Imperial Germany and the Great War, 1914–1918
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A second question pertains to the mechanisms by which goods and services were to be marshaled to support the armies in the field. The German economy in 1914 was capitalist, in the basic sense that most of the means of production were in the hands of private entrepreneurs, whose decisions were governed by market forces and the expectation of profit. The outbreak of war brought a sudden and seismic shift in the market mechanism. It conjured up a voracious new consumer of goods and services, for the demands of the armed forces now enjoyed absolute priority. Other massive disruptions accompanied the departure of workers of all descriptions for the front, while the Allied blockade of the German coast soon cut the country off from nearly all overseas supplies. These extraordinary circumstances required major modifications of the market mechanism, whose workings were too slow to adjust to the military emergency. Quite apart from the thought that the “spirit of 1914” implied fundamental economic reform (a proposition embraced by few people other than the Socialists), the immediate pressures of the war made some form of “collectivistic” intervention – the kind of public planning and compulsion suggested by the term “command economy” – seem inescapable.
Nowhere were these pressures more urgent than in the core sectors of the war economy, the manufacture of the weapons and munitions, without which the war would have come quickly to an end. At the outbreak of war about 40 percent of this manufacture took place in state-run factories, while a number of private firms – notably the Krupp Works in Essen – produced the remainder under contracts let by the Ministry of War. The technologies of production required wood and steel for weapons and – for munitions – a combination of nitrates (usually in the form of saltpeter or sodium nitrate), sulfur, and a cotton base. Although the country was well endowed with many of these staple resources, the prodigious expenditures during the initial campaigns of 1914 far overtaxed the capacity of the state firms to produce sufficient quantities of munitions. As the War Ministry struggled to recruit additional private firms, it discovered that many were reluctant to retool for what they thought would be a short war, while the blockade and the enormous demand for the necessary raw materials further jeopardized the whole undertaking.
That the munitions shortage did not result in a terminal crisis was due to the initiative of one of the country’s leading industrialists. Walter Rathenau was president of the German General Electric Company (AEG), a firm whose growth before the war into one of the country’s most far-flung, technologically advanced conglomerates had already demonstrated the indispensability of comprehensive planning and coordination.4 Within days of the war’s outbreak Rathenau had persuaded officials in the War Ministry that the conflict demanded centralized control over the procurement and distribution of all war-related raw materials. Rathenau’s overture led immediately to the creation of the “War Materials Section” (Kriegsrohstoffabteilung, or KRA) of the War Ministry. The new agency was staffed by Rathenau himself and a team of business leaders, who were charged with steering adequate supplies of raw materials to the firms that accepted the contracts to produce the weapons of war.
This effort quickly produced a remarkable marriage of public and private power.5 The institutional network that soon radiated out of the KRA comprised a series of “war raw materials corporations” (Kriegsrohstoffgesellschaften), which loomed over every critical sector of the economy. The corporations were organized as joint-stock companies, in which the state participated as an investor while the leading firms in each sector put up the bulk of the capital. The corporations were empowered to secure – if necessary, by means of requisition or confiscation – all available stocks of the materials in question and then to distribute these materials to the firms that held the military contracts. The first corporation to be set up, “War Metals, Inc.,” set the pattern. Founded on September 2, 1914, it combined twenty-two leading metal-processing firms. The corporation was empowered to corner the supplies of all critical non-ferrous metals, such as copper and nickel. It then allocated these materials to firms that processed them for military use – those that undertook, for example, the extraction of metals from the ores or the manufacture of copper wiring. But the processing firms were in most cases the same ones that constituted the war corporation. The practical enticement of the arrangement was thus to enable the participating firms to distribute the contracts among themselves; so (to continue with the same example) Rathenau’s own AEG manufactured the copper wiring. To sweeten the enticement, the war corporations acquired the materials at legally fixed prices, while the lucrative terms of the military contracts set no limits on costs and guaranteed a 5 percent profit to the participating firms. The same institutional arrangements operated elsewhere: in chemicals, ferrous metals, cotton and other textiles, leather, and rubber, and other sectors. By early 1915 twenty-five war materials corporations encompassed the sectors of the economy that were immediately involved in military production. Without exception, the corporations were dominated by the largest, most powerful firms in each sector.
The final element in the constellation that formed in the summer of 1914 was the “War Committee for German Industry.” This body emerged from the marriage of the two leading industrial federations, which were in turn dominated by the same large and powerful firms that populated the war corporations. The committee advised the War Ministry on industrial policy, a role that gave this body vast influence not only over the general design and administration of policy but also over the distribution of war contracts.
