Dr. Otto Jeidels, Relation of the German Big Banks
to Industry with Special Reference to the Iron Industry,
Leipzig, 1905 ((Volume 24, No. 2 of Schmoller’s
Forschungen)).
| The preface is dated: June 1905 | ||
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Impossible to read after Riesser: repetitions, raw mate- rial, minor facts, nothing new. This refers only to the beginning of the book. Appar- ently, Riesser stole from it. When it comes to the rela- tionship to industry, Jeidels is richer, livelier, cleverer, more scientific. |
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a common pheno- menon |
p. 18: An example: the buying up of shares (1904) of the Gelsenkirchener Bergwerksgesell- schaft in order to elect Thyssen on to the “Super- visory Board” (!!). |
p. 57: Number of (joint-stock) banks and private bankers taking part in the issue of industrial stocks:
| No. of bankers |
Issues per banker |
No. of banks |
Issues per bank |
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| 1871-72 | 90 | 4.4 | 31 | 6.1 |
| 1899 | 34 | 2.7 | 16 | 12.4 |
p. 103: The brothers Mannesmann sold their patents for “seamless pipes” for 16 million marks (!) (1890).
Every crisis (1857, 1873, 1900) leads to concentration, but especially 1900:
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“Side by side with the gigantic plants in the basic industries, the crisis of 1900 still found many plants organised on lines that today would be considered obsolete, the ‘pure’ [non- combined] plants, which were brought into being at the height of the industrial boom. The fall in prices and the falling off in demand put these ‘pure’ enterprises in a precarious positions which did not affect the gigantic com- bined enterprises at all or did so only for a very short time. As a consequence the crisis of 1900 resulted in a far greater concentration of indus- try than the crisis of 1873; the latter crisis also produced a sort of selection of the best- equipped enterprises, but owing to the level of technical development at that time, this selection could not place the firms which success- fully emerged from the crisis in a position of monopoly. Such a durable monopoly exists to a high degree in the gigantic enterprises in the modern iron and steel and electrical industries owing to their very complicated technique, far-reaching organisation and magni- tude of capital, and, to a lesser degree, in the engineering industry, certain branches of the metallurgical industry, transport, etc.” (108)....[1] |
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monop- oly |
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p. 111: When it was found necessary to make the firm Phoenix join the Stahlwerksverband, the Schaaffhausenscher Bankverein bought up the majority of its shares and ensured the adoption of the required decision.
In the same way, the Dresdner Bank “won” two places on the Supervisory Board of the Königs- und Laurahütte iron and steel mills (four years ago) and carried through what it wanted....
The role of the Supervisory Boards is very wide (in fact it could be = management)....
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...“Seats on Supervisory Boards are freely offered to persons of title, also to ex-civil servants, who are able to do a great deal to facilitate relations with the = authorities”...[2] (149). |
sic! (simple!) |
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“Usually, on the Supervisory Board of a big bank, there is ... a member of parlia- ment or of the Berlin City Council” (152)....[3] |
the usual story!! |
155 (in fine)... “But the cases quoted [a number of “names” are cited: Dernburg—director of the Darmstädter Bank, Gwinner—director of the Deutsche Bank] clearly show that Industrial leaders are mainly on the Supervisory Board of companies of the same branch or the same region, whereas directors of the big banks, on the other hand, are on the boards of the most diverse enterprises”....
1. The director of the Schaaffhausenscher Bankverein is on the Supervisory Boards of 33 companies!! (p. 155).
p. 150: an example of 35 seats on Supervisory Boards being in the same hands... (35).
