Financial heroism: financing the First World War in Britain and Germany

Josephine Maltby, University of Sheffield

Janette Rutterford, Open University

Presented at 175 years of The Economist, University College London,

September 24-25, 2015

This is a draft paper: please do not quote without reference to the authors.

Introduction

The Economist had two editors during WW1, FW Hirst (FWH), from 1907-1916

followed by Hartley Withers (HW) from 1916 to 1921. FWH was replaced by HW as a

direct result of his views on the War as well as on its financing. There was thus a

change in editorial policy for the Economist mid-way through the War which we

highlight in this paper. We discuss how the Economist compared with other

mainstream publications, such as The Times and the Investors’ Review. We will also

see how the British and German press report on wartime finance and on each

other’s coverage of it.

We intend to look principally at coverage of War Loan and, in Britain, War Savings

Certificate (WL and WSC) marketing and performance. It is possible to make direct

comparisons because long term bonds were launched in the two countries at the

same time with the aim of financing the war. (See Table 1 for details). In Great

Britain there were three WL issues in 1914, 1915, and 1917. These were largely

aimed at traditional investors: the launch of WSC in 1916 was aimed at encouraging

working-class savings, by a small minimum value (77.5p). These strategies were

combined with borrowing short-term and overseas, and higher levels of taxation-

income tax, expenditure taxes, death duties and Excess Profits Duty. The British

Government that bond finance reduced the need to raise taxes. It would also soak

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up spare cash and thus prevent inflation triggered by consumption spending by the

working class and middle class, many of whom were better off as a result of the War.

Germany had no equivalent to WSC: it made an issue of WL every 6 months from

1914– a total 9 issues in the course of the War. As in Britain, the aim of issuing long

term bonds was to reduce dependence on short term money market loans.

Germany also used WL as a means of collecting gold held by individuals, needed to

increase the money supply and pay for overseas purchases. Unable to raise income

taxes (which were imposed at Land level, not nationally) the federal government

introduced excess profits duty and also raised excise and death duties. German

fears about inflation were dealt with by food rationing and price controls.

Both countries produced massive promotional campaigns for their finance initiatives

How did the press in the two countries deal with financing and with the enemy

performance?

FWH was described in The Times Feb 23, 1953 obituary as ‘one of the last of the

school of Mill, Cobden, Bright and Gladstone, who, in season and out preached the

old Liberal doctrines of peace, economy and free trade’. The obituary went on to say

that it had been a ‘tragedy’ that his editorship was ended by the ‘shattering of the

stable, rational and peaceful world that Hirst took as his postulate.’ Ruth Edwards

(1993: 527) argues that, in his attitude to Germany before war broke out, he was

‘realistic but not unfriendly’. She calls him (op. cit. 530) ‘dominated by wishful

thinking’ in his claims that war could not happen, and (op. cit. 532) as showing

‘buoyant optimism’ in his claims that peace was assured. And when war broke out

Hirst ‘made no concessions to the pro-war fever…sweeping the country’ (op. cit.

539).

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In the course of the war, he campaigned against conscription and DORA1 (Edwards

1993: 564), leading to his being accused by The Times of a ‘distressingly pacifist’

policy (op. cit. 567).By the summer of 1916 Hirst ‘became too much’ for the trustees

and was sacked, to be immediately replaced by HW

HW came to the Economist direct from the post of Director of Financial Inquiries at

the Treasury, which had followed a series of appointments as City Editor of the

Times and then of the Morning Post and with the merchant banker Seligman. He

was greeted by The Investor’s Review (IR) (1.7.16 6-7) as ‘one of the coolest and

shrewdest practical men of affairs of the day.’ According to Edwards (1993: 577) he

introduced a ‘much more orthodox…attitude to the War’.

The remainder of this paper will give an overview of the Economist’s coverage of

wartime finance in Britain, in the context of the press nationally in Germany on the

same themes. The issues we consider are the treatment of wartime loan finance, of

taxation and of national policy, and the ways in which the Economist did and did not

resemble the press more generally. In GB we will look in particular at the Economist

in comparison with the IR and its treatment of the same issues.

From the beginning of the war, the IR gave detailed and energetic accounts of its

impact on the City and on finance. The IR was founded in 1892 by AJ Wilson, a

financial journalist of long standing- he had experience going back to the 1870s of

working in the financial press. A contemporary described Wilson as ‘the knight

without fear or reproach’ among City editors (Kynaston 2012: 178). He was willing to

take on and campaign against scandals – see e.g. his attacks on Rhodes and the

1 DORA was the Defence of the Realm Act 1914 which gave wide powers to the British Government including severe censorship of the media.

