Chapter 67: The Iron Chancellor & Rise of Germany
The Second Industrial Revolution more or less coincided with the lifespan of the German Empire. From 1871 to 1914, the new nation adopted a fairly democratic constitution, saw massive population growth, and experienced extraordinary economic development. Along the way, they created innovative new goods and services, as well as worker protections unseen anywhere else in the world.
It was largely thanks to the leadership of the Iron Chancellor, Otto von Bismarck. But after his fall from high politics, the empire redirected its gains toward militarization. And by 1918, that program would prove to be the empire’s doom.
Sources for this episode include:
“AEG’s Journey from Global Electrics Giant to Major Appliance Brand.” Electrolux Group. https://www.electroluxgroup.com/en/aegs-journey-from-global-electrics-giant-to-major-appliance-brand-28256
Barkin, Kenneth. “Otto von Bismarck: German chancellor and prime minister.” Encyclopaedia Britannica. Last updated: 5 Feb 2024. https://www.britannica.com/biography/Otto-von-Bismarck
Headlam, James Wycliffe. Bismarck and the Foundation of the German Empire. G.P. Putnam's Sons. 1899.
“History of Bayer.” Bayer Global. Last updated: 19 Dec 2023. https://www.bayer.com/en/history/history
Hoyer, Katja. Blood and Iron: The Rise and Fall of the German Empire, 1871-1918. History Press. 2021.
Tilly, Richard H. and Michael Kopsidis. From Old Regime to Industrial State: A History of German Industrialization from the Eighteenth Century to World War I. University of Chicago Press. 2020.
Trueman, C.N. “The Naval Race 1906 to 1914.” The History Learning Site. 31 Mar 2015. https://www.historylearningsite.co.uk/world-war-one/causes-of-world-war-one/the-naval-race-1906-to-1914/
Full Transcript
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On November 7, 1918, Friedrich Ebert, leader of the German Social Democratic Party – the SPD – met with the liberal Imperial Chancellor, Prince Maximilian von Baden.
There was much to discuss.
For one thing, it was pretty clear their country was about to lose the Great War. Their allies – Austria-Hungary and the Ottoman Empire – were collapsing militarily and politically. Their enemies – now joined by a newcomer to the fight, the United States – had been pushing the lines of the Western Front back for nearly a hundred days. With their reserves used up, the German command scrambled to figure out how to manage the coming armistice – especially with the Allied Powers demanding regime change for the Central Powers as a condition for peace.
For another thing, revolution had broken out. What started as a mutiny in the German Navy had spread to the streets of the major cities. Socialist revolutionaries were taking up arms against the Reich, seeking to do here what the Bolsheviks had accomplished the previous year in Russia.
But the topic that most needed discussion – the topic that would help resolve so many other problems facing the country – was the abdication of the Kaiser.
Wilhelm II had held the throne for 30 years by this point. And although he understood his time as emperor would be ending, he hoped to retain his ancestral claims to Prussia – even though the constitution did not allow someone to wear one crown without the other. But he would need to be convinced to drop his claims and title, and to go into exile.
Even though Wilhelm had not yet agreed to it, Prince Maximilian announced the abdication on November 9th. He then announced his own resignation as Chancellor, so that Ebert – a moderate socialist – could effectively put down the socialist uprising consuming the country. Two days later, Ebert accepted an armistice agreement with the Allied Powers. Over the next year, he would have to impose a brutal crackdown at home, accept the harsh demands imposed by the Treaty of Versailles, and oversee the transition of the German state from an empire to a republic.
It was a spectacular collapse of a great and growing power. Established less than a half century earlier, the lifetime of the German Empire coincided almost exactly with the duration of the Second Industrial Revolution. And the Second Industrial Revolution played a key role in the success of that empire. Germany had approached the process of industrialization differently than other countries, but by many measures, it seemed to be the country most on track for political, economic, and military hegemony.
Yet, the seeds of so many the of crises that would eventually destroy the empire were planted earlier in this period – many of them by the creator of the empire, our old friend, Otto von Bismarck.
Decades earlier, Bismarck had predicted that Germany would not be forged by “speeches and majority decisions” but by “iron and blood.” Indeed, in the Second Industrial Revolution, Germany was a rising power, forged in iron – until it finally fell, drowning in blood.
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This is the Industrial Revolutions
Chapter 67: The Iron Chancellor & Rise of Germany
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Hello, everyone. Let’s cover a couple administrative notes before we get going.
