After the Great
War, as World War I was called before 1939, the Allies were bent on
revenge. The war had begun over the
issue of Serbian interference in the internal affairs of Austria, the
assassination of Archduke Francis Ferdinand, heir to the Austrian throne with
Serbian aid and complicity, and the subsequent refusal of Serbia to make
reparations . . . which would, admittedly, have involved a virtual takeover of
the country by Austria.
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| Franz Joseph of Austria-Hungary |
Other
combatants had immediately been drawn into the war because of treaty
obligations. Russia, the immense but
sleepy empire, just beginning to settle down after the social and political
chaos caused by its loss to Japan in 1905 (and certainly in no condition to
fight another war) considered itself Serbia’s protector. Germany had traditional ties with Austria,
although, in light of the activities of Prussia throughout the nineteenth
century, relations were not the friendliest.
Bound by an
intricate network of treaties, both public and secret, within hours of the
Russian order for mobilization, France and Great Britain declared war on
Austria and Germany. On the other side,
Germany, Turkey and Austria returned the somewhat dubious compliment. Each side thought that it could win in a
matter of weeks, and, in spite of the mounting lists of dead and wounded
unparalleled in history, continued to retain that belief throughout four years
of war.
The United
States eventually came into the war over the issue of unrestricted submarine
warfare. England regarded Belgium as a
traditional ward. She naturally viewed the
German implementation of its “Schlieffen Plan,” which required the invasion of
neutral Belgium in order to bypass French defenses and take Paris quickly, as a
crime to be answered with a moral crusade.
Less than thirty years later, however, England was to threaten to invade
equally neutral Ireland to acquire the use of Irish seaports. The British government was only held back by
the outrage such an act would have inspired in the United States, a necessary
ally.
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| Kaiser Charles I/IV of Austria-Hungary |
Most of the
participants in the war became involved on the basis of principle, but
continued in order to exact revenge.
Even Woodrow Wilson, who had cautioned everyone about the possibility of
getting caught up in the frenzy, fell victim to war hysteria, refusing peace
overtures from the new Austrian Emperor, Charles I/IV, and rudely rejecting
mediation offers by Pope Benedict XV.
The result was
that the Armistice, presumed simply to be the first step in restoring the
pre-war status quo, became the
prelude to the looting of Germany and Austria in revenge. This completed economic devastation of
Central Europe following fundamental errors made by the Reich in financing the
war effort.
To begin, the
government made the decision to finance the war on debt instead of raising
taxes. This vastly increased the money
supply backed by nothing more than the government’s promise to pay. As Hjalmar Schacht explained,
One of Germany’s most far-reaching errors in the First World
War was her mistaken fiscal policy. She
endeavored to meet the colossal costs of the war by an appeal to the
self-sacrificing spirit of the people.
“I gave my gold for iron” was the slogan for the surrender of
gold ornaments and jewelry. “Invest in
War Loan” ran the appeal to the patriotic sense of duty of all classes. Issue after issue of War Loan was offered for
subscription and transformed the greater part of German private fortunes into
paper claims on the state. Our enemies,
especially Britain, took another line.
They met the cost of the war with taxes aimed primarily at those industries
and groups to whom the war spelled prosperity.
Britain’s policy of taxation proved socially more equitable than Germany’s
policy of war loans, which lost their value after the war was over and proved a
bitter disappointment to the self-sacrificing investors.[1]
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| "The Old Wizard," Hjalmar Schacht |
Creating “investments”
that relied on the government’s promise to pay instead of the private sector’s
ability to produce had a disastrous side-effect. Just as today when gamblers on Wall Street
are able to make enormous fortunes by dealing in the massive amounts of money
created by the huge increase in government debt and taking advantage of the
wild fluctuations on the secondary market without producing marketable goods
and services, the German financial system took a heavy hit from speculators
during the war. As Schacht related,
The general distress and misery of the war years paved the
way for a complete reconstruction of Germany’s social system. In vain the banks did all they could to
maintain the monetary system on lines which experience had shown to be
commercially sound, decent and therefore socially acceptable. The influence of the banks on the general
economy declined in proportion as war profiteering began to flourish. . . .
[W]ar profiteers . . . had a free hand.
To have friends at court among the appropriate military authorities
meant, for shrewd speculators, an opportunity to effect large deliveries at
enormous profits.
It wasn’t so much the big business firms that went in for
profiteering, but predominantly the traders, the new-rich, the grabbers,
sharks, the something-for-nothing type.
Anyone who had proved himself capable of building up and maintaining an
industry, with all its economic fluctuations, even in peacetime, is less
interested in colossal wartime profits than the good-for-nothings who image
they can make their pile during the turbulent years of war.[2]
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| Kaiser Wilhelm II of Germany |
The results
were only to be expected: financial ruin for individuals, organizations, and
the country as a whole, and widespread despair.
As Schacht recalled a conversation he had during the war with one of
Germany’s leading businessmen in 1916,
Among the many serious businessmen who gave of their best may
be cited Albert Ballin. When I went to
see him in his Hamburg office in 1916 and read the firm’s proud motto, My Field
is the World, we were both inclined to wonder whether this motto would live up
to its implication. Ballin was
confident. He relied, as I myself did,
on the common-sense economic outlook which would prevail, even if the war
should not end in a decisive German victory.
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| Albert Ballin |
“You’ll see, Herr Schacht, the businessman’s sound judgment
will win through. The wartime mania for
destruction can be combatted only by general economic co-operation. In wartime, feelings of hatred and revenge
are rampant. But when the ordeal is
over, businessmen will once again be able to have their way. Politicians can’t be so crazy as to
perpetuate the miseries of war.”
Ballin was mistaken in his belief. The politicians were crazy:
businessmen never had a chance to speak their minds. Ballin never got over his self-delusion. A patriotic German Jew, he asked nothing
better than that German achievement should contribute in economic co-operation
with other countries to the advancement of the human race. When he realized that his hopes were in vain
he took his own life.[3]
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