480. Effect on economic development of the establishment of the Empire.—Leaving now the topic of commercial policy until we return to it in a concluding paragraph, we must attend to the material development of Germany. Down to the foundation of the Empire in 1871, progress, if steady, still was slow. The best energies of the people were absorbed in the great political conflicts out of which united Germany was to emerge; delicate questions of the relations between the German states had to be settled, and much needed still to be accomplished in the reform of industrial legislation inside the states. As late as 1862 it was estimated that five-eights of the people were still engaged in agriculture or in other extractive industries. In comparison with this period of preparation the progress which Germany has made since 1871 is startling. The direct gains which Germany made in the war with France, the acquisition of the rich provinces of Alsace and Lorraine, and the receipt of about $1,000,000,000, as a war indemnity, were large, but still they were less than the indirect results: the establishment of national unity on a lasting basis, freeing the people from political anxieties, and encouraging them to face their economic problems with a new energy and pride in their strength, and with a new hope in the future. This political factor, vague and intangible as it may be, is still most important; without it the recent economic development of Germany could be regarded only as a miracle.

481. Development of commerce, 1870-1913.—In the period between the founding of the Empire and the outbreak of the World War the population of Germany increased from 41 to 67 million, about 63%, while the foreign trade increased almost exactly 250%, four-fold as fast. Comparing the figures in the accompanying table with those given for the United Kingdom in a preceding chapter we see that in 1872 the Germans were much behind the English, separated roughly by an interval of ten years of development, but that they were closing the gap as time passed, and at the end of the period had passed the English in the value of their export trade.

While in 1871 60 men out of 100 were engaged in agriculture, the proportion had fallen in 1907 to 27. The change was brought about not by an absolute decline of the number in agriculture, though sometimes that was observable, but by the young men leaving the country for the mines, factories, and commercial centers. Germany had in 1840 only 12 cities of over 100,000 inhabitants, while at the end of the century it had 28, of which the chief, Berlin, was growing more rapidly than Chicago; and in 1910 it had 48. The industrial development during the generation ending in 1900 may be inferred from the following: coal production increased over 250 per cent, pig iron production nearly 400 per cent, and shipping 500 per cent.

482. Character of recent German commerce.—England was characterized in a preceding paragraph as “offering one of the most remarkable examples of advanced commerce in the world.” In an earlier period England stood alone; it offered the most remarkable example. In 1913 Germany stood alongside England, not merely as regards the quantity but also as regards the quality of her trade. In Germany as in England manufactures formed the major part of the exports; their proportion of the total value approached if it did not reach the English. Exports of raw materials and crude food stuffs had declined to less than one-quarter of the total, and among exports of this character coal, as in England, took the dominant place. On the other hand the imports of raw material and food stuffs had grown until they amounted to about three-quarters of the total imports. Of the total value of imports finished manufactures formed only 13 per cent, a proportion actually less than that of the English, whose policy of free trade permitted wares to be brought in which were excluded from Germany by the customs tariff. If we arrange the wares imported in 1913 in the order of their value we do not find a single finished manufacture among the first 26 items, which include all those exceeding 100 million marks in value; crude copper was fifth on the list, but we find no product of factory industry until we reach the twenty-second item, woolen yarn, which itself was destined to feed the German factories and in large part to be exported in a finished form. To understand recent German commerce we need first of all, evidently, to study the development of Germany’s manufactures.

483. Rapid development of factory industry.—Before the founding of the Empire most of the people engaged in manufactures in Germany still worked at home, with simple machinery and no steam power. In Saxony, for instance, now one of the industrial centers of the country, the manufactures of cloth, stockings, lace, etc., were still carried on outside of factories in 1868. The proportion of people working in this simple way is still large in Germany, but the number has declined in many lines of work (weaving, milling, shoemaking, etc.), and the great growth of the recent period has been in the modern factory industry. Since 1882 the rate of growth of the factory population has been about fourfold that of the general population. The results of this development have been indicated in the previous paragraph, and they furnish a striking contrast to conditions as they were at the time of the Centennial Exposition of 1876, when the German representative reported that in the industrial field Germany had received a defeat equal to two Sedans, that German industry produced only articles of poor quality and of slight value (“schlecht und billig”), and that Krupp guns were the only product of which the Germans could be proud.

