How do the private investments described and classified in the last chapter get entangled in international politics? Why, and under what circumstances, do they become centers, or .even sources, of friction between national governments? That is the central problem of the research undertaken in this book. Two concrete case studies, which will enable the reader to begin framing his own tentative answer, conclude this introductory section. The two cases are radically different in many respects. In the first, suspension of payments by a borrowing country on considerable amounts of private debt contracted abroad raises diplomatic controversy and threatens a trade war with the governments of the creditors. In the second, existing political rivalries of great powers envelop and entangle a private firm whose purely business activities happen to take place in a region of strategic importance.

Germany emerged from the war economically exhausted politically unsettled, and saddled with a reparations burden of which the Versailles treaty failed to mention the total amount but which was set by the London conference of 1921 at the astronomical figure of 132,000,000,000 gold marks---nearly $32,000,000,000. In 1922-23 came a breakdown in the system of reparations collections, Allied troops marched into the Ruhr industrial district, and the German economy collapsed in a disastrous inflation which depreciated the mark to the vanishing point. At this, Allied statesmen remembered the adage about not killing the goose that lays the golden eggs, called a conference of economic and financial experts, and adopted their recommendations, known as the Dawes Plan, for the rehabilitation of Germany and future administration. This was in 1924. The Dawes Plan provided for a large loan to the German government, which was used to replace the old mark by a new stabilized reichsmark; for a much reduced scale of reparations payments, increasing gradually in amount up to the fifth or standard year, after which the annual amounts would vary in accordance with an index of economic prosperity; and for an administrative organization which included a novel device known as the Transfer Committee. It was the duty of the Transfer Committee to watch over the conversion of reparations sums, raised by taxation and other means within Germany, from their original form of reichsmarks into pounds, francs, and the other currencies of the creditor countries. If such conversion on a large scale should again threaten to depreciate the German currency the Transfer Committee was to intervene, and Germany was to be held responsible only for paying over the specified sums in marks, not for converting them into foreign currencies.

Thus the Dawes Plan recognized the "transfer problem"--- recognized, that is, that a country's ability to make large foreign payments is limited by its ability to acquire surplus foreign exchange through a relative increase in sales or decrease in purchases abroad or through new borrowings abroad. Where prices and trade are reasonably free to respond to market forces without political interference there is a so-called automatic mechanism of adjustment, well known to economists, which brings it about that the sending of funds abroad (as for reparations payment, or in the export of capital for investment) induces a relative increase in prices abroad compared to those at home, thereby stimulates additional exports or retards imports, and thus provides the necessary additional foreign exchange. If the paths of trade are blocked by tariffs and restrictions, however, so that the readjustment of prices is not allowed to bring about a normal response in the paying country's exports and imports, or if the sums to be transferred are so large that under existing conditions they put too great a strain on the mechanism of adjustment, then continued efforts to make payments abroad simply result in bidding up the prices of foreign exchange, depreciating the paying country's currency, and, if pressed far enough, in utter economic collapse. That is what happened in Germany in 1923, and that is what the transfer provisions of the Dawes Plan were designed to prevent in the future.

Under the first aid of the Dawes Plan, German economy revived, the scheduled reparations payments of the Plan were made punctually and without apparent strain for a number of years, and then a new conference of experts assembled to reach a "definitive " settlement---for the demands of 1921 were everywhere seen to be ridiculous, and the Dawes Plan had not set Germany's total obligation. Meeting in 1929---fateful year!---the delegates found the world economic outlook bright indeed, so they drew up a schedule of payments extending over 59 years, instituted the Bank for International Settlements to act as trustee in these transactions, and abolished the administrative mechanism of the Dawes Plan, including the Transfer Committee.

Some transfer protection was retained, however, in provisions for partial and temporary postponement of payments under certain conditions. This definitive settlement was just in time for the world depression, and two years later the whole reparations structure had collapsed. In the summer of 1931 a financial crisis in central Europe which threatened to spread disastrously over the world led President Hoover to suggest a one-year moratorium on all inter-governmental debts, including reparations. In July, 1932, a conference at Lausanne practically wiped the reparations slate clean with an agreement that one final payment of three billion reichsmarks would end Germany's obligation.