First of all, I hope you’ve been enjoying the several bonus episodes that have come out recently. Back in December, I spoke with blogger Ethan Johnson about the history of coin-op machines. Then in February, I interviewed historian Anton Howes about how the transition to coal power in the 18th and 19th centuries can inform our current energy transition today. And finally, I spoke with Professor Joseph Sassoon about his latest book on the Sassoon family – distant relatives of his who built commercial shipping empires in the 1800s.
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Otto Eduard Leopold von Bismarck was born at his family’s estate in Schönhausen in 1815. His father, a former Prussian military officer, hailed from a relatively modest Junker family. His mother, meanwhile, came from an educated, petty bourgeois family that had risen to the highest ranks of the Prussian bureaucracy.
At the time of his birth, the Congress of Vienna was underway – where our old friend, Austrian Foreign Minister Klemens von Metternich, was engineering a balance of power in Europe. It was in Metternich’s Europe that Bismarck came of age, and it was this philosophy of balancing the European powers that Bismarck would work so diligently to maintain.
Not long after he was born, the family moved to an estate in eastern Pomerania – today it would be found in Poland – where feudal traditions were not weakening as much as they were elsewhere in Europe. There they oversaw peasants who farmed the land, and they went hunting in the extensive forests surrounding them.
It seems that young Otto loved these childhood experiences. The same couldn't be said of his cosmopolitan mother. Bored of provincial life and ambitious for her son’s future, she moved with Otto to Berlin when he was 6 or 7 to begin his schooling. Although he performed well academically and seemed to be a well-mannered boy, he showed little love for learning or for life in the Prussian capital.
Determined for her son to have a career in diplomatic service, she pushed Otto to study law. He enrolled at the University of Göttingen in Hanover. But there he struggled with his studies as he focused more on his jovial social life, which included lots of athletic competitions, beer drinking, womanizing, and fighting – often with swords.
Nevertheless, he passed the Law Exam and was hired into the Prussian civil service, doing rigid, boring work that he absolutely hated. After his mother died in 1839, he quit to return to his father’s estate and live the life of a country gentleman. By 1847 he married, became a reserve officer in the army, deepened in his religious convictions, and joined the new Prussian Parliament – the Landtag – where he gained a reputation as a backwoods reactionary.
It was the Revolution of 1848 that propelled the 33-year-old Bismarck toward a career in high politics, something we covered back in Chapter 47.
Following those tumultuous years, he was appointed to be the King as Prussia’s representative to the German Confederation in Frankfurt, as well as to Prussia’s House of Lords. These were the years when he really made a name for himself as a big personality and political showman. Yet, in his work, his attitudes became more measured and pragmatic. He was subsequently made ambassador to Russia and later to France. Finally, in September 1862, he was made Prussia’s Foreign Minister and Minister President – the highest political office in the kingdom.
The 1860s would prove to be the most monumental decade of his career. He consolidated his power and tactfully led Prussia through the Wars of German Unification (Shout out Chapter 53!). Finally, with Wilhem I on the imperial throne, Bismarck would rise even further. He was made a prince of the empire and appointed its first Chancellor. Between this and the Prussian offices he still held, Bismarck had become one of the most powerful men in the world.
With Denmark, Austria, and France defeated, and the new Reich established, Bismarck pursued peace and a new balance of power on the Continent.
In particular, he needed to isolate France. The French were absolutely livid about the loss of Alsace-Lorraine (shout out last time) and would consider the German Empire their mortal enemy moving forward. So, Bismarck looked east, re-establishing the old Holy Alliance with the Russian and Austro-Hungarian Empires. He also worked out an alliance with the new Kingdom of Italy.
But the balance his diplomacy achieved was always delicate.
To ward of the threat of a Russo-French alliance, he covertly supported British colonial efforts in Asia, thus drawing Russian troops away from Germany’s boarders. He established treaties of mutual defense, but he could not make them permanent in the ever-shifting web of European interests. And he struggled with what to do about the Balkans, where the Austrians, Russians, and Ottomans were all competing for power. And due to these shortcomings, the peace Bismarck achieved would not – could not – last forever. The seeds of a future Great War were sown.
Still, such a war could be delayed if the great powers focused less on their local disagreements and more on the New Imperialism of the age. These were the days when Western powers carved up so much of the world for renewed colonization. Nowhere was this more egregious than in the Scramble for Africa, formalized at the Berlin Conference that Bismarck organized in 1884 to ‘85.