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p. 156... “Simultaneously with this widen- ing of the sphere of activity of certain big industrialists and with the assignment of provincial bank managers to definite industrial regions, there is a growth of specialisation among the directors of the big banks. Generally speaking, this spe- cialisation is only conceivable when bank- ing is conducted on a large scale, and particularly when it has widespread con- nections with industry. This division of labour proceeds along two lines: on the one hand, relations with industry as a whole are entrusted to one director, as his special function; on the other, each director assumes the supervision of separate enterprises, or of a group of enterprises in the same branch of industry or having similar interests. One specialises in German industry, sometimes even in West German industry alone, others specialise in rela- tions with foreign states and foreign indus- try, in information on the characters of industrialists, and others, in Stock Exchange questions, etc. Besides, each bank director often assigned a special locality or a special branch of industry; one works chiefly on Supervisory Boards of electric companies; another, on chemical, brewing, or beet sugar plants, a third, in a few iso- lated industrial enterprises, but at the same time works on the Supervisory Boards of non-industrial companies, such as insur- ance companies. To demonstrate this from the example of some Berlin bank directors would take us too far into the personal sphere. In short, there can be no doubt that the growth in the dimensions and diversity of the big banks’ operations is accompanied by an ever greater division of labour among their directors with the object (and result) of, so to speak, lifting them somewhat out of pure banking and making them better experts, better judges of the general problems of industry and the special problems of each branch of industry, thus making them more capable of acting within the respective bank’s indus- trial sphere of influence. This system is supplemented by the banks’ endeavours to elect to their Supervisory Boards or those of subordinate banks, men who are experts in industrial affairs, such as industrialists, former officials, especially those with expe- rience in the railway service or in mining,[4] from whom they want not so much con- nections with industrial enterprises as expert advice—advice, based less on academic education than on many years of techni- cal, business and human experience”... (157). ...“But as member of a Supervisory Board, a bank director has not only the advantage of being interested in conscien- tious performance of his office because of his responsibility to the bank; he also is the best informed as to the state of the market and can make his large office staff carry out the commercial and technical assignments of the Supervisory Board. It is his knowledge of many companies that facilitates his judgement of a particu- lar one and guards him against the over- estimation that is often observed when a private person sits on the board of only one company” (157-58). |
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“supervision” of social economy |
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| “system” | |||||||
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view of the “whole” |
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At the end of 1903, representation of the German big banks on the SUPERVISORY BOARDS of industrial companies was as follows (pp. 161-62)[5]:
| Deutsche Bank | Discontogesell- schaft |
Darmstädter Bank |
Dresdner Bank | Schaaffhaus- enscher Bank- verein |
Berliner Han- delsgesellschaft |
(My) total for six big banks |
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| By directors | 101 | 31 | 51 | 53 | 68 | 40 | 344 | ||||
| By members of Supervisory Board . . . |
120 | 61 | 50 | 80 | 62 | 34 | 407 | ||||
| ⎼⎼⎼ | ⎼⎼⎼ | ⎼⎼⎼ | ⎼⎼⎼ | ⎼⎼⎼ | ⎼⎼⎼ | ⎼⎼⎼ | |||||
| Total . . . | 221 | 92 | 101 | 133 | 130 | 74 | 1,040 | ⎧ ⎨ ⎩ |
751 | ||
| By Chairman or more than two S.B. members . . . |
98 | 43 | 36 | 41 | 38 | 33 | 289 | ||||
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“universal nature” |
...“The universal nature of banking oper- ations in industry, as so far described, the possibility and necessity for a big bank systematically to use regular business transactions, the granting of industrial credit, the issue of securities, and repre- sentation on Supervisory Boards, as a means of close and lasting relations with indus- trial enterprises-all this weaves such a tight net around the bank and the indus- trial enterprise that a competitive struggle with the latter over a particular business operation is often, and in the case of many companies permanently, excluded” (163).... |
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“An examination of the sum total of industrial relationships reveals the uni- versal character of the financial estab- lishments working on behalf of industry. Unlike other kinds of banks, and contrary to the demand sometimes expressed in the literature that banks should specialise in one kind of business or in one branch of industry in order to prevent the ground from slipping from under their feet-the big banks are striving to make their con- nections with industrial enterprises as varied as possible in respect of the locality or branches of industry and are striving to eliminate the unevenness in the distri- bution of capital among localities and branches of industry resulting from the historical development of individual enter- prises[6]. Hand in hand with this is the effort to base relations with industry on regular, lasting business connections, to give expression to them and to afford them the possibility of becoming wider and deeper by means of a ramified system of seats on Supervisory Boards. Compared with these two spheres of influence, the issue of stock is of relatively less impor- tance for the big banks' relations with industry. One tendency is to make the connections with industry general; another tendency is to make them durable and close. In the six big banks both these tendencies are realised, not in full, but to a considerable extent and to an equal degree” (180)....[7] |
