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ST CONGRESSI
CT?-WAT>T?
/DOCUMENT
2d Session
SENATE
1
J
No. 407
NATIONAL MONETARY COMMISSION
German Bank Inquiry
of 1908
Stenographic Reports
Proceedings of the Entire Commission on Points I to V of the
Question Sheet
Washington : Government Printing Office : 1910
NATIONAL MONETARY COMMISSION.
JULIUS C.
NELSON W. ALDRICH, Rhode Island, Chairman.
EDWARD B. VREELAND, New York, Vice-Chairman.
JESSE OVERSTREET, Indiana.
BURROWS, Michigan.
E U G E N E H A L E , Maine.
J O H N W. W E E K S , Massachusetts.
PHILANDER C. K N O X , Pennsylvania.
ROBERT W. BONYNGE, Colorado.
THEODORE E. BURTON, Ohio.
SYLVESTER C. SMITH, California.
J O H N W. DANIEL, Virginia.
LEMUEL P . PADGETT, Tennessee.
H E N R Y M. TELLER, Colorado.
GEORGE E. BURGESS, Texas.
HERNANDO D. MONEY, Mississippi.
A R S ^ N E P . Pujo, Louisiana.
JOSEPH W. BAILEY, Texas.
ARTHUR B . SHELTON, Secretary.
A. PIATT ANDREW, Special Assistant to Commission.
LIST OF THE MEMBERS OF THE BANK INQUIRY
COMMISSION.
CHAIRMAN.
Havenstein, president of the Reichsbank direktorium, Wirklicher Geheimer
Rat.
VICE-CHAIRMAN.
Doctor von Glasenapp, vice-president of the Reichsbank direktorium.
MEMBERS.
Von Cetto-Reichertshausen, Freiherr, director of the Bavarian Landwirtschaftsbank, E. G. m. b. H., Munich.
Fischel, Arthur, banker (Mendelssohn & Co.), Berlin.
Fischer, Ernst, Kommerzienrat, Privatier, chairman of the Chamber of
Commerce, Reutlingen.
Von Gamp-Massaunen, Freiherr, Wirklicher Geheimer Ober-Regierungs• rat, Member of the Reichstag and of the Prussian House of Delegates,
Hebron-Damnitz, Kreis Stolp, and Massaunen, Kreis Gerdanen.
Gontard, Friedrich, manufacturer (Gontard & Henny), Leutzsch near
Leipzig.
Heiligenstadt, Dr. Carl, president of the Prussian Central-GenossenschaftsKasse, Berlin.
Kaempf, Johannes, Stadtaltester, president of the German Handelstag;
president of the deans of the merchants' association of Berlin;
vice-president of the Reichstag, Berlin.
Von Kanitz, Count, Chamberlain, captain of cavalry, retired; Member of
the Reichstag and of the Prussian House of Delegates, Podangen,
near Tiingen (East Prussia).
Lexis, Dr. W., Geheimer Ober-Regierungsrat, professor of political sciences
in the University of Gottingen.
Mommsen, Karl, assistant judge, retired, director of the Mitteldeutsche
Creditbank, Member of the Reichstag, Berlin.
Miiller, Richard, manufacturer, Stadtrat, Member of the Reichstag, Berlin.
Peter, Karl, director of the Vereinsbank, Karlsruhe (Baden).
Raab, Friedrich, porcelain painter, Member of the Reichstag, Hamburg.
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Riesser, Dr. Jakob, Geheimer Justizrat, honorary professor in the University of Berlin, Berlin.
Roland-Liicke, Ludwig, landed proprietor, formerly director of the
Deutsche Bank, Sonnenburg near Freienwalde on the Oder.
Schinckel, Max, chairman of the Hamburg Chamber of Commerce, partner in the Norddeutsche Bank in Hamburg, partner and director
in the Diskonto-Gesellschaft in Berlin, Hamburg.
Schmidt, Dr. A., member of the directorate of the Friedrich Krupp jointstock company, Essen on the Ruhr.
Singer, Paul, Privatier, member of the city council, Member of the Reichstag, Berlin.
Stroll, Dr. Moritz, director of the Bayerische Notenbank, Munich.
Wachler, Dr. Paul, Ober-Bergrat, retired, member of the Herrenhaus,
Berlin-Charlottenburg.
Wagner, Dr. Adolph, Geheimer Regierungsrat, professor of political sciences
in the University of Berlin, Berlin.
Von Wangenheim, Freiherr, landed proprietor, chairman of the Bund der
Landwirte, Klein - Spiegel, near Gross - Mellen, Regierungsbezirk
Stettin.
Weber, Dr. August, director of the Lobauer Bank, Member of the Reichstag, Lobau (Saxony).
4
LIST OF REPRESENTATIVES OF THE IMPERIAL
GOVERNMENT AND THE FEDERATED
GOVERNMENTS.
From t h e IMPERIAL/ MINISTRY OF T H E INTERIOR:
Miiller, Geheimer Ober-Regierungsrat, vortragender R a t .
Dr. Fastenau, Koniglich Preussischer Gerichtsassessor, kommissorischer Hilfsarbeiter.
From the IMPERIAL, T R E A S U R Y :
Dombois, Geheimer Ober-Regierungsrat, vortragender R a t .
F r o m t h e REICHSBANK
DIREKTORIUM:
Dr. von Lumm, Geheimer Finanzrat, member of the Reichsbank
direktorium.
From PRUSSIA:
From the Ministry of Finance—
Dickhuth, Geheimer Finanzrat, vortragender R a t .
Busch, Geheimer Finanzrat, vortragender R a t .
From the Ministry of Commerce and Industry—
Dr. Richter, under secretary of state.
Dr. Goppert, Geheimer Regierungsrat, vortragender R a t .
From the Ministry of Agriculture, Public Lands, and Forests—
Von Falkenhausen, Freiherr, Geheimer Regierungsrat, vortragender R a t .
Von Massenkoch, Freiherr, Geheimer Regierungsrat, vortragender
Rat.
From BAVARIA:
Von Burkhard, Koniglich Bayerischer Staatsrat und Ministerialdirektor, plenipotentiary to the Bundesrat.
Meinel, Koniglich Bayerischer Geheimer Legationsrat in the
Ministry of the Royal House and of the Interior.
From the KINGDOM O F SAXONY:
H'artig, Koniglich Sachsischer Geheimer Finanzrat, deputy
plenipotentiary to the Bundesrat.
. Steglich, Koniglich Sachsischer Geheimer Regierungsrat, vortragender R a t in the Ministry of the Interior.
From WURTTEMBERG:
Von Schicker, Excellenz, Koniglich Wurttembergischer Staatsrat,
deputy plenipotentiary to the Bundesrat
From B A D E N :
Weingartner, Grossherzoglich Badischer Ministerialdirektor, Geheimer Ober-Regierungsrat.
From HAMBURG:
Sthamer, Senator.
5
QUESTION SHEET FOR THE HEARINGS OF THE
EXPERTS.
[Made the basis of the proceedings of the entire Commission.]
J*
I.—Is an increase of the capital of the Reichsbank desirable? If so, in
what measure?
What effect does an increase of the capital have upon the money
market and the condition of the bank?
May it be assumed that it would have a permanent influence on
the determination of the rate of discount?
Would a strengthening of the surplus be preferable to an increase
of the basic capital?
II.—Is it desirable that the tax-free note contingent be increased? If so,
in what measure?
What advantages are to be expected from such an increase?
May it be assumed (and if so, why) that it would have an influence
on the determination of the rate of discount?
I I I . — W h a t means are available to the Reichsbank for promoting the
drawing of gold from foreign countries, and for obstructing the outflow
of gold to foreign countries?
A.—How may the importation of gold be effectually promoted?
By suitable management of the discount policy? By development of the foreign exchange business? By the granting of advances free of interest or similar methods of facilitating gold importations?
B.—What are the causes of an outflow of gold to foreign countries,
and by what means may it be prevented?
What is the nature of the so-called premium policy, under what
conditions is it applicable, and how does it work?
IV.—Is it desirable to endeavor to bring about an increase of the cash
holdings of the Reichsbank out of the channels of domestic trade?
A.—By conferring upon the notes of the Reichsbank the quality of
legal tender?
Would such a measure be to the interest of general business?
B.—By an increased issue of 50-mark and 20-mark Reichsbank
notes?
C.—By diminishing the need of circulating media through extension
and intensification of the deposit and transfer (giro) check
and clearing system?
What measures are to be taken to this end? ("Reichsclearing?")
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In this connection, do the following seem effective and desirable?
i. A raising of the minimum for noninterest-bearing
credit balances in the deposit business of the Reichsbank.
2. The acceptance of interest-bearing deposits by the
Reichsbank.
3. The purchase of checks by the Reichsbank.
V.—Is it desirable to take into consideration a diminution of the demands
on the Reichsbank:
A.—Through a diminution of the credit-demands of business, especially at the quarterly periods?
What measures might be taken to cause a spreading out of the
quarterly requirements by altering the time of payments
(mortgage-payments, salaries, rents) which traditionally
fall due on the first day of the quarter?
Would it be desirable to enhance the cost of obtaining money
from the Reichsbank on collateral security, at the close of
the quarter, by increasing the number of days for which interest is charged?
B.—Through a diminution of the credit-demands of the Imperial
Government? Is it desirable for this purpose—
1. To endeavor to increase the working resources of the Imperial Treasury?
2. To change the methods in use in the giving out of Imperial
Treasury bills? And if so, how?
VI. a —Does it seem warranted in the public interest (and upon what
grounds?) to take care, by way of legislation, of the security and fluidity
of the investment of deposits and savings?
What measures to this end should be taken under consideration,
and what effects might be expected from them?
I n particular, would-a provision of law be desirable t h a t should
impose on those institutions (banks, cooperative institutions, and
savings banks) that undertake to receive deposits the obligation—
1. With reference to the covering of these moneys, to subject
themselves to fixed regulations guaranteeing not only security but also fluidity? If so, what should these regulations be?
2. To make and publish, within definite periods of time,
detailed balance sheets of prescribed forms? If so, what
should those periods be? (Yearly, half-yearly, quarterly,
monthly?) And how should the forms of the balance
sheets be constructed so as to serve the purpose in view?
° T h e conclusive consideration of question VI was postponed, in pursuance of a resolution adopted by the Commission October 15, 1908. (See
pp. 686-694 of the Proceedings.)
8
BANK INQUIRY OF 1908.
F R I D A Y , J U N E 26, 1908—12.10 p. m.
Chairman
torium:
HAVENSTEIN,
President of the Reichsbank direk-
I bid the members of the commission of
inquiry welcome to the continuation of the proceedings,
and open the session by thanking you for the full attendance and expressing the hope that our joint effort may
have a beneficial and successful issue.
Permit me, first of all, to put on record the list of those
present. The gentlemen who have appeared are Freiherr
von Cetto-Reichertshausen, Fischel, Fischer, Freiherr von
Gamp-Massaunen,Gontard, Doctor Heiligenstadt, Kaempf,
Count von Kanitz, Doctor L,exis, Mommsen, Miiller
(Fulda), Peter, Raab, Doctor Riesser, Roland-L,ucke,
Schinckel, Doctor Schmidt, Doctor Stroll, Doctor Wachler,
Doctor Wagner, Freiherr von Wangenheim, Doctor Weber.
Of the representatives of the federated governments,
Herr Weingartner, ministerial director, excuses his absence on the score of being obliged to attend the sittings
of the Baden Landtag.
Gentlemen, in order to shorten our debate, I suggest
that each one—I declared already at the opening that
the Bundesrat attach special importance to obtaining the
opinions of all the gentlemen composing this body of experts—be good enough, without our putting the separate
GENTLEMEN:
9
National
Monetary
Commission
questions to a formal vote, to submit his views in a systematic statement. I presume that this will entail a
debate, the course of which we must await.
Freiherr VON GAMP-MASSAUNEN (on the order of the
day). The chairman pointed out, when we decided upon
meeting to-day, that to-day's proceedings would serve
principally "to acquaint the Bundesrat with the bill which
is to be drawn up and presented to us in the Reichstag.
If the administration of the Empire is satisfied with this
brief explanation at this stage of the proceedings, I, for
my part, would offer no objection; I would, however,
emphasize the point that we must have command of
somewhat more abundant material for the deliberations
in the Reichstag, in order to be able to take a position on
this question.
The CHAIRMAN. I have already remarked that each
gentleman might give his views in a systematic statement,
and that perhaps this will entail a debate. To what
extent the material for such debate will be abundant will
depend upon the gentlemen.
If no one wishes to say anything further on the order
of the day, I grant Freiherr von Gamp the floor to speak
upon the question.
Freiherr VON GAMP-MASSAUNEN. Gentlemen, the consideration of the two questions " I s an increase of the
capital of the Reichsbank to be recommended?" and " I s
an increase of the contingent of notes exempt from taxation to be recommended?" should in my opinion have
been preceded by a discussion of general conditions, particularly of the causes of the money and financial crisis
IO
Bank
I n q u i r y
of
1908
which has prevailed for a number of years and still continues. For only then could an understanding have been
reached as to the means of preventing a recurrence of the
critical situation. I say a determination of the causes
should have been arrived at, and in this connection I wish
to point out that the representatives of the banks attributed entirely too much weight to the overdevelopment
of our industry as a factor in bringing about the crisis;
and this point of view was largely represented to the
Reichstag by the management of the Reichsbank as well.
I am of the opinion that this is an error, and that this
error must before all else be dissipated; for we must first
determine the causes of the crisis, so as to make it possible to attain an agreement as to the means of preventing
the recurrence of such a crisis.
Gentlemen, there are two facts which controvert the
view that industry and its development is the chief
offender. It is a thing well known, and, moreover,
brought to our immediate notice by a compilation presented to us by Director Mueller, of the Dresdner Bank,
that the critical periods for the Reichsbank were those
from September 15 to 30 and from December 15 to 31.
Now, I have made a compilation from the last annual
report of the Reichsbank, from which it appears that
precisely those bank ^establishments that receive a preponderance of industrial bills did not experience their
greatest stress in the critical days of September 15 to 30
or December 15 to 31. Of the banking firms that I
reckon as particularly industrial, Aachen reached its
highest credit on May 15; Augsburg and Barmen, January 7; Bielefeld, December 14; Bochum, November 7;
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National
Monetary
Commission
Chemnitz, October 7; Crefeld, December 31; Dortmund,
October 31; Duisburg, January 7; Diisseldorf, December 23;
Elberfeld and Essen, December 23; Fulda and Gera,
October 31; Gleiwitz and Glogau, November 7; Hamm,
November 15; Hannover, December 31; Konigsberg,
October 23; Leipzig, October 31; Magdeburg, November 7;
Mtilhausen, November 15; Mulheim (Ruhr), October 31;
Niirnberg, September 29; Remscheid, November 15.
It appears, accordingly, that of these great industrial
points, Nlirnberg alone falls into the critical period of
September 15 to 30, and only Crefeld, Diisseldorf, Elberfeld, Essen, and Hannover into that of December 15 to 31.
As against this, the great commercial points which
reached their highest need of credit in the periods of
September 15 to 30 and December 15 to 31 are:
S E P T E M B E R 15 TO 30.
Lowest assets.
Braunschweig _.
Breslau
Frankfurt, a. M
Highest assets.
Marks.
6,906,000,000
6,408,000,000
4,195,000,000
Marks.
13,014,000,000
16,870,000,000
12,760,000,000
17.509,000,000
42,644,000,000
D E C E M B E R 15 TO 31
Kiel__
Miinchen
Marks.
4,183,000,000
1.033,000,000
8,175,000,000
2,300,000,000
9.355.000,000
2,889,000,000
5,570,000,000
3,457, 000,000
4,958,000,000
13,427,000,000
6,959,000,000
Berlin
15.094,000,000
Altona
Bremen
Cassel
Charlottenburg (Berlin)
Coin
_:
Darmstadt
Dresden
Hamburg
Karlsruhe
77,400,000,000
Marks.
11,164,000,000
13.779.000,000
18,309,000,000
8,081,000,000
11,251,ooo,000
24,008,000, 000
9,182,000,000
27,225,000,000
18,417,000,000
93.388,000,000
2
55.730,000,000
Bank
Inquiry
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1908
A rise of over 300 per cent, therefore, occurred in these
places, from which it follows that it was not industry in
especial that claimed the money supply of the Reichsbank, but that it was, above all, the commercial centers.
I find a second reason against the view that industry
was chiefly responsible for the crisis, in an assertion of
my own, that industry has in the last decade laid up a
very considerable surplus, and has become to a very material degree a credit giver in place of a credit receiver. I
permitted myself to cite one or two examples of this,
whereupon Herr Schwabach thought to instruct me by
saying that these were quite isolated instances, which
accidentally came under my personal notice. Following
him, Herr Steller, the manager of one of the greatest
industrial works of Rhenish Westphalia, last year showed
that according to last year's balance sheet the following
industrial bank credits existed:
Marks.
14
15
21
28
mines
chemical factories
industrial works and foundries
machine shops
45, 000,000
23, 700,000
75, 000,000
7, 500, 000
Seventy-eight companies therefore had a bank credit
of 151,000,000. Herr Steller explains that the balances
of these companies were not specially selected by him,
but that he took them at random, while I must confess
that he chose rather happily and perhaps not quite without design. But, gentlemen, the fact that 78 joint-stock
companies alone possessed 151,000,000 does, nevertheless, very substantially support my assertion. I have since
examined a whole series of bank statements and found
that the status of many joint-stock companies has very
materially improved in the last decade. In my opinion
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National
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Commission
there can be no doubt that the joint-stock companies laid
up a considerable surplus in the prosperous years—nay,
suits were repeatedly instituted against them, the stockholders objecting to the balance because the surplus was
so great.
In view of the limited importance of to-day's proceedings, I shall not discuss the point further. But I would
request the management of the Reichsbank and the Imperial Ministry of the Interior, at any rate, to place at our
disposal, for the deliberations in the Reichstag, more
detailed information upon these two questions, in order
that we may see into the matter clearly. I believe that
it is not so very difficult to determine, through the Reichsbank offices, what bills were presented in the period of
September 15-30 of the present year, likewise; who was
the drawer, the acceptor, and the presenter of those bills.
I do not wish to know the names, I do not wish to cause
any indiscretion; I only wish to know whether the person
concerned was a manufacturer of machines, or a dealer in
wool, or a banker, in order to establish by this means
which were indeed the interests that were the chief
besiegers of the Reichsbank at the critical period.
Secondly, I would ask that it be determined, particularly in the case of the larger joint-stock companies, having a share capital of over 3,000,000, what sort of change
took place in the balances from 1900 to 1907, and especially who constituted the creditors and debtors, and particularly how the bank credit was constituted.
(An interruption.)
I am just informed that this material is at hand. I
have seen no such statistics based upon official information.
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1908
I would ask, if, as I am aware is the case, numerous private
contributions are to be submitted, that these private
results be verified, so that we may regard them as unexceptionable material. I should have no objection to the
year 1905 being also brought in for comparison.
It would further be desirable—on this point, too, private
publications are at hand, but I would ask that their correctness be tested—to determine the aggregate of the loans
that were placed upon the market from 1900 to 1907, in
the Empire as well as in the separate States, municipalities, state institutions, etc.
Gentlemen, as far as the first question is concerned—
I have thus far made a few general observations, in order
to show the reasons why I desire more abundant material
for the Reichstag—"Is an increase of the capital of the
Reichsbank necessary?" I would first of all assert that,
as regards the duties and functions of the Reichsbank,
unanimity prevails upon the following points: First, that
it is its duty and its business, first and foremost, to maintain the standard and to secure the circulation of money,
and that satisfying the needs of credit is only a secondary
function of the Reichsbank.
Secondly, I think I can establish that it is the unanimous opinion of the commission that all business interests, industry, agriculture, trade, small concerns, have a
claim to be treated on a footing of equality, and that no
preference, particularly not to banks, shall be shown. I
take it for granted, of course, that as for the rest, the conditions determined on by the Reichsbank will be carried
out.
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Thirdly, I would lay it down that the Reichsbank may
furnish credit for such needs only as arise from a legitimate, that is, a justified and necessary transaction of
commerce, manufactures, agriculture, and minor trades;
that, on the other hand, it has not the function and accordingly not the right to furnish credit for the purchase of
land, for speculation—that is, for the purchase of stocks—
for the payment of wages to laborers, etc.
At this point I would mention the exceptional position
of the cooperative institutions (Genossenschafteri). I am
of the opinion that it is a transaction falling into the
category of legitimate credit if a cooperative institution
takes money from the Reichsbank in order to enable it
to pay for the raw material which has been delivered to
it. If, then, a cooperative institution, a starch factory,
say, is called upon to pay for its supply of potatoes, this
would, in my judgment, come under legitimate credit for
goods, because a joint stock company or a private individual who carries on such a factory would likewise have
to pay for the potatoes. Here it is only the form of the
cooperative institution that alters the case somewhat.
Gentlemen, whether unauthorized credit, departing
from these principles, is given, has also been discussed;
but I do not wish to go further into this question. The
Reichsbank has indeed conceded that deviations have
occurred here and there, but maintains that on the other
hand it acted with energy, but discreetly, and with due
regard to circumstances. I can only say that I subscribe
to this statement.
I would further declare, in order to remove differences
of opinion, that I see nothing against the Reichsbank
16
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1908
being authorized in case of a party seeking legitimate
credit from it and not furnishing absolute security, to
procure such security by guaranties, by mortgages, etc.
I only wanted to emphasize this because Herr Geheimrat
Mueller views the matter apparently from another standpoint, and believes that all claims upon the Reichsbank
not absolutely secure in themselves are outside of its
sphere of business and should be rejected. Director
Mueller of the Dresdner Bank, with whom I shall have
frequent occasion to occupy myself, because he has most
openly and unqualifiedly represented the interests of the
great banks, advocates the view that the regular credits
of the Reichsbank should be lowered by from 200,000,000
to 300,000,000 in order that it may have available means
at the difficult periods, under all circumstances, to satisfy
the demands made upon it for the discounting of shorttime bills and the making of loans on collateral. I maintain the opposite view. I am of the opinion that it is the
business and the duty of the Reichsbank to lower the
demands upon it at critical periods as much as possible
in order that it may be in a position to satisfy in noncritical periods, in the broadest possible field, the credit
requirements of those engaged in the conduct of business.
I am not thinking here, as Herr Geheimrat Mueller indicated, of an extension by preference of agricultural credit.
Through the Preussenkasse, agriculture has to a great
extent attained a position in which it can satisfy its credit
requirements, but I must emphasize the demand that it
shall enjoy absolutely the same rights as the other branches
of business, and that it is self-evidently just as much the
duty of the Reichsbank to accept a bill from me if, for
84713—10
2
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National
Monetary Commission
instance, I purchase a locomobile, as it is to accept the
commercial paper of a great bank, presupposing that the
required security is furnished. I claim parity of treatment for agriculture, without wishing it to be accorded
special preference.
Now, Herr Geheimrat Mueller desires at the so-called
difficult periods the unlimited acceptance of short-term
bills and loans on securities. He has justly pointed out
that these short-term credits have in many respects not
the character of credits, but of regulation of the circulation
of money. On this one point he has converted me. I
openly acknowledge that, at the time, I did not in the
Reichstag attach enough weight to this point. So far as
short-term loans are concerned which do not involve
the satisfying of credit, but only the adjustment of payments, I regard his standpoint justifiable. In the case
of bills, one can recognize this; in the case of loans on
collateral, it is more difficult to do so. The Reichsbank
establishment that would recognize this must be a specially shrewd one. But I do not desire to enter into
questions of detail; I only wish to hold fast to the principle. In my judgment the acceptance of these shortterm bills can only be properly demanded when the condition of the Reichsbank permits it without a rise of
the rate of discount.
Director Mueller says that the Reichsbank must restrict long-term bills, and, on the other hand, must be
obliged, under any circumstances, to grant credit upon
short-term bills and securities; if it did not do the latter,
a great calamity would be the result. Herr Mueller
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of
1908
remarked further: " Where does it stand written that
the Reichsbank throughout the whole year discounts
every good long-term bill ?" To this I reply: "Very good;
but where does it stand written that the Reichsbank is
obliged to discount every good short-term bill?" Neither
the one nor the other stands written—that is, the Reichsbank must judge according to the particular circumstances of the case whether in' that special instance it
can extend its credit without injuring rightful interests;
and, above all, there must be impartial treatment, and
under no circumstances must banks be favored in this
respect. The view held in industrial circles is that as
long as the means of the Reichsbank permit, it is, indeed, obliged to accept every good bill throughout the
year, and that it should and must exercise restriction
only if its condition makes a restriction of credit necessary; but that even then all interests should be equally
affected by such restriction.
Now, what is meant by a short-term and a long-term
bill? I have gathered from the compilation in the
business report of the Reichsbank that bills have very
different periods to run—a thing that goes without
saying—and that Berlin, if not the most favored, is
among the most favored localities in this respect, in
that the average time is thirty-one days. Other places,
however, are given; for example, Aachen, where the
average time is seventeen days; Frankfurt, nineteen
days; Hamburg, sixteen days, etc. In Berlin, too, therefore, there must be a large number of bills that run
considerably longer than thirty-one days; otherwise
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National
Monetary
Commission
there could not result an average of thirty-one days. If
we consider that, especially at the difficult periods, bills of
ten days are given, it follows that here, too, long-time
bills are largely issued.
Now, Herr Geheimrat Mueller has not stated whether
he means to say that a bill of fourteen days is a shorttime one and anything beyond that a long-time one. I
do not believe that he Will care to make such a distinction. But he has not stated his view clearly and distinctly, in noting the distinction between short-time
and long-time bills. I think that the long-time and
short-time bills should not be treated differently in
principle by the Reichsbank, unless the transactions in
question do not bear the character of credit requisitions
but of a settlement of obligations. If this distinction
can not be made, all bills must be treated alike. The
law demands this, and we demand of the Reichsbank
that it should carry out the law with uniformity toward all.
The Bank of England discounts, to my knowledge, six
and nine months* bills in international business.
(Contradiction.)
Mr. FISCHEIV. Not over ninety-five days.
FRBIHERR VON GAMP-MASSAUNEN. Then it is the Bank
of France.
(Renewed contradiction.)
I know that one of those banks years ago—I spoke to
the former president of the Reichsbank upon the subject—
issued bills of at least six months, in the colonial trade.
I attach no importance, however, to the matter, since
20
Bank
I n q u i r y
of
1908
there is, I say, no distinction of principle between shorttime and long-time bills; the acceptance of bills must
in general be made to depend upon the condition of the
market.
Gentlemen, it has been stated here that the circulation
of notes has materially increased in the course of years.
This I can not concede. In the year 1873 the total circulation amounted to 1,350,000,000, and in the year 1907—
that is, thirty-four years later—it was 1,621,000,000, of
which that of the Reichsbank was 1,479,000,000 and of
the private banks 142,000,000. In the comparison of the
individual years it is generally overlooked that the private
banks had in 1873 a very considerable circulation of notes
and that the Reichsbank has stepped into the place of
those banks. If, then, we wish to make comparisons, we
must compare the total number of private banks then in
existence, and their notes, with those of the Reichsbank.
Gentlemen, if it should really be established that
industry did especially tax the resources of the Reichsbank, I must still declare that all the experts agreed in
thinking that industry must continue to expand if we
wish to improve our balance of payments and balance of
trade; we must, therefore, not only reckon with the fact
of the increase of industrial credit, but must positively
desire it and strive for it under all circumstances; for
otherwise we shall not get out of our distressing condition.
Now, Director Mueller wishes the running credit of the
Reichsbank to be lowered by from 200,000,000 to
300,000,000 marks. Herr Mueller speaks from the standpoint—I wish to express myself briefly—of the drainage
21
National
Monetary
Commission
principle. If the Reichsbank really wished to reject those
credits, 200,000,000 to 300,000,000 would go to the banks.
The banks would then, if I follow the conclusions of Herr
Mueller, go to the Reichsbank and either diminish their
credits or take this money from it in some other way, and
the Reichsbank would advance this 200,000,000 to
300,000,000 in an indirect manner. This proposition of
Director Mueller is irrational, then, from his standpoint.
I do not share his point of view, as I shall soon explain.
If we must reckon with a lasting increase of credit needs,
we must find means to help the Reichsbank, and here I
ask: How can the Reichsbank procure such means? By
raising the rate of discount it can attract money from
abroad. But we have heard from Herr Mueller himself
that this expedient may easily fail, and that it would,
as a matter of fact, have failed last year, even if we had
had a bank discount of 10 per cent.
The Reichsbank may, furthermore, increase its deposits.
Director Gwinner has expressed his approval of the
increase of the deposits, but only under the supposition
that the Reichsbank shall pay interest. In itself I am
not opposed to such a proceeding. If the Reichsbank
thinks it can accomplish it, I should have no objection to
it. But I would call attention to the fact that the
increase of the deposits does not furnish absolute security,
because the deposits may be withdrawn at any time, and
in critical times would undoubtedly be withdrawn. If,
then, this method is followed, it will be a help, and if such
help is applied to a certain extent, the capital of the
22
Bank
I n q u i r y
of
1908
Reichsbank will not have to be increased to the degree
that would otherwise have been necessary.
The surest way, however, to attain an improvement of
the condition of the Reichsbank is by increase of its capital.
I consider the drainage principle erroneous; were it correct, no considerable loan could be placed in the market
without withdrawing the gold from the Reichsbank.
Whoever gives out a loan of 50,000,000, then, could not
procure this 50,000,000 otherwise than by having the
banks go to the Reichsbank and diminish their credits
there or raise money on securities, etc. The money, then,
would have to be taken from the Reichsbank. If a
foreign loan were to be issued to-day, that would by all
means be the only way to procure the cash. In ordinary
times, however, business has hundreds of ways of obtaining money, without making direct demands upon the
Reichsbank. I need not enumerate these ways; one man
sells "Americans," another gives up contemplated improvements, a third sells other valuables, a fourth has
assets that are lying idle—in short, this so-called drainage
principle is based upon a false conception.
I should think, therefore, that the only effective means
of providing for an assured improvement of the condition
of the Reichsbank is by the increase of its capital, just as
every joint-stock company improves its condition most
surely by increasing its share capital, and not by assuming
a bonded debt. That is the method adopted by the
sound joint-stock companies. I believe, further, that if
this increase, which should be reckoned at 70,000,000,
23
National
Monetary
Commission
takes place in a series of years, say from four to five years,
and the times of payment have been suitably fixed upon,
this augmentation of capital may at the same time be
effected by the paying in of gold that is withdrawn from
trade. We have heard from the representatives of the
banks that, last year, in order to spare the Reichsbank,
they withdrew from 70,006,000 to 80,000,000 in gold from
trade. What they were then able to do they can do to-day
likewise. If, namely, the shares are given out in small
denominations and are placed among the general public
through the post-offices, etc., it will be possible to receive
the shares back, at least partially, in gold.
It has been pointed out that the Bank of England and the
Bank of France have not a great amount of share capital.
I am of the opinion that the conditions of those banks
can not be compared with those of the Reichsbank. Certainly, the English Bank gave a great part of its capital to
the State, and likewise the Bank of France. But has
not the Reichsbank done the same? In January of the
current year the Reichsbank took over from the Government treasury bills amounting to 200,000,000 marks,
keeping them at times in its portfolio; it gave more to the
Government than its aggregate share capital; and, according to my recollection, at the time of the final statement
of the Reichsbank, December 31 of last year, it still had,
on the most critical day, treasury bills amounting to about
70,000,000. It put over a third of its capital, therefore,
in the shape of credit, at the disposal of the Imperial
Government. Besides, England is a country so rich in
capital that no great demand is made upon the Bank of
24
Bank
I n q u i r y
of
1908
England anyway to procure credit, for the notes are
generally more than covered. In England very little gold
is in circulation and not much in the Bank either; and if
Germany is liable to get into a position in which the gold
is pumped out to the degree it is in England, then we are
facing a grave and very gloomy future. England may
allow itself this luxury; but with us, if the gold supply were
withdrawn from trade to the extent it is in England, and
we should then be obliged to discharge international obligations I do not know how we should go about it. It is
possible for England, by its colossal holdings in the
securities of all civilized countries, to procure gold everywhere and at all times; but we have in recent years disposed in great part of our best foreign loans, and overloaded ourselves with Americans. Besides, in times of
difficulty the Bank of France always rushes to the rescue
of the Bank of England by furnishing it gold, a thing
that the German Bank can, of course, not reckon upon.
I believe, consequently, that it would be the worst thing
possible to take England as a model.
But in France, too, the conditions are different. There
industry stagnates, so that to regard France as an example
is not justified. Our industry must be developed further,
our agriculture be made more intensive, and even the
artisan class must be supplied with more capital. Thus
we are obliged, under all circumstances, to place a considerably greater amount of bank credit at the disposal of
business.
Now, as to the increase of the contingent of notes
exempt from taxation. Seldom has a provision which is,
25
National
Monetary
Commission
perhaps, theoretically unobjectionable, resulted in such a
fiasco.
The CHAIRMAN. That really pertains to the second
question.
Freiherr VON GAMP-MASSAUNEN. I should wish, then,
that the commission would express its opinion to the effect
that the Reichsbank should increase its capital by about
70,000,000 marks.
The CHAIRMAN. May I ask that the question of the
surplus be discussed?
Freiherr VON GAMP-MASSAUNEN. I hold that simultaneously with the increase of the primary capital a corresponding increase of the surplus must take place, since,
according to the legal requirements, the premium would
go to the surplus. I should object to increasing the
surplus alone and not the primary capital, because the
increase of the surplus would be accomplished quite
preponderantly at the expense of the Government, while
I consider it justifiable to effect the greater solvency of
the Reichsbank by an increase in the amount of its own
shares.
Doctor STROLL! In common with a great number of
the experts, I am rather indifferent in regard to the
enlargement of the capital of the Reichsbank. The
potency and the carrying strength of the Reichsbank are
determined by other factors than those of its capital.
An augmentation of basic capital the Reichsbank does
not need, and in general an augmentation of its working
capital is likewise needless, because, under the assumption
that it has the necessary coin in its hands, it possesses,
26
Bank
I n q u i r y
of
1908
theoretically and practically, the inexhaustible horn of
plenty of the right to issue notes.
Nor do I look forward to a permanent augmentation of
the stock of gold, for the metal that flows into the bank
on some wave of business—in this case it would be the
payment for the new shares—does not signify. What
alone does signify is the amount of specie the Reichsbank
can permanently retain, and that, again, depends not
upon its capital, but upon international conditions.
Neither do I look forward to a lowering of the rate of
interest through an increase of capital, for in all civilized
countries the rate of interest depends upon factors other
than any capital, no matter how vast, of any central bank.
It has also been said that the Reichsbank should increase
its capital because other banks have greater capital.
That argument is not a valid one, for capital plays a
different r61e in other banks, particularly as regards basic
capital, and the Reichsbank remains always the "bank
of banks"—remains always the greatest German bank.
I think I need hardly remind the commission that the
Reichsbank has been obliged, in critical times, to come to
the aid of many a proud bank of the first order.
It has further been said that the Reichsbank needs
increased capital on account of its real estate holdings.
This consideration is likewise not decisive, for if the
Reichsbank has up to the present invested 60,000,000
in real estate I am of the opinion that the point of saturation has now been reached. The Reichsbank has established itself in all the larger places, and if it establishes
itself at other points the erection of bank buildings
will hardly be necessary.
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National
Monetary
Commission
Altogether exaggerated, however, and shooting far
beyond the mark, is the assertion frequently made, even
by experts, that an increase of capital would not in any
way fortify the position of the Reichsbank. Every bank
becomes stronger and more potent by having capital
added to that which it already possesses. I can not
conceive how opinion can differ on this point. In what
form such strengthening will manifest itself, that is the
concern of the managers of the Reichsbank; but a strengthening, and a permanent strengthening, would be produced
by an increase of capital. I say only that a strengthening
so vital that it would tell essentially in the problems of
the Reichsbank would not result. The position of the
central bank as a financial power is not, in my judgment,
decisively determined by its capital, whether somewhat
smaller or somewhat greater.
Furthermore, I do not share the apprehension that if
the capital of the Reichsbank and its own resources were
to be increased the directors of the Reichsbank would be
tempted to force business. This question gave rise to a
rather expensive and, in part, heated and acrimonious
discussion in the hearings of the experts. After the
remarkably straightforward and thoroughly reassuring
explanation of the president of the Reichsbank on this
point, I believe that we may entirely eliminate this matter
from our discussions. That individual blunders occur in
an institution which has about 500 auxiliary establishments is a matter of course. I know from my own business
experience how difficult it is to carry on a large number of
subsidiary concerns in a uniform way. The main point is
28
Bank
I n q u i r y
of
1 9 0 8
that the general management when it discovers errors
should remedy them, and evidently the Reichsbank
sincerely desires to do that.
To my mind an enlargement of the bank's capital would
recommend itself more with reference to a strengthening
of its ability to make loans on collateral. As I have
already indicated, I regard the Reichsbank's discounting
capacity as fully sufficient, but its capacity to loan on collateral, on the contrary, as slight. I consider it adequate
in normal times and in times of moderate strain, but not
adequate in trying times. I am so thoroughly convinced,
however, that in really trying times bank policies of an
altogether extraordinary nature are necessary, that for this
reason I regard it unnecessary to aim at increasing the
capital of the Reichsbank in peaceful periods with a view
to its capacity for loaning on collateral.
On the whole, I do not consider such an increase requisite. However, if it should be undertaken—a thing I
should not advocate—it would have to be done on a
considerable scale; otherwise it would produce no effect
whatsoever.
If the Reichsbank wishes to strengthen its surplus, I consider that a res interna. An association of capital can
never be too rich in surplus reserves, and I should think
that fortifying the surplus would be useful from the standpoint of public economics. Naturally, the dividends
would thereby be diminished and the share of the Government curtailed.
I would regard it as regrettable if an increase of capital
were forced upon the Reichsbank on account of parlia-
29
National
Monetary
Commission
mentary considerations. I have known the direktorium of
the Reichsbank for a generation as an administrative body
remarkably sagacious and clear-sighted, one that very
well understands its interests; it would be the best judge
whether it does or does not require an increase of capital, and in this connection I would say benificia non
obtruduntur.
Doctor WACHLER. Gentlemen, I would express my position as regards Herr von Gamp's general remarks in very
few words. It would certainly be interesting if we could
establish definitely the causes that led to the crisis of
1906-7. But we have already been told that these causes
are of so manifold a nature that it will be hard to establish
exactly which of the various branches of business made the
greatest demands on the resources of the Reichsbank, with
a view to determining their degree of culpability in bringing about the money stringency. I share Herr von Gamp's
view that industry, in spite of its doubtless very considerable development in recent years, was by no means the
sole or the chief originator of the money stringency. If
Herr von Gamp maintains that industry was only an inconsiderable factor in the money stringency of those years and
supports his contention by the published balance sheets of
the companies, I know from my own experience that just
as the yearly balance sheets of the different companies
vary, so does their bank balance vary greatly. Most of
the companies usually have a minimum balance directly
after a distribution of dividends, and then it rises until the
close of the business year. The majority of the companies with which I am associated, and which terminate
30
Bank
Inquiry
of
1908
their business year on the 31st of December, always have
on that date a very considerable balance, because they
desire to provide the means of paying their dividends after
December 31, and must accumulate a balance for that purpose. If then we ascertain from the statement of the 31st
of December that a great many joint-stock companies had
an extraordinarily large balance and wish to conclude from
this that the industrial companies in general could therefore evidently not have made demands on credit, the conclusion, according to my view, would be fallacious. The
same companies might at other periods—for instance, in
August, September, October—have received even very considerable advances from their banks and have come into
possession of any material balance only on the 31st of
December. I mention this simply in order to say that all
these statistics must be regarded not only according to
their figures, but must be looked into upon all sides. They
assume then an entirely different aspect; the conclusions
drawn from pure statistical figures are not always entirely
correct.