To be sure, he was not a big believer in colonialism. As he put it:
“On the one hand, the benefits which one might derive from colonies for the Motherland’s trade and industry are mostly illusory. Then, the costs which the foundation, maintenance, and especially the establishment of claims to colonies entail very often exceed the utility which the Motherland gets from them, entirely apart from the fact that it is difficult to justify placing significant tax burdens on the whole nation for the benefit of individual commercial and industrial interests. On the other hand, is not sufficiently developed to be able to undertake the task of firmly protecting distant states.”
Ever the political pragmatist though, Bismarck allowed the German colonial project to proceed, knowing that the German people wanted it for international prestige, and that colonial wars helped keep the great powers from turning on each other in Europe.
With his diplomatic efforts largely successful, and international peace secure for the time being, Bismarck could turn his new empire toward internal development and cohesion – socially, politically, and economically.
For starters, the new Reich needed a constitution. Known as Bismarck’s Imperial Constitution, it was designed by Bismarck himself and would survive until the end of the First World War.
At the top, of course, was the Kaiser, who served as Commander-in-Chief, made appointments to imperial offices, signed laws, and convened the legislative chambers.
The first chamber, the Bundesrat, was similar to the how the U.S. Senate originally functioned. Its members were elected by the diets of the 25 different German states. The second chamber was the Reichstag, which was the body representing the German people. They were elected by equal, universal male suffrage with a secret ballot. It sounds surprisingly democratic for the conservative Bismarck, but – remember – Bismarck knew that Germany was still a largely rural country, and he believed that rural Germans would vote more in line with their Junker neighbors and landlords than with the liberal elites and radical proletarians of the cities. In other words, fuller democracy actually enhanced the power of the traditional ruling class: the German gentry. Now, all that being said, most German states did have a plural vote arrangement for their local parliaments, giving greater power to higher tax-paying men.
Leading the executive was the Imperial Chancellor, appointed by the emperor. Obviously, this was the office made for Bismarck. The Chancellor recommended the other ministerial appointments and presided over the Bundesrat. This gave him a wide berth of power to direct legislation and carry it out. Plus, as foreign minister of Prussia, Bismarck would also be able to conduct the foreign policy of the empire. And within the empire, he sought to Germanize it.
But he pursued a version of nationalism that was very different than the liberal kind of nationalism of the past. Bismarck’s views of the project were consistent with his own aspirations: A nation led by a Junker elite; Prussian, Protestant, and conservative in nature. To these ends, he sought to suppress the aspirations of French-speakers and Poles, Catholics and Jews, liberals and socialists. It required him to play an ever-evolving game of chess, forming alliances with his opponents at times to take down other opponents. And, as I’ve said before, he was the master of the art of Realpolitik.
Perhaps the most famous example of this was the Kulturkampf – a seven-year culture war Bismarck’s government waged on the Roman Catholic Church.
In 1870, the First Vatican Council had declared the concept of papal infallibility. (Shout out Chapter 53 again.) With Catholics making up more than a third of the new German Empire, and Catholic Church rights and powers cooked into the politics of many localities, the devoutly-Protestant Bismarck feared the Pope could create disunity within the newborn nation.
The policies of the Kulturkampf aimed to dislodge the Church from civic life. Among other things, they forbid priests from preaching on political issues; removed Church oversight of schools; banned the Jesuit order; required civil registration of marriages, births, and deaths; assumed state administration of vacant bishoprics; and more.
While obviously targeting the Roman Catholic Church – resulting in significant protests among German Catholics – these laws did apply to the Protestant churches as well. Thus, Germany was secularized from the outset. Stamping out sectarianism was necessary for the project of nationalism. And this made Bismarck some important allies among his old enemies in the National Liberal Party. Now supporting Bismarck, the National Liberals won on other issues important to them too, like free trade and free market policies.
But during the same years as the Kulturkampf, Germany faced that “Long Depression” which was also rocking the U.S., U.K., and other countries. Many across Europe were blaming it on the liberal economic ideas of the age. And Bismarck was all too happy to adjust accordingly, especially as he began to fear secularization was going too far.
So, as the Kulturkampf was winding down in the late 1870s, Bismarck switched his alliances. Now siding with the Center Party (the party representing German Catholics) he turned against the liberals.
And we are now at the point in our story where we need to talk about the extraordinary economic developments of the German Empire.
