Why were the financial markets caught napping? Did investors in the pre-war period simply come to underestimate the potential impact of a war on their bond portfolios, as the memory of the last great-power war faded? One possibility is, of course, that the financiers were the first victims of what has come to be known as short-war illusion. They had read their Ivan Bloch and Norman Angell, both of whom had argued that the unprecedented costs of a major war would render such a war if not impossible, then at least brief. On November 1, 1914, the French Finance Minister Ribot argued that the war would be over by July 1915, a view shared by the English statistician Edgar Crammond. Almost as optimistic, it is worth adding, was the much cleverer John Maynard Keynes, who excitedly explained to Beatrice Webb on August 10, 1914 that,
he was quite certain that the war could not last more than a year… The world, he explained, was enormously rich, but its wealth was, fortunately, of a kind which could not be rapidly realized for war purposes: it was in the form of capital equipment for making things which were useless for making war. When all the available wealth was used up – which he thought would take about a year – the Powers would have to make peace.
Yet the young don’s jejune optimism was not widely shared in the City – which perhaps helps to explain why he clashed so violently with the bankers when he swept down from Cambridge to offer the Treasury his wartime services. The Rothschilds understood full well the scale of the crisis they were facing. ‘The result of a war… is doubtful,’ Lord Rothschild observed on July 31, ‘but whatever the result may be, the sacrifices and misery attendant upon it are stupendous & untold. In this case the calamity would be greater than anything ever seen or known before.’ On August 1, The Economist’s editors foresaw with trepidation ‘a great war on a scale of unprecedented magnitude, involving loss of life and a destruction of all that we associate with modern civilisation too vast to be counted or calculated, and portending horrors so appalling that the imagination shrinks from the task’. There is little evidence that the City expected it to be ‘all over by Christmas’.
It may be that technical economic factors were behind the pre-war decline in volatility and risk premiums. Perhaps, as more and more countries joined the gold standard, investors ceased to fear international currency crises, though the evidence for this is not compelling. Perhaps global financial integration was reducing financial risk by broadening the international capital market, though the effect may equally well have been to increase the risks of financial contagion. Perhaps the fiscal positions of most countries before the war were genuinely improving, though investors would still have anticipated big deficits in the event of a war. Alternatively, it may have been the liquidity generated by the deepening of national capital markets that reassured investors. Large numbers of new savings institutions had been created all over the developed world in the late nineteenth century, which for the first time allowed smaller savers to have indirect access to the bond market. The ‘home bias’ of such institutions (often, as in Britain, legally enforced) undoubtedly had the effect of driving down domestic bond yields and reducing market volatility. Yet we cannot rule out the possibility that investors genuinely regarded the outbreak of a major European war as a highly unlikely occurrence for most of the period after 1880 – indeed, until the very last week of July 1914.
Even to the financially sophisticated, then, the First World War appears to have come as a real surprise. Like people who live on a fault line, investors knew that an earthquake was a possibility and understood how dire its consequences would be, but its timing remained impossible to predict and therefore beyond the realm of normal risk assessment. The more time passed since the last great earthquake, the less people thought about the next one. If this view is correct, then much of the traditional historiography on the origins of the war has, quite simply, over-determined the event. Far from a ‘long road to catastrophe’, there was but a short slip. Such a conclusion does not tend to support those who still think of the war as an inevitable consequence of deep-seated great-power rivalries – a predestined cataclysm. But it certainly accords with the notion that the outbreak of war was an avoidable political error.