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“universal character” |
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“unlike” (the old) |
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the “tendency” |
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“new” relations of industry and the banks |
“The connections between the banks and industrial enterprises, with their new content, their new forms and their new organs, namely, the big banks which are organised on both a centralised and a de- centralised basis, were scarcely a charac- teristic economic phenomenon before the nineties; in one sense, indeed, this initial date may be advanced to the year 1897, when the important mergers took place, and when, for the first time, the new form of decentralised organisation was intro- duced to suit the industrial policy of the banks. This starting-point could perhaps be placed at an even later date, for it was the crisis of 1900 that enormously accele- rated and intensified the process of con- centration of industry and of banking, consolidated that process, for the first time transformed the connection with industry into an actual monopoly of the big banks, and made this connection much closer and more active” (181)[8].... |
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“scarcely before the nineties” 1897 |
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crisis (1900) |
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after the crisis of 1900 (de- pression) |
...“The sudden concentration in the Rhine-Westphalian mining industry, the for- mation of the Federation of Steel Plants, the mergers of the big electric companies, etc., have undoubtedly greatly accelerated practical solution of the question of the connections between the banks and indus- try” (182).... |
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...“Modern industry has led the banks into entirely new fields of economic life ... the bank is to a certain extent passing from its role, in the main, of intermediary into the sphere of industrial production.... In this way [through the connection with industry] the big banks are in touch not only with development trends in individual plants, but also with the interrelationship between the different plants of a given industry and between different industries” (183).... |
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“Anyone who has watched, in recent years, the changes of incumbents of direc- torships and seats on the Supervisory Boards of the big banks, cannot fail to have noticed that power is gradually passing into the hands of men who consider the active intervention of the big banks in the general development of industry to be necessary and of increasing impor- tance. Between these new men and the old bank directors, disagreement on this subject of a business and often of a per- sonal nature is growing. The issue is wheth- er or not the banks, as credit institu- tions, will suffer from this intervention in the industrial production process, and whether they are sacrificing tried prin- ciples and assured profit to engage in a field of activity which has nothing in common with their role of middlemen in providing credit and which is leading the banks into a field where they are more than ever before exposed to the blind forces of trade fluctuations. This is the opinion of many of the older bank direc- tors, while most of the young men consi- der active intervention in industry to be a necessity as great as that which gave rise, simultaneously with big modern indus- try, to the big banks and modern indus- trial banking. The two parties are agreed only on one point: there are neither firm principles nor a concrete aim in the new activities of the big banks” (184)[9]. |
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transition ... to what? |
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“Banking business with foreign countries and abroad falls into three divisions, each of which corresponds to a definite stage of development: international pay- ments, the taking up of foreign loans, and participation in industrial enterprises broad ... each ... has impressed its stamp on a definite period in the foreign policy of the German big banks. |
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1 2 3 |
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...“On the significance of loans for Ger- man home industry, a business manager of the Discontogesellschaft, which special- ises in foreign operations, made the follow- ing statement ten years ago to the Stock Exchange Enquiry Commission (Proceedings of the Stock Exchange Enquiry Commission, p. 371, statement by Russel): ‘I should consider it a very great disadvantage if ... the floating of foreign loans in Ger- many was put, not in the hands of German capital and the German banks, but in foreign hands. It was to avoid this that the Foreign Ministry was so greatly-and in my opinion so rightly-interested in our having commercial offices, bank branch- es and contacts abroad. For only through such contacts can the desired foreign orders for German industry be found. |
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...“‘The universal complaint of our export industry is that Germany lags greatly behind London in the big-order market. Almost all orders are concentrated in Lon- don, in this great world market, and it is only our closer connection with individ- ual foreign firms that gives rise to a busi- ness relationship and regular employment for industry’” (186-87).... |
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N.B. “orders” |
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...“In the dealings of the German big banks with foreign industrial enterprises, we should distinguish two stages, differing in basis and in time. The first, taken histor- ically, coincides approximately with the flourishing period of foreign loans and relates, therefore, to different years in different countries: the seventies and eigh- ties can be regarded as the heyday of foreign railway construction” (187). |
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two stages |
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| railways |
Two subtypes (“opposite poles”): the Rumanian railways and participation in American railways.
