The most famous industrial novel of the Weimar Republic was Erik Reger’s Union der festen Hand (Union of the Firm Hand), published in 1931, which immediately won widespread acclaim and received the Kleist Prize. Its author, whose real name was Hermann Dannenberger, had worked in the Krupp business from 1920 to 1927 as an employee in the statistical office; he aimed at reportage rather than romanticization. The Krupp works, lightly fictionalized presented as the firm of “Risch-Zander,” is the central location of the novel. Risch-Zander is highly suspicious of banks and their influence, and maintains a sentimental paternalism. An enormous influence is still wielded by Risch-Zander’s mother-in-law, the widow of the “old Risch.” Alfred Hugenberg is depicted as Alfons Hachenpoot, a “pubertarian poet” who, after leaving the company, goes on to run a newspaper and media empire. Other major Ruhr industrialists, August and Fritz Thyssen, and Hugo Stinnes, also appear under pseudonyms, as do the politicians Heinrich Brüning and Hjalmar Schacht as well as the propagandist of the “Decline of the West,” Oswald Spengler. Risch-Zander’s son more and more comes to resemble the grandfather, the “old Risch.” The father himself, who like Gustav von Bohlen married into the business, finds it hard to understand the new and rapidly changing politics, but knows that somehow the business has to adapt by paying more attention to the psychology of the employees. Reger portrays him as a figure of inherent moderation and decency, who finds the methods of the modern business world bewildering. Risch-Zander believes that “indebtedness is a debacle which threatens even the old industrial families.” Company magazines, the newspaper world, the cinema—all are used to manipulate minds and to make propaganda for business “rationalization.” The Union of the Firm Hand is fundamentally a political organization, and its wealthy backers go on to launch an “Ida” or Institute der deutschen Arbeiterbeseelung (Institute to Restore the Soul of the Worker) as a means to create an awareness among the working classes of belonging to the larger entity of the German Volk. In the end, as Reger erroneously portrays it, these institutions created at the initiative of organized heavy industry will work with the Nazi movement.
Figure 5.1 The Krupp family, 1923. Courtesy of Historical Archives Krupp.
The Union and the Ida may be loosely based on the establishment of a Renewal League (Erneuerungsbund) and the story of the DINTA (German Institute for Technical Labor Training or Deutsches Institut für technische Arbeitsschulung). But Gustav Krupp von Bohlen und Halbach in reality played a rather small role in these institutions. On the other hand, he was acutely aware that the conditions of business had changed, and one of the industrial slogans of the Reger novel might well have come from Krupp documents: “Now it is high time that the economy should think about economizing.” So too does the exhortation “From the cannon to the locomotive!”1
One of Reger’s great set-piece descriptions involves the chaotic and humiliating scene of the kaiser’s last visit to the Essen works of Krupp. The bombastic, deluded emporer confronts a workforce seething with radical notions (personified by the novel’s main character, a communist worker) and foreshadows the abrupt and utter collapse of imperial Germany: the naval mutiny, the Bolshevik-inspired soldiers’ and workers’ councils—in short the revolution that erupted within weeks of the kaiser’s visit to Germany’s industrial heartland. From the Essen industrialists’ perspective, revolution appeared to come from the outside, brought above all by mutinous soldiers. Now all the traditions of the house of Krupp seemed to be at risk.
The company struggled to find a new role in a state that was reinventing itself dramatically. Alfred Hugenberg was pushed out of the directorate, probably because of his political radicalism. The new Krupp strategy involved as far as possible a return to basics, trying to re-create the company of the prewar days. The management, now led by a skillful negotiator, Otto Wiedfeldt, engaged a great deal of its attention toward removing as many of its nonlocal workers as possible. Calculations in October 1918 were based on the premise that Krupp could employ a maximum of 30,000 in the Gussstahlfabrik, which corresponded to an estimate of 21,000 existing workers who had been already employed at the beginning of 1914 plus 6,000 to 8,000 former employees who had been conscripted and could now be expected to return to the factory. Special trains were engaged to take the surplus workers, now deemed potentially dangerous, away from Essen. Already by November 19, 1918, 2,570 Belgians, 1,000 Poles, 4,800 Dutch citizens, and 50 Swiss had left Essen. But the foreign workers were not the heart of the problem. By the end of November, a total of 52,000 workers had left the Krupp factory alone. The dismissed employees were promised that pay arrears and retirement claims would be transferred quickly to their home addresses.