484. Resources of coal and iron.—Germany was favored by some important physical resources in building up its modern industry. The country had a rich supply of coal, the great source of modern power, and took in Europe a place barely second to England in coal production, far ahead of any other country. Germany was well supplied also with the raw materials for the staple products, iron and steel. The ore supplies in the province of Lorraine, taken from France in 1871, are the most extensive in Europe. At the time when they were acquired they were thought to be of poor quality, because of the phosphorus contained in them, but under the basic process they were made to yield metal of excellent grade, and in addition a valuable fertilizer, obtained from the phosphate slag. Germany has developed its iron resources with a rapidity exceeded only in the United States. It contributed only one-twenty-seventh of the world’s iron supply in 1866, but had raised its share to one-sixth at the end of the century, and to about one-fourth before 1914. It passed England in steel production shortly after 1890, and in iron production about ten years later; it raised constantly the figure of its output while that of England remained relatively stationary, and in the decade before the war it was advancing at a rate seven-fold that of England.

485. Quality of the people.—The richest resource of Germany, however, was its people. The past poverty of the country and the trials through which it had gone nurtured a steadiness and thriftiness among the working classes which made them admirable members of the modern productive organization. An effective system of elementary education was established in parts of Germany long before a similar step had been taken in most other countries; and practically all the people had not only the rudiments of education, but also, what is perhaps more important, a respect for knowledge, a desire to learn and to make the best use of their learning, which were in striking contrast with the careless spirit of other peoples. It has been said that it was the primary school-teacher who won for the Germans the victories of 1866 and 1870; and the Germans could hope now to beat their industrial rivals as they beat their military opponents, by method and steady application rather than by brilliancy and dash.

486. Superiority in technical training.—The effects of careful training were as evident in the class of the responsible managers of Germany’s industries as in the laboring class. Nowhere in Europe had technical education reached so high a development. Not only were the appliances, methods, and system of organization superior to those of other states; the technical schools reached a larger part of the population, training them not only in the fundamental subjects of science, but also in the special branches of production (mining, weaving, dyeing, etc.).

The results were everywhere apparent in German industry; to instance chemicals, sugar, glass, and electrical appliances is to pick only a few examples from a list which could be greatly extended. Especially noteworthy was the readiness of the Germans to adopt a new process or machine which was first brought out in some other country. Englishmen invented processes to make a fast black aniline dye, to manufacture potassium cyanide for the reduction of gold, to make steel by the basic process; all these inventions were developed first into commercial successes in Germany. The Germans imported, if necessary, foreign machinery and foreign foremen to superintend its action, until they had mastered the principles of operation and had firmly established the industry in its new home.

487. Efficiency of the mercantile organization.—Similar considerations account for the success of the Germans in commerce, and explain the rapid development of their export trade. They took pains to find out what wares their customers wanted, and to sell them when they had been made. The report of a consul of the United States in Chile suggests the methods which led to their success. “Thirty years ago,” he wrote in 1902, “the trade coming to the Pacific ports was monopolized by the British and a few American houses. The Germans were represented only by jobbers and shopkeepers in the coast towns. The Germans, appreciating the importance of this trade, made well-conceived plans to gain it. They carefully trained a number of able young men. When these were versed in commercial affairs and in the language of the people among whom they were to live, considerable shipments of goods were made to the British and American houses, and the young men found places as clerks and were given special charge of these consignments. They remained there till they acquired a complete knowledge of the coast trade; then they were provided with ample funds and stocks and opened German houses, with brilliant success. In many branches they now have a monopoly, and the British and American houses no longer attempt competition.”

488. Commercial travelers and trade papers.—No country in the world had commercial travelers so well trained, especially in the command of languages, as Germany. The Germans were said to be the only foreign people who had a thorough knowledge of Russia in a business way; they were able to meet the demand for long credits in that and other eastern countries, and so build up their trade and still avoid serious losses. The exporters were not content with sending abroad their ordinary trade catalogues, as were the English, Americans, and others; they sent personal representatives speaking the language of the country, or at least reached a prospective customer by some communication in his own language. Trade papers for foreign circulation were printed in Germany in the following languages: English, French, Russian, Spanish, Portuguese, Turkish, Japanese, and Chinese.

