The Socialism of Mr. Bismark

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This work was written for the French socialist newspaper L'Égalité in late February 1880. When working on it, Engels used facts found in Rudolph Meyer's Politische Gründer und die Corruption in Deutschland, Leipzig, 1877 (see Engels' letter to August Bebel of November 24, 1879, present edition, Vol. 45).

I. THE CUSTOMS TARIFF

In the debate on the notorious law which places the German socialists outside the law, Mr. Bismarck declared that repression alone was not enough to crush socialism; what was needed, in addition, were measures to remedy the undeniable social ills, to ensure the regularity of work, to forestall industrial crises and what have you. He promised to introduce these “positive” measures of social welfare. For, he said, when one has directed the affairs of one’s country for 17 years, as I have done, one is entitled to consider oneself a competent judge in matters of political economy; which is like someone saying that eating potatoes for 17 years is enough to give one a thorough knowledge of agronomy.

In any case, this time Mr. Bismarck was true to his word. He has bestowed on Germany two grand “social measures”, and he has not finished yet.

The first was a customs tariff which was to ensure that German industry was allowed exclusive rights to the domestic market.

Until 1848 Germany had had no large-scale industry properly speaking. Labour dominated. Steam, mechanisation were simply the exception. In 1848 and 1849, having incurred a shameful defeat in the political sphere because of its cowardice, the German bourgeoisie consoled itself by launching eagerly into large-scale industry. The face of the country was rapidly transformed. Anyone who had not seen Rhenish Prussia, Westphalia, Royal Saxony, High Silesia, Berlin and the seaports since 1849 could no longer recognise them in 1864. Steam and machines had invaded the entire country. Large factories had mostly supplanted the small workshops. Steamships gradually replaced sailing vessels, first in coastal traffic, then in transatlantic trade. Railways multiplied; in the construction yards, in the coal and iron-ore mines there was activity the like of which the sluggish Germans would hitherto not have believed themselves capable of. Compared with the development of large-scale industry in England and even in France, all this was small beer; but anyway it was a beginning. Moreover, all this had been done without any help from the governments, without any grants or export subsidies, and under a customs tariff which, compared with the tariffs of other continental countries, might be considered very free-trade indeed.

This industrial movement, let it be said in passing, did not fail to have the social consequences which it has had everywhere. The German industrial workers had, until then, vegetated in conditions reminiscent of the Middle Ages. Generally speaking, they still had some chance of gradually becoming petty bourgeois, masters of their trade, owners of several hand looms, etc. Now all this disappeared. The workers, becoming the employees of the big capitalists, started to form a permanent class, a real proletariat. But he who says “proletariat” says “socialism”. Furthermore, there still remained a trace of the liberties which the workers had won at the barricades in 1848. Thanks to these two circumstances German socialism, which before 1848 had had to restrict itself to underground propaganda and a secret organisation whose members were few, was now able to unfold in the full light of day and to penetrate into the masses. Hence 1863 is the year which saw the recommencement of socialist agitation by Lassalle.

Then came the war of 1870, the peace of 1871 and the milliards. If France was far from ruining herself by paying them, Germany came within a hair’s breadth of its demise by receiving them. Recklessly squandered by a government of upstarts in an upstart empire, the milliards fell into the hands of high finance, which hastened to make them bear fruit on the Stock Exchange. Berlin saw the return of the heyday of Crédit mobilier. It was a race to see who could start more public and mixed liability companies, banks, building societies and financial institutions, railway construction companies, factories of all kinds, shipyards, companies speculating in land and buildings, and other things whose industrial trappings were no more than an excuse for the most bare-faced jobbing. The alleged public needs of commerce, communications, consumption, etc., simply served as a cloak for the frantic need of the Stock Exchange wolves to make these milliards work as long as they had them in their hands. Besides, all this was seen in Paris in the glorious days of Péreire and Fould; the same jobbers were at work in Berlin, reappearing under the names of Bleichroeder and Hansemann.

What had happened in Paris in 1867, what had happened many times in London and New York, happened all over again in 1873 in Berlin: unbridled speculation terminated in a general collapse. Companies went bankrupt in their hundreds; the shares of those which survived became unsaleable; the rout was complete all along the line. But in order to speculate it had been necessary to create the means of production and communication, the factories, railways, etc., whose shares had been the object of this speculation. At the time of the crash it was found that the public need which had served as a pretext had been outstripped by far; that in four years more railways, factories, mines, etc., had been created than the normal development of industry would have produced in a quarter of a century.

After the railways, to which we shall return below, speculation had been chiefly directed at the iron and steel industry. The mills had multiplied rapidly; more than one plant had been set up that put Creuzot in the shade. Unfortunately, on the day of the crisis it turned out that there were no consumers for this gigantic production. The large manufacturing companies found themselves on the verge of bankruptcy. As the good German patriots they were, their directors sought help from the government: protective tariffs that would secure for them the exploitation of the domestic market against competition from English iron. But if one demanded protective tariffs for iron, one could not deny other industries, even agriculture, the same protection. So noisy agitation for tariff protection was organised throughout Germany, agitation which allowed Mr. Bismarck to introduce a customs tariff which was supposed to fulfil this purpose. This tariff, which became law in the summer of 1879, is now in force.

