The Fool and the Donkey

I. Two sentences

In the winter of 1872, anyone in the German middle class who left his savings in a meagrely paying savings account, instead of buying shares in railway construction firms, coal mines or mortgage banks, was considered a backward fool.

In the summer of 2026, a Berlin media entrepreneur writes that whoever waits for the state pension waits like a donkey; the answer is to send one’s money out to work.

It is the same rhetorical move. The risk is not advertised; the caution is shamed. Whoever holds back is not refuted but laughed at — among acquaintances, not in the feature pages. It is the most effective form of investment advice there is, because it requires no forecast.

II. The real occasion

Both times there is a correct diagnosis at the beginning. That is the most important thing they have in common, and the reason the process cannot be recognised as a swindle.

In 1871 the occasion was real: five billion gold francs of French war indemnity flowed into the newly founded empire. The government used the money to redeem the old debts of the North German Confederation and the individual states — fiscally virtuous, in effect an accelerant. Hundreds of millions of marks were paid out to private creditors whose fortunes had until then been parked risk-free in government paper. They now sat on cash bearing no interest, while the yields on solid investments fell away beneath them. The pressure to invest was not an invention of the speculators; it was a fact.

In 2026 the occasion is likewise real: a pay-as-you-go system reaches its limits in a shrinking population. That too is no invention.

Both times the question is not whether the occasion is true, but what follows from it.

III. What was unlocked in 1870

On 11 June 1870 the North German Confederation abolished the ministerial licensing requirement for joint-stock companies without replacement. Until then the Prussian company law of 1843 had required every new company to be examined on its merits: does the undertaking serve the common good? Are the founders reputable merchants? Is there a real asset behind the capital? The procedure took months, often years. In eight decades barely more than two hundred joint-stock companies had come into being in the Prussian heartland.

Its successor was the normative system: whoever met the formal minimum requirements had a legal right to registration. No examination of substance, no discretion, no question about the seriousness of the promoters. The driving force was Rudolph von Delbrück, from 1867 the first president of the Confederation’s chancery — the office from which the imperial chancery emerged in 1871. His conviction was that it is not for the state to judge economic expediency.

The fatal design flaw lay in what the law left out. No obligation to have contributed assets independently valued. Worthless land, obsolete machinery, fictitious patents could all be declared as contributions in kind. A down payment of ten to twenty per cent of nominal value sufficed to make the shares tradable.

In three years some nine hundred companies arose in Prussia with more than two billion marks of nominal capital — more than in the entire preceding century.

Here the parallel ends, and that must be said. Today there are prospectus requirements, supervision, depositaries, investor protection rules. An index-fund savings plan is not a promoter’s fraud, and whoever calls it one has refuted himself in a sentence. What has been unlocked today is not company law but the expectation: not which papers one may buy, but whose money is earmarked for them.

IV. The promoter’s profit and the fee

The mechanism of 1872 was simple. A consortium bought an often ailing business for five hundred thousand marks, contributed it in kind to a newly formed joint-stock company and valued it arbitrarily at two million. The difference — a pure paper gain out of nothing — went straight into the promoters’ pockets. Whether the company ever paid an operating dividend was of no concern to them; their return was secured at the sale.

Add to that the founding dividends: companies declared profits of fifteen to thirty per cent within months. The money had not been earned but siphoned off from the issue capital of the next subscribers.

And here again a line must be drawn. This is no image for today’s fund fees. A management charge is disclosed, legally regulated, and payment for a service actually rendered. What can be compared is narrower and nonetheless considerable: in both cases the secure return arises at the point of collection, not at the result. The promoter earned on the issue; the manager earns on the volume under management. Both need inflow, and both need it continuously.

From which follows what the letter from Berlin does not mention: whoever wishes to sell his units in 2050 needs someone to buy them. In an ageing society with many sellers and few buyers that is not a side condition but the central question. Diverting savings into securities accounts does not solve the demographic problem; it merely moves it from the pension ledger to the price list.

V. The press that plays along

In 1872 the stock-market papers acted not as observers but as paid drummers for the consortia. Financial journalists were supplied with free shares and bribes in order to stamp the seal of soundness on companies without substance. Warning voices were dismissed as unpatriotic carping.

In 2026 neither free shares nor bribes are required. It is enough that the same house supplies the analysis, produces the teaching materials and hosts the receptions — on a ship that brings its own self-description with it and cruises before the Frankfurt banking skyline. The difference from bribery is real and does not make the matter better: where no money flows, there is also nothing to expose.

VI. How it ended

On 9 May 1873 the Vienna exchange collapsed; in September the New York banking house Jay Cooke & Co. failed; on 4 October the panic reached Berlin. Within hours hundreds of millions of marks dissolved. The paper of the mortgage, brokerage and land companies became waste paper.

