the world of private banking

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THE WORLD OF PRIVAtE BANKING
hinterland demanded an efficient financial backing. Thus, the Hamburg bankers,
such as Berenberg, Gossler & Co., Salomon Heine, L. Behrens & Söhne, C.H.
Donner and M.M. Warburg & Co., specialized in a particular service, the financing
of overseas trade – merchant banking.
While the economic fragmentation of the German territory before 1834, when
the Zollverein was founded, had been one of the reasons for the poor state of
internal trade and thus for the country’s economic decline relative to its western
neighbours, the political fragmentation was one of the reasons for Frankfurt’s
position as a first-rank European financial centre. After the German map had been
reshaped at the Congress of Vienna, the new German States were near to declaring
themselves bankrupt. In addition to their mainly unfunded war debt, these States
developed an enormous additional credit demand in order to build up a State
bureaucracy and to integrate their newly acquired, often politically, economically
and mentally incoherent parts. In economic terms political fragmentation also
meant coinage chaos. Hundreds of different types of coins circulated in Germany,
and in many cases the manipulation of the coins’ specie content had been a means
of the smaller territories’ fiscal policy. Long-distance trade, therefore, suffered
from exchange risks despite seemingly stable specie standards, and payment
settlements often required professional assistance. Exchange dealings thus formed
a large market for Frankfurt banking houses.
Both markets – merchant banking (in Hamburg) and State financing and
exchange dealings (in Frankfurt) – were not at all declining when a new demand for
capital and credit appeared. By the mid-1830s the first German railway companies
had proved that the building of railways could become a profitable business, not
only for the prospective customers (by speeding up the transport of goods and
passengers and by reducing transport costs), but also for prospective investors.
Capital was not scarce in Germany during the 1830s and early 1840s, but the
wealthy public was not yet used to investing in shares of joint-stock companies.
In addition, during the early period of railway development the German States
did not support private railway initiatives, while the States themselves were
not inclined to take control of railway development by building the tracks on
their own account. The reasons were different – the Postmaster General feared
railway competition with the State-owned Prussian post services, the finance
minister feared the railways’ competition with the newly erected State-owned
M. Pohl, Hamburger Bankengeschichte (Mainz, 1986), pp. 55–71.
U. Heyn, Private Banking and Industrialization: The Case of Frankfurt am Main
1825–1875 (New York, 1981), pp. 206–61; H.P. Ullmann, ‘Der Frankfurter Kapitalmarkt
um 1800: Entstehung, Struktur und Wirkung einer modernen Finanzinstitution‘, in
Vierteljahrschrift für Wirtschafts- und Sozialgeschichte, vol. 77, 1990, pp. 75–92; C.-L.
Holtfrerich, Finanzplatz Frankfurt (Munich, 1999), p. 155.
K. Borchardt, ‘Zur Frage des Kapitalmangels in der ersten Hälfte des 19. Jahrhunderts
in Deutschland‘, Jahrbücher für Nationalökonomie und Statistik, vol. 173, 1961, pp. 401–
21, here p. 414.