs of a war. The British had made practically no serious economic preparations for war, partly because even the military leaders had very little idea of what a war would involve in the way of supply and manpower policy, and partly because of a deep, instinctive refusal among the majority of the Liberal Party to contemplate the prospect of war at all. With the exception of naval building many aspects of the material planning for war were simply ignored, particularly because of the need for economy in view of the competition for resources between naval construction and social welfare. The War Office cut its expenditure on munitions by over a third between the financial years 1905/6 and 1912/13.⁷⁹ There were some discussions about how food imports could be maintained in war and moments of alarm that Britain’s gold reserves might run out so that ‘the growing commercial and banking power of Germany’ aroused uneasiness lest ‘the gold reserves of London should be raided just before or at the beginning of a conflict between the two countries’.⁸⁰ These alarms passed, and such enquiries as were carried out about stocks of food or munitions or the economic and social consequences of a declaration of war did not really provide a basis for action. On 4 August 1914, Lloyd George declared that government policy was ‘to enable the traders of this country to carry on business as usual’.⁸¹ It was only when this proved impossible that the government began gradually to improvise measures for the organization of total war.⁸²

The Russians had rifles available for issue on mobilization but had sold off earlier stocks so that they had no spares. Already in September 1914 the army command was complaining of the shortage of ammunition, having discovered that the rate of expenditure was three times greater than had been expected, foreshadowing the general crisis in supply and distribution that was to be one of the main causes of the revolution in 1917.⁸³ In France, while in the two years immediately before the war the government had been concerned to increase the size of the army by introducing the three-year period of conscription and had been worried how to pay for this, very little thought seems to have been given to providing equipment and ammunition for the additional recruits. The army was also short of several types of weapon, notably heavy artillery. As late as 13 July 1914, Senator Charles Humbert was drawing the attention of the senate to the deficiencies in materiel; after two days of debate it was agreed that the parliamentary committee on the army should make a report on the situation after the summer recess.⁸⁴ The state ordnance factories had been unable to satisfy the army’s current needs, but private firms tended to charge high prices and not even Schneider-Creusot was yet really equipped for mass production.⁸⁵ The automobile manufacturer Louis Renault, one of the most enterprising and successful French industrialists, gave a vivid picture of the situation on the outbreak of war: about 8 or 9 August he was summoned by the war minister whom he found very upset, walking up and down and repeating, ‘We must have shells, we must have shells’. When asked by a senior general if he could make shells, Renault replied that he did not know: he had never seen one. But before he could be put in charge of organizing shell production in the Paris area, the state arsenals and the firms of Schneider-Creusot and Saint-Chamond had to give up their monopoly of shell manufacture so that it was not until the autumn that the reorganization of the arms industry for war really began.⁸⁶

Governments neglected economic factors in their plans for war, partly because they were certain that the war would be short and partly because they were uncertain what to expect once mobilization was completed and the opening strategic moves were made. In some cases, perhaps, they never really believed that war would actually come at all. Their immediate motives for going to war were not economic but rather political, emotional or strategic. Trade rivalry had, once attention had been drawn to it by nationalist publicists, served sometimes to increase popular feelings or international distrust and provided one factor, though not by itself a sufficient one, in identifying the enemy. Arms manufacturers made money not only out of contracts with their own governments but also out of sales to other governments – a market they would lose in time of war. Moreover, in many cases they were already producing to their maximum capacity, and it was only because of the reorganization undertaken after several months of war that they were able to meet the additional demands made on them. They certainly made money from the war (one of the main French steel companies, the Aciéries de France, for example, quadrupled its profits between 1913 and 1915),⁸⁷ but so did many other ‘hard faced men who looked as though they had done very well out of the war’⁸⁸ who had supplied boots or coal or cattle fodder or anything else essential for the war economy. Most of them do not seem to have foreseen the opportunities that war would provide, even if they made the most of them once war had started. Moreover, the state sector – not private manufacturers – frequently produced the bulk of armaments; this was certainly the case in Russia, while even in Britain the royal ordnance factories produced four-fifths of the artillery pieces and their ammunition for both the army and the navy between 1909 and 1914.⁸⁹

