World War I: National Economies--Germany

German World War I metal drives
Figure 1.--These German children are collecting bronze and other metal household goods for use in the war effort. The photograph as taken November 19, 1915. Germany before the War imported most of the raw materials needed by industry and much of the food needed by urban workers.

The Germans steamrolled through Belgium (August 1914), but the French stand on the Marne (September 1914) meant that the War would not be a quick one and ultimately it would be settled by the economies of the various national economies. Unfortunately for the Germans, the military advantage they had at the inception of the War was undermined by substantial economic weaknesses and their major ally, Austria-Hungary was even weaker. And if this was not bad enough, policies pursued by both countries as well as Allied naval power only weakened their economies and undermined their war effort as the War progressed. Germany had the largest industrial power in Europe, permitting it to equip its very professional army which launched the War by invading neutral Belgium. The whole German war plan was to avoid the French border defenses by striking through Belgium. The objective was to envelop Paris as they had done in the Franco-Prussian War (1870), winning the War in a few weeks of fighting. They came very close to doing just that. The French victory on the Marne proved to be a disaster for Germany. While Germany had the largest industrial base, Britain and France combined had a larger industrial capacity. And there were serious weaknesss to the German war economy. Germany had few natural resources. German industry not only had to import raw materials, but food to feed its industrial workers. And the Allies implemented a naval blockade to cut off the needed imports. As a result German industrial output declined while British industry increased production as the War progressed. The economic inbalance did not impair German military performance at first, but gradually undercut both arms production and eventually civilian morale. The Germans even before defeating the Russians decided to add the United States to the beligerants it faced. Pushed by economic declines, the Kaiser decided to stake everything on one final massive offensive in the West.

German Economy

Germany at the time of World War I had largest and most efficent industrial economy in Europe. The Industrial Revolution began in Britain (mid-18th century). Germany did not begin to industrialize until well after the Napleonic Wars (1799-18-15). The German states in the 18th century inclusing Prussia was aargely agricultural country with a very small industrial base compared to Britain and France. We begin to see substanyial industrial activity (1850s). Even before unification, the Germans began forming customs unions to create a large donestic market. The process omce begun, however, moved very quickly. The German economy underwent an astonisly rapid economic transformation from agriculture to industry. This process prived different than the much slower industrialization of Britain. British industrialization was virtually entirely the result of private invetors pursuing their own personal intersts without Government direction. This was not the case in Germany. The Prussian state and subsequently the Imperial Government provide state financing to direct industrial development in ways that would support the German Army. The German railways system developed with military needs in mind. Germany was thus a recently developed European superpower. Industrial development and German unification (1871) made Germany the single most poweful European country. A major factor in Germany;s industrial deelopment was the country's emphasis on steel promoted by the Imperial Government. Resources from Alsace- Lorraine, especially iron ore, gained in the Frnco-Prussian ar (1870-71) expanded Germany's steel manufcturing capacity. Germany was the largest European steel producer (late-19th century) and this supported the development of many other indudries. Industrialkization brought increasing rivalry with Britain (1890s onwards). German and British manufactures were competing for markets around the world. German merchant ships also competed with Britain's carrying trade. While cometing with each other, they were all each other's best customer. [Papayoanou, p. 42.]

Pre-War Economic Planning

As far as we know, there was no pre-War economic planning. The Germans had participated in the European arms race and wre prepared militarily. No real thought was given to economic preparations. War was aanger, but few Europeans thought it was likely. And economic prparations like military preprations would have been costly. The German economy was heavily reliant on foreign trade. It was thus in no position to conduct an extended war. The country did not have substantial stocks of guns or ammunition or the raw matetials to manufacture them. Part of the reason for the lack of economic planning was that most people simply dids not think a najor Eiropen war was possible. Many analysts believe that European economies had become so interdependent that war was no longer possible. German unification had meant that most of Europe was controlled by three great empires (Austria-Hungary, Germany, and Russia). This of course simplied trade matters. The optimistic observatios proved terribly wrong. World War I proved to be a war of epic proportions. It desimated an entire generation. It also demolished the evolving European economic system.

