NEW EHES Working paper: How did the capital market evaluate Germany’s prospects for winning World War I?

Evidence from the Amsterdam market for government bonds

Tobias Jopp is Akademischer Rat 
(post-doc) at Universität Regensburg

Economic historians have increasingly used market prices for a country’s sovereign debt to learn more about the importance, or unimportance, of special events seen through the lens of contemporaries.  Such “special events” typically include war, political turmoil, and economic crisis. Especially the American Civil War and the Second World War have attracted much attention in this respect. As opposed to this, the First World War – the “great seminal catastrophe of the twentieth century”, to use this oft-cited expression – has been rather neglected. This is where this study kicks in – with focus on Germany: How did investors perceive the German Empire’s war effort? Which were the main turning points in war in their eyes? To answer the questions, Jopp looks at the stock exchange located in Amsterdam, one of the major trading places at the time. He analyses the price of the German three percent imperial loan between 24th August 1915, when trading in the primary belligerents’ sovereign debt restarted, and 11th August 1919 using standard methodology to detect structural breaks in a bond’s mean price.
The study finds that, seen through the lens of bondholders, a concise WWI narrative centering on Germany should consist of twelve events that, alone, determined the long-term trend of their confidence. Two events stand out due to their profound negative effects on investor’s confidence. The one arguably is the conscription controversy in Britain culminating in late January 1916, when general conscription was finally introduced. Bondholders seem to have perceived this as a signal that Britain was likely to get fully involved in the war now; price lastingly dropped by 14 percent. It seems as if historians usually do not attribute too much importance to the conscription controversy as it stood in January 1916. This may be due to the fact that, in hindsight, the conscription program in Britain was not a great success in mobilizing human resources. The other major event – sequence of events would be better, actually – is the groundbreaking and successful Allied Powers’ revival in the Western theatre between summer and early autumn 1918 leading to the speedy ultimate collapse of the German lines; price lastingly fell by another 17 percent. In contrast to the conscription controversy, the Allied Powers’ revival has been established in the historiography of the war as not only a major turning point, but themajor turning point sealing the fate of the Central Powers. Evidence shows that the meaning contemporary observers ascribed to a particular event may well differ in some respect from the meaning historians, or the public mind, ascribe to it retrospectively.

The working paper can be found here: