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would be complete which left out the local debt. The systems
of local government in England, Scotland, and Ireland, though
similar in principle, are sufficiently distinct in detail to make it
possible to describe them as a whole; but the importance of
England and Wales, the predominant partner, is such that it
should be worth while to give some details as regards the local
debt of England and Wales, which will not be necessary in the



39



National Monetary Commission



case of Scotland and Ireland. First of all, however, it will be
convenient to show, as far as official figures are available, the
recent growth of local indebtedness for the United Kingdom,
taking the three component parts separately:

Local debt, England, Scotland Ireland, iScfo, 1900, and 1905-6.





1890-91.


1 900-1 901.


1905-6.




£201.215.458
C)
(«)


£316.704.222
46, 274.880
13.534.973


£482, 983, 929




58.818. 534


Ireland


18.586. 251






United Kingdom


(°)


376.314. 075


560.378.714



o Not available.

It is, of course, very difficult to arrive at an exact compu-
tation of local indebtedness, and different publications give
figures that vary considerably according to the views of the
compilers as to what should and what should not be comprised
in the term "local debt."

In England and Wales the principal local authorities from a
financial point of view are the municipal borough councils, the
county councils, the urban and rural district councils, and the
poor-law guardians. These last, however, are likely to be
extinguished in the near future, in which case their work
will be transferred to the county and municipal authorities.
Another group of ad hoc bodies, the school boards, suffered this
fate in 1902. The revenues required by the poor-law guardians
are derived partly from the poor rate, partly from grants-in-aid,
these grants-in-aid being contributions from the national
exchequer, i. c., the general taxpayer, in aid of the local exchequer,
i. e., the rate payer. The county council and borough councils
also levy a rate, and the rural and urban district councils levy
what is called a general district rate. Local authorities, espe-
cially municipal boroughs, have other sources of revenue, such
as market tolls, the takings of municipal tramways, the charges

40



The Credit of Nations

for municipal gas and water, etc. They are also allowed, sub-
ject to statutory restrictions and other conditions imposed by
act of Parliament, to contract debt for certain capital purposes,
the theory being that it is a proper thing to mortgage the rates
so as to defray the cost of large permanent undertakings by an
annual outlay for interest and sinking fund spread over a series
of years. Generally speaking, a local authority which wishes
to borrow must either obtain the consent of the local govern-
ment board or else get the power required into what is called a
private or local act of Parliament. But under Part V of the
Public-Health act of 1890 any urban local authority may create
debt and issue stock under the local government board's regula-
tions. The stock so created must be issued at a price not lower
than 95, must be redeemable at par after a fixed period, and must
otherwise conform with the regulations of the central board.
Municipal and local loans can only be issued for statutory
purposes, and they must be repaid in instalments, spread over a
period of years, varying according to the purpose, from 20 to 50
or even 60 years. The public-health code, under which a vast
local debt has been contracted, provides further that the sum
borrowed "shall not at any time exceed, with the balances of
all the outstanding loans contracted by the local authority
under the sanitary acts and this act, in the whole, the assessable
value for two years of the premises assessable within the district
in respect of which such money may be borrowed." In brief,
a local authority may not borrow for public health more than
double the value of the assessed annual rental of the lands,
houses, factories, and other ratable property within its area.
The last fifty years have been a period of unprecedented
activity and expansion in local government throughout England
and Wales. All towns and almost all large villages have been
sewered and drained at great expense. In most cases reservoirs
have been created and ample supplies of water secured. Gas,



41



National Monetary Commission

electricity, tramways, parks, and many other of the necessities
and conveniences of modern life have been initiated or ex-
tended. The result is that while population and wealth have
grown very rapidly the expenditure of our local authorities
has increased still more rapidly. Very detailed figures have
recently been published by the local government board °' by
which this expansion may be measured. In 1867-68 the total
receipts of local authorities in England and Wales from all
sources except loans were as follows :

Rates. - - - £16, 503, 000

Exchequer grants 95 1, 000

Other sources 6, 883, 000

Total 24, 337, 000

Twenty years later the total had nearly doubled ; and in the

financial year 1905-6, the last for which complete figures were

available, the corresponding figures were:

Rates - - - £58, 256, 000

Exchequer grants 19, 850, 000

Other sources 35, 612,000

Total - 113, 718,000

It will be seen that the pressure of the local ratepayers for
relief had resulted in the percentage of total revenue contributed
by Exchequer grants rising from 3.9 in 1867-68 to 17.5 in the
last year of the series. The ratable value is the annual value
of the land, houses, etc., in the parish or other area from which
the rates are collected, and represents in each case the rent at
which such land or houses can be let. In order therefore to see
how the growth of local expenditure compares with the growth
of wealth it is necessary to compare the average rates paid to
the local authorities in England and Wales by the ratepayers —
every such rate being levied at so many shillings and pence to
the pound of ratable value.

a F*ublic Health and Social Conditions, cd. 4671, igog.
42



T h



Credit of Nations



We then get the following figures :




1867-68.


