Chapter 7: German banking and the impact of the First World War
Hans-Joachim Voth When the failure of the Darmstädter- und Nationalbank sparked a banking panic in July 1931, the stage was set for the ﬁnal chapter of Germany’s descent into its deepest depression in recorded history. Exactly 17 years earlier, in July 1914, German support for the Habsburg Empire’s policy in the Balkans led to the Austrian ultimatum to Serbia and Russia’s mobilization: the outbreak of war had become a certainty.1 This chapter examines the relationship between these two events, or, more accurately, the historical processes for which they stand pars pro toto. I begin with an overview of the existing literature that argues that the German banking system emerged fatally weakened from the ashes of war and inﬂation. Inter-war developments are then placed in a long-term perspective and compared with international evidence. The conclusion argues that the impact of the First World War on the banking system, while pronounced, has been overstated, and that it is not one of the main causes of German slump’s severity. The main consequences of the war are to be found in an environment for which the bank’s speciﬁc role and abilities was particularly well suited, and consequently in the banking sector’s much expanded contribution to Germany’s ﬁnancial system and to the economy as a whole. FROM WAR TO DEPRESSION: THE ROLE OF THE BANKS That the slump was more severe in Weimar Germany than in virtually any other country has often been noted. Industrial output fell by almost 40 per cent,...
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