Outbreak of War (August 1914)

Even after the assaination of the Austrian Archduke FRanz Ferdinand by a Bosnian-Serbian terrorist, German officals thought that the affair would be another crisis confined to the Balkans. There had been figting in the Balkans in the years immediately preceeding the assaination. The Austro-Hungarian Empire set about to punish Serbia for supporting terroirism. Then the whole affair began to spin out of control. The Russians decided to support Serbia. This changed the situation entirely. It was no longer just a regional matter. Kaiser Wilhelm decided to support his Austro-Hungarian ally. Audtria Hungary would have never dared challenge Russia on its own. Armed with German backing, howevcer, it decided to do just that. But of course the affir did not end there. Russia had a treatu with France. And Germany's decision to attack France through Belgium brough the British into the deceloping war. Germany was the largest indusrial power in Europe, permitting it to equip its very professional army which launched the War by invading neutral Belgium. The German war plan, the Schlieffen Pln, was designed to avoid the powerfu;l French border defenses by striking through Belgium. The objective was to envelop Paris as they had done in the Franco-Prussian War (1870), winning the War in a few weeks of fighting.

German War Plan (August-September 1914)

The Germans came very close to sucessfully executing the Schlieffen Plan. The valiant resistance of the small Belgian Army and the rapid mobilization of the small, but highly professional British Expeditionary Force (BEF) unexpectedly slowed the German advance. And the Russian adherence to its treaty commitments with France resulting in a unexpectedly early offensive in the Eat. The Germans were forced to transfer units from the Western offenive yo defnd East Prussia. Even so, the Germans steamrolled through Belgium (August 1914) and came very close to achieving their objectives. The French victory on the Marne proved to be a disaster for Germany.

Stalemate

The French stand on the Marne (September 1914) meant that the War would not be a quick one and ultimately it would be settled by the economies of the various national economies. The War in the West shifted from awar of movenent to static trench warfare. An extensive systm of trenches were rapidly built from the Belgian North Sea coast to the Swiss border. This was a development that wa not in Germany's favor. Unfortunately for the Germans, the military advantage they had at the inception of the War was undermined by substantial economic weaknesses and their major ally, Austria-Hungary was even weaker.

Allied War Policies

Allied naval power and the naval blockade of the Central Powers gradually weakened the economies of the Central Powers, especially Germany.

Economic Mobilization

Germany had detailed plans for mobilizing the Army in case of wat, but no plan for mobilizing the economy to support the war effort. There were no stockpiles of food or critical raw materials needed by industry. The country rapidly mobilized its civilian economy for the War effort, but it meant improvization. All the major political sectors supported the war at first, including the Socialists, although they were divided. An important Jewish industrialist, Walter Rathenau, held important posts in the Raw Materials Department of the War Ministry. He became chairman of Allgemeine Elektrizitäts-Gesellschaft (AEG), an electrical-engineering company, when his father passed away (1915). Rathenau became a key force in German economic planning during the War. He convinced the War Ministry to create the (riegsrohstoffabteilung (War Raw Materials Department--KRA). Rathenau directed theKRA (August 1914 to March 1915). During this time he developed the basic German war-time economic policies and procedures. He recruited a staff from industry. The KRA primarily focused on raw shortages which developed as a result of the British naval blockade. Thgey began seizing supplies from from occupied Belgium and France. The KJRA set prices and controlled allocations war industries. While Germany did not have domestic resources to supply its industry for an extended period, it did have the world's most imprtant chenical industry. The KRA and other Government agencies set its chemists at work finding replacements (ersatz products) for materials needed by both industry and the civilian population. German chemists discovered replacements for gunpowder ingredients, rubber, and the use of oil to reduce coal consumption. [Ryder, p. 154.] Scientists were given a range of other tasks to research. One result was poison gas (1915). The KRA experienced many inefficiencies caused by the complexity of mnanaging a huge modern economy. Competing businessmen, insustrialists, and government agencies tried to evade KRA regulations. [Willianson]

Economic Strain

German expenditures during World War I totaled some $38 billion, only slightly more than Britain. The German economy suffered increasing strain as the war progressed.

German Economic Policies

Policies pursued by both Germany and Austria-Hungary avtually undermined their war effort as the War progressed. The German Imperial government made huge errors that ultimately serious undrmined their war effort. The government gradually control of both goods and production. Even the Army would seize control of the economy.