THE END OF THE PAX BRITANNICA
Why might the war of 1914–18 have been a surprise? One answer is that contemporaries had more confidence than was entirely justified in the post-Victorian pax Britannica; in the ability of the world’s biggest empire to limit the global ramifications of a continental crisis. We now know, looking back, that the British Empire was in many ways overstretched. Some contemporaries suspected it, too. Yet the persistence of British naval dominance may have encouraged investors to underestimate the Empire’s vulnerabilities. The pax Britannica looked very real to investors; that was why they were willing to lend to emerging markets under British rule at rates that were only a few basis points higher than those on consols. In any case, peace was more than just a function of British military or financial power. It was also based on the success of great-power diplomacy. Concepts like the balance of power and the concert of Europe were in large measure discredited by the war; indeed it became an article of faith among American internationalists that the war itself had been caused by a defective system of secret diplomacy. Yet the international institutions that failed in July 1914 had in fact done a reasonably good job of avoiding a major great-power war throughout the preceding century.
Writing in 1833, the German historian Leopold von Ranke had taken a sanguine view of the century that was unfolding. Pessimists, he said, might think that ‘our age possesses only the tendency, the pressure, towards dissolution. Its significance seems to lie in putting an end to the unifying, binding institutions which have remained since the Middle Ages.’ Conservatives might be dismayed by ‘the irresistible inclination towards the development of great democratic ideas and institutions, which of necessity causes the great changes which we are witnessing’. Yet Ranke was optimistic:
… far from merely satisfying itself with negations, our century has produced the most positive results. It has completed a great liberation, not in the sense of a dissolution, but in a constructive, unifying sense. Not only has it first of all created the great powers; it has renewed the principle of all states, religion and law; and revitalized the principle of each individual state. In just this fact lies the characteristic of our age… [With states and nations] the union of all depends on the independence of each… A decisive positive dominance of one over the others would lead to the others’ ruin. A merging of them all would destroy the essence of each. Out of separate and independent development will emerge true harmony.
Ranke had faith in the capacity of the great powers to strike a balance with one another, and thereby to avoid that dominance of one continental power over all the others which Napoleon had all but achieved. His faith was not misplaced. Between 1814 and 1907 there were seven congresses (of sovereigns or premiers) and nineteen conferences (of foreign ministers) at which the principal diplomatic issues were discussed and, in large measure, settled. Though lacking all the institutional trappings of the international order of our own time, these regular summits in fact performed a role not so very different from that played today by the permanent members of the United Nations Security Council. The treaties they signed and agreements they brokered did not prevent war, but they limited it, so that no European crisis in the hundred years between the Congress of Vienna and the assassination at Sarajevo escalated into a full-scale conflict involving all the great powers. This was no small achievement.
Those years between 1815 and 1914 were not, of course, truly peaceful; the European empires waged a multitude of wars to impose their authority in Asia, America and Africa. Yet Europe itself saw relatively little war. According to one estimate, there were just twenty-one major wars in the entire period between the Napoleonic Wars and the First World War, and they were nearly all remarkable for their limited geographical extent, short duration and low casualties. The nineteenth century compared very favourably indeed with
the three centuries before it and the one after it. Defining war more broadly, to include smaller colonial conflicts, it can be shown that most wars happened outside Europe. Out of one sample of 270 wars between 1789 and 1917, fewer than a third happened in Europe. Of these, only twenty-eight were between nation states, as opposed to wars for national independence (twenty-eight) or civil wars (nineteen). Out of a total of 184 wars in another dataset, which counts only conflicts that caused more than 1,000 battle fatalities per year, just fifty-one took place in Europe. The nineteenth century was not quite the golden age of peace that it came to seem in retrospect to the generation of 1914. But there was no recurrence of the kind of war that had turned Europe upside down between 1792 and 1815.
Nor, despite all that has been written on the subject, was militarism especially pronounced in either the sums the great powers spent on their armed forces, or the numbers of men they mobilized in them. Between 1870 and 1913, only Russia spent more than 4 per cent of net national product on defence on average; Britain, Germany and Austria all spent just over 3 per cent. Over the same period, only France and Germany employed on average more than 1 per cent of their population in their armed forces; respectively, 1.5 and 1.1 per cent. It was only with hindsight that Europe appeared an armed camp, eagerly anticipating mobilization.
