34: Eastern Economics


An overview of the economic situation in Austria-Hungary and Russia as they move into the second year of the war.



Hello everyone and welcome to history of the great war episode 33. This episode is coming at you a bit late due to the fact that I have been pretty sick the last several days and for the most part unable to talk, let alone talk for the hour or so it takes for me to record an episode. I would like to thank those who wished me good health on the shows Facebook page, unfortunately it didn’t do much to help the cold I was suffering from, but it made my mind feel better.

This week we will have a pretty information dense episode as we discuss the economic situation of some of the countries in 1915. Today we will mostly focus on 2 countries Austria and Russia while France, Britain and Germany will make a small appearance I am holding discussion of their economic situation until later in the year when it will connect a bit more with the larger story. However, before we drop into those three countries we will talk about the most acute economic problem in the opening months of the war, artillery shells. The lack of shells was a problem for all of the countries in the first world war and 1915 would be the year when it was the most impactful. No one could foresee before the war the amount of artillery ammunition that would be needed and the countries had failed to properly prepare their production facilities. This failure to properly prepare was partially due to a fact that Norman Stone discusses in his book The Eastern Front “The calculation that war would be short owed much more to prevailing ideas of economics—the advanced nations of the west could not possibly allow disruption of trade for more than a few months, or their economies would collapse.” This collapse would obviously not be the case.

The first world war would be the first and last major war in which more men were killed by artillery than by any other means of destruction. For the first 3 years of the war it was the only way that there was any chance of the enemy defenses being suppressed. In the years before the war nobody could fathom the appetite for shells that the armies in the field would have in 1914 and it was because of this lack of understanding that the countries of Europe made a mistake that G.J. Meyer describes in his book A World Undone “In the years leading up to 1914 all the powers had spent heavily on artillery (in addition to its heavy artillery, Germany began the war with more than five thousand smaller field guns and twelve hundred field howitzers), and all entered the conflict with what they thought were immense quantities of ammunition. All were stunned by the speed with which their supplies were exhausted. When 1915 arrived with both fronts deadlocked, all the belligerents found themselves desperately short not just of shells but of production capacity.” The French thought they had 3 months, British thought they had 6, the Russians had 1000 rounds per gun, all of this was exhausted well before the end of 1914. The Russians of course, ran out far sooner than that, after all guns were firing 1,000 rounds per battle almost as soon as the war started. This emphasis in stockpiling rather than growing the ability to produce would come back to haunt all of the countries as they found themselves grappling with trying to drastically grow their economic throughput while also fighting a war. Another problem was in the type of shells that had been stockpiled. All the nations had put a heavy emphasis on shrapnel shells. These were perfect for doing damage to troops in the open or in light fortifications but as the troops entrenched they were almost completely worthless. What the artillery needed was high explosive shells which were more complicated to make, and more expensive to produce. Even with these increased difficulties it was in so much demand that the nations were forced to switch almost all production to high explosive shells during the war.