Finances

Europe at the time of World War I was the center of world finance. European bankers were financing projects around the world. The three important financial powers of Europe were Britain, France, and Germany. Here Germany was in third place. While Germany was the largest of the three powers in both population and economic poyput, avavailable capital was primsrly invested in the doestic market. And the relative lare entry of Germany in the colonization process meant tht the colonies it did acquire were of relatively limited economic importance. Britain was the center of world finance. Estimates suggest that some 60 percent of world trade was financed through British banks and othger financial institutions. Both Britin and France had very substantial overseas investments. This inbalance was something that German diplomatic officals were concerned about before the War. They had only limited success in promoting Gernan babkers to invest abroad. The Bagdad Railway prohect required French participation. Beritain matched Grman investment in China. The French were able to affect German financial markets during the Second Moroccan Crisis (1911). [Horn, p.7.] French industry had fallen behind the German, but not French the French finamcia; system. The Imperial German Government expecting a short, decisive war. They made no attempt to meet the huge costs of the War by increasing taxes. Rather it began borrowing money. Imperial officials wre sure of victory and believed that they could pay for the War by exacting taxes from the defeated countries in the form of reparations. This was what they had done with France after the Franco-Prussian War (1870-71). It seemed the easiest way to pay for this War as the Germans were sure they would win the War. (After the War, ironically the Germans were outraged that reparations were assessed on them.) The Germans from the beginning of the War dimissed the United States as a force to be reconned with. There were various reasons for thius, including America's lack of a substantial standing army and its mixed ethnic composition. But as in other areas, Imperial German officials failed to understand the importance of American financial resources. Total War spending by the Imperial Government has been estimated at 170 billion marks. Taxes accounted for only about 8 percent of that total. More than 90 percent was borrowed from German banks and private citizens. The Reichstag passed a series of war credit bills. The Government sponsored nine national war loan drives (Kriegsanleihe) drives asking for the financial support of the citizenry. Most of the German bonds had a cupon rate of 5 percent, redeemable over a 10-year period, in semi-annual payments. These loans raised only 10 billion marks. [Chickering, p. 105.] We have, however, seen different figures. The German Government found it almost impossible to borrow money from foreign banks. The major potental lender was the United States, but American ties with Britain and German actions like invading Bneutral Belgium and the sinister image of U-boats made American loans impossible. The German Government attempted and failed to flot a major war loan on Wall Street (1914). [Chickering, p. 104.] The Germans were able to borrow money to cover about two thirds of the cost of the War. The Imperial Govrnment's debt rose from only 5 billion marks before the War to 156 billion by the end of the War. Most of the purcharsrs of the bonds issued to banks and civilians lost their principal after the War in the hyperinflation of 1923.

Raw Materials

While Germany had the largest industrial base, Britain and France combined had a larger industrial capacity. And there were serious weaknesss to the German war economy. Germany had few natural resources. As a result German industrial output declined while British industry increased production as the War progressed.

Food

German industry not only had to import raw materials, but food to feed its industrial workers. And the Allies implemented a naval blockade to cut off the needed imports. German officials focused primarily on industrial production. Less attention was given to the needs of the less glamerous agricultural sector. Large numbers of men from rural areas were drafted. Officials assumed that the war would soon be short and conscripts could be reyurned to the rural work force. Significant problems soon developed. The massive losses on the battlefield mean that more and more men had to be conscripted. This further depleted the rural workforce. And the Royal Navy blockade made it impossible to import food. Germany unlike Britain could not import food from America and the Dominions. In addition, fertilizer imports were also cut off. German factories were used for the production of munitions. The shortage of fertilizer resulted in a sharp decline in agricultural productivity. Food was not the only commodity in short supply. Shortages developed for fuel (coal) as well as clothing and footwear. Food shortages were, however, most keenly felt. Clothing purchases could be deferred. Food was a different matter. Of course the War did not end quickly and production short falls began to cause serious food shortages at both the front and on the domestic market. We do not yet have details on the response of the German Government to the developing shortages. The German soldiers at the front were affected by food shortages. German troops were chronically undernourished affecting their ability to conduct operations. There are reports that when they managed to seize Allied food stocks, they would stop gorge themselves, in some instances impairing offensive operations. This also caused the soldiers to engage in looting. The situation at home was even worse. Many Germans by the time the war ended were close to starvation.

Labor

Labor proved to be another major problems for the Germans during World War I. The Germans efficently called up reservatists as the decesion was made to go to war. The reservistscam from indiciduals employed in the economy. For a short war that would have been no problem, but the French stand at the Marne mean that the War would not be a short one. Mass conscription and the subsequent annual call-ups meant that major adjustments had to be made and that increasing strain was placed on the German economy. Millions of men conscripted for military service were premanetly removed from the labor force. Battle field deaths and injuries called for expanded call-ups. Those conscripted or voluntering entered the military for the duration. Only the wounded came home and if they recovered, they were returned to the front. Thise more severely wounded were not, but they were also in most cases not fit enough for full time employment. The shortage of farmers and farm labor began to affect harvests and food production. Factory managers had to fill the positions of millions of conscripted men. They opened up jobs to the individuals left at home. This included primarily two groups: youths and women. [Herwig] Each had different experiences in the work place. And the experiences were verydifferent than those in Allied countries, especially America. While the Germans did effectively fill factory jobs, farm labor became a major problem. Industrial production declined, but this appears to have been primarily due to raw material shortages. Declining agricultural harvests also affected worker productivity as well as civilian morale. This was especially felt by the German working-class and those of modest means.