Wiedfeldt had been treasurer of the city of Essen and had worked in arbitrating prewar labor conflicts before going to Japan to work in the Railway Ministry and then returning to the German imperial administration, where he was responsible during the First World War for the introduction of the bread ration card. He had established a reputation as a social reformer; and even before the First World War he emphasized the importance for business of high wage levels, claiming that the great depression of the 1870s would not have been as severe if wages had been raised rather than forced down.2
At the same time, the regime of the new patriarch, in dealing with the core Kruppianer ethos, also reflected a back-to-the-roots philosophy. Gustav Krupp had been largely disengaged from the company in the heady days of expansion before the First World War. But a characteristic of cultures that revolve around the family business as a central ideal is that the family comes back in hard times, as a survival mechanism or as a source of resilience. Gustav Krupp drew up an announcement to the effect that “my wife and I have never considered our so-called private wealth as anything other than as a reserve for the Krupp works, which can be used to protect the existence of the works as well as for justified demands by the officials and workers.”3 This promise fits perfectly in the patriarchal tradition of Krupp, and indeed corresponds to the famous example of Alfred Krupp’s willingness to sell the family silver during the revolutionary year of 1848. But it may have contributed to the long-term problems of the company, in that it encouraged managers (as well as workers) to think of the company rather in the same way they contemplated the Prussian-German state, as a cash cow that could be milked forever.
For those remaining in Essen, there were still many challenges. The food supply remained precarious and a potential source of radicalization. As in the war, the company needed to step in where the market failed and provide accommodations and meals. Krupp was still feeding eight thousand people in its large canteens in the middle of 1919. But the main issue was the management of political discontent. From mid-1919 a labor agreement was negotiated with the metal unions. In 1920 a Works Council with twenty-three workers’ representatives was established, in line with the new labor legislation of the Weimar Republic. The Gussstahlfabrik was relatively peaceful, even during the March 1920 Kapp putsch and the subsequent general strike, when workers’ organizations defending the Republic briefly took over the Ruhr Valley and civil war seemed imminent. Gustav Krupp had moved his family away from Essen, to the family’s hunting lodge at Sayneck. Many of the leading managers hid or took additional security precautions.
Buying off labor did not solve the issue of what sort of production should follow the company’s dramatic expansion and orientation toward military production for a state and a worldview that had ceased to exist. The initial response was rather helpless and improvised. In December 1918, the management called for ideas for new peacetime products. Some 1,300 suggestions were sent in. There were important initiatives in making agricultural equipment and also calculating machines and cash registers, as well as experiments such as the use of quality steels in dental work. Some of the innovations in new product lines, perhaps predictably, were dismal failures. In the mid-1920s, when monetary stabilization allowed for the first time an accurate assessment of profitability, the general level of profit on engineering equipment was 1.5 percent, but textile and paper machines were incurring losses of 34.4 percent, the cash registers were losing 14.7 percent, and cinematic equipment 14.4 percent.4 A later critical assessment, from 1938, suggested that at this point the most rational strategy would have been to give up specialty production and concentrate instead on mass steel products in Essen and Rheinhausen, as well as on the company’s extensive coal mines.5 But that would have been an unthinkable break with the Krupp tradition.
The immediate response was to go back to the beginnings of the firm in the early and mid-nineteenth century, when it was engaged in the manufacture of finished products and especially of railway articles. The publicly owned railway system became the major provider of employment in postwar Germany but also a powerful instrument of successive Weimar governments fighting to stabilize the economy. In April 1919 the factory won a major order from the Prussian State Railways. The Gun Carriage Workshops VI and VII were converted to the production of locomotives and railcars. The railway products were major successes on export markets. In the Weimar years, Krupp picked up the global orientation of the late nineteenth century once again. But there was also the constant sense that everything had been better in the days of empire.
It was this pervasive nostalgia for the prewar days that made the old strategy of using military products to build a link with the state seem relevant and attractive once more. But there was an obvious obstacle. The Versailles Treaty required the substantial demilitarization of Germany and restricted the production of military material. From 1920, a special unit of the Inter-Allied Military Control Commission, with six British and two French officers, was based in the Essen works. It required the destruction of an estimated ten thousand machines that had produced military goods. The evasion of such controls is one of the most famous stories of Weimar politics (and was a crucial point in the indictment of Gustav Krupp at Nuremberg in 1945). The army leadership was desperate not to lose Germany’s military capacity. In January 1922, the Reichswehr signed a secret agreement with Krupp to develop weapons, and from the mid-1920s a group of seconded Krupp engineers worked in a Berlin engineering office on the development of new armaments. The army also discussed moving production away from Essen, which was in too exposed a position in the west of Germany and thus too vulnerable to French military incursions as well as to weapons inspections.