Now we come to the German private debts. After 1924, when German economy made a vigorous recovery, there was a tremendous demand for capital in Germany to rehabilitate factories and to carry through all sorts of private and public projects that had been neglected during the war and the inflation. German technical and business skill was of a sort to inspire confidence on the part of lenders, and interest rates were extremely attractive, due to the depletion of domestic capital resources and also to the price forces set in motion by reparations payments. Under these conditions foreign capital moved in eagerly and rapidly, as shown in the following table:

In addition, there were large short-term credits extended to German banks and business enterprises, and a considerable amount of direct investment took place through purchase of real estate and factories, through acquisition of shares in German undertakings, and through establishment of branch plants. The total picture at the end of September, 1930, was about as follows:

Until the economic and political crises which came in the train of the world depression, the private loans and other investments of foreigners in Germany had no direct connection with international diplomacy. They were nonpolitical transactions between private parties. There was no suggestion that foreign property in Germany was menaced by bandits or that it needed diplomatic protection against acts of the government itself, nor was there any likelihood that a foreign state could seriously think of using private investments in Germany as a tool of political penetration and conquest. Germany was no "backward" country. Nevertheless, these private investments did eventually occupy the diplomats and add to international controversy.

In August, 1931, a few months after the Hoover moratorium on inter-governmental payments had begun, foreign bankers who held extensive short-term credits in Germany conferred under the auspices of the Bank for International Settlements at Basle and agreed to a six months' moratorium on these loans. It was recognized that in the acute situation then existing a precipitate withdrawal of credits would have brought the whole German financial structure toppling. This first so-called "standstill" agreement was renewed and extended at subsequent conferences in the following years. So reparations payments had ceased and short-term credits were frozen when, on June 9, 1933, the German government decreed a transfer moratorium of six months on all public and private debts contracted before July, 1931, except those covered by the "standstill" agreement. This decree was shortly modified to exclude from the moratorium the Dawes Plan loan of 1924 and the Young Plan loan of 1930 to the German Reich, both of which had priority rights guaranteed in international treaties, and to provide for a 50 per cent cash payment of the amounts due on the other loans. The remaining 50 per cent was to be paid in scrip, redeemable in cash at half of its face value. Thus, the creditors would actually receive 75 per cent of their interest.

The "transfer moratorium" on private debts had more than its name as a heritage of reparations. It was the enormous influx of foreign capital into Germany after 1924 which had enabled the Dawes Plan annuities to be met with so little strain. Outsiders putting funds into Germany for investment provided more than enough foreign exchange to balance the outpayments on reparations account, and while the German government met its obligations abroad the German economy as a whole was merely paying one external debt with another---replacing a reparations debt by private commercial debts. This met the transfer problem for the time being, by postponing the day of reckoning. That day came when the world depression stopped the flow of new capital into Germany and the obligations already incurred began to fall due. Henceforth, though reparations payments ceased to exist, a new transfer problem attached itself to private obligations abroad, and under the most unfavorable circumstances, illustrated by a decline in international trade which brought German exports from 12 billion marks in 1930 to 4.8 billion marks in 1933. With the gold holdings of the Reichsbank rapidly moving downward, the German government determined to prevent a new currency collapse at all hazards and intervened to supervise the payment of foreign obligations. The government insisted that the question was one of transfer and that there was no repudiation of the private obligations involved; it emphasized that the private debtors---individuals, corporations, government bodies---must pay their full obligations regularly in reichsmarks into a Conversion Office which under the guidance of the Reichsbank, would then determine how much could safely be transferred into foreign currencies. From the standpoint of the outside investor, of course, the loss was the same as though the private debtor had defaulted. The difference was that the loss resulted from the action of the government in controlling the exchanges, so that in bargaining for payment the creditor was confronted by the German government. Naturally, he sought and received the assistance of his own government. Thus, private investments in Germany became an international political question.