So, when the countries discovered they didn’t have even close to enough shells they had to start mobilizing production as quickly as possible. Some of the nations were more successful at this than others, Austria-Hungary fell into the other. They would never produce more than one million rounds in a month, even in 1916 at the height of production. They had problems both in not having very much production capacity but also in having to produce many different kinds of rounds, they were far less standardized in their guns than the other countries which limited the amount of mass production that the factories could do. Russia was also having serious difficulties meeting the requested demand from the armies. By early 1915 the Russian high command estimated that they would need about 2.5 million rounds of artillery ammunition at the front every month, however for the first 4 months of 1915 only 2 million rounds in total reached the armies. This was due to many problems in Russia, the biggest of which is that they just weren’t at a point in their industrial development where it was possible to scale up that high. This massive need for shells wasn’t help by the fact that there were hundreds of thousands of shells stockpiled in fortresses near the border with Germany that soon fell into German hands. This was due to some corruption, with the commanders of the fortresses hoarding the shells without remorse, and just a breakdown in overall allocation from high command. Apparently fortresses who weren’t even engaged in the fighting were still getting monthly shipments of shells while the men at the front had nothing. A good example of just how much disparity there was between the German and Russian shell production in may 1915 when the Germans broke through the Russian lines one German army would have over 1 million shells the Russians facing them had just 100,000 at hand, and the entire south-western front had just 100,000 shells in reserve. I don’t want to paint the Russians in a completely harsh light though, they did manage to bring their monthly production up from about 400,000 in early 1915 to over a million by September. This was a great accomplishment. The only problem was that the Germans were producing around 4 million rounds per month by the middle of 1915 and it only grew from there. The Germans were forced to quickly ramp up their production after using more shells in the Battle of the Marne than they had used in the entire Franco-Prussian war. The German build up of production would be led by a Jewish Industrialist named Walter Rathenau. Rathenau led the German chemical and engineering industries to do absolutely incredible things. They were cutoff from a lot of supplies used to make wartime materials due to the blockade from Britian therefore they had to find alternatives to traditional sources. This meant finding way to extract camphor, an essential component of gunpowder, from Turpentine. Nitrogen, acetone, nitroglycerin, all were items that were previously imported that they found a way to produce with the items that they had at hand. During both world wars I think that the Germans definitely get the MacGuyver award for doing pretty awesome stuff with the resources available. Seriously, read into all of the synthetic materials the Germans were able to conjure up during the two world wars when they were cut off from overseas resources, it is pretty impressive. What really mattered though was that by the summer of 1915 German factories were churning out around 4 million shells per month. The French were trying to keep pace, with Albert Thomas who, as undersecretary for armaments was one of the primary advocates for getting skilled laborers out of the trenches and back into the factories. With the half a million workers that were released from combat duty the French slowly saw their production rise, but it was never enough to satiate the ever expanding needs of the army. In Britain the lack of artillery shells making their way to the front would cause enough of a problem that it would force changes within the entire government. After the battle of Neuve Chapelle the London Times ran an article entitled “Need for Shells: British Attacks Checked: Limited Supply the Cause: A Lesson from France” It seems that General Haig had a part in getting the article ran, using his connections at the Times to push his agenda of getting command of the BEF away from French. This news, coupled with the ever lengthening saga of Gallipoli caused the Asquith government to fall. This was probably more of an effect than Haig was hoping for, but nontheless it was the reality. The public outcry from the article would cause a huge shake up in the government that would lead to an increase in production, but much like everybody else, the British were unable to even come close to meeting the demands of the army in 1915.

So that is enough about artillery shells for the moment, lets take a trip over to Austria-Hungary to look at their specific economic situation. I would like to specifically call out Norman Stone’s book The Eastern Front which was a great source for this bit of the episode. He starts off his discussion of the Empire’s economic situation rather ominously with these words “The Habsburg Monarchy had become incapable of harnessing its peoples’ energies.” The first big problem that Austria-Hungary had was simply in manpower, I believe I mentioned this back in episode 21 or so, but it bears discussing again given the importance. So in 1914 three and a half million men were called up, basically every trained fighting man in the Empire and of course losses happened and by March 1915 casualties were in the 2 million range. So Austria-Hungary found themselves in the position of all the other countries in the war, just roughly 2 years earlier than anybody else. This position was one where they were strictly reliant on the current years class of conscripts to make good their losses. I’m sure you can understand how bad this situation was, when you are constantly experiencing attrition at the front and all you have are the men turning 18 at any given time to replace them with, there is no way you are going to keep your numbers up. The manpower problems were complicated much further due to the huge number of nationalities in the Empire’s armies. This is a problem pretty much unique to the Austro-Hungarian armies in that soon after the war started there were units of men who did not speak the same language as their commanding officer. This was of course a problem before the war, but in the time of peace there was time for a new officer to take the time to learn the language of his men, at least enough to converse, and also to teach the men at least some German, German being the official language of the army. The benefits to communication is obvious but a less obvious side effect was the connection this made between the officers and the men. The officers would learn something of their men, after all with groups as diverse as the empire had in 1915 it isn’t like all of the ethnicities were the same. Sure some were peasants who had very little exposure to the outside world but there were large groups that were highly literate and had been skilled laborers in the cities before the war. By learning about each other the officers and men would begin to form a bond. This bond would go a long way to helping minorities like the Slavs and the Croats feel like they were a part of the empire and that it was worth fighting for. This was particularly important when you consider that two thirds of the officers were German or Austrian, and most of the rest were Hungarian. All of this changed after the war started and the huge attrition rate among officers took hold. As the old group of officers were put out of action the new set didn’t have the time, and sometimes didn’t have the desire, to connect with the men under them in this same way. To quote Stone “Men froze, resented injustices at home, did not know what their officers were saying, had not much artillery to help them in the field, and sometimes understood Russian better than any other language. Desertion began.” Then moving on to production capacity, at the start of the war the Austrians had less guns than the Russians, about a third less, but since the Russian guns were also fighting the Germans it isn’t unlikely that at any given time the Austrians had an artillery advantage on the front, at least in terms of raw numbers. They were woefully inadequately supplied with ammunition of course, producing in a month less than what was being expended in a week. Also, and this is a problem that wasn’t nearly as prevalent anywhere else on the front the Austrians had also lost 1,000 to the Russians. Early in the war the Austro-Russian front was seesawing quite a bit back and forth and this put the Austrian guns in harms way far more often than their Western front counterparts. This is bad of course, but it could have been made good with replacements from the factory, but only about 300 replacements made it to the front. With the Manpower and supply problems that the army was having by mid 1915 they were to the point of near collapse, and it would be the Germans who would have to come and save them.

