Studies in the Economic Policy of Frederick the Great

W.O. Henderson

• Publisher: Taylor & Francis
• Year: 2013
• Print ISBN: 9781138865204
• eBook ISBN: 9781136609466
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Biographies of Frederick the Great generally emphasise the military and diplomatic events of his reign and neglect to discuss fully the significance of his economic policy.

In this series of essays Dr. Henderson deals with various aspects of the Prussian economy in Frederick the Great's reign. He describes Frederick's commercial policy, the reconstruction of Prussia after the Seven Years War and the state of the Prussian economy in 1780's, showing that "alone among his contemporaries Frederick left his country with a far more flourishing economy than it had been when he ascended the throne". The role of the private entrepreneur in Prussia at this time is illustrated by surveys of the careers of the merchants Splitgerber and Gotzkowsky who promoted the expansion of Prussia's armament, silk and porcelain industries. This book was first published in 1963.

CHAPTER I

The Rise of the Metal and Armament Industries in Berlin and Brandenburg

IN the reigns of Frederick William I and Frederick II of Prussia the house of Splitgerber and Daum rose to the position of one of the leading mercantile, financial and industrial undertakings in Berlin and the Mark Brandenburg. The firm was engaged in a variety of enterprises and it played an important part in promoting the expansion of the production of metal goods, cutlery and refined sugar in Prussia. It was, however, as armament manufacturers and army contractors that Splitgerber and Daum made their greatest contribution to the rise of Prussia in the eighteeneth century.¹

The firm of Splitgerber and Daum was established in 1712 when David Splitberger was 29 and Gottfried Adolf Daum was 33 years of age. Splitgerber was a bookkeeper who had served his apprenticeship in Stettin before coming to Berlin, where he was employed by the firm of Gregori² while Daum appears to have served in the army as a non-commissioned officer. The partners started with only a little capital and conducted their business from two furnished rooms. In 1713 Daum married the daughter of a prosperous tailor and her dowry helped to finance the firm in its early days. Splitberger and Daum were not burghers of Berlin³ and they could not open a shop or engage in crafts over which a guild enjoyed a monopoly. So they began their business careers as commission agents, which was one of the few business activities open to them, and they eventually became wholesalers, financiers, bankers and industrialists. Neither partner had any predominance in the firm though it was David Splitgerber who handled the ‘public relations’ aspects of the firm’s activities, presented memoranda to the King from time to time and advised the authorities on questions of currency, public finance and foreign trade.¹

Shortly after the partnership had been formed Splitgerber and Daum secured two orders from Augustus the Strong² to supply the Dresden arsenal with a consignment of cannon balls and bombs, and before long the firm was also delivering military supplies to the Prussian army. Some bombs were purchased from the royal foundry at Neustadt an der Dosse³ and from ironworks near Grabow in Mecklenburg while most of the copper came from the Rothenburg mine in the Prussian part of the County of Mansfeld.⁴

These orders from the King of Prussia and the Elector of Saxony gave the young partners a flying start. New clients soon came forward to do business with a firm that had so quickly gained the confidence of two crowned heads. In July 1713 Splitgerber and Daum began to buy wines, tapestries and ‘colonial goods’, such as tea and cocoa, from de Almeyda of Lisbon for sale in Germany and Poland, transactions which amounted to 26 million thalers in the five years 1713-18. A few years later they were handling the sale of various English manufactured products—such as cloth, stockings and hats— which had been imported by Johann Witte of Berlin. The partners travelled widely to secure new orders. Between 1712 and 1715 Daum visited Dresden, Hamburg, Denmark and Lisbon while Splitgerber was in Königsberg and Dresden. The partners raised capital to expand their business by borrowing from various sources.¹ On the other hand Splitgerber and Daum were also lending money.² The balance sheet for the first six years of the partnership showed a profit of 10,450 thalers.