3

South African Company and on Imperial treatment of Indian peasants (Porter 2007:

242 and Brass 2011: 242).

The outbreak of War

On 8.8.14, when Germany stopped payments in London, the IR called it ‘loathsome

and dastardly…a brutal and senseless crime’ by ‘the German “War God” and his

blood-thirsting minions. The IR took the line (19.9.14 339) that GB was one of the

‘creditor nations’ of the world, able to call on financial resources, but Germany was

not. Germans were ‘essentially a simple people, as becomes barbarians’. They

would not be able to raise credit (only Krupps was buying WL, it claimed, and that

was from the amount the Government owed them). It concluded that ‘Germany is

bankrupt and starving and must soon succumb’. By the end of 1914, the IR was

making detailed calculations of the amount of reparations Germany would be made

to pay.

The Economist’s lead article on 1 August 1914 immediately put it at odds with this

hatred of Germany. Hirst explained that his article was designed ‘to give our readers

some faint notion of the extent of the financial calamity which has suddenly

overtaken Europe and the world...the financial world has been staggering under  a

series of blows such as the delicate system of international credit has never before

witnessed, or even imagined’. It argued that war rather than an attack by

‘barbarians’, was a threat to a harmonious European system. On 8 August when war

had been declared Hirst exclaimed that

‘Death, anguish, starvation and despair are written over western Europe...It is the

triumph of diplomacy over common sense, or force over reason, of brutality over

humanity.’

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This was not just his editorial style, but also his tone in public speaking. The

Yorkshire Evening Post 9 Nov 1915 records a speech by FW Hirst to Leeds bankers

in which he attacked Government spending, calling the Exchequer ‘wholly

subordinated to the demands of the War Office and the hysterical cries of the Yellow

Press.’

Quoting comparisons of spending by Germany, GB and other combatants, he

claimed that the GB government was overspending: ‘If these figures were at all

accurate, political economy would end the war, otherwise the war would end political

economy.’

Where the IR predicted imminent downfall for the enemy, the Economist under Hirst

treated Germany as an economic competitor and was not afraid to give credit where

credit was due. In its reporting of the first German WL, in September 1914, it noted

that there had been a huge public response, which it took as evidence of the

attractiveness of the financial offer (a 5% interest rate guaranteed for at least 10

years) but also patriotism and, most notably, investment by the less affluent. It

reported that out of 1.15 million investors, 900,000 took amounts of less than £100,

including 200,000 taking amounts of between £5 and £10. (£5 equated to 100 marks,

the lowest value of WL available in Germany.) This emphasis on different investor

groups became a key measure of marketing success in both countries and

promotional efforts to sell WL were reported by the enemy press. For example,

throughout the first year of the War, the Economist quoted speeches by German

politicians promoting WL and praising WL’s financial security (e.g. 13.3.15 p520,

27.3.15 p619-20).

War Loan and War Savings

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In contrast to the first German WL, the British WL of Autumn 1914 was ‘a fiasco …

the Treasury’s blackest secret’’ (Roberts 2012: 190), producing a sales shortfall of

£113m that had to be bought up by the Bank of England and the commercial banks.

Roberts blames the failure on the size of the offering, which was based on the

money wanted by the Government and not on market capacity, on its pricing ‘in a

vacuum’ (the Stock Exchange was closed), its complex structure and ‘avoidable

mistakes’ in presentation and timing.

Given its unpopularity with investors, WL enjoyed very positive treatment generally in

the media. The Daily Mail (20.11.14) greeted it as ‘the soundest and most attractive

loan ever offered by the British Government’. For the IR, 19.12.14 619-20 in a long

article ‘The WL as a money-box’, it was the perfect investment for the small investor.

It had previously insisted (28.11.14 552) that WL was ‘considerably over-subscribed’

Despite FWH’s anxiety, The Economist joined in the applause, though less warmly –

(5.12.14 p992). ‘Mr LG’s huge loan was designed to appeal to rich men and bankers:

and it is amazing proof of London’s resources that it should have been so subscribed

when the rate of interest was so unattractive.’

HW began his editorial career positive about WL. From January 1917, when the

Third WL was launched, there were regular items, called WL points about the market

for WL. In an important article, Withers called for ‘Financial Heroism’ in the form of

saving rather than spending, and investing in WL (6.10.17 p.487). He described the

terms of the third WL - a gross redemption yield of approximately 5⅜%, the certainty

of getting one’s money back - as looking to the average investor of 20 years ago like

‘an impossibly beautiful dream’ compared to the 2.5% they then received from

Trustee Securities.