Then came the real visitation: pig iron fell from over a hundred marks a tonne to under forty; in almost half the blast furnaces of the Ruhr and Upper Silesia the fires went out; wages were cut by thirty to fifty per cent. Even Krupp stood on the edge of insolvency in the spring of 1874 and had to take a bank loan of thirty million marks.

And then it was repaired. The company law of 18 July 1884 prescribed independent examination at formation, required full disclosure of contributions in kind, made founders liable both criminally and civilly, and separated the executive board from the supervisory board — which turned from a comfortable sinecure into an organ carrying personal liability.

And it set the minimum nominal value of a share at a thousand marks. The reasoning, in today’s language: share dealing was to be a public casino no longer.

VII. The inheritance that is being insulted

The crash of 1873 engraved itself permanently on the national mentality. The collective experience of watching the reserves of teachers, civil servants and craftsmen burn within a few trading days founded the cult of the risk-free savings book and the longing for tangible assets. Faith in the self-healing powers of unregulated financial markets never took root in Germany again after 1873.

It is precisely this caution that is under attack today. When somebody calls the German saver a donkey for staying out of the capital market, he is insulting a lesson that this saver paid for — his great-grandfathers’ grandfathers, in Berlin, in October 1873.

That does not mean the lesson has remained right in every respect. German equity shyness has cost real returns over decades, and whoever denies it is making things easy for himself. An experience is not a law of nature, and the rules of 1884 have changed the world enough that the caution of 1873 may now sit in the wrong place.

Only the objection raised against it is not one. A lesson is refuted with reasons, not with a comparison to livestock.

VIII. The model

At this point Sweden regularly enters the argument. There, it is said, the equity pension has worked reliably for a quarter of a century. That is true — and it proves something other than what it is meant to prove.

What is correct. The premium pension has run since 2000 without collapse. The state default fund AP7 Såfa has since returned between eight and eleven per cent a year on average, and 27.3 per cent in 2024. Its fee is around five hundredths of one per cent a year, while German Riester products often cost between one and a half and four per cent. And those who chose nothing at all and simply ended up in the default fund did better in retrospect than those who chose for themselves. Whoever praises this system is in truth praising three things: compulsory contribution, a default solution, minimal cost.

What is almost always left out.

The share. Of 18.5 per cent of pensionable income, 2.5 points go into the premium pension. The remaining sixteen continue in the pay-as-you-go system. Sweden did not replace its pay-as-you-go system; it kept it and set a small funded pillar beside it. Whoever gives the impression that the capital market finances old-age provision there is describing a country that does not exist.

The brake. At the core of the system sits an automatic balancing mechanism which reduces entitlements and payments when liabilities exceed assets. It produced nominal pension cuts in 2010, 2011 and 2014 — without debate, without a vote, without anyone having decided them. And as life expectancy rises, the starting pension falls automatically unless one works longer.

The fund market. Those responsible at the provider Allra were sentenced to prison. The government had to halve the number of authorised funds from more than eight hundred to 454, noting that some had not been reputable — after almost twenty years in which they had managed pension money. Those harmed never saw their money again.

The level. Despite two decades of outstanding capital market returns the average pension stands at around 1,324 euros, with a tax-financed guarantee pension catching the weakest.

The much-praised stability of the Swedish system does not rest on its having mastered demography. It rests on the fact that the risk lies with the insured and the cut has no author. No minister has to resign when pensions fall; it happens by itself. That is fiscally elegant and politically convenient — and it is the same construction we have met elsewhere: a procedure without anyone responsible.

And: what works in the Swedish model is precisely what no sales operation can sell. A default fund charging five hundredths of a per cent needs no cathedral on the Main, no fifty educators producing learning content and no receptions on the upper deck. Whoever invokes Sweden while building a distribution system is invoking evidence that speaks against him.

IX. The three ingredients

What connects the two episodes is neither conspiracy nor fraud. It is a combination that recurs because it works.

An occasion that is true. The billions then, demography now. Without a true core no narrative holds.

A narrative that declares doubt to be backwardness. Not arguments against the doubt, but a classification of the doubter. Fool then, donkey now.

An audience that did not live through the previous round. That is the decisive ingredient, and it produces itself. It takes about two generations.

X. What works

The bitterest lesson of 1873 is well preserved: no state triumph, no sudden windfall of gold and no technological promise suspends the laws of profitability and real value creation.

In July we wrote the same sentence from the other side, without knowing the evidence for it: money does not work. People work, machines produce, inventors invent. Everything else is bookkeeping.

The legislator of 1884 wanted share dealing to be a public casino no longer. Those rules still stand; not one of them has been repealed. The return of the public casino today is not being pushed through against them but alongside them — and it is called democratisation.