The reduction of long-term debt transfers begun in June, 1933, led to a whole series of conferences with creditors' representatives and bargains with their governments. The citizens of Switzerland and Holland, next to those of the United States, had together made the largest long-term investments in Germany, and their governments were in a particularly strong bargaining position because these countries imported more from Germany than they exported to Germany---an advantage in a trade war. They could threaten to impose a clearing system on the payments due from Swiss and Dutch importers to German exporters. Germany made a special agreement to continue 100 per cent service on Swiss and Dutch loans, in exchange for "additional" purchases of German products---a discrimination which occasioned more than one vigorous diplomatic protest from the governments of the other creditors, notably the United States and Great Britain.

In December, 1933, at a conference in Berlin, the creditors tried in vain to increase the transfer quota. Dr. Schacht, president of the Reichsbank, announced instead that during the first six months of 1934 cash transfers on long-term debts would be only 30 per cent of the amounts due, with the balance in scrip worth half its face value. A new conference in January resulted in an agreement under which the scrip would be redeemed at 67 per cent of its face value, making the net payment to the creditors 76.9 per cent instead of the previous 75 per cent. It was also agreed that the discriminatory agreements with Holland and Switzerland would end at the middle of the year and not be renewed. There was a new general conference in April, and after weeks of difficulty, including conflicts among the creditor groups (the British, for example, were more interested in the Dawes and Young loans and the short-term credits, while the Americans held the largest share of the long-term debts), a compromise resulted which satisfied nobody. Its exact terms proved unimportant, for on June 14, 1934, Dr. Schacht announced a moratorium on all German foreign debts, and the German finance minister informed the Bank for International Settlements that payments on the Dawes and Young loans would also be suspended. This resulted in immediate diplomatic protests, especially from the United States, which continued to emphasize the issue of discrimination among the creditors, and from Great Britain, which objected particularly to suspension of the Dawes and Young loan payments and threatened to introduce a clearing system to collect the debt service out of sums due by English importers to German exporters. The British parliament quickly voted a bill giving this authority to the government. Dr. Schacht spoke threateningly of reprisals, and for a time a trade war seemed imminent. Negotiations proceeded, however; Germany receded from its position on the Dawes and Young loans, and a payment agreement which established British creditors in a relatively favored position was concluded in September, 1934. There were also individual agreements with other creditor countries, but Dr. Schacht continued to assert in public speeches that Germany must have a complete moratorium on all debt payments for several years. In bi-lateral negotiations the official German thesis seemed to be that each separate creditor country could reasonably expect transfer of the debt services due its citizens only in case it provided the means of payment itself in the form of a passive trade balance with Germany, and this placed the United States, with its active balance in German trade, at a decided disadvantage. On April 19, 1935, the United States government announced a vigorous diplomatic protest against the tender of interest payments on Dawes loan bonds to American holders in the form of registered reichsmarks, which could be taken out of Germany only at a heavy loss, while citizens of other countries were being paid in full. As this chapter goes to press the German private debt question appears to be as far from solution as ever, and the only safe prophecy is that it is sure to be troublesome.

Several other complicating factors should be mentioned. The policy of the National Socialist regime after Hitler's rise to power in January, 1933, antagonized large sections of world opinion and thereby prepared the way for resentment and imputations of bad faith on the debt issue. This world antagonism likewise expressed itself in a boycott of German goods, which certainly did not help Germany to build up the export surplus necessary to transfer its foreign debt. Furthermore, there was strong resentment among creditor groups when the fact was brought out that large quantities of German bonds had been repurchased at bargain prices and returned to Germany. The creditors charged that the German government had depreciated the market value of its own bonds by protesting that they could not be paid, and then had bought them at a discount with funds that should have gone for interest to the bondholders. Great Britain and the United States gave attention to this aspect of the matter in their diplomatic representations. The bond buying process also formed part of an ingenious scheme whereby German exporters were allowed to acquire bonds, or the depreciated scrip issued in payment of interest, at low prices and to re-sell them to the government for their full value in reichsmarks.