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“This first stage is marked by partici- pation in foreign industry being closely bound up with loan activity, although German home industry, as a supplier, can derive some benefit from this. The powerful initiative of the banks is deci- sive, but it only indirectly concerns indus- try, their main attention being devoted to profitable investments in foreign secu- rities. It requires a situation in which home industry is not yet so concentrated and, at the same time, so expanding as it has become since the nineties. |
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since the nineties |
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In the second stage, on the contrary, foreign loans are of less importance, while the interest of the big banks in foreign industry increases, for this is less depend- ent on other financial connections with the country concerned. The big banks more frequently sponsor, or co-sponsor, indus- trial companies in other countries and, at the same time, collaborate closely with German home industry in foreign business operations” (188).... |
second stage |
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...“In foreign expansion these [German concerns] are much more dependent on the banks than in their domestic opera- tions.... The bank operating abroad [in contrast to domestic operations], however, feels itself at home, has its branches, con- trols international payments, and might even be connected with the government of the given country by helping it float a loan” (189).... |
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| 4 forms |
“Four forms of bank participation in foreign industrial enterprises can be dis- tinguished: 1. The formation of branches or subsidiary enterprises for Ger- man home industry.... |
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...“2. The formation ... of separate foreign enterprises which are only loosely or not at all connected with home industry.... But the really characteristic case is afford- ed by the recent exotic railway pro- jects and the East Asian enterprises of the big banks jointly participating in the German-Asiatic Bank”.... This is already "a link in the conquest of an economic region” (190). |
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my italics |
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4. ...“The German banking world has also sought to secure for itself, or for German capital behind it, exclusive exploi- tation of some branch of industry abroad” (192) ... for example, the efforts “to organise under its control a part of the oil industry, mainly the Rumanian .... |
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establish “its own” industry |
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division of the world |
...“The world oil market is even today still divided between two great financial groups-Rockefeller's American Standard Oil Co., and Rothschild and Nobel, who control the Russian oilfields in Baku. The two groups are closely connected. But for several years five enemies have been threat- ening their monopoly” (193); |
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(1) exhaustion of the American oil sources; (2) the competition of the firm of Manta- shev & Co. in Baku; ✕ (3) the Austrian oilfields; ✕ (4) the Rumanian oilfields; ✕ (5) overseas oilfields, particularly in the Dutch colonies (the extremely rich Samuel, and Shell Transport and Trading Co.).[10] |
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x = Participation of the Deutsche Bank and other German banks. |
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... “The driving force of the banks’ activ- ity abroad is not national zeal but the necessity, which becomes ever more imperative at a certain stage of capitalist development, of establishing abroad a fa- vourable field for the investment of free German capital” (197).... |
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an elementary truth |
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“A similar role [aid to industrial enter- prises] is played by the banks in estab- lishing societies for technical research, the results of which are intended to benefit friendly industrial enterprises. Such, for example, are the Electric Railway Research Association, the Central Bureau of Scien- tific and Technical Research, set up by the Loewe concern, and the Central Mining Bureau, Ltd., in Frankfurt-am-Main, which is financed by leading banks as well as big industrialists” (210-11).[11] |
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technical role of the big banks (finance capital) |
Sometimes the banks bring various industrial enterprises into closer association (in some cases leading to a cartel, in others assisting specialisation, etc.)....
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bank = “inner connection” between enterprises |
...“The bank to a certain extent embodies here the inner connection between a large number of enterprises which results from the development of large-scale industry; it represents the community of interests existing between them” (215).... |
“What a rich opportunity of giving employment to friendly industrial enterprises is afforded the Deutsche Bank by such an undertaking as the Baghdad Railway!” (217)....
