At this time Bismarck's opinions on fiscal matters were somewhat vague. He afterwards declared that he held Free Trade to be altogether false. But in this as in other matters he certainly let his convictions be shaped by expediency. Just before the conclusion of peace with France he so far approximated to Free Trade as to insist that the Franco-German Commercial Treaty of 1862, which the war had of course abrogated--- war puts an end to all treaties between the States directly engaged--should now be again regarded as in force and as holding good up to the year 1887[81]. He even stated that he "would rather begin again the war of cannon-balls than expose himself to a war of tariffs." France and Germany, therefore, agreed to place one another permanently on "the most favoured nation" footing. Yet this same man, who so much desired to keep down the Franco-German tariff, was destined eight years later to initiate a protectionist policy which set back the cause of Free Trade for at least a generation.
What brought about this momentous change? To answer this fully would take up a long chapter. We can only glance at the chief forces then at work. Firstly, Germany, after the year 1873, passed through a severe and prolonged economic crisis. It was largely due to the fever of speculation induced by the incoming of the French milliards into a land where gold had been none too plentiful. Despite the efforts of the German Government to hold back a large part of the war indemnity for purposes of military defence and substantial enterprises, the people imagined themselves to be suddenly rich. Prices rapidly rose, extravagant habits spread in all directions, and in the years 1872–73 company-promoting attained to the rank of a fine art, with the result that sober, hard-working Germany seemed to be almost another England at the time of the South Sea Bubble. Alluding to this time, Busch said to Bismarck early in 1887: "In the long-run the [French] milliards were no blessing, at least not for our manufacturers, as they led to over-production. It was merely the bankers who benefited, and of these only the big ones[82]."
The result happened that always happens when a nation mistakes money, the means of commercial exchange, for the ultimate source of wealth. After a time of inflation came the inevitable collapse. The unsound companies went by the board; even sound ventures were in some cases overturned. How grievously public credit suffered may be seen by the later official admission, that liquidations and bankruptcies of public companies in the following ten years inflicted on shareholders a total loss of more than 345,000,000 marks (£17,250,000)[83].
Now, it was in the years 1876–77, while the nation lay deep in the trough of economic depression, that the demand for "protection for home industries" grew loud and persistent. Whether it would not have been raised even if German finance and industry had held on its way in a straight course and on an even keel, cannot of course be determined, for the protectionist movement had been growing since the year 1872, owing to the propaganda of the "Verein für Sozialpolitik" (Union for Social Politics) founded in that year. But it is safe to say that the collapse of speculation due to inflowing of the French milliards greatly strengthened the forces of economic reaction.
Bismarck himself put it in this way: that the introduction of Free Trade in 1865 soon produced a state of atrophy in Germany; this was checked for a time by the French war indemnity; but Germany needed a permanent cure, namely, Protection. It is true that his ideal of national life had always been strict and narrow--in fact, that of the average German official; but we may doubt whether he had in view solely the shelter of the presumedly tender flora of German industry from the supposed deadly blasts of British, Austrian, and Russian competition. He certainly hoped to strengthen the fabric of his Empire by extending the customs system and making its revenue depend more largely on that source and less on the contributions of the federated States. But there was probably a still wider consideration. He doubtless wished to bring prominently before the public gaze another great subject that would distract it from the religious feuds described above and bring about a rearrangement of political parties. The British people has good reason to know that the discussion of fiscal questions that vitally touch every trade and every consumer, does act like the turning of a kaleidoscope upon party groupings; and we may fairly well assume that so far-seeing a statesman as Bismarck must have forecast the course of events.
Reasons of statecraft also warned him to build up the Empire four-square while yet there was time. The rapid recovery of France, whose milliards had proved somewhat of a "Greek gift" to Germany, had led to threats on the part of the war party at Berlin, which brought from Queen Victoria, as also from the Czar Alexander, private but pressing intimations to Kaiser Wilhelm that no war of extermination must take place. This affair and its results in Germany's foreign policy will occupy us in Chapter XII. Here we may note that Bismarck saw in it a reason for suspecting Russia, hating England, and jealously watching every movement in France. Germany's future, it seemed, would have to be safeguarded by all the peaceable means available. How natural, then, to tone down her internal religious strifes by bringing forward another topic of still more absorbing interest, and to aim at building up a self-contained commercial life in the midst of uncertain, or possibly hostile, neighbours. In truth, if we view the question in its broad issues in the life of nations, we must grant that Free Trade could scarcely be expected to thrive amidst the jealousies and fears entailed by the war of 1870. That principle presupposes trust and good-will between nations; whereas the wars of 1859, 1864, and 1870 left behind bitter memories and rankling ills. Viewed in this light, Germany's abandonment of Free Trade in 1878 was but the natural result of that forceful policy by which she had cut the Gordian knot of her national problem.
The economic change was decided on in the year 1879, when the federated States returned to "the time-honoured ways of 1823–65." Bismarck appealed to the Reichstag to preserve at least the German market to German industry. The chances of having a large export trade were on every ground precarious; but Germany could, at the worst, support herself. All interests were mollified by having moderate duties imposed to check imports. Small customs dues were placed on corn and other food supplies so as to please the agrarian party; imports of manufactured goods were taxed for the benefit of German industries, and even raw materials underwent small imposts. The Reichstag approved the change and on July 7 passed the Government's proposals by 217 to 117: the majority comprised the Conservatives, Clericals, the Alsace-Lorrainers, and a few National Liberals; while the bulk of the last-named, hitherto Bismarck's supporters on most topics, along with Radicals and Social Democrats, opposed it. The new tariff came into force on January 1, 1880.
On the whole, much may be said in favour of the immediate results of the new policy. By the year 1885 the number of men employed in iron and steel works had increased by 35 per cent over the numbers of 1879; wages also had increased, and the returns of shipping and of the export trade showed a considerable rise. Of course, it is impossible to say whether this would not have happened in any case owing to the natural tendency to recovery from the deep depression of the years 1875–79. The duties on corn did not raise its price, which appears strange until we know that the foreign imports of corn were less than 8 per cent of the whole amount consumed. In 1885, therefore, Bismarck gave way to the demands of the agrarians that the corn duties should be raised still further, in order to make agriculture lucrative and to prevent the streaming of rural population to the towns. Again the docile Reichstag followed his lead. But, two years later, it seemed that the new corn duties had failed to check the fall of prices and keep landlords