Austria’s main enemy, Russia, was also in a rather unfortunate position. The Russians were also, of course, behind on artillery shell production but even when they did have enough materials they were often completely mishandled. There were literally millions of shells stuck in fortresses or in supply depots that weren’t accounted for and just sat idle while guns along the front barely had more than a few shells per day to actually shoot at the enemy. This wasn’t just a problem for the artillery either, similar problems were being experienced on all forms of material even such simple supplies at rifle cartridges were in short supply by mid 1915. Part of this problem was due to the fact that all responsibility for ordering miltary good fell to the war Council which Norman Stone would describe as “an institution composed of, even for Russian circumstances, extraordinarily aged generals.” This group would become known for their penny pinching early in the war. One of the problems that the Russians had in meeting the armies demands was a self imposed one. The artillery department didn’t think that the Russian industry was capable of producing war good of sufficient quantity so they were quick to look to outside suppliers. This lack of faith in Russian industry wasn’t just in artillery either, the war ministry only really interacted with a small percentage of the Russian industrial base, relying on this small percentage to place its orders. When these factories were put under the strain caused by the war, obviously they couldn’t keep up. This was made worse when laborers were sent to the front, just like in other countries. When the problems developed, instead of convincing the war ministers that they should expand their industrial base in Russia they instead assumed that it just meant that the Russians were completely hopeless when it came to trying to meet the demand so they began to rely even more heavily on foreign sources for goods. The war ministry simply took the view that if they relied on Russian industry they would find themselves paying high prices, often inflated from corruption, for crappy goods that were almost never delivered on time. There were people in the government and the army that were trying to push production out to the rest of but they found they constantly ran into brick walls. Even as late as 1916 most of the private chemical industry, for example, was still producing consumer cosmetics, using many of the same chemicals that were being used in other countries to make explosives. This was not simply a Russian problem, the French would make many of the same mistakes earlier in the war. I believe it is just another example of the governments around Europe trying to cope with the massive war demands being placed on their country and trying to fit them within the small constraints of the pre-war military industrial processes which would have had to scale a thousand times to be able to meet demand, something they were obviously incapable of. Unlike Germany Russia did have the option of contracting with foreign factories to get their goods, and most of these orders fell on to businesses in England and the United States. There were huge orders placed to the United States for rifles, and to Britain for artillery shells. The American orders were constantly being delayed and delayed again, months after the weapons were supposed to be in Russian hands one of the Russian Grand Dukes, employed by the Artillery Department would say “They have unconscionably lied to us…it has been one long, wicked piece of deception.” This was because both the United States and British factories were of course busy making material for British army. Now the reliance of Russia on Britain went even deeper than these orders. Essentially Britain was acting as banker for Russia. This was mostly due to the huge amount of foreign investments that Britain had made it which created a situation where it could bank role just about anything. But they wouldn’t bankroll the Russian war effort blindly and insisted on Russian gold being shipped to the home isles before most purchases could be made. So in October 1914 8 million british pounds of Russian gold was sent via ship to Britain. Now it is hard to get exactly what this is in 2015 pounds, but some random Internet people tell me it is something like 250 million pounds, or somewhere around 375 million US dollars. With so much of Russian imports coming through, or being financed by Britain the Russians found themselves in a bit of pickle. They had to order through Britain, but that meant it was very easy for the British to up the prices just a bit to get a bit more profit. It wasn’t long before the Russians realized this of course, but it was difficult to figure a way out. While this problem was happening the Russian ruble essentially dropped in value by a half by early 1916. This made it almost impossible to get orders from other countries. Throughout this entire time the British insisted that this was the best way to go for the Russians, insisting that if the Russians were able to make massive orders independently abroad it would just hugely drive up the price for everybody. So just to review this Russian situation. The government didn’t trust local production to create quality material at the quantities required, so they were forced to import all of their supplies. Due to Britain’s position in the market it was able to guarantee Russian finances so the Russians were forced to pay a high mark-up for good to flow through Britain. Now this was something that couldn’t continue through the entire war, and in fact there would become a point in a few years when the British would basically be throwing money at the Russians, in the form of guns and shells, just to try to keep them afloat in the war, but that would be after Russian foreign debt had exploded.