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From their 1916 launch WSC were promoted with great urgency and emphasis by

massive advertising campaigns, which reflected the Government claim that massive

popular saving (providing the nation with ‘silver bullets’) was essential in order to win

the War. This was the tone of claims such as the Daily Mail leaders describing WL

as ‘a magnificent investment…better than gold’. Other money-raising campaigns

such as Tank Weeks operated on a similar basis –marches, displays, speeches and

intensive press coverage. Local and national newspapers listed the amounts

invested by corporate lenders (e.g. The Times February 8, 1917).

Initially, the Economist paid little attention to the 1916 launch of WSC. Its major

theme, apart from the WL market, was British Government policy – and in particular

its effectiveness in marshalling resources for the war effort. This was about

government taxation and spending, and also about the promotion of private thrift in

the population at large. Although Edwards (1992: 578) describes HW’s ‘Financial

Heroism’ article 6.10.17 as one which Hirst ‘would have hated’, what started to

appear in The Economist was a growing dissatisfaction with national performance.

Where FWH had expressed this by attacking government waste, HW had a different

target in mind. As early as 3.3.17 pp 424-5 in ‘The Law and the Moral’, he

celebrated the amount raised by the latest WL issue, but warned about the need for

taxation to ‘check the extravagance of unpatriotic and thoughtless people whom no

other appeal will reach’ – he quoted the examples of lavish parties, and ‘the Asquith

wedding of 1915’. Withers was targeting those who set a bad example, making it

harder to promote thrift to the working classes. Taxation was needed as well as

borrowing to reduce personal consumption in wartime, in particular amongst the

better off.

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On 29.9.17 p451 he continued on this theme, calling for the promotion of saving, not

amongst the workers, where the War Savings Committee was succeeding in

harnessing resources, but amongst ‘the well-to-do classes’ who were not doing

‘anything like their duty’ and wasting money on clothes, Stock Exchange speculation

and parties. Too much of the war, HW argued, was being funded by borrowing

abroad and ‘the machinery of credit’, not enough by saving.

As the war continued, there was a convergence of views between the Economist and

the IR that Government policy was not working. On 16.3.18, for instance, The

Economist reported (p 462) that the last week’s war bonds campaign had produced

£139m. But the Government should go for ‘real saving’ steadily, not ‘explosive

outbursts…injunctionary booming.’ The grand promotional campaigns resulted in a

response that was ’not saving at all’, just a sort of craze or panic. What HW wanted

to see was a change of morale brought about by policy, not by marketing.

The IR argued that the German economy was in a state of collapse (see e.g.

29.7.16) and buoyed up only by inflation, but it, too, was losing confidence in the

efficacy of WL. On 21.10.16 264-5 ‘Our borrowing muddlements’ attacked British

borrowing: WSC, though advertised ‘by all the devices known to the expert publicist’

were ‘only feebly popular’ and there was the danger of ‘a credit storm’ leading Britain

to ‘financial paralysis.’ For the IR, the problem was that Britain had started the war

unprepared for financial demands: ‘in this respect our treasury management

contrasts unfavourably with the German and still more the French.’ The British

should have prepared for war with long-term bonds (10-20 years) issued in bulk.

The difference between the journals was in the solution they promoted. For the IR, it

was crucial to promote mass saving, and this could not be achieved by WSC alone.

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WSC was good for the small saver, and likely to promote post-war thrift, but it was

not enough to attract people who had not saved before, and who did not understand

financial products.

In a relentless campaign in favour of the introduction of premium bonds as an

alternative for the unsophisticated investor, it argued (5.10.17 365) that WSC income

was disappointing, and the WL would produce a divisive burden on workers post-

war. Britain would be laden with debts that would have to be paid to the affluent,

whilst German reparations would be inadequate. There was the danger of ‘class

divisions, jealousies, perhaps even revolts’. Premium bonds, on the other hand, were

cheap, easy to understand, and had the possibility of a rapid return – that would

make the working classes save. Otherwise the country would be divided by

selfishness, like that of the miners more interested in football and horses than in the

war as well as the woman who paid 10s to a ‘West End Store’ to buy ‘a pie for her

dog’s birthday’,. There was a working-class ‘spirit of profiteering’ the IR argued, as

well as an industrial one (27.10.17: 420).