Krupp’s most important initial contribution to hidden rearmament lay in a series of contracts with the Swedish armaments producer AB Bofors. By September 1919 Krupp had already transferred a Dutch order for 7.5 cm artillery to Bofors, and in September 1921 reached a general agreement under which Krupp transferred patents, designs, and production experience to the Swedes. Krupp engineers were sent to Stockholm. The technology transfers were accompanied from 1920 by stock ownership, via Swedish middlemen, so that by 1927 Krupp owned just under a third of the stock of Bofors.
Krupp U-boat plans were sold to Japan, and Krupp engineers sent to supervise production. From 1922 three German shipyards, including the Germaniawerft, took a share in a Dutch company, Ingenieurskantoor voor Scheepvaart N.V.
Later in the 1920s, Krupp developed firing and guidance mechanisms for ship-based rockets. From 1930, there were also experiments with the construction of 8.8 cm antiaircraft artillery (Flak). After 1926 the company developed an experimental tank, called “large tractor” in order to disguise its real purpose, which was equipped with a BMW engine and a gun turret made by Rheinmetall. This equipment was tested between 1929 and 1933 by the Soviet army. From 1930, a four-ton tractor with caterpillar traction was tested in the same way (this construction entered serial production as a tank in 1934). In 1920 Krupp reached an agreement to produce locomotives for the Soviet Union and later developed an agricultural concession in Manych, which it hoped would provide a basis for the modernization of Russian farming. As in the German tradition, there was here a close interrelationship between production for the military and the hope of access to a larger and perhaps in the longer term more stable civilian source of demand.
By 1922 the question of relations with the new Soviet state had become a crucial issue on the international agenda. Wiedfeldt, one of the few German industrialists experienced and polished enough to be able to function on the international stage, explained to the British prime minister David Lloyd George, in a long interview in London in March 1922, his firm’s policy of binding Russia into the international system and civilizing the Bolsheviks. Lloyd George seems to have been impressed; he suggested that British and German firms should work together in developing the Russian market. The British Liberal leader also expressed the idea that business leaders were more likely than politicians to promote peace, and he thought that Krupp should develop an increased political influence over the government in Berlin. To that, Wiedfeldt replied that Krupp had fully supported any government that was not treasonous, and that he felt that for the foreseeable future no stable government in Germany would be possible without the support of the social democrats. But Wiedfeldt’s fundamental tone was deeply pessimistic: “if there is no radical action soon, we in Germany will drift toward collapse.”6
It was not only the general economic circumstances that led to heightened uncertainty; the firm was also vulnerable because of the financial and monetary chaos of the early years of the Weimar Republic, which made orderly accounting an impossibility. The increased expenses involved in keeping employment levels up and in obtaining imported raw materials, as well as the increasing fiscal demands of the state, could initially be met by using the extensive reserves built up in the war years. The C-shares issued at the outbreak of the war in order to finance the expansion of the works were used to pay a special emergency tax (Reichsnotopfer).
Krupp was less inclined than other German companies, such as the Stinnes concern, Siemens, or Thyssen, to expand by buying up additional plants and engage in a flight into real assets. Otto Wiedfeldt produced a series of more and more critical memoranda urging a restructuring along the lines of the competition. In the first of these reform plans, in 1919, he cited Stinnes, Röchling, Phoenix, Bochumer Verein, AEG, and Siemens as examples of superior management. They had evolved into complex systems of interlocking holding companies.7 In the summer of 1919, AEG had suggested closer cooperation with Krupp, perhaps also with the participation of Siemens, and in the next year the stock exchange was swept by takeover rumors. Walther Rathenau of AEG visited the Krupp works in Essen and spoke of the “impression of the greatest monument of German economic life,” a rather ambiguous compliment.8 There were also talks of closer cooperation between Krupp and Daimler. Wiedfeldt told a Stinnes manager that cartels were “an unsuitable means, which in the long run do more harm than good, and which do not foster honest business.”9 The comment seemed to echo the highly influential memorandum, also of 1919, of the general director of the Deutsch-Luxemburg steel company, Albert Vögler, which is often seen as the genesis of the movement to create a German equivalent of the U.S. Steel Company: “the time of the syndicates had passed.”10
But the Krupp family was worried about the loss of family control that would be implied in such an expansion. The only exception to the family’s reluctance to pursue acquisitions involved the acquisition of foreign stakes, above all in neutral countries such as Sweden and the Netherlands. Bertha Krupp’s private holding bought a Dutch company founded in 1920 as a branch of Krupp, the Devon Ertsmaatschappij.