1905-6.


Rates per ;£i of ratable value


S. d.

3 3>4


5. d.
5 8J<





This, however, gives an inadequate idea of local taxation,
and therefore we add the grants per £1 of ratable value, which
are paid to the local authorities out of the national exchequer.
In 1867-68 the grants for education were nonexistent, or so
small as to be negligible. But in 1905-6 they amounted to
£10,500,000, or IS. 2%d. per £1 of ratable value.

For poor law and other purposes these grants were 2>ij'd. in
1867-68 and gd. per £1 of ratable value in 1905-6. Thus the
total receipts of local authorities in England and Wales per £1
of ratable value rose from 3s. 5>^d. in 1867-68 to 7s. 8Xd. in
1905-6. "The receipts from other sources"'* rose, as we have
seen, from less than £7,000,000 in 1867-68 to more than
£35,500,000 in 1905-6. A large and growing proportion of
these sums, as we are reminded by a recent memorandum of the
local government board, represents revenue derived from profit-
able or at least revenue undertakings. Thus the revenue from
the waterworks rose from £2,500,000 to £4,500,000 between
1890 and 1905, the revenue from gas works from £3,750,000 to
£7,000,000, and the revenue from electricity supply from prac-
tically nothing to nearly £3,000,000. Tramways and light rail-
ways, which only yielded the local authorities £129,000 in the
financial year 1889-90, produced no less than £5,942,000 in
1905-6.

It will readily be inferred from these figures that of late years
the local authorities have possessed themselves of a large amount
of valuable and revenue-producing property, which must be
borne in mind when we come to consider the apparently alarm-

agonipoes other than rates, grants, aoad, loawjSs

43



National Monetary Commission



ing increase of local indebtedness. The earliest and latest years,
for which complete information as to the total amount of local
debt has been provided, are the financial years 1874-75 ^^^
1905-6. These figures for the whole of England and Wales,
including the capital borrowed by the metropolitan water board,
now become a public authority, are as follows :



Year.



Amount of local
debt.



Average

amount per

pound of

ratable

value.



Average
amount per

head of
population.



1874-75-
1905-6.



£92, 820, 000
482, 984, 000



J. d.
16 I



s. d.

18 3



The largest increase of debt in this period is due to county,
municipal, and urban sanitary authorities, which have contrib-
uted no less than £269,000,000 to the total increase of
£390,000,000. The buildingof schools accounted for £35,000,000
of debt, and the metropoUtan water board borrowed £47,000,000
during the period.

In order to know more precisely how much of the debt may
fairly be regarded as directly productive capital expenditure on
purposes for which trading corporations might have been created,
the local government board has classified the debt as follows,
taking a period of twenty-one years :

Amount and amount per pound of ratable value of the outstanding local debt of
England and Wales.





1884-85.0


1905-6.




Amount.


Ratio.


Amount.


Ratio.


Trading undertakings

Public health


^^78, 80s, 000

57,566,000

IS, 252,000

5,951,000

3,326,000

12, 308, 000


£ s. d
10 10

7 11


£255, 244,000
136, 440, 000
41 , 720, 000
13. 360, 000
10, 878, 000
25,342,000


£ s. d.
I 5 2
13 5




021
0010
006
018


041




14


Lunatic asylums

Miscellaneous purposes —


I I
26


Total




402, 984, 000


277











"This year is the first for which a complete classification of our local debt, according
to its purposes, can be made.