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We have covered the origins of German industrialization in a few previous chapters. You’ll remember that (due the fragmentation of the country) the process was mostly concentrated in a few small pockets of Germany – especially the Rhineland, Ruhr Valley and Saxony. Among other things, these were the places where property rights and other capitalist institutions were strongest. Plus, they had good access to coal and the agricultural goods needed to sustain non-agrarian labor. Thus, merchant manufacturers popped up, began trading with international markets, and gradually replaced the guild system and other economic realities of the ancien regime.
Still, industrial development moved slowly, hindered by cultural and political forces. At the same time, agricultural productivity grew significantly. With more food being produced, the population grew. Of course, without there being enough jobs, much of the excess population emigrated to the United States. But the experiences of the Napoleonic regimes of the early 19th Century convinced many that liberal reforms would improve life. And the Zollverein subsequently boosted trade within Germany.
It was in the aftermath of the 1848 revolutions that industrialization really took off. Transportation of goods improved, the financial mechanisms for investment came into being, and heavy industry grew thanks to firms like that of our old friend, Alfred Krupp.
The railroads were especially important. Much like in postbellum America, Germany’s railroad age fostered a broader sense of national identity, an explosion of freight shipping, and increased demand for steel and iron production. The engineering and mechanics sector of the economy grew at a whopping 17% per year from 1850 to 1857, as skilled workers rushed to take advantage of steam power technology. At the end of the 1840s, Germany only produced about 25% of the steam engines it used. By the 1860s, the figure was over 85%. Coal output surged as a result as well. And engineering employment roughly doubled by the time the Second Industrial Revolution began.
In fact, between 1849 and 1875, employment grew at about the same rate as the population. Many of the new people being born were absorbed into industrial employment, rather than the ranks of emigrants. And for those who did still emigrate, they were replaced by foreign workers searching for opportunity in Germany. (Mostly they found it in agrarian labor, since an estimated 1 million Germans left the agricultural sector during this period.)
It was an era of upward mobility. Poor, landless laborers left rural villages and moved into the growing cities, where they found work in lesser-skilled industries like textiles and construction. Those who grew up in the cities, meanwhile, often found work in higher-paying positions, often in heavy industry. Still others took advantage of the country’s excellent education system and went into engineering. And across all these sectors, not only did employment grow, but wages steadily grew too.
What’s more, productivity grew. Grain imports from the U.S. and Russia – absolutely booming during these years – led more German farms to convert to livestock, especially meat and dairy products, which could be sold locally. Thus, protein consumption increased. And as it did, so did the country’s muscle power, allowing workers to churn out ever higher quantities of coal, iron, etc. And the Gold Rushes in faraway lands – as well as the reparations forced on France following the 1871 war – increased the money supply, allowing financiers to invest in new technologies, which further helped speed up or improve production. Some examples would be the technologies developed by our old friends, the Siemens brothers.
This pace of development only increased further as the German Empire was established at the start of the Second Industrial Revolution. The early economic success of the empire was credited to the empire’s founders, namely the new Kaiser and the Iron Chancellor. Thus, this period was known as the Gründerzeit, or “Founders Period”.
Three industries, in particular, defined the German success story: Metallurgy, chemicals, and machine power.
We’ve already talked about Germany’s boom of iron and steel production. That would continue through the end of the 19th Century, as the railroads continued to expand. Not only did the railroads provide demand for iron and steel production, they created new linkages between mines, metal processing plants, and mechanical engineering shops – not only in terms of physical freight transport, but also in terms of knowledge spillover and transfer between industries.
Again, this heavy industry was most concentrated in the Rhineland, Ruhr Valley, and Saxony, as well as around Berlin. Breakthroughs like the Bessemer converter, the Siemens-Martin process, and the Thomas-Gilchrist adaptation – all of which we discussed in Chapter 59 – helped them surpass British levels of steel production. In the early 1870s, the British produced four times as much pig iron as Germany. 30 years later, German blast furnaces could crank out 60% more pig iron than the British ones could.
In 1907, the Krupp company employed some 64,000 workers, and they were hardly alone in the market. Competitors like the Bochumer Association and GHH also had huge operations, employing tens of thousands of workers. Iron and steel became major German exports by the turn of the century – so much so, that they undermined the development of heavy industry in the countries they sold to.
But while the Americans still held a solid lead over Germany, in terms of metallurgical production, the industry that set the Germans apart was chemicals.
