Francis Wrigley Hirst.

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Debt of com-
munities with
more than
10,000 in-

1 89 1.
190 1.

I. 317. 8
2.395- 7
4. 253- 5

S. 244-3

9, 230.0

10, 796. 7


I. 400.5
5. 295- 7

This shows a growth in twenty-seven years of 3,985,000,000
marks in imperial debt, of 9,118,000,000 marks in the aggregate
debt of the German States and of 4,523,000,000 marks in local
debts. The imperial debt has been multiplied more than fifteen
times; that of the States has not quite trebled; while the local
debt was nearly seven times larger at the end than at the begin-
ning of the period. This summary is not complete as it does not
include the debts of the Prussian "Landkreise" and Provinces,

o Even after the exhausting wars of Frederick the Great there was no
Prussian debt.

& The figures are all taken from official sources. The leading aulliority for
the debts of German towns is Most's "Die Anleiheaujnahme dcr Grosseren
deutschen Stddte in Jahrzehnt iSg^-igoj."


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or of school and poor law authorities, or of communities with
less than 10,000 inhabitants. If all these were added to the
local indebtedness, it is officially estimated that the figure would
be not 5,295,000,000 but 7,420,000,000 marks. Most of the local
debt and a great part of the state debts are of course more or
less reproductive, producing revenue directly or indirectly in
relief of taxes; but the imperial debt is in the main what we
call in England "dead weight" debt.


The total funded debt of the German Empire, including long-
term treasury notes, has risen by leaps and bounds in the last
thirty years, although Germany has not been engaged in war
with any considerable power. But the expedition to China cost
altogether about 290 million marks and the wars in South-
west Africa entailed an expenditure of about 429 million marks,
Vvrhile another sum of 109 million marks was required for the
construction of the Kaiser Wilhelm (Kiel) Canal. In 1877 the
imperial debt of Germany was only 72 million marks, rather
more than i\ marks per head of the population. On the ist of
October, 1908, the debt amounted to 4,253 million marks —
rather more than 67 marks per head of the population. The
following official table shows the total funded debt of Germany
on March 31 in various years from 1879 to 1908, viz:

March 31 —

Total debt.

Amount per
head of the

72. 2







I. 317-8


2. I2S-3

40. 46


42. 29





4. 003 -5


4.253- 5


1877 -

I88I -

1886 - -

1891 - -






1908 (October i)


National Monetary Commission

In order to provide material for the Government and to assist
it in framing proposals for the reform of the German finances
in 1908-9, the imperial treasury made a very careful analysis
of the objects upon which the sums raised by imperial loans
had been expended up to the end of tht financial year 1907.

I. Sums expended out of loans on behalf of all the states of
the Bund:

Million marks.

For the imperial array i, 670. i

For the imperial navy 768. 4

For the imperial railways 252. 4

For the colonies 7. 4

For the currency -. 46. 4

For printing 5.3

For the inclusion of Hamburg and Bremen in the Zollverein 52. o

For the Kiel Canal 109. i

To meet deficits in the ordinary budget ii4-3

For workmen's dwellings, etc 9. 4

Expedition to China — 287. i

South West African wars 379. i

Expedition to East Africa 1.8


II. Payments made by all the states of the Bund except
Bavaria (which has its own army) for the military forces of
the Empire, 12 1.6 million marks.

III. Expenditure by all the states of the Bund except
Bavaria and Wurttemberg (which have their own postal sys-
tems) for post and telegraphs, 263.8 million marks.

It will be seen therefore that the imperial debt consists of
three parts, the first and by far the greatest being that which
is raised for the purposes of the whole empire, which accord-
ingly defrays the interest. The second part of the debt is
raised and defrayed by all the states except Bavaria. The
third part is raised and defrayed by all the states except
Bavaria and Wurttemberg.

It was of course inevitable that as the capital of the debt
grew there should be a proportionate growth in the annual


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payment for its maintenance. The following table shows the
charge for interest and management of the debt (which of
course has to be defrayed in the annual budget) in every fifth
year from 1880 to 1905 and in 1907-8.