There is no evidence that they were prompting governments to start a European war, and the fact that they profited by it is hardly sufficient proof that they were responsible for it. Certainly there were industrialists and military men who hoped the war once it had begun would end with a peace that would extend their markets or safeguard their strategic position (Field Marshal Hindenburg was to justify his demands for large annexations from Russia with the words, ‘I need them for the manoeuvring of my left wing in the next war’).⁹⁰ There had for several years been talk in German industrial and financial circles, especially among bankers and those involved with some of the newer branches of industry, about the need to increase Germany’s economic sphere by the formation of a new Mitteleuropa, a vast unified trading area that would provide Germany with markets as well as free it from dependence on imported food. Industrialists in the older sectors, the iron and steel producers for instance, had already been trying, as we have seen, to secure their sources of raw materials by acquiring a controlling interest in mines in France and elsewhere. In September 1914, when it still looked as though the Germans were about to win a complete victory over France, there seemed to be a possibility of putting some of these ideas into practice. Bethmann Hollweg approved a programme of extensive annexations in the west to be followed by the pushing back of the Russian frontier and the ending of Russian rule over non-Russian peoples. This would have gone far towards both realizing the dreams of a German-dominated Mitteleuropa and giving German heavy industry direct control over the mines of Belgium and France. It has been argued that it was deliberately in order to achieve these gains that Germany went to war and that this alone seemed to provide a way out of the economic difficulties and contradictions so widely apparent in the spring of 1914.

Yet some doubts remain as to how far a programme produced after the war had started is necessarily evidence of the immediate reasons for the decision for war two months earlier; we shall never know just what was in the minds of Bethmann and his colleagues in July 1914 or how they saw the priority among the many considerations that had to be taken into account. Some historians, such as Wolfgang Mommsen, have little doubt: he argued that the German state was commanded by imperialistic capitalism, that it was the tool of the bourgeoisie, and that its primary objective was to protect the interests of its capitalists to the disadvantage of rival capitalists outside Germany.⁹¹ Whether they actually declared war in order to achieve these economic and geopolitical goals or for a number of more immediate reasons can never be decided. What is certain is that once war had begun most of the belligerents started to think of the gains they might win if victorious. The British thought of removing German commercial and industrial competition for many years to come as well as ending the threat from the German navy. The French iron and steel magnates in the Comité des Forges began, like their German counterparts, to think of territorial gains that would ensure for them control of their raw materials. The Russians at once had visions of an advance to Constantinople to win permanent control over the exit from the Black Sea. There is perhaps a distinction to be made between the war aims for which a country goes to war and the peace aims, the terms on which it hopes to make peace once the war has begun and victory seems in sight.⁹²

Moreover, just as the outbreak of war temporarily relieved several of the governments involved of some of their immediate political problems, so it enabled them to solve for the time being some of their financial difficulties caused by the constant problem of paying for their armament programmes. Taxation at a higher level could be made acceptable on patriotic grounds, as in Britain, where income tax was repeatedly increased and an excess-profit tax introduced. Special war loans could be floated and the patriotic duty to subscribe to them stressed in well-organized propaganda campaigns, without worrying too much about how the money borrowed was eventually to be repaid (thus producing a major problem for the French and German governments once the war had ended). Here again, however, it would take a great deal more evidence than we possess to argue convincingly that governments deliberately went to war in order to solve their budgetary problems.

It is hard to find evidence that this particular war at this particular moment was directly the consequence of economic pressures or immediate economic needs. If we are to maintain that the causes of war were economic, we shall have to look at longer trends in the development of European society during the decades before the First World War. Jean Jaurès, the most eloquent of the French socialist leaders, declared in 1895: ‘Your chaotic and violent society, even when it wants peace, even when it is in a state of apparent repose, carries war within it as the sleeping cloud carries the thunderstorm.’ The ethical values of unrestrained capitalist competition, Jaurès maintained, inevitably encouraged man’s inhumanity to man.

For this tormented society, to protect itself against the anxieties which constantly rise from its own depths, is perpetually obliged to thicken its armour plating; in this age of limitless competition and overproduction, there is also competition between armies and military overproduction.

There is, he went on,

only one way finally to abolish war between people, it is to abolish war between individuals, it is to abolish the economic war, the disorder of present society, it is to substitute for the universal struggle for existence, which ends with the universal struggle on the battlefields, a regime of social peace and unity.⁹³

However, right up to his assassination on 31 July 1914, Jaurès continued to hope that war could be averted, in spite of the injustices of the prevailing social and economic system, by measures of disarmament and arbitration, by reforms in the organization of national defence that would make it impossible to wage an aggressive war, by educating men and persuading them to cooperate with each other. Jaurès never worked out in detail just what the exact connections were between the prevailing economic system and war, but limited himself to denouncing militarism and imperialism without analysing them very closely. For all his insistence on the capitalist system as the cause of wars, Jaurès believed that it could be mitigated in such a way that the storm cloud of war would not necessarily burst, a belief that implies that the causes of war and the means of averting it may after all be political rather than economic.