I agree with Freiherr von Gamp also upon the point
that the first business of the Reichsbank is to regulate the
monetary circulation, not to act as an institution for
credit. I think he is right, too, in saying that, according
to the intention of the law, the Reichsbank may and
should nevertheless engage, in the second place, in credit
business also. But it appears in practice—and I would
state that I differ to that extent—that the credit business
is, after all, a very important factor for the Reichsbank,
inasmuch as the Reichsbank is and must be the reservoir
for all the other bank establishments.
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National
Monetary
Commission
Freiherr VON GAMP. Quite right!
Doctor WACHLER. I likewise coincide with Freiherr von
Gamp's contention that no branches of business should be
favored. But I would state in regard to Herr von Gamp's
special observation that the banks likewise should have
no preference; that, as appears from the information
offered by the Reichsbank, it is for the banks that by
far the greatest part of the discount business of the Reichsbank is done. And this is as it should be; otherwise we
should reach a point where all branches of business would,
contrary to the law which determines the Reichsbank's
sphere of action, satisfy their credit requirements directly
through the Reichsbank. Only then could statistics be
compiled which would demonstrate that this or that
branch of business had been particularly prominent in
demands upon the Reichsbank. But, as I understand it,
the credit banks are self-evidently—unless we consider
the Reichsbank the primary credit institution, and that,
in fact, it should not be—those that must satisfy the credit
needs of all classes; and they are naturally those that
must, more than any others, undertake the discounting of
notes at the Reichsbank. From the actual statistical data
we can not by any means draw the conclusion that the
Reichsbank satisfies the credit needs of the banks preferentially. This assertion is frequently made in banking
literature, as well as in the daily press, and in various
gatherings, as a charge against the management of the
Reichsbank, but it only exhibits a total misconception of
the business activities of the credit banks as well as of the
Reichsbank.
32
Bank
I n q u i r y
of
1908
Gentlemen, the language of the question that is laid
before us here is, Is it desirable to increase the capital of
the Reichsbank? From this it seems to me to follow that
the representatives of the Government do not regard the
question of the necessity of such an increase as under
consideration, and that we really need not discuss whether
such an increase of capital is actually necessary.
Now, it has been urged that the capital of 120 millions
in the year 1876 was determined under conditions entirely
different, as to population, business, and economic organization, from those prevailing to-day, and that as early as
1900 efforts were made to meet the circumstances, which
had essentially changed in those respects, so that in 1901
an increase to 150,000,000 and in 1905 to 180,000,000 took
place. In the last two years, however, it is further said
the demands upon the Reichsbank have been so great that
the strain on the bank has well nigh reached the limit of
its capacity. An increase of the capital, therefore, and
through this a strengthening of the position of the Reichsbank is desirable, it is urged, in order that it may maintain its ability to adequately satisfy the enlarged demands
for credit necessitated by the steady increase of population, the extension of German industry, and the increase
of German commercial and transportation business.
But as against this view the following essential objections are to be noted:
1. If the joint-stock banks have, in keeping with the
expansion of their business, materially increased their
capital in the last twenty years, it does not follow that
a like necessity exists for the Reichsbank—a point to
84713—10
3
33
National
Monetary Commission
which Doctor Stroll has already called special attention.
For with banks of issue it is the notes really and not the
capital that constitute the working capital. As regards
the use of the capital as a note reserve, for administrative
purposes, or for loans on collateral, it is, in my judgment,
likewise sufficient. Fifty-five millions are invested in bank
buildings; 15,000,000 to 18,000,000 are annually expended
for administration; the loans average from 85,000,000 to
98,000,000; so that with a note circulation of 1% billion
the capital and the surplus of approximately 245,000,000
are sufficient and represent a surplus of over 10 per cent.
In reference to the note circulation, however, even an
increase of the capital by from 50,000,000 to 70,000,000
would hardly be decisive; and yet a still greater increase,
by 100,000,000 or more, can certainly not be thought of.
According to my view, then, the bank's capital is irrelevant
to the question of working capital and sufficient for other
purposes.
2. Since 1905, and particularly since 1906 and 1907,
demands considerably greater than in the foregoing years
have been made upon the Reichsbank, and the specie cover
did drop, to be sure, to 37.3 per cent, with an average of
57 per cent, as against a minimum ratio of 49.7 per cent
in 1899, 49.6 per cent in 1904, and 43.5 per cent in 1905.
As against this covering, the following excess issues took
place: End of November, 1906, 505,000,000 marks with
the discount rate at 5 per cent; end of December, 1906,
572,000,000 with the discount rate at 7 per cent; end of
September, 1907, 513,000,000 with the discount rate at
5% per cent; end of December, 1907, 625,900,000 with
34
Bank
I n q u i r y
of
1908
the discount rate at T% per cent; then there followed, in
January, 1908, a material falling off in excess issues,
namely, 386,000,000 with the discount rate at 7% per cent.
The Reichsbank was able, then, in spite of that immense
strain—which is characterized by some as an actual crisis,
while I should, nevertheless, not characterize that strain
as a veritable crisis—to do justice to all the demands made
upon it.
When we consider that the note circulation per head of
the population is in France 99 marks, in Belgium 82
marks, in the Netherlands 78 marks, in Austria-Hungary
32 marks, in Germany 23.9 marks, in England 13.4 marks,
the situation of the Reichsbank may not by any means
be termed critical.
It must furthermore be borne in mind that in the last
two years money has been scarce in all countries and the
rates of discount in all countries, particularly in England,
uncommonly high. As regards Germany, which has made
remarkable strides in economic development, special account must be taken of the fact that through the conditions in America—for Germany had to buy a variety of
raw products, cotton, copper, food supplies, in great quantities at high prices and pay cash—she was sympathetically
affected and suffered a heavy depletion of gold just at a
period of retrogression. These circumstances must be
characterized as altogether exceptional and transitory,
and they have, indeed, been so characterized by all
experts; they have, in point of fact, improved very materially in the second quarter of 1908. A country with
the world commerce of Germany can not remain un-
35
National
Monetary
Commission
touched by the events in the economic life of other
nations, and its discount rates will be more or less affected
by those prevailing in London and America, be the capital
of the Reichsbank what it may.
It has been further asserted—an assertion acknowledged by the bank management, too, as just—that, partly
through a misconception of the duties of the Reichsbank,
bill credits of no inconsiderable amount, which should
not have been granted, have been allowed at some of the
bank's offices, particularly at subsidiary ones; these would
in course of time be completely eliminated and the condition of the Reichsbank in consequence be quite materially
relieved. Doctor Stroll has called attention to this also,
and it is all the less necessary to amplify this point, since
the bank management itself has, of its own initiative,
directed that a remedy be found for this trouble.
From all these circumstances I would draw the conclusion that the Reichsbank, even if it has made mistakes
in managing its affairs, has been able completely to fulfill
its functions, and does not, in the future either, need an
increase of capital.
3. A comparison with the capital of the Bank of France
and the Bank of England leads to no different conclusion. I do not wish to repeat what Doctor Stroll has
already brought out. I would only specially emphasize
the fact that Herr von Gamp's view was thoroughly
refuted in a clear and convincing manner by Herr Miiller
(Fulda) as well as by Professor Riesser, in the course of
the hearings of the experts.
4. Now, I come to the question whether an increase of
capital can permanently increase the stock of gold. Here
36
Bank
I n q u i r y
of
1908
I essentially agree with Doctor Stroll. I would only
remark that according to the assertions of our colleagues,
who have been heard as experts, the vicious circle would
ultimately show itself, that an increase of capital must
always be taken out of the resources of the Reichsbank.
But that this must be so can not be mathematically
demonstrated; and I think that it is quite possible that
by an increase of capital and by subscriptions for new
shares resources in the general business world that have
been lying dormant may be brought out and roused into
life, and thus the Reichsbank's stock of capital and of
gold may, after all, be reenforced. To what extent this
will be the case, it is difficult to say. I will concede that,
theoretically, it can be maintained with as much justice
that an increase of capital must ultimately be covered
entirely out of the resources of * the Reichsbank as that
the new capital could be drawn entirely, or even in part,
from sources which had not till then been accessible for
the purposes of general business. But since this is a point
which, in my opinion, can never really be quite clearly
made out, I would choose the middle course and say that
anyway a great part of the increase that will flow into
the Reichsbank will consist of new resources, so that a
strengthening of the Reichsbank's position must, as
Doctor Stroll has just specified, in any case follow as a
consequence. Whether such a strengthening will be
permanent depends, to be sure, upon entirely different
circumstances, and is hardly to be assumed.
5. Now comes the further question, whether an increase
of capital will have any, and if so whether it will have a
permanent, influence in bringing about a reduction of
37
National
Monetary
Commission
the rate of discount. The experts—with the exception
of Heyman, Wieler, and Steller, who, however, can not
adduce any convincing grounds for their belief—have
very generally regarded this as quite out of the question;
on the contrary, Doctors Wiedenfeld and Bendix have
called attention to the point that as the increase of
capital must, as is assumed, ultimately come out of the
resources of the Reichsbank, its condition will be unfavorably affected thereby, and a rise of the discount
rate might rather be the result, since the outside resources previously at the disposal of the Reichsbank
would thus have been withdrawn from it. This, however, is not quite accurate, since the Reichsbank would
still have its own capital at its disposal, even if in another
shape than that of deposits, etc. To be sure, the past
has shown that the height of discount rates depends upon
factors entirely different from the amount of the bank's
capital; in this respect, then, an increase of the capital
is decidedly without influence.
6. If, then, even a great increase of the capital could
be of no noteworthy, and particularly of no permanent,
benefit to the condition of the Reichsbank, it might,
especially in dull times, be accompanied by serious disadvantages; for it is hoped that the public will be induced by an extension of the check and deposit business to deposit their idle cash in larger measure either
in the Reichsbank or in the credit banks; and the coining of a greater quantity of silver money, as well as the
issuing of smaller notes, will not only add to the circulating medium, but is meant especially to obviate the
oversaturation of trade with gold coins and to substitute
38
Bank
I n q u i r y
of
1908
paper and small change for the excess of gold used in
trade, thus keeping the gold in the Reichsbank and rendering it trebly useful for general trade.
If there should then still be an excess of capital at its
disposal, the bank would in quiet times be tempted to
run after credits, particularly loans on securities, which
it is not suitable for a bank of issue to go into on a large
scale, and thus compete needlessly with the credit banks
and render itself more than ever incapable of making the
note circulation elastic and of being a ready and adequate
reservoir for the credit banks in critical times.
In case the check and clearing business and the multiplication of silver and notes bring about the results
expected, an increase of capital would be unnecessary,
while, by diminishing the Government's share of the profits,
it would be directly disadvantageous to the finances of the
Empire, aside altogether from the consideration that the
bank management might be positively forced into extending its grants of credit in order to make the capital
profitable.
7. In any case, the present moment—and this has
been pointed out in various quarters—would hardly be
opportune to recommend such a measure to the Government, since foreign countries might, at any rate, see
in it a weakness of the Reichsbank.
8. An increase of capital would, likewise, involve
knotty discussions regarding the regulation of the division
of profits, the premium in negotiating bills, etc., which
it would be better, at least at present, to avoid, and
which, for the rest, should be left to the representatives
of the bank administration.
39
National
Monetary
Commission
9. Essentially the same reasons that are urged against
an increase of capital hold good also against increasing
the surplus. The effect of such a measure would certainly
be of still less consequence. It might be maintained here
that such an increase, which proceeds only from an excess
of profits, retains ready money in the bank which it
would otherwise have, to distribute. To such a measure
the opponents of an increase of capital have, at all events,
expressed their assent. The strengthening of the surplus
however, would have to proceed from the general excess
of profit and not merely from the excess of profit which
accrues to the shareholders. It would not be consonant
with justice and propriety to establish a surplus solely at
the expense of the shareholders. It is not in itself to be
rejected as inexpedient, but would have to take place, as
long as the management finds it desirable, without qualification or limitation.
Even if one acknowledges that the reasons adduced by
the majority of the experts in support of their view are
convincing, and must declare oneself opposed, in theory
and principle, to an increase of capital, it should nevertheless he recognized—and it is acknowledged by a great
number of experts as well as in the literature of the subject—that, after all, the question whether the bank management might deem it desirable to increase the capital in
a moderate degree—by from 20,000,000 to 70,000,000
marks—can not be regarded as in any way vital.
If, in particular, the bank charter instead of being
granted for ten years, as it has hitherto been, were to be
extended for a longer period, it could indeed be justly
40
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I n q u i r y
of
1908
said that our further economic development might
actually involve the necessity of also increasing the
capital of the Reichsbank. The advancement of the
check and clearing system, too, will occasion an extension
and increase of branch banks as well as a number of
other expenses, for organization and the heightened cost
of administration, all of which must make it desirable
for the Reichsbank to possess greater means of its own.
In the event of a moderate rise of capital, of from 20,000,000
to 70,000,000 marks, I should be of the opinion that in
a law for the Reichsbank the amount of the increase of
capital and the period within which such increase shall
take place should alone be stipulated, but that it should
be left to the Bundesrat, in unison with the administration of the Reichsbank and the central committee, to
decide when and in what measure it is desired to make
use of this power set forth in the law concerning the
increase of the capital. And they should, in particular,
determine whether an immediate rise to the maximum
might take place, or, if the power be granted to raise the
capital of the Reichsbank even by 100,000,000, in what
period of time this rise should occur, and what shape
this distribution of new shares (which should not be permitted to be issued in denominations of less than 1,000
marks) should assume. In our deliberations we have
constantly heard from all sides very high praise bestowed
upon the trustworthiness, discretion, and shrewdness
of the Reichsbank administration. Now, if we entertain this conviction, and if we can, besides, start from
the conviction, which has frequently found expression,
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Commission
that it is the Reichsbank itself which, in its management, must best feel where the shoe pinches, whether it
does or does not need an increase of capital—then we
must grant it full power with perfect confidence and leave
to it the carrying out of the programme. That is my
opinion.
Mr. KAEMPF. Gentlemen, Herr von Gamp thinks it
would be desirable to investigate the causes that led to
the so-called crisis of the last few years. I believe, however, that it will not be necessary to procure the figures
which Herr von Gamp wishes to have, for the causes that
brought about the tension of the money market are perfectly obvious now that we can take a survey of the last
few years. We have had a world situation which necessarily called for a large circulation; in Germany, we have
had a rapid development of industry which necessitated
the putting of great amounts of capital into fixed forms,
and it is precisely this fixing of capital that led to the tension which has prevailed in Germany during the last few
years; and finally the American crisis was added. What,
on the other hand, the figures that Herr Gamp wishes to
have are meant to prove, and what the figures that he
has adduced actually prove, I do not quite see. The
figures that he has cited do not prove anything. He
picks out among the bank offices those that in the period
between the 15th and 30th of September and between the
15th and 31st of December had the greatest demands
made upon them, and finds that the bank offices in places
where industry is chiefly represented are not among those
upon which the greatest demands were made. When I
42
Bank
Inquiry
of
1908
consider, however, that it is precisely the fixation of capital
that produced the tension, then it is obvious that the bank
offices in places where industry is largely represented did
not receive bills arising from such fixations of capital, and
could not receive them, for credit bills of this kind should
not be discounted by the Reichsbank, and were so only in
very minute quantities. The demands for credit resulting
from such fixation of capital were made much more largely
upon the private banks, putting these, on their side, under
the necessity, at certain times, notably between the 15th
and 30th of September and the 15th and 31st of December,
of presenting any kind of bills to the Reichsbank to be
discounted in order to obtain the funds necessary to
satisfy the requisitions for capital made upon them.
Freiherr von Gamp stated further that a great number
of industrial stock companies had and still have large
balances in the banks; that therefore industry could not
possibly have been in a position to make great demands
upon credit. This also proves nothing. If there were a
great number of such establishments it does not at all
follow that there were not many others in a position to
make credit demands upon the banks. It would similarly
prove nothing if some one were to say that since a great
number of farmers have balances in the banks, agriculture
in general is not in need of credit.
Although, therefore, I hold that the figures adduced by
Herr von Gamp do not prove anything, and that the
figures he desires to have will likewise prove nothing, I
take nearly the same view that he does regarding the
increase of the Reichsbank's capital within certain limits.
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Commission
He did, to be sure, say that the first concern of the Bank
is to maintain the standard and to oversee the regulation
of the circulation of money, and to see to it that in these
respects all should go straight in Germany, on the right
track; and that the granting of credit was only its secondary concern. But all his specifications had a bearing
not upon question No. i, the regulation of circulation, but
upon the granting of credit. It seems that in his mind
the granting of credit plays an extremely great role.
If, now, I turn to the question, What is the standpoint
from which the possible increase of capital of the Reichsbank is to be judged?, then I can consider but one point
of view as controlling. The Reichsbank must actually
see to it that the monetary circulation shall remain on the
right track. As a prime requisite to this end, the Reichsbank must be able to redeem its notes at any time, and its
grants of credit must be regulated from this point of view
and from this point of view solely—that is, it should discount those bills only as to which it may be assumed with
perfect certainty that at their maturity bank notes will
flow back to the Reichsbank. This point of view being
taken, the Reichsbank must treat all classes alike—allow
the artisan class, if it can be fitted into this category,
credit just as well as agriculture, commerce, and manufactures. No one should be favored or discriminated
against, provided he fulfill the requirements regarding
the granting of credit to be exacted in accordance with
the view I have stated. Agriculture and the trades
should not be granted long-time credit, which is not calculated to secure the return flow of bank notes, any more
44
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I n q u i r y
of
1908
than commerce and manufactures. With the understanding, however, that the bills discounted may be
absolutely counted on at maturity to bring about a return
flow of the bank notes to the Reichsbank, all classes must
be treated alike.
Now, I admit that the circulation of money in the country can not be put into essentially better shape by an
increase of the Reichsbank's capital than it has been with
its present capital. I do not, for instance, believe that
the Reichsbank's stock of gold is permanently increased
by an increase of its capital. The experts have already
expressed the opinion that the determining factor is the
international balance of payments, and not whether the
Reichsbank, when it issues new shares, receives in its
coffers a certain amount of gold, be the same great or
small. Neither do I think that the increase of the Reichsbank's capital can have a material influence upon the
reduction of the rate of discount. Therefore I believe that
if the object is to regulate the circulation of money an
increase of the Reichsbank's capital is unnecessary.
Nevertheless, I think that it appears desirable from
various points of view.
I am, in the first place, of the opinion that in case of an
essential increase—such as has already occurred of late—
of the Reichsbank's business in foreign bills an enlargement of its capital may be desirable. The same thing
applies to loans on securities. I am, further, of the opinion
that it is not a proper proportion for the Reichsbank, with
a capital of 180,000,000 and a surplus of 64,000,000, to
have expended 54,000,000 in real estate. In the case of
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Commission
a private bank this proportion would be characterized
as unhealthy.
I hold, besides, that the volume of its deposits indicates
that a certain strengthening of its own resources may
appear desirable to the Bank.
When I consider all these points of view, I arrive at the
conclusion that it seems desirable that an increase in the
Reichsbank's capital shall take place; particularly, too,
because I believe—and here I find myself in opposition to
the honored gentleman who spoke last—that we should
seize every means to strengthen the credit of the Reichsbank abroad also. The worst thing that has happened
to us in recent years is the inception of a doubt abroad as
to the solvency of the German Empire in the matter of
the gold standard. We have every incentive to work
against that feeling; I consider this the most important
aspect of the whole question.
As regards the augmentation of capital, I am not in favor
of a great increase. In my judgment an increase of about
60,000,000 is sufficient, and that at a price for the shares
which shall correspond approximately to the amount of the
surplus. An addition of about 80,000,000 would thus be
made to the Reichsbank's own resources, and that I consider
adequate to satisfy its needs. Whether this should be
carried out in stages or at once is a question open to
debate. I would carry it out in stages, in order that the
domestic money market should not in any way be disturbed by the issuance of the Reichsbank shares; even
though a sum of 60,000,000 is not so great that it can
produce serious disturbances in the domestic money
market.
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I n q u i r y
of
1908
Freiherr VON WANGENHEIM. Gentlemen, when I was
appointed to the commission, I tried at first to decline
the summons, and accepted it only under the supposition that what was demanded of me was that I should,
to the best of my ability, give expression here to the
views that prevail in the economic and political circles
familiar to me.
Nor do I consider it our duty to enter into a great
debate here; there is an abundance of talk; the chief
battle is to be fought in the Reichstag. Accordingly,
I will limit myself most rigidly.
I beg to be excused, too, if I confine myself to notes
this time, by way of exception. I belong usually among
the unfortunate speakers who can not make use of notes;
but to-day I consider it important that my remarks be
reproduced verbatim.
Numerous means have been proposed here to remedy
the precarious conditions that prevail with us at present
in monetary affairs. But, gentlemen, I do not believe
that the adoption of any one or even of a number of
these various means will bring about a fundamental
improvement. All the questions of the bank inquiry
are, in my judgment, to be considered from the following
fundamental points of view: The unlimited abuse of
credit, with the reckless economic development which
it alone made possible, is the real cause of our periodic
crises, with all their grave economic and social evils.
The aim of all reforms in the domain of banking and
credit must, therefore, be to bring about steady, quiet,
and moderate development. From this follows the
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Commission
necessity of a more general realization of the fact that
the business of granting credits out of other people's
money is not only a business but also a very responsible
office, and that here business considerations must always
be made to harmonize with the obligations which arise
from the nature of that office. To this effect Riesser,
in his work Zur Entwickelungsgeschichte der deutschen
Grossbanken (History of the Development of the
Great German Banks), second edition, page 173, says:
"Not only private but public interests are here at
stake.'' In the same passage he remarks: " I t is not
without significance that even the employees of the
banks are spoken of as bank officials, for they are
appointed in the service of undertakings whose objects
and development are not of a purely private nature,
and which transcend more and more the sphere of regulations pertaining to purely private rights."
Riesser then shows—page 130—by a number of examples that the political outpost fights of the nations,
which are sometimes followed by the greater battles of the
national armies, are to-day fought on the financial field by
the great credit banks. Such vital processes, which may,
in some circumstances, be decisive of the existence or nonexistence of the State and of the distinctive civilization of
its people, can not be committed solely to the dividend
interests of the private banks. Here, too, under free
competition, it is no longer he that is conscious of duty,
but he that is most eager for gain, who conquers. In the
business reports of the great banks we find complaints of
ineffective admonitions to be moderate in demands for
48
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I n q u i r y
of
1908
credit. But because a transaction which one bank would
not undertake is at once entered into by its competitors,
the private banks do not, in our times, possess the power
to check the mania for speculation and profit which
underlies the demands for credit; with their eyes open
they drift toward the next general crisis.
All these considerations must force the legislation of our
time to place the business of dealing in credits with other
people's money under such legal regulation as shall safeguard the interests of the people.
As a matter of principle, therefore, in regard to questions I and II, I must put forward the demand that the
Reichsbank be nationalized.
Much has been said by the opponents of nationalization
as to the jeopardizing of the funds of a nationalized bank
in case of an unsuccessful war. But about the same kind
of people consider the prime financial preparation for war
to consist in the greatest possible possession of foreign
gold values in bills and foreign exchange. These foreign
bills are with us quite preponderantly bills on London—
on the chief market, therefore, of a state against which it
is no longer beyond the region of probability that Germany may engage in war. Then, would the "gold in
London" form a part of our financial mobilization? The
Hague Peace Conference, too, decided with England's
assent to prohibit a belligerent power from abrogating the
rights and claims of the subjects of the enemy, or from
temporarily invalidating them, or excluding suability.
(Geheimer Finanzrat Doctor Von Lumm, on Foreignbills Policy, May 12, 1908.) Anyway, in case of a war
84713—10
4
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Commission
"gold credits in London" seem less secure than the gold
in the vaults of a nationalized Reichsbank.
In case, however, the nationalizing of the Reichsbank
will, as I assume, not be agreed to, a fundamentally new
conception of the Reichsbank must at least be introduced
into its administrative policy and into legislation. Today it is regarded as the " bank of banks." The shares are
held by the banking world and by its circle of customers.
Out of this circle the central committee is constituted.
These circles are given the first chance to obtain the lowrate credit of the Reichsbank, with the advances free of
interest, etc. The Reichsbank must be transformed from
the position it has hitherto occupied as the "bank of
banks" into the "central bank for the protection of the
nation's economic interests."
i. There must take place, therefore, a material increase
of the capital, perhaps a doubling (500,000,000), as was
proposed by the expert Kommerzienrat Moritz Leifmann,
banker, in Diisseldorf ("Zusammenstellung," p. 12). The
share capital and surplus of the Reichsbank amounted
in 1875 to 150,000,000 marks, in 1907 to 240,000,000; in
the 7 Berlin great banks it was 250,000,000 marks in 1875
and 2,500,000,000 in 1907.
Prion says in his work, "Das deutsche Wechsel-Discontgeschaft" (TheGerman Bill-discount Business), 1907:
"The average cash holdings of the Reichsbank, which
furnish the basis for the security of the currency, can no
longer be termed sufficient, in view of the abruptly changed
balance aggregates of the other banks. The acceptances
alone set afloat by the banks exceed the average amount of
50
Bank
I n q u i r y
of
1908
the circulating bank notes. In the further development
of the credit banks there is great danger t h a t the extension
of their credit business m a y easily go beyond the line
drawn by the Reichsbank in determining its holdings of
gold as t h e foundation of the whole edifice of credit. F r o m
this standpoint, likewise, an increase of t h e deposit transactions of t h e Reichsbank, for t h e purpose of attracting
gold, is b y all means desirable."
2. The new stock certificates to be distributed should
be of t h e denomination of 200 marks, as t h e expert,
Bendix (p. 13 of t h e " S a m m l u n g " ) , has proposed; and
this a t a selling price of 130 per cent, as in t h e subscription
of 1875, and under control of the communities, in order
t h a t the stock certificates shall not fall into the hands of
foreigners or of the circle of customers, or into the possession of our great banks, b u t into the hands of the German
people outside this circle. Preference to the middle class
in town and country!
The distribution of these stock certificates should be
effected exclusively by the Reichsbank, which should take
over t h e stock at 130 per cent, on commission, and sell it at
t h a t price to members of the German middle class, in t h e
order in which their names appear on its subscription
books.
This increase of capital would then not be taken from
the bank credits—and therefore counteracted by increased
demands upon the Reichsbank—so t h a t the available
resources of the Reichsbank would not be diminished.
Then it would be possible to purchase gold abroad with
these augmented resources in order to increase our gold
supply.
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Commission
I am opposed to the proposition on page 17, that foreign
gold bills should be admitted as cash cover within the
meaning of the bank law.
The strengthening of the surplus I also favor on principle. This would be accomplished best by a strengthening of the capital. Whether it is to be carried out by stages
is a practical question which need not be decided at present. The time could be determined after we return once
more to normal rates of interest.
Mr. SCHINCKEIV. Gentlemen, we have been asked to
express our judgment in regard to the question before us,
with brief statement of our reasons. I can not, therefore,
avoid returning to the arguments which have already been
brought forward by the previous speakers.
I take up in the first place the speech just delivered by
Freiberr Von Wangenheim, and can not deny that I was
somewhat astonished at his bringing up an extremely
important and far-reaching question which is not contained at all in the list of questions before the commission,
upon which we have heard no experts, and which would
extend our discussions to impossible lengths. I can not
find in the list of questions the nationalization of the
Reichsbank. Nor have we up to this time ever spoken of
nationalization in our debates; neither has the question
come up whether changes ought to be made in the organization of the Reichsbank^ administration. It was, on the
contrary, expressly stated in the inaugural speech of the
under secretary of state that fundamental changes in the
organization of the Reichsbank were not to be subjects
of the inquiry. I must, therefore, forego entering into
52
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I n q u i r y
of
1908
particulars on the subject of nationalization; it would, in
my opinion, prolong our debates for days.
Freiherr von Wangenheim spoke further of an unbounded granting of credit having taken place. I am
under the impression that the situation in which we find
ourselves was brought about by all sorts of faults, perhaps
among them by a too ready granting of credit; . but I
must protest against the stress that is always laid upon
the credit banks having been guilty of quite special faults.
I, for my part, am of the opinion that if too much credit
was demanded and granted, much more was done on the
part of the cooperative credit institutions than on that of
the great banks. There is, in my judgment, too much
running into debt throughout the whole country.
Freiherr von Gamp attempted once more to search into
the causes which were the most prominent factors in producing the money crisis, as it is always termed, of last
fall. Here, too, I must briefly add my view of the arguments that have been advanced. I consider it idle for
us to cudgel our brains as to whether it was manufactures
or agriculture or commerce that made the chief demands
of excessive credit upon the money market and, consequently, upon the Reichsbank. I am convinced that all
contributed their share, and to a certain extent, indeed,
quite innocently. It is obvious that as a consequence
of a flood-tide in business the price of everything rises
immensely, as was the case last year. Nothing can be
excepted. Raw materials, and grain in particular, rose
enormously.
A VOICE: Wages, too!
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Commission
Self-evidently, more capital is needed to handle the
commodities, and this must be obtained by means of the
granting of credits. Any very special offense on the part
of manufactures or agriculture or commerce can not, in
my judgment, enter into the question here. The best
evidence that too many bills were in circulation is offered
by the considerations I have just mentioned; the Reichsbank had too little gold, however, primarily in consequence of our unfavorable balance of payments at the
time. The present furnishes a proof of this. Now that
the business boom has run its course, that prices (with
the exception of grain) have fallen just as much as they
rose before, we see that there are fewer bills; the Reichsbank has not so many demands made upon it. The only
thing which has remained, and which, in my judgment,
lastingly demands our chief attention far more than the
temporary credit needs of commerce, manufactures, and
agriculture, is the running into debt that has in the last
years been prevalent in Germany, on the part of the
Empire as well as on that of the states and the local
governments. And if Freiherr von Gamp has solicited a
special statement in regard to this subject I consider it
very appropriate; the figures will show how enormous
were the demands made upon the money market by
domestic loans. It would be a misfortune if, as a consequence of this, we should have to sell foreign bonds and
should be absolutely unable to buy foreign securities on
account of the great demands upon the domestic stock
market. It is only by creating claims upon foreign countries, whether by increased exports or by holding foreign
government securities, that we can improve our balance of
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I n q u i r y
of
1908
payments, and only in that way can we prevent too much
gold being taken from us. I agree with Herr Kaempf that
the difficulties and the stringency which we experienced
last fall were due far more to the small stock of gold in
the Reichsbank than to the large number of bills afloat
and the demands for discount, occasioned by them, made
upon the Reichsbank. I do not see that the Reichsbank's
holdings of bills have in the course of decades risen so
enormously. The evil lay in the Reichsbank having too
little gold, and this evil is to be remedied by creating
claims upon foreign countries. At any rate, I am of the
opinion that the Bourse was this time, as it happens, quite
innocent, in spite of the indirect assertions to the contrary, for all statistics will demonstrate that speculation
did not strain the money market at all; it has indeed
seldom occurred that the Bourse required as little money
as last fall. This is owing to reasons into which I do not
wish to enter; the Bourse has legitimate demands also.
Freiherr von Gamp desires that the Reichsbank treat
with entire impartiality all bills which it accepts. But I
observe that he departs from this impartial standpoint
when he holds that the Reichsbank is just as much
obliged to accept all long-time bills, even such as are provided with security-crutches, as it is the short-term bills
of the banks. As regards that point I can only reiterate
and emphasize my opinion, that, with a view to the solvency of the Reichsbank, there is a tremendous difference
between the two. With the Reichsbank, its only means
of granting credit, with the exception of loans on collateral,
is by discounting bills. The main credit business of the
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Commission
Reichsbank, therefore, is limited to the discounting of
bills. It should certainly, then, not consider a bill which
is sure to be renewed after three months, which must,
besides, be provided with some sort of security, according
to the law, in order to make up for a poor signature, as
on an equality with a bill which will unquestionably be
paid at maturity—which it is not necessary to renew. In
this sense the short-term bill is self-evidently greatly
preferable to the long-term bill, for the short-term bill
is paid so much sooner and eases the situation of the
Reichsbank. From the standpoint of banking principles,
this difference can not be ignored. And here, too, the
Bank should maintain impartiality.
At the quarterly periods the Reichsbank will unavoidably have to accept more bills from the banks than from
other quarters. I t is the banks that, along with the
Reichsbank or in place of the Reichsbank, are the intermediaries of credit throughout the German Empire.
The private banks must, in fulfillment of their duties,
primarily subserve the requirements of credit, while
the Reichsbank's prime duty is to regulate the monetary
circulation. The private banks will always need to have
the assurance that they have the Reichsbank behind
them at the quarterly periods. I regard it as a quite
legitimate thing, entirely consonant with its duties and
not disadvantageous to it, for the Reichsbank to resort,
in case of necessity, to a temporary increase of the discount rate—a thing which is no misfortune at all, but a
needed warning signal to the banks. I t is the duty of
the Reichsbank; there is nothing illegitimate about it.
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I n q u i r y
of
1908
If the Reichsbank were to wait for the long-time bills of
the private banks, or for the bills that come to it at other
periods, it might wait a long time. To keep presenting
bills—not to mention long-time bills—to the Reichsbank
right along, throughout the year, is a thing that no great
bank does. That is a mistaken notion on the part of
Herr von Gamp. I regret exceedingly that he should
have left. This can not be too often brought to his notice.
I say this with the best intent. Director Mueller succeeded in convincing Herr von Gamp on one point, and I
do not doubt that he will allow himself to be convinced on
this point also.
Herr von Gamp spoke, further, in regard to paying interest on deposits. Now, money payable on demand any day
should not in addition be provided by the Reichsbank
with an interest premium. I do not know whether
Director Gwinner favored this, but I can not approve it.
On the other hand, I am confident that the deposits which
flow to the Reichsbank in the natural way will constitute
its least jeopardized assets in critical periods. On the
occasion of the hearings of the experts much was said of
the fact that of the deposits at the disposal of the Reichsbank nearly one-half is in transit; that is, in process of
being transferred. It is self-evident, really, that deposits
increase in critical times, because everybody wants to
accumulate a reserve, and in far greater measure will this
be the case in critical junctures with regard to the deposits
of the Reichsbank; everyone will then regard it as the
best depository. I am not afraid that the Reichsbank
will experience any sort of difficulty on account of its
deposits.
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Commission
Now, as regards the main question, whether an. increase
of the working capital of the Reichsbank, either by way of
adding to capital or by way of strengthening the surplus, is
desirable, I am rather indifferent concerning that problem. I do not, naturally, expect any advantage to arise
from an increase of the capital or of the surplus, particularly any effect to be produced on the rate of
interest or on the gold holdings of the Reichsbank, which
is the main point. I do not fail to recognize that it
would not be a desirable measure at the present moment
to go into the money market with a new demand for
capital; not because I fear that the money market will
thereby be ruined, but because—and I would ever again
call especial attention to this—every putting up for sale of
domestic securities has the great disadvantage that
foreign loans, which we urgently need for our balance of
payments, will be driven out of the country. I should
not, therefore, regard the present as a very appropriate
time.
But there is another consideration. It would not be
satisfactory for the Reichsbank to dispose of its shares
at too low a rate; while too high a rate, again, would, in
my opinion, not do justice to the purchasers, particularly
if the charter of the Reichsbank is to be actually renewed
once more for only ten years. We have heard again
to-day that the question of nationalization does not by
any means seem to have disappeared from the order of
the day. In the event of nationalization, the shareholders, as you know, have a claim upon only half of the
surplus; the new shares can not be sold at a much higher
58
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Inquiry
of
1908
price than the amount for which they will be redeemed
ten years later. If from this standpoint, but for many
other reasons as well, it were possible to prolong the charter of the Reichsbank beyond ten years, it would, in my
judgment, be most desirable. I think that if a strengthening of the Reichsbank's resources should be contemplated, it is the concern primarily of the management
of the Reichsbank. Should it be actually contemplated,
I believe that in view of the fact that there is no prospect
of prolonging the charter beyond ten years, the question
to be considered is rather the strengthening of the working
capital by the accumulation of a surplus. Nor do I feel
any scruples that an injustice would thereby be done to
the Government because the Government contributes
three-quarters and the shareholders one-quarter to it.
A point that has not as yet been dwelt upon is that the
surplus, half of which would go to the Government in the
event of dissolution, was contributed in much the greatest
part by the shareholders. It consists in large measure of
the premiums on the new shares. The shareholders
accumulated the surplus at a time when the Government
did not yet have the three-fourths interest. In view of
the possibility of a division with the shareholders—a thing
most regrettable in my eyes—I should not consider it
unjustifiable if they contributed one-fourth and the State
three-fourths to a further accumulation, with the provision that each should receive a half upon division.
How this could be accomplished is of course a matter
of opinion. I should think that if 10 per cent of the
profit over and above a 3% per cent dividend were put into
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the surplus it would in a reasonable time increase sufficiently to furnish the Reichsbank with the jneans which it
would require for the fixation of capital—the acquisition
of buildings. As soon as the fixation of capital exceeds
the surplus, there is, according to banking principles,
too much fixation. However, not so many buildings are
acquired that they could not be paid for through the
growth of the surplus.
I can not agree with Herr Kaempf's view that the Reichsbank, as such, is regarded abroad with doubt as to its
efficiency and its credit capacity. All other possible
things in Germany have been questioned by foreign
countries, including the adequacy of the gold holdings of
the Reichsbank; but that it is deficient in capital I have
neither read nor heard. As far as that is concerned,,
therefore, foreign countries need not be taken into account. They cast their eyes, indeed, upon everything
that takes place in Germany. I may, consequently, say
once more, unless the management of the Reichsbank
have extraordinary reasons for undertaking an increase
of the capital, I should not advocate it. I would rather
favor the strengthening of the surplus as a means of
increasing the bank's resources.
The CHAIRMAN. In the opening words of Director
Schinkel, in which he said that Herr Wangenheim broached
an inadmissible subject in speaking of the nationalization
of the Reichsbank, I detected a slight reproach against
myself. I should like to explain my position on this
question to the effect that I do not on my part either
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regard it as profitable for us to treat of subjects that are
not directly connected with our list of questions, and that
I should likewise regard it unprofitable if an exhaustive
debate about the nationalization of the Reichsbank were
attempted. Freiherr von Wangenheim, however, had, I
take it, no intention at all of opening a detailed discussion
of the subject. As I understood him, he only wished to
express these convictions: Certain reasons led him to
regard the nationalization of the Reichsbank as, above all,
desirable; if, and since, nationalization could not be attained within a reasonable time, he expressed the opinion
that the same reasons that he adduced for the greater
desideratum held good for the less, and that a material
strengthening of the capital is to be regarded as this
lesser desideratum. Within these limits I thought I had
no occasion to prevent a discussion of the subject.
Freiherr von WANGENHEIM (rising to explain). I can
only fully confirm what the president of the Reichsbank
has just set forth. I stated expressly that in my opinion
neither any one nor a combination of the various remedies
which have been proposed will lead to a successful issue.
But I believed that I had an additional justification for
touching upon the subject. I addressed myself to the
Undersecretary of State, Wermuth, who delivered the
opening speech here, and expressed my regret that he had
excluded the most important questions from the debate.
He answered me emphatically that he had not by any
means the intention to cut off such discussions, but wished
only to indicate the minimum of the range which the discussions of the bank inquiry commission were to cover.
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Mr. SCHINKEL (on the order of the day). It did not
enter my mind in the remotest to refer to the chairman.
It was only that I was genuinely frightened when I
thought what a broad field of discussion is opened by
the subject in question; and I value the work that we
accomplished in connection with the experts far too
highly to approve of considering so important a matter
without having heard them at all in regard to it.
I would add only one thing further: I probably misunderstood Herr von Wangenheim. I understood him
to say that even if nationalization could not come up for
consideration, the administration would, at any rate, have
to be differently organized, since the central committee
consists only of professionals. This, too, is a question
which has hitherto absolutely not been broached by any
expert.
Doctor RiKSSER (on the order of the day). I would
state that the speech of the Undersecretary of State,
Wermuth, must, according to my conception, be interpreted quite differently from the words he used unofficially to Herr Wangenheim. He declared expressly,
under directions from the Imperial Chancellor, that—
I quote from memory—any change of organization of
the Reichsbank was to be eliminated from this inquiry.