One cause of the rapid progress of the firm in the early days of Frederick William I’s reign was the fact that the partners appreciated more clearly than some of their rivals the peculiar nature of the Prussian State at this time. They realised that success in business could be achieved only within the framework of a strictly organised mercantilist economy. They saw that the key to advancement lay in securing the support of a soldier-king who was engaged in building up an army more powerful than Prussia had ever seen before. Splitgerber and Daum realised that by sharing in the patriotic task of supplying the needs of the army they might hope to secure access to Court circles where valuable commissions might be picked up. The monarchy was the fountain from which new orders and valuable privileges flowed. Just as Gotzkowsky³ secured the patronage of Frederick the Great by helping to establish the silk and porcelain industries in Berlin so Splitgerber and Daum entered the small circle of those who enjoyed royal favours by fostering the development of the metal and armaments industries of the province of Brandenburg. The modest commissions which Splitgerber and Daum carried out for the military authorities in the early period of the firm’s existence were a prelude to much more ambitious undertakings in later years.

The commercial, financial and industrial activities of Splitgerber and Daum expanded in the 1720’s and 1730’s. The firm handled many commodities on a commission basis. They purchased ‘colonial goods’ in Lisbon, Amsterdam and Hamburg; copper at Rothenburg and Breslau; and silk in Leipzig. They had correspondents all over the Continent¹ and they helped to finance trading voyages such as those of the Potsdam (1725) and Kronprinz (1732).

Although they had no previous experience of trading in cloth Splitgerber and Daum were pioneers in fostering the expansion of the export of Prussian woollens to Russia. Hitherto the Russian military authorities had generally obtained army cloth from England. In the early eighteenth century, however, the output and the quality of coarse Yorkshire woollens declined. Prussian and Silesian cloths now compared favourably with those of Yorkshire as regards price and quality. The rupture in Anglo-Russian diplomatic relations in 1720 gave Mardefeld (the Prussian ambassador in St. Petersburg) an opportunity to persuade the Russians to buy Prussian instead of English cloth. His efforts were successful. In 1722 he secured an order for 9,300 yards of Prussian cloth and in 1724 the Russian authorities decided to buy no more English cloth. In that year the Russia Commercial Company was set up by a consortium of Berlin merchants and the majority of its shares were soon held by Splitgerber and Daum. Frederick William I granted the company a twelve-year monopoly of the export of Prussian army cloth —but not of all woollen cloth—to Russia. He also gave the company permission to import Russian goods (such as leather) duty free to warehouses in Stettin and Frankfurt an der Oder. In 1725 two representatives of the company went to St. Petersburg and secured an order for 520,000 yards of army cloth.

The Berlin company had to overcome many difficulties. It had to set up its own dyeworks at Drossen and Landsberg. The transport of cloth to Russia proved to be hazardous and costly. Insurance premiums were high. The prices charged by the cloth-makers—which were regulated by the government—sometimes left only a small margin of profit when the cloth was sold to the Russians. Nevertheless the Berlin company traded successfully with the Russians between 1725 and 1727. Army cloth worth 485,000 thalers was delivered and the Russians paid a third of this sum in specie. Considerable quantities of Russian leather were sold by the company in Austrian territories—particularly in Silesia. English intrigues in St. Petersburg led to a virtual suspension of the trade but after 1728 some new orders were received. In 1733 Britain and Russia resumed diplomatic relations and the new British envoy in St. Petersburg made every effort to recover the army cloth contract for British merchants. An Anglo-Russian agreement of 1734 reduced the Russian import duty on coarse Yorkshire woollens to 2d. per yard and this gave English clothiers a decisive advantage over their Prussian rivals. For a time the Berlin company continued to receive some orders for Russian army cloth but by 1738 British influence had finally triumphed in St. Petersburg and all orders for Prussian cloth were cancelled. Nevertheless Splitgerber and Daum continued to maintain an agency in St. Petersburg and some private trade with Russian merchants continued.¹

Splitgerber and Daum were also financiers and bankers who carried out many commissions for the King such as making payments to a recruiting officer in London who enlisted tall men for the Prussian army; providing silver for the royal mint;² distributing money from the royal charity; and administering the finances of the Royal Salt Fund. Between 1726 and 1738 the firm’s turnover rose from 189,649 thalers to 641,582 thalers while the capital account rose from 92,640 thalers to 278,461 thalers.

