This chapter focuses on the formal German response to the challenges of globalization and the new imperialism discussed in the previous chapters, culminating in Kaiser Wilhelm’s shift to “World Policy” and the bid to build a large battleship navy in 1897. The complex of ideas, interests, and personalities that shaped this policy are analyzed in depth, revealing that educated middle-class liberal opinion was much more decisive in this shift than is usually appreciated. Prominent in this process were the ideas and perceptions of Gustav Schmoller and his students. Schmoller knew Alfred Tirpitz and had the ear of Bernhard von Bülow, and Ernst von Halle and Hermann Schumacher were easily drawn into Tirpitz’s legislative campaign to significantly expand the German fleet on their return to Germany. They became part of a very sophisticated and effective naval propaganda effort that mobilized the German professoriate and culminated in passage of the first navy bill in April 1898 which dramatically increased the size of Germany’s battleship navy into a deterrent “risk fleet.”

Germany's naval leap in 1898 concided with the start of the Spanish-American War, revealing the limits of Germany’s diplomatic pull with its still tiny navy. Likewise, tensions with the Americans and British over Samoa demonstrated German weakness in the face of an increasingly aggressive United States aided and appeased by Great Britain. This chapter analyzes these developments, as well as the outbreak of the Boer War, during which the Royal Navy violated German neutral rights by abusing its command of the sea. These developments were important catalysts for naval enthusiasm in Germany, which Schmoller, von Halle, Schumacher, Sering and the other so-called fleet professors helped mobilize during the campaign for the second navy bill in 1899 and 1900. This activity centered on the Free Union for Naval Lectures which organized pro-naval speeches throughout Germany. Likewise, the Germany Navy League, which these men helped transform into a more populist mass organization, grew in size dramatically. This culminated in passage of the second navy bill in June 1900 and in Bernhard Bülow’s appointment as chancellor.

This chapter analyzes the role that the dreadnought arms race with Britain began to play in Germany asa surrogate for its largely failed “World Policy” and how that contributed to a growing German debt crisis. In the six years before the outbreak of war, keeping to a set ratio of German and British battleships was increasingly linked with Germany’s “world status” and national honor in the minds of the German public, and Schmoller and his students had played a key role in shaping these perceptions. Even so, it put impossible strains on German public finances, the reform of which became the last major campaign of Bülow’s career and to which von Halle and Schmoller contributed actively. This reform fell far short and ultimately cost Bülow his chancellorship. Matching Franco-Russian military expansion would add additional fiscal burdens and a heightened sense of insecurity. One of the few remaining prongs of "World Policy," the Baghdad railroad, faced impossible hurdles that Karl Helfferich was enlisted to overcome. Ultimately a grand bargain between Britain and Germany around Mesopotamian oil cleared the remaining hurdles for its completion just weeks before the outbreak of war.