If the nationalization of the Reichsbank is not included
in this, then I do not know what his words signify. I
am convinced that the president would most energetically have stopped any expert who undertook to make a
speech on the nationalization of the Reichsbank, basing
his action, too, upon the opening speech of the Under-
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secretary. The experts, consequently, did not express
themselves upon nationalization, and we must, therefore, desist at present from touching upon this subject
even by intimation; a detailed discussion would, in default of the opinions of the experts, anyway be precluded.
Mr. RAAB (on the order of the day). I think it is
really going too far to say that we should not even "by
intimation" discuss questions which, as matters of principle, we feel it necessary to present before our other
arguments. We have in general been governed, upon
practical grounds, by the view of the Imperial Chancellor,
delivered here by the Undersecretary. But that we
can not, either here or in the proceedings of the parliaments, agree to a setting aside of our principles is
a matter of course. I should think, indeed, that if
already to-day intimations are given on the subject,
our opponents will recognize that the question of the
nationalization of the Reichsbank, and also the question
of separation into credit and deposit banks—which has
likewise been excluded here—will subsequently presumably be revived in Parliament. We only want to
prevent its being said later: " I n the inquiry commission
the gentlemen said nothing about it, and now in the
Reichstag they bring up such things." It was in order
to avoid this, I believe, that Herr von Wangenheim
gave expression to his views.
The CHAIRMAN. I think I defined my position very
precisely a while ago. To engage in a searching debate
here on the question of the nationalization of the Reichs-
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bank I regard as utterly fruitless ; but, on the other
hand, I see no objection whatever to touching upon
the subject within bounds, as Baron von Wangenheim did,
in declaring that the greater end, the nationalization of the
Reichsbank, would seem to him, as a matter of principle,
the more desirable thing.
Doctor RiESSER. The honoraole member who spoke
last misconceived my meaning. That the gentlemen
should intimate here that they will in Parliament assert
their position to the effect that the nationalization of
the Reichsbank must take place is quite natural; no
one can or will dispute that point with them. But we
could not, in vie^y of the importance of the question, be
satisfied on our part with an intimation of our opposite
convictions; we should, then, have to reply at length,
if the question were to be treated at all fittingly by the
other side. We can not do that, because the question of
nationalization—according to the declaration of the
experts, as I understand it—was intentionally excluded,
on the basis of the declaration of the Imperial Chancellor's representative.
Geheimer Oberregierungsrat MULDER. As a representative of the ministry of the interior, I can only assert that
Freiherr von Wangenheim's interpretation of Undersecretary Wermuth's meaning is, in my judgment, quite
consistent with what his excellency said at the first sitting.
There would have been little object in discussing the
nationalization of the Reichsbank with the experts after
the opening address, and I myself, as chairman of the
subcommission, did not, as the gentlemen may see in the
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minutes, permit Herr Steller to discuss the question.
But, gentlemen, it is an entirely different thing if a member
of the commission of inquiry, in explanation of his view
upon the question of a considerable increase of the Bank's
capital, says: "If I can not have what I consider better,
namely, the nationalization of the Reichsbank, I shall content myself with the good." That, briefly expressed, was
really Baron von Wangenheim's meaning, and I repeat
that it is quite compatible with what was said by Undersecretary Wermuth in his opening speech. I stand,
therefore, as a representative of the ministry of the
interior, upon the same platform as our honored chairman, who has already expressed this opinion.
Freiherr von WANGENHEIM. I have nothing to add to
the arguments of the chairman and Geheimrat Muller.
Those gentlemen have very exactly stated the object and
purport of my remarks.
Mr. FiscHEiv. I, too, regard the proposition made by
Herr von Gamp a useful one, that before entering into the
question of an increase of the Reichsbank's capital itself
we should briefly try to make clear to ourselves what were
the causes that led to the uncomfortable conditions of
last year—I myself am not inclined to term it a crisis. I
consider it necessary to enter into this point first, because
it does not seem to me practical for us to separate in our
discussions the question of the bank capital from the
question whether we can draw the conclusion from last
year's experiences that changes are required.
Starting from the well-known fact that we had an
extravagantly high rate of interest last year, I would first
84713—10
5
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of all remark that this extravagantly high rate of interest
doubtless exerted an unfavorable influence upon the
granting of credit and occasioned credit disturbances.
But the rate of interest in business transactions is, in my
opinion, not determined exclusively by business circumstances; it is also essentially influenced by the rate of
interest on capital; and* this, again, is conditioned upon
the relation between the demand for and the supply of
capital, which may be very different from the calls or the
requirements for circulating media. As regards the relation between the demand for capital and its supply, however, it can not, in my judgment, be in any way among
the duties of the Reichsbank to regulate this, even though
its duties be interpreted in the broadest sense. There has
been an increased, nay, an excessive call for capital for
some years past, and this may be traced to a great number
of causes; in my judgment, it undoubtedly began with,
and was partly caused by, the need of a money supply for
the two great wars of recent years, the Boer war and the
Russo-Japanese war. The world's money market can
not remain unaffected when such vast demands as were
called forth by these are made upon it for noneconomic
purposes, in the shape of loan issues. There was at the
same time a great expansion of industrial activity in
all countries, particularly in Germany, which required
fresh capital; besides this, new loans in excessive quantities, proceeding from different sources, mostly state and
municipal loans, were brought to the market. The capital available to satisfy these needs was unquestionably
inadequate, and the rate of interest on capital was, in
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consequence, forced upward; with every rise in the value
of capital, however, a certain influence upon the general
rate of interest must make itself felt.
The rate of interest was influenced further by the proportion of the circulating media to the work that they were
required to do. This work has become much greater, as
has already been pointed out by the experts in the commission of inquiry and by some of our colleagues, through
the increased activity in production as well as through the
rise in prices of all raw materials, in consequence of
which more money than before had to be used for the
same production.
Here, then, we are dealing with a factor which involves
the absolute necessity of a greater volume of circulating
media than we should formerly have required for similar
undertakings.
But there is another, and, to my mind, a not insignificant
factor to be added, and that is that the source from which
the circulating media were to be drawn has not normally
expanded. I should like to define this somewhat more
precisely. If business increases in general, we need more
money. This money can be procured by fresh supplies
of currency, but it can be procured also by an extension
of fiduciary media. In the last two years, however, the
whole extension was confined to the fiduciary media, and
it had to be so confined because there proved to be an
inadequate augmentation in the monetary supply.
I have allowed myself this digression because I deem it
necessary to gain a clear insight as to how far these conditions might have been improved by an increase of the
capital of the Reichsbank.
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To an improvement of the conditions prevailing last
year two things would have been requisite; in the first
place, the great demand for fresh capital, which forced
the rate of interest upward, should not have existed, and,
secondly, we should have had a larger quantity of circulating media at our disposal.
Having stated this, I would now revert to another
observation made by Freiherr von Gamp. He very
justly recognized that the most important business of the
Reichsbank is that of regulating the monetary circulation.
He then alluded to its business as a credit bank, and
as our colleague, Herr Kaempf, has already pointed out,
he amplified this allusion with such a quantity of detail
that it seemed indubitable to everyone that he assigns
even to the Reichsbank rather the functions of a bank of
credit than of a bank whose duty it is to regulate the
monetary circulation. Now, I take the opposite ground;
I go so far as to say that the Reichsbank should not be a
bank of credit at all, for I do not consider the two functions
compatible. The duty of regulating the circulation will,
of course, always be connected to a certain extent with
the granting of credit; this credit, however, should not be
granted in order to provide a person in need of it with the
credit he desires, but solely in connection with the issuance
of notes, which can not naturally take place gratis or
without pledges; on the contrary, the Reichsbank must
get into its hands, for its entire amount of note issues,
securities which are calculated to bring back the notes to
it as soon as they are no longer needed. I, for my part,
should wish the Reichsbank never to acquire any bills on
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account of some one's need of money; I should wish that
its arrangements for discounting bills were of such a
nature that it would acquire bills only when German
economic life collectively is in need of more abundant
means of circulation. The only possible way of regulating
the use of circulating media lies in absolute adherence to
this fundamental principle. It can be accomplished only
by fixing an appropriate discount rate. For, let us suppose that trade in the aggregate were already provided
to satiety with the requisite circulating media and that
the Reichsbank, merely in order to satisfy a demand for
credit, were to discount credit bills to the amount of
20,000,000 marks; it seems to me really that this would
put into the channels of trade 20,000,000 of money
that is not needed, and thereby create a disturbance of
the equilibrium.
The manner in which the Reichsbank has discharged its
duties I would not draw into the discussion, for I fully
share the opinion that it has hitherto not only completely
fulfilled its function—it has even fulfilled it better than
other banks; and as proof of this I would instance the fact
that we were for many years spared such crises as are produced by an evident lack of equilibrium between the circulating media and business needs.
Now I do not by any means wish to preclude the Reichsbank from furnishing even direct credit, and thereby adding to the circulating medium, in case an addition to the
circulating medium is required for the uses of trade; but
I hold that the fixing of its rates of interest should be governed by this consideration: That it must, above all, adhere
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to the principle of maintaining an equilibrium between the
demand for money and the needs of business. We can
not, for that reason, regard the question of interest rates
as indifferent, and, in my opinion, the second question presented to us, What influence will an increase of capital
have upon the determination of interest rates? must be
answered first, before coming to a conclusion on the question, Is an increase of the bank's capital requisite at all?
I want to premise that I agree with the view that the
capital of the Bank should form solely a guaranty-capital for its business and for the fixations of capital connected with it. If we should arrive at the conclusion that
the bank capital must be augmented, we must necessarily
proceed from the view that it has hitherto been insufficient
for the above-named purposes. That opinion I do not
hold. I think that the capital, which, including the surplus, amounts to 244,000,000, has fully sufficed for the
business of the Reichsbank. If I believed that the capital
is too small I should have to think that the Reichsbank was
not in a position, and that on account of too slender capital, to fulfill its function—the regulation of the circulating
medium; that, for instance, it was obliged to refuse to discount bills and make loans on collateral, in spite of business needing the currency arising from these transactions.
I believe that all experience contradicts such an assumption. I believe, further, that the desire to increase the
bank's capital is based more or less, on the part of all who
entertain it, upon the idea that credit has not been given
readily enough. Now, we have, on the other hand,
listened to views, which I would not controvert too
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sharply, which stated that perhaps, on the contrary, credit
has been granted too readily. We must, in any case,
acknowledge that the extension of banking has been so
extraordinarily great in the last ten years that the opportunities of obtaining credit were doubtless not too meager,
and that one can not say the Reichsbank should have
had more capital to satisfy the requirements of credit. The
amount, too, by which the capital would be raised would
be far too insignificant, in comparison with the total of
the credit demands, for it to play any sort of part.
But now, in order to examine the effect of an augmentation of capital, let us imagine that an increase had been
effected; and believing that we can recognize the changes
that would result therefrom more clearly by using large
figures than small ones, I would choose a pretty large
figure as an example. Let us assume that the capital of
the Reichsbank was augmented by 200,000,000; what
influence would this exert upon the entire character of our
economic conditions? If it is recognized that great loans
are taken up without producing a material disturbance in
the money market, we must recognize also that the possibility does most certainly exist of issuing new Reichsbank
shares in considerable quantity; the question would solely
be whether the shares could hold out a promise of enough
profit.
Now, I see a very essential difference between the
Reichsbank receiving fresh capital and another institution
increasing its capital, for I can not admit that in the trade
of the world there is, in general, ready money lying about
which is lured forth specially by the issuance of bank
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stock and is only thereby rendered profitable. If that
were so, we should have to assume in the case of every
great loan, if it were taken up under favorable conditions,
that a material augmentation of monetary resources
accrues from it, since it, too, rakes up money from every
nook and cranny, and makes it serviceable to trade.
But, speaking broadly, this phenomenon has not been
observed.
The essential difference, however, is this: That when
the Reichsbank increases its capital it diminishes the
resources of the market to an extent that corresponds
with the increase of its own working capital. Whether
this money flows to it in gold, which I do not by any means
consider probable, or whether it streams back to it in
notes taken from trade; whether the increase occurs
through a diminution in its deposit accounts; in all
cases it will be at the expense of the market. When
another bank augments its capital, it means that in the
market for capital money is shifted from one place to
another, but the sum at the disposal of the market remains
unchanged. But if the market does not have at its command the money that is required for the payment of the
Reichsbank shares there will be more demands upon the
Reichsbank, for it can not be ignored that the Reichsbank
is the only source that can create money; that can
therefore, even in case of a great requirement, place new
resources at the disposal of the market.
If those who desire an enlargement of the share capital
of the Reichsbank in order that credit may be more easily
obtained and the interest rate lowered keep this in mind,
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they must say to themselves that it is indeed improbable
that the removal of a sum of money from the general
market and the shutting it up in the Reichsbank can
lead to that result. I believe that, quite on the contrary,
we should, first of all, have the opposite result, and I
do not base this belief upon theoretical considerations
alone. When, namely, I look back at the time when the
Reichsbank last increased its capital, I can remember
very well that it was said in the market that in the course
of the month of December so and so much money must
flow into the Reichsbank, because a payment on the share
capital will become due; and that this was regarded, if
not as a particularly notable circumstance, as one, at
any rate, that influenced the market, to a certain extent,
in the direction of contraction.
But the equilibrium of the market can be only slowly
restored when the Reichsbank places those resources at
its disposal again, and it will have to place them at its
disposal, for it is not to be assumed that trade could
manage with a smaller quantum of notes upon the Reichsbank increasing its capital. But when trade requires a
certain very sharply defined quantum of notes for its
purposes, at a certain moment, then these notes must
be on hand, and they can be given only by the Reichsbank.
Against these notes, however, the Reichsbank is obliged
to demand pledges; these pledges are bills or securities.
A permanent increase of the share capital of the bank—
and here I beg you once more for the sake of an example
to imagine 200,000,000—would, in my opinion, undoubtedly result in the bank having (leaving the loans on
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securities out of the question for the present) bills for
200,000,000 marks more permanently in its portfolio.
We must now ask oursleves: What influence would such
a permanent enlargement of the bill portfolio of the Reichsbank have upon its dispositions, upon its interest rates,
and its capacity for further discount transactions? I
believe that I betray no great secret when I say that
within the walls of the Reichsbank the level of investments was, throughout a long period, included, and justly
so, among the elements that influenced the raising of the
rate of discount. For the greater the number of notes
that are not accepted for discount anywhere but at the
Reichsbank the more positive are the signs of a rising tide
in the demands of business, which the Reichsbank, if its
object is to regulate business, can not restrain in any other
way than by raising the rate of discount.
It is, however, conceivable that this addition to the
bank's capital might be made from the funds that constitute its deposits. If this were done, I should imagine,
in as much as the deposits are the working reserve of the
merchant class and of the banking world, that this would
likewise have the direct effect of tightening the money
market. Such a tightening of the market could not possibly bring about a lowering of the rate of discount in the
open market, but is rather calculated to cause a rise in
the rate, a rise that could not fail to have an indirect effect
upon the Reichsbank.
Of course I am not going to maintain—for I have
chosen to take a much higher figure than has been proposed
thus far for the increase—that the enlargement of the
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capital of the Reichsbank is bound to lead to a rise in the
rate of discount. But I believe that we may as well be
clear about the matter. It can not lead to a reduction in
the rate of discount. The result can only be that the
granting of credit will be done to a somewhat less extent
through the issue of bank notes. But if this is the case
and the circulation is thereby temporarily diminished, I
can not see how this is going to have the effect of reducing
the rate of interest.
The question remains whether there is any other way
for the Reichsbank to invest the funds that are constantly coming into its possession. One way has been
suggested—the purchase of foreign bills of exchange. It
is affirmed that the bank would thereby ultimately increase the amount of its cash. But it appears to me that
the buying of foreign exchange and the increase in the
cash are matters dependent upon the relation which the
rate of interest here bears to that in other countries, and
not upon the absolute rate. The relative rate of interest
is the determining condition. In order to retain foreign
exchange, it is necessary that we should have a relatively
high rate of interest. If we are to retain permanently a
larger stock of gold than what would come to us in the
ordinary course of things, then likewise the rate of interest
here must be high relatively to other countries. But
even if it were deemed desirable to let gold flow into the
Reichsbank by this means, it could take place only if the
bank would, first of all, for a while at least—until, owing to
the higher rate of interest, securities were disposed of
abroad—raise its rate of discount or make up its mind to
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maintain it at a higher level than that which it would
otherwise have reached.
I must therefore come to the conclusion that the scheme
of securing easier credit and a lower rate of discount is
not promoted by the method in question.
I must say I can not help asking myself whether we
are bound to place ourselves entirely on the standpoint
that all our energies should be directed toward the maintenance of a low rate of interest. I am inclined to
assume that it would be better for us to have a stable
rate of interest, one fluctuating as little as possible, than
a very low rate that would be only temporary and would
later on expose us to the danger of a corresponding violent
rise. But even from this standpoint I can not see why
we should expect any particular advantage to result from
an increase in the capital of the Reichsbank.
I must still point to another feature of the situation.
If you will take the trouble of looking over the statistical
data which the Reichsbank has submitted to us, you will
find that between the years 1897 and 1907 the expenses
of the Reichsbank increased immensely. The expenses
of management rose from 10,259,000 marks in 1897 to
18,762,000 in 1907. If we go back to the year 1897 we
find that the profits were 19,400,000 marks. Now, if the
Reichsbank were to increase its capital, I do not believe
that it could undertake to frame its policy without considering the question of the rate of interest that could be
realized on the enlarged capitalization. We must recognize the fact that the bank has never assumed the attitude
of a mercantile institution. But if it means to solicit
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funds from the money market it is bound in a measure to
make such capital yield interest. Now, let us suppose for
a moment that there was a great slump in the economic
situation and that, for example, the Reichsbank showed
a total of only 700,000,000 or 800,000,000 marks in discounts and loans on collateral, and let us imagine furthermore that the rate of interest was down to 3 per cent.
As far as I can make out, the bank would then barely be
able, even under existing conditions, to get a return halfway sufficient for its stockholders. I should apprehend,
therefore, considering that its burdens were further increased, that it would be very reluctant to come down to
a low rate of discount, and that, even if actuated by a
sincere desire to abstain from going into the credit market
in quest of promissory notes, it might still at times be
induced to do so. If I am not mistaken, the Reichsbank
is allowed to take up private notes at a lower rate than
4 per cent, even in the open market. But the notes
which are discounted by the bank at the private rate
have a much more direct influence upon the rate of interest than the discounting of notes at the bank rate. For,
whereas in the case of the notes discounted at the bank
rate money gets into circulation only when it is needed,
inasmuch as the notes are not taken to the bank before
they are compelled to pay the highest rate in the market—
which is the bank rate—money does get into circulation
even when it is not absolutely needed in cases where the
bank goes into the market to buy up notes at the market
rate. An increase in the bank's capital would still appear
to me objectionable for the reason that we should more
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easily get back to the situation where the bank would feel
obliged to resort to this private discounting of notes.
In what concerns the existing capital it has been
repeatedly pointed out that there is no sense in comparing
our situation with that in other countries, but at the
same time we can not afford to say that the experience
of the outside world has absolutely no value for us.
Whatever be the real nature of the capital of a bank of
issue, whether it is to be regarded as a reserve fund merely
or as capital by means of which the bank can dispense
credit, is a question which there is no use in trying to
settle; neither is the capital anywhere separately managed
in its double capacity. It is a remarkable fact, however,
that the Bank of England and the Bank of France manage
to get along, the former almost entirely, and the latter
altogether, without any free capital with which to satisfy
the demands of credit. I think it is evident from this that
the means at the disposal of a bank of issue consist in the
issue of bank notes and in its deposits, so that, in my
opinion, the question as to whether or not it needs its
capital for the purposes of credit is of no importance.
I believe that the present capital of the Reichsbank is
altogether adequate to existing needs—that is, probably
sufficient to render even a somewhat larger investment in
real estate innocuous,—that it is not too small for the purposes of a reserve, and that it is large enough to enable
the bank to loan money on collateral on an adequate
scale. Loaning on collateral is not done by means of
the capital alone, but also by means of the deposits,
and inasmuch as the volume of business in the country
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tends constantly to increase, the deposits, it seems to me,
must have the same tendency to grow. I must say, however, that the sum of the deposits has not itself kept pace
with the general expansion of business in Germany, but
I am inclined to take this rather as an expression of the
somewhat abnormal conditions that have prevailed in
the business world of Germany, and other countries as
well, in the last few years, and I feel pretty sure that
the economic situation is going to straighten itself out in
the course of not many years. I should imagine, however, that this very increase in the capital of the Reichsbank would tend in a measure to hinder this readjustment.
The more we rely upon the capacity of the Reichsbank
in the matter of discount and upon its capital with reference to this function, and the more we look upon it as an
institution for discounting notes, instead of an institution
for rediscounting notes, which, in my opinion, it should
be, the smaller will be the surplus placed at the disposal
of business interests in the country at large. I am, therefore, inclined from this standpoint also to regard with
disfavor the proposition to increase the capital of the
Reichsbank.
I may say that I am one of those whose attitude in
regard to this matter may be described as one of indifference. I attach no special importance to it. The
increase at this particular time does not strike me as
being of any advantage whatever, neither do I see any
need of enlarging the surplus just at present. By this I
do not mean to say that it is not conceivable that the
expansion of business in general and of the business of the
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Reichsbank in particular may be such in the course of
the year as to make it appear desirable to add to the
capital of the bank.
I have already stated my view in the first session of
subcommission I and II to the effect that it would be
very desirable to regulate the status of the Reichsbank
not merely for a term of ten years, but for a much longer
term. I said, furthermore, at the time, quite in the
spirit of Oberbergrat Wachler's opinion, that I was not
in favor of enlarging the capital of the bank, which
is ample at present, but that I thought the proper
thing to do was to insert in the new bank charter a
provision by which this could be done, if the need were felt,
at any time in the future, the regulation being so framed
as to confer the necessary power right now (certain
principles being laid down relative to the matter), so
that, when the necessity presents itself, it shall be possible,
without having to overhaul the whole question of the
bank charter, to institute the increase by means of some
simple process as, perhaps, through an understanding
between the Bundesrat and the Reichsbank. I do not
consider an increase in the capital of any advantage at
the present moment.
Mr. FISCHER. Having heard, gentlemen, all that the
speaker has had to say, I am tempted to go even beyond
the suggestion of the president and to urge a vote without
further debate. The only reason for craving your in
dulgence a little longer than is agreeable to myself or to
you is that I find that of all the members of the commission I am the only one that does not represent either
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the domain of science, the world of banking, industrial
enterprise, or the class of agriculturists, or at least the
interests of some large city, and that I am here in reality
to represent, so to say, the middle and lower classes and
their condition—the provincial element, which, to be sure,
is also desirous to be allowed to have its say.
As its spokesman, I want to say that I regard the
Reichsbank, such as it has existed down to the present
day, as one of the most excellent and successful of our
economic institutions, and I am of opinion that we ought
not to neglect anything in order to maintain it in its
present position, to extend its usefulness as far as possible,
to strengthen it, to develop it, and to fortify it against
any danger—fortunately not threatening at this moment,
but easily possible in the future—that may arise from
the crooked operations of banks or of banking concerns,
whose activity we can readily imagine would be less
altruistic and more egoistic than that of the Reichsbank.
But with all its excellencies the Reichsbank has hitherto
not been perfect. It was especially a matter of deep
regret to everyone that during the last few winters it
was not able to prevent a rate of interest and of discount
which, in the eyes of the public, was nothing short of
usury. We are all of us assuredly bent upon discovering
a means by which this sort of thing will no longer be a
necessity. Not even the most expert among experts has
discovered a panacea that will bring about this consummation, and the only one that is at present being urged
strikes me as being of very doubtful efficacy—at all events,
it has been ruled out of the discussion. It is therefore
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my opinion that what is going to take place here is just
what has happened in so many similar cases; that is,
that if no single great panacea can be found we shall
have to resort to a number of petty devices, which in
their totality and their cooperation may in a general
way effect that which a great expedient, but one that is
not discoverable, was to have brought about.
Among these lesser expedients I place without reservation the enlargement of tfie capital of the Reichsbank
by 60,000,000 marks and the gradual raising of the surplus to one-half of the amount of the capital. I regret
to be tmable in this matter to agree with the majority
of those who are experts on the subject. I can not help
being under the impression that in their efforts to demonstrate the futility and even the harm of an increase
of capital, etc., they have in a way been trying to prove
too much. You must remember that all our propositions and arrangements are not intended for the coming
weeks and months, but for the next ten or twelve years.
When you consider that the Reichsbank has on an average been doubling its business every ten years, it is evident that in the course of the period for which we propose
to legislate we shall be dealing with an aggregate business
of perhaps 700 billion marks. If at the beginning it
was thought necessary to provide a capital of 120 million
marks for a prospective business of 36 to 80 billion
marks for the first ten years, then it appears to me that
when we have got to reckon on a business of 700 billion
a doubling of the capital can not be regarded as anything preposterous.
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That such an enlargement of the capital could work
mischief in any way I can not for a moment imagine,
and I am glad to see that it is even now admitted on
every hand, however divergent the various standpoints
may be, that the status of the Reichsbank, although it
might not perhaps derive any great direct benefit, would
in some respects be all the better, and that as a result
of a better status probably a greater quantity of gold
might find its way into the bank than before.
The objection that the first result would be a threatened rise in the rate of discount does not strike me as very
formidable, for the logical deduction from such an argument would be that the most effectual way of reducing
the rate of discount was by returning to the shareholders
the sums which they have invested in the bank capital.
This is, of course, rather farfetched, but it is an intimation that there is no use in going too far on the other
side. I believe that the same thing holds good of the
Reichsbank as applies to every commercial institution,
large or small—namely, that an extraordinary increase
of business should at all times be accompanied by a corresponding increase in the fixed capital, and I can hardly
conceive what real harm could result therefrom. The
danger of diminished dividends to the stockholders does
not appear to me a very serious one. I know perfectly
well how pleasant it is to get from 8 to 10 per cent on
one's bank stock. But I can say at least that I always
have a bad conscience in pocketing regularly such a big
dividend on such safe paper, and I am of opinion that
the possessors of Reichsbank shares may as well be
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satisfied with 6 per cent, if they can feel that they are to
get it right straight along.
When I express myself so absolutely in favor of an
increase of the capital stock, I mean, of course, that I
am also in favor of the increase of the surplus, and I
believe that without any question in this respect, also,
we can go considerably further than most of the propositions that have been made. Let us assume, as has
already been urged, that 10 per cent of the current profit
is put every year into the surplus. This would, reckoning on the basis of the favorable result of last year's
business, amount to about 1,000,000 marks for the stockholders and 3,000,000 for the Government. I believe that
both the stockholders of the Reichsbank and the Empire
get in reality a much greater profit if the former receive
1,000,000 less and the Government 3,000,000 less, if thereby
the rate of interest is permanently lowered to a considerable extent and the bank is not obliged to maintain
such an abnormally high rate for the whole Empire, and,
in fact, for everybody who is under the necessity of borrowing gold, as we have had the past winter. I believe,
therefore, that in the course of ten or twenty years it will
be possible to bring about a very substantial increase in
the permanent capital of the Reichsbank and in its surplus,
and that this could only be an advantage and not productive of any mischief. The second question I shall reserve
for later discussion.
Doctor WAGNER. Gentlemen, I am greatly tempted,
after several of the speakers who have preceded me have
gone beyond the bounds of the subject that is our imme-
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diate concern, likewise to enter into a discussion, more or
less searching, of the various questions that have been
included in the other departments of the bank inquiry.
I propose, however, to resist this temptation as far as
possible and permit myself only one or two brief remarks
in response to the broad utterances that have been made
here to-day.
The main question that has led us to institute this bank
investigation is one that pertains to the rate of interest and
the matters connected with it. The main question is
bound to be: What are the conditions that have induced
the inordinately high rates of discount? With regard to
this, I wish to declare briefly that I am in accord with
what Freiherr von Gamp has said on the subject, namely,
that we have had an extravagant extension of credit.
This extension of credit, however, is in no way, or at most
in a very indirect manner, bound up with the activity of
the Reichsbank. In this matter, as far as banks have
anything to do with it, I must say that I can not regard
the stock banks as wholly absolved from responsibility.
There would be no object in giving my reasons for this
opinion at the present moment. We expect to have an
opportunity in the fall to discuss these matters further.
I must express my belief, however—and in this I agree
with Herr Kaempf—that even if mistakes may have been
made by the stock banks and the purely private concerns,
a great mistake—I shall not say the chief mistake, but a
great mistake—was that involved in our financial policy in
the enormous and altogether too rapid extension of our
imperial, state, and municipal indebtedness. This mis-
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take, to be sure, in the case at least of the Empire and the
States, and to some extent also in that of the municipalities, is mainly to be attributed to the circumstance that
all these political bodies have been too weak and dilatory
in developing their taxes. What is responsible for this,
especially in the case of the Empire, it is not my business
to explain just at present.
I shall now take up briefly the mooted question of the
nationalization of the Reichsbank. As far as this is concerned, I am perhaps more committed than any of the
German theorizers on such subjects to the nationalization
of great economic undertakings. I go further—indeed I
shall not deny it—than all of my colleagues of the school
known as Kathedersozialisten, and I am disposed to consider that in a number of cases we should act more wisely
in nationalizing and municipalizing such concerns as* are
specially adapted to a process of this kind than to leave
them in the hands of large banks and stock companies,
which but too often results in our having private monopolies of a dangerous sort. Nevertheless, as far as the Reichsbank itself is concerned, I can not deny that I feel some
hesitation. A close intimacy with financial matters,
indeed the whole history of banking, shows us that after
all there are some valid objections to banks that are purely
state institutions.
As a matter of fact, are we sure that through the nationalization of the Reichsbank we should be creating essentially different conditions? We might as well be clear
about it. What is the Reichsbank if not the successor of
the Prussian Bank? Iyike the latter it is a national bank
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as far as its entire management is concerned. From the
president down to the lowest employee its officials are all
state officials, and consequently the principles of national
administration are already asserting themselves in its
management. Granted that the central committee of the
Reichsbank does represent certain private interests, it is
nevertheless not the final court of judicature, and certainly
not a court of exclusive jurisdiction.
This question of nationalization is therefore merely a
question of capital. Financial considerations would, to
be sure, have to be weighed, but they play in reality but a
small part in the matter. If you compare the sums which
the shareholders of the bank have received on the one
hand and the Government on the other, it will be hard to
deny that the Empire has not fared badly.
What would be the result if we were to nationalize the
bank completely, even with respect to its capital? Under
existing conditions it would cost the Government at least
4 per cent if it were to create its own capital for the bank, as
loans for an equivalent amount would have to be issued.
The bank could not be established on the general credit
of the Government. The dividends of the Reichsbank
have averaged in the last seven years about 7 per cent,
which would mean a gain to the Government of about
3 per cent; that is to say, on 180,000,000 marks the sum
of 5,400,000 marks, or, in round numbers, 5,500,000.
Such an amount, considered relatively to the needs of the
Government or in any similar way, is a mere bagatelle.
This could certainly be no criterion in deciding the question of the nationalization of the bank capital. Natur-
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ally, I prefer to see the Government have the 5,000,000
rather than the shareholders, but the matter is altogether
too unimportant.
Now, if we have to meet the argument that the constitution of the Reichsbank is in every way such as to cause
many banking and commercial interests to be represented
in it, which would cease to be the case if the institution
were to be completely nationalized, we shall find there
is still some other way out of the difficulty. Just at
the present moment this does not especially concern us,
and does not call for more than a word from me. Even in
the case of a national bank, pure and simple, it is easily
possible that the idea would be entertained of creating a
central committee consisting of representatives of economic
interests in general. On the other hand, in the Reichsbank, as we have it at present, a system of the representation of interests could be devised differing from the existing one. I do not consider such a thing impracticable.
It appears to me at all events a less difficult and less momentous matter than a complete nationalization.
Finally, we can not leave out of account certain factors
of an international character which with reason have been
adduced in evidence. There are certain advantages in
this very matter of having the Reichsbank, as far as the
capital is concerned, organized as a private bank. This
was recognized in the case of the Bank of France, in the
years 1870 and 1871, at the time of the war.
In spite of all this I could easily be reconciled to seeing
the Reichsbank converted into a national bank; but, as I
have said, this is a relatively subordinate question, for
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what the institution is capable of doing as a national bank
it is doing now, and therefore all I have to say is that we
had better drop this question.
I have now come to the questions with which we have
actually to deal, and in particular to the question of the
enlargement of the bank capital. You will excuse me if
I am going to treat this question in what may appear to
you a somewhat doctrinaire fashion. I must start out by
asking: What purpose, as a matter of fact, does the
capital of a bank serve? I believe we can say in a general
way that it serves two purposes. Its purpose is first of
all and above all that of a guaranty fund, and in the case
of various kinds of banks, as far as their activities are
concerned, this function is solely, or almost solely, to be
considered. I include herein the small banks of issue,
the ordinary banks of deposit, in so far as this branch of
business is carried on separately by them on the basis of
incurred liabilities. To these I must add mortgage banks
of every kind, whose actual capital, as far as it exists, is in
reality nothing more than a reserve. The course of events
in this country, in England, and elsewhere, bears out this
view in many ways.
On the other hand, there are a number of cases where
we are compelled to admit that the conception of capital,
both from the standpoint of theory and of practice, as
merely a guaranty fund, is inadequate. There are, in
the first place, the stock banks, whose principal aim
must be the utilization of their own capital; and secondly, those large central banks, essentially the banks of
issue, such as they have come to be in the progress of
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European banking. These banks have, of course, important general functions. Their chief task is to regulate the circulation of the currency. In order to do it
they must command sufficient resources of their own.
Such a bank must furthermore, in behalf of its own
security, be in a position to meet greater demands than
a less important bank; it must stand as firm as a rock.
It will thus be evident that the amount of the capital
is not altogether an unimportant factor, and I believe
that the development which the Reichsbank has had
from its inception down to the present time argues that
the question of the augmentation of the capital is at any
rate worth discussing. I have just been making a little
computation, a comparison of the first year of the Reichsbank, 1876, with the past year, 1907. I find that in
the former year, as against a capital of 120,000,000
marks, there was a sum of about 900,000,000 marks
(possibly even more) of cash liabilities in the way of
deposits and bank notes in circulation. The ratio was
therefore about 1 to 7 ^ . At present we have a capital of 180,000,000 marks as against a round sum of
2,000,000,000 marks (even somewhat more) of cash
liabilities represented by bank notes, deposits, and
credits of the Imperial Government, the ratio being
therefore 1 to 11 or 1 1 ^ . It is evident, therefore, that
the capital of the bank, in spite of the increase, has been
materially reduced, relatively speaking, in its capacity
of a reserve.
But it will perhaps be asked whether it is fair to institute a comparison between the capital and the amount
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of b a n k notes, deposits, etc. I n t h e first place, it is
necessary t o deduct from t h e sum of the liabilities t h e
a m o u n t in cash resources. Still it appears t o me t h a t
there ought t o be a certain ratio between t h e capital
and t h e total of all other liabilities such as obtains in
t h e case of mortgage banks between t h e paid-in capital
a n d t h e a m o u n t of t h e debentures, as well as in t h e case of
m a n y central banks of issue. Furthermore, on t h e basis
of another computation, if, after deducting the cash, I
reckon only t h e uncovered b a n k notes, deposits, etc., I
find t h a t t h e actual condition has been growing worse,
and t h a t in an increasing measure. In 1876 ;there was a
paid-in capital of 120,000,000 marks, and t h e uncovered
cash liabilities amounted to about 349,000,000 marks
which was approximately (not precisely) a ratio of 1 t o 3.
In t h e past year, 1907, t h e capital was 180,000,000
marks and t h e uncovered cash liabilities amounted to
1,200,000,000 marks, which is a ratio of 1 to 6 or 7.
(These are merely round numbers, as I have been taking
lump sums.) Thus it appears from this standpoint
also t h a t t h e importance of t h e capital in its capacity
of a reserve fund has relatively diminished. This argues
t h a t we ought at least to consider whether it might not
be advisable t o add to t h e capital in order t o increase
its efficiency as a reserve. Even here, however, I a m
bound t o confess t h a t t h e question does not impress me as
a m a t t e r of great importance, either from t h e standpoint
of theory or of practice.
If, on t h e other hand, we have to consider t h e capital
in its capacity as a fund for doing business—this is indeed
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the essence of capital in so far as it is needed for ordinary
transactions, the sums required for discounts being supplied mainly by the issue of bank notes, but drawn in part
also (as in the case of loans on collateral) from the deposits
and other available funds and to some extent from the
capital itself—we must admit that it is of advantage if the
bank has a larger fund in the way of actual capital available for ordinary business, and this, of course, irrespective
of the effect of the increase upon the rate of discount or
the methods pursued in the business of discounting notes.
In regard to this matter entirely different factors have to
be considered, and here, if I may be permitted to express
my opinion as a mere theorist, I would say that the view
propounded by the president seems to me essentially
sound. But this much I think you will have to admit—
the member from Reutlingen has just expressed himself
again strongly on the subject and we have heard the same
thing repeatedly before—that an improvement in the
position of the bank is pretty sure to result from an
enlargement of its capital.
If we look at the capital merely with reference to bookkeeping, we may regard it as a fictitious item on the side
of liabilities, while notes in circulation and deposits represent actual liabilities; that is to say, sums payable on
demand without notice.
I must admit here also that through a merely moderate
increase in its capital the position of a bank can not, taking
it all in all, be very materially altered. Still some advantage must result from it. In one respect I can not fully
agree with the gentlemen who have been representing the
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practical side, but perhaps I have not fully understood
them. Let us assume that the capital was increased by
50,000,000 to 60,000,000. This would not amount to a
material change in the condition of the Reichsbank, but
nevertheless it would be a perceptible improvement. Let
us suppose that the fresh capital is paid in in gold. Then
for the time being the bank will have increased its supply
of gold, and it will thus be in a position to issue an additional amount of bank notes equal to three times the
amount of the added capital (if it has the equivalent in
bills besides). If, instead, the amount is paid in in bank
notes, then the bank will have fewer notes in circulation
and this item on the side of liabilities will produce a more
favorable showing. Or suppose the amount paid in for
capital is transferred to the bank out of the deposits. In
this case also the bank will have smaller liabilities. This
is an advantage at any rate.
Now, the gentlemen, especially Herr Fischel, if I have
rightly understood him, have been reasoning in such a
way as though in the case in question the sums which have
been made over to the bank through transfers from the
deposits and in other ways were tied up. This is by no
means the case. The sums that are paid in go in part
through the same process as other cash resources. Of
course it is conceivable that there might be temporarily a
slight unfavorable effect upon the money market, but it
would not by any means be a lasting one. The money is
not going to remain inert in the bank. It will either make
it possible to increase the issue of bank notes, or else it will
enable the bank to increase its credits without the neces-
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sity of augmenting* its other liabilities. There is more or
less advantage resulting from this. But, I m u s t reiterate,
it is not sufficiently great t o settle the question before us
in m y mind unreservedly in favor of an enlargement of
the capital.
My view of the m a t t e r is in accord with t h e opinion
expressed by several of the gentlemen here assembled t o
t h e effect t h a t if we are to legislate in this m a t t e r our
enactment should be framed in some such way as t o give
t o t h e Reichsbank, with t h e sanction, of course, of t h e
authority concerned—the Bundesrat—the legal right to
increase its capital whenever its managers, as a result
of experience and after carefully weighing t h e circumstances, shall decide t h a t t h e time is proper and opportune, without providing, therefore, in advance for a
positive increase. W i t h all this, I can n o t regard t h e
question of t h e enlargement of t h e capital as more t h a n
a relatively subordinate one.
I have still to m a k e a brief remark regarding a comparison with t h e great banks of other countries. I t is
a m a t t e r t h a t has been already brought u p in t h e previous
sessions of t h e commission and one about which I h a v e
once spoken myself. Permit me for a m o m e n t t o compare w h a t we have here with t h e banks of t h e countries
t h a t are of most importance t o us—England and France.