Splitgerber and Daum also became industrialists by taking over the management of several royal manufacturies. In 1719 they took over the state copperworks at Neustadt-Eberswalde which turned out boilers, pipes, brewing-pans and engraving plates. The partners enjoyed a monopoly of the sale of these products in the Mark Brandenburg. In 1726 the lease of the copperworks was renewed and the monopoly of the sale of copper products was extended to Pomerania, Magdeburg, Halberstadt and Mansfeld.

When the Crown established small arms workshops at Spandau and Potsdam their management was entrusted to Splitgerber and Daum (1722). The manufacture of gunbarrels, swords, daggers and bayonets took place at Spandau while the assembling of guns was carried out at Potsdam. Daum engaged 70 skilled artisans at Liège but in Solingen the authorities of the Duchy of Berg put difficulties in his way. The King paid the fares of the Liège workers and granted them various privileges. Some of the immigrants however failed to settle down and returned to their homes.

By March 1730 the men employed in the Spandau and Potsdam workshops included 76 masters, 135 journeymen and 41 apprentices. Some of the younger workers were boys from military orphanages. The King of Prussia prohibited the import of guns and blades (so as to give the royal workshops a monopoly of supplying the army) and allowed the export of arms to Denmark, Poland, Russia and Austria. The lease was not very profitable because although Splitgerber and Daum had to pay more for their Swedish iron the King insisted upon a reduction in the prices they charged for the guns which they sold to the Crown. Between 1724 and 1736 their profits fell from 30,000 thalers to 5,000 thalers a year despite an expansion of output. Daum stated that the capital invested in these workshops would have earned three times as much profit in some other commercial venture.

In 1725 Splitgerber and Daum took over the management of three other royal industrial establishments—an iron furnace at Zehdenick,¹ a forge at Peitz², and ironworks at Neustadt-Eberswalde.¹ Frederick William I hoped to expand the output of these works so that Prussia would be less dependent upon Sweden for the pig-iron and other iron products required for military purposes.² The Zehdenick plant made cannon balls, bombs and grenades which were stored in a warehouse established by Splitgerber and Daum at Spandau. Royal brass works (1727) and ironworks (1732)³ at Hegermühle were leased to them—the former being operated in conjunction with adjacent copper works at Neustadt-Eberswalde so that in thirteen years Splitgerber and Daum had come to operate eight nationalised undertakings.⁴

In Frederick the Great’s reign the house of Splitgerber and Daum went from strength to strength. Frederick had no very high opinion of merchants and bankers, for he held that men whose actions were guided by the profit motive were inferior to soldiers and civil servants for whom financial rewards were a secondary consideration as compared with the efficient discharge of their duty. In his letters to Fredersdorf the King criticised the mercantile classes and referred to Splitgerber in derogatory terms such as ‘Spitzbube’ and ‘Spitzbubegerber’.⁵ Nevertheless, like his father, Frederick the Great frequently made use of the services of Splitgerber and Daum who now took their place among the leading bankers, merchants and entrepreneurs in Berlin. When Daum died (1743) his heirs left their capital in the business but had no influence over its management. David Splitgerber was now left in charge of the firm and he engaged Johan Jacob Schickler of Strasbourg and Friedrich Heinrich Berendes of Berlin as his assistants. In due course Schickler and Berendes married Splitgerber’...

Table of contents

• Cover
• Title Page
• Copyright
• Acknowledgements
• Contents
• Introduction
• 1. The Rise of the Metal and Armament Industries in Berlin and Brandenburg
• 2. The Rise of the Berlin Silk and Porcelain Industries
• 3. The Recovery of Prussia after the Seven Years War
• 4. Commercial Policy of Frederick the Great
• 5. The Prussian Economy in the 1780's
• Maps
• Select Bibliography
• Index