Like with many of our stories, it began with textiles. Now, Germany would never match the output of British textile mills – in fact, no other country would until well into the 20th Century. But in Germany, there was a growing number of innovations in the dyeing of fabrics.
German dyestuff firms grew spectacularly in the late 19th Century. Among them was the Baden Aniline and Soda Factory. Known by its German initials, BASF, it is the world’s largest chemicals producer even now. Founded by Friedrich Engelhorn in Mannheim in 1865, it invented and mass-produced several new red and blue dyes. And while these dyes dominated their portfolio into the 1900s, they also invested in new ways to produce soda ash, sulfuric acid, and eventually ammonia. Other firms, like Hoechst and Agfa, had similar stories.
But perhaps the most famous of these firms today is Bayer. Founded by Friederich Bayer and Johann Friederich Weskott in Barmen (part of modern-day Wuppertal) in 1863, the firm focused primarily on synthetic dyes for its first 20 years. But, after becoming a joint stock company in 1881, they added a research division led by one Carl Duisberg, and expanded into other areas – most importantly, pharmaceuticals. In 1899, after about two years of research, they introduced the “drug of the century” to the market: Aspirin. Used to reduce pains, fevers, and to prevent all kinds of medical problems, Aspirin was seen as a miracle drug across the world. And Bayer massively boosted its brand by stamping the company name – both horizontally and vertically, with “Y” as the common letter – on every pill.
Based primarily in Berlin and the modern state of Rheinland-Pfalz, and a bit around Düsseldorf, the German chemicals industry was a fiercely competitive and innovative sector of the economy. Between 1880 and 1913, production expanded at a rate of 6.5% per year. Employment in the industry more than tripled over the life of the Reich, with more than 150,000 jobs by 1907. The historian David Landes called this “Imperial Germany’s greatest industrial achievement.” He noted that the German chemicals industry further developed for the production of things like celluloid film and – most ominously for what was to come – explosives.
Finally, there was that thing Germany is so famous for: Engineering. Even today, German engineering is seen by many as the finest in the world. Based mostly in Berlin, the engineering sector grew the economy everywhere. Not only did it produce all kinds of new machine tools for manufacturing processes, Germany also became a world leader in electrical engineering (shout out Chapter 60!) and, of course, in the development of the internal combustion engine (shout out Chapter 61!). By 1913, this had led to the production of dynamos, lightbulbs, vacuum cleaners, automobiles, and other goods across Germany – the machines and utilities of a post-steam power world.
Education played a huge role in Germany’s industrial success story. With compulsory primary education going back more than a hundred years in Prussia, the Germans already had some of the highest literacy rates in the world. State investment and a positive culture of both theoretical and practical study served as the bedrock of the innovations to come.
Vocational schools and especially polytechnic institutes in Berlin paved the way, providing a deep well of human capital for many industries to tap into. Large industrial outfits hired mechanics and engineers who graduated from these institutions, bringing with them a technical, scientific approach to problem-solving, product development, and manufacturing processes. Not only would they conduct the experiments of corporate research labs, they filled the ranks of middle management – a rising strata of the bourgeoisie.
This was obviously key to the rise of the chemicals industry in Germany. With a tradition going back to our old friend, Justus Leibig, educational institutions shared an ethos of applied science with the firms that employed their graduates. Both the schools and companies knew that research in one area could always lead to breakthroughs in multiple other areas. Electro-technical firms – including the two giants of the age: Siemens and AEG – set up their own research labs as well, led by academics. Landes called this a “network of knowledge” that linked professors of chemistry and physics to capitalist enterprises who profited from their experience and subsidized their work in turn.
Intellectual property rights also played a role. In 1877, after years without having one for the whole empire, Germany passed a patent law and created an Imperial Patent Office. So strong was it that most patent applications were rejected. Yet those that were accepted were almost never repealed. Thus, the law allowed for many innovations to be copied, while the truly special ones were so valuable the owner was incentivized to license them. One way or another, therefore, new innovations were readily adapted across many of the empire’s industries.
Financial developments also helped Germany toward its premier industrial status. A complex system of banking had developed since the time of Napoleon, with a lot of blurred lines between savings banks, commercial banks, and note-issuing banks. What’s more, private bankers increasingly invested in new, joint-stock banks, leading to still further investment in industrial pursuits. All this laid the foundation for what was known as “universal banking” in Germany, backed by state support in times of liquidity crunches. Ergo, the government played a huge role in the country’s economic expansion – a sort of state capitalism, if you will.