The Marxist theorists who insisted that war was inherent in the nature of capitalism and that the growing crisis of capitalism would lead to war envisaged that this war would result from the imperial rivalries caused by the capitalists’ need to maintain their profits by constantly finding new fields for investment, new sources of raw materials and cheap labour and new markets. If war was inherent in capitalism, then we must examine the nature of European imperialism at the beginning of the twentieth century and try to decide how far imperial rivalries were a cause of the war that broke out in 1914.

References

· 1  For the Stuttgart Congress and the resolution on militarism and international conflicts, see, for example, James Joll, The Second International 1889–1914 (new edn, London 1974), pp. 135–52.

· 2  See Eckart Kehr, Schlachtflottenbau und Parteipolitik (Berlin 1930).

· 3  Nancy Mitchell, The Danger of Dreams: German and American Imperialism in Latin America (Chapel Hill, NC 1999), p. 114.

· 4  Niall Ferguson, Paper and Iron: Hamburg Business and German Politics in the Era of Inflation, 1897–1927 (Cambridge 1995), pp. 83–4.

· 5  For the British Navy League, see W. Mark Hamilton, ‘The Nation and the Navy: Methods and Organization of British Navalist Propaganda, 1889–1914’ (unpublished PhD thesis, University of London 1978).

· 6  Andrew Marrison, British Business and Protection 1903–1932 (Oxford 1996), p. 143.

· 7  Paul Kennedy, The Rise of the Anglo-German Antagonism 1860–1914 (London 1980), p. 299. As an alternative view to that of growing ‘antagonism’ see the essays in Dominik Geppert and Robert Gerwarth (eds), Wilhelmine Germany and Edwardian Britain: Essays on Cultural Affinity (Oxford 2008) and Richard Scully, British Images of Germany: Admiration, Antagonism and Ambivalence, 1860–1914 (Basingstoke 2012).

· 8  Volker Berghahn, Rüstung und Machtpolitik (Düsseldorf 1973), pp. 55 ff.

· 9  Hugh Driver, The Birth of Military Aviation: Britain, 1903–1914 (Woodbridge 1997), pp. 143–4.

· 10  Bernard Michel, Banques et Banquiers en Autriche au début du 20e siècle (Paris 1976), p. 179.

· 11  David Stevenson, Armaments and the Coming of War: Europe 1904–1914 (Oxford 1996), p. 23.

· 12  Raymond Poidevin, ‘Fabricants d’armes et relations internationales au début du XXe siècle’, Relations Internationales 1 (1974). Much of what follows is based on this important article.

· 13  Clive Trebilcock, The Vickers Brothers: Armaments and Enterprise 1854–1931 (London 1977), pp. 120–1; Stevenson, Armaments and the Coming of War, p. 38.

· 14  Holger Herwig, Germany’s Vision of Empire in Venezuela, 1871–1914 (Princeton, NJ 1986), especially pp. 110–40.

· 15  Poidevin, ‘Fabricants d’armes’, p. 42.

· 16  Thomas D. Schoonover, The French in Central America: Culture and Commerce, 1820–1930 (Wilmington, NC 2000), p. 121.

· 17  N. Yorulmaz, Arming the Sultan. German Arms Trade and Personal Diplomacy in the Ottoman Empire before World War I (London and New York 2014).

· 18  See especially Michel, Banques et Banquiers, p. 179.

· 19  René Girault, Emprunts russes et investissements francais en Russie 1887–1914 (Paris 1973), p. 345, fn. 2. Professor Girault’s work is fundamental for an understanding of this whole question.

· 20  Steven G. Marks, Road to Power: The Trans-Siberian Railroad and the Colonization of Asian Russia 1850–1917 (Ithaca, NY 1991), p. 123.

· 21  Raymond Poidevin, Les Relations Economiques et Financières entre la France et l’Allemagne de 1898 a 1914 (Paris 1969), p. 178. Together with the work of Girault mentioned above, this goes a long way to giving a definitive account of the role of economic factors in French and German foreign policy.

· 22  Charles E. Freedeman, The Triumph of Corporate Capitalism in France, 1867–1914 (Rochester, NY 1993), p. 59.

· 23  Daniel Gutwein, The Divided Elite: Economics, Politics and Anglo-Jewry, 1882–1917 (New York 1992), p. 115.

· 24  Girault, Emprunts russes, p. 568. Poidevin, Relations Economiques, p. 678.

· 25  Michael Palairet, The Balkan Economies c. 1800–1914: Evolution without Development (Cambridge 1997), pp. 332–3, 369.

· 26  Robin Okey, Taming Balkan Nationalism: The Habsburg ‘Civilizing Mission’ in Bosnia, 1878–1914 (New York 2007).

