Chapter 121
Chapter 121
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Translator: Ace
Chapter: 121
Chapter Title: Panic (1)
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1907 Panic.
Also known as the 1907 Bank Panic or Knickerbocker Crisis, it was the largest global economic crisis before the Great Depression of 1929.
I'm not much of an expert on economics, so I don't know all the details about the Panic of 1907. But the fact that it nearly caused the complete collapse of the American financial system speaks volumes about its severity.
According to the newspaper articles, it all started when United Copper Company, a U.S. copper firm, tried to manipulate its stock price for massive profits.
F. Augustus Heinze, the Montana Copper King and owner of United Copper, teamed up with the notorious banker Charles W. Morse. They planned to corner their company's stock and make a fortune, then put the scheme into action.
But their ambitious plot fell apart almost immediately. On October 16, shortly after the New York Stock Exchange opened, United Copper's shares—which had started at $30—didn't climb; they plummeted to $10 in no time flat.
Augustus Heinze and Charles Morse, the perpetrators of the stock manipulation, were naturally ruined in the industry. But the real problem was the butterfly effect triggered by their greed—it was anything but minor.
At the time, Charles T. Barney, president of Knickerbocker Trust Company—New York's third-largest trust—was revealed to have had long-standing ties with Heinze and Morse. That's when things started spiraling out of control.
On October 18, right after the end of the International Peace Conference, Knickerbocker's board—already seeing signs of a bank run—demanded Barney's resignation to put out the fire. But it was too late. On the 22nd, a massive bank run hit, and the company collapsed.
Knickerbocker's downfall rippled outward to America's two major trusts: Trust Company of America and Lincoln Trust Company. By the 24th, banks and trusts across New York were crumbling one after another.
Thus, the first great panic—a storm unlike any before—swept across the entire United States.
Just like the 1929 Great Depression, the Panic of 1907 began to spread beyond America, engulfing the world.
Bang!
"How long has it been since the bank run in Hamburg, and now they're calling it a panic?!"
Chancellor von Bülow slammed his fist down, his face flushed with disbelief at the panic sparked by American stock manipulation.
Of course, the most bewildered person there was probably Wilhelm von Schoen, who had just become Foreign Minister after Foreign Minister von Chierulki whimsically fled to Vienna—and immediately got hit with a panic.
Thanks to that, I had to watch from behind as the poor man, pale-faced and sweating bullets, chugged water nonstop during the cabinet meeting he'd followed Schoen to.
Anyway, as the Chancellor said, the economy had been sluggish worldwide this year—not just in Germany, but across the continent and beyond, starting from spring.
In April, there was a bank run in Egypt. In May, one in Japan. And just days before New York fell, runs hit Hamburg in Germany and Chile.
Then the New York panic dropped a merciless bomb on a world already teetering on the economic edge.
"Finance Minister Stengel, how badly is this American panic affecting the Empire's economy?"
"For now, the Reichsbank is managing to stave off any large-scale bank runs. The Venezuelan oil deal has helped quite a bit too. But as Your Excellency knows, with government spending so high and debt skyrocketing, economic deterioration seems inevitable if things continue like this."
Finance Minister Hermann von Stengel wiped sweat from his brow as he continued.
He was right—the German Empire was spending way too much money.
And the cause? Military expenditures, as everyone expected.
'Military spending already eats up 60% of the German budget. That says it all.'
As the Heavenly Kingdom proved, a strong army comes from money. And the German Empire—a military powerhouse brimming with militarism wherever you looked—spared no expense to maintain its might.
It was a textbook example of what happens when a country runs for its army.
"So, in the end, that means cutting spending or raising taxes."
The Chancellor sighed and turned to War Minister von Einem and Navy Minister von Tirpitz.
"And if we cut spending, it'll inevitably hit the military budget."
"The army has no room in its budget."
Before Tirpitz could speak, War Minister von Einem cut in preemptively.
The Chancellor furrowed his brow, as if he'd expected as much.
"Not even a single pfennig?"
"France, stung by the Anglo-German negotiations, is massively expanding its military. We need to accelerate our own military innovations to prepare. Plus, didn't we just establish the air force with the introduction of airplanes?"
As Einem said, while I was away in The Hague, my efforts with the Wright brothers paid off. The Imperial German Army officially adopted airplanes, birthing the Imperial German Air Force (Fliegertruppen des deutschen Kaiserreiches).
Of course, it was still largely experimental, with only a handful of planes.
But as they say, a journey of a thousand miles begins with a single step—the air force would grow in time.
"Moreover, with the army's critical ongoing 'project' at stake, I ask for understanding of our position."
"Sigh, that project. Why push it now, of all times..."
When War Minister von Einem mentioned the tractor project, the Chancellor shot me a resentful glance.
Of course, the timing was just bad luck, so he didn't chew me out over it.
Then Einem spoke up.
"That's why, if we're cutting military spending, I say we cut the navy."
"What?"
Tirpitz blurted out in shock at the bomb Einem had lobbed his way.