This was a method of subsidizing exports, and it, too, caused indignation in some circles abroad, though Dr. Schacht rightly insisted that either foreign bondholders must forego their money or the outside world must take more German exports. He also linked the question of Germany's ability to pay foreign debts with loss of colonies and other features of the Versailles treaty. The press in creditor countries has bitterly complained that while the German government claims it cannot risk the transfer of funds abroad to pay bondholders, it has been able to find considerable quantities of foreign exchange with which to buy materials needed in rearming. All these side-issues reveal how intricately what were once mere private transactions between German borrowers and foreign lenders have become entangled in the skeins of international politics.

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The second case study introductory to our investigation of investments in politics illustrates how a private enterprise in a disputed region can come to be a focal point of international conflict. It begins in the decade of the 1890's with an energetic young man named Robert Wönckhaus, a German, who worked for a Hamburg firm in Zanzibar on the east coast of Africa.(4) Native dhows plied regularly between Zanzibar and the Persian Gulf, taking up cargoes of slaves to serve as pearl-divers and bringing back products of the region. Among other things, they once returned with mother-of-pearl shells, practically as ballast. These shells were bought by the Hamburg firm, shipped to Europe, and sold at a handsome profit. Wönckhaus had heard that such shells were thrown away as valueless in the Gulf; he decided to go up there and see what could be done with them. This was in 1897, and "Robert Wönckhaus and Company" appeared soon afterward at Lingah.

Many accounts have been published of the moves on the political chessboard and the worries of diplomats concerning that strategic area of the Middle East to which young Wönckhaus went. The Historical Section of the British Foreign Office has called it "one of the principal theatres of British and German rivalry before the war."(5) For England, the Persian Gulf was one of the routes to India where compelling reasons of imperial defense dictated that no other power should ever have a foothold. German political interests, about the time Wönckhaus established his business, were only beginning to extend through Asiatic Turkey along the line of the proposed Bagdad Railway. Around 1900, it was Russia whose advance in the direction of the Gulf most worried British statesmen. Lord Curzon had written in his book on Persia and the Persian Question that he would impeach as a traitor to his country any British minister who might allow Russia to establish a station on the Persian Gulf. His vigorous action as Viceroy of India when France sought to lease a coaling station at Muscat and again when German plans for the Bagdad Railway pointed toward a terminus at Koweit showed that he was resolutely opposed to admitting any other power whatever to a stake in the region. Lord Lansdowne, the foreign minister, announced to the world in 1903 that "we should regard the establishment of a naval base or of a fortified port in the Persian Gulf by any other Power as a very grave menace to British interests, and we should certainly resist it with all the means at our disposal."(6)

The concrete experiences of a private business man against the political background of this region throw into sharp relief certain phases of the interaction between private enterprise and international politics. The story to be related, largely on the basis of first-hand testimony from Mr. Wönckhaus so far as the activities of his firm are concerned,(7) shows how a legitimate business with no political intentions becomes enmeshed in the suspicion and traditional rivalry between nations, takes on political importance, whether it will or not, and finally comes to grief in the cataclysm precipitated, in part, at least, by the results of practices which nations proudly regard as "protecting" just such enterprises of their citizens.

In view of the subsequent belief among the English, French, and Russians in the Gulf that he had been sent there with a subsidy from the German government, it is important to emphasize that Wönckhaus came in 1897 almost by accident. "I was completely disassociated from all political aims and all connections with the German or any other government," he says. "Nobody knew about me in Berlin; no one in Germany knew about the founding of my firm. It was purely a private, commercial enterprise, and of course I didn't go about advertising my plans." Nevertheless, as the firm prospered and developed in this focal point of imperial policies it inevitably took on a political importance. The first recognition of this fact came from the Russians. About 1899 Russia decided to pay more attention to what was passing in Persian Gulf ports. First she sent out travelers and warships, then opened consulates and trading posts, and soon organized a subsidized maritime service between Odessa and the Gulf. Several governments were establishing consulates along the Gulf about this time, but that of Russia at Bushire was particularly pretentious and well equipped, although there were no Russians in the region. The Russian government was trying its best to construct out of whole cloth a commercial interest which could be pointed to as justification for demanding that England discuss Persian Gulf questions with her. "An officer of the Russian Volunteer Fleet, Gorski," says Mr. Wönckhaus, "was sent into the region to build up a Russian trade. He was paid, of course, by the Russian government, and the whole campaign was a government enterprise. It failed, because from start to finish it was such an artificial construction. They shipped in sugar, for instance, for which there was no market, and most of the business they did was conducted at a loss."