I t is correct t o say t h a t in a strict sense t h e freely disposable capital of t h e B a n k of England does n o t exceed
£3,500,000. To this m u s t be added t h e so-called " r e s t , "
amounting to about £3,000,000, or a b o u t 60,000,000
marks. This would together a m o u n t t o a b o u t 130,000,000
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marks, or not much more than one-half of the sum
of our paid-in capital and surplus. But in this connection we must remember that Germany is in a much
more unfavorable position. She is in need in every direction of firmer supports for her credit, and in particular in
what concerns her banks, so that in the case of the Reichsbank an increase in its own resources can not fail to be a
good thing for us. As a matter of fact, we have this
advantage over the Bank of England that we have our
entire capital available for the purposes of business
instead of having a great part of it tied up, as is the case
with that institution.
With respect to France the matter is not very different,
but in France likewise the general situation is more
favorable than in Germany. If we consult the political
horoscope we shall perceive that France has, in the worst
case, her front exposed in only a single direction. How
much more unfavorable is our situation in this respect!
We have, to say the least, two of our fronts exposed;
indeed, possibly three, and perhaps even four. These
are circumstances that have to be taken into account.
Mr. MOMMSEN. France is not so secure as all that, either.
Doctor WAGNER. At present, when the relations with
England are so satisfactory, you can hardly say that. It
is practically on her eastern front alone that France is
exposed, while it is beyond a matter of doubt that we have
to reckon on having certainly two of our fronts exposed,
and perhaps even three or four. In the face of this, I
think we ought to admit that we have got to go our neighbor a few better when it comes to safety precautions.
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All that I have said, then, amounts to this, that the
question is at any rate worth considering. It is not a very
important question, but still we may have to consider the
advisability of an enlargement of the bank capital, in
which case it is my opinion that the best thing to do
would be to let the management itself have a virtually
decisive voice in the matter.
Just one word more about the surplus. In this matter
likewise our practical thinkers can be made to understand
that it is possible in a way to treat of the surplus from a
theoretical standpoint also. In my opinion, we should
recognize three distinct functions as appertaining to it.
In the first place, it serves as a security against actual
losses; secondly, it can be made to serve for equalizing
the dividends, as is the case with other banks and stock
companies; thirdly, it may serve as a fund from which
permanent accessions may be made to the capital.
As far as losses are concerned, that is not an important
factor with the Reichsbank. They are insignificant—no
greater than in the case of the principal banks in other
countries—if anything, smaller. This function of the reserve is consequently unimportant, but the second matter—
the equalization of dividends—that is important. I am
aware that this subject does not exactly fit into the debate
right here, but there can be no harm in discussing it.
Gentlemen, do you consider it desirable that the dividends of the Reichsbank shall go on fluctuating as they
have done in recent years, from 10 or n per cent eight 01
nine years ago down to $% per cent, rising again at the
present moment to nearly 10 per cent? This is the all-
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important point. It is for this reason, by the way, that
in my judgment bank shares are not well adapted to the
needs of private investors belonging to the lower and
middle classes. They can not permanently retain such
stock in their possession. They are either obliged to be
forever buying and selling them, or, in other words, engaging in stock speculation, or else they have got to
submit to changes in their income such as it is not easy
for them to put up with. And the thing is disadvantageous in another way, in that the rate of exchange is
thereby made to fluctuate greatly. Had we not better
make up our minds that it would be a very desirable
thing to apply the surplus in a certain measure, as is
done in the case of other institutions of the same kind,
toward equalizing the annual dividends to some extent,
in order that such fluctuations within the space of a few
years may no longer be possible? This, in my judgment,
is well worth considering.
Let us come, finally, to the third function, the service
to be rendered by the surplus as a means of enlarging the
capital. As far as I am able to see, all that can be said
is that this function is at least something that well merits
discussion on our part. Indeed, all of the members who
have more or less kept aloof from the debate regarding
the enlargement of the capital have been willing to admit
that much. This is partially the case with other banks,
and in the practice of England it has become a regular
principle to start the joint-stock banks and like institutions with a small capital and to increase this capital
gradually by drawing upon the surplus. This is a matter
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that might profitably be discussed with reference to the
Reichsbank.
But it may be argued that in the case of the Reichsbank
the share of the profits accruing to the Government might
thereby eventually be greatly curtailed. It is not necessary, as a matter of fact, to make the amounts very large
that are set aside annually. But it would be well, even
so, to try to avoid entailing any financial loss to the
Government on the one hand, and, on the other, reducing
too greatly the dividends of the shareholders. Suppose we
say that we shall limit the amount that is to go into the
surplus annually to a specific sum, say, two, three, four,
or five millions. This would not involve very much of a
change either in the revenue of the Government or in the
position of the shareholders, and in this way the various
other objections would be overcome that have been advanced by the opponents of an increase in the capital of
the Reichsbank.
I will briefly sum up what I have had to say. The
question of the increase of capital is to me a secondary one.
In so far as valid reasons, such as have been referred to,
can be adduced, an affirmative answer is called for, without, however, too much stress being laid upon the matter.
This being the case, the directors should be accorded a
greater voice in the decision, it being understood, however, that by means of the gradual accessions to the
surplus, which might be used to equalize dividends, the
capital is to be gradually enlarged. It would not be possible to give definite figures at this moment. The surplus
at the present time is about one-third of the amount of the
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capital. Suppose we say, then, that the increase is to be
up # to one-half. This ought certainly not to appear
excessive.
Another point is still to be considered. Objection has
been made to the bank having so much real estate. Of
course it has, and it is bound to have more and more.
Its holdings already amount to 54,000,000 marks, which
is about five-sixths of the surplus; that is how the surplus is invested. All that remains, then, of the surplus
at present, not reckoning the real estate, which is not
convertible into cash, is nine or ten millions.
The question as to whether this sum can gradually be
increased in such a way that an increase in the surplus
shall mean an increase in the capital, appears to me worth
considering, and I would therefore suggest that every
year, regularly, a further addition be made to the surplus
until it is raised to one-half of the amount of the capital.
I am all the more in favor of this limit inasmuch as there
is such a large item, figuring without any writing off in the
column of assets, that represents the value of buildings—
buildings which, to be sure, undoubtedly have a greater
value than is assigned to them in the entries in the books.
I desire in this connection merely to call attention to the
fact that the real estate of the bank, as it is not convertible
at once into ready funds, constitutes a kind of asset that is
not to be taken directly into account. I think I may as
well close my remarks at this point.
Mr. SCHINCKEL. In order that we may not have any
incorrect figures, I shall take the liberty of saying that I
believe Herr Wagner has made an error in his calculations.
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The sum of 180,000,000 marks would not suffice for the
nationalization of the bank, for there would be an additional 32,000,000 marks to which the stockholders are
entitled. A 4 per cent loan, therefore, of 212,000,000
marks would be necessary, and consequently the gain in
the way of interest would not amount to very much.
Doctor WAGNER. That is to say, instead of 5,500,000
marks we should have only 4,000,000 as the additional
profit derived by the Empire from the complete nationalization of the bank.
The CHAIRMAN. Would the members like to take a
recess ?
(Assent.)
Then I will request you to be present promptly at half
past 3, so that we may have a chance of getting through
to-day.
(Recess.)
Doctor HEIUGENSTADT (proceeding to the order of the
day). I should like to suggest that the members who
desire be permitted to express their opinion immediately
with regard to the second question. I believe we shall in
this way get along much faster.
The CHAIRMAN. I have nothing to say against this,
especially as I think there will be more or less unanimity
with regard to this second question, one that will have to
be discussed essentially from a practical standpoint. I
will request the members, however, to express themselves
as briefly as possible, so that we may have a chance of
getting through to-day.
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Mr. MOMMSKN. As regards the first question, I am glad
to perceive from the exposition made by Geheimrat
Wagner that in many respects his position is, after all,
identical with that which we practical bankers have at
all times assumed, to the effect that the nationalization of
the Reichsbank is not practicable. However, this is not a
subject for discussion to-day.
With respect to the capital, Herr Wagner says: " In the
case of the ordinary banks of issue the question of capital
is in itself immaterial. It is very different, however, in the
case of the central banks of issue. We have put these
in the same category with the big stock banks; that is
to say, in the great bulk of their transactions they have
to rely upon their own resources—their capital and surplus." I must confess that I absolutely fail to see why
a central bank of issue has to be placed on a level
with the large stock banks, and Geheimrat Wagner himself has given no reason for it. It is true, however, that
in a bank of issue the liabilities and assets do not figure
at all in the same way as in a stock bank, and when we
examine the respective items the capital of the bank of
issue appears simply as a reserve.
Now it is my opinion—and the same view has been
expressed by the gentlemen who have been addressing
you, whether they be advocates or opponents of the
enlargement of the bank capital—that no really decisive
reason for our proceeding at once to increase the capital
has been advanced thus far, and in fact none is furnished by the last annual statement of the Reichsbank.
As for myself, I must likewise confess that the matter
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does not appear to me to be of much consequence. If it
be deemed desirable to draw upon the money market in
order to provide a fresh increase in the capital of the Reichsbank, well and good. Let us not suppose, however, that
the constitution or status of the bank will thereby be in
any way affected. The members, furthermore, are all
agreed that no effect will be produced with regard to the
rate of discount.
Nevertheless, I do not believe that the increase is
absolutely a matter of no consequence in its effect upon
the money market. Such a proposition as that put forward by Herr von Wangenheim, who would double the
capital and raise the money by means of small shares
of 200 marks with such a system of distribution that only
the middle classes and not the banks could subscribe,
can not be deemed practicable. I can not see how
Freiherr von Wangenheim is going to succeed in raising
180,000,000 marks in this way without disturbing the
money market.
But even if we were to take a smaller sum, as my
worthy colleague, Herr Kaempf, has proposed, say of
60,000,000 marks, we ought, in the existing situation, to
think twice over the question whether we are willing to
draw upon the money market unnecessarily for such a
sum when, as a matter of fact, no practical result can
be anticipated.
In regard to the question of the surplus, I have no
objection to its being increased. If we examine the
figures, we shall find that the real estate of the Reichsbank is bulking larger and larger. As far as I can make
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out, this is partly the result of the circumstance that the
bank, unlike other institutions, is not in the habit of
doing any writing off in the matter of its real estate, and
particularly of the buildings. In this way every rise in
the value of the real estate is shown in the balance sheet,
and thus the figures pile up. It might perhaps be feasible
to introduce such deductions in the future. But at all
events it would be found necessary by reason of the everincreasing figures of the item in question to enlarge the
capital of the bank correspondingly in order to avoid
leaning more and more upon real estate, and the practical
and proper way is simply to revert to the scheme of a
surplus to which additions are made at intervals—in
what particular way it is not necessary for us to strain
our wits to decide at this very moment.
One of the experts has suggested the establishment of
a sort of current-account surplus. This would, perhaps,
be not altogether impracticable. Considering, however,
the large sum with which we have to deal, it could hardly
be of great advantage, and it would be much simpler to
increase the surplus, and thereby give the working capital
of the bank a chance to grow by successive steps.
Geheimrat Wagner has suggested that the surplus might
be utilized for conversion into actual capital—that is
to say, bank shares might be created out of the surplus,
to be assigned gratis to the stockholders. I should not
be in favor of introducing in the case of the Reichsbank
a procedure of this description; something which is in
reality unknown to our German law, or at any rate has
hardly been practiced; something for which we should
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have to provide by special legislation, and, indeed, if we
get to the bottom of the matter, it is quite indifferent
whether the capital is 180,000,000 marks and the surplus
60,000,000 marks, or whether we raise the capital to
210,000,000 marks and make the surplus 30,000,000
marks. Looking at it practically, this whole matter is
immaterial, and it is a great mistake, in my opinion, to
allow ourselves to drift into such subtleties.
To express myself briefly with regard to the second
question, I wish to say that I have no objection to the
raising of the limit of untaxed bank-note circulation. It
is a purely technical question whether it is desirable to
curtail somewhat the amount paid into the Imperial
Treasury through the 5 per cent tax on excess circulation.
I am decidedly opposed, however, to the complete removal
of the limitation of the untaxed issue of bank notes. In
the expert opinion submitted to us it was proposed to
allow an untaxed issue up to an additional 200,000,000
marks. I should consider that rather high. I think
that for the time being we can put up with a considerably smaller amount, drawing the line, let us say, at
500,000,000 marks
The CHAIRMAN. We have now 473,000,000 marks.
Mr. MOMMSEN. Or 550,000,000 marks. Just at the
moment when we are enacting the supplementary bank
law it looks rather hazardous on the face of it to place
the limit of untaxed circulation too high.
Doctor HEIUGENSTADT. YOU will not be surprised to
learn, gentlemen, that I am in favor of the enlargement
of the capital of the Reichsbank, and it will certainly not
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surprise those who have heard me express my views in public on various occasions. I can further point to the fact
that I, as a representative in the Reichstag, was a member
of the bank commission at the time of the latest renewal
of the charter, as well as of the subcommittee created on
that occasion, and that I was energetic in advocating the
latest increase in the capital of the Bank. I may say,
indeed, that I had more to do than almost anyone with
the establishment of the present higher capitalization.
As I was a member of the Reichstag and had a close
knowledge of persons and conditions, I should just like
to make it emphatically clear in a few words, in rebuttal
of what Director Stroll has stated—my worthy colleagues
Miiller (from Fulda) and Raab.sat with me in the committee, the former also in the subcommittee—that we
were on that occasion in no way influenced by parliamentary considerations in advocating an increase of capital.
Mr. RAAB. Quite correct.
Doctor HEIUGENSTADT. That is what Director Stroll
asserted this morning. I assure you there is nothing in it.
I have since expressed myself in regard to the questions
now before us in an address before the Landesokonomiscollegium, and finally in a publication which has been
rather severely criticised by the press. Neither the journalistic attacks, however, nor the occurrences that followed have convinced me of the incorrectness of my views.
I am in favor of an enlargement of the capital, and that
up to at least 200,000,000 marks; a little more would
perhaps be preferable. I am also of opinion that the surplus should once more be open for a further increase and
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that it should never again be automatically shut down,
but that, on the contrary, a special enactment should be
requisite for the closing of the surplus. At all events the
shutting down of the surplus ought not to be an automatic operation.
You have heard it stated here this morning—and the
same thing recurs frequently in the expert opinion that
has been prepared for your benefit—that the increased
capitalization does not in reality mean an actual accession
of fresh capital to the Reichsbank. Herr Fischel has
expressed a similar view. I am of an entirely different
opinion. The prime question is not how greatly or how
little the bank may be temporarily affected by the increase
in its capital. The main thing is what will be the result in
the long run. In my paper I contend that the addition
to the capital of the Reichsbank ought to come out of the
freshly created capital, this new capital being gradually
laid aside and held in reserve. This is the all-important
point with me. I do not mean to restrict the present
capital market, but I propose that part of the new capital
created by our national industries shall be set aside so as to
constitute a mobile fund.
The notion that there would be permanently an increased
stock of commercial paper in the hands of the bank as the
result of an increase in its capital, I regard as altogether
baseless. The permanent increase in the amount of paper
is not to be counted on for this reason alone, that the bank
is not in the habit of extending its credit limit to its customers merely because they are subscribers to its stock.
The individual customers will simply be allowed their
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former credit. Gradually the extraordinary credits will
have to be covered, and this will have to be evinced either
in the return of the bank notes in circulation or in an
increase of the cash on hand. In the way of a supplement
to the remarkably convincing exposition made by Doctor
Arnold in the Bankarchiv I have myself dealt with this
question again in my paper, and I am rather surprised to
encounter the same old prejudices in this assembly.
As far as I can recollect not a single one of the gentlemen
has declared himself to-day opposed, as a matter of principle, to the enlargement of the capital of the Reichsbank.
Some have said that they regard it as a thing having no
bearing upon the situation or too little to recommend it on
the score of utility, but no one has declared himself squarely
against it. On the contrary, Director Stroll and Herr
Kaempf have admitted that an enlargement of the capital
might have the effect of augmenting to some extent the
volume of business; that it would not be altogether unimportant with respect to the business done by the Bank in
the way of loans on collateral; and that it would be specifically warranted with respect to the real-estate investments
of the Bank. Herr Mommsen has expressed himself in
similar terms regarding this matter.
For my part, I should like to point out the groundlessness of the intimation made by Herr Fischel that in advocating an increase in the capital of the Bank I may possibly have been influenced by the idea that a more ready
granting of credit might thereby be secured. This is not
the case. My main reasons for an enlargement of the
Bank's capital are based upon altogether different consid-
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erations, considerations issuing from the realm of political
economy. Even the possible increase in the amount of
gold held by the bank as a result of increased capitalization
I regard as a secondary matter. I am aware, to be sure,
that an increased capitalization can not fail to have its
effect upon the quantity of gold in the hands of the Bank—
of course, relatively speaking—and that in the sense in
which I take it, it is bound to have more or less effect,
according to the circumstances, upon the rate of interest
in the country.
To me it seems preposterous, in the discussion of
this question, to be constantly making comparisons
with foreign countries. They have been a peculiar
feature of the testimony of the experts, and in our discussion to-day such comparisons have likewise been
made by a number of the members. Of course, it is
our business to make a careful study of the conditions
abroad if we desire to make the necessary deductions
therefrom, but there is no use in attempting to make
close comparisons between the conditions here and there.
We can not institute a comparison between the Bank of
France or the Bank of England and the Reichsbank.
The status of the bank, its whole organization, is altogether different. Besides, the central bank of issue
constitutes nothing more than the apex of the credit
system of a country, and we are aware how vast is the
difference between the credit systems even in the case
of England and Germany, or, say, France and Germany.
It is only from the conditions prevailing in our own
country that we can draw the needed inferences.
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As far as I can make out, no one, none of the experts
at least, has really got down to the kernel of the matter
under discussion, and even the gentlemen who have
spoken to-day have not, I am convinced, touched upon
the essential facts underlying the conditions with which
we have to deal. The only one of the experts who, as
far as I can see, has dealt with the economic aspect of
the situation—and he has not gone below the surface—
is Professor Pohle. I was not present at the session,
but I have gathered from the stenographic report that
Professor Pohle has at least touched upon this general
problem.
All these questions, gentlemen, which have engaged
our attention have so strongly taken hold of the mind
of the public only by reason of the melancholy showing
which credit conditions and the financial situation have
made in our country. I am certainly not one of those
who believe that economic crises can be rendered altogether impossible. It does seem to be practicable,
however, to reach the point at which, through proper
regulation of credit conditions and the like, we may
succeed in materially reducing the shocks produced by
the heavings of the economic disturbance.
I must add that I am naturally not of the opinion
that it is practicable to do away entirely with these
undulatory movements, in as much as this can be effected
in no other way than through the transition to an entirely
different system of production. So long as production is carried on by private capital we shall have to
reckon with periodical fluctuations, high tides of busi-
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ness followed by subsidence of the tide. It makes a
great difference, however, whether the tide carries us up
to a boiling point, to be followed by widespread collapse,
or whether the fluctuations run their course within
comparatively narrow bounds.
The whole question before us—and this is an argument in favor of an enlargement of the capital of the
Reichsbank—is not a gold question, as indeed it is not a
money question (as Herr Fischel has rightly stated
this morning); it is a question of capital.
It is my conviction that in this matter of the monetary
system and of credit, whether viewed from a practical or
a theoretical standpoint, we are passing through a transition period. The thing is perhaps somewhat irrelevant,
but I should like to point to the fact that our theories too
are shaping themselves in accordance with new notions
and ideas, as is evinced by Knapp's book on a new theory
of money, which I am sure is going to be a landmark in
theoretical knowledge. Within the past twenty or thirty
years a system of manufacturing industry has been
developed in this country, which, with respect to the scale
of production, has attained much greater proportions
than is the case, for example, in England. In England
there is a much larger number of minor concerns, but we
do not find in all the various branches of industry such
giant concerns as exist in Germany and the United States.
Now, if we ask ourselves what the state of the money
and capital markets is in reality, it becomes absolutely
necessary in the first place to get a clear conception in our
minds of the manner in which production is carried on
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under existing conditions and then to try to ascertain the
relation which our productive industry bears to the money
market.
I shall have to ask for your indulgence if I take the
liberty at this point of engaging in a little theoretical
exposition, but it is precisely these theoretical considerations which I am going to urge that are behind my own
views respecting the necessity of a larger capitalization.
This applies also to many other reforms that I consider
essential under existing conditions, such as they have
developed under the stress of the modern scale of
industrial and financial enterprises, if we desire our
national industries to go on expanding and attaining the
higher levels in a peaceful and orderly way.
Our productive mechanism, as some one has happily
expressed it, moves along in the manner of an army on the
march, in successive stages from halting place to halting
place. That is to say, not every producer produces an
article ready for use. Before it is ready for use an article
has to pass through a number of hands, each worker
proceeding with the manufacture from the stage at which
his predecessor left off. To the extent that capital
represented by such more or less finished articles enters
into production, it is part of the working capital of our
industry. You may find fault with my way of expressing
it, but the precise terminology is immaterial. The only
question is whether I make my meaning clear.
The aim of productive industry is either the production
of objects of consumption or the creation of fresh capital
to be used for further production. What concerns the
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problem before us most vitally is the relation existing
between productive industry and the money market. It
is evident that to all industrial operations in which capital
passes from hand to hand instruments of exchange and
financial transactions are necessary. Even in cases where
credit is not called for, industry makes inroads into the
money market through its demands for instruments of
exchange. At the present time, indeed, and especially in
Germany, production is largely based upon credit. Manufacturing industries are to a very great extent carried on
by means of credit, and it is only this morning that Herr
von Wangenheim declared—and Herr Schinckel seconded
him—that production has been carried on altogether on
too large a scale through the instrumentality of credit.
In so far as credit enters into production, the process
that takes place is as follows: In the commercial market
goods pass from hand to hand, and alongside of this process of exchange in the commercial market there is going
on in the money market an exchange of credit instruments
based upon these very products of industry which are in
circulation. This reciprocal action of the commercial
market and the money market is a continuous one.
Now, so long as capital circulates in the industrial field
in the form of working capital, what takes place is, that in
the demand for credit, for every exchange of wares, there
will be a corresponding transaction in the money market.
This is shown in actual business by the fact that the goods
are sold against the acceptance of a draft, which draft
is met when the goods are resold against another acceptance. In place of the old draft there is (at least there
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ought to be) always a new one. And therefore, in the
money market, parallel with the movement in the merchandise market, an exchange of credit instruments is
incessantly going on. This process of exchange continues until the property has reached its destination in
its capacity of working capital, or, in other words, until it
has lost its quality of working capital, and is either consumed or devoted to the purposes of fixed capital. In
case of consumption, the property has to be paid for out
of wages, out of hire for services of every kind; that is to
say, the respective bills are, and can be, redeemed from
this source.
But when the industrial product is transformed into
fixed capital, then the economic process in the money
market is a very different one. The essence of fixed capital—and it is in this that it is distinguished from working
capital—is, among other things, that in its utilization in
production it enters into a business transaction not with
its full value but only in larger or smaller shares. Fixed
capital in industrial operations is capable only of yielding
what is called revenue or interest.
But at the moment that the working capital is being
converted into fixed capital there are circulating in the
money markets demands in the way of bills covering
the entire value of the property, and these demands have
got to be met. As the fixed capital yields nothing but
interest, it is imperative to resort to other sources to cover
the bills as they fall due, and so the necessary capital has
to be raised through savings from previous earnings or
the accumulated profits in the shape of interest on fixed
84713—10
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capital; that is to say, the amount required in the way of
capital must already, in the form of savings, be in existence
in the money market.
Now, if you weigh all this carefully and apply these
theoretical deductions to the actual conditions in Germany, it will become evident that in recent years we have
made very large investments of capital, the equivalent for
which had not been supplied in the form of savings. Our
fixed capital, as Herr Fischel has pointed out, has in a very
great measure been created through the agency of borrowed money.
There is still another phase of the matter. In substantiation of my views on the subject I would refer you to the
discussions that took place at the time of the debate
regarding Questions II and III, when the experts Herr
Leiffmann and Herr Fischel confirmed the opinion expressed
by me to the effect that there are, as a matter of fact,
frequent so-called "financial disturbances" taking place
in the train of regular and legitimate commercial transactions.
The greater the general upward tendency, the more each
producer strives to increase the rate of production. A
producer, for example, who usually takes three months to
make an article pass through one stage in its manufacture
will do his best to reduce the time by means of overlapping
and every possible expedient. But still, as before, owing
to the rigidity of mercantile custom and the usages of
deferred payments, a bill at three months' sight is issued
on account of the goods in question. As a result of this,
where under normal conditions a single bill would be
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circulating in the money market on account of some particular article, there will now be two or three bills in
circulation. All of these bills find their way to the
banks, are discounted, and then figure for a time in the
balances of the banks' customers. The banks are obliged
to put out at interest the amounts thus credited to their
customers. I do not mean to blame the banks for making
these investments. I have no ill feeling toward the banks,
just the reverse. The banks are compelled to do it
because they are obliged to render these large apparent
credits productive by making them yield interest—credits
which in reality have no actual foundation, not being
based on anything. The way these credits are made productive by the banks in the existing organization of
industry in Germany (where we produce altogether too
little capital relatively to our spirit of enterprise) is in
great measure through investment in the way of fixed
capital.
I must conclude from all this that we Germans have
been in the habit of setting up as capital that which in its
nature is not adapted to the purpose, which ought not to
be capital at all; and that we are trying to get along with
altogether too little working capital. From top to bottom, from the great banks down to the smallest ones, it
ought to be the business of these institutions to try to
make a change in all this, to see to it that a proper relation
is established, that we may be in a position to work with a
considerably larger working capital.
It is, of course, difficult for an individual institution to
do much in the way of hastening a change, and the representatives of the banks have repeatedly insisted that they
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were under the stress of competition. I realize this, and
if I were at the head of a big bank I should allow myself
to be guided entirely by the interests of my bank and
those of my shareholders—in plain words, by business
considerations. This is—I am willing to proclaim it publicly—the duty of the business man. But the moment
we place ourselves on the broad standpoint of political
economy, from which it is our purpose to view the problem before us, then I am convinced that this is not a
matter in which the will of the individual should be
allowed to have its way, but that, on the contrary, it is
incumbent upon us to devise some system, possibly
through legislative means, that will have the effect, without injuring the banks, of increasing our working capital
and of enabling us to retain in that form a considerable
portion of our newly created capital.
You see, gentlemen, that in the existing organization of
business in this country only such capital as finds its way
into the Reichsbank is disposed of in a way to give us no
real concern. Such capital alone is preserved under all
circumstances in the form of working capital. Considering the importance of the subject, it seems to me imperative for us to try every means to secure for our industry
a greater share of capital in the form of working capital,
and for this reason I regard a material increase in the
working capital of the Reichsbank as absolutely indispensable.
I realize, indeed, that the enlargement of the capital of
the Reichsbank is merely a minor means, one expedient
among many others that in the existing organization of
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our monetary and credit system it is necessary for us to
adopt in order that we may enter into the proper path and
continue in it. I believe that we should have recourse to
various other expedients that might be found effectual by
the side of an addition to the bank's capital, but it is not
our purpose to discuss these matters to-day.
To sum up briefly, then, I am persuaded that the
enlargement of the capital, with respect to which the attitude of most of the speakers who have preceded me is one
of indifference, is desirable and that the increase should
be a substantial one, and furthermore I am of opinion
that additions should be made from time to time to the
surplus.
As to the other question, that of raising the limit of untaxed bank-note circulation, I personally lay no stress
upon it, as I believe that the matter of this higher limit,
whether it be instituted or not, will in reality never become
one of practical importance, provided that we take measures to establish a just proportion between fixed capital
and working capital. It may eventually become a practical question if our industry should increase very materially, which all of us, of course, would like to see. It
would then be advantageous, in order to enable us to tide
over certain times of unusual strain, such as recur at the
end of the year and in the month of October, to raise the
limit of untaxed circulation. But I believe that when we
have provided for the proper organization of capital with
respect to industry and the credit system the question of
fixing a limit will settle itself.
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Doctor LEXIS. Gentlemen, I shall also express myself
briefly, and, first of all, I shall take the liberty of making
a few remarks with reference to what has been said by
President Heiligenstadt. I am likewise decidedly of
opinion that the working capital of our industrial concerns in Germany is really too small; that it would be
much better to do business more with our own money
and less on credit. This applies, of course, especially to
those concerns which turn out manufactured products,
as well as to stock banks. In the case of a bank of issue,
on the other hand, this requirement appears to me to be
least essential, even if it is not altogether inapplicable. In
this matter it would be well, in my opinion, to consider what
takes place abroad. We see plainly that in England and
France the large central banks exist and that they operate
admirably without having in reality any actual working
capital of their own. Their working capital may indeed be
designated as a minus quantity. The Bank of France, for
example, has a nominal capital of 182,500,000, but it has
290,000,000 tied up in fixed rentes or in the permanent
advance of 100,000,000 to the State. The working capital
remaining to the bank is therefore a minus quantity. The
same is the case with the Bank of England. Here, too,
we find a negative working capital. It is not merely the
old debt of £11,000,000 that is tied up, but likewise the
whole amount that is required in addition in order to cover
the note circulation in the issue department, an amount
equal to £7,500,000, inasmuch as the consols that are
deposited there can not be withdrawn, and consequently
are not at the disposition of the banking department. We
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have therefore £18,500,000—that is to say, a sum reaching
to the permissible limit of uncovered bank-note circulation,
as against a capital of £14,500,000, exclusive of the socalled "rest," which embraces some £3,000,000 in the
way of a surplus, or, in all, £17,500,000 of capital and
surplus, while the amount of the fixed capital, partly in
the shape of irredeemable obligations and partly of
unnegotiable consols, is £18,500,000.
In these two countries, then, we have an illustration of
how banks perform their operations with those resources
only which they secure through the issue of bank notes,
and, in the case of England especially, through the acceptance of deposits. We have not got so far in Germany, and
this is assuredly not a matter of regret. Our Reichsbank
has actually no part of its entire capital tied up. It is
all in an available form, and if the bank temporarily invests considerable sums in national obligations, these do
not by any means represent unnegotiable funds, as they
are capable of being disposed of at any moment. The
only portion that is tied up is that which is represented by
real estate. This amounts to 54,000,000 marks. There
remains, therefore, a surplus of 10,000,000 marks, which
can be added to the capital of 180,000,000.
The position of the Reichsbank is therefore essentially
a different one, and if this institution can not, as a simple
matter, be compared either with the English bank or the
French, this difference is not a matter to be considered
here. The Reichsbank is in a much more favorable situation as far as the availability of its capital is concerned—
that is to say, as far as the extent to which its operating
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resources are drawn from its own capital, and consequently
I hardly think there is any necessity of increasing the
capital of the bank.
Neither do I think that this would in any way bring
about an increase in its stock of gold, nor do I believe that
the rate of discount would thereby be affected. I concur,
therefore, with the majority of the members who have
spoken and who have declared themselves to be rather
indifferent in regard to the whole question.
There is one point, however, that I should like to bring
forward in support of an enlargement of the capital,
namely, that the nationalization of the bank will thereby
be made a more difficult matter. It will certainly be less
easy later on to pay back the amount of the capital if it
has been increased by 60,000,000 marks, especially if it is
really proposed to carry out the scheme suggested in various
quarters of admitting as shareholders investors of small
means, with shares not exceeding 200 marks. The Government would hesitate, in the event of the nationalization of the Reichsbank, to force these small investors to
sell out at 118 when they had paid 130 and upward for
their shares. The nationalization, therefore, is rendered
more difficult by an increase in the capital, and this, in
my eyes, is decidedly an advantage. On the whole, however, I must admit that I am rather indifferent in regard
to the matter.
I should furthermore like to express my approval of the
proposition put forward by several of the members that
it be left to the discretion of the managers to decide whether
the time has come when it would be expedient, for what-
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soever reason, to increase the capital. It would be practicable to insert a provision in the bank law allowing
them during the next term of their charter (which I
think should be renewed for at least fifteen years) free
play in this respect, or, better still, empowering the
Bundesrat to authorize at any future time, on the strength
of the experience of the bank, an addition of a particular
amount to the capital stock.
In regard to the surplus, I am also of opinion that it
would be expedient to reopen the fund and to add to it
every year a moderate sum (the amount to be fixed
later), which is to serve mainly for the purpose of
offsetting the constantly increasing investment of the
bank's capital in real estate. New bank buildings are
constantly being erected, each one finer than the last,
which we are certainly glad to see, and the expense is
constantly increasing. I should therefore recommend
that steps be taken to offset this investment of capital
by a corresponding increase in the surplus.
With respect to the second question, I am in favor of
fixing a limit to the untaxed circulation of bank notes.
I regard this as a very practical expedient for keeping
speculation within bounds. I personally should consider a moderate raising of the limit as quite harmless—
I would draw the line at 550,000,000 marks—the advantage to be gained being that the number of times
that the limit is transcended in the course of a year
will not be altogether excessive. In the past year the
number was 25. By raising the limit up to 550,000,000
marks the number will be reduced, at any rate, by 10
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or 12. In this sense, therefore, I should consider the
raising of the limit expedient.
Count KANITZ. AS we are not going to discuss the
question of the nationalization of the Reichsbank, I
wish to say that I am in favor of a moderate increase in
the capital. All the arguments that speak for it have
been so fully set forth to-day by the various speakers
that I may as well refrain from giving the reasons for
my opinion. It would be mere repetition. But after
such an authority on banking as Herr Kaempf has likewise expressed himself in favor of an enlargement of the
capital, I think we may as well practically dismiss our
misgivings in regard to this matter.
I have been particularly interested in the exposition
made by President Heiligenstadt. His arguments, however, seemed to me so novel in many respects that I can
not possibly undertake to enter closely into them to-day,
and I shall reserve to myself the privilege of discussing
them when the stenographic report is submitted to us.
I agree with Herr Mommsen and several of the speakers
that the enlargement of the bank's capital is not going to
bring about a healthier monetary situation. The means
that we are applying is at best a slender one, and this in
my opinion is also true of the raising of the limit of the
untaxed circulation of the Reichsbank. In this matter,
too, I can go no further than to say that I concur in the
view which President Heiligenstadt has expressed, to the
effect that he does not expect any actual relief to result
from such a raising of the limit of untaxed bank-note
circulation.
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I shall confine myself to this expression of my views,
which I think will suffice for the present, as I expect to
have an opportunity when the Reichstag takes up these
questions to state my position more definitely. I declare
myself, therefore, in favor of an increase in the capital. I
do not believe in the efficacy of the raising of the limit of
untaxed note circulation.
Mr. RAAB. I am likewise in favor of an enlargement of
the capital of the Reichsbank. I also do not regard such
a proceeding as something of world-wide importance, but
it is my opinion that we owe it to the reputation of the
Reichsbank to find means of preventing its being far
behind other great banks with respect to its capital.
Even outside of this consideration, however, which will
naturally appeal to our patriotic spirit, I believe that
some economic advantages would accrue from an increase
in the bank's capital. In the first place, the bank, through
an increase in its capital, will certainly be able to exert
greater influence upon the credit market. This concession
should be made, in my opinion, particularly in the face of
happenings—I have in mind private discounting—which
in certain cases have had the direct effect of crippling the
discount operations of the bank.
I believe, too, that a larger capital will mean a better
condition with respect to the increased business of the
bank as well as the running expenses, its real estate, and
its readiness to meet its current obligations. It appears
to me possible furthermore—although I do not believe that
an increase in the capital will result in an increase in the
stock of gold—that, through the receipt of large sums in
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the way of foreign bills of exchange at specific times, the
drain upon the gold supply to meet the demand from
abroad might at least for a time be checked, so that the
raising of the rate of discount could be averted or postponed. I am in favor of raising the amount of the capital
to 240,000,000 or 250,000,000 marks, which would mean
an increase of 60,000,000 or 70,000,000 marks.
Whether this increase is to take place at a certain time,
or, as in the case of the last increase, be made in installments, is to be left to the discretion of the bank itself.
In regard to the distribution, I am in favor of issuing the
additional stock in denominations of 1,000 marks. The
proposition to issue the shares in small denominations of
200 marks does not appeal to me, inasmuch as the future
of the Reichsbank is still an uncertain one. I can hardly
imagine that the bank charter will ever be renewed for a
term exceeding ten years. There is after all a possibility—
the fact that there is a ban upon the discussion of the subject does not alter the matter—that the Reichsbank will
be nationalized.
I am also in favor of reopening and strengthening the
surplus, and likewise of keeping it open, as has been
proposed by president Heiligenstadt, and furthermore
of making its closing conditional upon a special enactment. My attitude in this is prompted by the same considerations as in the case of the enlargement of the capital.
The surplus, just like the regular capital, offers an increased security in regard to the cash liabilities and a more
effectual counterpoise to the investment (which will probably go on steadily increasing) of the funds of the bank
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in real estate. I believe also that it would be a good thing
to create a special reserve against possible losses.
Whether the scheme suggested by Geheimrat Wagner
of making the surplus serve the purpose of equalizing dividends can be carried out, and in what way, I should not
venture to say. I can say, however, that the idea appeals
to me, especially as I should personally be glad to see the
shares of the bank passing into the possession of the middle
classes, whom I should naturally not like to see exposed to
great fluctuations in the market value of their investments.
I think that it would be practicable to raise the surplus
gradually to the level of half the amount of the capital,
and that this would be a welcome consummation. At the
same time I believe that we ought carefully to consider
the suggestion made in the course of this discussion by
one of the experts to the effect that the increase in the
capital of the Reichsbank should not be allowed to act to
the prejudice of the share of the Government, but that the
additional amount should be drawn mainly, if not entirely,
from sums that would otherwise go to the stockholders in
the shape of dividends. I consider it very desirable that
our national revenue in this quarter be placed on a more
substantial and favorable footing, and I see no reason—
I expect the next few years to make a fine showing—why
we should go on forever dealing out such big dividends to
the stockholders as they have again been receiving this
past year. The interests of the Government are certainly
deserving of some consideration in this matter.
I am also of opinion that there is not much to be
gained by raising the limit of untaxed circulation. In my
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view of the matter, however, I do not agree with that
expressed in this assembly by one of the specialists, with
whom I am otherwise generally in accord. Doctor Arendt
has advocated the removal of the tax limit and the abolishment of the tax on bank-note circulation altogether.
I hold the view, repeatedly expressed in this body to-day,
that in this obligation to pay a tax we have a useful danger
signal. If we can, by means of a moderately high limit of
untaxed circulation, prevent the too frequent recurrence
of a disturbance such as manifests itself each time the
circulation limit is passed, that will certainly be an advantage. But I do not believe in doing away altogether with
the warning which the passing of the circulation limit
gives to those who are in quest of credit.
Another suggestion that has been made, and that by a
specialist, is that the foreign gold bills be reckoned in the
cash reserve. In my opinion this is impracticable and
altogether wrong.
Another question worth considering is that of a progressive tax on bank-note circulation—the suggestion has
been made and may perhaps come up for discussion later
on—a tax adjusted to the extent to which the circulation
limit is exceeded. In the case of an inconsiderable excess
the imposition of a slight tax would perhaps suffice, but
the tax should be made to operate progressively in such
a way as to render a great excess of circulation beyond
the regulation limit practically impossible. If we are to
institute a progressive tax of this kind, it will have to be
graduated so as to reach the point where it becomes prohibitory, in order to prevent us from landing we know not
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where. But if such a progressive tax is to become a subject of discussion, we shall have to consider whether we
can keep clear of causing a shrinkage in the imperial
revenue derived from the tax on bank notes. Admitting
that it was only an accidental circumstance that the
amount realized reached such extraordinary proportions
last year, I should not like to see such revenue, even if it
is not to keep flowing in as plentifully as in the past
twelvemonth, shut off from us just at the time when we
have to be scurrying about for money in every nook and
corner.