And when the new empire formed, a new currency came with it: The mark. Not only did it come up with a standard for all previous currencies of the many German states, it was also tied to the Gold Standard, providing stability in an age when the British Pound Sterling dominated in foreign reserves. And to issue this new mark came a new central bank, the Reichsbank, further stabilizing the country’s rather murky financial sector.
The great joint-stock credit banks – especially Deutsche Bank (shout out Chapter 63!) – were certainly the most notable successes of imperial German finance. These banks had some 390 million marks-worth of assets in 1860. By 1913, though, their assets topped 22 billion marks.
And they weren’t alone. Public savings banks proliferated, allowing locals to deposit their savings. Those savings would then be used toward mortgages for a small, but growing number of property buyers; lines of credit for small businesses; and the needs of local governments for investment in infrastructure, sanitation, education, and more. And some 20,000 credit cooperatives, with over 2.5 million members, were established to help the working class get access to loans while safeguarding them from the threat of exploitative, capitalist greed.
Banking wasn’t the only way German finance was modernized. The Berlin Stock Exchange grew significantly, and local stock exchanges grew throughout the country, trading the securities of a growing number of joint-stock corporations. But as the economy faltered in the years after the Panic of 1873, a new law was adopted, raising the minimum number of tradeable shares to 1,000 and slowing the process that led to initial public offerings, among other things. This greatly reduced the number of corporations able to compete, which enhanced the power of a few mega-corporations.
However, Germany also allowed smaller businesses to form with limited liability. In 1892, a law was passed to establish the GmbH – sort of the German version of the LLC. (Or of the Ltd, for my British listeners.) By 1913, there were more than 26,000 of these companies, working with more than 2 billion marks in capital. Indeed, such firms represented a network of suppliers to major industries – supplying things like rubber tires to automakers, basic parts like nuts and bolts to machine makers, and sales and marketing services to all kinds of firms.
Nevertheless, it was the corporations that ruled the day. Even though they represented less than 1% of all German enterprises, by 1913 they controlled over 9 billion marks in assets, held enormous influence over the political system, and exerted near-control of the markets – not only at home but, in many cases, in foreign markets as well.
Corporate consolidation was a major feature of the German economy, and it took several forms.
Like in the U.S., as we discussed back in Chapter 62, cartels formed to prevent prices from spiraling downward under the pressures of competition. This was especially important in the iron and steel industry, which also adopted a high degree of vertical integration, leading to a few very massive companies controlling an outsized share of the market.
Another form of consolidation was in so-called “interest associations” or “IGs” – I’m not even going to attempt the German word that gives us that abbreviation. IGs allowed different companies to pool their patents and licensing agreements, marketing and purchasing resources, and even shares of their stock. IGs were especially popular in the chemicals industry, where two of them controlled a whopping 80% of the world supply of dyestuffs.
And finally, many different industries combined their efforts for lobbying purposes. Though the Junkers remained the ruling class of Imperial Germany, they could not wield power without considering the interests of industrialists. This would become very important when the government took up issues like tariffs and corporate regulations. Seldom would the government do something against the interests of industry without giving the industrialists something in return.
As a result of consolidation, many companies diversified their portfolios. By the early 1900s, more than half of German corporations were offering industrial products that they were not originally established for. And they expanded into global markets, especially for selling steel, chemicals, electrical equipment, as well as for capital investments.
With this booming industrialization came booming urbanization across Germany. 80% of the population growth happened in the larger cities – a dramatic departure from earlier German history. In fact, Germany in these years had the fastest growth of cities anywhere in Europe. In 1871, the population of Berlin was less than 830,000. By 1910, it was over 2 million. And most of the new births in these cities were to parents coming from the countryside. In Hamburg, for example, only 17% of marriages in 1880 were between two natives of Hamburg.
Urbanization also helped the German economy by creating a housing boom. Construction of new neighborhoods flourished in these years – not only new homes, but new infrastructure like sewers, streets, lighting systems, and electric street cars. And, with the new neighborhoods built, urban economies flourished in turn, providing all kinds of new consumer goods and services. Then again, the new houses were often pretty lousy. The goal was to build fast, not well. Thus, the Proletariat found themselves living in dwellings that were more like military barracks than comfortable homes, which only created resentment toward the economic elites.