In the course of the increasingly rapid currency inflation, Krupp resorted to borrowing. In summer 1922 a syndicated bank credit was put together by Dresdner Bank of one billion marks (at that time worth 1,140,000 gold marks); when it was repaid in October 1923, the value of the credit amounted to merely 53,000 gold marks. At the time, however, Otto Wiedfeldt had worried that Krupp might not be able to afford the repayment of this credit. He started thinking about additional sources of capital. One innovation—and an indication that the World War had not destroyed globalization completely—was that the company approached foreign banks. In early 1923, Krupp started to borrow from Dutch and British banks. Only after the stabilization of the German currency did it approach the new and innovative giants of international finance, the New York investment banks.
One alternative that might have solved the problem of capital shortage during the inflation was a partial sale to a foreign company. The first attempt at an international takeover came in the late summer of 1920, when Schneider-Creusot wanted to build up a stake in Krupp in a dramatic and bold move that would have opened up the Ruhr to permanent French interest. In the summer of 1921, Wiedfeldt suggested the sale of a minority stake to U.S. Steel, but Gustav Krupp turned down the suggestion on patriotic grounds.11
Many analysts, including Klaus Tenfelde, conclude that there was an entrepreneurial failure at Krupp and that the Wiedfeldt strategy, which was modeled closely on that of Stinnes, would have been a better course to follow. According to this critique, Krupp retained much too long an excessively centralized form of management; it should have adopted the best practice that was clearly emerging (and already clearly successful at Thyssen) before the First World War. Wiedfeldt would have liked more decentralization, but his views were less and less influential.
The Krupp company instead thought of ways to extend its traditional patriarchy. In the era of inflation, Germans became obsessed with property and with the acquisition of real or inflation-proof assets, which were generally termed Sachwerte. It looked natural that Krupp should offer Sachwerte as well as monetary compensation to its workforce. In December 1921, the company agreed to introduce an experiment in which special shares (“D”-class shares) were created to be given to employees as a supplement to wages paid in the rapidly depreciating German currency. A total of 1,663 white-collar employees and 690 factory workers participated in this scheme.
Inflation made rational accounting impossible. In general, inflation makes for an overstatement of the return on equity, with increasing levels of inflation generating increasingly optimistic assessments of a company’s performance. In that sense, inflation and the distortion it imparts to monetary values appears to give a reddish glow to the company’s cheeks, but this reflects fever and pathology rather than ruddy health. The historian Gerald Feldman gives a fine example from the summer of 1923, when the Krupp Banking Section drew up a memorandum on its debt level: “our paper mark debts have remained the same [as last Saturday], namely about 80 billion. But the result in gold marks under a depreciation factor of 17,800 is only 4,445,000 over against the 6,046,000 of the previous week, thus giving an improvement of our status by 1,601,000 gold marks. . . . You can see herein a substantial improvement of our status which has simply developed through the depreciation of the paper mark.”12
One of the principal political motivations behind the continuation of the government’s inflationary policies was the preservation of high employment levels, and thus of social peace—a highly necessary action, given the strength of the threat of left-wing revolution. Steel production increased, as did the overall employment levels in the Krupp works. But there was something wrong in a situation where the company’s printing works began to be referred to as the “most important” part of the business, because of the money-printing work that was contracted from the central bank, the Reichsbank, as well as because the presses also were critical in issuing the company’s own substitute money or Notgeld.13
Only right at the end of the inflationary process did demand collapse. Workers were now laid off, and between October 1923 and October 1924 the workforce of the Gussstahlfabrik fell from 52,000 to 35,000 (and for the whole Krupp concern from 98,000 to 74,000). In the crisis at the end of the postwar inflation, the eight-hour workday was suspended too, and replaced by a 57.5-hour “provisionally normal” working week, imposed by means of an arbitration award from the Reich Labor Ministry.