Debt Charge.
[Amounts expressed in millions of marks.]



Charge for

and man-
of debt.


71. 7


Charge for
and man-
of debt.



At the beginning of this century the rapid growth of the debt
began to attract serious attention; and in the year 1901 rules
were formulated for the different spending departments to show
what classes of expenditure might properly be defrayed out of
loans. In the budget memorandum of that year the items of
expenditure defrayed out of loans were for the first time stated
separately. The following were the rules then laid down to
govern borrowing by the four great spending departments —
army, fleet, railways, and post-office.

1. The army. — The cost of fortifications and of perfecting
the network of military railways may be defrayed out of loans.

2. The navy. — Expenditure on the enlargement of the fleet,
subject to the provision that 6 per cent of the total value of
the fleet must be spent out of ordinary revenue on the con-
struction of new ships.

J. Raihvays. — Capital expenditure for the opening of new
traffic, and also outlay upon unusually costly buildings and


National Monetary Commission

improvements, which would be an excessive burden on the
ordinary estimates.

4. Posts and telegraphs. — The cost of acquiring and equipping
telegraph lines by sea and of laying telegraph and telephone
wires underground. All expenditure on telegraphs and tele-
phones for military purposes may also be defrayed from loans,
and since 1902 any extensions of the telephone system which
promise to be immediately profitable have also been placed to
capital account.

The principles formulated in 1901 for the regulation of loan
expenditures have since been supplemented, the following
additional rules being prescribed in a memorandum of 1 907 :

(a.) Home administration.'^ — Loans may be employed for the
purchase of land and other functions in connection with the
housing powers intrusted to the home office. Money may also
be borrowed to defray some of the larger structural alterations
in the Kaiser-Wilhelm Canal, which are costly enough to
exceed the limits of current maintenance and go beyond the
ordinary extensions required by the growth of traffic*

(b.) Military administration. — Not only the cost of building
forts (Festungsbauten) , but also expenditures for general pur-
poses connected with fortifications (Festungszwecke), may be
defrayed out of borrowed money.

(c.) Naval administration. — The excess above the 6 per cent
described in the regulations of 1901 is to take the form of an
additional sum in the extraordinary budget.*^ War ships only
are to be included in this category, the cost of arming the
ships with guns and supplying them with mines and torpedoes

« Im Bereiche des Reichsamis des Innern.

b Eiwaige grossere bauliche Anderungen am Kaiser-Wilhelm Kanal, die
schon wegen des erheblichen Aujwandes iiber den Degrifj der laufcnden Utiier-
haltung U7id der durch die regelmassige Fortentwicklung des Verkehrs bedingten
Enveiterung hinausgehen.

c Wird das Mehrbedarf in Gestalt eines Ztcschusses des ausserordentlichen
Etats auf Anleihe iibernommen.


The Credit of Nations

must be defrayed out of taxes and included in the ordinary

(d.) Posts and telegraphs. — In addition to the provisions of
1901, the losses occasioned by renting rooms below the market
price to underpaid officials and workmen may be thrown on
the capital expenditure of the post-office if not otherwise pro-
vided for by the general fund.*^

(e.) Railways. — The rules of 1901 are repeated at greater
length, with slight modifications. As regards loans for things
rapidly used up which are only treated as capital because
of their unusual cost, it is prescribed that they shall have
special and appropriate sinking funds attached, the interest
and sinking fund being charged on the ordinary railway budget.
This device is borrowed from the British system of loans for
works. The German runs: " Und zwar hei solchen Anlagen,
Einrichtungen und Beschaffungen, die einer verhdltnissmdssig
schnellen Ahnutzung unterworfen sind, unier Verzinsung und
entsprechend abgekiirtzer Tilgung des aufgewetideien Anleihe-
kapitals zu hasten des ordentlichen Eisenbahnetats ." Authority
similar to that granted to the post-office in regard to borrowing
money for subletting rooms to underpaid officials and workmen
is likewise conferred on the railway department.

