Sparkasse Karlsbad, Bohemia


Industrialisation and the industrial boom in Cisleithania, the western part of the “Dual Austro-Hungarian Monarchy”, boosted the confidence of Austrian liberalism, while the crash of 1873 weakened it again considerably. The Gründerzeit (literally: founding time) resulted from a combination of several factors, a mushrooming financial sector willing to invest in the economy, an expanding rail network making demands on the iron industry and technical innovation in various coal-consuming industries, all of this interacting to produce an economic leap forward. As in the 1850s the railway expansion spurred financial innovation, the Gründerzeit was characterised by a blossoming of banking institutions. After the financial crisis of 1857/58 most private bankers experienced a serious downturn, but finance grew again from 1867, the founding of the dual monarchy, via the multiplication of joint stock banks through the established Creditanstalt, associated with Anselm Rothschild, and the Niederösterreichische Escomptegesellschaft. Utilising high profits, the banks helped sponsor the growth of joint stock companies, 1005 of which received charters in the years 1867-73. Vitkovice, controlled by Rothschild, led the way in the adoption of the Bessemer process by the monarchy’s major iron works by 1870, along with puddling, the rolling mill and increasingly the use of coke instead of charcoal. Chief among them was the Bohemian Iron Company, centred at the coal-mining town of Kladno near Prague, which had emerged from the amalgamation of three predecessors in 1857. The coal production received a powerful impetus from technical innovations in a series of industries in the 1860s, like flour milling, sugar refining, paper making and of course the textile industry.


The speculative side to this impressive progress – only two thirds of the 1005 charters led to actual foundations – was revenged in the big crash of 1873 when share prices plunged, crowds stormed the banks, several frauds were exposed and 152 suicides related to the crash were registered in its immediate aftermath. In the following six years of severe depression the boom sectors of finance, heavy industry and the building trade were worst hit. The most lasting effect of the slump was the distrust of laissez-faire liberalism and the caution it instilled into the banks over too active and direct a role in promoting the growth of industry. The crash coincided with the trials for inefficiency and labyrinthine sub-contracting of the directors of the Eastern Railway in Galicia, which exposed the dangers of the system of state interest guarantees for private capital.


From 1880 the Austrian economy began to recover more strongly and again the railways headed the growth phase, now under state control and with extensive re-nationalisation of private lines. Bank capital rose, too, in larger but still far fewer joint stock banks compared to the Gründerzeit. The nine Viennese “big banks” held just under half of all bank share capital in 1900 and two thirds in 1913. A concentration of Austrian industry was visible since the 1880s as a reaction to the depression and to the growing tendencies towards protectionism and concentration, especially in Germany. Also the Austro-Hungarian Empire adopted a more protectionist tariff in 1882. In this concentration of industry the leading Austrian banks played a significant role. The banks’ role in Central European development can be linked to the need of later industrialising areas for larger investment in order to fund more advanced technology. This explains why the “universal bank” was so wide-spread in Austria and Germany as this kind of bank took over an industrial role as well as a commercial role, financing enterprise, just as discounting bills of exchange and receiving deposits. Yet the Austrian banks remained suspicious of an entrepreneurial role after the crash of 1873 and contented themselves with promoting relationships with already successful firms, to whom short-term credit through repeated renewal could become long-term credit in all but name. In such relationships banks might contract to sell a client’s produce on commission and receive a seat on the board of directors. From 1890 onwards the links of finance and industry began to become tighter and banks were increasingly more willing to sponsor the conversion of private firms into joint stock companies and their mergers into more complex groups of companies. Joint stock companies doubled to 780 in the empire by 1912, holding approximately half of the industrial capital of the Austro-Hungarian Empire. In other estimates the nine Viennese banks held more than half of the joint stock capital in 1914 and banks had participated in 146 new joint stock foundations since 1897.


A further aspect of the industry’s links with the finance world was the bank sponsorship of cartels. There firms or branches of firms agreed to regulate prices, output and carved up markets. Starting with iron rails in 1878, there were around 200 cartels in the empire by 1912. A supervisory Kontrollbank was set up by the big banks in 1914 to establish some control over the situation and supervise the development of cartels. But the tendency towards cartels applied to the banks themselves as well, for a major bank like the Creditanstalt would have a number of smaller provincial banks in tow and via these enjoyed links with outside capital. This development took place in addition to the extension of its own branch network. This helped the joint stock banks to advance their share of savings at the expense of savings banks and credit associations since 1900.