And the economic growth was often bumpy. The Long Depression of the late 19th Century featured a troublesome boom-and-bust cycle. Most of the growth came in short but substantial spurts, driven by the productivity of new technologies. And while the crashes were short, their effects could be felt by most Germans for years. This was in no small part because of the same deflationary pressures experienced elsewhere in the western world during these years. As a result, though, liberal capitalism got a bad rap in Germany, and calls for government intervention were stronger than in the UK or US.
And even though real incomes were rising across the economy, they were rising much higher and faster for those at the top – especially in the cities. Income generated by capital ownership was growing more than income generated by labor – something that seemed particularly problematic for the workers and intellectuals gravitating toward socialism.
And because of these concerns, Otto von Bismarck sought to manage the country’s soaring economic situation differently.
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By 1878, a lot of Germans were fed up with the policies of the National Liberals. Five years into the Long Depression and plagued by deflationary pressures, both landholders and industrialists sought to stabilize prices in their respective sectors. So, they came together to form a new coalition – “the marriage of iron and rye”, as it was known – to pass protectionist tariffs. In the national election that summer, the liberal parties – already on the decline for several years – lost dozens of their seats to the conservative parties.
Bismarck – a Junker who never totally agreed with free trade to begin with – was now ready to turn on the National Liberals. At last, in early 1879, he courted the Center Party and agreed to end the Kulturkampf in exchange for them supporting a new tariff law. It passed later that year, imposing modest duties on grain, livestock, and pig iron, with higher duties on finished metal goods and machinery.
The iron cartel thrived under the tariffs. Without meaningful supply competition from either the domestic or foreign markets, iron and steel prices stabilized. With the profits, they invested in ever more productive technologies, such as continuous rolling mills, larger furnaces, and new sources of power generation. They even made lemonade from lemons when domestic demand slumped, using their excess supply to dump steel into the British market, deliberately weakening the industry there.
By the 1890s, prices were rising again in Germany. Plus, the extra revenue on import duties helped strengthen the state as it expanded its own economic operations. So, it seemed, the tariffs accomplished what Bismarck hoped they would.
But tariffs weren’t the only form of state intervention in the economy.
Another outcome of the 1878 election was that Bismarck now had the votes to pass his Anti-Socialist Laws. Among other things, they banned SPD meetings and promotional activities, and they shut down trade unions and newspapers. And yet – despite the fact it was effectively outlawed – the SPD kept growing, with socialist candidates picking up seats in each of the next two elections.
But remember: The SPD was still an orthodox Marxist party. They believed in seizing the means of production from the bourgeoisie and redistributing them to the Proletariat. It wouldn’t be until the 1890s that the revisionist school came along, significantly moderating the Social Democrats.
Thus, in the 1880s, Bismarck decided to embrace programs that would directly benefit the working class without upending the entire social order. It was the birth of the Social Welfare State.
The process began in 1881, when the Chancellor described his intended programs in a speech to the Reichstag:
“If the government endeavors to treat the injured workingmen better in the future, and especially more becomingly, and not to offer to their vigorous brethren the spectacle, as it were, of an old man on the dump heap slowly starving to death, this cannot be called socialistic… let it be: ‘Practical Christianity’”
Then again, Bismarck also described his vision as “State Socialism”. Either way, over the next decade, he helped steer through three such pieces of legislation.
The first was the Workers Sickness Insurance Law of 1883. It created public sickness funds throughout the country. Every employee would be entitled to up to 13 weeks’ worth of sick pay and medical treatments. And although the employees were responsible for two thirds of the tax each pay period – with the employers paying the other third – it did give the employees the power to elect their own representatives to oversee the funds.
The second was the Accident Insurance Law of 1884. This expanded on the health insurance law for those workers injured on the job, providing them with medical care and a pension for those who became permanently disabled. This time, employers would foot the entirety of the bill – although Bismarck had originally hoped it would be the state picking up the tab.
And finally, there was the Old Age and Disability Insurance Law of 1889. This created a new public pension program for workers, very similar to how Social Security works in the United States today.
But the changes did not stop there. Even after Bismarck left office, the Reichstag continued this work, passing a comprehensive workplace safety law in 1891 and a law to limit child labor in 1903.
Not only did Bismarck’s social welfare policies get under the skin of liberals and undermine the SPD, they also made the story of Germany’s industrialization unique. Nowhere else was the power of the state used so thoroughly to protect the working class from the problems associated with industrial-capitalist growth. By the end of the Second Industrial Revolution, more than 13 million German workers were covered by these protections. Health outcomes improved dramatically too, as the numbers of doctors and medical facilities grew to meet a higher demand for treatment.