It may cause surprise that anyone should have gone so far in
describing the debt of the German Empire and the regulations
which govern or restrict its increase without any reference to
a general sinking fund. But the fact is that there neither is
now, nor ever has been, a sinking fund for the imperial debt of

a This curious provision runs as follows: "Die Ausgaben filr Vermietung
an minderbesoldeie Beamte oder an A rbeiter bestimmte und sich angemessen
verzinsende Gebdude, sofcrn Hire Einrichtung hauptsachlich aus Riicksichten
der sozialen Fiirsorge erjolgt und eine Verweisung auf den in Etat des Reichs-
amies des Innern ausgebrachten allgemeinen Fonds nicht angangig ist." Noth-
ing could better illustrate the straits into which treasury officials were
driven by the widening gap between revenue and expenditure. The word-
ing, however ingenious, cannot excuse what is practically the part pay-
ment of ordinary wages and salaries out of loans.

82300° — 10 5 61

National Monetary Commission

modern Germany, though in the rules, 1907, a sinking fund was
prescribed for special types of railway loan expenditure. A
law, indeed, was passed on June 3, 1906, providing that from
1908 onwards a provision of three-fifths of one per cent of the
debt should be set aside for its extinction.

For eloquent brevity the latest comment of the German
treasury upon this law can not easily be surpassed. " Eine
Tilgung ist auf Gfund dieser Bestimmung noch fiicht erfolgt."
"This provision for a sinking fund has not yet produced any
results." In truth the object of a sinking fund is to reduce debt.
The extinction of a small amount of debt with one hand while
you create a large amount with the other is not practical; in
fact, it is wasteful. Most modern states indeed indulge in this
sham of a sinking fund probably in the hope of encouraging
their creditors. The German Reichstag has wisely determined
not to enforce its own law until the Government has contrived
to balance revenue and expenditure. Until equilibrium is
attained a sinking fund is a farce. Hence when war is declared
one of the first financial steps taken by the British Government
is to suspend the sinking fund.

As regards the actual method of issuing new debt, the fol-
lowing official account may be of service:

If the Government adopts the system of open sales with the
Reichsbank as its agent, the transaction is spread according to
market conditions over a longer or shorter period. But if the
Imperial or Federal Government assigns the new scrip to
financial and other institutions, then the day on which the
purchase money due to the Imperial Government is to be paid
wholly or in part, is considered as the date for the conclusion of
the transaction. The same holds good when the issue is assigned
to an Imperial Government department or a State institution
which has funds to invest. But when, according to the method
now usually adopted the scrip is issued to a "consortium" or
syndicate presided over by the Reichsbank and the Seehand-
lung, then there are three dates marking three different stages


The Credit of Nations

in the transaction. The first is the day on which the agree-
ment is entered into between the Imperial Government and
the consortium of banks, when the conditions of the issue are
fixed; then comes the day on which the loan to be issued is
ofifered for public subscription; thirdly, there is the period
within which the consortium which has taken over the loan is
bound to complete its cash payments to the Imperial Exchequer.
The first Imperial Loan of June 17, 1877, w^as emitted by a con-
sortium but from that time to the end of the 8o's this method
was only once resorted to, namely in 1887, when an Imperial
loan of 100,000,000 marks was intrusted to an association of
banks and financial houses. From 1889 onwards as the debt
rose more rapidly, this method became more common, and since
1900 it has been constantly adopted in the case of important

So much for the funded debt.


The unfunded debt of Germany consists of long-term and
short-term treasury issues. With reference to the first it is
officially admitted that a great increase has taken place in the
ten years 1 898-1 908. The explanation given is that owing to
general industrial conditions and demands the strain on the
German capital and loan market was so great as to preclude the
possibility of consol issues on a scale sufficiently large to meet
the deficits.

The following table shows the issues of long-term treasury
bonds {langjristigen Schatzscheinen) between 1900 and 1908:


National Monetary Co m mis s i o n














t— 1


















(— I



1— (

1— I

1— 1

























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Online LibraryFrancis Wrigley HirstThe credit of nations → online text (page 5 of 16)