"Under these circumstances , [Mr. Wönckhaus continues] "the Russian Consul-General, Nicholas Pasek, with whom I was on very good personal terms, came to me. He asked me to take over the Russian trading interests in the Persian Gulf and to build them up through my business connections there, which by this time were quite extensive. I was given to understand that the job would be well paid and would be practically a sinecure. I refused, because I wanted to manage my own business without having to report to anyone and because, after all, though I have never been a chauvinist, I felt myself a German and was not particularly attracted by the idea of working for Russian national ambitions.

"Some time later, presumably after receipt of instructions from Petersburg, Pasek approached me again. This time he said, 'We are really very much in earnest about this offer we made you; it is a matter of great importance to us. Our trading people are getting nowhere, whereas you started a few years ago with nothing and have built up a business and connections which make the English firms fear you. If you will agree to represent Russian trade you can name your own terms, and when I say your own terms I mean exactly that---any terms you want. We are determined to have Russian economic interests in the Gulf and we are willing to pay for them.'"

Again Mr. Wönckhaus refused.

The English in the Gulf at the time, from the Political Resident down to the clerks of commercial houses, believed that the Wönckhaus firm was not merely an energetic business rival but a direct representative of German political imperialism. That its rapid expansion and prosperity were explained by a subsidy from Berlin was considered a matter of universal knowledge.() "The real grounds for my success, which was inexplicable to the English except on the supposition of a subsidy, were simple enough," Mr. Wönckhaus relates. "My people and I worked harder than they. My market information from Europe was usually about a day ahead of that of other firms. I applied myself to the language and learned to speak Persian fluently. I maintained close contact with the natives and had native buyers gathering wheat and barley---our chief exports---in the cheapest markets, inland, not just along the coast. Furthermore, I think I knew my wares better than my competitors. Finally, I was the chief of my own firm, while the English commercial community was made up mostly of subordinates employed by firms with headquarters in London; I could make important decisions on the spot, adapt myself to new conditions, close a contract immediately, while they had to consult London."

The suspicions of British agents against the Wönckhaus firm were strengthened by their growing concern over manifestations of German political and economic interest in nearby regions. The grandiose Bagdad Railway project, planned and financed under the leadership of the Deutsche Bank, carried forward with the enthusiastic coöperation of the Kaiser and the German Foreign Office, was being hailed by publicists (to the annoyance of those in charge of its execution) as a potential threat to other powers, as well as a symbol of Germany's rising prestige. A tendency of German foreign policy to foster commercial interests in Persia proper (in order to create a stake in Persian diplomacy which could be traded for the removal of Russian obstruction to the Bagdad Railway program) did nothing to lessen British apprehension. Whether he wished it or not, the business carried on by Mr. Wönckhaus inevitably acquired a political importance as it grew. Markedly successful, he became known up and down the Gulf, and his agents were everywhere. Such a development in such a region was bound to have repercussions on European politics.

Mr. Wönckhaus explains how political sIgnificance came to be attached to his business as follows: "Orientals are impressed by force, by power," he says. "They saw me come to the Gulf with nothing at all. They knew me, because I took pains to cultivate good relations with the natives. Then they saw my business grow and saw me get the better of English firms in a number of commodities. They saw my success and the Russian unsuccess. Knowing nothing of European conditions, the power of European nations was typified to them by the citizens of these nations in the Gulf; in fact, they called me in their language 'Germany.' As my business won out over my competitors the natives began to lose some of their fear of England and Russia, and these nations henceforth found it less easy to manage things according to their will. Sometimes native people of great local importance even came to me and asked if I could not have them put under the protection of the German government in order to interpose a shield between them and the English and Russians. I never accepted or encouraged such offers, said nothing about them to the German consulate, and wrote not a line to Berlin.