489. Other factors in commercial development.—The rapidity of their industrial and commercial development forced a departure from the methods of the past, and stimulated new forms of co-operation in business. The same period which was marked in the United States by the rise of the great aggregations of capital known generally as “trusts” produced in Germany the “cartel” of a somewhat similar nature, which had its shady sides but which made some very important contributions to efficiency in the making and marketing of goods. German banks followed a course which in contrast to the conservative methods of the old established banks of England and the United States appeared speculative, but which in this period when so many conditions were favorable proved immensely profitable and effective. The great German banks promoted and financed to a successful conclusion many new enterprises in industry and trade. The government played an active part, not merely by such services as were expected of the State in other countries, but also by more positive contributions. Its control of internal transportation, by the system of state-owned railways and canals, gave it great power in directing and assisting economic development; and it supported most generously the development of shipbuilding, and the extension of German lines of shipping, for the benefit of the exporter.

490. Deductions to be made in estimating German progress.—We must note some factors which help to account for the great development of German commerce, but which should be offset by other considerations, and which therefore do not represent net contributions to the world’s welfare. The Germans themselves were being taxed for the particular benefit of the export trade. The government so far as possible freed the export industries from the burden of the tariff, which weighed heavily on some classes in the country, and beyond that, gave actual bounties to stimulate exports. These were commonly concealed, for instance in the form of special rates in transportation, but had nevertheless to be paid out of the pockets of the German taxpayer and business man. Furthermore, private organizations followed substantially the same practice. The great “cartels,” kept prices high at home to gain resources with which they might finance their fight against competitors in foreign markets. They won much trade, but they won it at costs, borne sometimes by Germans and sometimes by outsiders, which need to be taken into account if a fair balance is to be struck. Finally, there must be put on the debit side of the account some gains which the Germans made in commerce, not by greater efficiency but by less honesty: by the imitation of trade marks, by the bribery of agents, etc. In this regard they were not the only offenders. They did not win the bulk of their trade in this way. Their departures from accepted standards of commercial morality were, at least, sufficient to establish for German trade methods an unenviable reputation.

491. Examples of German success in trade.—If we add all these influences helping Germans to market their goods, to those which enable them to manufacture to advantage, we can understand the development of the German export trade, and can see why German wares, even when they were no better than the wares of other countries, won foreign markets. A French brewery got the first prize at Baden Baden, but German beer was sold all along the Parisian boulevards. German brewers sent an increasing amount of their beer to the British colonies and India, because they had learned not only all that English brewers can teach them, but they had learned, too, the tastes of their customers in distant countries, and had adapted their product to suit these tastes, while English brewers clung fast to the old methods. They had greatly extended their trade in textiles, carpets, etc., “not so much because they are cheaper, as because they are quicker and more dexterous in fitting their supply to the changing demands of the market.” They had taken away a large part of the French export trade in dolls, by taking pains to fit the doll for the country to which it is going, getting English cloths in which to dress a doll for England, reproducing exactly national types of furniture, etc. German wares, wrote the British consul at Paramaribo, displaced Sheffield wares in his district, not because they were more serviceable, but because they were cheaper, were polished and painted, and arranged for display in shop windows, while the English wares were laid away in brown paper on a shelf. Measuring German commerce as we have measured that of England, by noting the percentage which German sales to any country formed of the country’s total imports, we find that in the period from 1881 to 1909 Germany’s share of sales fell off in only one foreign market of importance, the Netherlands, and, on the other hand, its share grew, and in some cases grew greatly, in nine of the ten great markets of the world.

492. The German tariff and the agrarian party.—It is impossible to say just how far the progress of Germany in this period was furthered by the government’s commercial policy, for, as will appear, this policy retarded development in some lines to favor it in others. This, at least, may be said with assurance, that the policy was strikingly characteristic of the attitude of the German state, and throws much light on the conditions preceding the outbreak of the World War. The recent history of commercial policy in Germany may be discussed under two aspects: its relation to domestic politics and its relation to foreign politics.