The Economist did not join the IR campaign for premium bonds. HW’s argument was

that the middle classes and the rich needed to contribute more to the war effort as

had the working class with WSC. He praised the results of the War Savings

Committee, its ‘army’ of 15k ‘devoted and disinterested workers’ and the increase

from 345k to 16.75 million holders of Government securities (25.5.18 pp.912-3), but

above all he called for taxation of the wealthy and more saving from all strata of

society. (1.6.18 p938-9) ‘The Chancellor’s Appeal’ quotes from an interview with the

Chancellor of the Exchequer calling for people to live more simply, cut household

spend to a minimum and put surplus earnings and spare cash in the bank into War

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bonds or WSC, and for businesses as well as individuals to buy WL. The Economist

reiterates its view that thrift is essential, and agrees with the Chancellor, but it notes

(939) that ‘he has certainly dealt tenderly in the matter of taxation with those who

own and handle wealth.’ By the end of the War, The Economist was invoking

(9.11.18 pp.646-7) ‘The Investor’s Duty’, as it criticised the outbreak of trading in

‘speculative or semi-speculative shares at very high prices’ and recommended

‘British Government bonds for 5¼%’

What developed in The Economist as the war progressed seems to have been a

growing impatience with government policy but also with the behaviour of some

investors- hence the calls for taxation and thrift among the affluent as well as the

masses in order to achieve financial stability and victory.

The German press

Altenhöner comments that the War had put an end to the ‘relative freedom of the

press’ that existed in pre-war Germany. Initially, censorship was designed to prevent

the spread of information about military matters but, as the war progressed, it was

also concerned with the management of the public mood. The key word was

Burgfriede, a national truce, which entailed an end to party disputes for the duration

of the hostilities. The key slogan was the Kaiser’s Ich kenne keine Parteien mehr, ich

kenne nur noch Deutsche. (I don’t recognise parties any more, only Germans’).

This veto on political controversy applied to the press treatment of everything to do

with the war, and so it affected the coverage given nationally to German WL. This

was accompanied by a massive propaganda campaign. Ther (2014) identifies the

promotional campaign for WL as an inspiration for propaganda more generally. It

was recognised at the time as exceptional and exceptionally successful (see e.g.

Fairchild (1922, 252). Part of the propaganda took the form of an advertising

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campaign using poster and press advertising (see e.g. Bruendel 2010). But the press

itself was crucially involved.

Throughout the War, the Reichsbank (RsB) monitored press treatment of German

WL, inside and outside Germany, which included a vast number of regional

newspapers as well as the national press. The German press also gave a striking

amount of coverage of Allied financial performance. Some of this was in the form of

news reports. In 1915, for instance (1.8.15) Norddeutsche Allgemeine Zeitung

reported that GB was 'concerned about German finance'. It mocked reports in GB

press that Germany was in financial difficulties, claiming that in fact it was GB that

had problems, and needed the banks to buy up its WL issue due to lack of demand

from the public. (This had indeed been the case for the first British WL). A 10 .3.17

Berliner Tageblatt article compared GB and German WL and noted that GB had

needed to increase the interest rate to 5% in order to get lenders (again, a valid

point). German cartoons often treated British WL as a target- e.g. in a 1915 drawing

in Simplicissimus, Britannia stands next to a gloomy man slumped in an armchair.

She looks indignantly at him, saying, ‘The war has cost us £50 million. If only we’d

put it into German WL’

At the same time, the German press made extensive use of graphics- charts,

diagrams and cartoons- to illustrate the superiority of the German economy over

those of the Allies (see e.g. 1.4.17 from Deutsche Kriegswochenschau, with cartoon

drawings of the amount of the contribution of small lenders to WL). The campaign to

promote WL via the press was tailored to meet different reader groups’ interests. The

artistic magazine Des Kunstwarts titled itself Deutscher Wille (German Will) for the

length of the war, and carried articles like Avernarius’ 1917 piece on ‘WL and

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intellectuals’, claiming that it was the cultural and moral duty of people who read the

magazine to lend, ‘Not solely as Germans, but as cultural workers for the good of

humanity, we will take out WL’

The Deutsche Kriegswochenschau was a weekly magazine covering all aspects of

the War: in 1917, it produced an edition devoted to WL, which carried articles aimed

at a variety of possible investors – workers, farmers, and women. Instead of a

sweeping invocation to support WL, each article was targeted at particular concerns

and values: the farmer was exhorted to ‘Sow Money and Harvest Victory’, the

housewife to do ‘the ancient womanly duty of supporting her menfolk’.

A long article in Die Grenzboten, a well-known current affairs magazine, in 1915 was

titled ‘Was the 2nd English WL a success?’ It was a detailed analysis of the terms of

the loan, quoting extensively from the British press –e.g. a letter from Financial News

24 June which said that the middle classes couldn't afford to buy WL because the

value of their investments had fallen, and a comment in the Times that the public had

not been given long enough to buy. The Grenzboten writer referred to the Economist

as criticising both the conduct of the war and the terms of the issue. The British

journal had noted the high levels of purchases by banks (implicitly contrasting these

with disappointing individual investment). The Grenzboten argued that ‘patriotic

feelings’ had deterred The Economist from saying more about the failed issue.