But was Tirpitz the type to just take it lying down?
Especially when it came from a landlubber trying to steal his ships' budget?
He quickly went into battle mode, glaring at Minister Einem.
"The navy has no slack either. We're already squeezing every last mark to build new battleships surpassing the Friedrich class!"
"Then scrap a few obsolete ships and cut maintenance costs. England is our ally anyway—do we really need to maintain such excessive naval power?"
"Oh."
Finance Minister Stengel, suffering from budget woes, nodded as if it made sense.
But his courage flickered out like a candle in the wind before Tirpitz's devilishly flushed rage.
"Einem, you trying to pick a fight with me?!"
Tirpitz rolled up his sleeves, advancing on War Minister von Einem like he was about to challenge him to a duel right then and there.
But War Minister von Einem, a battle-hardened Prussian soldier, wasn't one to back down easily.
"Where did I say anything wrong? Honestly, cutting a few ships won't sink the navy!"
"Ha! You think one battleship equals a horse or a cannon? That's why you land crabs..."
"What did you say?!"
"Now, now, no fighting—everyone calm down. Bickering among ourselves won't improve the situation!"
As the argument between Einem and Tirpitz heated up, Vice Chancellor Theobald von Bethmann Hollweg broke into a sweat trying to mediate.
While I was away at the International Peace Conference in The Hague, Posadowsky-Wehner had resigned as Vice Chancellor, and this man—now Vice Chancellor and Interior Minister—took his place. Those familiar with history know he'd succeed Bülow as Chancellor of the German Empire.
'World War I broke out during his tenure as Chancellor.'
Bethmann Hollweg wasn't as left-friendly as his predecessor Posadowsky-Wehner, but he was a moderate figure who supported the monarchy while maintaining good relations with labor unions.
Like Posadowsky-Wehner, why were so many German Interior Ministers more lenient toward the left than their images suggested?
Meanwhile, Stolypin next door was up to his elbows in revolutionaries' blood during his time as Interior Minister.
'Still, it's a shame Posadowsky-Wehner left the cabinet while I was gone.'
Bethmann Hollweg seemed decent enough, but his absence made it feel regrettable and empty.
I hoped we'd work together again someday, though who knew if that chance would come.
"So both army and navy refuse to cut back."
"That's right."
"Indeed."
"Goddamn it..."
The Chancellor muttered under his breath at their unified response—unity in battle forgotten—and let out a deep sigh that seemed to reach the floor.
"Then we'll have no choice but to raise taxes."
"We already hiked income and inheritance taxes last year, though..."
"I know, but it's our only option for now. We have to hold out until the economy recovers. If needed, we may even introduce a property tax."
Vice Chancellor Bethmann Hollweg spoke up with a worried look at the Chancellor's words.
"Public opinion will sour badly, no doubt. The Junkers directly affected will be furious, the Reichstag will riot, and... well, the Finance Minister's resignation seems inevitable."
At Bethmann Hollweg's pessimistic words, Finance Minister Stengel—sensing his fate—darkened.
It couldn't be helped.
No one but the government would cheer tax hikes.
In original history, even Bülow got tripped up by tax issues and was ousted from the Chancellorship two years later.
Though the Daily Telegraph affair—which soured relations between Wilhelm II and Bülow—played a bigger role in his dismissal.
"Let's not rush into decisions. Discuss it further and decide carefully."
The Chancellor nodded with a heavy sigh at Bethmann Hollweg's suggestion.
Still, I was clueless on how to resolve it myself.
First off, the root of the 1907 Panic was America's shoddy financial system.
Europe had solid central banks like Germany's Reichsbank. But Gilded Age America? Mad bankers blocked everything—no central bank, leaving the government struggling to control finance.
'Indeed, the Federal Reserve System—the U.S. central bank—was born from this very panic.'
Thus, I knew the panic itself would calm in about a month.
When America's financial system teetered on total collapse, the familiar name J.P. Morgan rolled up his sleeves and pulled it from the brink.
But that highlighted over-reliance on one man, spurring calls for government control. It fueled the push for a central bank, helping Woodrow Wilson win the presidency on that platform.
'The Fed was established in 1913, during Wilson's term.'
But that was America's story. Germany's economic woes stemmed fundamentally from fiscal strain due to excessive military spending.
We'd muddled through so far, but this panic just brought it to the surface.
'Still, isn't there some way to fix this?'
It wasn't Foreign Office business, but the unease lingered.
Thinking of World War I made cutting military spending tricky, and I didn't want my key supporter—alongside the Kaiser—Chancellor Bülow taking a hit or worse from this.
So back at the New Palace, I kept brainstorming solutions, but nothing came to mind no matter how hard I thought.
"If only some game-changing event would 'boom' and flip this situation."
"Baron, a phone call for you, Baron."
"A phone call?"
"Yes. It was so garbled I could barely understand, but that Haber fellow said something about succeeding in synthesis..."
"What?!"
I shot up from my seat, voice rising unwittingly.
It had exploded. And something huge at that.