The protective tariff of 1879 was designed particularly to favor the growing manufactures of the country. Agriculture had been in the past an export industry, and the agrarian representatives had favored free trade. Already, however, there were signs of that far-reaching change by which cheap food stuffs from distant parts of the world were enabled to under-sell the domestic product; and a moderate protective duty on the cereals was granted in the tariff of 1879. The German producers of bread stuffs and meat found, however, that they had underestimated the danger to which they were exposed, and that they could keep their home market only by sacrifices which appeared to them desperate. They obtained additions to the duties; they managed, under the guise of sanitary precautions, to subject the importation of certain foods to expense and delay, even when it was not altogether prohibited; and in the general revision of the tariff, in 1902, they obtained not only a general increase in the agrarian duties but also a specific provision which prevented the government from reducing these duties below a certain point, in treaties which it might make with other powers. These favors to the agrarian interest were accompanied by the revision of rates in the interest of manufacturers, but the government was evidently taking with one hand from the producer what it appeared to offer him with the other hand. There is unmistakable evidence that the higher duties on food stuffs restricted consumption and checked the rise in the standard of living. The policy threatened to impair the ability of the industrial and mercantile classes to compete with foreign rivals who were not thus burdened in getting the necessaries of life. On the other hand, it offered but slight advantage to the major part of the German agriculturists, who carried on mixed farming on a small scale; its benefits were mostly restricted to the owners of large estates, east of the Elbe river, who specialized in the production of grain and meat with hired labor. What, then, is the explanation of the policy? It was, to use the German phrase, a Machtfrage, a question of power. The characteristic agrarian was a Junker, a Prussian squire, devoted to the military ambitions of the Hohenzollerns, endowed by custom and indeed by law with superior political influence. In spite of its industrial development, and in spite of some democratic features of its constitution, Germany was still at heart a military monarchy. The course of policy was determined by reference not to the general economic welfare, but to the interests of those special groups which shared the political and military traditions of the Prussian monarchy.

493. International aspects of German tariff policy.—Likewise in foreign relations German tariff policy was colored by the traditional Prussian view that commercial competition was not merely the struggle of individual producers and merchants, but was a group conflict, in which the state should take an active part, making the most of the particular weaknesses of states opposed to it. In 1871 Germany had forced France to subscribe to the principle that each country would grant the other all commercial favors accorded another power. Being a part of the treaty of peace this provision was interminable; it could be amended only by formal treaty. Germany at the time appeared to get more than she gave. As she realized her industrial and commercial strength, however, she became dissatisfied with a position of mere equality. About 1890, under Chancellor von Caprivi, Germany began the policy of making special bargains with individual states by treaties fixing the tariff rates. In the negotiations with Russia each party stood out obstinately for certain favors, and since agreement appeared impossible each party sought to punish the other by imposing punitive rates, amounting to prohibitions. This war of tariffs lasted less than a year, for it affected so disastrously the commerce between the two countries, that each was glad to reach an agreement by mutual concession. The same spirit, however, which marked this contest, appeared in the commercial relations of Germany with other states; she conducted similar tariff wars against Spain and against Canada, and seems to have meditated like action against the United States but prudently refrained from a breach with a country which was approaching industrial independence and which was the source of indispensable raw materials.

494. The tariff of 1902; Central Europe.—Before the treaties framed under Count Caprivi were due to expire Germany prepared for another commercial campaign. A new tariff was passed in 1902, but was held in suspense until treaties could be negotiated under it, and was not put into effect until 1906. The new tariff was ingeniously devised to enable Germany to offer special favors to individual countries, in spite of nominal adherence to the principle of granting to every country with which a treaty was made the concessions granted to the most favored nation; and gave to the government, on the other hand, if occasion demanded, the power to wage commercial war by the imposition of triple duties. Germany is commonly supposed to have driven some hard bargains in the treaties that were framed under this act, but did not have recourse, as in the preceding period, to tariff wars as a means of opening foreign markets. Still, the practice of bargaining for commercial advantage by treaty, which Germany had so vigorously developed, introduced a tension in international economic relations that caused the states of Europe to look forward with apprehension to the years 1917-1918 when the important German treaties expired. The project of a customs union of Central Europe, which had long been discussed in an academic way, and which appeared to many Germans in the early years of the World War as a practicable plan, shortly to be realized, did not propose to introduce free trade immediately among its member states, but it did promise to assure Germany such dominance over the others that she could use not only their economic but their military resources as well, to further her plans for commercial expansion. The plan was characteristic of German ambitions, a summary of the tendencies that had long been manifesting themselves in German policy, and a significant index of results that would have followed if Germany had won the war.

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