The Reichsbank’s collection of newspaper and magazine clippings from Germany

and from the Allied powers, and the foreign coverage by the media on both sides

point to the importance of the press in the campaigns to raise finance from WL. The

British press had more freedom and used it to criticise Government policies, in an

attempt to shape the way that the war was financed: the German media was directed

towards unconditional support for policy under the terms of the national truce. British

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and German media were aware of and monitored each other. The deployment of

statistics, in particular by Germany, attacking the enemy’s financial stability and

praising the nation’s own were the adaptation of peace-time reporting and editing

skills to the needs of the war.

Conclusion

In Britain and Germany 1914-1918, governments used some similar strategies to

fund their war efforts, and the press was involved in the financial campaign. Both the

powers made an increasing effort to promote savings through advertising and the

media. In Germany, the Reichsbank oversaw a highly co-ordinated strategy that

used different newspapers and journals in ways aimed at their readership – direct

advertising, material for editorials, articles aimed at different social classes and

occupations. The British approach was less directed, and editors retained freedom to

criticise Government policy. The Economist’s wartime reporting is interesting

because it shows a range of viewpoints. Editorial tone altered from FWH’s dismay to

HW’s support for the war. But HW’s initial support was tempered more and more by

frustration that government was not imposing a regime of national long-term planning

and individual thrift and self-denial. ‘Financial heroism’ was a mission that had not

been fulfilled.

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References

Altenhöner Florian (2014) Press/Journalism (Germany) http://encyclopedia.1914-

1918-online.net/home/

Avernarius Ferdinand (1917) Kriegsanleihe und Geistesarbeiter in Deutscher Wille:

des Kunstwarts vol 13 April 1-2

http://digi.ub.uni-heidelberg.de/diglit/deutscherwille30_3/0018

Berliner Tageblatt

Brass Tom (2011) Labour Regime Change in the Twenty-First Century: Unfreedom,

Capitalism and Primitive Accumulation Leiden: Brill

Bruendel, Steffen (2010) Vor-Bilder des Durchhaltens: Die deutsche Kriegsanleihe-

Werbung 1917/18. - In: Durchhalten! : Krieg und Gesellschaft im Vergleich, 1914 -

1918 Bauerkämper, Arnd. - Göttingen, 2010.

Daily Mail

Deutsche Kriegswochenschau 1917 No 44

The Economist

Edwards, R.D. (1993) The Pursuit of Reason; The Economist 1843-1993. Boston:

Harvard Business School Press

Fairchild, Fred Rogers (1922) German War Finance--A Review The American

Economic Review, Vol. 12, No. 2 (Jun.,), pp. 246-261

Gibson A. H (1921) British finance during and after the war, 1914-21being the result

of investigations and materials collected by a committee of Section F of the British

Association, co-ordinated and brought up to date for the committee London: Pitman

Die Grenzboten 1915 War die zweite englische Kriegsanleihe ein Erfolg? volume

74, pp161-172

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The Investor’s Review

The World’s Largest Loan (1917) London: T Fisher Unwin

Kynaston, David (2012) City of London: The History London: Random House

National City Company. (1918). Internal war loans of belligerent countries: also

consolidation loan of Spain and mobilization loans of Switzerland and Holland. New

York: The National City Company.

Norddeutsche Allgemeine Zeitung

Porter, Bernard (2007) Critics of Empire: British Radicals and the Imperial Challenge

London: I.B.Tauris

Roberts, Richard (2013) Saving the City The great Financial Crisis of 1914 Oxford:

OUP

Simplicissimus (1915) Zu Spät! Vol. 20 ( 25) 289

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The Times

The Yorkshire Evening Post

The Yorkshire Post

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Table 1 War Loan and War Savings

British War Loans were issued in 1914, 1915 and 1917

Amoun

t

£m

No of subscribers

000

1914 350 Not disclosed

1915 616 1100

1917 1000 5289

From World’s Largest Loan 1917 p3

War Savings Certificates were issued continuously from 1916

Y/e 31 March

Amount£m

1916 11917 731918 62From Gibson 1921 p135

German WL was issued every 6 months from September 1914.

1914 1915 1916 1917 1918

1 2 3 4 5 6 7 8 9

Total in

000m

4460 9060 12101 10712 10652 13122 12626 15001 10443

In £m 223 453 605 536 533 656 631 750 522

From Roesler 1967 p. 206, all converted at 20m =£1

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