Figure 5.2 Krupp inflation money: 500 million “Krupp marks” (company scrip printed at the factory), 1923. Courtesy of Historical Archives Krupp.
The complete collapse of the currency in 1923 was also a regional crisis for the Rhineland and the Ruhr Valley. Krupp was inevitably badly affected by the political crisis that followed the French occupation of the Ruhr. On Easter Saturday 1923, French soldiers who were inside the Gussstahlfabrik shot at a protesting group of Krupp workers and killed thirteen. The company strongly supported the workers’ protests and created a patriotic monument for them. The French authorities came to the conclusion that the resistance to occupation had been organized by the Krupp management. On May 1, Krupp and three of his directors were arrested by French troops and sentenced to prison (as well as having substantial fines imposed). Krupp’s sentence was for fifteen years, though he was released after seven months as Gustav Stresemann’s foreign policy restored Franco-German relations.
Figure 5.3 The Ruhr struggle: demonstration in April 1923. Courtesy of Historical Archives Krupp.
The only move to rationalize the business, the creation of the holding company Aktiengesellschaft für Unternehmungen der Eisen-und Stahlindustrie (or Afes) in the summer of 1923, was motivated more or less exclusively by the need to deal with the problems following the French occupation, and to prevent France from operating the whole concern by seizing the Gussstahlfabrik. As in other Ruhr enterprises, the holding company was designed to separate the vulnerable and occupied core businesses in the Ruhr from subsidiaries in the other parts of Germany.
In 1923, no rational financial calculation of any kind was possible because of the political pressures and the monetary distortion. The end of the inflation provided a chilling sobriety. The first stable-currency balance sheets showed the extent of Krupp’s losses, above all because the very substantial reserves held in nominal fixed-interest securities. For June 30, 1923, a gold mark accounting loss of 59 million was calculated; for September 30, 1924, an additional loss of 125 million. The extent of the loss was disguised only by revaluing the company’s real estate holdings.
It was really only with currency stabilization that the full extent of the problems of Germany’s major corporations, including all the large steel companies, became clear. The Stinnes concern had to be broken up after the death of Hugo Stinnes. Thyssen was in a deep crisis, traumatized by the aftermath of a succession dispute as August Thyssen struggled with two temperamentally quite different sons, the nationalist Fritz Thyssen and the cosmopolitan bon vivant Heinrich Thyssen-Bornemisza. Krupp too was hit by financial crisis but solved it in a rather different way than some of the other major steel companies, which saw the creation of a steel trust as the most promising way out of their difficulties. Much of the pressure to amalgamate came from the foreign banks. The most prominent of the new international New York investment banks, Dillon Read, started to negotiate a $100 million credit for the six major German steel companies to allow the financing of business rationalization. At the end of 1924 Wiedfeldt, now the German ambassador in Washington, helped negotiate a separate Krupp credit in parallel discussions. Krupp eventually concluded its own agreement for a five-year $10 million bond issue with Goldman Sachs & Co., on better terms than Thyssen had been able to reach in separate negotiations with Dillon Read.14
The terms of the American bond issue were nevertheless humiliating. The Dresdner Bank as agent for the American creditors imposed a trusteeship on the Krupp inventories, so that the Krupp warehouses carried legal notices that their contents were the property of the U.S. bondholders.
Krupp’s losses continued to mount and produced an existential crisis for the company, just as in 1873. From October 1924 to August 1925, the Gussstahlfabrik incurred a loss of 16 million reichsmarks (RM), and the Germaniawerft an additional loss of RM 18 million; and the company as a whole faced a major liquidity shortage as its debts shot up from RM 70 million to RM 121 million.15 It had piled up expensive inventories: thus, for instance, it had ten months’ scrap requirements. In 1925 the discussion about the future of Krupp and its independence reached a crisis point. Krupp embarked on radical cost-cutting measures, including the closure of the Annen works, the Hermannshütte, the Saynerhütte, Martin Works II, III, V, VII, and the Casting Works II. The crisis was eventually resolved in exactly the same way as Alfred Krupp’s 1873 trauma had been: through a mix of politics, bank credit, and the chance event of a general economic recovery. As in the 1870s, many Germany companies saw industrial organization, cartels or syndicates, and now also trusts as the best way of limiting the ravages of a hostile market; as in the 1870s, Krupp resisted that argument and preferred to stand alone.
