Carroll Quigley - Tragedy and Hope - A History of the World in Our Time

To be sure, the great need for capital on the part of German industry in the period after 1924 (since so much of German savings was wiped out by the inflation) gave a false afterglow to the setting sun of German financial capitalism. In five years, billions of marks were supplied to German industry through financial channels from loans made outside Germany. But the depression of 1929 to 1934 revealed the falsity of this appearance. As a result of the depression, all the Great Banks but one had to be rescued by the German government, which took over their capital stock in return. In 1937 these banks that had come under government ownership were “reprivatized,” but by that time industry had largely escaped from financial control.

The beginnings of monopoly capitalism in Germany goes back at least a generation before the First World War. As early as 1870, the financial capitalists, using direct financial pressure as well as their system of interlocking directors, were working to integrate enterprises and reduce competition. In the older lines of activity, such as coal, iron, and steel, they tended to use cartels. In the newer lines, like electrical supplies and chemicals, they tended to use great monopolistic firms for this purpose. There are no official figures on cartels before 1905 but it is believed that there were 250 cartels in 1896, of which 80 were in iron and steel. The official investigation of cartels made by the Reichstag in 1905 revealed 385, of which 92 were in coal and metals. Shortly after this, the government began to help these cartels, the most famous example of this being a law of 1910 which forced potash manufacturers to become members of the potash cartel.

In 1923 there were 1,500 cartels, according to the Federation of German Industrialists. They were, as we have seen, given a special legal status and a special court the following year. By the time of the financial collapse of 1931 there were 2,500 cartels, and monopoly capitalism had grown to such an extent that it was prepared to take over complete control of the German economic system. As the banks fell under government control, private control of the economic system was assured by releasing it from its subservience to the banks. This was achieved by legislation such as that curtailing interlocking directorates and the new corporation law of 1937, but above all by the economic fact that the growth of large enterprises and of cartels had put industry in a position where it was able to finance itself without seeking help from the banks.

This new privately managed monopoly capitalism was organized in an intricate hierarchy whose details could be unraveled only by a lifetime of study. The size of enterprises had grown so big that in most fields a relatively small number were able to dominate the field. In addition, there was a very considerable amount of interlocking directorates and ownership by one corporation of the capital stock of another. Finally, cartels working between corporations fixed prices, markets, and output quotas for all important industrial products. An example of this—not by any means the worst—could be found in the German coal industry in 1937. There were 260 mining companies. Of the total output, 21 companies had 90 percent, 5 had 50 percent, and 1 had 14 percent. These mines were organized into five cartels of which 1 controlled 81 percent of the output, and 2 controlled 94 percent. And finally, most coal mines (69 percent of total output) were owned subsidiaries of other corporations which used coal, producers either of metals (54 percent of total coal output) or of chemicals (10 percent of total output).

Similar concentration existed in most other lines of economic activity. In ferrous metals in 1929, 3 firms out of 26 accounted for 68.8 percent of all German pig-iron production; 4 out of 49 produced 68.3 percent of all crude steel; 3 out of 59 produced 55.8 percent of all rolling mill products. In 1943, one firm (United Steel Works) produced 40 percent of all German steel production, while 12 firms produced over 90 percent. Competition could never exist with concentration as complete as this, but in addition the steel industry was organized into a series of steel cartels (one for each product). These cartels, which began about 1890, by 1930 had control of 100 percent of the German output of ferrous metal products. Member firm had achieved this figure by buying up the nonmembers in the years before 1930. These cartels managed prices, production, and markets within Germany, enforcing their decisions by means of fines or boycotts. They were also members of the International Steel Cartel, modeled on Germany’s steel cartel and dominated by it. The International Cartel controlled two-fifths of the world’s steel production and five-sixths of the total foreign trade in steel. The ownership of iron and steel enterprises in Germany is obscure but obviously highly concentrated. In 1932 Friedrich Flick had majority ownership of Gelsen-Kirchner Bergwerke, which had majority control of the United Steel Works. He sold his control to the German government for 167 percent of its value by threatening to sell it to a French firm. After Hitler came into power, this ownership by the government was “reprivatized” so that government ownership was reduced to 25 percent. Four other groups had 41 percent among them, and these were closely interwoven. Flick remained as director of United Steel Works and was chairman of the boards of four other great steel combines. In addition, he was director or chairman of the boards in six iron and coal mines, as well as of numerous other important enterprises. It is very likely that the steel industry of Germany in 1937 was controlled by no more than five men of whom Flick was the most important.

These examples of the growth of monopoly capitalism in Germany are merely picked at random and are by no means exceptional. Another famous example can be found in the growth of I. G. Farbenindustrie, the German chemical organization. This was formed in 1904 of three chief firms, and grew steadily until after its last reorganization in 1926 it controlled about two-thirds of Germany’s output of chemicals. It spread into every branch of industry, concentrating chiefly on dyes (in which it had 100 percent monopoly), drugs, plastics, explosives, and light metals. It had been said that Germany could not have fought either of the world wars without I. G. Farben. In the first war, by the Haber process for extracting nitrogen from the air, it provided supplies of explosives and fertilizers when the natural sources in Chile were cut off. In the second war, it provided numerous absolute necessities, of which artificial rubber and synthetic motor fuels were the most important. This company by the Second World War was the largest enterprise in Germany. It had over 2,332.8 million Reichsmarks in assets and 1,165 million in capitalization in 1942. It had about 100 important subsidiaries in Germany, and employed 350,000 persons in those in which it was directly concerned. It had interests in about 700 corporations outside Germany and had entered into over 500 restrictive agreements with foreign concerns.

Among these agreements the most significant was the European Dyestuff Cartel. This grew out of a Swiss cartel formed in 1918. When I. G. Farben was reorganized in 1925 and a similar French organization (Kuhlmann group) was set up in 1927, these two formed a French-German cartel. All three countries set up the European Cartel in 1929. Imperial Chemicals, which had won a near monopoly in British territory in 1926, joined the European Cartel in 1931. This British group already had a comprehensive agreement with du Pont in the United States (made in 1929 and revised in 1939). An effort by I. G. Farben to create a joint monopoly with du Pont within the United States broke down after years of negotiation in a dispute over whether division of control should be 50-50 or 51-49. Nevertheless, I. G. Farben made many individual cartel agreements with du Pont and other American corporations, some formal, others “gentlemen’s agreements.” In its own field of dyestuffs, it set up a series of subsidiaries in the United States which were able to control 40 percent of the American output. To ensure I. G. Farben control of these subsidiaries, a majority of Germans was placed on each board of directors, and Dietrich Schmitz was sent to the United States to become a naturalized American citizen and become the managing head of the chief I. G. Farben subsidiary here. Dietrich Schmitz was a brother of Hermann Schmitz, chairman of the board of I. G. Farben, director of the United Steel Works, of Metallgesellschaft (the German light-metals trust), of the Bank for International Settlements, and of a score of other important firms. This policy of penetration into the United States was also used in other countries.