· 27  Herbert Feis, Europe, the World’s Banker 1870–1914 (New York 1965), pp. 23, 51.

· 28  See Cornelius Torp, The Challenges of Globalization: Economy and Politics in Germany, 1860–1914 (New York 2014).

· 29  A useful case study of Britain’s commercial and financial policy in the Balkans is: Mika Suonpää, ‘Financial Speculation, Political Risks, and Legal Complications: British Commercial Diplomacy in the Balkans, c. 1906–1914’, Historical Journal 55 (2012), pp. 97–117.

· 30  Susan P. McCaffray, The Politics of Industrialization in Tsarist Russia: The Association of Southern Coal and Steel Producers, 1874–1914 (De Kalb, IL 1996), p. 68.

· 31  Girault, Emprunts russes, p. 580; Feis, World’s Banker, p. 51.

· 32  John A. White, Transition to Global Rivalry: Alliance Diplomacy and the Quadruple Entente, 1895–1907 (Cambridge 1995), p. 53.

· 33  White, Transition to Global Rivalry, p. 54.

· 34  Girault, Emprunts russes, p. 430.

· 35  Girault, Emprunts russes, p. 443.

· 36  Girault, Emprunts russes, p. 446, n. 77.

· 37  The Times, 11 June 1907.

· 38  ‘Les dirigeants politiques et économiques francais de la IIIe république n’ont pas choisi la neutralité vis-å-vis du régime politique de la Russie, ils ont opté pour le tsarisme; ce faisant, ils se sont interdit toute réelle influence sur le cours futur des évènements intérieurs; en Russie’, in Girault, Emprunts russes, p. 447.

· 39  Jennifer Siegel, French and British Finance in the Service of Tsars and Commissars (Oxford 2014).

· 40  Peter Gatrell, Government, Industry and Rearmament in Russia, 1900–1914: The Last Argument of Tsarism (Cambridge 1994), pp. 4–5.

· 41  Arden Bucholz, Moltke, Schlieffen, and Prussian War Planning (New York and Oxford 1991), p. 259.

· 42  See Sebastian Conrad, Globalisation and the Nation in Imperial Germany (Cambridge 2010).

· 43  See Hartmut Pogge von Strandmann, ‘Rathenau, die Gebruder Mannesmann und die Vorgeschichte der Zweiten Marokkokrise’, in I. Geiss and Bernd Jürgen Wendt (eds), Deutschland in der Weltpolitik des 19. und 20. Jahrhunderts (Düsseldorf 1973), pp. 251–70, and Poidevin, Relations Economiques, pp. 475–80.

· 44  Poidevin, Relations Economiques, pp. 654–819.

· 45  Documents diplomatiques francais 1871–1914, 2 série, Vol. IV (Paris 1932), No. 174, p. 245. See also Raymond Poidevin, Finances et Relations Internationales 1887–1914 (Paris 1970), p. 91.

· 46  Poidevin, Finances et Relations Internationales, p. 92.

· 47  C. Seton-Watson, Italy from Liberalism to Fascism (London 1967), pp. 284 ff.

· 48  Poidevin, Relations Economiques, pp. 553–4; John Whittam, The Politics of the Italian Army (London 1977), p. 156.

· 49  Steven Beller, Francis Joseph (London 1996), p. 194.

· 50  Fritz Fischer, Krieg der Illusionen (Düsseldorf 1969), p. 422.

· 51  Fischer, Krieg der Illusionen, p. 423.

· 52  Michel, Banques et Banquiers, p. 366.

· 53  E. Rosenbaum and A.J. Sherman, Das Bankhaus M.M. Warburg & Co. 1798–1938 (Hamburg 1976), p. 140.

· 54  G.P. Gooch and Harold Temperley (eds), British Documents on the Origins of the War 1898–1914, Vol. XI (London 1926), No. 367, pp. 226–7.

· 55  Ralph Menning, ‘Measure of Despair: The Syndicate for Commerce and Industry, the London Tribune, and German Foreign Policy, 1906–8’, International History Review 34 (2012), p. 530.

· 56  Niall Ferguson, Paper and Iron: Hamburg Business and German Politics in the Era of Inflation, 1897–1927 (Cambridge 1995), p. 94.

· 57  Quoted in Georges Haupt, Socialism and the Great War: The Collapse of the Second International (Oxford 1972), pp. 73–4.

· 58  Norman Angell, The Great Illusion (3rd edn, London 1911), p. 269.

· 59  McCaffray, Politics of Industrialization in Tsarist Russia, p. 59.

· 60  See Rolf Weitowitz, Deutsche Politik und Handelspolitik unter Reichskanzler Leo von Caprivi 1890–1894 (Düsseldorf 1978), Ch. 7.