The trends towards concentration of industry, bank involvement and cartelisation were accompanied by another important tendency in the Austro-Hungarian economy, namely the shift of economic power from the Alpine regions to the Czech parts of the empire, especially Bohemia. Many factors contributed to this fact such as the switch from charcoal to coal, the closeness to German markets and the Elbe – Hamburg route, the success of the sugar refinery and the emergence of Prague as a financial, food-processing and metallurgical centre. The Moravian capital Brno lost out to Bohemian Reichenberg in textiles. By 1900 56 per cent of Austrian industrial workers were in the Czech lands and more than 75 per cent of output in chemicals, mining, textiles, sugar and glass came from there. Bohemia had become, after Lower Austria including Vienna, the second richest Cisleithanian province in per capita income terms. Yet the Austro-German economic dominance of the Czech lands remained in place, strengthening the perception that the industry was in the hands of the German-speaking population, the managers were German-speaking and the workers Czech-speaking. The two most dynamic personalities in the Bohemian-Moravian industry counted socially as Germans: Emil Skoda, who opened an armaments factory in Pilzen in 1900, and Karl Wittgenstein, the father of the philosopher, who ran the Prague Iron Company. Also the refining sector was largely in German hands and was supported by Viennese banks. Only in the 20th century did the situation begin to change significantly. After 1900 Austria’s financial assets more than doubled, investment is estimated to have been around 13 per cent of GNP and per capita national income rose annually by around 5.4 per cent. During the boom years 1904-07 employment rose by a third in the iron and steel industry and by 23 per cent in the cotton industry. New technologies like electro-technology developed, the industry became electrified and Porsche began producing cars.


Despite lagging behind in economic growth and efficiency the economic development of the Hungarian part of the Austro-Hungarian Empire bore many similarities to the Austrian half. In the same way similarities can be pointed out between the Austrian and German economic development. In this context the Austrians were always lagging behind. So Robin Okey tentatively speaks of “a central European economy sharing certain structural traits. Close bank ties with industry, an overall complementarity of financial flows and markets, despite mutual rivalries, and other resemblances rooted in elite acquaintance with German culture and educational norms: all this shaped a more intimate regional nexus than central Europe has known since 1918.” (Okey, Robin, The Habsburg Monarchy 1765-1918, Palgrave 2002, 233)


Hungary had for centuries been an agrarian land. The corn exports of 1867/68 stimulated by exceptionally good harvests triggered the first real economic growth phase together with the rapid rise of Budapest’s flour milling industry. A third of Hungary’s joint stock foundations during Gründerzeit were in flour milling and the production in Budapest rose eight times within 10 years. Half of Germany’s flour imports at that time came from the empire and mostly from the Hungarian part. Also Hungary’s expansion of the railway network could match the Austrian part. The Hungarian government pursued the nationalisation and re-nationalisation of the railways earlier and more vigorously than Austria. This resulted in a progress in economic integration, indicated by a fall in regional wheat price differences. Railway and bridge building stimulated the iron industry, which grew annually by 4.5 per cent. Hungary’s industrial breakthrough took place in the 1880s, when investments and credit institutions trebled, iron and coal output doubled and Budapest joint stock companies increased four-fold. This rapid progress has to be linked to the Austrian economic growth and the Austrian capital exports to the eastern half of the empire. Until the crash in 1873, 60 per cent of the Hungarian industrial capital was of foreign, mostly Austrian descent, and the recovery after 1880 was further financed by Austrian capital. In the 1880s half of the Hungarian share capital was Austrian. This is illustrated by the transfer of Zsigmond Kornfeld from the management of the Prague branch of Creditanstalt as head of the Hungarian General Credit Bank in Rothschild’s interest. Just as Vienna, Budapest developed a set of five “big banks” that held 58 per cent of the bank capital in 1914. The profits of these banks exceeded 10 per cent annually. By 1910 industrialists and financiers headed Budapest’s taxpayer lists. The executives of the Hungarian Commercial Bank held 150 directorships between them as they moved into the sponsoring of heavy industry. The director of the Hungarian General Credit Bank organised four state debt conversions and the development of the port of Fiume. These examples show the power the financial sector had in the Hungarian economy.


