The rise in prices influenced seriously the cost of production, and the German manufacturers fought, in consequence, at a disadvantage with England and France. Finally the goods produced at this high cost were thrown upon the home market at the moment when the increase in the cost of living was diminishing seriously the purchasing power of the bulk of consumers. These goods had to compete, not only with home overproduction due to the failure to sell abroad, but with foreign goods, which, despite the tariff, were by their lower price able to push their way into the German market, where relatively higher prices attracted them. In this competition France was particularly prominent. In France the lack of metallic money had engendered great financial caution, and had considerably lowered prices all around, so that there was a general financial and commercial condition very different from that in Germany, where the payment of the indemnity had been followed by reckless speculation. Moreover, owing to the heavy foreign payments made by France, bills drawn on foreign centres were at a premium, a premium which constituted a sensible additional profit to French exporters, so considerable in certain cases that it was worth while for French manufacturers to sell their goods at an actual loss in order to realize the profit on the bill of exchange. The German market was thus being captured by the French at the very moment when the Germans supposed they would, thanks to the indemnity, be starting out to capture the world.
The German economist Max Wirth (Geschichte der Handelskrisen) expressed in 1874 his astonishment at France’s financial and industrial recovery: “The most striking example of the economic force of the country is shown by the exports, which rose immediately after the signature of peace, despite a war which swallowed a hundred thousand lives and more than ten milliards (two billion dollars).” A similar conclusion is drawn by Professor Biermer (Fürst Bismarck als Volkswirt), who indicates that the Protectionist movement in 1879 was to a large extent due to the result of the payment of the indemnity.
This disturbance of the balance of trade, however, was only one factor among several: the financial disorganization, a fictitious expansion of expenditure creating a morbid speculation, precipitated the worst financial crisis in Germany which she has known in modern times. Monsieur Lavisse summarizes the experience thus:
Enormous sums of money were lost. If one takes the aggregate of the securities quoted on the Berlin Bourse, railroad, mining and industrial securities generally, it is by thousands of millions of marks that one must estimate the value of such securities in 1870 and 1871. But a large number of enterprises were started in Germany of which the Berlin Bourse knew nothing. Cologne, Hamburg, Frankfurt, Leipzig, Breslau, Stuttgart, had all their local groups of speculative securities; hundreds of millions must be added to the thousands of millions. These differences did not represent merely a transfer of wealth, for a great proportion of the capital sunk was lost altogether, having been eaten up in ill-considered and unattractive expenditure. … There can be no sort of doubt that the money lost in these worthless enterprises constitutes an absolute loss for Germany.
The decade from 1870–1880 was for France a great recuperative period, although for several other nations in Europe it was one of great depression, notably, after the “boom” of 1872, for Germany. No less an authority than Bismarck himself testifies to the double fact. We know that Bismarck was astonished and dismayed by seeing the regeneration of France after the war taking place more rapidly and more completely than the regeneration of Germany. This weighed so heavily upon his mind that in introducing his Protectionist Bill in 1879 he declared that Germany was “slowly bleeding to death,” and that if the present process were continued she would find herself ruined. Speaking in the Reichstag on May 2, 1879, he said:
We see that France manages to support the present difficult business situation of the civilized world better than we do; that her Budget has increased since 1871 by a milliard and a half, and that thanks not only to loans; we see that she has more resources than Germany, and that, in short, over there they complain less of bad times.
And in a speech two years later (November 29, 1881) he returned to the same idea:
It was towards 1877 that I was first struck with the general and growing distress in Germany as compared with France. I saw furnaces banked, the standard of well-being reduced, and the general position of workmen becoming worse and business as a whole terribly bad.
In the book from which these extracts are taken20 the author writes as an introduction to Bismarck’s speeches:
Trade and industry were in a miserable condition. Thousands of workmen were without employment, and in the winter of 1876–77 unemployment took great proportions, and soup-kitchens and State workshops had to be established.
Every author who deals with this period seems to tell broadly the same tale, however much they may differ in detail. “If only we could get back to the general position of things before the war,” said M. Block in 1879. “But salaries diminish and prices go up.”21
At the very time that the French millions were raining in upon Germany (1873) she was suffering from a grave financial crisis, and so little effect did the transfer of the money have upon trade and finance in general, that twelve months after the payment of the last of the indemnity we find the bank rate higher in Berlin than in Paris; and, as was shown by the German economist Soetbeer, by