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N.B. growth of connections |
“However ‘incidental’, so far, the clos- er association has been of various enter- prises and industries through the granting of bank-sponsored orders, it is at any rate an important symptom that with the growth of large-scale industry the connec- tions become more numerous, and increas- ingly complicated and imperspicuous. The connections and interdependence of vari- ous industries and enterprises find in the big banks an organ which gives them expression and more and more makes the latent connection into a real hand-in-hand collaboration” (219).... |
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⎞⎞ ⎠⎠ |
Complaints are heard of the “terrorism” of the banks—(219-20)—they make it compulsory (for orders and so on) to deal with a particular firm (220). |
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In the electrical industry a special role was played by the crisis (apparently 1900), and the banks intensified and accelerated the ruin of the relatively small enterprises and their absorption by the big ones (pp. 230-32).... “The banks refused a helping hand to the very firms in greatest need of capital, and brought on first a frenzied boom and then the hopeless failure of the companies which were not connected with them closely enough”(232).[12] |
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banks and ruin of enterprises |
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[details about the electrical industry not interesting. Cf. more recent ones in Die Neue Zeit.] |
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The Loewe group
The Loewe sewing-machine factory, founded in 1889, added production of armaments, then later (in the seventies and eighties) ordnance, boilers, etc., etc., and later still electrical industry, subsidiary companies, etc. [not very well described by Jeidels].
In a § on the relation of the big banks to the cartels (253-58), the author has somewhat “spread himself” and become incoherent. He distinguishes four forms: (1) indifference (to unimportant cartels); (2) “definite interest” (254) in cartels such as that of the coal industry (in cartels which are life-and-death questions for the industry);
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(3) “help” for a cartel, e.g., steel indus- try; (4) a purely “banking relation”—the organ- isation, for example, of a “syndicate office” at the Schaaffhausen- scher Bankverein (1899).... |
difference from No. 2? not “definite interest”? |
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258-65: description of concentration in the coal industry (Thyssen and others). See Werner’s better and newer material in Die Neue Zeit, 1913, in the other notebook.[13] |
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265 et seq., the electrical industry (see in Die Neue Zeit[14]).
“The banks’ highest principle here is primarily conscious promotion of concentration, which they have already indirectly assisted by financial support of successful enterprises” (268)....
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“The transformation of the big banks’ industrial policy from being the policy of a credit institution to a policy of indus- trial concentration reveals a triple contra- diction in the development of modern banking” (268).... |
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“trans- formation” |
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1) ...“The fact of progressive exclusion of competition among the big banks” (269).... |
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2) “Decentralisation” of the banks (local branches and connection with provincial banks) leads to an “increasing coalescence of capitals, uniting bank and industry into an integral whole”.... |
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3) ...“increasing concentration implies a more purposeful organisation”.... (270)
“By expansion of industrial combination, various directions of which can be seen in the electrical and in large-scale iron and steel industries, the sphere of this consciously guided production can be considerably enlarged, and in this unmistakable movement the big banks are an important factor” (270)....
And the tendency is special patronage of heavy industry (coal and iron) to the detriment of any other....
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“The striving of the big banks for concentration and purposeful guidance of industry is contradictory when it is restricted to certain branches of industry and thereby results in a still greater lack of co-ordi- nation in other branches” (271).[15] |
End
[1] See present edition, Vol. 22, p. 209.—Ed.
[2] Ibid., p. 221.—Ed.
[3] Ibid.—Ed.
[4] See present edition, Vol. 22., pp. 221-22.—Ed.
[5] See present edition, Vol. 22, p. 221.—Ed.
[6] Ibid., p. 223.—Ed.
[7] See present edition, Vol. 22, p. 223.—Ed.
[8] Ibid., p. 225.-Ed.—Lenin
[9] See present edition, Vol. 22. pp. 224-25.—Ed.
[10] See present edition. Vol. 22, pp. 248-49.—Ed.
[11] Ibid, p. 224.—Ed.
[12] See present edition, Vol. 22, p. 246.—Ed.
[13] See Notebook “α”, pp. 33-25 of this volume.—Ed.
[14] See p. 338 of this volume.—Ed.
[15] See present edition, Vol. 22, p. 208.—Ed.
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