Even more importantly, these programs served as a model for what was to come. In the 20th Century, more and more Western governments expanded their social safety nets, providing critical economic security for millions of people. This is a topic we will return to in the future.
Historians often refer to these social welfare programs as Bismarck’s carrot, whereas the Anti-Socialist Laws were his stick. And in 1890, he wanted to make this persecution of socialists permanent. But this effort would be his downfall.
Two years earlier, Wilhelm I died at the ripe old age of 90. He was succeeded by his son, Frederick III. Much more liberal than his father – and Bismarck, for that matter – Frederick was bound to be a problem for the Chancellor. But, as it turned out, Frederick had a pretty severe case of throat cancer, and would live just 99 days as Emperor. He was succeeded by his son, the 29-year-old Wilhelm II.
Bombastic and egotistical, the young Wilhelm naturally butted heads with the 73-year-old Bismarck. And unlike his grandfather, the new emperor wondered why he should have a Chancellor at all. He much preferred the ideas of absolute monarchy, whereas the old Junker clearly believed it was his place to call the shots.
It all came to a head with the bill to enshrine the Anti-Socialist laws forever. The Social Democrats were obviously opposed, as were the liberals who saw it as an affront to free thought. But so was the Center Party, which knew many Catholics were part of the labor movement, and saw this as a chance to get rid of the man responsible for the Kulturkampf of the 1870s. Even many ambitious conservatives opposed it, as they hoped it would finally bring down Bismarck, shaking up the government and allowing some of them to rise. And Wilhelm expressed his own disapproval, fearing widespread, retaliatory worker strikes so early into his reign, and hoping he could give his new subjects some carrot instead.
The relationship between the Emperor and Chancellor rapidly deteriorated. Finally, after some very heated meetings, Bismarck wrote an infamous letter of resignation. Over the next eight years, he sat at his estate, writing his memoirs and complaining about the new Wilhelm, until he finally died of gangrene complications in 1898.
New chancellors would take his place, but none would wield the power he did. Moving forward, Wilhelm II would be a much more active emperor in the political affairs of his empire.
His new Chancellor, Leo von Caprivi, got it started by delivering the Kaiser a new worker protection law and new free trade agreements with Austria-Hungary and Russia. And Wilhelm made efforts to personally bolster the economic transformation of his country. He loved new technology and was a big promoter of industrial innovations. He was sort of like his maternal grandfather – our old friend, Prince Albert – in this way.
But unlike Albert, and unlike both his parents, Wilhelm was no liberal. In the long-run, he hoped to do away with the Bismarckian constitution, which was far too democratic for his taste. And he wanted to use Germany’s growing industrial might to reinvigorate the long tradition of Prussian military prestige. The policy was dubbed “Weltpolitik”, meaning it established Germany’s ambition to become a major player in (or even to dominate) world politics. This was best summed up in a speech by his loyal foreign minister, Bernhard von Bülow: “We wish to throw no one into the shade, but we also demand our own place in the sun.” With Bismarck gone, Germany no longer sought to maintain the balance of power.
And when Bülow succeeded Caprivi as chancellor, he allowed the free trade agreements to lapse. German industrialists at this point preferred the benefits of free trade. But for their support of the tariffs, they got something big in return: Contracts to build up the German Navy.
Naval expansion was a key component of Weltpolitik. With colonies in Africa and the South Pacific, Germany needed new warships to protect their global interests. And as the British and Americans developed new steel-plated battleships, the Germans felt the need to keep-up. This arms race naturally alarmed the British and Americans (and, of course, the French). By 1914, Germany had added 15 dreadnoughts and 7 battlecruisers to her naval forces – not quite on par with the British, but surpassing the strength of all the other European navies.
The conditions for war were developing in other ways too. Without the benefit of Bismarck’s diplomatic skills, Germany was unable to maintain the triple alliance with Austria-Hungary and Russia. As those two empires vied for power in the Balkans, they fell out with each other. The mutual defense agreement between Germany and Austria-Hungary held. Thus, the Russians turned toward Germany’s bitter enemy, France, setting the stage for a great war in Europe.
As I’m sure you’re well aware, the First World War would be a major turning point in German history, putting an end to the Second Industrial Revolution and the German Empire alike. But we will need to save these stories for another time.
For now, we need to turn our attention to the east, where two very different empires – each for their own, unique reasons – decided it was time to embrace industrialization: Russia and Japan, next time on the Industrial Revolutions.
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