The effectiveness of this hastily improvised effort stood out in the annals of Germany’s economic mobilization for war. Despite the anxieties of the War Ministry, the German armies did not collapse in late 1914 for want of weapons or munitions; and, in this respect at least, German soldiers were well supplied for the duration of the conflict. There was no munitions crisis in Germany. A number of other developments contributed to this state of affairs. The War Chemicals Corporation would have been a pointless undertaking had not the chemists Fritz Haber and Robert Bosch worked out a practical process for nitrogen fixation, which liberated German munitions production from a dependence on imported nitrates.6 Another triumph of German chemistry, the development of synthetic cellulose, likewise compensated for the loss of imported cotton for use in munitions. These technological advances came in response to pressures that the Allied blockade had made critical. The same pressures encouraged the merciless exploitation of industrial resources in areas that fell under German control in the fall of 1914.
These corporations were the central feature of Germany’s industrial mobilization, and they made it clear that the war would bring no tampering with the foundations of German capitalism. The state’s cooperation with the private sector was a retort to those who had called for public ownership of war industries. In war, as in peace, the allocation of resources was ultimately to be guided by considerations of profit. Administrative fiat did not supplant market forces; rather, it mediated these forces, for capitalists themselves controlled the administrative apparatus. Consensus prevailed that profit was the surest prop of the war effort. As a leading official in the War Ministry explained, “Exploiting the national emergency to promote private interests does not mean that capitalism is decadent; rather, [this policy] is the logical outcome of capitalism’s basic philosophy and a fruitful field for the employment of capitalist expertise.”7
This thinking underlay industrial mobilization in other belligerent countries as well. Businessmen oversaw the business of war almost everywhere. Germany represented a special case nonetheless. Before the war, cartelization had proceeded here to an extreme unmatched elsewhere in the industrial world. Concentration reigned particularly in those sectors of German heavy industry that were central to war production, and the dynamics of mobilization provided massive encouragement to this trend. A telling sign was that no war corporation with the title “War Coal, Inc.” had to be created. The War Ministry simply turned to the existing coal syndicate, which already functioned as a trust for the entire sector.
By war’s end, other basic sectors such as chemicals, iron and steel, and electricity were likewise in the consolidated control of a few monster concerns, such as Rathenau’s AEG and the chemical companies that several years later merged into I. G. Farben. The industrial barons who presided over these combines were among the wealthiest men in the land, as well as the mightiest. The generals and statesmen who dealt with Emil Kirdorf, who ran the coal syndicate, or with the steel baron August Thyssen, or with Carl Duisberg, the head of the Bayer chemical works, or with Hugo Stinnes (who seemed at times intent on bringing the whole economy under his control), did so – with good reason – in a spirit of deference.
The enterprise of war in Germany thus unfolded in a hybrid institutional framework. In a series of semi-public war corporations, which eventually numbered almost 200, industrialists operated with both the capital and the official sanction of the government. Public agencies were the principal consumers of industry’s produce, as well as the guarantors of industry’s profits. Industrialists in turn served as agents and advisors of these same agencies. Some observers, Rathenau among them, suggested that this condominium represented the basis for a unique “German” or “national socialism,” a new system of industrial relations that would ultimately supplement or supplant the market mechanism with intelligent public planning and allocation, if not public ownership.
Most of the businessmen who sold their services to the public agencies that oversaw industrial mobilization were not interested in socialism of any description. These were hard-headed capitalists, for whom the war represented a very “fruitful field” indeed, with scarcely limited profits and opportunities for growth. Other entrepreneurs, however, found the prospects of war more uncertain. These businessmen were situated further to the peripheries of the war economy and had to supplicate among the powerful for contracts and allocations of vital raw materials – notably for coal, without which virtually no industry could survive in the early twentieth century. Particularly vulnerable were those firms that produced “civilian goods” and could not credibly or profitably retool for military purposes. Vulnerable, too, were the civilians themselves. Their needs for basic goods and services remained a pressing concern, but administrative improvisation did not serve these needs well.
Feeding soldiers and civilians
While the Germans averted a munitions crisis, they were less fortunate in another crucial area. Food was no less essential than weapons to the war effort, for undernourishment threatened both the fighting strength of the armed forces and the physical capacity of civilians at home to support them. Yet the food supply proved intractable to administrative control. Undernourishment became a mass phenomenon, a festering source of demoralization, discontent, and domestic strife.8
Food was more difficult than weapons to mobilize. The reasons for this state of affairs had nothing to do with priorities inspired by German militarism. It was due instead to basic differences of market structure in the two sectors of the economy, as well as to the differential impact of the blockade. The public officials and business leaders who mobilized the armaments sector confronted a small population of well-organized producers, processors, and consumers. The number of mines and other sources of industrial raw materials was no greater than several hundred, while the cartelization of German heavy industry had reduced the major processors to a comparable number of large firms. The army, the near-exclusive consumer of these products, was itself well set up to distribute them to their ultimate users, who fought in the field.
