the world of private banking
the world of private banking
the world of private banking
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162<br />
THE WORLD OF PRIVAtE BANKING<br />
Personal links between <strong>the</strong> bankers and wealthy (and influential) landowners<br />
were crucial in this respect. Since <strong>the</strong> agrarian reforms had produced substantial<br />
surplus funds in <strong>the</strong> hands <strong>of</strong> <strong>the</strong> big landowners, <strong>the</strong> latter relied on <strong>the</strong> bankers’<br />
advice on how to invest <strong>the</strong>ir personal property. The available investment<br />
opportunities such as government loans and mortgage bonds, however, ei<strong>the</strong>r<br />
produced a low (and declining) return or involved high risks. It was in <strong>the</strong>ir<br />
common interest, <strong>the</strong>refore, that <strong>the</strong> influential Westphalian nobility pressed for<br />
State guarantees in Berlin in order to minimize <strong>the</strong> risks involved in subscribing<br />
railway shares. This, in turn, induced o<strong>the</strong>r, more reluctant wealth-holders to invest<br />
in railway shares <strong>of</strong> guaranteed companies such as <strong>the</strong> Cologne-Minden or Berg-<br />
Mark railway companies via <strong>the</strong> Rhenish <strong>private</strong> bankers. 10<br />
Outside Prussia, particularly in Sou<strong>the</strong>rn Germany, <strong>the</strong> situation was somewhat<br />
different. Wealth-holders shied away from investing even in guaranteed shares,<br />
and <strong>the</strong> States were thus forced to build State railways. 11 In order to fund <strong>the</strong>ir<br />
investment projects governments had to go to <strong>the</strong> Frankfurt capital market, so that<br />
in this indirect way even <strong>the</strong> most risk-adverse Frankfurt bankers became involved<br />
in <strong>the</strong> financing <strong>of</strong> railways. Despite <strong>the</strong> close connection between <strong>the</strong> leading<br />
Frankfurt banks and railway building States, hardly any banker became directly<br />
engaged in domestic railways. M.A. Rothschild & Söhne and <strong>the</strong> o<strong>the</strong>r leading<br />
Frankfurt bankers became content with <strong>the</strong> introduction <strong>of</strong> foreign railway issues<br />
in <strong>the</strong> Frankfurt market. Apart from that, railways became important only as part<br />
<strong>of</strong> governmental transactions. 12<br />
The activities <strong>of</strong> Erlanger & Söhne, after <strong>the</strong> mid-century <strong>the</strong> outstanding<br />
Frankfurt competitor to <strong>the</strong> Rothschilds, are a telling example in this respect.<br />
Erlanger’s engagement began in 1865, when for political reasons Bismarck tried<br />
to buy up <strong>the</strong> formerly Danish Sou<strong>the</strong>rn Schleswig Railway Company, which was<br />
built and largely owned by <strong>the</strong> English railway contractor Morten Peto. From <strong>the</strong>n<br />
on, Erlanger became <strong>the</strong> leading Frankfurt ‘railway bank’, but it hardly invested<br />
in German railway companies, instead specializing, like <strong>the</strong> Frankfurt market as<br />
a whole, in foreign railways, Russian and US railway bonds in particular. 13 The<br />
market in domestic railway shares and bonds was left to Berlin, since <strong>the</strong> leading<br />
Berlin banks had taken on <strong>the</strong> challenge. Already in 1848 Gebr. Schickler held a<br />
strong minority interest in nine railway companies. Schickler was thus <strong>the</strong> leading<br />
10<br />
W. Treue, ‘Das Privatbankwesen im 19. Jahrhundert‘, in H. Coing (ed.), Wissenschaft<br />
und Kodifikation des Privatrechts im 19. Jahrhundert, vol. 5 (Frankfurt/Main, 1980), p. 103.<br />
11<br />
H. Winkel, ‘Kapitalquellen und Kapitalverwendung am Vorabend des industriellen<br />
Aufschwungs in Deutschland‘, in Schmollers Jahrbuch, vol. 90, 1970, pp. 275–301, here<br />
pp. 288–9; Ferguson, Geschichte, vol. 1, p. 497.<br />
12<br />
Heyn, Private Banking, pp. 264–71.<br />
13<br />
N. Klarmann, ‘Unternehmerische Gestaltungsmöglichkeiten des Privatbankiers im<br />
19. Jahrhundert ‐ dargestellt am Beispiel des Hauses Erlanger & Söhne’, in H.H. H<strong>of</strong>mann<br />
(ed.), Bankherren und Bankiers (Limburg, 1978), pp. 27–43.