German Railroads Under the Kaiser

In considering the German policy it must be remembered that the railroad is primarily military in character, and secondarily, an instrument in the hands of the state for the building up of internal industries. These considerations render it entirely different from the principles governing railway construction and operation in the United States. In no other leading country has the policy of government ownership been more consistently carried out; nowhere else has government operation been so successful. As to the comparative degree of success attained there are differences of opinion. Many point to the German State railways, particularly those of Prussia, as the best-managed railways in the world. Many others find much in them to criticise.

Railways were constructed to meet the requirements of peace, and not just of war; and the direction, construction, and provision both of the personnel and materiel of a line of railway depended upon commerial considerations, especially those affecting the profit of the railway shareholders. If, however, a line of railway be constructed either entirely or partially to meet not so much chances of profit as other important interests, such as the defence of the country, or be thereby caused to be constructed more expensively than it otherwise would be, the speculators had to be assisted by the State, the latter either constructing the line and undertaking the management itself, or guaranteeing the speculators a certain interest on their money, and getting in return a preponderating influence in the question of construction and management.

It is evident that when the State took an immediate share in the construction of a railway, ample provision can be made to meet military considerations. In the case of lines constructed by private enterprise, without any government assistance, permission to construct the line may be also made subject to certain conditions, the substance of which is generally to insist on an increase in the provision for meeting the demands of traffic, and rarely to diminish or curtail either the liberty of construction or means of traffic. It is against our modern ideas to suppose that the defence of the country can be impaired by the construction of any line of railway; on the contrary, every new line of railway adds a fresh element of strength to our national system of defence.

From the period of early railway construction in Germany the states took an active part in their establishment and regulation. Although concessions were first granted to private companies, it was always clearly specified that the state might take over such roads if it saw fit. As early as 1838, however, Prussia recognized the possibility of public ownership. It provided that the State might guarantee the interest of railways, and that if advances were made by it, it might, after a certain time, assume the operation of the lines concerned. During the period from 1838 to 1847 the larger part of the German railway system was in the hands of private companies, and no aid was given by the state to encourage railway construction.

In 1847 the Prussian Diet inaugurated the policy of guaranteeing 3 percent interest on capital invested, provided that profits in excess of 5 per cent should be distributed as follows: (1) to repay the state for guarantees advanced; (2) to create a fund from which further advances might be made when earnings fell short; and (3) to purchase shares of railway stock for the state. During this period the state also bought shares of stock outright in order to stimulate development.

After the panic and depression of 1845-48 Prussia took over a number of small roads that had become embarrassed. In 1848 it began building a military line from Berlin to the Russian frontier. But neither Prussia nor the other German states followed a consistent policy. Sometimes they built railways themselves; sometimes they subsidized or bought stock in private lines. From 1848 Prussia exercised exceedingly strict supervision over railway time tables, tariffs, and even the appointment of certain officials. The state also reserved the right to take over any lines which had required the guarantee three years in succession. Practically the same conditions existed in other German states.

A distinct policy of nationalization was not inaugurated until after the 1870 Franco-Prussian War. Bismarck wanted a unified system as a means of binding the empire together politically and strengthening its military position. The conflicts with Austria and France had impressed him with the advantages of such state control as would enable the central government, without intermediaries, to use the railways to convey troops promptly where they would be most effective. The power of the imperial government to regulate all railways, public or private, was broadly defined in the Imperial Constitution.

Under Bismarck's influence, a comprehensive plan for uniting the interests of all the German states was inaugurated. He proposed nationalizing all railways throughout the Empire, whether such railways were owned by private corporations or German states. This plan had for its prime object the uniting of all the states in order to establish a powerful, aggressive and harmonious nation.81 The policy contemplated uniformity of rates, reduction of rates, adjustment of equipment to military needs, and fostering of native industries by giving the Empire control of export and import tariffs.

State ownership was advocated mainly on economic and political grounds, military considerations being advanced also but with nothing like the stress laid on the economic arguments. Public railways are of great military value to the State, and military men agreed in assigning much weight to the acquisition of the railways by the State. It was urged that the railways should be managed solely in the public interest, and as a unit; that railways are frequently needed where they will not pay and where private enterprise will not build them. In France six big companies had absorbed 48 companies; in England eleven of the chief railways had absorbed 362 companies; and the same processes are at work in Germany. The argument for State ownership was submitted to the Prussian Parliament in 1879 by the Cabinet, along with bills granting the power and means necessary for the purchase of four important railway systems and the extension of the State lines. State ownership carried the day. Parliament gave the administration authority to purchase the principal private railways, passing the bill by a vote of 226 to 155, and the roads were bought.

The constitution under Prussian influence, authorized the Empire to require all the German states to construct lines where strategic conditions demanded it, and to control rates on such lines. To facilitate administration the Empire created the ReichsEisenbahn-Amt, an executive council to bring under central control all questions regarding transportation affecting the Empire, and to secure, as far as possible, uniformity in state railway legislation and administration. The government, however, did not possess power to make this policy effective. It failed because the other German states were too fearful of Prussian domination to become parties to the Bismarckian policy. Prussia then proceeded to apply the policy locally, taking over practically all the remaining private lines in her own state and such adjacent lines as she could secure.

In 1896 all the Hessian lines were brought under Prussian influence. By 1899 the nationalization of the German roads was complete, Baden, Saxony, Bavaria, and Wiirtenburg, following the Prussian policy in order to prevent further Prussian aggressions. By 1900 Prussia owned and operated 16,725 miles of railway in her own borders and 2,127 outside, the total constituting about two-thirds of all German railway mileage. In 1907 1,490 miles of the railways in Prussia were privatelyoperated and 22,041 miles state-operated. In 1910 the mileage of private lines in Germany was 2,193; the mileage of state lines, 34,547; and the total cost of construction, $4,163,615,519, or $113,324 per mile. While the law from the first empowered the Prussian State to compel the railway companies to sell to it, the transfers usually were brought about by friendly negotiations, and the prices paid were commonly based on current stock exchange quotations of the railways' securities.