the world of private banking

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