What I am in favor of, then, is the following: An enlargement of the bank's capital to 240,000,000 or 250,000,000
marks; a gradual enlargement of the surplus to one-half
of the amount of the capital; the keeping open of the
surplus; and a moderate raising of the limit of untaxed circulation, say up to the level of about 550,000,000 marks.
This, it seems to me, would pretty much represent the
views prevailing in those circles in whose behalf I believe
I may in a certain measure be allowed to speak.
Freiherr VON CETTO-REICHERTSHAUSEN. When I was
invited to come here, gentlemen, I took the invitation to
mean not that I should come into your midst as an expert,
but that I was invited to come as a representative of the
agricultural interests, whose main function would be to
set forth the attitude of the agricultural community with
respect to the recent industrial depression and the means
that have been proposed to remedy the situation, and it
is from this standpoint that I have sought to deal with the
questions before us.
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In the course of the hearing of the experts the assertion
was made by Geheimrat Mueller that the enlargement of
the capital of the Reichsbank will make it possible to give
more extended credit to the agricultural class. The
assertion was also repeatedly heard in this assembly in
the course of the morning that in the extension of credit
agriculture will have a share in the benefit in so far as it is
not placed on a lower level than other pursuits. Now I
should like to call your attention to the circumstance that
agriculture is by no means directly interested to the same
extent in the credit that is to be afforded by the Reichsbank as manufactures and trade. It could not, indeed,
for a very plain reason, be otherwise, for, on the one hand, as
I readily perceive—and my conviction is based on personal
observation—credit granted on the security of personal
property does not by any means play the same role in
agriculture as credit based upon immovable property, and,
on the other hand, in the case of agriculture credit based
on personal property is in great part, and in fact in the
main, provided for by the organs of mutual assistance
which agriculture has instituted, such as the agricultural
societies, whose activity has been centered in the so-called
Preussenkasse, as well as in the establishment of loan
associations—in short, provided for in such a way that the
increased difficulty of obtaining credit from the Reichsbank, the enhanced rate of discount, affects agricultural
interests rather indirectlv than directly.
Starting out from these premises I can only repeat that
agriculture is but indirectly interested in the matter that
is at present engaging our attention. Having said this,
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however, I am glad to be able first of all to repel t h e
individual attacks, if I may use the expression, t h a t have
been leveled over and over again against the agriculturists.
W e have been charged with being unfriendly to the bank,
with looking upon it as an institution which has been
created to afford as much credit as possible, b u t which
grants too little credit to agriculturists. Herr Helferich
even imputes to the agrarians the design of laying violent
hands on the Reichsbank in the way of nationalizing it.
My esteemed friend Freiherr von Wangenheim has just
touched upon this subject to-day, and if he has been disregarding the order of the day it will not be out of order t o
rebut his assertions.
I must first of all confess t h a t I can not in this m a t t e r
entirely concur in the views of Herr von Wangenheim,
however closely I may be in accord with him in general.
I ask myself, and I have repeatedly asked myself, what
actual advantage would result from the nationalization
of the Reichsbank, and this very day it has been asserted
here with perfect justice t h a t the whole administration
of the bank bears largely a national character. The b a n k
is managed b y state officials, it is, so to say, under national
supervision, and it would be no mistake to say t h a t if t h e
bank were to be nationalized right now the management
could not and would not appear different or officiate differently from w h a t it does to-day.
(Exclamations of " Quite right!")
B u t now, gentlemen, I have t o ask: W h a t can be the
real advantage t h a t would result from t h e nationalization
of the Reichsbank ? I can think of two arguments in favor
84713—10
9
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of it. The first would be that we might thereby augment
the revenues of the Empire; that is to say, that the entire
profit of the bank, which now goes to the stockholders,
would in future go to the Empire. My opinion is that we
are dealing here, and shall always deal, with so small a
sum in proportion to the imperial budget that it is well to
consider seriously whether an institution so prominent in
the domain of banking as the Reichsbank shall be nationalized and an experiment be made which, as has already
been affirmed to-day, can by no means be regarded as
devoid of danger. I need only point to the contingency
of war or the lessons taught by other countries and their
great banking institutions which have by no means been
nationalized, but for good reasons have been left to private
agencies.
It might be argued further that the Reichsbank as a
state institution could, and probably would, establish a system of credit according to different principles and would
consequently institute readier methods for supplying
money than have hitherto been provided. This opinion
seems to me to find vogue in various agricultural circles.
I, however, personally hold the view that no credit institution of the nature and scope of the Reichsbank, be it
under public or private management, can emancipate
itself from the general influence of the money market.
Experience has shown that the financial crisis which has
come upon us these last years in Germany has been felt
just as much elsewhere, that it has been felt in a country
which we have hitherto regarded as the ideal of a banking community—England. We have seen, therefore,
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that the casual occurrences, pure and simple, have been
of so decisive a nature with regard to any banking policy
whatever that all the European banks had to bow before
the actual facts. I am sure that the Reichsbank, whether
it be nationalized or remain in private hands, will simply
not be able to withstand the force of naked facts in the
event of their recurrence.
Now, with reference to the nature of the relations
existing between the agricultural interests and the
Reichsbank, I should like to call your attention, gentlemen, to the fact that it is only the great landowners,
and they only in a part of the German Empire, who
are closely involved in the operations of the Reichsbank. With respect to this matter we have a most
instructive document in the table which has been submitted to us, on page 33 of the first supplement to the
statistics of the Reichsbank, an enumeration of those
who have had credit relations with the Reichsbank in
its discount operations, arranged with reference to their
distribution according to the branches of industry. You
will perceive that in the class of rural industrial concerns (workshops and factories) a disproportionately
small number, to wit, 9,589 out of a total of 70,480
firms and individuals who have been entered, have been
concerned in the discount operations of the Reichsbank,
and of these 9,589 fully one-third represent the four
eastern provinces, East Prussia, West Prussia, Pomerania,
and Posen. In the Kingdom of Bavaria east of the Rhine
the number was only 448, as against 2,246 merchants and
1,398 manufacturers, being 9 per cent of the total; in
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Baden, Hesse, Upper Hesse, and the Bavarian Rhine
Palatinate it was only 222, or 5 per cent of the total; in
Mecklenburg, Oldenburg, Brunswick, on the other hand, it
was as much as 662, or 17 per cent; and in Schleswig-Holstein the number was as high as 1,123, or 36 per cent of
the total. The territorial distribution seems to be largely
determined by the factor of the relative positions occupied
by the different parts of the Empire with respect to the
general character of their industrial concerns in the matter
of size.
It appears, then, that the conditions are extremely diverse, which, in my opinion, goes to prove the truth of
what I have affirmed and to which I wish to add the statement that at the present time not only do the various
rural cooperative credit institutions provide more effectually for the needs of agriculture than the Reichsbank,
but that in particular the provincial loan institutions, the
so-called Landeskreditinstitute—I may name particularly
the Bayerische Notenbank—are made use of by the
agricultural interests in much greater measure. This is
not surprising, as these institutions find it much easier to
extend their operations to the country, to go to small
localities and do business there, than is the case, or can
ever be the case, with the Reichsbank.
All this applies likewise to the business of making loans
on collateral. At the close of the year 1907 the loans of
this kind in the Empire connected with agriculture and
allied industries numbered 249, representing an aggregate
of 1,972,200 marks, as against a total of 5,666 loans,
amounting to 364,297,700 marks; and on March 1, 1908,
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the number of loans was, as at the previous date, 249,
aggregating 1,803,300 marks, as against a total of 5,650
loans, amounting to 255,687,100 marks.
Of greater significance, considered from the same
standpoint, is the business of loaning money in connection
with debentures, in which the loans made on the mortgage
debentures of the Landschaften (provincial loan associations), the communal debentures, and the debentures of
other associations organized on the model of the Landschaften, amounted to 12.2 per cent of the total amount of
the loans. I desire to add that this is the result of concessions made to the agriculturists without any pressure on
their part; and I should regard it as a quite unwarranted
demand that the Reichsbank should go more extensively
than it has done heretofore into the business of loaning on
the debentures of the Landschaften and obligations of
institutions of like nature. Whether the charge of illiberality made against the bank in this matter has any
foundation I am unable to say from personal experience.
As far as I am informed, however, I do not believe that it
is open to such a charge.
There is still another matter to which I should like to
call your attention, and that is, that the reason why, in
comparison with the credit business of the Reichsbank,
there is so much more of that kind of business done by the
individual small cooperative funds, the agricultural credit
associations, and also by the centralized agricultural credit
institutions is because considerably greater inducements
are offered to the agricultural classes than appears to be
practicable in the case of the Reichsbank. Concerning
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this point I should like to submit to you some information
taken from the report of the Bavarian central loan fund
for the year 1907, which, however, applies as well to the
savings and loan associations operating within the union
of the German agricultural associations and which may
be gathered also from previous reports of the union. The
latest report of the union has not yet appeared in print.
The report which I have, however, of the Bavarian central
loan fund shows that the rate of interest on loans was
raised on July 1 only up to 4 ^ per cent and on November 1
to 4>^per cent, while the rate of interest on current accounts
was increased from 3 X to 3 ^ per cent. " In order to offer
the associations a higher rate of interest," says the report,
"we inaugurated on July 1 a system of deposits on notice.
The interest on deposits at two months' notice was from
the 1st of July 3H P e r c e n t and from the 1st of November
4 per cent; and on deposits at six months' notice the rate
was fixed at 4 per cent from July 1 and at ^% per cent from
November 1.
" If in this matter of interest we keep pace with the rates
of interest allowed on deposits by the large banks, it is
because we are in a position to invest these funds more
profitably than the current account funds payable on
demand, which we can invest only in easily convertible
resources."
Reference is then made to the discount operations of the
Reichsbank, and the report continues:
"The average rate of discount in the case of private
bills in Berlin in the year 1907 was 5.11 per cent. The
average rate of interest on loans in the case of the Bavarian
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central loan fund in 1907 was 4.17 per cent. This rate
therefore was almost 1 per cent lower on an average than
that at which private bills were discounted by the banks
during that year. The rate of discount at the Reichsbank
was higher than that of the central loan fund by 1.86 per
cent. The rate of interest at which the Reichsbank
advanced money on the security of bank paper and merchandise was higher by 2.86 per cent; that is to say,
nearly 3 per cent/'
In the face of these facts, gentlemen, which are quite
irrefutable, and which can be explained only through the
circumstance that we have to deal here with means available for the purposes of credit which are of an altogether
different character from those which the Reichsbank has
at its disposal—that is to say, localized resources, if I
may use the expression—we can readily understand that
the interest of a great many of the agriculturists in the
rate of discount of the Reichsbank is rather an indirect
than a direct one—there being an indirect interest, in the
first place, in so far as a higher rate of discount of the
Reichsbank can not fail to bring about a rise in the rate of
interest in the general money market, and, secondly, with
reference to interest on real estate, because a high discount rate regularly has the effect of depressing the price
of investments yielding a low rate of interest, especially
mortgages, a phenomenon which we have witnessed on a
large scale during the past year, so that the provincial
loan associations, as well as other similar institutions,
were reluctantly compelled to suspend practically making 3 K per cent loans and to pass over to the 4 per cent
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type. It is hardly necessary for me to dwell upon the
important bearing which this matter has on the interests
of agriculture. The most recent official inquiry regarding
the returns of capital invested in agriculture, which was instituted by the Department of the Interior at the time of
the revision of the tariff, has shown that the concerns
yield on an average at most between 2 and 3 per cent.
Now, when a concern yields between 2 and 3 per cent on
an investment and money has to be borrowed at 4 or 5
per cent, there must evidently be a deficit.
I do not pretend to maintain that this higher rate of
interest falls with full force upon the borrowing operations
to which agriculture is compelled to have recourse, for
the working capital of agriculture must necessarily yield
a higher rate of interest than the investment capital, and
in addition to this it is possible out of part of the investment capital (namely out of the live stock and farm implements) to offset the higher rate of interest which is
demanded on the sums advanced on personal property.
In the case, therefore, of temporary credit requirements,
which correspond to the credit requirements for the sake
of which the manufacturing industries are obliged to
have recourse to the Reichsbank, it is possible for agriculture, inasmuch as its working capital yields a somewhat larger return than its fixed capital, to endure the
burden of a higher rate of interest.
It is necessary, however, to take into consideration
that, in the first place, especially in the matter of loans on
agricultural mortgages, the security of personal property
enters as an important factor. This is due to the fact
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that the security which the agriculturist can offer to the
lender is in great measure inseparable from his immovable
property. The belongings of agricultural property are an
essential part of its substance, which can absolutely not
be detached, with respect to its value, from the land, and,
indeed, the agriculturist is in many cases not in a position
to offer any other security. That is the reason why in
agriculture credit based on the security of immovable
property, even, if from a strictly economic standpoint we
may look upon it otherwise, has actually, largely as a
matter of necessity, to take the place of credit based on
the security of personal property.
I should also like to call your attention to the fact that
the requirements of credit in the manufacturing industries
are naturally much greater than in the case of agriculture,
because the manufacturer, who turns over his capital three
or four times in the course of a year, is to a much greater
extent obliged to resort to credit than the agriculturist,
who reaps only once in a year and turns over his capital
much more slowly than the manufacturer. The agriculturist, indeed, who has once started out on the path of
borrowing on his personal security, who, as we are accustomed to say, "forces" such credit, is, according to
my notion and the experience I have had in my long
life, entering upon a very perilous road, and I can not
help recalling in this connection a dictum once uttered by
a gentleman of my acquaintance, a person whom we in
Bavaria esteemed highly, the founder of our Bavarian Fire
Insurance Institution, Regierungsdirektor von Jodelbaum,
a man remarkably well versed in economic matters: "Let
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us look around and see," said he, ''what sort of success
those agriculturists have had who have resorted largely to
credit. Gentlemen, credit walks about in the company of
disappointed hopes." This saying has stuck to my memory, and I believe it is the utterance of a man who knew
agricultural conditions very thoroughly and who was able
to judge of them.
In order to demonstrate what a poor showing the credit
business of the Reichsbank makes in the domain of agriculture by the side of the operations of the agricultural
loan associations, and especially of the Raiffeisen societies
of the national union of the German agricultural associations, I have prepared a statistical table of the savings
and loan funds belonging to the German national union
for the year 1905.
Statistics of savings and loan funds for 1905.
Number of credit associations
Members
Assets a t end of 1905
Liabilities at end of 1905
Outstanding with members:
Current account a t end of 1905
Loans for specific time a t end of 1905
Business deposits of members, current account
Savings in the associations
Paid to members:
Current a c c o u n t .
Loans for a specific time
Paid back by members:
Current account
Loans running a specific time
Savings paid in
io, 999
959, 717
m a r k s . _ 1, 276, 980,000
do
1, 270, 390, 000
do
do
do
_do
304, 070, 000
715,160, 000
136, 160, 000
988, 350, 000
do
do
333, 590,000
215, 250, 000
do
do
do
296, 810,000
134, 670, 000
359, 400, 000
These figures, in my opinion, indicate clearly in what
kind of organizations personal credit is at the present
time centered in the case of the majority of agricultural
concerns.
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Having set forth this preamble, I should like to get to the
main question, the question of the enlargement of the capital of the Reichsbank. I may say that I can give my
assent almost unreservedly to the pregnant and clearly
defined utterance of my esteemed countryman, Director
Stroll. I am first of all of opinion that our credit is not
judged abroad to any very great extent by the condition
of the Reichsbank. It seems to me, as far as I can gather,
that the credit of the Reichsbank is not questioned abroad
and has never been questioned. But what has been questioned—and this transpires from the whole political discussion in the daily press—is the stability of our imperial
finances, and I believe that the projected reform of our
imperial finances will do much more toward improving the
standing of Germany as a financial power than any reform
of the Reichsbank [cries of "Quite true"], by which I do
not by any means wish to say that I underestimate the
importance of discussing certain reforms in the management of the Reichsbank, or that I am not aware that the
dismal experiences of the past year ought to induce us,
to consider whether some means may not be found to
diminish at least the gravity of such happenings.
In regard to the enlargement of the capital, there appears to be a great diversity of opinion, and I must confess
that from the start a question has presented itself to me,
one which thus far I seem unable to answer: If the
enlargement of the capital is to do some good, on what
scale is it to be made? We have heard some of the
speakers declare that the capital ought to be doubled and
others again that we can get along with an increase of
20,000,000, 30,000,000, or 50,000,000.
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That in time the capital of the Reichsbank is going to
be increased as a result of its enlarged operations and that
this will probably have to be done on a considerable scale,
about this I have very little doubt. I can not for a moment
imagine that the Reichsbank could get along with its present capital for another ten or twenty years. I believe, on
the contrary, that it ought to keep on increasing its capital
in proportion as its business expands, even if I agree with
those gentlemen who have expressed the opinion that in
the case of a bank of issue less depends upon the size of the
capital than upon that of the circulation, or in other
words that such a bank ought to work more with its bank
notes than with its capital.
But just when the increase is to take place and on what
scale, these are the questions, I must confess, that transcend
not only my judgment, but that of others as well; and an
authority on this subject, Professor Wagner, has only this
morning expressed himself in an extremely guarded manner to the effect that he is favorably inclined toward the
•enlargement of the capital. He suggested, if I remember
rightly, that it be left to the Bundesrat to determine when
the increase of capital shall be made. With this reservation I am able to say that I am also in favor of an
increase in the capital. But if the question is put in the
form in which it is now submitted to us, that is to say,
that the increase in the capital is to serve above all to
strengthen the bank in such a way as to avert further
catastrophes similar to those that we witnessed last year
then I must say that I am absolutely convinced that in
this respect the enlargement of the capital of the bank
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will be ineffective, inasmuch as the financial crisis was
due altogether to other causes than an insufficiency of
capital. I should like to call your attention to the fact
that, according to the statistical information submitted
to us, the very increase of capital that has taken place in
the last few years has, to begin with, not even had the
effect of preventing a rise in the rate of discount; secondly,
that it has by no means prevented a considerable flow of
gold from the bank; and finally, strange to say—and this
is something, apparently, that no one dared to anticipate
up to the last hour of our previous session—with the very
same capital we have on the one hand a lower rate of discount [cries of "Quite right!"] and on the other hand an
extraordinary increase in the stock of gold in the bank, so
that in my opinion these very two facts should lead us to
infer that there is no connection between the effect of the
capital upon the rate of discount and its effect upon the
accumulation of gold in the Reichsbank. [Cries of " Quite
right!"]
Having declared that my attitude in this matter is not
altogether one of opposition, although it is one of opposition with a certain reservation, I shall take the liberty of
touching in a few words on the subject of the limit of the
bank-note issue. In regard to this, I am also of opinion
that we are perhaps expecting too much from the raising
of the limit of circulation. The example of England has
been pointed to as showing that it will be possible to do
away entirely with the limitation of the bank-note issue.
Attention has been called also to the revenue that has
accrued to the Government from the taxation of excess circulation, and it has been asserted, with justice, that the
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imperial tax thus instituted is, to use a mild expression—I
refrain from repeating the strong language that has been
heard here—anything but fair. One of the members, I
believe, has expressed himself in a still more emphatic
manner. What I believe is that the critics of the tax on
excess circulation can not altogether emancipate themselves from the train of thought which at the time of the
enactment of the usury laws inspired the paragraphs
relating to usury, the notion that if any one seeks to
make capital out of the needs of his neighbor, he is guilty
of a misdemeanor. Proceeding from this standpoint, I
must say that I, to start with, can not indulge in any very
great expectations in the matter of the raising of the
limit of untaxed bank-note circulation, being of opinion
that the present circulation limit, with the tax on excess,
has by no means served to prevent the increase in the
volume of bank notes. And as regards the importance of
the circulation limit in the way of what has been called
the danger signal, or storm signal, it has been repeatedly
pointed out in the deliberations of the specialists that
there is in reality no need of such a storm signal, there
being various other indications that are just as much
heeded as the diminution of the untaxed bank-note
reserve.
These are the reflections, gentlemen, to which I have
been led in this matter, and if I have perhaps not expressed myself as clearly as you might wish, you will have
to account for it by the fact of my slender acquaintance
with the affairs of the money market and of our banking
system. I have thought, however, that in this brief
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exposition of my views I have expressed the opinion of the
majority of my fellow-agriculturists, and in particular of
those of South Germany.
Doctor RiESSER. My attitude, gentlemen, with respect
to the enlargement of the bank capital is also what I may
term a strictly impartial one, indeed a thoroughly indifferent one. If by means of an increase in the capital I could
secure a twenty-five years' extension of the bank charter,
which I regard as extremely desirable, I should for this
reason alone warmly advocate an increase. If, however,
this is not to be attained—if the business before us is
merely to consider in a sober fashion whether an increase
in the capital is in itself desirable—then I must confess
that the arguments in favor of an increase are, as far as I
am concerned, not altogether convincing.
The increase has been urged especially on two grounds.
In the first place, it is believed that a means will be found
of strengthening the gold reserve of the bank and thus
effectively staving off the disagreeable and long-continued
enhancement of the rate of discount which we have recently witnessed, and secondly, it is believed that such
an enlargement of the capital has been rendered necessary by the greatly enhanced demands upon the
Reichsbank, which have followed in the train of the
development of business.
As far as the gold reserve of the Reichsbank is concerned,
there is no reason to believe that this can be permanently
increased to any extent by the enlargement of the bank
capital, because such a permanent increase—only a permanent increase can be considered here—as has fre-
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quently been pointed out, depends upon the way we are
situated with respect to international balances, that is to
say, whether we, in the last resort, have greater demands
upon the outside world than the outside world has upon us
or the reverse. But, leaving this matter aside, the Reichsbank had in 1906 gold bills of exchange and foreign gold
credits to the average amount of 60,000,000 marks, and an
average of 64,000,000 marks in 1907, as against 33,000,000
marks in 1899. According to the report of Herr Geheimrat
von Lumm, which is extremely interesting in more than
one respect, we had on May 7 of this year no less than
120,000,000 marks in gold bills of exchange and foreign
gold credits, an amount to which I assume that accessions
have been made in the meanwhile and which makes it
possible for the Reichsbank to exert a powerful influence
upon the international movement of gold and the rate of
exchange by disposing of bills of exchange and thereby
exercising pressure on the rate of exchange and in this
way preventing the exportation of gold, which, in my
opinion, it can do more readily than it could, by raising the
rate of discount, counteract an excessive domestic demand
for credit and promote the importation of gold from abroad.
Purchases of gold by the Reichsbank have taken place
on a very large scale even with the present capital, such
purchases having amounted in the years 1876-1900 to
no less than 2,629,000,000 marks—that is to say, nearly
two and three-quarters billions—and the amount could
undoubtedly have been greatly increased if the directors
could have made up their minds not to stick at the price.
The increase of the stock of gold in the Reichsbank can
not, therefore, be said to depend to any extent upon the
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increase of the capital, and we have seen, indeed, that after
the last increase of capital the stock of gold in the Reichsbank did not increase but actually decreased as compared
with 1895.
So far, however, as the desire for an increase of capital
is based on the argument that the demands on the Reichsbank have increased in consequence of the increase of
business, it appears to me, first of all, that such reasoning
is opposed to the assertion which we hear at the same time
that the demands upon the Reichsbank in the way of credit
have already been altogether too great, and that it is these
very inordinate demands that are chiefly responsible for the
increased interest on short loans, or, in other words, for
the higher rate of discount. I believe that here, too, the
truth lies somewhere between the two propositions. It
can not be denied that the demands of manufacturing
industry which, as has frequently been the case, has been
reckoning on an indefinite duration of favorable conjunctures, and on this assumption has been increasing its
investments or creating new ones, have become too great
in the last years; and all the banks have now and then
neglected, or rather were often not in a position, with their
existing capabilities in relation to the needs of the industrial situation, to meet effectually such excessive demands
on the part of manufacturing industry. The table which
Freiherr Von Gamp has submitted to us to-day is at all
events, for the reasons advanced by Geheimrat Wachler,
not to be regarded as confirming the assertion that industry, as a whole, in recent years has rather been a creditor of the bank than its debtor. It is, on the contrary,
84713—10
10
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inevitable, as Freiherr Von Gamp has already pointed out
on another occasion, that our manufacturing industry,
especially for the purposes of its export policy, which is
bound to be, as we all know, for a long time, and certainly
for the time being, our all-important concern, will be compelled to make great demands upon our banks. For this
reason we ought not to consider the increasing claims of
our manufacturing industry as a matter of regret with
respect to our national welfare, even if under the stress of
our rapidly increasing population and the consequent
difficulty of securing work and food for our people, these
claims have been increasing at a rather immoderate rate.
It seems to me, however, that the present capital of the
Reichsbank ought to suffice for the legitimate demands of
manufacturing industry and commerce, and also for those
of agriculture as far as the nature of agricultural operations admits of a resort to bank credit. Nor are we compelled to believe that for the purposes of discount or of
loans on personal property an increase in the capital of a
bank is necessary. In my opinion, however—in such matters it behooves us to speak with reserve and modesty—
it is an error to assume that the Reichsbank ought to
have more specific regard than heretofore for the three
individual estates—trade, manufactures, and agriculture—
and that it has hitherto favored the first two estates, and
in particular the banks, in the case of the latter so far,
indeed, as to have merited the appellation of the "bank
of the banks." I am convinced, on the contrary, that the
Reichsbank has hitherto been what it should be in accordance with the legitimate wishes of Freiherr Von Wangen-
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heim, " a central station serving the general industrial
interests," and it is such in my judgment precisely when it
is, not indeed exclusively, but nevertheless practically, the
" bank of the banks," the center of the operations involved
in the needs of all departments of the business world in
the way of credit, as far as such needs can be met by banking agencies. In my opinion it is a downright elementary
error to speak of a "preference of the banks" simply because at certain times it is the banks that have specially
great demands to make on the Reichsbank, or bring bills
there to be discounted in specially large volume; for the
demands which the banks make in these cases, the bills
which they present for discount, are in reality nothing else
than bills and demands of manufactures, of trade, and, in
sitialler measure, to be sure, as I have already pointed out,
of agriculture also. And indeed Freiherr Von Gamp has
to-day at least indirectly acknowledged this expressly.
For in opposing the restriction proposal of Herr Geheimrat
Mueller, who desired that the Reichsbank be required to
reduce its credits by 200,000,000 marks, he declared that
this would not work, because then the industrial interests would have to apply to the banks, and these in
turn would of necessity have recourse to the Reichsbank
for support. This has repeatedly been the course of events
in the past, and they will develop in the same way in the
future. Of a preference granted to the banks as such—
that is, a preference relating to the needs of the banks
themselves—there can be no question in cases like these,
for in such instances the relation of the banks to the
Reichsbank is purely that of intermediaries, their function
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being merely that of gathering up the demands of business
which converge upon them.
Nor can there be any question of essential injury to
agriculture, for in consequence of the long duration of the
process of agricultural production, agriculture is naturally dependent upon long-time credit. In view, however,
of the obligation to cover its demand liabilities by corresponding assets, a bank of issue as a rule can not and
ought not to grant this credit, either by discounting
long-time bills or in any other similar form—not even, for
instance, by discounting bills of which it is understood
beforehand that when they fall due they will have to be
renewed.
But it has been said that an increase of capital, even if
it does not cause a permanent increase in the amount of
gold—and indeed new shares are only to a very slight
extent paid for in gold—and even if, as we all agree, it can
have no permanent effect either in raising or in lowering
the rate of bank discount, may nevertheless improve the
condition of a bank. I think that such an assertion is at
the same time correct and incorrect. Certain it is that
when the payment is made in bank notes the note circulation of the Reichsbank is decidedly diminished; certain
it is, too, that the obligations of the Reichsbank are
diminished when the payments are made by entries upon
bank accounts; and from this it follows no less certainly
that an improvement in the condition of the Reichsbank
will in fact take place, and also, I wish to add, an improvement in the ratio between the demand liabilities and the
cash and bills with which to cover them. But it is in my
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opinion likewise certain, or at least probable, that no lasting improvement in the condition of the Bank will be
introduced thereby, because the money that is withdrawn
from trade by payments is again required by trade, and
the needs of trade must then be met by the Reichsbank
through loans and discounts. The result is that a deterioration of the temporarily improved condition takes
place—or at least may and probably will take place.
Finally, to judge from the experience of the Bank of
France and the Bank of England, a large capital—and it is
only in so far as they have large capital that the condition
of these banks (quite different in other respects) bears on
the subject—is not required as security capital. Even in
bad times it is not required, because at such times it is
employed with difficulty, or not at all fully, and therefore
can not yield sufficient revenue. Nor is its use then quite
safe, especially since the danger is not remote that at these
times business of a doubtful character and unsuited to a
bank of issue may be sought after and entered into.
But the working capital of a bank of issue is in the first
instance and essentially its note capital.
Then, too, the ethical or psychological factor, which
plays a decided part in the arguments of some advocates
of the increase of capital, fails entirely, in my opinion, to
alter the case. The claim is made that since the private
banks have increased their capital the Reichsbank can not
well do less, if only to maintain its standing. But the
standing of the Reichsbank, which is very high, rests not
upon its capital, but upon quite different grounds. This
standing therefore may be—as it has hitherto justly been—
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very high, even with a smaller capital; and under less good
management the standing might be lower than it is to-day,
even if the capital were large.
At the same time even I must admit that no great harm
can result from an increase of capital, and that therefore,
if the Reichsbank itself should demand an increase, and
should base its demand upon sound arguments (which I
must say I can not at present conceive of), then it ought
to be empowered to secure such an increase, with the consent of the Bundesrat.
But, gentlemen, if we really mean to give the Reichsbank a vote of confidence—for this is what it would
amount to—then, I think, we must give it our confidence
in full measure—we must intrust it with a facultas alternativa. We must trust it to be able to decide, according
to circumstances, which is preferable—the plan of an increase of the capital or the plan, proposed by others as
being more efficient and yet less dangerous, of a gradual
increase of the surplus. Then the Reichsbank would have
to be given the facultas alternativa to choose, subject to the
approval of the Bundesrat, between an increase of the
capital, of which the maximum would of course be fixed
by law, and a gradual increase of the surplus, the general
scheme of which would certainly also have to be marked
out by law.
In proceeding to increase its capital, however, the
Reichsbank would have to take into consideration the
condition of the money market at the time of the increase,
and this in reference not only to the extent of the increase,
but also to the price or prices to be fixed for the issue, and
to the times of payment. For my part, aside from the
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proposal to place the decision in the hands of the Reichsbank itself, I should prefer a gradual increase of the surplus;
and I should prefer this even if the shareholders were to
suffer somewhat, because in this matter also we must act
on the principle that the interests of the community must
always be considered before the interests of individuals.
I shall say nothing of the idea of nationalization—an
idea that ought, to my mind, to be resolutely resisted—
because the discussions on this subject have purposely
been eliminated from our deliberations and from the bearings of the experts, and because it would be impossible,
within the limits of these discussions, to cover the question
in any way except by mere indications. I am glad, however, to find that in this matter I am for once in complete
agreement with Herr Geheimrat Wagner.
Finally, I should like to call attention to the fact that I
certainly stand by every word that Herr von Wangenheim
has quoted from my book, "The History of the Development of the Great German Banks;" only, on the one hand,
a quotation must not be taken entirely apart from the context, and, on the other hand, nothing must be added to
the original. But this is what has happened in the case
of the quotation, "The outpost engagements of politics
are fought by the banks on financial ground." The addition " by the banks " is not to be found at all in my text.
The following is the statement on pages 129-130 of the
second edition of my book, "On the History of the Development of the Great German Banks" \Zur Entwickelungsgeschichte der Deutschen Grossbanken (1906)]:
" Finally, it must not be forgotten what notable political
successes have been won by means of the granting or the
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refusal of loans to foreign states, and to what an extent home
policy can utilize for political purposes the prohibition of
the placing, the listing, or the employment as collateral
security of foreign papers. The outpost engagements of
politics are fought on financial ground."
The moment, the direction, and the adversaries, however, in these outpost engagements that are to be fought on
financial ground are determined, of course, exclusively by
the department of state that is responsible for foreign
politics, and not by the banking world.
Finally, I shall permit myself to make some reply to
the observations that President Heiligenstadt has made
to-day. The statement made by Count Kanitz that these
considerations are new is not quite correct; indeed, they
are covered in all essential points by the address on
"Questions of the money market," which President Heiligenstadt delivered as early as 1906 before the Konigliche
Landesokonomiekollegium. I have read this address with
great interest, and I may say that I heartily agree with
almost all the essential principles therein laid down,
though, to be sure, I do not subscribe to the inferences
which President Heiligenstadt has drawn from these principles—both to-day and also in his earlier well-known essay
in Schmoller's Jahrbuch (vol. 31, part 4, under the title
"Der Deutsche Geldmarkt").
Even though it be true that in general—what, according
to my conviction, will be possible only to a very small
extent—we should aim at an increase of the working
capital as distinguished from the investment capital, yet
I hold it to be an error to assume that by this consideration a demand for the increase of the capital stock of
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the Reichsbank can be justified, for I consider erroneous
the view expressed to-day by President Heiligenstadt
that only the capital which is kept in the Reichsbank
permanently remains as working capital, and is therefore
prevented from becoming investment capital. It remains
as working capital neither if the capital stock is increased,
nor if, as was at a former time proposed by President
Heiligenstadt in Schmoller's Jahrbuch, the banks should
be required to deposit about 2 per cent of their entire
obligations in the Reichsbank. For in the former case the
increased capital will be treated in exactly the same way
as the original capital, whether it be invested by the
Reichsbank or used or misused as before by a third party,
and thus used also for other purposes, since these other
purposes can not by any means always be recognized as
such. And in the case of the 2 per cent deposit these
reasons are supplemented by the consideration that no
change in the present disadvantageous relation between
working capital and investment capital can possibly be
seriously expected to result from the deposit of so inconsiderable a sum as 2 per cent of the obligations of
the banks
As for the fixing of a bank-note contingent, I wish to
say at once that I am an advocate of it, and under no
circumstances, therefore, could I recommend the complete
removal of the tax obligation and the tax limit. I would,
on the other hand, approve of a certain raising of the taxfree note limit, which certainly has no connection, either
in theory or in the practice of the Reichsbank, with the
bank's discount rate. And I would approve of it for
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these reasons: That the continual passing of the taxfree note limit must gradually weaken the feeling of
such a step being a danger signal, and that this constant
passing of the limit would, for the reasons mentioned
by several gentlemen, decidedly weaken our position in
the eyes of other nations.
Doctor SCHMIDT. Gentlemen, in the hearings of the
experts a great majority of the men were opposed to an
increase in the capital of the Reichsbank, and that principally for two reasons. The first reason is that a bank
of issue really does not need a capital of its own. The
example of the Bank of England was particularly referred
to. The second reason was that an increase of the capital would have no effect upon the condition of the
Reichsbank. The very weighty expressions of opinion
against an increase of the capital of the Reichsbank were
given additional support by the well-known article of
His Excellency President Doctor Koch, who has served
the Reichsbank so well. The opposition to-day on these
points has been considerably weaker than that of the
experts; the two principal reasons brought forward
against the increase are in my opinion not valid. If it
be asserted that a bank of issue does not need a capital
of its own, the truth of this statement is not to be denied.
But the question asked on the list is not whether an
increase of the capital stock is necessary but whether it
is to be recommended, whether it is desirable. If we
bring in for comparison the Bank of England, which, in
virtue of being the most important bank, controls the
gold reservoir of the whole world without available cap-
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ital of its own—and it can do this because its strength is
completely assured by government advances and consols—we must not regard the situation of the Bank of
England as on the same footing with that of the German
Reichsbank; they are radically different. The Bank of
England has altogether only seven branch offices; the
German Reichsbank has 500. The extent and the kind
of business transacted therefore by the German Reichsbank is also quite essentially different from that of the
Bank of England. These 500 bank offices and bank
branch offices give the German Reichsbank in a certain
respect the character of a credit bank. Heartily as I
agree with Herr Stadtrat Kaempf and Herr Fischel that
this would not, in principle, be desirable, and that in
principle, theoretically, the right thing would be for the
Reichsbank to refuse to discount bills upon the payment
of which at maturity it can not absolutely depend, nevertheless we must not forget that the Reichsbank, too, has
a tradition of its own. It has taken over the Prussian
State Bank, and in many provinces the offices of the
Reichsbank are often the legitimate and almost the only
givers of credit for very important spheres of our economic
life—retail trade and agriculture. A great deal has been
said here about the 200 millions of bills which Herr
Geheimrat Mueller would like to see vanish out of the
portfolio of the Reichsbank. The president of the Reichsbank, Herr Havenstein, was so very kind as to notify us
of his last instructions to the bank offices on this subject;
and these instructions have, as I know, met with universal
approval. In these instructions, however, it was stated
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that renewal of bills may be granted only once at most.
Here again, therefore, the tradition has been maintained
that in the case of certain agricultural pursuits, which
have a more than three months' turnover of their working capital, the Reichsbank offices should be permitted
to grant a renewal even at the time of discounting the
bill. Gentlemen, such bills, such credits, which, while
they ought not to be extended further than they now are,
and than by traditional development they have been,
but which should not, in the interests of our common
economic life, be completely abolished—such bills and
credits do not form a proper note cover, and should not,
therefore, be discounted out of the supply of deposits and
notes, but out of the bank's own capital. Besides, the
bank, as has often been remarked, has a rather considerable landed property—about 55,000,000 or 60,000,000 marks.
To be sure, one may build, even with notes; but one can
not redeem these notes with houses. The cost of these
holdings, too, then, must unquestionably come out of the
capital of the bank itself. Loans on collateral are also
not suitable for covering notes; and for this reason, if for
no other, the bank will do well to supply these loans principally out of its own resources. Loans on collateral are,
moreover, a branch of business which is of quite essential
importance to the middle classes and to the classes that
are not habitually dependent upon the banks. I can
easily see how a landowner who provides for his occasional need of credit by putting a mortgage on such of
his property as is free from debt may lock up the deed
of mortgage in his strong-box and, when he needs money,
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may carry it to the Reichsbank in order to take out a loan
on its security.
These are altogether legitimate, sound demands of
credit, which the Reichsbank must be in a position to
"satisfy. It will do well, however, not to regard the meeting of these obligations by its debtors as security for its
notes.
A fourth instance in which the Reichsbank does well to
rely rather upon its own capital than upon its privilege
of note issue, or its deposits, is that of treasury bills,
which recur so often and come in in such large quantities.
The Bank of England has placed its whole fortune in such
State securities. In the Reichsbank these investments
have amounted to 180,000,000 and perhaps more. They
have, therefore, attained quite extraordinary dimensions.
These investments really ought not to be made out of notes
and deposits, but ought also to be taken over only within
the limits of the Reichsbank's own capital; for otherwise
the operation would really be just about the same thing
as if the State should decide to print notes directly instead
of printing treasury bills. For it comes to exactly the
same thing in the end if the State prints treasury bills,
takes them to the Reichsbank, and receives bank notes
in exchange. Therefore, I think that for this sort of
transaction too—the taking up of treasury bills—the
Reichsbank must have its own capital on hand, in order
that the position of the Reichsbank be unassailable.
Also, as to advances on gold importations, as to other
assets, and as to the purchase of bills of exchange, it
would be advisable for the Reichsbank to carry on these
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operations—which the Bank of England does not undertake—as far as possible out of its own capital.
I think, then, that these six branches of business, the
practice of which distinguishes the Reichsbank from the
other great national bank to be compared with it (the
Bank of England)—I think that these make it urgently
desirable that the capital of the Reichsbank correspond
in a certain measure to the extent of these transactions;
and since our whole economic life is in process of constant
development, and since the amount of the Reichsbank's
business has doubled itself within ten years—for these
reasons I consider an increase of the capital desirable.
Now, it has been asserted, and to-day even by such experienced men as Herr Fischel and Geheimrat Riesser,
that an increase of the capital of the Reichsbank would
have no effect whatever on the condition of the bank.