But German industry, such as it was, had always lived in the fresh air of free competition. Arriving last on the scene, after England and France, it had been obliged to confine itself to filling the small gaps left for it by its predecessors; to providing, on a large scale, articles that were too paltry for the English, too tawdry for the French; to manufacturing on a small scale products that were always changing, cheap goods at a low price. Let it not be thought that this is merely an assertion of our own: these are the very words of the official assessment of German products as set out in Philadelphia (1876) by the official commissioner of the German Government, Mr. Reuleaux, a man with a European scientific reputation.

An industry of this kind can only assert itself in neutral markets if there is free trade at home. If one expects German textiles, processed metals and machinery to withstand foreign competition abroad, then all the raw materials necessary for their production, cotton, linen or silk thread, pig iron or metal wire, must be available at the same low price at which their foreign competitors buy them. So you have the choice of two things. If you wish to continue exporting textiles and the products of the metal industry, then free trade is necessary, at the risk of seeing these industries use materials taken from abroad. If, on the other hand, you wish to protect spinning and the production of crude metals in Germany with customs tariffs—then you will soon have ruled out the possibility of exporting the products of which thread and crude metal are the raw materials.

By protecting spinning and metallurgy with his notorious tariff, Mr. Bismarck destroyed the last chance which German textiles, processed metals, needles and machinery had until then of finding an outlet abroad. But the Germany whose agriculture produced a surplus for export in the first half of the century cannot now do without a supplement of foreign agricultural products. If Mr. Bismarck forbids his industry to produce for export, with what will he pay for these imports and many others which all the tariffs in the world will not prevent him from needing.

To solve this question called for nothing less than the genius of Mr. Bismarck combined with that of his Stock Exchange friends and advisers. This is how it is done:

Let us take iron. The period of speculation and feverish production has bestowed on Germany two firms (the Dortmund Union and Laurahütte), each of which has the capacity to produce, on its own, enough on average to satisfy the country’s entire consumption. Then there is the gigantic Krupp concern in Essen, another similar one in Bochum, and then an infinite number of smaller ones. As a result, domestic iron consumption is covered three or four times over, at least. One might say that this is a situation necessitating most urgently unlimited free trade, which is alone capable of securing an outlet for this enormous excess production. One might say so—but this is not the opinion of those involved. Since there are at most a dozen companies that matter and which dominate the others, one forms what the Americans call a RING: an association to maintain prices at home and regulate exports.

As soon as there is a bid for rails or other products of their factories, the Committee designates by turns the member who is to undertake the work, and fixes the price at which he is to do so. The other associates submit tenders at a higher price, similarly agreed in advance. As a result, all competition ceases; there is an absolute monopoly. The same thing goes for exports. To ensure the implementation of this plan, each member of the RING deposits with the Committee a blank bill for 125,000 francs, to be put into circulation and presented for payment as soon as the signatory has broken the agreement. In this way the price of the monopoly extorted from the German consumers will permit the factories to sell abroad their excess production at prices that even the English refuse—and the German philistine (who anyway deserves it) pays the piper. This is how German exports are becoming possible again, thanks to the same protective tariffs which in the eyes of the common people appear to be destroying it.

Do you want examples? Last year an Italian railway company, which we could name, needed 30,000 or 40,000 tons (of 1,000 kg) of rails. After long negotiations an English factory took 10,000; the rest of the order went to the Dortmund Union, which offered delivery at a price that was turned down in England. An English competitor, asked why he could not offer better terms than the German concern, replied: “Who on earth can compete with a bankrupt?”

In Scotland a railway bridge was to be constructed across an arm of the sea near Edinburgh. 10,000 tons of Bessemer steel were needed for this bridge. Who accepted the lowest price, who defeated all competitors, and on the native soil of the great iron industry, England? A German, protected by Bismarck in more ways than one, Mr. Krupp of Essen, the “Cannon King”.

So much for iron. It goes without saying that this fine system can only delay the inevitable bankruptcy of these big conspiring companies for a few years. Meanwhile, as the other industries imitate them, they will ruin not the foreign competition but their own country. It is almost like living in a country of madmen; yet all the facts recounted above have been taken from bourgeois free-trade newspapers in Germany herself. Organising the demolition of German industry on the pretext of protecting it—are they wrong, then, those German socialists who have been repeating for years that Mr. Bismarck is working for socialism, as if he were in their pay?

II. THE STATE RAILWAYS

From 1869 to 1873, during the rising tide of speculation in Berlin, two institutions, at times hostile, at times in alliance, shared the domination of the Stock Exchange: the Discount Society and the Bleichroeder bank. These were, so to speak, the Péreires and the Mirés of Berlin. Speculation being chiefly directed at the railways, these two banks had the idea of making themselves indirect masters of most of the major lines already in existence or under construction. By buying and holding a certain number of shares in each one they would dominate their boards of directors; the shares themselves would be the deposit for loans with which to buy new shares, and so on. A pure repetition, of course, of the ingenious little operation which first brought the two Péreires to the height of success and ended with the Crédit mobilier crisis, as we know. At the beginning the Berlin Péreires met with the same success.