Nevertheless, the other Europeans, especially the English, believed that such incidental results explained the real motives for my presence in the Gulf. In fairness to the English I ought to say that it must have seemed so to them, looking on from the outside. The effect of the Kaiser's foolish speeches at home---his 'mailed fist' speech to the departing troops at the time of the Boxer uprising, his talk of world empire, and the like---was to heighten this suspicion of my activities.(9)

"Suspicious as my activities may have seemed to the English," continues Mr. Wönckhaus, "the facts are, none the less, that they were of a purely business nature. The German government not only did not support me or subsidize me, but even the legitimate assistance and protection which I might have expected was not always forthcoming. That diplomatic circles in Petersburg, London and Paris discussed my firm and said that the German government was following a far-sighted policy in the Persian Gulf was not my fault. I did nothing to deny these rumors, but a contradiction from me would have changed no one's opinion, and anyway, the belief that my firm was backed by the government increased my credit and prestige in certain quarters."

It was in 1906, partly at the instigation of Mr. Wönckhaus, that the Hamburg-American Line actually established a regular service to the Persian Gulf. The Wönckhaus firm became the agent of the steamship company. The welcome that had been accorded earlier plans of Albert Ballin, Director of the Hamburg-American Line and friend of the Kaiser, for such a service showed a decided interest on the part of the German government in that region at the far terminus of the Bagdad Railway. The assertion often encountered in English sources, however, that the Hamburg America Line received a substantial subsidy for its Persian Gulf service is untrue. Mr. Wönckhaus, who was connected with all the negotiations, denies it categorically, and other evidence confirms his statement.(10) The new line and the Wönckhaus firm handled shipments for the construction of a portion of the Bagdad Railway.

"Sometime later," [continues Mr. Wönckhaus] "probably about 1911, I became Honorary Consul, without pay, representing the German government in Basra. The consulate at Bagdad had recently been established, and the request to me to take charge of the new consulate at Basra came from there. At first I refused. 1 have never wanted to be a subordinate to anyone; I wanted to run my business and to be completely independent. A second request came, and I refused again. Only at the third request, when it was strongly urged upon me that this was my duty as a German, did I accept, and then only on the specific, written understanding that I was never required to make a report. So far as 1 know, there was never an exchange of telegrams between the consulate in Basra and the German government."

As stated in the House of Lords by Lord Lansdowne, British policy did not include efforts directed toward the exclusion of the legitimate trade of other powers in the Gulf. It is apparent, h however, that the imperial representatives on the spot were inclined to exceed, in their zeal, the official, correct attitude stated in London. It is usually the case, in fact, that political agents in outlying territories chafe at the restraints imposed upon them by a home government which, in their view, almost always shows too much concern for the opinion of rival powers. Consuls of empire tend to favor strong measures, and so it was in this case. A man who has had a distinguished record in the British political service and who was Consul General at Bushire after 1904, then Political Resident in the Persian Gulf from 1909 until 1914, Sir Percy Cox, is proud of a dispatch written by the German consul, Wassmuss, on the occasion of Sir Percy's transfer to India. His going, wrote the German consul, would be a boon to German trade. In personal relations there was no cause of complaint, but as Political Resident he conceived it to be his duty to do all in his power to hamper the commerce of Germans, for he knew that in this region of weak administration commerce must involve political support. He "saw his ambition to make the Persian Gulf an exclusively English sea endangered by every shipload of barley and every ton of oxide exported" by German firms. This statement of the German consul, affirms Sir Percy, is not only an accurate summary of his point of view as Political Resident but puts it, in fact, quite well.(11)

In the eyes of English officials, anything undertaken by a foreign power or its nationals in the Persian Gulf had political importance. It is easy to understand, then, why they resisted with particular vigor every attempt by Germans to secure concessions which might have had the effect of settling them permanently on a bit of Gulf territory. When the first intimations came that Germany might attempt to secure facilities at Koweit for a Persian Gulf terminus of the Bagdad Railway, and when rumors of a Russian railway concession from Tripoli in Syria to Koweit were abroad, the British government acted promptly and drastically, negotiating treaties with native Sheikhs and putting gunboat pressure on Turkey. Sometime later the Wönckhaus firm tried to obtain from an Arab Sheikh rights to pearl fisheries in the neighborhood of Bahrein; this was prevented by the English. Thereupon negotiations are said to have begun in Constantinople for pearl-fishing concessions and for the lease of Halul Island , a center of the industry. Again England intervened, fearing that the island might ultimately be used as a coaling station. A further incident, which could easily have attained major importance, occurred on the island of Abu Musa.