It was asserted by the experts that the result would be
simply a transference from the deposit accounts to the
investment capital. Gentlemen, I have really taken much
pains to work myself over to this idea, but it was impossible for me to do so. I can see absolutely no reason why
the subscriptions for Reichsbank shares should have any
different effect upon the condition of the bank than subscriptions for gold shares, for State loans, for Prussian
consols, or for anything else of the kind. For how do these
investments come about? A capitalist, with the good
interest rates that he gets from his bank, has since October gathered in his coupons and dividends, and now has
at his disposal a balance of 300,000 marks at his bank, and
considers the moment to have arrived for looking up a
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safe investment for this money. He has long wished to
build a house, so he decides to lay out 100,000 marks for
the building of a house; with 100,000 marks he will buy
English consols; with another 100,000 marks, bank shares
which are just about to be issued. He therefore instructs
his banker to pay 100,000 marks to the architect; to pay
100,000 marks to the Reichsbank for Reichsbank shares;
and with 100,000 marks to buy consols or gold shares in
London. All these 300,000 marks go, of course, in different directions; the bank withdraws it perhaps from the
deposit account, but the effect upon the deposit balances
at the Reichsbank is still necessarily the same for all three
operations. During the movement, the operation will
make itself felt in some way or other by the Reichsbank.
Either 300,000 marks will be taken, or half of that, or a
third; but in any case it makes no difference whether the
capitalist has decided to use it for building his house,
for buying English consols, or for buying bank shares.
The difference comes in only afterwards. The money that
I set aside for building the house becomes fixed and immovable as real estate; the money that I lay out for buying
English consols goes outside the country (and this is,
according to Herr Fischel, in some measure desirable);
the money for Reichsbank shares is kept at home in the
Reichsbank. While the two sums of 100,000 marks each
that go to the house and to the purchase of English consols are immobilized or sent outside the country, the
100,000 marks that go into the Reichsbank in the form of
Reichsbank shares remain as circulating capital, or, as
President Heiligenstadt says, working capital, and thus
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movable capital, as distinguished from the other 200,000
marks, which become investment capital. That money
which the capitalist devotes, not to Prussian consols, which
are used for the construction of railroads or canals, but
to industrial securities, which are used for the opening of
mines and other such purposes—this money becomes immobile; it is separated from the circulating capital and
turned into fixed capital. On the other hand, the money
with which he buys bank shares remains as. circulating
capital by being still kept in the Reichsbank, and in this
way it mitigates the great mistake of which President
Heiligenstadt also spoke, namely, that in general in
recent years in Germany circulating capital has been too
extensively drawn upon for the investment capital. In
any case, that is one of the principal causes that have
given rise to the high rate of bank discount—that is, to
the high rate of interest on short-time loans; and an
increase of the share capital of the bank would
undoubtedly have the effect that, at least to a slight extent, the increase of circulating capital would be promoted
as against that of fixed investment capital. This is,
in my opinion, a factor that points plainly in favor of
increasing the capital of the bank.
It has been roundly denied that an increase of the
capital has any effect at all upon the bank's supply of
gold, or upon the bank's rate of discount. Gentlemen, I
would not deny this influence in such absolute terms. To
be sure, it is not easy to prove it by actual figures, but
undoubtedly an increase in the capital of the Reichsbank
has a tendency to increase the supply of gold as well as
to lower the rate of discount. The 100,000 or 100,000,000
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marks by which the capital of the Reichsbank is increased
place the Reichsbank in a position to buy for that sum bills
of exchange with which to advance money for shipments
of gold. The moment must of course be opportune; at
such a time the 100,000,000, or 70,000,000, or 60,000,000
by which the capital of the bank has been increased can
easily be changed into gold, and can be brought in the
shape of gold into the vaults of the bank—and this not
through bank shares having been subscribed for abroad
(a thing to be avoided), but because the bank has been
put into a position to make advances on gold and thereby
to increase its supply of gold. It is also tenable that
an increase of its own capital has at least a tendency to
cause the rate of discount of the Reichsbank to become
lower. Let us suppose that there are many claims made
upon the bank's resources; for discounting, for making
loans on bills and on collateral it has at its disposal in the
form of money its capital, its deposits, and the tax-free
note contingent—the bank needs altogether, let us say,
1,200,000,000 marks. Now, if the note contingent does
not hold out, and the bank issues taxed notes to the
extent of 400,000,000, then it will fix the rate of discount
at perhaps 6 per cent. If, as in the instance that Herr
Fischel brought forward, the bank has 200,000,000 marks
added to its capital, then the exceeding of the tax limit
amounts to only 200,000,000. It would therefore have at
its disposal 1,400,000,000 instead of 1,200,000,000, and
would need two-twelfths, or one-sixth, less discount—that
is, 5 per cent instead of 6 per cent. Of course, this can not
be accurately proved, but it is easy to see how a tendency
toward lowering the rate of discount would arise.
84713—10
11
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One element of the case, referred to by Herr Fischel
this morning, has, I admit, raised some doubts in my mind.
I mean the danger that if money is cheapened and if we
should come again after a few years upon a plethora of
money the bank might conceivably find no way of employing its investment capital, its deposits, and its supply of
bank notes; that the receipts of the Reichsbank from
discounts and interest on loans and from other sources
might not suffice—after deducting the expenditures, which
are considerable—to pay a satisfactory dividend, and that
this might cause a sudden fall in the price of the bank
shares, which would look very bad abroad. This possibility, however, is still a very remote one. But I would
readily agree that the question of when the new shares
should be delivered remain in the hands of the Bundesrat,
on the motion of the Reichsbank directors. Otherwise I
approve the proposal of Freiherr von Gamp, with which
Herr Kaempf approximately agrees—namely, that the
capital of the Reichsbank be increased from 180,000,000
by about 70,000,000 to about 250,000,000. I should suggest that share certificates be issued somewhat in this manner: That they be offered at a premium of 30 per cent or
of some other named per cent, and that this premium go
into the surplus. But I would urgently recommend that
the speculative element, the element of uncertainty, be
removed from the dividends of the Reichsbank. The
Reichsbank shares must have the character of sound state
securities [very true!] and ought not to have in any way a
speculative element of uncertainty, such as now exists in
them. The guaranteed interest or preferred interest of
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3% per cent at an issue price of 130 is only about 2% per
cent, while state securities yield 4 per cent. Furthermore,
an enormous element of uncertainty arises from the fact
that bank shares bought at 144 may be repurchased at
115, so that the owners of bank shares who eight or
nine years ago acquired the shares at 144 now receive for
them 115—that is, they suffer a loss of 29 per cent. A
paper that carries with it this speculative element of uncertainty is naturally not at all adapted to making its way
into wider fields—an end which has been declared by
several here to be desirable, and which, indeed, is very
urgently to be wished. I should therefore be of the opinion that a rate of interest should be established for the
Reichsbank shares, a preference rate not of 3 ^ per cent,
but of 4 X per cent, with an issue price of about 130, so
that they might be assured of a revenue of about 3% per
cent, as compared with 4 per cent on government loans
[quite right!]; further, that the buying-in price upon the
taking over of the Reichsbank by the Government shall
not be less than the purchase price—let us say 130. Now,
in order to give to the Government a share in the surplus
also, and in order to increase the capital even further
through an increase of the surplus, I would urgently
advise that additions to the surplus be again introduced.
After paying an interest of ^% per cent on Reichsbank
shares, the Government, in order not to suffer any loss,
would have first to receive 1 per cent—the difference
between the \Y2 per cent preferred dividends granted to
the shareholders and the present 3 ^ per cent. Out of
the remaining proceeds 5 or 10 per cent could go into the
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surplus, the upper limit of which should be fixed—if fixed
at all—at 60 per cent. The proceeds still left over would
be divided, in the same proportion as has hitherto been
maintained, between the Government and the shareholders. In case of the taking over of the Reichsbank by
the Government the shareholders would in no instance
receive a smaller sum than that paid by them when the
shares were issued.
I believe that if we make these requisite provisions
for the shares the general run of the people will find them
more accessible and will take them up more readily.
Whether it is advisable to issue shares of so low a denomination as 200 marks is an open question; I should not
recommend it. I think that 1,000 marks is sufficiently
small to make it possible now for even the middle classes
to acquire these shares.
As for the question of a tax-free contingent, I am not
in favor of a contingent having the arithmetical rigidity
of a fixed number, as is now the case. Business has
developed to an enormous extent; in the matter of railroad receipts there is a notable contrast between the
present time and ten years ago. The transactions of
the Reichsbank, the receipts of the Prussian state railroads, the amount of coal consumed, of iron ore produced,
and of wages paid—the trade associations give official
material on the subject—all these figures will prove to
have been doubled at almost every point within the last
ten years, simultaneously with an accelerated increase of
population. Meanwhile the means of carrying on business
in these economic activities remain simply the same as
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before, the contingent of 470,000,000 marks. But surely
this is unnatural. If our railroads were likewise to fix a
contingent for their working equipment and to say so
and so many cars and locomotives may be used, and no
more; if more are used than this contingent, there will
be a charge of 5 per cent extra on freight, I should say—
but that is incredible. And the situation here is similar,
if the note contingent is held to so strictly. This much
at least is true (and on this point the gentlemen of the
commission, as well as the majority of the experts, are
apparently agreed): There is need of an increase which
shall correspond in a certain measure with the increase
in economic intensity—an increase to about 600,000,000
marks.
But even this rigid fixing of a limit ought, in my
opinion, to be subject to correction, in order that it may
have that necessary elasticity which is demanded by our
economic life, and this correction might be brought
about by making the tax obligation come into play only
when the cash cover, or perhaps the gold cover, has fallen
below a certain high ratio—let us say two-thirds; the
Bank is permitted to issue notes up to a point at which
the cover is only one-third. Now, then, my proposition
is this: If the notes in circulation are covered by twothirds—if, I may as well say, they have a two-thirds gold
covering—then the tax obligation is not to apply even if
the fixed contingent is passed, so that the contingent will
be of twofold character—an absolute contingent of
550,000,000 or 600,000,000, or half of the cash holdings
or of the stock of gold. This would also have the great
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advantage that the Reichsbank could endeavor, as indeed
it now might, to increase materially its supply of cash.
If we have 2,000,000,000 marks of gold in the vaults and
a note circulation of 3,000,000,000—if, therefore, we have
1,000,000,000 of uncovered notes—then the condition
of the Reichsbank is decidedly better than it is with an
uncovered note circulation of only 600,000,000 and cash
holdings of 800,000,000 in gold.
Therefore, I wish urgently to recommend that in
considering the fixing of the contingent you take account
also of the question of note covering, considering, perhaps,
the suggestion that the tax obligation on overstepping
the contingent be applied only after the cash covering of
the notes falls below two-thirds, or 6 6 ^ per cent.
Mr. PETER. Permit me, gentlemen, before I begin to
answer the questions proposed, to return to the opinions
expressed by Director Schinkel this morning in regard to
the discounting of short-time bills by the Reichsbank.
I am in complete agreement with these expressions of
opinion. Gentlemen, every banking institution—not only
the great banks, but also such smaller institutions as
have a good financial basis—seeks to discount at the
Reichsbank short-time bills only, and to avoid the submission of long-time paper. For long-time paper it is
the private market that sets the standard; people wish
to discount these bills at the private rate of discount.
I am really very sorry that there is a requirement in
the Reichsbank law according to which the Reichsbank is
forbidden to discount at the private rate of interest when
the Reichsbank rate amounts to 4 per cent or more.
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Many classes would be displeased if the Reichsbank were
to put difficulties in the way of the discounting of shorttime bills, which are naturally presented chiefly at the
quarterly periods.
I come now to the answers to the questions proposed.
I reply: Since the bank's capital comes under our consideration only as a guaranty fund for the obligations of
the bank, especially for redeeming its notes, and since it
has not the character of working capital—for this, as we
have heard repeatedly to-day, is constituted by the circulating notes—I consider that an increase of the capital
is not necessary. In my opinion, and also in that of the
classes of people that I have questioned, the capital the
Reichsbank has had hitherto, including the surplus, is
fully sufficient. I admit, however, that an increase would
necessarily have a favorable effect on the condition of the
bank through strengthening its own resources and through
creating a better relation toward foreign money.
I find that in this matter I am in agreement with the
opinions expressed to-day by Geheimrat Wagner and with
those expressed last month by the expert, Herr Hey man.
On the other hand, I can not see that an increase of the
capital would have any effect in improving the money
market, and in particular the stock of gold of the Reichsbank. A strengthening of the power of the Reichsbank
to make loans on collateral I consider unnecessary at normal times, since I agree with Doctor Stroll that in case of
war special measures would still have to be adopted with
regard to this matter. I am of the opinion that the ordinary need can be satisfactorily met.
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I can not forego the opportunity to express the wish of
a considerable number of people that the Reichsbank be
empowered again, as it was formerly, to allow the introduction of a preferential rate of interest for loans made
on the security of German state papers.
An argument against the increase of the capital is, to
my mind, to be found in the loan requirements of the
states and of the cities, which must still be satisfied in
very large measure in the near future. Furthermore, I
look forward to an economizing of the circulating medium
which will gradually come about through the extension of
the use of checks and drafts, and in consequence of this a
lessening, little by little, of the demands made upon the
Reichsbank. For this reason also, I consider that an
increase in the capital is not necessary.
On the other hand, I am obliged to assent to the considerations brought forward by Stadtrat Kaempf to this
extent—namely, I consider that they can be upheld as
arguments for the increase of the capital, and that they
are worthy of discussion.
Gentlemen, I may sum up my position thus: I do not
consider that an increase in the capital of the Reichsbank
is necessary; but I do think it can be carried through
if it is pronounced desirable by the Reichsbank administration, which is, in my opinion, the first judge to be
taken into account and the most competent critic of the
question.
As for an increase of the surplus I should welcome it,
provided it were introduced through an increase in the
capital. An increase in the surplus without increase of
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the capital I should discountenance for this reason—that
both the interests of the shareholders (through a cutting
down of their dividends) and the interests of the Government would be thereby infringed upon.
As to the last question—that of the tax-free note contingent—I am of the opinion that it should not be abolished. The character of a danger signal has been rightly
attributed to it; and rightly, too, was it pointed out that
a danger signal loses its meaning if it is too often sounded.
In the past year we have constantly heard the sound of
this danger signal, and on this account a raising of the
note contingent might well be recommended. Gentlemen,
though I do not think that the increase of the note contingent is necessary for the Reichsbank and for the great
banks, still I do believe that it would be good for large
economic classes, provided we continue to have the danger
signal. Even if I do not think that the course of the
rate of discount can be materially affected by the raising
of the tax limit, nevertheless, in my opinion, an increase
would be useful to the Reichsbank in so far as it obtained
thereby greater freedom of motion. My opinion is that
the increase of the note contingent to 600,000,000 marks
would prove to be an advantageous measure.
Mr. GONTARD. Gentlemen, I am quite aware that in
your circle of parliamentarians, bank experts, jurists, and
scholars I occupy an uncommonly difficult position. But
when I received the summons to attend the bank inquiry I
wrote that I was really in that sense no expert; that I
could only answer certain special questions which are concerned with industry. Now, if I am to do justice to my
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task, I must emphasize the fact that I do not regard
myself as a representative of a class, as has happened in
the case of other men, but that I conceive my present task
in just about the same spirit as I conceive my office as
member of the board of trade. I have to examine the
arguments that are set before me, and I have to decide, to
the best of my knowledge and my conscience, whether
these arguments that are set before me are valid or not. I
have examined the material very thoroughly; the material
that reaches one from all sides is, to be sure, so comprehensive that it is impossible for one to examine it from
every point of view. Besides, it is extremely difficult to
distinguish the important from the unimportant considerations.
Now, coming to the various questions, I wish to express
in the name of the commission, in so far as this has not
already been done by others, the heartiest thanks to the
gentleman who sent us the little manual. I believe that
we shall be carrying out the intention of our chairman if
we keep our attention closely and particularly on this
manual. I shall not go further at present into the separate
reasons given, for I could not explain the argument to you
further than as it is printed here before you, or as others
could do much better than I.
If at this point it be said that business operations have
so greatly increased that they call for an increase of the
capital, I disagree. The operations of business do, to be
sure, call for an increase in the circulating medium, but
they do not call for an increase in the capital. Gentlemen,
the contention that the land owned by the Reichsbank has
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risen in value, that more pieces of land have been bought,
that in general more real estate has been acquired—this
contention is plausible enough. But the increase of
capital called for by this is but slight. In general, the socalled capital of the Reichsbank is, to my mind, itself only a
guaranty fund; the real capital consists in the bank notes.
If we are told that other countries have a smaller capital
in their banks, while they have before them the same
problem as that of the Reichsbank, then in this we have
an argument for the belief that we need not increase our
capital. It sounds plausible to say that Germany occupies
a central position, and must therefore be particularly
careful in this direction. But if anything were to be done
with that object the capital would have to be very greatly
increased—and no one has this in mind. The foreignexchange policy is not, in my opinion, dependent upon the
capital. As far as the question of loans on collateral
comes in, it is not necessary to increase the capital, and in
this connection I, too, wish to express my agreement
with the view that too much business in this line is not
good for the Reichsbank, because it might easily call forth
too much giving of credit.
That the bank deposits would be withdrawn in case of
war seems to me probable. This would, indeed, decidedly
point toward the advisability of an increase of the capital.
Nevertheless, I am not of the opinion that when new
money is locked up in" the Reichsbank for capital this is
merely taking the money out of one pocket in order to put
it into the other.
Reference has been made to former instances in which an
increase of the capital has been effected; that, too, would
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be another argument against the increase of the capital,
for these increases were of no use. But the counter
objection could then again be made that the increase was
not large enough. I am quite decidedly of the opinion
that gold will not be retained if it comes into the Reichsbank by way of an increase of capital. Only an unessential influence upon the condition of the Reichsbank will
be exercised by an increase of the capital; an influence
upon the rate of discount wrill perhaps be felt for a time,
but not permanently. In view of all this, I wish to say
that an increase of the capital seems to me not absolutely
necessary.
I may now take up the question of appearances. It is
not, to my mind, necessary that the Reichsbank should
unquestionably stand at the very head of the German
banks in point of capital. How high, for example, shall
it be placed? The Deutsche Bank has now 200,000,000
marks. Suppose it increases its capital in the next few
years by so and so much; then the Reichsbank is once
more not at the head. To sum it all up, then, in view of
all that I have said, I arrive at the conclusion that an
increase of the capital is not absolutely required.
Nevertheless, I have such extremely great confidence
in our Reichsbank administration that if it should express the wish that the capital should for any reason be
increased, I should not for a moment hesitate to declare
my approval of a small increase.
As to the question of the note contingent, I wish to
admit at once that the amount of the contingent is in
every case quite arbitrarily fixed. In this case the greater
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amount of business does certainly call for an increase of
the contingent.
Concerning the question of the so-called danger signal,
I am certainly not of the same opinion as most of the
gentlemen who have spoken to-day. We must make a
distinction according as it is big business men or little
business men that we are thinking of. The big business
men ought certainly to be able to perceive simply from
the condition of the Bank what the situation is, while the
small business men—those, for example, who have, like
myself, about 1,000 or 1,500 customers—are so placed
that most of them do not in any case know what the tax is.
If, then, after the abolition of the contingent, the people
were told, "If there were now, as there used to be, a
danger signal, the situation would be precarious," that
would come to the same thing as if they were told by the
banker, as they are now, that the Reichsbank has passed
the tax-free limit.
As for the impression that would be made upon foreign
countries by the removal of the tax, I wish to say that
we ought not to pay too much heed to foreign countries. A graded tax seems to me too complicated; nor
do I think that it would be of any value unless it rose
very rapidly. Moreover, if we now consider the question
of whether the note contingent shall be entirely removed
or greatly raised, I am on the whole in favor of its being
greatly raised, although I consider the present moment
really not very well suited for such a measure, inasmuch
as it would be better to wait and see how far the efforts
to bring gold into the Reichsbank will bear upon this
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point. In any case an increase is arbitrary, and we live in
an age in which everything is settled according to population—the circulation of silver and so forth. Could we
not take the population as a basis in this matter, too, and
say, instead of the 473,000,000 marks that we now have,
we will take ten times the number of inhabitants of the
German Empire as the note contingent?
Mr. MuUvER (Fulda). Gentlemen, I consider that an
increase of the capital of the Reichsbank is not necessary—is not even advisable if the question is put in the
latter form. In my reasons for this opinion I am in exact
accord with what Doctor Stroll has said here this morning.
I think I need not repeat these arguments; they would
take up too much time.
I should, however, like to contradict very emphatically
the statement that the capital of the Reichsbank stands
in any relation whatsoever to the rate of discount.
If now the question is put, whether the surplus should
be increased, I would favor an increase up to 50 per cent
of the paid-up capital, for a great part of the surplus is
now sunk in the bank building.
As for the question of the note contingent, I should be
in favor of a raising of the note contingent; I consider it
to be indifferent whether the sum be fixed at 550,000,000
or at 600,000,000. I should like to say in this connection,
however, that the note tax has nevertheless not been
superfluous as a danger signal, that it has had a good effect
in recent years, and that we are already getting the benefit
of this good effect. For we may well say that the condition of the bank and the state of credit have materially
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improved since the discount screw has been firmly
turned. [Quite right!]
Indeed I consider the long-continued high rate of discount in the last year and up to the spring of this year—I
consider this a measure for the restoration of sound conditions, for without it the economic situation might per
haps have become still worse. The excessive speculation, "the overtrading," as Professor Totz said, would
have extended much further and would have had still
worse consequences if the curative measures on the part
of the Reichsbank had not been adopted.
Now, if at this point it be brought forward by Doctor
Schmidt that we shall have to increase the capital of the
Reichsbank in order that it may always be able to take
from the Government 200,000,000 of treasury bills, or
to hold this amount at all times, I should look upon that
as an utterly perverse measure. On the contrary, under
no circumstances would I lend a hand to further increase
the Reichsbank's capital in order that the floating debts
of the Government may be multiplied ad infinitum. It
is precisely the system of floating debts, as it has been
hitherto, that I regard as a dangerous, mistaken system;
and I should be only too glad if a speedy and thorough
financial reform should put an end to this floating debt
system. Least of all would I approve of a permanent
increase of the Reichsbank's capital, which would promote still further this floating debt system. If we once
have a sound government finance, if we also clear a way
for the cooperative trade associations by providing credit
facilities, then the Imperial Treasury, and through it the
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Reichsbank also, will be disburdened of about 200,000,000
or 250,000,000. The former situation will be restored,
when the Imperial Treasury as a rule really had money.
Now it is always the debtor of the Reichsbank. Whenever any need arises in the treasury a demand is simply
made upon the Reichsbank, and the money taken out of
it without regard to the circumstances. This situation
should not be allowed to continue. The Reichsbank would
even now be on a better financial footing if these floating debts and the loan arrangements of the cooperative
trade associations were got rid of. Therefore I think that
one should not, in order to obtain a temporary result,
adopt measures which will afterwards have a lasting
effect, such as those which Director Schmidt proposed.
This is in brief my view. I do not care to go more
closely into the reasons for the particular points, for this
has already been done in such great detail by Doctor
Stroll, Geheimrat Riesser, Herr Mommsen, and others
who are of the same mind, that I really think it would be
a waste of time to revert to the matter again in any more
thorough way.
Doctor WEBER. Gentlemen, the reasons that have
been submitted to-day in favor of the increase of the capital have succeeded as little in convincing me as they have
in convincing Geheimrat Riesser.
I, too, would confine myself to a few words, were it
not that I wish to take up a few points that were touched
upon in to-day's debate. This morning my right-hand
neighbor, Oberbergrat Doctor Wachler, said that foreign countries had cast a doubt upon the credit of the
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Reichsbank; Herr von Cetto has already said that he has
heard nothing of this, that he has read nothing to this
effect in the foreign press. But I should like to point out
to the gentlemen who favor the nationalization of the
Reichsbank that foreigners would perhaps have had cause
to doubt the credit of the Reichsbank if it were a pure
state bank; and the only reason that can weigh with me
to make me plead for an increase of the Reichsbank's
capital is that an increase of the capital would further
postpone the nationalization of the Reichsbank, or would
even perhaps make it forever impossible.
It has been further alleged as an argument for the
increase of the capital that thereby the revenues of the
shareholders could be watered, and Herr Kommerzienrat
Fischer has, I believe, referred to the fact that he would
really be somewhat ashamed to receive 9 per cent or 10
per cent on the shares. I should like to call Herr Fischer's
attention to the fact that in itself the average share of the
shareholder for all the thirty-two years of the Reichsbank's
existence will very probably not have been above 6.5 per
cent. If it is borne in mind that the price of shares is far
above par (about 150 per cent), it appears that the interest
stands not at 6% but ^j4y or at most 5 per cent. That is a
rate of interest which, taken into connection with the
fluctuations of the market and the risks involved, should
be regarded as not too high.
Moreover, I, too, consider that an increase of the capital
will exercise no influence in any direction upon the condition of the Reichsbank. But I should like to call Doctor
Schmidt's attention to the fact that the increase of the
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capital has as little connection with the tax-free note contingent as it has with the condition of the bank. For the
note contingent is reckoned with reference to the cash
holdings; the capital does not enter into the question of the
fixing of the tax limit. Therefore an increase of the capital
would bring about no change in this respect.
As for the surplus, Geheimrat Wagner explained this
morning that it might have three functions—the function
of guaranty, the function of equalizing the profits, and the
function of increasing the working capital; and he thought
that the surplus might also serve to equalize the fluctuating
dividends. The use of the regular surplus for the purpose
of equalizing the dividends is in itself prohibited to the
joint-stock banks according to our law. In the Reichsbank, too, it should not be permitted except for the exceptions provided for in the banking law. A separate dividend surplus would, therefore, have to be created. Whether
that can be done by the Reichsbank seems to me doubtful.
The proposal to issue the new shares in sums of 200 marks,
nominal value, seems to me dangerous. We have laid
down in our law concerning shares the principle that, for
well-weighed economic reasons, shares may not be issued
in denominations of less than 1,000 marks. And I should
like to point out, with reference to the statements of Herr
Raab, that the middle class as such has perhaps no need
at all to hand over its capital for the purpose of acquiring
such shares. If the middle-class people wish to have safe
investments at good interest they get the same revenue
now from state loans, without exposing themselves to the
price fluctuations of a share of stock.
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The second question, as to increasing the tax-free note
contingent, includes the subsidiary question:
11
May it be assumed (and, if so, for what reasons) that an
increase of the tax-free note contingent has an influence
upon the determination of the rate of discount?"
So far as I have heard, no reference has as yet been made
to this matter by the gentlemen who have spoken before
me. I am of the opinion that the tax-free note contingent
has no influence upon the rate of discount. The experience of past years establishes beyond a doubt the fact
that neither the former nor the present president of the
Reichsbank has permitted himself, or will permit himself,
to be guided, in fixing the rate of discount, by the consideration whether the highest limit of the note contingent is
passed or not; and I think that, conversely, if the rate of
discount should be higher than the tax to be paid upon
overstepping the note contingent, this would have no
influence upon the further development of the rate of discount. It is well known that other causes operate upon
the height of the rate of discount.
An increase of the tax-free note contingent, while a
limitation of this character is retained, I consider to be on
the whole well timed, since we know that in recent years
the overpassing of the limit has been so frequent that it
seems necessary finally to introduce a systematic arrangement that answers more effectively the purpose of this
tax limit. I think it would be a good plan to have the
note contingent fixed at perhaps 600,000,000, a sum,
moreover, with which no fault could be found on the score
of looks, as is the case with the present 473,000,000.
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Mr. ROLAND-LUCKE. I take it that an extension of
the Reichsbank grant will not be allowed to go beyond
ten years, and therefore I shall express my view of the
matter with reference to this time limit.
I.consider that an increase in the capital of the Reichsbank is not advisable, because, on the one hand, I can
not be sure that, as the result of such an increase, the
Reichsbank will be strengthened in its capacity for drawing in gold and for retaining gold, and because, on the
other hand, it is just as difficult for me to imagine that
by means of this increase the Reichsbank will be enabled
to maintain, or to introduce, an economically sound
policy of low discount.
Gentlemen, the most important point, to my mind, in
all the statements, written and spoken, that have been
brought before us during the inquiry proceedings, is the
solemn assurance of the Reichsbank president [quite
right!] that in the future the Reichsbank, in its discount
operations, will confine itself, even more than it has
hitherto done, to receiving legitimate business bills—that
is, economically justified fluid bills. [Quite right!]
Gentlemen, it seems to me that many of you do not
sufficiently appreciate the importance of this declaration.
Even if our whole inquiry should appear to have no
success at all in forming outside opinion, I should consider that it had achieved a tremendous success if it
should have at least the effect of strengthening the
Reichsbank administration in carrying out this assurance
of theirs. Gentlemen, if the Reichsbank keeps to this
principle you have won everything that you could, in
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any practical sense, possibly desire. You have, to begin
with, the necessary influence upon the whole activity of
the Reichsbank. A bank or a banker will hardly be
inclined to replenish the portfolios to any great extent with
such bills as can not be accepted by the Reichsbank.
But you not only get the desired moderation of the
banker in treacherous times, you get also the desired
moderation of the banker in point of the number and the
kind of customers whose drafts he will accept.
Geheimrat Von Gamp declared this morning that it
was really remarkable that precisely in the hard times of
the past year industrial interests in the great industrial
districts made so very little demand upon the Reichsbank.
I think that Geheimrat Von Gamp overlooks the fact
that the greater part of the industrial world no longer
uses bills at all; that very large dealers and producers
are obliged to sell entirely upon open credit; that therefore the buyers, too, must mobilize their regular outstanding debts not by direct drafts but by credits,
which, whether in cash or in the form of drafts, they
obtain from the banks. If the declaration made by the
Reichsbank president, Herr Havenstein, is carried out
in practice we shall have, in the activity that will follow,
a sure guaranty that a moderation on the part of the
banking world will necessarily take place, a moderation
which is desired by many. But we naturally have, in
addition to the moderation of the banking world, also
the moderation of manufacturers and tradesmen and other
entrepreneurs, which will cause them to keep their business within such limits that we shall not be so likely to
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be again confronted with the situation in which we found
ourselves last year—that of an overloaded stomach.
Now, gentlemen, if you are agreed with me that we
really all ought to do everything we can to nail the
Reichsbank down to this declaration, then I confess I do
not understand why some of you wish to confer upon the
Reichsbank the Greek gift of a large increase of capital.
I consider a great increase of capital to be not merely
inadvisable but dangerous. Gentlemen, if I had my little
say in the administration of the Reichsbank, I should
contend with all my force against a large increase of
capital. Why? An essential part of the reasons have
already been submitted to you by Herr Fischel and
Geheimrat Riesser. I should like to call your attention
also to a few little points which will perhaps make the
matter more clear to you.
Gentlemen, to do business—and here I think every business man will bear me out—is not difficult; it is ever so
much more difficult to refrain from doing business. I
think that a great many of you who are practical bankers
still remember, as I do, the time when the private discount
rate was i per cent, and it was extremely hard for
every banking business to employ even a part of its cash
assets in a prudent way. Gentlemen, it is precisely at
such times that most unsound businesses are started and
established. The businesses come to your notice generally much later, but they are more or less compromised
just at such times. Now, if the Reichsbank in its discount policy will fulfill only legitimate demands, then we
must next ask ourselves: Has the Reichsbank then hith-
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erto not fulfilled these legitimate demands in the German
Empire? Has any one of you ever heard a well-grounded
complaint from anyone who had been turned down by
the Reichsbank? I must confess that I have not. I have
never heard of the Reichsbank turning away, in the discounting of such legitimate and economically justified
bills, a man who was prudent and economically on a
sound footing—whether a manufacturer, a merchant, a
farmer, or a man of any other business that you may
name. Very well, then; we have seen that the Reichsbank is fully able to respond to these demands; it has the
means to do so. And are we now to burden the Reichsbank with this gift—and that at a time when, presumably,
we are about to live through for a year, or perhaps two
years, to come, a period of very little financial activity?
I should not like to undertake the responsibility for such
an act.
But I see also other reasons. From the standpoint of
the Reichsbank administration, I should feel a certain
fear of stepping into the midst of the factions that are
contending with each other out here. As regulator of
our monetary circulation, as guardian of our currency,
the Reichsbank absolutely requires a certain independent
position, which is provided for it by its capacity for quick
decision. If it is hoped and wished—as it apparently is,
to judge from certain of the speakers' expressions—that
the direct credit activity of the Reichsbank may be
strengthened as opposed to the indirect credit activity,
then I must admit—and I believe the matter has already
been referred to by one of the other speakers—that I do
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not in the least look upon that as a desirable strengthening
of the inner soundness of our Reichsbank. If the Reichsbank has to deal with the real taker of credit only indirectly, it can send him away very easily in case it thinks
that a certain restriction is needed. But if the taker of
credit is before him in the flesh, it makes a world of difference to the standpoint of the one who does not wish to
continue a grant of credit. I must confess I should prefer
to have a third party to whom I may say, " I do not want
that bill any more," rather than have the man face to face
with me, while thinking to myself, "you know you will
have to say B, too, after you have once said A and
committed yourself."
The idea has been expressed, I think by Herr von Gamp
that the Reichsbank would necessarily have more of an
understanding of what takes place in industry, or in our
economic activities in general, if it entered more often into
practical activities, and consequently were more in the
way of quickly perceiving, and hence, also, of influencing
the indicative phenomena in this or that sphere, or in the
economic sphere as a whole. The statement was not
expressed in these words, but I have gathered as much
from the tenor of certain remarks that have been made.
Yes, gentlemen, this perception on the part of the Reichsbank, and the possibility of such a perception, really exists in every sphere, and to as great an extent as the
Reichsbank can possibly desire. [Quite right!] Every
man in Germany who is engaged in industry will put himself in every respect at the disposal of the Reichsbank
whenever the latter may happen to question him with the
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object of obtaining direct information about his business
situation, or about the situation of his line of business.
In most cases, I think, he would look upon it as an honor
to be asked to assist at such an investigation or at such
a discussion. Of course, here and there an obstinate
fellow will turn up and say: " I have no need of the Reichsbank. What business has the Reichsbank to inquire
into my circumstances ?" I think, however, that these
exceptions are so insignificant that one need not take
them into account.
For all these reasons, I should emphatically warn you
not to offer to the Reichsbank a large increase of capital.
What the Reichsbank itself thinks about the question
of increasing the capital we do not know; but after the
expressions which we have heard from President Havenstein, and to which I referred above, I can hardly conceive that the Reichsbank will be in favor of having a
large increase of capital as such. Perhaps it will even
decline the offer of such an increase. A small, moderate
increase of capital—by which I mean an increase of
20,000,000 or 40,000,000 marks—I should consider to be
in itself insignificant, not sufficiently significant to cause
me to make an energetic effort against it. I should come
to a definitive decision as to whether such an increase is
serviceable from the standpoint of the community if I
had first heard the opinion of the Reichsbank itself, which
would then have to set before us its own observations
and experiences and the position that it takes, which we
naturally have to take into account in all the inferences we
make. This, for well-considered reasons, the Reichsbank
will not do, at least not now.
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Consequently I sum the matter up thus: From the
standpoint of the interests of the community, I should not
condemn as hazardous the plan of increasing the capital
of the Reichsbank by 20,000,000 or 40,000,000 marks,
nominal value. I should even consider it advisable, if
the Reichsbank itself approves of increasing the capital
to this extent.
Now, for the question of the surplus. My principle as
a merchant is that one can never have enough surplus
In accordance with this principle, therefore, if for no other
reason, I should consider the opening of the surplus at
the Reichsbank to be in itself worth consideration; I
should consider it to be advantageous. The proposition
made this morning by Herr Geheimrat Wagner could be
very well combined with this idea. As I understand it,
the existing surplus is employed, when necessary, to bring
the dividends up to 3 % per cent. It would be advisable to create in connection with the surplus which,
upon the extension of the bank's charter, might have to
be formed anew, a surplus No. 2, or whatever else you
choose to call it. A means of removing the risk on the
fiscal side could be found in this: In the event of nonrenewal of the charter, three-fourths of this second surplus would be assigned to the Government as against onefourth for the shareholders. So that the apparent sacrifice of the State would not itself count for much. This
second surplus would perhaps be practically formed in
this way: In case there should be on hand distributable
profits amounting to more than a 6 per cent dividend,
a certain fixed percentage of these profits should go to
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the second surplus. If there should be a smaller amount
of profit on hand, so that the distribution of a dividend
of 6 per cent would not be practicable, then the amount
might be increased from perhaps 3^2 per cent to 6 per
cent out of this reserve fund.
The question of the raising of the note contingent I
should answer as follows:
From hearing the case stated by a number of experts,
I have become convinced that, as things now stand, a
certain raising of the note contingent is advisable, and I
should fall in with those who consider an increase of
about 100,000,000 to be a suitable amount. But I
should not wish to conceal the fact that in regard to
this question, too, considerable weight must be given to
the position taken by the Reichsbank itself. It can not
be denied that with the raising of the note contingent the
Reichsbank administration would give up a factor which
hitherto has stood it in good stead in the effective resistance to such sentiment as has opposed a raising of
the rate of discount. We have heard, and we ourselves
know, that the note tax in itself has not influenced the
policy of the Reichsbank with reference to discounts. We
can therefore imagine that, without reference to the question of note tax or no note tax, the Reichsbank will in
the future regard a raising of the contingent as desirable.
In that case, if the contingent is raised, the Reichsbank
can no longer have recourse to this argument, so easily
grasped by the great mass of the people: We have gone
into the note-tax region by such and such an amount—
we can do nothing more for you. We weaken the
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Reichsbank, therefore, in the ability to ward off certain
attacks; but this argument will perhaps not be made
much of by the Reichsbank itself.
For the rest I see no risk, from the standpoint of the
community, in raising the note contingent by about
100,000,000.
While I still have the floor I wish to add to my observations a personal remark, which I should not like to have
omitted, apropos of the speech made to-day by President
Heiligenstadt.
President Heiligenstadt has depicted for us according to
his conviction a remarkable type of the director, or of a
director, of a great bank. He did not mean to give
offense. I am, consequently, very far from finding in the
picture of this type as drawn by the gentleman aforesaid
any ground for irritation. But I should not like to let this
legend about the type of a great private bank director pass
entirely unchallenged by us, who are, or have been, bank
directors, and in the presence of those gentlemen who have
in charge the mercantile education of our young business
men. It is all the more clear that President Heiligenstadt
meant nothing derogatory, from the fact of his having at
once added that if he were such a director he would of
course act in the very same way. Well, President Heiligenstadt, you are not yet such a director. But I believe
that if you wrere you would not be one long. [Quite right!]
You have said: " I can not blame the leaders of the great
private banks for thinking only of their own banking
interest—that is, of the interest of the shareholders and
that of their institution—as distinguished from the com-
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mon interest." Ah, respected Mr. President, but that is
quite impossible! Certainly, I can conceive the matter
from the standpoint referred to, thus: You will be gaining
a great thing for your institution. But if I look upon the
question to some degree from a less short-sighted point of
view, then it must be clear to me that if I injure the community in which my bank has its roots, with a great proportion of all its engagements, I shall sooner or later have
to deliver up this temporary gain, and deliver it up with
a large increment. I think, therefore, gentlemen, that
there are very few of such bank directors as Herr Heiligenstadt conceives. But there are a great many who feel
very clearly their responsibility, not on moral grounds, but
on grounds of business expediency—we, in our position as
merchants, will quietly let the matter rest upon the prosaic
basis—who feel, then, their responsibility, in view of the
fact that they themselves and their own interests would be
the chief sufferers from an act that was in opposition to the
general interest. [Quite right!]
The CHAIRMAN. Gentlemen, it remains for me to give
those gentlemen a chance to speak on question II who
replied this morning only to question I, and I request the
different speakers to add at the same time whatever
remarks they may be inclined to make in connection with
our last debate on question I.
Freiherr VON WANGENHEIM. Gentlemen, as for the
increase of the note contingent, I am on this point in agreement with the gentleman who has just spoken. I would
not deprive the Reichsbank of the means of defense which
it now has in the limitation; and just at present I should
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consider a further increase to be not without risk, since we
are presumably on the eve of a great extension of the check
and deposit business.