· 61  See Egmont Zechlin, ‘Deutschland zwischen Kabinetts- und Wirtschaftskrieg’, Historische Zeitschrift 199 (1964), and Fischer’s reply in Krieg der Illusionen, pp. 529–30.

· 62  Fischer, Krieg der Illusionen, p. 540, quoting the president of the Russian Duma’s committee on agriculture.

· 63  See the excellent discussion in Zara Steiner and Keith Neilson, Britain and the Origins of the First World War (2nd edn, London 2003), pp. 63–72, and Kennedy, Anglo-German Antagonism, Ch. 15. See also the statistics in Michael Balfour, The Kaiser and his Times (London 1964), Appendix 1.

· 64  Steiner and Neilson, Britain and the Origins, pp. 64–5.

· 65  P.J. Cain and A.G. Hopkins, British Imperialism: Innovation and Expansion, 1688–1914 (London 1993), p. 450.

· 66  Quoted in W.L. Langer, The Diplomacy of Imperialism (2nd edn, New York 1951), p. 245.

· 67  Poidevin, Relations Economiques, p. 143.

· 68  See G.C. Peden, Arms, Economics, and British Strategy: From Dreadnoughts to Hydrogen Bombs (New York 2007).

· 69  Keith Hamilton, ‘Diplomatists, Not Men of Business: The Constantinople Quays Company in Edwardian Economic Diplomacy’, Diplomacy & Statecraft 25 (2014), p. 57.

· 70  G.M. Trevelyan, Grey of Fallodon (London 1937), p. 115.

· 71  Kennedy, Anglo-German Antagonism, p. 298.

· 72  Kennedy, Anglo-German Antagonism, p. 305.

· 73  W.O. Henderson, The German Colonial Empire 1884–1919 (London 1993), pp. 89–90.

· 74  On the financial crisis see R. Roberts, Saving the City: The Great Financial Crisis of 1914 (Oxford 2014).

· 75  Norman Stone, The Eastern Front 1914–1917 (London 1975), p. 145.

· 76  Fischer, Krieg der Illusionen, pp. 286–7.

· 77  Gerald D. Feldman, Army, Industry and Labor in Germany, 1914–1918 (Princeton, NJ 1966), p. 52.

· 78  Fischer, Krieg der Illusionen, pp. 284–8.

· 79  David French, British Economic and Strategic Planning 1905–1915 (London 1982), p. 45.

· 80  Memorandum on British gold reserves sent to the chancellor of the exchequer by Sir G. Paish, January or February 1914: Marcello de Cecco, Money and Empire: The International Gold Standard 1890–1914 (Oxford 1974), p. 207.

· 81  French, Economic and Strategic Planning, p. 92.

· 82  This view of British economic strategy and planning has been challenged by Nicholas A. Lambert, Planning Armageddon: British Economic Warfare and the First World War (Cambridge, MA 2012).

· 83  Stone, Eastern Front, p. 146.

· 84  Georges Bonnefous, Histoire Politique de la Troisième République, Vol. II, La Grande Guerre, 1914–1918 (Paris 1957), pp. 17–18; Douglas Porch, The March to the Marne: The French Army 1871–1914 (Cambridge 1981), pp. 238–9.

· 85  Porch, March to the Marne, pp. 242–3.

· 86  Patrick Fridenson, Histoire des Usines Renault, Vol. I, Naissance de la grande Entreprise 1898–1939 (Paris 1972), pp. 89–90.

· 87  Theodore Zeldin, France 1848–1945, Vol. II, Intellect, Taste and Anxiety (Oxford 1977), p. 1047.

· 88  The phrase is reported by J.M. Keynes as having been used by the Conservative politician Stanley Baldwin about the members of the British parliament elected in November 1918: Roy Harrod, The Life of John Maynard Keynes (London 1951), p. 266.

· 89  Stevenson, Armaments and the Coming of War, p. 26.

· 90  John Wheeler-Bennett, Hindenburg, The Wooden Titan (new edn, London 1967), p. 127.

· 91  See Wolfgang Mommsen, Die Autoritäre Nationalstaat (London 1995), especially p. 318.

· 92  For a discussion of this point, see Erwin Hölzle, Die Selbstentmachtung Europas (Göttingen 1975), pp. 38–41. Without accepting the premises of Hölzle’s attack on Fischer, the distinction seems a useful one.

· 93  Max Bonnefous (ed.), Oeuvres de Jean Jaurès: Pour la Paix, Vol. 1, Les Alliances Européennes 1887–1903 (Paris 1931), pp. 75–7.