An English firm, F. C. Strick and Company, had contracted for and was working a deposit of iron oxide on an island called Ormuz. Mr. Wönckhaus looked about and found a similar deposit, not quite as good, but worth working, on the nearby island of Abu Musa. The Sheikh of Shargah, whose territory it was, had conceded to three Arabs the right to exploit the iron oxide of Abu Musa, and in 1906 two of them transferred their rights to the Wönckhaus firm, which then prepared to start operations. At this stage the Sheikh canceled the concession, influenced by the English, who had a treaty dating from 1892 with him and other Arab chieftains to the effect that he would enter into no relations with any government but that of Great Britain and would dispose of none of his land to any other power. A French vice-consul who was in the region at the time writes that the red-oxide of Abu Musa would have made an ideal freight for the steamers of the Hamburg America Line, which arrived in the Gulf laden with construction material destined for the last section of the Bagdad Railway but lacked return cargoes. This was one reason why the English were determined to prevent Wönckhaus from exploiting the deposits. There may have been more weighty reasons, however, including the apprehension that if Abu Musa proved to be commercially valuable claims to sovereignty might be made by Persia.

The Wönckhaus firm took no notice of the Sheikh's revocation of the concession. In October, 1907, the British warship Lapwing appeared at Abu Musa towing a number of sailing boats laden with three hundred of the Sheikh's armed followers. The warriors disembarked, seized the workers employed by Wönckhaus, and removed them to Lingah. Two hours later, when a representative of Wönckhaus arrived, he was fired upon, but luckily not killed, by these same native warriors.

There was a cry of indignation in the German press. The Neuste Nachrichten spoke of the "incomprehensible violation of German rights." The Berliner Tageblatt announced that Great Britain was trying to undermine German prestige and to demonstrate her own supremacy. It said that the English "seem to have had the intention to show Germany that she can do nothing in the Middle East without Great Britain's consent," and declared that "commerce and politics can no longer be divided." Germany could only attain commercial success by "energetic political action." Mr. Wönckhaus protested to the German government, which passed on his protest to the British government through the Embassy in London. According to Mr. Wönckhaus, however, the German Foreign Office induced him to lower his claims for compensation below the amount to which he believed himself justly entitled, made his original protest much milder, and did not press the matter so energetically as he should have liked. The question dragged on, was postponed and repostponed, until finally some months before the outbreak of the war the British government agreed in principle that Wönckhaus was entitled to compensation. The determination of the actual amount was further postponed. Then the war came, and in the end he received no compensation at all.(12)

This was not the worst that the war did to the Wönckhaus firm, of course. German enterprises were driven out of the Gulf by the British. The records of the firm were seized, and this, incidentally, added a weighty confirmation to the personal testimony of Mr. Wönckhaus regarding the nonpolitical nature of his firm's activities. An officer of the British army on the scene has recently written that suspicions regarding Wönckhaus were proved unfounded when "a careful examination of the voluminous records of the firm's various branches lent no colour whatever to the supposition that its objects were other than commercial."(13)

Like a host of other business men scattered over the face of the earth, Wönckhaus seems to have been interested in doing a profitable business, expanding his firm, becoming a great merchant---not in politics. Why, then, did be eventually find his enterprise regarded as a "politico-commercial" institution, and why was it involved in one of the many international conflicts that led up to the World War? Why did his business operations help to make the Persian Gulf "one of the principal theatres of British and German rivalry before the war," and why did they have a small part, though an unintentional part, in the causes which set the world aflame? To understand the processes involved in such situations, to analyze them into their elements, is the object of this book. On the basis of that understanding, to design and apply intelligent measures for the minimization of similar international conflicts is the political problem of international private investments.

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Chapter Three

Table of Contents