As to the complete removal of the note tax, I can not
muster up any enthusiasm for that. I think that in this
matter, too, a danger signal must be retained. In case of
the nationalization of the Reichsbank the tax would be
given up.
I am surprised that in to-day's debate there has again
been such scornful mention of the small revenue which the
government obtains from the Reichsbank. When I then
observe how in the proceedings of the Reichstag the
smallest sum is haggled over, I can not understand that
contempt, and I bring up again the old agricultural principle: "Even small cattle make manure. 0 [Laughter.]
Even small sums are not to be despised.
Freiherr VON GAMP-MASSAUNEN. Gentlemen, I will
refrain from replying to views with which I differ. I
wish to make just one remark: I do not understand how
several gentlemen—the last speaker among others—could
say: " I am under any circumstances opposed to an
increase of the capital of the Reichsbank. ,,
Mr. ROLAND-LUCKE. To a large increase!
Freiherr VON GAMP-MASSAUNEN. TO a rather large
increase; but surely surpluses can not be enough. I
admit that in the relations between the shareholders and
the Government it makes a difference whether the working capital is enlarged through an increase of surplus or
through an addition to capital. But so far as concerns
the economic question, Does the Reichsbank need more
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money? it is a matter of complete indifference whether
it acquires this money by way of an increase in its share
certificates or by way of an increase of the surplus. Therefore the difference is not at all clear to me. I particularly fail to understand how one can maintain that the
surplus must in any case be reinforced, for this reinforcement is exactly what we want. Whether it be done
in this way or in that is matter of indifference. I admit,
too, that this reinforcement can also be introduced in
the manner suggested by Herr Lucke. Even his other
lucubrations about the distinction to be made between
the shareholders and the Government appeal to me a
good deal.
I shall now say a word about the tax-free note contingent. Gentlemen, if it were really a storm signal, I,
too, should be in favor of it. But many of the speakers
have overlooked the fact that the Reichsbank has, not
once but repeatedly, declared that it would not permit
this note tax to cause it to raise the rate of bank discount
unless this increase should be justified and necessary on
general grounds. The Reichsbank has therefore itself
declared: This danger signal I ignore. I will not proceed
to raise the rate of bank discount because a passing of
the tax-free limit is to be expected. Now, gentlemen,
if you will glance at the last yearly report you will find
that in the year 1907 the tax-free note contingent was
passed twenty-five times, it was passed continuously
from September 30 to December 31, and part of the time
it was passed by hundreds of millions. Is that a danger
signal ? [Yes!] Not at all. [Yes!] It falls through com-
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pletely. Gentlemen, if you should raise the tax-free
limit, which is now at about 470,000,000 marks, to
700,000,000, then the tax-free limit would in the past
year have been passed only on January 7, on March 30,
and on June 29—that is, three times—and from September 30 on, eight times—altogether, therefore, eleven
times. If the tax-free limit were fixed at 800,000,000, it
would still have been passed seven times. A temporary
excess of this kind would fit in with the idea of regarding
the limitation as a storm signal.
Gentlemen, it must be, moreover, admitted that there
is an essential mistake in principle at the bottom of the
determination of the measure of this tax-free limit—
namely, the mistake that it is absolutely rigid and utterly
independent of the proportion in which the notes are
covered. It is quite plain that the notes are secured in
a very different way according as there is or is not a
considerable covering in gold, and that if you have the
means of covering 500,000,000 and have at the same time
500,000,000 in uncovered notes, that is quite a different
situation from what exists when you have covering for
a billion and have 500,000,000 in uncovered notes. It is,
therefore, under any circumstances, a fallacy that lies at
the bottom of this regulation; a fallacy, moreover, which
is evidently seen through by the Reichsbank administration, for the latter has repeatedly declared, and has also
acted upon the resolution, that it will not raise the rate
of discount because it has overstepped the tax-free limit.
In my judgment this would, anyway, be a more rational
plan: That when the note issue exceeds a certain amount
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the percentage of the note-covering be raised by a third.
This I should pronounce rational, or else that with an
increase in the stock of gold the freedom from tax be
extended. We can then say: If there is a larger note
covering, then the notes of the Reichsbank are necessarily
better secured; then I do not need this provision of the
note tax.
I will not here enter further into the question of whether
it is rational or justifiable to accept silver coin and imperial exchequer bills as note covering; there will still be an
opportunity for discussing that matter another time.
I will therefore sum up my view as follows: I consider
the note tax to be altogether irrational, and I should be
in favor of its removal as such. The matter has not any
large financial importance for the Government. Last
year is the only year in which we have had such an exceptional situation that the note tax amounted to from
5,500,000 to 6,000,000 marks. I would suggest that if
there is to be a tax, the tax-free note circulation be made
dependent on the ratio of the gold cover in such a way
that the tax-free note circulation would be extended along
with an increase in the percentage of the gold cover.
Doctor STROIX. At this late hour I do not wish to keep
you any longer by taking up the question of the contingent; and have the less reason to do so, since in the protocol of subcommission I my view is laid down more than
once.
I will merely sum up very briefly: I am of the opinion
that the provision of a contingent, in which I seem to
perceive a basic and important principle of the bank law
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of 1875, should be retained; that, however, the amount of
tax-free notes should be increased to the point of, say,
5 5 0 , 0 0 0 , 0 0 0 or 600,000,000.
For the rest I refer to my opinions expressed in subcommission I, especially on page 70 and the following
pages and on page 89 and the following pages in the
stenographic report.
Doctor WACHI.BR. Gentlemen, with reference to the
question of the contingent or the freedom from tax in
case the note limit is passed, my position is that the
fixed establishment of a definite sum, which with the permission of the bank law may well have seemed under the
circumstances then existing a justifiable method of determining the contingent, has nevertheless turned out
to be a failure. I take the position that the contingent,
assuming that the Reichsbank needs to have it raised,
should be raised.
Furthermore, I must say that the suggestions made by
Doctor Schmidt with reference to increasing the contingent seem to me to be appropriate, and, if they are
feasible, to be worthy of consideration.
Mr. KAEMPF. Gentlemen, I look upon the establishment
of a contingent as right in principle. I consider that
a raising of the tax-free note limit is not in itself
advisable; I even think that it is advisable constantly to
keep in mind the fact that the issuing of notes is
no magical performance and that the economic needs of
the public are better served if an attempt is made
to bring about as great a saving as possible of circulating medium. The English bank act has in my judgment
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worked to very great advantage in this respect, that,
whatever other deficiencies it may have, it has fixed
a certain sum beyond which uncovered notes m a y in no
case be issued. We have a better regulation of the
m a t t e r t h a n the English bank, inasmuch as beyond a
certain a m o u n t we can still issue notes, b u t for these
uncovered notes beyond the fixed amount we have provided a tax. T h a t we have in this an appropriate danger signal seems to me indubitable.
Freiherr Von Gamp confuses two things; he confuses
the danger signal which is given to the Reichsbank on
occasion as an indication t h a t the rate of discount should
be raised with the danger signal for the public. The latter
is w h a t we are concerned a b o u t ; for the Reichsbank is of
course always in a position to survey the situation for
itself.
As for the raising of the tax-free note contingent, I
have already said t h a t for one reason I am opposed to an
increase; I consider it unnecessary if we continue to take
care to economize the circulating medium. B u t if it is
proposed t h a t we undertake an increase of the capital of
t h e Reichsbank b y as much as 60,000,000 marks, I should
make no objection to having the tax-free note limit increased in the same measure, so t h a t the tax-free note
contingent would be increased b y about 80,000,000, or,
if you like, 100,000,000. This position I take to be justified also on this account—I am anxious t h a t we should
not in any way create the impression of finding it necessary to raise the tax-free note contingent in order to
satisfy the needs of credit, which, as we see, are, for the
present, already decidedly on t h e decline.
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Mr. SCHINCKEIV. Gentlemen, I must recur, in a word
or two, to the very interesting excursion which Doctor
Heiligenstadt has undertaken to make with us into theoretical political economy, and I recur to it indeed for a
purely personal reason. President Heiligenstadt mentioned me twice as responsible for the remarks made by
Freiherr Von Wangenheim. That is not right. Herr Von
Wangenheim traced the root of all evil to an unmeasured—
that was his word—use of credit and granting of credit.
I have, on the contrary, endeavored to prove that if banks
and industrial societies had to grant to trade, to industry,
and to agriculture more credit than is, perhaps, for their
own sakes desirable, there were quite legitimate reasons for
the necessity of granting this credit, since it was called for
by the emergency. I particularly guarded myself against
using the word " unmeasured/' because I can not regard
a legitimate act as being covered by this term.
I shall, of course, refrain from a further examination
of the subject, although I have received the impression
that many other things that President Heiligenstadt said
about the credit banks prove that, though he has shown
himself to be in sympathetic relation with them, he does
not know how things are carried on in these banks;
otherwise he could not possibly have made the observation
about the heads of the great credit banks which has
already been objected to by Herr Lticke. All I can say is
that if the heads of the great credit banks were such people
as they are represented to be by Herr Heiligenstadt, they
would not long be able to retain their present posts.
There is something I am anxious to say to those gentlemen who still, even after these ten years, keep in view
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the plan of the nationalization of the Reichsbank It is
precisely these people who wish to make the Reichsbank
shares accessible to the little people without limitation,
though of course at a high rate of interest. I must confess
that I regard this as an extremely precarious measure. I
believe that, as Doctor Schmidt has already remarked,
it is quite impossible to do this without limitation. If
ten years hence the question is to be brought up of nationalizing the Reichsbank and making the buyers take back
their capital under the present conditions, I do not think
it will be possible to unload Reichsbank share certificates
at so high a rate upon these people who, moreover, if the
capital is increased, will not in the following years have
such large receipts as before.
As to the question of the note contingent, I share the
view of Stadtrat Kaempf—that it is absolutely indispensable. There might be a question of raising it a little; I
should prefer, however, to leave it as it is. We are constantly being told that it is no longer a danger signal.
Yes, of course; for him who will not take a warning, it is
no signal. But gentlemen here are always bringing forward the argument that in the last year the contingent
was passed twenty-five times. This precisely proves that
one should look ahead, and the facts have shown how this
signal ought to have worked; for in the autumn the great
gold stringency, or the high rate of discount, came on
precisely because people had not paid enough heed to the
warning. I would therefore by no means give up this
danger signal, and I should not advocate more than a very
inconsiderable raising of the note contingent, a raising
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which could perhaps be brought into accord either with
the capital that is to be freshly issued or with the surpluses
which are to be freshly accumulated. In the latter case
I should consider that the proper sum to add to the taxfree note contingent would be five times the amount of the
surpluses to be accumulated.
Mr. FISCHER. Gentlemen, I should like to express myself on the subject of the contingent. I hold that the
abolition of the contingent would be a great mistake. The
contingent, in my opinion, does not serve only to give
warning in case of a certain note issue; it is an absolute
necessity for the security and solidity of the notes, in that
it prevents their being issued in unlimited quantities.
This limitation is accomplished in different ways by
different institutions. In the Bank of England and in the
Bank of France an absolute limit is fixed, which has in
both cases repeatedly shown itself to be inadequate.
If we should abandon our contingent, then there would
remain only the limitation of the one-third note covering.
I consider this latter limitation to be entirely inadequate
to secure us against the possibility of an excessive note
issue, which would be apt to influence prices and to stimulate speculation. It was certainly the intention of the
lawmaker when he fixed the figure of the contingent to set
thereby a limit which should be decisive for the circulation;
and I am convinced that it was not expected that this
figure would as a rule be reached; it was to be, on the
contrary, a maximum for normal conditions. But in order
to avoid the mistake committed by the passage of the
Peel Act, they did not set a fixed and absolute limit, but
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left open the possibility of issuing more notes under certain hard conditions; that is, by payment of a 5 per cent
note tax. I should regard the removal of the note tax
as a thing to be deeply regretted, since with this the
natural means of limitation would be lost.
But for the very same reason—just because I believe
that the figure of the contingent should be decisive for
the normal circulation—I do not hold that the figure,
once fixed, must be valid for all time. We have already
found that it has proved to be too small. That is perfectly natural, for the situation of the German Empire
in the year 1875 was quite different from the situation
of ten years ago, and the circumstances to-day are again
different, and it may be that in ten years still further
essential changes will be introduced.. Now, it is extremely
difficult to fix upon a figure which shall hold good for any
long period of time, and which can be regarded as
corresponding to a normal uncovered note circulation.
In considering the Reichsbank figures, in so far as they
concern the note circulation and the metallic cover, one
comes to perceive that in the last two years we have
been in no normal condition, and, indeed, principally
because we had not in the Bank sufficient means of
obtaining gold. For a correction of this abnormal situation I should therefore look chiefly to an attempt to raise
the figure of the metal. Thanks to the exertions of the
Reichsbank this has in part already been done up to the
present day. But if we return to a normal metal figure—
which, in my opinion, would have to be higher than it
was ten years ago—then I should see nothing dangerous
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in raising the figure of the contingent for uncovered
notes. So far as this I would go in agreement with Herr
Freiherr Von Gamp—namely, if we had not already
established another contingent system I should perhaps
have considered it highly desirable that the banking law
read simply thus: The notes must under any circumstances be covered by metal to the extent of one-third,
but if the cover is less than two-thirds, then further
circulation is subject to tax. But to go over to this
system to-day would, in my opinion, involve a risk.
For example, in the last years, with the low figure of the
stock of gold, we should at certain times have actually
had at our disposal a smaller contingent of tax-free notes
than we have under the present provisions of the law,
and that at the very moments when the Bank was, apart
from this, very much drawn upon. The impression which
would be produced by the circulation of a much greater
quantity of tax-free notes I should have considered to
be not without danger to the whole economic situation.
I have no intention of referring in this connection to
foreign countries, because I believe that we ought to
make our laws for our own country and manage our
affairs according to our own needs. But even at home
great harm may be brought about by an excessively
anxious view of the situation. I wish to point out that
all those acute crises which have been observed in different countries—in England, in America—have always
been caused far more by the view of the situation
taken by the public in the country itself than by the
judgment of foreign nations. And I am inclined to think
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that if in the past year we had had a lower limit for the
contingent (at the time when the present limit was overstepped), this circumstance would have caused great
confusion in people's minds, and there would have arisen
a public unrest which might have worked much mischief.
Now, a study of the figures of the note circulation seems
to me to indicate that we ought, in point of fact, to have
recourse to an increase of the contingent. I find, that
is, that if we take the figures of 1897—I have chosen the
average figures—the note circulation amounted to
1,085,000,000, but in the preceding year it amounted to
1,478,000,000; there is, then, an increase of 393,000,000.
If we compare the highest figures of the two years—
1,320,000,000 and 1,885,000,000—then the increase is
even 565,000,000. The first figure, 393,000,000, requires,
however, a certain correction. We must subtract the
difference in the note circulation of the private banks,
which at the end of the same period had about 38,000,000
less in circulation than they had at the beginning; and
we must further allow for the smaller circulation figure
of the imperial treasury notes, which fulfill in trade the
same economic function as the bank notes; that is, we
must subtract 60,000,000. Even when we make this
deduction, we find that an increase of 295,000,000 for
the aforementioned ten years still remains. This raising
of the figure can not be matter of surprise, since there
can be no doubt that it is to be ascribed in part to a very
pronounced boom (Hochkonjunktur).
If we look at the
tables that Herr Christians has placed at our disposal,
we shall find that the figures of bills at the banks rose
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from 2,190,000,000 to 4,460,000,000. It is, therefore, in
point of fact, not only the business of the Reichsbank,
but also the great increase during this time of trade in
general that makes it impossible to doubt the justifiability
of such an increase in the notes.
But, gentlemen, the really abnormal thing is another
figure. In the year 1897 the amount of metal in the
Reichsbank was 871,000,000 marks; that in the private
banks was 81,000,000; that is, there was altogether
952,000,000. In the year 1907 there was 843,000,000 in
the Reichsbank, 65,000,000 in the private banks—only,
therefore, 908,000,000 in all. We find, then, that, while
there took place a great development of trade, and while
this development should have been met in large part by an
increase of the gold supply (since it occurred in a period of
very extensive production of gold), as a matter of fact our
gold supply in the vaults of the banks of issue fell off by
about 44,000,000 marks, and consequently we had in the
country an uncovered note circulation greater by 340,000,000. I should not be in favor of correcting this condition by authorizing the use in trade of such large
amounts of uncovered notes. I should wish the correction
to be effected by an increase of the stock of gold at the
Reichsbank by, let us say, about 250,000,000. But up to
a certain point it seems to me we are justified in raising
even the normal figure of our note circulation, and for this
reason I should be in favor of raising the note contingent
to 550,000,000 or 600,000,000, and thus making legitimate
the sum of about 90,000,000, which would in that case be
left over as increase.
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Now, reference has been repeatedly made to the effect
as a danger signal of the passing of the tax-free limit. It
is quite true that in a certain sense it does serve as a
danger signal, and I can not admit that the frequent
sounding of the danger signal would dull our sense of the
danger it indicates and that we should finally pronounce
the danger signal to be useless. If we have had in the last
years such a frequent overstepping of the note contingent,
this has happened precisely because we have been in an
altogether abnormal situation in point of economic development as well as in point of the condition of our circulation
and the condition of the Reichsbank, and it was actually
beneficial for us to receive frequent warnings. The danger
signal, therefore, I would retain, but I question whether
this danger signal does not often sound at the wrong time.
If we say that we must be able to have a certain quantity
of uncovered notes in circulation, we ought to keep in mind
that at the quarterly periods the demand upon the currency is much greater than it is at other times, for an overstepping of the limit at these periods is nothing abnormal,
while at other times it should be regarded as abnormal.
I should therefore like to make the following definite
proposal: It should be provided by a new banking law
that the tax-free note limit be in the general run of the year
550,000,000 marks, but that at each quarterly period it be
raised to 750,000,000. Whether this increase shall be confined to the first week of the quarter or shall be extended
over two weeks is a question still to be considered. I
think that we should in this way manage to bring the
danger signal into repute again, and to have a compara-
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tively correct figure for the extension of the note circulation.
May I be pardoned if I now turn back for a moment to the
remarks of President Heiligenstadt? Doctor Heiligenstadt has said that he can not understand why I believe
that, if the capital is increased, an increase of the portfolio
also would necessarily follow. I must stick to this
opinion. I believe that the figure of the notes which are
in circulation has nothing to do with the direct satisfaction
of the need of credit by the Reichsbank. The figure
depends upon the quantity of circulating medium that is
necessary, at the moment in question, for carrying on the
business of the whole country. I do not think that if, by
means of such an operation as the increase of the capital of
the Reichsbank and the issue of new shares, a certain
amount of the circulating notes, 70,000,000, 80,000,000,
or 100,000,000, should be temporarily introduced into the
Reichsbank—I do not think that in this event the need of
circulating medium would be in the least affected. I am
rather of the opinion that it would remain absolutely
unchanged, and that the real outcome would be that the
bank would very soon be obliged, in fulfilling its function
of regulating the monetary circulation, to bring new
circulating media into the market by way of its discount
business or of its collateral loan business.
I see that on several other points I do not agree with
President Heiligenstadt, but I do not wish to take up too
much of your time.
Mr. FISCHER. I am in favor of the increase of the note
contingent to the sum of 600,000,000 marks, in considera-
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tion of the development which has taken place in the Reichsbank in the last ten years and of that which I hope will take
place in another ten years. I join issue in this matter with
others who have spoken, and I merely wish to observe that
the danger of our coming to have too much gold seems to me
not a great one, when I reflect that the development, for
example, of the use of electricity for the long-distance
railways, of the building of canals, of the opening up of
our colonies by railroads, etc., will continue more and more;
that vast amounts of capital will have to be devoted to
these operations; that probably before long our whole industry will in any case be somewhat limited in its home
development; and that it will for that very reason all the
more extend its money transactions abroad, and will need
all the more capital for larger undertakings in foreign
countries.
Doctor WAGNER. Gentlemen, I should like to say a
few more words about the increase of the capital, inasmuch as the subject has come up again several times.
I will sum up once more my remarks of this morning.
I was really at the beginning rather more inclined than I
am now to declare myself in favor of increasing the capital.
It is from listening to the debates and hearings of the
experts that I have come to be somewhat in doubt on
the subject. Therefore, I had in mind this morning a proposal which I now repeat. I suggest that in the draft
of the law this provision be made: The Bundesrat is
empowered, during the period of the next charter of the
Reichsbank, to allow an increase of capital not exceeding
60,000,000 marks (a third of the present bank capital)
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if the Reichsbank administration proposes such a measure;
and this increase shall be made at such times and in such
amounts as the Reichsbank administration deems suitable. This plan would fall more or less within the bounds
suggested by those gentlemen who were not altogether
in favor of an increase, but who thought an increase
allowable if it did not go beyond 240,000,000 marks.
In this connection I come for a moment to a point that
has been alluded to by my special colleague, Professor
Lexis, among others, namely, the significance of the basic
capital as guaranty capital. I can not altogether share
the view expressed by him and by others, that it is not
the case with foreign banks also that the whole basic
capital enters into the question. I t is true that in the
Bank of England a large part of the basic capital is fixed,
but the whole operates as guaranty fund—that part of
its capital which the bank of England has permanently
loaned to the State, as well as other capital that is lent
out and invested—for the permanent loan has behind it
the whole credit of the State. Things are much the same
in France. Then, too, I do not think that my colleague,
Herr Lexis, is right in regarding the amount of securities
in the issue department, which now is, in round numbers,
£7,000,000, as entirely unrealizable. To my mind this is
not the case. The bank is empowered to issue in England,
without metallic cover, only a certain maximum amount of
notes—at present this amount is about £18,500,000;
these notes must be covered first by the £11,000,000 of
permanent debt of the State held by the bank, of which
I was just speaking; secondly, by the further sum of
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£7,000,000 in certain securities. But if this amount is
not reached while the metallic cover is further extended,
then appropriate sums out of these £7,000,000 can also
be made use of; the Bank of England can then dispose of
these amounts. We must accordingly admit that a part
of the capital can also serve as a business fund. The considerations of my colleague, Herr Lexis, concerning the
note issue, I therefore regard as not quite to the point.
Then, too, the question has been treated, if I am not
mistaken, by Herr Kaempf, who stated that he would
favor an increase on condition that the Bank's concession
were made of longer duration. Perhaps it was Herr
Geheimrat Riesser who said that. [Assent.]
To this I would reply: I think we should consider
whether we ought not to declare ourselves in favor of a
longer grant than one of ten years, with the stipulation
that the Bundesrat be authorized, without consulting
the Reichsbank, to add to a period of fifteen years, say,
an additional period, making a total of, say, twenty or
even twenty-five years. In this case I, too, should come
near to favoring the plan.
In connection with the question of the note contingent,
another point has to be considered. Although I think we
should attach much importance to what men of practical experience say, still, as a man occupied with theories,
who has in former years studied with particular care the
situation in England, I should like to introduce another
point of view. I have already in the subcommission
referred to the question of the origin of the Peel Act, and
I sum up again here the consequences of the fixing of a
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contingent, as they have come to light in both countries—
in England very markedly, with us in a less obvious
form. How did the whole thing originate in England?
In the most arbitrary manner; because it was thought
that all dangers of speculation and excessive speculation,
such as lead to crises—for instances of which reference
was still made to the year 1830—are to be traced to an
uncovered note issue that is too loose, too large, too
imprudent. It was thought, therefore, that such a
note issue ought to be most absolutely prevented; and
all the differences between bank notes and real redeemable paper money were overlooked. This idea can be
traced throughout the whole of English literature on the
subject of banking. Thus the Peel bank law was framed
with the purpose of causing the changes of volume in
the note circulation to be precisely the same as would
be the changes of volume of the circulating medium
under a purely metallic money system. Thus they
thought: If, for example, £3,000,000 cash come into
England from abroad, then in the case of a purely metallic currency the amount of it would be increased by
£3,000,000; and, vice versa, if £3,000,000 leave the coun*
try it would be diminished by £3,000,000. * The object of
the Peel banking law was likewise to bring about this
same result automatically in a currency consisting of
both bank notes and gold. But it is well known that in
practice this has not: been the result, and the principle is
also fallacious from the standpoint of scientific theory,
for the incoming and outgoing of precious metal has no
such immediate effect upon the amount of the circulating
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metallic medium. This has been often enough acknowledged by both practical and theoretical Englishmen.
More than this. In England they have at least drawn
the logical conclusion. They have divided the bank into
two departments—the one, the issue department, for the
issue of notes; the other, the banking department, for
the other banking businesses—deposits, granting of credit,
investments. The deposit money is specially covered bycash (essentially gold), which is placed in the other department only in return for notes. In this way, then,
they have divided the stock of gold. This does not become outwardly apparent only because, as has been said,
the cash of the banking department consists nominally of
notes which the banking department has received for its
cash from the note department. Essentially its cash is
gold. With us, however, this division of the cash has not
been introduced at all. We have imitated the English in
a merely mechanical way. Whoever knows the circumstances knows that it came about in this way. It was
introduced by the disciples of the English free-trade
school—Prince-Smith, O. Michaelis, and others; they did
not, however, in this matter copy the Peel act consistently, since they made no provision for a cash fund for
the deposit business. But as soon as the cash reserve in
the banking department or the note reserve in our bank
is much diminished, there arises great anxiety on the part
of the business world that has need of credit; the demand
for credit is correspondingly increased and makes itself
felt earlier and more urgently than is necessary, and the
establishment of the contingent serves to make the situa84713—10
14
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tion in the money market more tense, and even to bring
about a panic. It has been truly observed that in this
way demands for discount come to the bank sooner and
with greater urgency—an event which is bound to have
evil results of this kind; especially, of course, in England,
where the contingent fixes an absolute mechanical limit
to the quantity of notes that may be uncovered by gold.
In former times it was £14,000,000; now it is about
£18,500,000. The more it appears that the reserve of
the banking department is running out, the stronger becomes the pressure of demands for discount. For this
very reason they have come in England to a conclusion
which I should hold to be not a mistaken one for Germany also, namely, that this so-called danger signal
comes at the wrong place and at the wrong time, and that
its effect is too acute. I should like to say that the thing
is still more unsuitable for our German situation, because
with us distrust is spread abroad as soon as the note reserve, which is otherwise regulated, comes to fall off more
and more, and people begin to say that before long the
German Reichsbank will be obliged, because of the falling off of the note reserve, to take still more strenuous
measures in raising the rate of discount. In this way it
may even happen, for example, that shipments of gold
from abroad, which are intended for us, are held back
until the rate of discount shall be higher. I can not but
think that this, too, has a bad effect. It was precisely
because we profited by the long experience of England
that we in Germany instituted the modification of making it possible to pass beyond the uncovered note contingent, though the additional issue was subjected to a tax.
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But though in a weakened—and in so far in an improved—
form, the arrangement still works with very much the
same results as in England. Among us, too, there is
spread abroad too quickly and too vehemently an anxiety which does not end in simply throwing an immediate
damper upon the tendency to speculation—which would
be a desirable thing—but which has also a very strong
tendency to induce even normal demands of credit to be
made upon the Reichsbank much sooner than they would
otherwise be made. In this I can see nothing propitious.
The danger signal does, in fact, operate here, but in a
wrong manner; it precipitates and increases the demands
for credit that are in question. And for this reason I
always arrive, after consideration, at the same conclusion:
It would really be better to lay aside the whole system
of the contingent. In this connection I should like to
recall to you the dictum of a great English practical expert, Lord Ashburton, who once said that there is really
nothing more absurd and presumptuous, when one is
dealing with such matters, than to put a mechanism in
place of the human understanding. And this is what
happens in England in the case of the Peel act, and what
happens also, in my opinion, with us in the German
Reichsbank law. We must, then, trust the bank administration to do the proper thing without any such mechanical prescriptions.
Reference has been made by Herr Fischel to the Bank of
France. But the Bank of France has no regulations of
this kind; it is unencumbered by them.
A VOICE. The note circulation is limited.
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Doctor WAGNER. Very well; if we had, like France, a
maximum note circulation of 4,000,000,000 marks and
more, the effect would again be different, for there would
remain, precisely at critical times, a large scope for extended issue of notes and granting of credit. For the
rest, however, it is noteworthy that this bank, which now
has the largest supply of cash in the world, has throughout its existence been free from such restrictions, and it
is one of the functions of the bank administration to determine the relation between the quantity of notes and
the cash funds. Besides, our bank is anyway already
limited by a contingent through the provision that at
least one-third of the notes must be covered by cash—a
provision that might also, perhaps, be somewhat modified.
I agree on this point with what Herr Fischel has said.
Every such provision of a cover is also sure to have a
more or less mechanical and obstructive effect, but its
influence is not as great as that now exercised by the
note-tax regulation.
Now, I know very well that serious misgivings are
entertained in regard to a complete removal of this contingent system. I t is feared that the impression made
abroad would be unfavorable. I do not think so; we
should not rely so much in these matters upon foreign
opinion. Moreover, if England were to-day to get rid of
the Peel act, which has long been considered antiquated,
would it be thought that the Bank of England was no
longer solvent? People would see that it is a restriction
that is out of date and not to be retained. Nothing more
would be thought in our case. The Bank of England
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even affords an example of how prejudicial, precisely in
the matter of the judgment of foreign countries, such a
provision may be. I am probably the only one here who
remembers distinctly the crisis of 1857. I was still a student, but I was already engaged in banking work. I
know that, when the Peel bank act was then suspended
for the second time, the cry was heard from the continental press, and even from the voices of experts, that the
step was equivalent to the suspension of specie payments, simply because the Bank of England was allowed,
on the responsibility of the ministry, to issue uncovered
notes beyond the legal limit. In reality this was not the
case; there was no discontinuance of specie payments;
but people got things confused in their minds. It may
happen in the same way with us.
Hence I arrive at the conclusion that it would be better
altogether to drop the fixed contingent of the bank's note
circulation, than merely to raise now and then the contingent limit. But I admit that with us public opinion is
not in general on that side. I have been convinced, to
my sincere astonishment, that even most men in practical
business are more or less supporters of the contingent
system.
On the other hand, fiscal reasons will be brought to bear
against the removal of the contingent. The Government
needs the note tax. According to what has already been
said, large sums are supposed to be in question. But I
am going to make a calculation to the opposite effect.
What, then, does the note tax really mean to the Government? In point of fact, it means very little. The
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Government has, to be sure, received out of it in the past
year the "gigantic'' sum of 5,600,000 marks; by this
very amount, however, is the net profit diminished, and
therefore the net profit drawn by the Government is diminished by three-quarters of this amount, or 4,200,000
marks. Without the note tax the dividends would have
been 1,400,000 marks higher—that is, about three-fourths
per cent. It is clear, then, that the matter is not financially important for the Government. If we wish to have
regard for the financial interests of the Government, we
can easily do so by arranging that the share of profits be
a little bit—a fraction of 1 per cent—more favorable to the
Government; that the proportion be somewhat in excess
of 3:4.
But if the gentlemen think, as I have become convinced they do, that it would be well to retain the contingent as a " danger signal," then, to be sure, it must be
raised. I wish here to declare myself in favor of the pro
posals made by some experts. My idea is this: Since we
have latterly made large encroachments beyond the contingent, let us raise the sum to 550,000,000 or to 600,000,000,
and then—here I agree with others—let us raise it still
higher at the much-discussed quarterly periods; for at
such times there may be a greater need of credit, and it
is precisely then that the chief function of the central
bank of issue comes into play; for such a situation in the
money market corresponds to a political crisis. I once
had somewhat different views, but I have also become
convinced that in passing through the quarterly periods
there is need of a larger issue of notes, and that this is
also justified in view of general interests.
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If, then, the usual contingent is fixed at 550,000,000 or
600,000,000 marks, it can, I should say, be raised at these
periods by 100,000,000 or even 200,000,000—that is, it
may become 700,000,000 or 800,000,000. Even the
ungraded rate of taxation that we have had hitherto
might be retained; but it should be raised still further
when the overstepping of the contingent goes beyond
550,000,000 or 600,000,000. For example, it should
become 6 per cent when the note issue is 700,000,000 and
7 per cent when the note issue is 800,000,000, and 1 per
cent more for every added 100,000,000.
If England has had the experience of being obliged, at
critical times, to go as far as a 10 per cent discount rate,
the same thing may happen to us. In that case we can
always have in view a further raising of the tax-free
contingent. But for the present it will be sufficient to
fix the ordinary contingent at 550,000,000 or 600,000,000,
with a note tax of 5 per cent, and to tax a further excess
at the quarterly periods in the way I have indicated.
That is what I wished to add to my observations in
regard to the contingent system and the note tax. I
should like to lay stress once more on this point: It would
be better, in my opinion, if our bank administration, like
that of France, were trusted to make the proper arrangements on its own responsibility. At present it has to
keep within the mechanical regulation, which may on
occasion cause much disturbance.
Doctor HEIUGENSTADT. Gentlemen, some of you have
concerned yourselves with my observations, and I am
therefore led to make a few personal remarks.
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In the first place, Herr Geheimrat Riesser mentioned
my speeches and represented me as having said that only
the capital contained in the Reichsbank can retain the
form of working capital. If I really did say that, it is
simply a matter of inaccurate expression. In my speech
I stated my view with great precision, and said: Such
capital as comes into the possession of the Reichsbank
remains and is preserved under all circumstances in the
form of working capital. I do not by any means mean
to convey the idea that all capital which otherwise comes
into the possession of the great banks is necessarily
deprived of this character under all circumstances. That
would be nonsense and would contradict the statements
which I have published and which are before you in
printed form.
Then, Geheimrat Riesser expressed the opinion that the
capital which has come into the possession of the Reichsbank was being used and that it was utilized for investment purposes. The aim of capital is that it should be
utilized, but it should be utilized in a liquid form. It
does not lose its character as working capital by the mere
fact that the Reichsbank makes use of it, but on the contrary it remains working capital whether the bank uses
it for buying up bills or not. At the present time, as the
president of the Reichsbank explained at the outset in this
inquiry, only three months bills were discounted and
no extension was granted. By this means an adequate
negotiability is effected and at the same time the capital
is all preserved as working capital.
After that, Herr Fischel found fault with our analysis
of the form that capital assumes when it has got into
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the hands of the Reichsbank. I think it possible that
we may have misunderstood each other
Mr. FISCHER. It is possible.
Doctor HEIUGENSTADT. For I have always maintained
and insisted that the capital that is to be devoted
to the increase of the permanent capital of the Reichsbank ought to be drawn from newly created capital.
When this capital gets into the hands of the bank, bank
notes will disappear in a proportional measure from circulation or else there will be an increase in the stock
of gold.
Mr. FisCHEiy. But business can not spare the bank notes.
Doctor HEIUGENSTADT. Then the proportion of reserve
to circulation would be a more favorable one, Herr Fischel.
Mr. FISCHER. I can not see the point.
Doctor HEIUGENSTADT. I have explained all this in my
printed statements, to which I can refer you. Then came
Herr Schinckel and complained that I had not quoted
him correctly. If that is the case, I am sorry for it.
This, however, does not alter the matter much, for it is
the very directors of the banks who have expressed themselves in the sense of the quoted passages. I recollect
that only a little while ago Herr Roland-Lucke was
speaking even of an overloaded stomach.
Mr. ROLAND-LUCKE. In general, of course.
Doctor HEIUGENSTADT. In general. I have said nothing else in the statements which I have made on top of
those of Herr von Wangenheim, whose presentation of
the matter in question I may possibly have confused
with your assertions.
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In the next place, Herr Roland-Liicke seized the opportunity of making a personal onslaught upon me which I
am convinced is not justified by my assertions. You
know, gentlemen, that I have no reason here for wishing
to set before you the type of a bank director, that I have
never done that sort of thing, and am not in the habit of
doing it. I shall proceed to repeat my statements. The
whole of the testimony of the specialists—I need only
remind you of the testimony of Geheimrat Mueller and
various other utterances of the Haute Banque—went
to prove that they wished to be considered as having
been forced into many transactions only in deference to
competition and the like. What is it, then, that I have
been trying to explain? I have been treating you, gentlemen, to a little theoretical (as Herr Schinckel calls it)
disquisition in the field of economics, which I thought
necessary for the establishment of my view to the effect
that an ascending conjuncture (steigende Konjunktur)
is accompanied by an accelerated rate of production.
The expert, Herr Heyman, has admitted the truth of
this on a former occasion and Herr Fischel has also confirmed my view. I have furthermore explained that as
a large number of bills are discounted by the banks—I am
not speaking of the great banks but simply of the banks
in general, and these bills are also discounted everywhere
by the loan associations—a fictitious credit (I can not
think just now of a better expression) is virtually created.
I must ask you to take all this in the sense in which I
have meant it, that is to say, that there is practically a
credit without any equivalent in commodities.
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Now, what I have affirmed is—and your remarks can
apply to this alone—that the banks are compelled to make
of this credit a productive agent, a proceeding which I consider perfectly legitimate. This is all that I have said.
And now you come and construe this in such a way as to
make out of it that I was here depicting a type of a bank
director who was subordinating the public welfare ^ to
private ends. I have emphatically insisted that if I were
a bank director I should by all means consider myself just
as much constrained out of regard for my duty in the
matter to invest the funds which had been committed to
my charge, as the occasion prompted, in the interest of my
bank as well as of the stockholders. There is not the
faintest suggestion in this—the idea w^as as far as could be
from my thoughts—that I was trying to draw a picture of
a bank director such as might give umbrage to you.
Aside from this I am not aware that I have said anything
about bank directors.
Doctor RIESSER. I should first of all like to address a
few words to Freiherr Von Gamp. The Reichsbank has
practically always declared that it could never be induced
out of regard for its liability to taxation to raise the rate of
discount where otherwise it would not have done so. But
the Reichsbank has never declared that it attaches no
importance at all to the limit of untaxed circulation.
Neither do I see how it could possibly take such a position,
for, in spite of everything that has been said to the contrary, I am convinced that the limit of untaxed circulation
is, and is bound to remain, a danger signal, and that as
much for the bank with respect to its granting of credit as
for the public which is asking for credit.
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I should like to reply to President Heiligenstadt that I
think he has misunderstood me. The passage I had in
mind is not at all the one he has just quoted. It was a comparison between the manager of a private bank and that
of a national bank that the president had been making.
Doctor HEILIGENSTADT. NO.
Doctor RiESSER. Yes; you declared that although the
position taken would not appear any more acceptable
or more correct in the eyes of the Reichsbank directors,
you too, if you were a director of a private bank, would
have regard for nothing else than the business interests
of the institution and of the stockholders.
To this Herr Roland-Lucke gave the proper reply:
"Then you would not be able to retain your position as
director very long." And to this I will add that I have
always insisted that even the directors of a private bank
occupy an official position and do not merely carry on
a business; that is to say, that they have not merely to
consider private business interests, but that in every
transaction they are bound not only to consider its bearings upon their business ^affairs, but to keep in sight its
economic aspects in connection with the economic situation of the country.
Doctor LEXIS. Gentlemen, I should like to say a word
or two with reference to the remark of Geheimrat Wagner. He must have misunderstood me if he imagined
that I attach no significance to bank capital as a security
fund and that I do not consider the part played by the
capital of the Bank of England in this capacity of much
importance. I was not speaking of the question of a
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security fund at all, nor had I any idea of doing so.
What I said referred altogether to working capital. I
asserted that the Bank of England has no working
capital at all, its entire capital being in the nature of a
security fund/ That is what I meant, though perhaps I
may not have expressed myself with sufficient clearness.
The second point is that, as a matter of fact, the entire
capital of the Bank of England, and even the sum of
80,000,000 marks over and above it is immobilized, for
there are £11,000,000 representing the old debt in the
issue department and an additional £7,750,000 consols,
likewise in the department of issue, as a further security
fund for uncovered bank notes, and the banking department can not touch this capital. If it did, then the limit
of bank-note circulation would have to be correspondingly
lowered.
Doctor WAGNER. The moment the cash reserve gets
beyond this, the bank can make use of part of it.