German agriculture was organized in no such fashion. About 30 percent of the population – in excess of 5 million German families – engaged in agriculture on the eve of the war. Most farming was small-scale, as was the processing of farm products. There were, for example, 341 plants that processed sugar beets in Germany in 1914, while butchers, millers, bakers, and agricultural wholesalers were too numerous for anyone but the census-takers to count. There were also more than 65 million German consumers of farm products. Patterns of fragmentation and dispersion made the challenge of regulating agriculture prodigious from the start, as did the mass and variety of the products to be regulated.
But the problem was more complicated. In 1914 Germany was anything but self-sufficient in agriculture. In addition to several hundred thousand farmworkers, who migrated annually from Russian Poland to the grain-growing estates of eastern Germany, the country imported about 25 percent of its food – particularly eggs, dairy products, vegetable oils, fish, and meat. Moreover, much of the fodder consumed by German farm animals came in the form of barley and clover from Russia, maize from Argentina, and oil cake from the United States. Finally, Chilean nitrates provided a significant part of the fertilizers that sustained the yields of German fields.
The outbreak of war introduced a basic new calculus into the production and consumption of food in Germany. Together with the shortage of agricultural labor, the Allied blockade soon led to a drop of about 25 percent in German agricultural production. Some consumers continued to claim a full share of prewar allotments, however. First in this category were the more than 8 million adult males who were under arms by 1915. A comparable number of Germans – most of them women, children, and older men – continued to farm in the fields, where they enjoyed immediate access to the products of their own labor. Together, these two groups, whose consumption claims remained at prewar levels, constituted roughly one-quarter of the population. The remaining 75 percent of the population thus contended for the remaining half of the prewar farm production. The dynamics implied in this equation set in immediately. As the army’s procurement officers purchased massive stocks of food for military use, and as troop movements blocked the delivery by rail of agricultural goods, civilian consumers panicked. Runs on stores in the summer of 1914 resulted in dramatic price increases across the board on staples such as bread, meat, and milk.
Some economists argued that this phenomenon represented but a temporary dislocation, which market forces would eventually repair. Political considerations made the consequences of inaction unacceptable, however. While Germans of means could in fact find abundant supplies of most foodstuffs, the census-takers could estimate that at least a half of the urban population lacked the means to do so. These were lower-class families whose budgets were devoted primarily to food and whose health was immediately imperiled by the sudden rise of prices. Loud protests from these consumers and their political representatives quickly prompted a series of responses.
Like the measures undertaken to mobilize industry, these responses were improvised, but they had unanticipated results. They encountered a complex, fragmented, yet interdependent market. Within weeks of the war’s beginning city governments and other local authorities began independently to impose price ceilings on bread, milk, potatoes, and other staples that were sold within their jurisdictions. Farmers needed no coaxing to exploit the resulting price differentials and to remove their goods to local markets that offered higher prices. In an effort to repair the chaos of this competition, the Bundesrat empowered the federal Office of the Interior in October to fix general price levels for the same staples. In response to these prices, which the government set low in order to pacify consumers, farmers turned their attentions to products that remained unregulated. Capping the price of milk, for example, resulted quickly in a milk shortage, as farmers either switched to producing butter and cheese, whose prices were not regulated (yet), or slaughtered their livestock for sale. Price controls on bread likewise produced shortages, as farmers withheld grains to use as fodder for livestock.
If this hapless intervention suggested administrative incomprehension of the problem, the events of the first three months of 1915 stand as a monument of bureaucratic clumsiness. It is not clear which agency concluded that pigs represented “co-eaters,” whose appetites for fodder grains threatened the supply of bread for humans. In any case, the government thereupon decreed the great “pig massacre” (Schweinemord), which claimed over 9 million victims. The slaughter produ
ced a momentary glut of pork on the market, but it did nothing to relieve the grain shortage. The gravest failing of the Schweinemord was to ignore the delicate ecology that bound humans and animals in a community of production. Pigs were not only consumers of fodder but also producers of fertilizer; and their departure from the fields had dire long-term consequences.
Similar miscalculations plagued early efforts to regulate the food supply in every sector. Price controls were fixed haphazardly but at ever higher levels. Their immediate impact was to drive foodstuffs from the market, for farmers, too, were hard-headed capitalists who responded to demand as it registered in ever higher prices – whether for meats, potatoes, vegetables, or fruits. A general increase in food prices was the natural consequence, as price ceilings rose to lure out supplies. Nor did demand abate, as agencies of local government joined the army’s procurement officers in buying up large stocks of food for their constituents. The rise of prices in the city of Karlsruhe betokened the strains that these pressures put on consumers throughout the country (see Table 1).