In Hungary two industries, namely flour milling and mining/metallurgy, were at a European level, but there was little else. Similarly Budapest had a modern financial sector and an underground public transport system, the first in continental Europe (1896), but the second largest town in the Hungarian half was ten times smaller. The Hungarian governments took over an important role in infrastructure development, such as the nationalised railways, the regulation of the rivers Tisza and Danube and bridge building; in the 1880s eight iron bridges were built over the Tisza. Around the turn of the century Hungary opted for economic emancipation within the Austro-Hungarian Empire. While the volume of Hungarian shares held in Austria remained stable, those held in other countries grew four-fold, half of them in Germany. And above all, 75 per cent of Hungarian industrial capital by 1914 came from domestic sources. But the narrowness of the industrial base had to be taken into account compared to the vastness of the agrarian sector. These shortcomings prepared the ground for nationalistic Hungarian rhetoric.


In the Austrian half of the empire Czech activists pointed out that the economic development of the Czech lands did not benefit the Czechs themselves, which resulted in fierce nationalistic resentment. Czech activists were well aware of the importance of economic power in the ethnic struggle. The first explicitly Czech joint stock sugar company was founded in 1863. The profitable sugar production enabled the Czechs to quickly build an industry as a base for well-to-do and politically active Czech farmers because the Czech countryside had already had a long tradition of literacy. At the turn of the century the Czechs were the most literate nation in the monarchy. District self-government since 1862 gave well-off farmers a political and organisational base and above all, the foundation of the Zivnostenská banka (Zivnobanka) in Prague in 1868 provided them with a financial backing. The Zivnobanka remained the most important single economic impetus in Czech economic life until World War II. It was particularly successful at absorbing the savings of Czech small investors directly or via the proliferating local savings banks and credit societies and directing them to Czech businesses. For instance, Zivnobanka had already taken over the responsibility for the tax payments of 18 sugar refineries in 1870. As an act of economic self-assertion the Prague chamber of commerce called for an end to the “neglect” of Czech interests by the Austro-Hungarian Bank. ”Neglect” usually referred to a refusal by the Austro-Hungarian Bank to discount bills of Czech organisations, which had social and not ethnic reasons as the bank was not used to dealing at the humble levels of most Czech associations.


Around 1900 Czech economic power began to increase. The position of the Czech middle class in Prague improved as important light and engineering industries were developing there. In 1890 Czech commercial banks held less than 2 per cent of the capital in the Czech lands, Sudeten-German banks 8 per cent and Viennese banks the rest. By 1913 the Czech banks’ share was over 20 per cent and the Sudeten-German banks’ share had remained stable. In 1890 the net profits of Zivnobanka in the Czech lands were less than a third of those of the Creditanstalt’s Prague branch, whereas in 1913 Zivnobanka’s net profits exceeded Creditanstalt Prague’s profits five times. Raising its equity five times from 1905 to 1911, it held 35 per cent of Czech capital in 1913. Also other important Czech banks had appeared on the scene, like the Czech Industrial Bank (1898), the Prague Credit Bank (1899) and the savings bank Sporobanka (1903). These four banks, headed by Zivnobanka, which also invested in other Slav areas, were now taken seriously in Viennese financial circles. Zivnobanka, for instance, fought together with Creditanstalt to prevent a Viennese cartel control over sections of the Bohemian metallurgical industry and cooperated with Viennese banks on other economic issues as well.


The other non-German community in the Austrian half of the empire that succeeded to industrialise to some degree were the Slovenes. They provided the empire’s vital link to the Adriatic Sea at Trieste in a traditional iron-mining, yet predominantly agricultural region. They had living standards closer to those of the Austro-German Alpine neighbours than the Dalmatians or Galicians. Ljubljana grew after 1867, but local capital, initially Austrian-German, lost out to the financial centres of the empire, Vienna and Budapest. Nevertheless alongside big capital from outside, a network of local savings and agrarian societies developed. In 1900 the Ljubljana Credit Bank was founded with the organisational help and a stake of 48 per cent of the Vienna branch of Zivnobanka. It was the city’s first independent commercial bank in Slovene hands.


Austro-German economic strength was not able to dominate the huge empire, a dialogue with the different nationalities was necessary, but most of all, the huge gap between the urban, industrialised and the largely rural, traditional areas in the Austro-Hungarian Monarchy had to be bridged.


Literature: Okey, Robin, The Habsburg Monarchy 1765-1918, Palgrave 2002