While the Russian army was experiencing supply difficulties, some of it exacerbated by their own hoarding practices, the soldiers were also becoming less reliable. Part of the problem was that there just weren’t enough officers being trained compared to the size of the army. In all of the armies after the initial excitement of being in the army wore off the men it became very important to have officers to keep things moving along both during idle times as well as during battles. Norman Stone goes into great detail about this problem, and I will try to do my best to summarize what he takes several pages to describe. Basically the Russians refused to promote men from the ranks, depending on aristocratic recruits to be trained. By the end of 1915 there were regiments with 3,000 men that had less than a dozen officers. The problem was just as bad, if not worse in the NCO corps. In Western armies, to this day, the NCO, or the non-commissioned officer, is really the heart of a unit and what keeps it going. In the Russian army of the first world war these men were recruited from the ranks, but didn’t have the same level of power and respect that they did in other armies. Part of the problem was that there wasn’t a great base of educated men in Russia like the Germans, French, and British could call upon for leaders in the ranks. At the start of the war most of these NCOs in Germany came from men with long military experience, and there were something like 12 per company. The Russians had just 2 per company. When you are bringing in so many raw conscripts having a backbone of experienced men in leadership positions cannot possibly overstated. So there was this wide gap between the number of officers that were available and the number of officers that were needed. The officers for their part were not exactly high on the capabilities of the men under their command. They thought of them to be uneducated masses that were good for nothing other than to be shoved into battle. This of course led to resentment in the ranks that, instead of being handled by sympathy and understanding just caused the officers to double down on their negative thoughts of the men. The men were compelled, by force, if necessary to continue fighting. This had some positive short term results, but it would accelerate the events of 1917 and the withdraw of Russia from the war.

As the war continued to drag on the economies of all of the countries were mobilized more and more to meet the demands of the armies. After discussing so many failures today it will be interesting to revisit this topic in the future when the economies of the other countries in the war, of Germany, France, and Britain had began really operating at peak efficiency. In 1914 I’m sure none of the governments knew what would be required to keep fighting. Norman Stone would say “The discovery that states could go on fighting the war with bits of paper [for money] took almost everyone by surprise.” The fighting would soon cost the countries millions of dollars a week, and honestly I think it is somewhat impressive that they were able to keep it going as long as they did. Now, I know this hasn’t been the most action packed episode, but I can’t emphasize enough how important the economic aspect of the war was. In both of the World Wars it would be a nations ability to keep its army supplied that would be the biggest cause of victory, or defeat. Don’t worry though, next week we are back on the battlefield as the Germans launch one of their rare 1915 Western Front attacks against the French and British troops stationed around Ypres. One of the most vicious weapons of the war will make its Western Front debut as the Germans are the first to use Gas on the battlefields of France and Belgium.