Generals Take Control

Germany began World War as a parlimentary democracy, albeit one where the Kaiser and his ministers had great influence. The dreadful battle of Verdun led by General Falkenhayn had brought the French Army close to collapse. It also was a terrible blood letting for the German Army. Falkenhayn was replaced with Hindenburg and Lundendorf who were achieving victory on the Eastern Front. The new German High Command after great victoies in the East determined to achieve victory in the West, endorsed the renewal of unrestricted sunmarine warfare to force Britain out of the War. Chancellor Bethmann-Hollweg oposed this, convinced it would bring America into the War. The generals and admirals prevailed and commenced unrestricted submarine warfare (February 1, 1917). As Bethmann-Hollweg feared, America declared war on Germany (April 6). And it was soon clear that the new U-boat effort would not succeed in cutting Britain's sea lanes. Frustrated deputies in the Reichstag began working on an initiative to end the War. Social Denocratic and Progressive deputirs joined the Center party to pass a declaration for the government to fight a "purely defensive war without any thought of conquest." This was part of the Peace Resolutions which were introduced by Center Party deputy Matthias Erzberger and passed in the house. General Ludendorfff was outraged. He demanded that Bethmann-Hollweg resign and replaced him with Georg Michaelis, firmly in the military camp. He simply ignored the Peace Resolutions. From this point to the end of the War, the Reichstag was irelevant. Germany was governed by a military dictatorship over seen by Hindenburg and Ludendorff. This also included absolute control of the German economy. And they were determined to seek a military decesion in the west. They rejected peace initiatives offered by Pope Benedict. The collapse of the Russian Army offered the opportunity for a massive German offensive in the west.

Battlefield Impact

The economic inbalance did not impair German military performance at first, but gradually undercut both arms production.

Civilian Morale

The terrible battlefield lossess and injuries brought terrible suffering to individual families. It was food shortages, hiweve, tht had the greatest impact on civilian mporale. Shortages especially food shortages eventually undermined civilian morale. We note food riots fairly earky in the War (1916). The 'Turnip Winter' was a particularly shattering experience for many Germans (1917-17). Turnips before the War were primarily used for animal fodder. Turnips had less food value than otatoes--the German fod staple. Families had to rely on turnips and meat and even pototatoes becne difficult to obtain. The Government and charities set up thousands of soup kitchens to feed hungry people. Many complained that the farmers were keeping food for themselves. This was in part true, but the major problem as the shortage of farm labor. Strains on the rail system and shorages of fertilizer were also problems. It was not only the civilians that sufferd. The Army had to cut the rations for soldiers. One source suggests that nearly 0.5 million German civilisns died from causes related to malnutrition. [Howard, p. 166.] The impact on civilisn morale was devestaing.

America

The Germans even before defeating the Russians decided to add the United States to the beligerants it faced. Pushed by economic declines, the Kaiser decided to stake everything on one final massive offensive in the West.

Sources

Chickering, Roger. Imperial Germany and the Great War, 1914–19182nd ed. (Cambridge: Cambridge University Press, 2004).

Herwig, H. The First World War: Germany and Austria-Hungary 1914-1918 (Bloomsbury Academic, 1996).

Horn, Martin. Britain, France, and the Financing of the First World War

Howard, N.P. "The Social and Political Consequences of the Allied Food Blockade of Germany, 1918–19," German History (1993) Vol. 11, No. 2, pp 161–88. The situation grew worse as the progressed. Over 270,000 excess deaths were reported in 1918 and surely would have been even worse hd the War continued in to 1919. .

Papayoanou, Paul A. "Interdependence, Institutions, and the Balance of Power: Britain, Germany, and World War I," International Security Vol. 20, No. 4 (Spring 1996), pp. 42-76.

Ryder, A. J. Twentieth Century Germany From Bismarck to Brandt (New York: Columbia University Press, 1973).

Williamson, D.G. "Walther Rathenau and the K.R.A. August 1914-March 1915," Zeitschrift für Unternehmensgeschichte (1978) Issue 11, pp 118-36.







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