On March 17, 1925, Gustav Krupp went to Berlin to speak with Chancellor Hans Luther. He suggested that the company had lost around RM 250 million over the past ten years and asked for a government credit of RM 60 million. Luther turned the request down, on the grounds that there was no legal basis for such assistance, and that anyway the government did not have this kind of money at hand. Ten days later Wiedfeldt sent a more detailed memorandum to the Finance Ministry. At the beginning of April the cabinet decided in favor of the demand, and on April 17 a formal agreement was signed. Krupp would receive RM 11 million as compensation for its disarmament costs, with some additional money in the form of prepayments for military orders (RM 2.8 million), tax postponement (RM 3.5 million), deferral of the turnover tax (RM 1.2 million), a subsidy from the Army Ministry (RM 1.8 million), and payments from funds reserved for productive unemployment relief (RM 2 million), in all a total of RM 22.3 million in grants. In addition, the state-owned bank Reichskreditgesellschaft would lend RM 12 million and the state insurance company Reichsversicherungsanstalt RM 3 million.16 As a precondition for the state assistance, Krupp would need to find an additional RM 50 million in bank credit. But the German central bank refused to lend, the Dresdner Bank was unable to put together a syndicate, and Krupp needed to turn to the smaller Essen bank of Hirschland in order to obtain a rather smaller emergency liquidity support. The state had helped, but the banks were still hesitant.
Wiedfeldt, who had returned from his post in Washington in March 1925 and left the company in April 1925, remained as an adviser, although he was increasingly unwell and died of leukemia in July 1926. In a lengthy memorandum of September 1925, he argued strongly in favor of merging Krupp into the new giant Vereinigte Stahlwerke. Only the mines and Rheinhausen were working profitably, as well as some parts of the steel products business, in particular wheel parts. Central products of the Gussstahlfabrik were loss making, and the company needed public subsidies to keep above water. After examining alternatives such as continuing state support, a radical reduction of the size of the firm with a concentration just on the mines and on the Rheinhausen steelworks, or massive capacity expansion in order to restore the prewar volumes of production, Wiedfeldt concluded that everything was hopeless: “each of these paths would lead to overindebtedness and collapse.” Wiedfeldt made a passionate plea to break with the Krupp tradition: “Only one thing matters: saving the firm. All other considerations of a personal and material nature, all personal wishes, must be completely ignored. I know that goes against Krupp traditions, which tend to cautious procrastination and to compromise, and which with noble dignity always try to meet personal wishes.”17
In particular, the Kiel Germaniawerft was a massive problem: “it cannot continue.” But there was a more general management failure: “All officials, especially the top ones, must be removed if they are not needed, without any special considerations. That is necessary financially and because of the effect on labor morale. The continual chatter about the position and business of the company, which hurts us, comes from the discontent of the Essen officials. No position must be filled with double the number needed. We have no money for that.”18 Managers should be compensated for particular merits; but correspondingly, there should be a ruthless dismissal of the ineffective and incompetent.
If the Fried. Krupp AG did not join the steel trust, Wiedfeldt believed that it would have to reckon with the hostility of the banks that were promoting the concept. Any continued dependence on banks would mean “the end” of the firm; in consequence Krupp needed to avoid taking on new debt. “The talk about future bond issues must stop completely.”19
The creation of a steel trust would increase the competitive pressure on Krupp. Joining the trust would create a reliable stream of income for the Krupp family, which would get just over a fifth of the shares in the new trust. Without such a step, the family fortune, which Wiedfeldt estimated at RM 120 million (compared with 450 million marks before the war), would be exhausted within a year or a year and a half. It might even—Wiedfeldt suggested—be possible for “Herr von Bohlen” (as he called Gustav Krupp) to chair the supervisory board. And the family might retain the Grusonwerk as a way of continuing the military tradition of the company, as well as retaining the stakes in Bofors and Rheinmetall. But Wiedfeldt watered these radical conclusions down in the version of his memorandum that was actually discussed by the supervisory board. In August and September 1925, Wiedfeldt conducted discussions in London about a possible sale of a large stake in the company to British steel interests, but Gustav Krupp rejected this alternative, with the same degree of patriotic resolve that had earlier led him to turn down a such a sale to a French or American corporation.
Other enterprises carried on similar discussions about the gains and losses to be obtained from affiliation to the steel trust. The Haniel family was polarized, with one member who saw himself as a modernizer arguing strongly in favor of trustification, and the traditional managers of the Gutehoffnungshütte arguing against that option. Heinrich Thyssen-Bornemisza complained that the “trust would shatter a broadly conceived and extensive family enterprise.”20 But financial exigency made family firms vulnerable.