THE HOUSE OF SAXE-COBURG
A further reason for complacency in the summer of 1914 was the extraordinary integration of Europe’s nominal ruling elite. The Archduke Francis Ferdinand was, of course, a Habsburg. But he was also a member of that genealogically intertwined elite of predominantly German royal dynasties that had provided the majority of European sovereigns since the seventeenth century.
Aside from Switzerland, France (after the advent of the Third Republic) and a smattering of city-states, nearly all the states of Europe between 1815 and 1917 were either empires, kingdoms, principalities or grand duchies. In all of them, the office of head of state was hereditary, not elective. Between the more or less enlightened despotism of Russia and the liberal monarchy of Norway there was a bewildering variety of constitutional forms. Yet none of these entirely deprived the hereditary sovereign of power, nor did away with that crucial institution of government, the royal court. Moreover, quite apart from their domestic political powers – which remained great in terms of patronage even if they were circumscribed in other respects – the emperors, kings, queens, princes and grand dukes had a distinctive role in the sphere of interstate relations. Despite industrialization and all the other associated phenomena of modernization, dynastic politics still mattered. Wars were fought over the successions to the dukedoms of Schleswig and Holstein and the throne of Spain – to give just two examples – not merely because they furnished ingenious statesmen with convenient pretexts for nation-building. When attention is focused on the most important of all the nineteenth-century dynasties, the Saxe-Coburgs, it becomes apparent that there was much about this supposedly modern epoch that was still distinctly early-modern.
The rise of the House of Saxe-Coburg can be dated from the Napoleonic Wars and can be followed in the diary of Augusta, second wife and, from 1806, widow of Francis Frederick, Duke of Coburg. Coburg was one of those petty German states threatened with extinction when Napoleon swept away the Holy Roman Empire and created the Confederation of the Rhine; but Augusta’s sons managed to steer a careful course between France and Russia and were duly rewarded when, under Russian pressure, the duchy was restored to her eldest son Ernest in 1807. Augusta’s children married well. With the exception of one daughter, all either married royalty, achieved royal status in their own right or secured it for their children. One daughter married the brother of Alexander I of Russia; another, the King of Württemberg; a third married Britain’s Duke of Kent, a brother of George IV. But it was Augusta’s youngest son, Leopold, who was the real founder of the Saxe-Coburg fortunes. Leopold suffered a setback when his first wife, Princess Charlotte, daughter of George IV of Britain, died in childbirth in November 1817, just eighteen months after their marriage. But his circumstances were transformed when, having previously toyed with the idea of accepting the throne of Greece, he became King of the Belgians in 1831.
As The Times noted in 1863, the history of the Saxe-Coburgs showed ‘how much one success leads to another in Princely life’. They had
been able to advance to a position in Europe almost beyond the dreams of German ambition. [They] have spread far and wide, and filled the lands with their race. They have created a new Royal House in England. The Queen is a daughter of Leopold’s sister; her children are the children of Leopold’s nephew. The Coburgs reign in Portugal; they are connected with the Royal though fallen House of Orleans, and more or less closely related to the principal families of their own country. Prince Leopold has himself for thirty years governed one of the most important of the minor states of Europe, and his eldest son is wedded to an Archduchess of the Imperial House of Austria.