44



The Credit of Nations

Thus in twenty-one years local debt grew about twice as
fast as the local value, so that the apparent burden upon the
ratepayer doubled. But only a very small fraction of the debt
and of the increase is to be attributed to pauperism and lunacy,
the two purposes which most nearly approach the character of
dead-weight debt. For almost the whole of this debt the rate-
payers get in return for the interest and sinking fund*^ important
services, including some of the prime necessaries and comforts of
civilized life. Thus out of the total capital debt under the head
of "trading undertakings," which was outstanding in the finan-
cial year 1905-6, no less than £118,000,000 was for water-
works, £23,000,000 for gas works, £27,000,000 for electricity
supply, £28,000,000 for tramways and light railways, and
£49,000,000 for harbors, docks, canals, etc. Probably the bulk
of this capital debt, to quote an official publication, "belongs to
undertakings producing a revenue which covers the cost of
working and permits of a substantial contribution toward the
redemption of the capital debt without recourse to the aid of
local rates." The following figures, taken from a return as to
the reproductive undertakings of municipal corporations,^ may
serve to illustrate the financial character of these municipal
trading undertakings.

Average annual income derived from water, gas, and elec-
tricity supply, tramways, harbors, and markets, by town

councils, in the four years 1 899-1 902 £12,571,045

Average annual expenditure on the same undertakings:

Interest on and repayment of capital and depreciation. . 4, 202, 741
Other charges 7, 789. 682



a There has been some controversy of late as to the utility of local sink-
ing funds, seeing that growing towns are apt to increase their debt. The
arguments for and against will be found in Commons Papers 193 and 372
of 1909 entitled "Reports from the select committee of sinking funds in
exercise of borrowing powers." See also a useful review in the Economic
Journal for 1909, pp. 468-473, by Mr. S. H. Turner.

6 House of Commons, Paper 398, 1902.



82300° — JO 4 45



National Monetary Commission

So that the difference between income and expenditure ex-
hibits an average annual net profit in these four years to town
councils from their trading undertakings of £578,622.

Taking public health, the next largest item, which accounted,
as we have seen, for £136,000,000 of local debt in 1905-6, we find
on analysis that £51,000,000 was incurred in the improvement of
main roads, highways, and public streets; £38,000,000 in sanita-
tion and sewage disposal ; while £9,000,000 was spent on housing
■the poor, nearly £7,000,000 on hospitals, £3,000,000 on ceme-
teries, and nearly the same amount on baths and washhouses.
Although with the exception of baths, housing, and cemeteries
these expenditures are not directly productive of revenue, so
that all the interest and sinking fund have to be drawn from
rates and taxes, it is obvious that they all contribute indirectly
to improve the health, wealth, and efficiency of the nation.

The leading municipal securities are highly favored, and at
the present time British towns can borrow more cheaply than
the Empire of Germany. Municipal stocks rise and fall with
consols and other gilt-edge securities, as may be seen from the
following table of prices at the beginning of January in each
year from 1899 to 1909.

The larger the town the larger the debt and consequently the
freer the market. The security of a comparatively small town
like Bath is practically as good as that of London or Manches-
ter, but its credit is perceptibly lower, just because Bath stocks
are a little less marketable.



46



T h



C



r e



d i t of Natl



n s



Prices of consols, local loan stock, and various municipal stocks on January
I in each year jroni i8gg to igog.









London


Manchester.






Year.


Consols.


Local loans,
3 percent.


county

council, 2 'A

per cent.






Leeds 4
per cent

iiS'A


Bath,


4 per cent.


3 per cent.


3 per
cent.


1899 - -


(2j4%)lIO,'vi


no


9SJ4


'»i43


106J4'


102


1900 —


°99


" 100


89


I3SJ4


104}^


114K


99 5^2


1901 —


97H


99


88 J4


i33^i


102K


11 2 H


9&'A


1902


9iVi


100 J^


86


131 "'i


looJi


llSy:'


96


1903 - -


92 J4


iooJ4


87


13054


99 J4


iioJ^


94


1904 - -


(2^%) 88


9734


80


126'^^


«94'4


« 109


91


190S - -


88' J


97>4


8iJ4


I2SH


93 K


OI08


87


1906 —


89 H


99M


80 H


I27H'


95J4


107


91


1907 - -


86


97


75


1193^


92 J4


106


88


1908 —


&3H


95


75


116?^


89 J 4


104


84


1909 - -


84


98 K


77J-2


H7K


91 K


106


8S



" Ex. dividend.



47



The Debt and Credit of Germany.



49



THE DEBT AND CREDIT OF GERMANY.

I. — The German Imperial Debt.

The German Empire was described by Count von Bue-
low, the late Imperial Chancellor, as a "parvenu" among the
Great Powers. This, the greatest military power in the world,
is not a third as old as the United States, for it was born from a
union of states less than forty years ago, when modern Japan
was also being evolved.

The financial history of the German Empire since its develop-
ment has been remarkable, whether we consider the progress of
its expenditure, of its revenues, or of its debt. The following
table " gives a conspectus of the whole subject :

[Amounts are expressed in millions of marks.]