Gustav Krupp at first tried to negotiate better terms for accession to the steel trust. He suggested that the distribution of shares in the new enterprise be based on revenues rather than on production capacities, and he tried to make a case that the headquarters should be in Essen rather than Düsseldorf (a move that in a sense did take place eighty-five years later, when Thyssen Krupp moved its headquarters from Düsseldorf back to the traditional Krupp base in Essen). On September 5, 1925, the Committee of the Krupp Supervisory Board discussed the possibility of joining the steel trust but took no clear position. It did, however, take a position on the need for further radical downsizing, including the closure of the locomotive and wagon works. On September 20, Gustav Krupp finally decided against joining the trust. At a Sunday morning meeting, he spoke with the metal dealer and major shareholder of Phoenix, Otto Wolff, who emphasized the future of the steel trust as a mass producer. Krupp by contrast saw the future of his company as remaining an independent family business. Later he argued that neither domestic nor foreign markets were ready for a large anonymous firm, and that the traditions of an old family firm would bring substantial commercial advantages. In addition, he thought that such decisions should not be made under financial pressure. In a letter to Albert Vögler, who would become the chief executive of the trust (Vereinigte Stahlwerke AG)), he stated that a family firm “despite restricted means was in a position to follow particular technical developments in a more individualized way.”21 This statement captures the heart of the Krupp philosophy, which was fundamentally skeptical of mass production. There was no room for a construction such as the Gussstahlfabrik in the new business view of Vögler and the banks. One year later, when Vereinigte Stahlwerke spun off the Thyssen engineering works as a separate company, Demag, Krupp believed that his position had been vindicated.
In June 1926, shortly before his death, Wiedfeldt was still warning that within one or two years Krupp would either collapse or be obliged to join the Vereinigte Stahlwerke. He pushed for a much more radical downsizing program. Instead Krupp opted for a much more modest commercial cooperation with the remaining large independent steelmakers, GHH and Hoesch. In 1927 these enterprises played a central role in the establishment of the Ruhrlade association, which was conceived as a behind-the-scenes mechanism for allowing the steel barons to influence the major industrial pressure groups, and which represented only the most token concession to the demand to give up the principles of family business.
In fact, for a few years the gamble on independence paid off, and Krupp appeared to be successful once more. The company shared in the short-lived prosperity phase of the Weimar Republic, and followed an austere path of plowing profits back into the firm as investments. Steel production increased rapidly after 1924 and reached a peak in 1926/27, but then it began to fall once again, first because of labor problems, then because of the general economic downturn.
There was also some technical innovation. From 1926, Krupp started to produce a new hard metal it called “Widia.” The concept—a tungsten carbide alloy—had originally been developed by the electric company OSRAM in the course of experimenting with filaments for lightbulbs. Krupp purchased the patent and began to market the carbide metal. The major use of this alloy, from Krupp’s perspective, would be in tool-making. In 1928/29 General Electric concluded an agreement with Krupp for marketing a similar product in the United States, “Carboloy.” But negotiations with British partners collapsed because of Gustav Krupp’s resentment of the wartime campaigns of British steel industrialists against him.
As in the boom years of the 1900s, Krupp also engaged once more in the quest for mass steel production. Two new blast furnaces in Essen-Borbeck to produce large quantities of steel were complemented by the creation of the world’s largest forging press. Krupp had initially tried to finance this through state credits but the government rejected the proposal, so Krupp then had to turn (in January 1927) to a 6 percent RM 60 million bond issue. The two new blast furnaces began working in May and September 1929, in other words just months before the Wall Street crash seemed to transform the prospects of the world economy. The result was that the Borbeck capacities could not be adequately used: for 1930/31 the capacity utilization was 56 percent. By 1931/32 that ratio had fallen to 41 percent.
For three years—1926/27 to 1928/29—Krupp made very modest profits. From September 1926, Krupp stopped reducing the workforce, and the number of white-collar workers started to rise in 1927.