In 1873 the crisis came. Our two banks found themselves burdened with their heaps of railway shares which could no longer be made to cough up the millions which they had swallowed. The plan to subjugate the railway companies had failed. So they changed their tack, and tried to sell them to the state. The plan to concentrate all the railways in the hand of the Imperial Government has its origin not in the social welfare of the country but in the individual welfare of two insolvent banks.

The implementation of the plan was not too difficult. They had “interested” a good many members of parliament in the new companies, thus dominating the national liberal and moderate conservative parties, in other words the majority. Some high officials of the Empire, some Prussian ministers, had had a hand in the shady deals whereby these companies were founded. In the last resort, Bleichroeder was Mr. Bismarck’s banker and financial factotum. So they were not short of means.

Meanwhile, to make it worthwhile selling the railway shares to the Empire, it was necessary to raise the price of the shares. So, in 1873, they created an “imperial railways office”; its head, a well-known shady speculator, at once raised the fares on all German railways by 20%, which was supposed to increase net revenue and hence also the value of the shares by about 35%. This was the only step which this gentleman took; it was the only reason why he had accepted his duties; therefore he resigned shortly afterwards.

Meanwhile, they had succeeded in giving Bismarck a taste for the plan. But the petty kingdoms resisted; the Federal Council refused point-blank. A new change of tack: it was resolved that Prussia should first buy all the Prussian railways, selling them, should the occasion arise, to the Empire.

Moreover, there was another ulterior motive for the Imperial Government to wish to acquire the railways. And this is related to the French milliards.

Out of these milliards they had kept back some considerable sums in order to form three “imperial funds”, one for the construction of a parliament building, the second for fortresses, and finally, the third for the invalids of the last three wars. The total sum amounted to 926 million francs.

The most important and at the same time the strangest of these three funds was the one for the invalids. It was designed to eat itself up; that is to say, the day the last of these invalids was dead, the fund itself, capital and interest, would also have disappeared. A fund which consumes itself sounds like the invention of madmen once more. But these were no madmen; it was the shady speculators of the Discount Society who had invented it, and for a good reason. This is why it took nearly a year to get the government to accept the idea.

However, it seemed to our jobbers that the fund would not devour itself fast enough. Moreover, they believed it was their duty to endow the other two funds with the same fine property of devouring themselves. The means was simple. Even before a law had laid down the nature of the securities in which these funds would be invested, a commercial company owned by the Prussian Government was authorised to buy up suitable stocks and shares. This company turned to the Discount Society, which sold, for the three imperial funds, 300 million francs worth of railway shares, at that time unsaleable, which we could specify.

Among these shares were 120 millions in MagdeburgHalberstadt and amalgamated lines, an almost bankrupt railway which had served to ensure enormous profits to the speculators, but had scarcely any chance of bringing in any return at all to the shareholders. This may be imagined when one bears in mind that the board of directors had issued shares to a value of 16 millions to meet the cost of constructing three branch lines and that this money disappeared entirely without the lines even having been started. And the invalid fund is the proud owner of a good many of these shares in non-existent railways.

The acquisition of these lines by the Prussian State would legalise at a stroke the purchase of shares in them by the Empire; it would give them a certain real value. This is the interest of the Imperial Government in the affair. Hence the line which we are concerned with here was among the first whose purchase was proposed by the Prussian Government and ratified by the chambers.

The price paid to the shareholders by the State was well above the real value, even of the good lines. Which is demonstrated by the constant rise in their shares as soon as the resolution to buy them was known and especially once the conditions of sale were announced. Two major lines, whose shares were worth 103 and 108 respectively in December 1878, were subsequently bought by the State; today they are quoted at 148 and 158. Hence nothing was more difficult for the shareholders than to conceal their joy while the deal was being negotiated.

It goes without saying that this rise brought happiness mainly to the big jobbers of Berlin who were in on the secret intentions of the government. The Stock Exchange, still rather depressed in the spring of 1879, gained new life. Before finally parting with their dear shares, the speculators made use of them to organise a new orgy of jobbing.

It is plain to see: the German Empire is just as completely under the yoke of the Stock Exchange as was the French Empire in its day. It is the stockbrokers who prepare the projects which the Government has to carry out—for the profit of their pockets. Yet in Germany they have an advantage which the Bonapartist Empire lacked: if the Imperial Government encounters resistance among its princelings it turns into the Prussian Government, which will certainly not find any in its own chambers, true branches of the Stock Exchange that they are.

What’s that? Hasn’t the General Council of the International said it already, immediately after the war of 1870: “You, Mr. Bismarck, have only overthrown the Bonapartist régime in France in order to re-establish it in your own country!"