Annual average for the years.



1872-187S
1876-1880
1881-1885
1886-1890
1891-1895
1896-1900
1901-190S

1906

1907

1908



Total
expenditure.



Ordinary.



1. 146
774
776

[, 113
[,411
1.775
2,083

2. 157
2,421
2,519



Extraor-
dinary.



258.9

141- 7

102. 9

169. 8
235. I
388.5
265. S



Total
revenue.



Ordinary.



1. 149
759
767

1, 134

1. 413
1,807

2, 060
2,111
2,351
2,5^9



Extraor-
dinary.



670.3
163.3

so. I
218.4
154. 4

555
226. 9
264. 7
340. 7
265.5



It will be seen that, although there were from the first
extraordinary sources of revenue, yet the distinction between



a All the figures used in this monograph are taken from official sources,
chiefly from the valuable Denkschriftenband zur Begriindung des Entwurfs
eines Gesetzes beirefjend Aenderungcn im Finanzwesen, compiled by officials
in the German imperial treasury, published in 1908.



51



National Monetary Commission

ordinary and extraordinary expenditures (a distinction drawn
in order to supply reasons or excuses for borrowing in times of
peace) was not introduced into the accounts of expenditure
until the year 1886; and it was not until 1908 that the pro-
priety of making the extraordinary expenditure tally with the
extraordinary revenue was recognized in the imperial accounts.
The above table showing the total expenditure and income
must be supplemented by a second table showing the net
expenditure and income, after deducting the profits earned by
some of the government departments, such as the post-office,
the imperial railways, and the printing department. The net
expenditure and revenue of the German Empire then work out
as follows :

[Amounts are expressed in millions of marks.]



Annual average for the years-



Net
expenditure.



Net
income.



1872-1875 3 77

1876-1880 462

1881-1885 456

1 886- 1 890 604

1891-1895 - 813

1896-1900 908

1901-1905 I, 041

1906 1,261

1907 1,410

1908 - - I, 503



267. o

283. I

415- o

576. I

726.8

915-9

I. 013- 7

1, 230. 6

1,320.8

1.417.3



Applying the net expenditure and revenue to the population
we find that the net expenditure of the Empire per head of the
population rose from 9.1 marks on the average of the years
1872-1875 to 17.7 marks in 1 901-1905 and 23.9 marks in 1908,
the corresponding revenue figures being 6.4, 17.3, and 22.5, so
that the average taxation paid into the imperial exchequer
yearly by each person in the German Empire has almost quad-
rupled in the course of thirty-six years, having risen from 6 to
22 marks; and neither figure takes account of the extra burdens



52



The Credit of Nations

caused by the fact that most of the customs duties are protective,
so that in many cases only a small part of what the consumer
pays in higher prices finds its way into the treasury.

Turning now to the details of expenditure we find that the
cost of the army rose from an average of 324 million marks in
1872-1875 to 462 in 1891-1895, 622 in 1901-1905, and 854 in
1908. The corresponding figures for the navy were 36 million
marks in 1872-1875, 84 in 1891-1895, and 223 in 1901-1905,
and 339 in 1908. The cost of the foreign department {Aus-
wdriiges Amt) rose from an average of 6.7 million marks for
1872-1875 to 17.8 for the year 1908. The cost of the colonial
department (established in 1896) rose from 8.8 million marks in
1896-97 to 58.4 million marks in 1907, reverting to 49.2 million
marks in 1908. The cost of what may be called the home office
or ministry of the interior {Inner e Verwaltung^) rose from an
average of 2.5 million marks in 1872-1875 to 52.2 for 1891-1895,
74.5 for 1901-1905, and 83.4 for 1908. Neglecting other depart-
ments we now come to the cost of financial administration
{Reichsfinanz Verwaltung). The estimates of the imperial
treasury comprise (i) the pay of the officials, (2) the cost of
administering the various taxes and imposts, (3) the adminis-
tration of the general funds, and (4) the assignments to the
states of the Bund.

a Die Verwaltung im Bereiche de s Reichsamies des Innern.



53



National Monetary Commission

The following table gives a survey of the expenditure of the
treasury under the first three headings from the commencement
to the present time:



Average for the years.



1872-187S-
1876-1880.
1881-1885.
1886-1890.
1891-1895-
1896-1900-
1901-190S-

1906

1907

1908



Cost of treas-
ury adminis-
tration.