In October 1928, Krupp participated in the Ruhr lockout, an attack by industry leaders on the state-imposed system of compulsory arbitration, which the employers increasingly blamed for their rising costs and decreasing profitability. The company announced the dismissal of workers. But Gustav Krupp was quite skeptical of the hard-liners among the Ruhr employers, and worried about the consequences of the conflict. Bertha Krupp was even more explicit, stating that “she was not prepared to gamble her paternal inheritance in a game designed to allow dashing cavalry officers to continue their legal hussar-rides indefinitely.” In a repeated series of meetings with other industrialists at the Villa Hügel in November 1928, Krupp pressed more and more insistently for an end to the conflict. At the final meeting, on November 26, the principal hard-liner, Paul Reusch, was especially dismissive of Krupp’s softness.22 The lockout did not end until December 4, 1928.
After December 1928, both production and employment briefly recovered again, and in July 1929 employment reached a peak at 70,159. But then the depression started to hit Germany.
As in the 1870s, a company producing investment goods was very vulnerable to a general downturn. In the early 1930s, orders for machine tools and heavy equipment simply evaporated. There were high fixed costs, and the company needed to maintain its core of skilled workers. Labor costs thus inevitably rose as a proportion of the firm’s commitments, despite pay cuts and the dismissal of employees. Wage cuts could not compensate for the decreasing labor productivity as utilization levels fell more and more below capacity. By September 1932, employment in Essen had fallen to 16,812 and in the enterprise as a whole to 46,107 (respectively a fall of 41 percent and 51 percent from the 1928 levels). On July 1, 1930, wage rates were cut throughout the Gussstahlfabrik. In March 1931, Krupp abrogated its agreement with white-collar workers and demanded a 15 percent cut; an arbitration agreement instead imposed 6 to 8 percent, with additional reductions for reduced hours of work.
Railway orders, traditionally a means by which public authorities had tried to stabilize demand, were generally ruled out because the Reichsbahn had been extensively modernized and reequipped. It had some of the most modern locomotives and rolling stock in the world. In March 1931, the Reichsbahn agreed to a seven-month program for rail construction but found the financing of this order very difficult.
The extent of Krupp’s financial leverage made the crisis worse. The company’s strategy of financial reconstruction and expansion after the 1925 crisis had involved an extensive amount of bank credit. But in the depression, German banks faced substantial pressure from the central bank, the Reichsbank, to reduce their debt levels and raise their capital ratios. They consequently obliged their business customers to reduce their debt. On September 30, 1931, Krupp had debts of RM 43.162 million to banks and RM 29.748 million to other creditors, who also faced the same compulsion to reduce debt exposure. One year later, in 1932, these figures were respectively RM 34.128 million and RM 9.025 million.
It was at this time, in October 1931, that Gustav Krupp, who had previously been politically quite reticent and had not wanted even to be identified in public as a member of the executive board of the steel industry’s Gruppe Nordwest, took on a very prominent position as chairman of the major industrial federation Reichsverband der Deutschen Industrie.23 Krupp’s chief political concern was initially with the credit crunch, which Krupp blamed on the central bank and its president, Hans Luther. He denounced Luther’s policy in meetings with Chancellor Brüning and suggested that Germany would be better off if Luther’s controversial predecessor, Hjalmar Schacht, were recalled to the position.
But Krupp was decisively opposed to any suggestion of a transition to autarky, and it was clear that even in the global downturn export orders represented the only chance for continuing to produce. In particular, the major source of demand was the increased demand of the Soviet Union for equipment and machinery in the framework of the First Five Year Plan. In 1931 government provided almost RM 1,000 million in export credits for the Soviet orders. By 1932 three-quarters of German exports of metalworking equipment and three-fifths of rolled steel exports were going to the Soviet Union.24
The British devaluation of the pound in September 1931 put additional cost pressure on Krupp. The commercial director, Arthur Klotzbach, produced in October 1931 a memorandum in which he called for a new round of wage and salary cuts.
The situation appeared quite hopeless. Within six years of the severe financial crisis of 1925, there was a general economic collapse. The banks, which had been powerful exponents of the logic of amalgamation in the 1920s, were now quite powerless, themselves victims of the credit crisis. Foreign banks no longer displayed any interest in giving credit to companies in a country that had negotiated a standstill on debt payments, which blocked the transfer of the foreign exchange required for servicing debt. But the Krupp management appears not to have lost hope completely. In December 1932, presenting the accounts for the year 1931/32, Arthur Klotzbach boldly predicted: “if the signs do not deceive and if new political unrest does not disturb economic confidence, we have reached the bottom here and in the world.”25 Reaching a bottom, however, does not necessarily mean recovery. Germany, and Krupp, were at a turning point.
