Cartels

   From early in the Kaiserreich, numerous cooperative ties linked potentially competitive industries, leading observers to characterize Germany's economy as "organized capitalism." According to Henry Turner, the Republic inherited a pervasive collection of cartels, all designed to regulate markets via agreements that set prices and limited production. Although some disengagement followed Germany's defeat, the Republic's precarious economy soon inspired renewed concentration.

   Walther Rathenau* argued that the era of free markets had been supplanted by a period in which the state should indulge centralization. Indeed, while the state often intervened in social issues, it generally gave business and industry a free hand in economic policy. Cartel agreements had official sanction; should a member to an accord violate its provisions, that member could be penalized by the courts. The Cartel Law of 1923 supposedly addressed the "misuse of mo-nopolistic power"; in fact, it prohibited neither cartels nor monopolies. By cre-ating a Cartel Court, the law reinforced concentration while exerting no influence on the price and production policy of trusts. Moreover, given the Republic's impassive Economics Ministry, the elimination of competition through the spread of cartels continued unchecked into the Republic's final years. It was officially estimated that the Weimar era's business and industry cartels numbered 2,500. The SPD, which might have challenged the trend, tended to view "or-ganized capitalism" as a logical step to "organized socialism"; it even en-couraged concentration in 1919 by creating state-supervised cartels in the coal and potash industries.

   The most famous "communities of interest" were the United Steel Works (Vereinigte Stahlwerke) and IG Farben,* both "perfected" as monopolies by 1926. United Steel employed 200,000 workers and produced 35 to 50 percent of Germany's metals. IG Farben, founded initially in January 1916 as a loosely federated chemical cartel, responded to international competition and the de-mands of the Versailles Treaty* by incorporating its organization into a giant trust. One can appreciate the temptation by looking at IG Farben: in 1926, soon after Farben became Europe's largest enterprise and the world's biggest chem-ical producer, the value of its stock tripled.

   The depression* sent world prices plummeting well below those set by in-dustry. Since concentration led to fixed prices, cartels reliant upon international trade were hardest hit. Most reacted by reducing production rather than lowering prices, thereby intensifying unemployment. When small business and the po-litical Left argued that lower prices would follow if the cartels were dissolved, the DNVP responded that high prices were due to the inflated costs of social insurance, not to industrial concentration, thus shunting responsibility to the unions and the SPD. Chancellor Brüning* retained a hands-off posture until

   December 1931, when, by forcing a 10 percent cut in cartel prices, he alienated big business, which censured him for violating capitalistic principles.

   REFERENCES:David Abraham, Collapse of the Weimar Republic; Bessel and Feuchtwanger, Social Change; Feldman, Great Disorder; Hayes, Industry and Ideology; Michels, Cartels, Combines, and Trusts; Turner, German Big Business.