Moreover, all but one of Victoria and Albert’s nine children married royally. Queen Victoria’s sons-in-law included Frederick of Prussia, briefly Prussian King and German Emperor, Prince Christian of Schleswig-Holstein and Henry of Battenberg, whose brother Alexander became Prince of Bulgaria; her daughters-in-law included Princess Alexandra of Denmark and Princess Marie, daughter of Tsar Alexander II and sister of Tsar Alexander III. Besides George V, Victoria’s grandchildren included Sophie, who married Constantine, King of Greece; Kaiser William II of Germany; Prince Henry of Prussia; Elizabeth, who married Sergei, brother of Tsar Alexander III of Russia; Alexandra, who married Tsar Nicholas II of Russia; Marie, who married Ferdinand I of Romania; Margaret, who married Gustav Adolf VI of Sweden; Victoria Eugenie, who married Alfonso XIII of Spain; and Maud, who married Carl of Denmark, later Haakon VII of Norway. By the time the future Nicholas II made his first visit to England in 1893, a family reunion had come to resemble an international summit:
We drew into Charing Cross. There we were met by: Uncle Bertie [the future Edward VII], Aunt Alix [Alexandra of Denmark], Georgie [the future George V], Louise, Victoria and Maud…
Two hours later Apapa [Christian IX of Denmark], Amama and Uncle Valdemar [Prince of Denmark] arrived. It is wonderful to have so many of our family gathered together…
At 4.30 I went to see Aunt Marie [wife of Alfred, Duke of Saxe-Coburg] at Clarence House and had tea in the garden with her, Uncle Alfred, and Ducky [their daughter, Victoria Melita].
When this last married Ernst Ludwig, heir to the Grand Duchy of Hesse-Darmstadt, the guests included an emperor and empress, a future emperor and empress, a queen, a future king and queen, seven princes, ten princesses, two dukes, two duchesses and a marquess. They were all related. In 1901, the year of Queen Victoria’s death, members of the extended kinship group to which she belonged thus sat on the thrones not only of Great Britain and Ireland, but also of Austria-Hungary, Russia, Denmark, Spain, Portugal, Germany, Belgium, Greece, Romania, Bulgaria, Sweden and Norway.
While more and more commoners fretted about the supposed evil effects of miscegenation, the royal elite of Europe had to worry about the opposite – the dangers of inbreeding. In 1869 Queen Victoria had argued that it might be better to ‘infus[e] new and healthy blood into it [the royal family], whereas all the Princes abroad are related to one another; and while I could continue these Foreign Alliances with several members of the family, I feel sure that new blood would strengthen the throne morally as well as physically.’ ‘If no fresh blood was infused occasionally,’ she had written in defence of the projected marriage of another granddaughter – Victoria Moretta – to Alexander of Battenberg in 1885, ‘the races would degenerate physically and morally.’ This was all too true: systematic inbreeding had genuine medical disadvantages. The blood-clotting disease haemophilia spread through the royal family tree with tragic consequences for the male line (because it is carried in the X chromosome). There were at least nine sufferers among Victoria’s descendants: her eighth son Leopold, Duke of Albany, her gran
dson Frederick William of Hesse, her daughter Beatrice’s son Leopold, her granddaughter Irene’s sons Waldemar and Henry, her granddaughter Alexandra’s son Aleksei, her granddaughter Alice’s son Rupert, and her granddaughter Victoria Eugenie’s sons Alfonso and Gonzalo. Porphyria too was transmitted through the royal line, from George III to Victoria’s eldest daughter Vicky and Kaiser William II’s sister Charlotte.
Yet the benefits of royal consanguinity seemed obvious; what better check could be imagined to the fractious tendencies of nineteenth-century nationalism than the systematic intermarriage of the continent’s sovereigns? By 1892, Queen Victoria was happy to accept the convenient advice of Sir William Jenner, who assured her that ‘there was no danger & no objection as they [Victoria Melita and Ernst Ludwig] are so strong & healthy & Aunt Marie also. He said that if the relations were strong intermarriages with them only led to g[rea]ter strength & health.’ Two years later, she was pleased to be addressed as ‘Granny’ by the future Tsar Nicholas II, after his betrothal to yet another of her granddaughters. When her great-grandson, the future Edward VIII, was born two months later, Victoria urged that he be christened Albert, as if to set the seal on the familial achievement:
This will be the Coburg line, like formerly the Plantagenet, the Tudor (for Owen Tudor) the Stewart & the Brunswick for George the 1st – he being the gt. gd. son of James I & this wd. be the Coburg Dynasty – retaining the Brunswick & all the others preceding it, joining in it.
The War of the World: History's Age of Hatred Page 16