Marks.
232, 000
251, 000
449, 000
482, 000
538,000
618, 000
714, 000
835,000
880, 000
830, 000



Cost of ad-
ministering
taxes, etc.



Marks.

392, 000

405, 000

398, 000

407, 000

440, 000

469, 000

520, 000

1)537, 000

4. 357. 000

3. 419.000



General
funds, o



Aiarks.
839, 000

1. 757. 000

2, 822, 000
4, 153,000
4, 038, 000
4, 883, 000

10, 925, 000
24, 259, coo
26, 098, 000
27, 515,000



"The general funds of the imperial treasury included in 1908 (i) charitable funds
at the disposal of the Kaiser, (2) various invalid and pension funds mostly connected
with the war of 1870.

''The system of accounts was changed this year.

Among other branches of home administration the expenses
of the Reichstag and of justice both rose in the period 1872-1908
from less than half a million to more than 2 millions of marks;
while the allgemeine pensionsfonds, for army, navy, and civil
service rose from 20 to no million marks. The expenditure on
imperial posts and telegraphs rose from 99 to 545 million marks,
on imperial railways from 31 to 95 million marks, and on the
imperial printing establishment (founded in 1878) from 2 to 7
million marks.

Another branch of expenditure is entitled capital accounts
(Kapitalfonds), including (a) the imperial pension fund, (b) the
expended funds;" which again fall into (i) the imperial fortifica-
tion funds, (2) Reichstag building fund, costing 26 million marks

't A ujgezehrtefonds.



54



T h



C



r e



d i t of Nations



and paid for out of the French indemnity; (c) the famous war
reserve (Reichskriegschatz) kept in the castle at Spandau, and
consisting of 120 million marks set aside from the French in-
demnity; (d) money set aside for a Working Capital Fund."

The accounts of the empire are complicated by the financial
relations of the federated empire to the states of which it is
composed. From 1872 to 1878 the states paid matricular con-
tributions to the empire varying between 51 and 82 million
marks a year. The tariff revision and financial changes of 1879
enlarged the financial resources of the empire, and from 1883 to
1898 (with the exception of the two years 1893 and 1894) the
empire made annual contributions to the states. This con-
tribution was usually small, but occasionalh^ became substan-
tial, as in 1889, when it rose to 139 million marks. From 1899
onward the imperial finances again became unequal to the
strain of increasing expenditure, and matricular contributions
were again required from the states. The following table gives
a comprehensive view of the imperial finances in the last nine
years and of the annual deficits in ordinary revenue :

[Amounts are expressed in millions of marks.]



Expendi-
ture.



1900 I 1,083.4

I. 1475
I. 173-9
I, 208. 3
I , 194. o
I. 285.9
I. 261 . 2
1, 410. o

1.503-2



1901

1902

1903

1904

X90S

1906

1907

1908



! Surplus Uncovered ^^^^ 1,', •^^'"j',^"^ Tn
Income. I paid to Matrikular-' ' "•'^l"f '"^ -^J.'^X'^"
the states, beitrage. |r'^"lar contnbu-



971- 7
979-3
I , 026. 6
I. 060. 3
I, 087. o
1 , 176. I
I. 230. 6
I 320.8
1,417-3



19. 2
IS-2
24.4
24.3

23 -7
24. 2
24. 2
24. 2
24. 2






92


S


-


IS3





-


122


9


-


123


7


-


83


3


-


8S


6


-


6


4


-


6S








65


7



— III. 7
-168.2

— 147.3

— 148. o

— 107. o

— 109. 8

— 30 6

— 89. 2

— 85.9



oA useful table showing the increasing cost of imperial administration under nine dif-
ferent branches from 1 879-1908 is given on pages 94-95 of the Denkschrijtenband. The
charge for Schuldendienst or service of the debt appears in a later table.



55 •



National Monetary Commission



The art and theory of a public debt are comparatively new to
Germans;" but it must be admitted that modern Germany has
proved itself an apt pupil of older kingdoms and empires alike in
the theory and the practice of borrowing for income. We shall
trace the growth of the imperial debt from its commencement in
1877 at some length; but it will be convenient first to take a
general view. As Germany is an imperial federation of States
with a developed system of local government the debt falls into
three great classes — the debt of the Empire, the debts of the
individual States, and the debts of the urban and rural com-
munities. The following table shows the growth of debt in the
Empire, the States and the "Kommunen" of Germany from
1881 to 1908:''

[Amounts expressed in millions of marks.]



Year.



Debt of
Empire.



Debt of
States.


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