Doctor LEXIS. That is to say that the banking department, if it has superfluous gold, can get bank notes
from the issue department.. But the balance sheet of
the issue department reads on the one side only as follows: "Total bank notes issued " and on the other "cash
and consols.'' The banking department can absolutely not
touch this capital; that is simply impossible. If it did
do so, the limit of circulation would have to be changed.
Doctor WAGNER. It seems to me that there are other
securities that can be hauled in besides the guaranty
securities.
Doctor LEXIS. The banking department has, of course,
consols of its own. It is at liberty to dispose of these.
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Mr. FISCHER. Gentlemen, I have suggested that the
limit of untaxed circulation be raised to 550,000,000 marks
as the normal limit, but that at the quarterly periods, to
wit, for the first and second weeks, the limit be made
750,000,000 marks. In regard to this Geheimrat Wagner
has suggested that it would be good policy to tax the
excess circulation at the quarterly periods at a higher rate
than the excess at ordinary times. This would not be
expedient, in my opinion, for the additional 200,000,000
marks does not by any means correspond to the increased
tension that we generally observe at the quarterly periods,
as manifested by the increased circulation in comparison
with ordinary times. In my opinion, 750,000,000 marks
at the quarterly period is a smaller figure for the extreme
normal limit than 550,000,000 marks for the limit at other
seasons. The proper thing, therefore, in my judgment,
would be to impose a uniform tax on circulation, whether it
be beyond the limit of 750,000,000 marks at the quarterly
periods or 550,000,000 marks at other times of the year.
Doctor HEIUGENSTADT. Permit me first of all to say in
reply to Geheimrat Riesser that he has been making too
much of the contrast which I appeared to have in my mind
when I made use of the expression " private banker/' I
do not see how I could have done anything beyond simply
comparing the position of a private banker with my official
position as head of a public-credit institution. It is not
my main task as head of a public-credit institution to earn
dividends, but I consider it the duty of a private bank to
turn out reasonable dividends.
Doctor RIESSER. That alone, and nothing else.
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Doctor HEILIGENSTADT. Gentlemen, there are some in
this very assembly who have demanded this of the
Reichsbank.
If I may be allowed to speak with reference toother
expressions that I have heard, I will say that Director
Schinckel was kind enough to call my attention to the fact
of my having declared that if I were a private banker I
should be guided only by the interests of my shareholders.
It is true, gentlemen, that I spoke thus; but, of course, I
did not mean to say by this that the public welfare was
thereby to be overlooked. Nothing could be further from
my mind. You will agree with me, gentlemen, every one
of you, that you are bound to look out for the interests of
your shareholders and your bank. I will ask you to convince yourselves of the correctness of my assertions through
the stenographic reports. I shall not make any corrections in the stenographic reports at the place in question.
Mr. ROLAND-LUCKE. I infer from the words of Freiherr
Von Gamp that I did not express myself with sufficient
clearness in regard to a provision for additions to the surplus. What I had in my mind was a sum of 1,000,000 or
2,000,000 marks annually. As I was not thinking of any
higher sum, it is evident that an accumulation of, at most,
10,000,000 or 20,000,000 marks in the course of ten
years would be in line with what I have been suggesting.
vSo far as President Heiligenstadt is concerned, Geheimrat Riesser and Director Schinckel have kindly spared me
the trouble of making a response. This is the way the
independent proposition of President Heiligenstadt, which
is still in my ears, sounded: " I t seems natural to me
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that the heads of great private banks should think only
of the interests of their shareholders and of their institutions, even if these be opposed to the public welfare, and,
if I were such a bank director, I should do likewise/'
This proposition evoked a reply on my part, and has,
as a matter of fact, been adequately discussed by Messrs.
Riesser and Schinckel. I am perfectly satisfied now with
the explanation of President HeiHgenstadt. I did not
intend, indeed, to make a thrust at him; what I meant
to do was merely to avert the danger of a false interpretation being put upon the assertions which he made at
the start.
The CHAIRMAN. Gentlemen, the last speaker on the list
has been heard.
I must inform you that, in accordance with an understanding arrived at between that gentleman and myself
Freiherr Von Gamp will not produce the special statistics
with respect to the origin of the bills which he asked for
this morning, for the reason that this would involve considerable work for the Reichsbank and would in part be
even impossible, and I wish to add that the statistics
which Herr Von Gamp has called for respecting the
amount of the loans for the period 1900 to 1907 and the
annual statements of the banks for the same period will
be tabulated at our hands according to the private tables
that have appeared in the Deutscher Okonomist and in
the Frankfurter Zeitung. I assume that the members of
the committee of inquiry approve of this.
(Assent.)
Gentlemen, we have come to the close of our deliberations, and I thank you heartily in the name of the federated
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governments, and especially in the name of the Reichsbank, for the zealous assiduity which you have displayed
in the prolonged discussions of the day, for the valuable
and manifold suggestions with which you have favored
us. I hope, gentlemen, that I shall have the pleasure of
greeting you in the autumn in unimpaired numbers and
vigor, prompt as now with your suggestions and ideas.
In the meanwhile ilAuf Wiedersehen!"
(Close of session, 8.15 p. m.)
84713—10
15
225
October 12, igo8—10.16 a. m.
Chairman, Wirklicher Geheimer Rat HAVENSTEIN,
President of the Reichsbank direktorium:
GENTLEMEN: Let me welcome you in the Reichsbank
to a renewal of our discussions, and let me thank you for
coming in such numbers to resume your labors and discussions, as well as express the hope that our deliberations may prove of great benefit to the economic welfare
of Germany and the interests of the Reichsbank, and
that they may achieve results worthy of your labors and
devotion.
I have first to inform you that the following members
of the committee of inquiry have asked to be excused
from appearing to-day: Freiherr Von Cetto-Reichertshausen, who can not come until to-morrow, and Count
Kanitz, who may join us to-morrow, but possibly not
until the day after.
The following members of the committee of inquiry are
present: Messrs. Fischel, Fischer, Freiherr Von GampMassaunen, Gontard, Kaempf, Doctor Lexis, Mommsen,
Mueller (Fulda), Peter, Raab, Doctor Riesser, RolandLucke, Schinckel, Doctor A. Schmidt, Singer, Doctor
Stroll, Doctor Wachler, Doctor Wagner, Freiherr Von
Wangenheim, and Doctor Weber.
. One of the imperial commissioners, Ministerialdirektor
Weingartner, has had to excuse himself on account of
official business.
MONDAY,
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The list of those present at the sessions will be kept
daily, and I shall therefore request the members to enter
their names.
It is in order now to open the debate.
Question III.—What means are available to the Reichsbank for promoting the drawing of gold from foreign
countries, and for obstructing the outflow of gold to
foreign countries?
A.—How may the importation of gold be effectually
promoted? By suitable management of the
discount policy? By development of the foreign exchange business? By the granting of
advances free of interest or similar methods of
facilitating gold importations?
(B) What are the causes of an outflow of gold to foreign countries, and by what means may it be
prevented? What is the nature of the socalled premium policy, under what conditions
is it applicable, and how does it work?
I propose, gentlemen, that we adhere to the method of
debate which was followed in the case of questions I and
II of our question sheet, and which seems to have worked
very well—that is to say, that each member shall express
his opinion regarding the individual questions, as the
imperial chancellor is anxious to get the views of all the
gentlemen constituting this committee of specialists; but
I wish to say emphatically that I do not by any means
wish to restrict the members to this single expression of
their views. I should, on the contrary, be glad, and I
should appreciate it, if these individual expressions of
opinion were followed by general debate, so as to produce
a discussion calculated to throw light on each question.
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I think it would be best, just as was the case at the hearings of the experts, to discuss the questions of the influx
and of the efflux of gold jointly, as it is practically impossible to separate the two. I suggest that you deal with,
or, if you choose, touch upon, the question of the effect
of the discount policy in so far as it is determined by the
conditions prevailing in our national economy, or reacts
upon it. I think it would not be wise to deal separately
with the question of the international balance of payments.
The experience which we had in connection with the
special debate on this subject in the spring shows that there
is no getting through with this theme. If the balance of
payments is to be discussed at all, I would suggest that this
be done along with the discussion of questions A and B.
The questions pertaining to the organization of the
business of foreign exchange, advances without interest,
the gold market, and the gold-premium policy are in my
opinion such closely circumscribed subjects that it would
perhaps be better to leave them out in this first discussion
in order to deal with them separately later on, so that at
the outset we may be able to confine ourselves altogether
to the matter of the rate of discount, dealing with it particularly with respect to its effect upon the inflow of gold
and the prevention of its outflow.
Freiherr VON GAMP-MASSAUNEN (proceeding to the
order of the day). I should like to ask the chairman to be
kind enough to inform me when and where a very important question is to come up for discussion—that relating
to the consumption of gold throughout the country in
the various industrial processes. This question is not on
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the question sheet, but it is one which has been treated
in a very thorough manner by those interested in the
subject, and I regard it as of great importance, inasmuch
as a considerable quantity of gold is withdrawn from circulation through its employment in the arts.
The CHAIRMAN. I think we shall be able to take up
this question in connection with the outflow of gold.
Freiherr VON GAMP-MASSAUNEN. The point named is
" outflow of gold to foreign countries." I am willing,
however, to have the subject discussed in that connection.
Doctor STROLL. Gentlemen, in considering the subject
of Germany's stock of gold and the inflow and outflow of
the metal, what is paramount is. our international balance,
which is not the balance of trade alone, but the balance in
the whole account of sums payable and sums receivable.
For us seated around this table to try to affect this balance
is attempting the impossible. This is a matter of the
national industry, and it is a matter of national polity in
the highest sense of the word. If we come forward here
as counselors of the Imperial Government, all that we
are called upon to do is to express our opinion in regard
to the expedients more or less radical that present themselves in the technical domain of banking and currency—
expedients which can not be determining factors in the
situation, but merely cooperate in shaping it.
If we were constantly to have an unfavorable balance,
Germany would be compelled to see an ever-increasing
fraction of its stock of the precious metal going abroad.
The question, therefore, to what extent we have a balance
against us is one that in my opinion we can not altogether
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get around. Unfortunately, this question is not one of
those that can be answered the moment they are put.
One of our experts made use of the refreshing expression
that he did not care a straw, not a pinch of snuff, for the
balance of trade. Of course, I am not prepared to go
quite so far as that; but there is one thing, however, that
I think we must admit, and that is that we have hitherto
not had any reliable gauge of our international balance;
and, as a matter of fact, we have none yet. We can
indeed figure out our balance of trade, but it is impossible
to ascertain the amount of our capital invested abroad
or of our investments in foreign securities. It is a question in my mind whether the method of Professor Schaer,
which as you know has not remained unchallenged, is
sufficiently effective to supply this need. We are still
obliged to make conjectures and estimates and to be
satisfied with just a few indications bearing upon this
matter.
One of the main indications is, especially if we consider a long stretch of time, the country's stock of gold;
and not only the visible stock of gold in the banks of issue,
but also that invisible, or, at least, not measurable quantity of gold which is circulating among the population
itself. With respect to this matter various opinions have
been expressed in the course of this bank inquiry. While
some have considered this gold circulation within the
country to be quite sufficient for the need, and even plentiful, others, on the other hand, have expressed the view
that Germany has in a way reached a stage of anaemia
with respect to its gold. On this account, indeed, the
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suggestion has been made—it comes from Freiherr Von
Gamp—that a census be taken of the gold supply, which,
however, in my opinion, would for practical reasons be
utterly impossible.
It is my opinion that in this matter, just as in most
human affairs which are open to controversy, the truth is
probably somewhere about midway between the two
extremes. As I was on my way to Berlin last May to be
present at the bank inquiry the following considerations
relative to the gold question presented themselves to my
mind. As a director of a bank of issue my daily experience
showed me that we have a currency pretty well saturated
with gold. I could see that in the Reichsbank and in the
private banks fluctuations in the stock of gold are very
quickly leveled out and that the ups and downs in the
record come pretty close to each other, all of which points,
of course, to the fact that there is gold to the stage of
saturation in our supply of the instruments of exchange.
Statistics had taught me, furthermore, that in the past ten
years—leaving out, of course, the year 1907—gold to the
amount of about one and a half billion marks was supposed to have flowed into the German market. I knew
perfectly well, besides, that it is only in very exceptional
cases that the Reichsbank has raised its rate of discount
merely for the reason that gold was leaving the country.
And I also knew that Germany has been steadily growing
richer and is constantly making investments of capital in
foreign countries, and that the sums which Germany draws
from these investments in the way of interest, etc., would
much more than suffice to offset the amount by which the
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balance of trade is against us. I was aware, too, that
thinkers who have a broad outlook upon the economic
situation—such men, for instance, as his excellency, our
chairman—regard Germany as a creditor state, having in
the long run a balance in its favor, and that they consider
a temporary outflow of gold as of little importance. Furthermore, I said to myself that such critical times as those
of 1907, such a conjuncture of a great domestic demand
and an international scramble for gold, are not likely to
repeat themselves. And finally—and this is a very
important point, with respect to which I agree perfectly
with Herr Von Gamp—I was acquainted with the official
estimate of the consumption of gold in the arts, which at
that time was assumed to be somewhere between
14,000,000 and 20,000,000 marks, and I considered such
an amount as of little moment with respect to the stock
of gold in the country.
If, actuated by these facts and considerations, which in
my opinion do not by any means justify a pessimistic view
of the situation, I adhere, on the whole, to my view, and
if I still believe that, while we have an unfavorable balance
of trade, we have a favorable balance of international
obligations, yet there is one point—and here I am coming
to the matter that Herr Von Gamp has touched upon—in
regard to which I must admit that I have been undeceived,
and that is in regard to the needs of the German gold
industry. I was astounded by the alleged figures of the
yearly consumption, running up to between 80,000,000
and 100,000,000 marks, as well as by the egoistic naivete
with which the representatives of the gold industry regard
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this assault upon the German coinage gold as, from every
point of view, their prerogative, not only legally but
morally, taking it all as a matter of course. If it is true
that every year from 80 to 100 millions find their way into
the melting-pot, then indeed the pessimistic dread of
anaemia in the matter of gold is not to be reasoned away.
Freiherr VON GAMP-MASSAUNEN. Hear! Hear!
Doctor STROLL. What does it all mean? And so we are
to take it that the gold which we purchase each year with
such painful toil, the gold that represents the surplus of
our national industry, is not devoted to our pressing monetary needs, but is offered up to the Moloch of industry
[A voice: Moloch?]—at least of one industry, which, in my
opinion, is arrogating to itself altogether too much in this
matter of the use of our coinage gold. Of course, I am
not speaking of a Moloch of industry as a whole. I
clipped the force of this expression the moment it was
uttered, so as to guard against a false interpretation. I,
for my part, consider the recognition of the fact that we
are annually sacrificing between 80 and 100 millions of the
German coinage gold to the demands of industry one of
the most important fruits that the whole bank inquiry
has brought forth.
Freiherr VON GAMP-MASSAUNEN. Quite correct!
Doctor STROLL. I regard it as a sort of warning which
we have received at the eleventh hour. And we may be
glad of this warning; the question is whether we are going
to heed it in the future. As far as I am concerned, the
fact that so much gold is swallowed up by the industrial
arts is sufficient, as I have said, to make me take a less
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optimistic view of our gold situation in its entirety than
the view I took in May, when I first came here. This
consideration alone ought to justify each and all in urging
every means tending to encourage the importation of gold
and to hinder its outflow.
Let us ask ourselves what are these means, remembering
that in this inquiry we are to deal only with such instrumentalities as pertain to banking and coinage. In my
opinion—and Herr Von Gamp has anticipated me—the
question sheet which is to serve as our guide in these discussions needs an addition in the way of a question concerning the consumption of gold in the arts. I should
like to dwell on this question for a moment.
In this matter a change will have to be made, not by
means of a revision of the bank law—we had better leave
the bank law alone—but by an amendment of our coinage
regulations. What we have to do is to introduce some
kind of provision in our coinage regulations that will tend
to do away with the evil in question. The coined gold
of the German Empire is gold of a specific kind; it is
worth while to guard it by imperial enactments, and it
is necessary to make some legal provisions with respect
to it. This coin gold is altogether different from the
international gold bullion, which is regarded as merchandise, and which, for aught I care, industry can get hold of
to its heart's content. When we are told that it is not
merely the German gold industry that is drawing upon the
nation's fund of the precious metal to satisfy its needs,
but that this same fund is being made use of to a very
great extent by the Scandinavian countries, then I must
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say these are conditions that call for the intervention of
the Government. I am not a metallurgist and do not
pretend to know how to go about it myself. But it seems
to me in a vague way that the chemical science of Germany
ought to be able to devise some way, by introducing some
alloy or other in the composition of the coin gold, of preventing industry from appropriating this gold regardless
of consequences—some sort of an alloy, I.say, which,
while not depriving the gold of its fitness for coinage and
recoinage, would at least render its use in German industry
difficult. Personally I should not be sorry at all, in case
of necessity, to see a penalty imposed upon the use of the
German coin gold in industry, for the public good is paramount to the property rights of the civil law.
I now come to the question of the possible means of
increasing the gold supply as formulated under Head III
of the question sheet. Fresh light has been thrown on this
question, as you all know, by the interesting and weighty
suggestions of our distinguished colleague, Herr Pischel.
Some of the means which he suggests strike me as desirable
and worth considering, while others appear less adapted to
the end in view. A very effective means in my eyes would
be the vigorous prosecution by the Reichsbank of the
foreign-exchange business. This comes naturally within
the province of a central bank, whose business it is to regulate the circulation of the currency and to be the guardian
of the monetary standard. The more completely the
^Reichsbank takes charge of the exchange business, the
more it monopolizes it, in fact, the better. The Reichsbank would in this way be at all times in close touch with
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the money markets as well as with trade in general, as
behooves an institution which proposes from its coign of
vantage to take a calm survey of the economic situation
and to influence it. I should like to see the Reichsbank
as accommodating and liberal in its dealings as possible,
subordinating its own business interests to the interests
of the public. I do not consider it necessary to enter into
details at this particular moment, all the more so as the
splendid expose which has been drawn up byGeheimrat
Von Iyumm has made it evident that the new bank management in this very matter has struck out upon a path
different from that pursued by its predecessors, that it
has profited by the lessons furnished by other countries,
and that it has already, greatly improved the situation as
compared with the previous state of things. Of course
there is no use in imagining that we can accomplish everything, for there is no way yet found of getting rid of the
foreign acceptance. The main trouble is always with the
English acceptance, and regarding this in particular
Geheimrat Von Lumm expressed himself very guardedly,
in my opinion rather too optimistically, if I may venture
to say so, for he hinted at the contingency of war and
fancied he ought to appeal to The Hague conference.
For my part I must say that I would not give a straw for
this kind of comfort, for if we were to set about now to
mobilize our army the Reichsbank would, as was the case
with the Bank of France in 1870, start up at once as a war
bank and as a national bank, and the enemy would have
the job of a financial fight with us. If the English bills of
exchange in the hands of the Reichsbank should make an
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extravagantly big lot, they will in time of war undoubtedly
be immobilized from time to time. Whether that be a
great misfortune is not so certain. On this account also
I am not in favor of having the foreign bills of exchange
reckoned as part of the bank's stock of gold, as has often
been urged. For, as I have said, in the event of a future
war, there is going to be more of a financial contest than
has been the case hitherto. If the business of foreign
exchange, by reason of the meager returns in the way of
interest and more or less loss in the matter of exchange,
makes some demands upon the unselfish spirit of the
Reichsbank, the same thing is true in a much greater
degree in the case of the so-called "inducements" which
the Reichsbank in various ways offers to the gold importers. Such a way of promoting the inflow is certainly very
commendable. The newly-shaped activity of the bank
has already shown quite extraordinary results, and if the
Reichsbank intends to continue on this course and succeeds in taking the gold that comes to Europe in the spring
and autumn and reserving part of it for its needs, I
believe we shall have made a great step in advance. We
can certainly point already to decided progress. We
financiers in the interior of Germany are not in a position
to give much advice regarding the traffic in gold, as we see
too little of it. As for myself, it would be presumption on
my part to do so.
For the same reason I hesitate to express &ny opinion
regarding the suggestions of our distinguished and wellinformed colleague, Herr Fischel. I can hardly say
indeed that my opinion amounts to much more than a
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general impression. My impression is that we have before
us a specialist of the first rank, who has taken the results
obtained from the observations and experiences of many
years and condensed them into a precise expression of his
views, which is highly deserving of our consideration.
The fundamental idea of Herr Fischel that Germany
ought to have a place in the sunlight in the matter of the
traffic in gold and the acquisition of the metal resulting
therefrom, and that she ought to free herself from the
fetters which she has placed upon herself, I consider perfectly sound. Among the means which he particularly
suggests for attaining this end are the abolition of the
seigniorage which is laid upon the Reichsbank, the establishment of a gold market in Berlin, and, in connection
with this, the establishment of a gold refinery.
I believe firmly in the proposition that the Reichsbank
be relieved of the expense of coinage. The bank is doing
all that can be asked of it in behalf of the public good.
As to whether the establishment of a gold market in
Berlin along the lines suggested by Herr Fischel is practicable or not, I have no opinion to express one way or the
other. As I have said before, I am too far away from
the field to assume the attitude of one who thinks he
knows. What I am able to say, however, is that I shall
welcome every measure aiming to secure for Germany
as large a share as possible of that precious commodity of
all nations which we call gold. And if now and then this
has to be achieved at some sacrifice, I am none the less
in favor of it, as I consider the whole thing consistent with
sound principles of economy. For even the temporary
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possession of gold may be of the utmost importance to us,
and the more gold we manage to secure, the more readily
shall we be able in untoward times to hold on to it, and
the closer shall we get to the view of our good old Ludwig
Bamberger, who used to say that there is no sense in being
excited if occasionally a couple of dozen millions of the
precious metal slip out of the country, as they are pretty
sure to return with the advent of better times. We should
not feel ourselves compelled in the case of a legitimate
outflow of gold, such as took place in 1907, to interpose
various difficulties and vexatious impediments, a proceeding which may have appeared very patriotic but which
in my opinion did more to lower us in the estimation of
the world at large than has been generally supposed.
Dealings in foreign exchange, inducements in favor of
gold imports, and the measures suggested by Herr Fischel
are all links in a single chain, not of uniform strength
indeed, but as a whole very powerful and capable of
producing important results.
Having referred to these practical measures for the protection and security of our gold supply, I shall just take
the liberty of saying a few words concerning one less
practicable and another altogether impracticable means.
The less practicable means is the one which I shall designate as screwing up the discount; the utterly impracticable one is the putting of a premium on gold.
The operation which I call screwing up the discount
has no permanent effect in the way of causing an accession
of gold but merely a temporary one, due to the attraction
to the bank of short-term funds, which perhaps, as an
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addition to our working capital, we can not always spare,
even if the cost be excessive. On the other hand the
higher rate of discount is such a burden upon our domestic
economy that we can not in the long run get along with
such a system. I repeat then, in the long run under a
gold standard, this is an unpractical means because it is
burdensome to our industry and occasionally has even the
effect of choking it.
As regards the scheme of putting a premium on gold,
I should consider any attempt to introduce it, or to
carry it through, simply fatal. What sense is there in
adopting this alleged method of protecting the gold supply,
which in the land of its birth, in France, has been almost
completely abandoned and is being replaced by a rationally
adjusted foreign exchange and discount policy? Why
should we adopt a means which may perhaps protect the
gold in the bank but as a result of which the gold in circulation will all the more easily become the prey of the
exporter? What is the use of constantly bringing up the
conditions in France in the discussion of our own situation?
They are not at all applicable, being fundamentally different from our own. And in my opinion the conditions here
are in many ways so vastly more sound and normal than
those prevailing in France that any analogy with reference
to our situation would be wholly illogical. And why
should we, by putting a premium on gold, plunge the
German public everywhere into strife, excitement, and
turmoil merely in order by doubtful means to protect—
and that is only a supposition—a nation's stock of gold
which protects itself without artificial means and without
84713—10
16
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any change in the foundations of our monetary standard,
simply through the ordinary course of events? I am so
thoroughly convinced that there are but few in this commission, and perhaps none at all, who are advocates of this
premium idea that I hardly think it necessary to proceed
beyond these few remarks.
In all questions concerning gold and our policy with
regard to it the Reichsbank stands at the fore. To it as
the legally constituted guardian of the monetary standard
new tasks are constantly assigned, entailing trouble and
sacrifice, while at the same time it is expected to apply
more searching and comprehensive methods to the discharge of its previously existing functions. The Reichsbank knows what everyone knows, that we have entered
upon a new age, and that this means new methods, new
aims, and new duties. The fiscal and more or less bureaucratic standpoints which in past years have largely characterized the bank's policy are gradually disappearing,
relegated to the background. The spirit that is now
asserting itself absolutely above all else is the consciousness
of the national character of the institution, a regard for the
public good, divested of all considerations of private gain.
I cannot help thinking that the Reichsbank is now entering
upon a new phase of development, tending toward a loftier
plane and still higher aims, and there is a general impression that the new management, without departing from its
time-honored traditions, does not underrate the problems
of the present and is not going to shirk its duties. I am
sure that every patriot has reason to congratulate the
Reichsbank heartily on its past record and on its deter-
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mination to adapt itself to the needs of the present
situation.
The CHAIRMAN. I would once more suggest to the members that in order to prevent these discussions from being
too desultory, they reserve the questions relating to the
conduct of the foreign exchange business, the gold market,
and the gold-premium policy for future separate discussion,
and confine themselves for the time being to the general
question of the discount policy of the bank with reference
to its effect in attracting gold and preventing gold exports,
as well as upon the domestic situation generally.
Freiherr VON GAMP-MASSAUNEN. DO I understand that
the suggestions of Herr Fischel in regard to the drawing of
gold from abroad may be discussed in this connection?
The CHAIRMAN. I will ask you to include in this discussion such questions as that of the gold market.
I have to inform you with reference to the suggestions of
Doctor Stroll respecting the danger to our standard coinage
resulting from the melting down of large quantities of German gold, that we have since last spring been doing the
very thing that he has proposed and have consulted the
various assay offices, mints, etc., in regard to the possibility
of restricting this use of the standard metal in the arts
by means of some alloy. We have not received all the
reports as yet. As far as they have come in, however, the
result is emphatically negative. We are told that no
means has as yet been found of treating the metal in such
a way as to leave it suitable for coinage and at the same
time to render it unavailable for industrial purposes.
Gold that admits of being coined can just as easily be converted to the needs of industry. Thus far, I repeat, the
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answers are not affirmative, but we are still awaiting
further reports.
Doctor RiBSSBR. I will take the liberty of asking the
chairman to reconsider whether the plan of dealing separately with the foreign exchange business and the gold
premium is really practicable. I must say in all modesty
that I do not think it will work. There is such a close
connection between the subjects that it is almost impossible in discussing the question of the inflow of gold
or the possibility of preventing the export of gold to abstain
from making some slight reference here and there to
foreign exchange or the fastening of a premium on gold.
But whoever happens to speak will hesitate to treat of
such weighty questions merely by way of allusion and in
an incidental manner, especially when these subjects are
introduced for the first time. I would ask the chairman,
therefore, to consider if it is not practicable for us to discuss these questions also, with the proviso that, in case
it should turn out—which, however, I do not believe—
that these questions have not been fully discussed, we
shall deal with them once more each by itself.
The CHAIRMAN. I have no objection to having the
question of the gold premium discussed along with the
other questions in a merely cursory way. I believe, however, that the subject is so very broad that the moment
contradictory views clash with each other in this commission it will be utterly impossible to do otherwise than
discuss the question thoroughly apart from everything
else. If the members of the commission are unanimous
in regarding this matter of a forced gold premium as some-
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thing impracticable and are not inclined to go deep into
the question, we shall at all events soon get through with
it. But I should like to wait and see whether the exchange
of views is not going to develop into a thorough discussion,
which I should indeed consider highly desirable.
Freiherr VON GAMP-MASSAUNEN. I should like to second
the request of Doctor Riesser. I hardly believe that there
will be any protracted discussion regarding these two
points in particular. Each one of the speakers will take
occasion to define his attitude in a few strokes. It will
expedite business very materially if we can settle the
matter right here. Judging by the course of the discussions in the commission—the president did not attend
all the sessions—I have come to the conclusion that there
is not going to be any great diversity of opinion in the
commission in regard to this matter of a gold premium.
The CHAIRMAN. Very well, gentlemen, suppose we try
the experiment of including these two subjects in the discussion of the question before us. We shall see how far
we can get.
Mr. GONTARD. Chairman and gentlemen, just after a
banker has had the floor [interruption] or at least a representative of the banking fraternity, it may appear somewhat presumptuous for one who does not belong to that
guild to get up and address you. I shall begin by protesting against the expression which we have just heard
applied to our manufacturing industries, " t h a t Moloch of
industry/' even if the author of it saw fit to recant in a
measure.
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I say, gentlemen, that if the members of this commission,
as one of the experts has put it, have been summoned as
physicians on account of the general financial depression
of 1907, which affected above all our manufacturing industries, to make a diagnosis upon our national body and, as
skilled hygienists, to advise regarding the best way of
bringing our gold circulation or our impoverished capital—
I will not call it blood—into better condition, it is natural
for us to ask: Which parts of the body were to blame for
the ailment?
It will not take us long to find out that the situation in
the autumn of 1907 was not an actual sickness but rather
a healing4process, partaking of the nature of fever, which
the overstrained body—the whole body—was undergoing, for, as Menenius Agrippa put it in his fine way to
the ancient Romans, it is not possible to separate the
individual parts from the whole body. And therefore I
protest against putting the blame for the trouble on any
single part, as, for example, our manufacturing industries.
All the various parts were involved, and even those that
could not be held responsible were obliged to yield to the
combined pressure of the others.
Our people as a whole has not gone beyond its means,
for the national wealth is very great; but it has not been
able for a while to accommodate its expenditure to its
income. This trouble begins unfortunately with the
Empire, whose finances the representatives in the Reichstag propose to straighten out, and spreads to the municipalities and the educated classes, who are too anxious to
live well and up to the standards of fashion to be able to
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lay aside much money. That there have been large
numbers of people who have been saving money is evinced
by the 15 billion marks in the savings banks and the three
and a half billion in the loan associations and banks,
in so far as these represent actual savings. But, all the
same, this is much too little considering the demands of
German enterprise, taken in conjunction with the rise in
price of raw materials within the last few years. Neither
are the funds of savings banks, which are invested in
mortgages, sufficiently elastic to help us tide over a period
of financial depression. Nor should they be used for such
a purpose, for that class which brings its money to the
savings bank consists of people of the least means in the
whole country, and it is certainly not the class whose
wealth ought to be invested in risky undertakings. I am
not aware that there is any table giving the statistics of the
various classes of depositors in the savings banks. If
there were such a one it would comprise, or at least it
would have comprised up to a short time ago, many more
members of the laboring classes than one would imagine.
To show how difficult, how impossible, it would be to find
out, even with the aid of statistics, what section of the
population is ultimately responsible for the financial
depression, I am going to give you an example from my
own experience.
The ordinary conditions of sale in the soap business are
several months' time or a small fixed discount for cash, at
the option of the purchaser. An occasional increase in
the discount is not practicable, because times and prices
change and it is impossible afterwards to get down the
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discount to what it was originally. In those rural districts
in which consumers' leagues and cooperative stores have
not been introduced as yet, and where the retail merchants (who belong chiefly to the middle class) are consequently prosperous, it is the common custom of the storekeeper, who in ordinary times avails himself of the
discount, to defer payment in times of stringency as far as
he can in order that he may make the most of the money
that comes in from his customers by using it for all manner
of business transactions, as, for example, the buying up of
farm produce. Now, if I am obliged, by the fact of my
customer not paying me, to get my notes discounted at
my bank to a large amount or to secure large loans on
collateral, then the sums in question will figure in the
statistical table under the head of manufactures. But the
money is not there at all. Is this sum, which was required
for the general need, to be charged to manufactures, in
spite of my not having enlarged my factory in the least; or
to the retail trade, to which my customer belongs; or to the
banking business, because my customer thought perhaps
that he would make the most of the opportunity by
speculating on the exchange; or to agriculture, because the
farmer either did not settle with my customer or else sold
some commodities to him which, under less favorable
conditions, would have remained unsold or disposed of
somewhere in a less profitable way? And just as it is with
me, so it is with every sort of manufacturing industry and
business that is not enabled, by the formation of cartels
or by the possession of some special advantage, to dictate
strict terms of payment to its customers. That is what it
all amounts to.
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*
__
Whether the banking fraternity has taken advantage
of t h e stringency to make a profit a t the expense of the
public b y exploiting its situation, I have not been able to
determine from the results of the present investigation.
I t would have to show, however, on the balance sheets of
the banks unless there were some very dexterous way of
creating concealed surpluses.
This is a t all events a reason for insisting in connection
with Point VI on a minutely detailed balance sheet in the
case of t h e large banks.
I t would likewise have been interesting to ascertain
whether in the case of certain very flourishing lines of
industry—of course not in these times of stringency, but
prior to them—capital was forced upon industrial undertakings, perhaps sometimes for the sake of merely transient profits; capital which, when the stringency came,,
was absent to the great detriment of the public.
B u t few facts, however, of a positive character have been
elicited in regard to this m a t t e r by the present investigation. A member from Silesia has made a pregnant
remark concerning the subject, albeit he does not believe
in this kind of activity on the part of the banks. In particular, with reference to the competition among the
banks, Herr Bernhard dwelt upon the efforts made to
induce local governments to promote the electrical industry, the establishments engaged in which were criticised
by one of the most prominent men in the banking world
of Berlin.
The essential cause of the financial stringency is therefore t o be found in t h e overstraining of the national frame;
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that is to say, domestic conditions have been at the bottom
of the trouble. But, just as a person who has overexerted himself can not use his strength to good purpose
in the struggle against external forces, so our people have
for the moment been unable to hold their ground against
the outside world, and this is made manifest by the balance of payments.
The problem as to how gold can be got from abroad is
closely bound up with the question as to how the credit
side of our accounts with the world at large can be made
to mount up.
If this is not so apparent in the case of France, the reason is that France has permanent demands upon foreign
countries to a large amount and is consequently in a position to offset her obligations, if they happen to be very
large, to a considerable extent by the interest which the
outside world has to pay her.
We must, of course, bear in mind that even those countries whose economic position with respect to the world
at large is unfavorable have managed in some way, in spite
of this, to draw gold from abroad, although I doubt
whether their efforts will be permanently successful unless
they happen to strike every now and then a sudden streak
of good fortune. A country like Russia can count upon
such occurrences much more easily than our country, to
which in the European concert there is no disposition to
grant anything.
With reference to the matters which I have been discussing I must acknowledge my indebtedness to the
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extremely interesting statements of Herr Fischel, as given
on page 347.°
In international trade—following Schaer in his " Elemente
der Zahlungsbilanz" Part IV of the " Volkswirtschaftliche
Blaetter"—we must consider the most important factor
in the interchange of commodities to be the exportation
of manufactured articles.
There is no doubt in my mind that in this matter our
manufacturers have in a measure pursued a short-sighted
policy. The domestic demand has in a way been so great
that the foreign customer has been neglected.
As a young man I traveled with textile goods in Brazil,
where I had much to do with exchange, and I have a fair
knowledge of the export business, so that I think I am
justified in talking more at length about these matters
because, as far as I can see, there are hardly any representatives of trade, pure and simple, in this commission.
This is not the first time that we have witnessed a
period of severe internal strain. But there is a difference
between the times we are having now and similar ones we
have had before in that there is something which has
prevented us from retaining or quickly recovering the
foreign market. This is due to the circumstance that the
German manufacturer is now much more intent than
formerly—and in this respect the English and French, I
believe, are still far behind him—on dealing directly with
the foreign customer and emancipating himself from the
German middleman in Hamburg, Berlin, and elsewhere.
a
Stenographic report of the whole commission, opinions of the experts
with respect to Points I I I - V of the question sheet.
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To be sure, this has its advantages. Large concerns
enjoying a monopoly, like Krupp or Beyer, are obliged, for
obvious reasons, to carry on their foreign business directly.
But when a small manufacturer, who has but an inconsiderable product to dispose of, seeks at a time of feeble
domestic demand to deal directly, say, with South America,
and then when there is again a stiff demand at home
allows his foreign customer to be disappointed in the
matter of delivery or of price (as a result perhaps of a
combination in the textile industry), and if he should
afterwards, when times are slack, try to restore his previous relations, he is pretty sure to find that it will not
work. His customer some time ago imported foreign
substitutes for the German's wares by way of Paris or
London and, above all, Antwerp. Had the manufacturer
in his original transactions been willing to allow the Hamburg commission merchant a middleman's commission, the
latter would have been obliged to supply a substitute, or
else he would have managed in some way to hold on to the
customer, and, unlike the London or Paris commission
merchant, he would only have been consulting his own
interests in turning again at the first occasion to the
German manufacturer.
The fact is that the export commission merchant retains
his hold on the foreign customer by means of a great
variety of articles, the manufacturer by means of a single
one. The former can at times offer him inducements by
purchasing wares from him for importation, but above all
he can offer him credit, a pretty sure way of strengthening
one's grip upon a customer. The money which is invested
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by Hamburg commission men in Mexico, Guatemala,
Chile, and elsewhere, not in the way of working capital,
but (with great reluctance) in the form of fixed capital,
must amount to a pretty big sum.
The export commission men, as a whole—the exchange
for our exportable manufactures, if I may use the expression—have not kept pace with the ever-increasing efficiency of our manufacturers. If they can offer for sale
only articles for which there is no special demand, they are
bound to drop behind as purveyors. Salable wares bring
unsalable ones in their train. If the former are not in
evidence, then the export of all those manufactures for
which there is no vigorous demand will drop away, and
this is, of course, bound to show in the balance of
payments.
There is another unfavorable side to the movement to
get along without the aid of the commission man in its
relation to the balance of payments. The export commission merchant, who has connections in London and
Paris so close as to be almost equivalent to the command
of branch offices, can in times of financial stringency draw
upon foreign credit, whereas the small manufacturer is
unable to do anything of the sort.
Whether the foreign banks have promoted the tendency
of our manufacturing industries to deal directly with the
outside world, I am not in a position to affirm. I am not
inclined, for my part, to question their services in conection with the export business.
The stringency of the money market has, as a matter of
course, increased the difficulties of the manufacturer who
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caters to the foreign trade. The profit which he derives
from the rate of exchange, amounting at present to 2.8
per cent, cuts but a small figure in his business.
I can enumerate various things that hamper our export
business, such as the commercial treaties; the fact that
certain combinations, or trusts, have not yet learned how
to accommodate themselves quickly when times are slack
to the needs of the export business in their oflferings of raw
material and half-finished products; furthermore, the high
wages (a great blessing when viewed by themselves),
together with various social maladjustments; but above
all, the rapid development of manufacturing industry in
the countries which were formerly our customers, the unfavorable financial conditions existing in these very
countries, and the shrewd and inconsiderate policy which
England has been pursuing at our expense.
It is difficult to form a judgment regarding our export
business arid its prospects from the statistics before us.
The soundness of our inferences is rendered questionable
inasmuch as the figures frequently refer to weights, and
in our method of tabulation the entries under the head
of imports and exports, respectively, are not made to
balance.
I have learned much regarding these matters from
the statements of Kommerzienrat Marwitz (p. 45)° who,
among other things, spoke of the great loss that Germany
had sustained from the fall in the prices of raw materials.
After duly weighing the situation, I believe I am justified
in expressing the fear that we can only count on a rather
slender extension of our export business, to the detriment
of our balance of payments.
a Stenographic report of the whole commission; opinions of the experts with respect
to Points I I I - V of the question sheet.
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B u t I see I have already taken u p too much of your
time and so I shall refrain from following Schaer any
further in w h a t he says concerning imports, freight charges
in international transactions, travel and emigration, and
the safety valve of the balance of payments.
More importance should, in m y opinion, be attached to
the m a t t e r of investments in foreign corporations, those
in t h e United States, for example. If, on account of a
financial depression, t h e stocks find no sale in the market,
we are obliged, ju^t when it is most inconvenient, to carry
a lot of foreign securities. Our investigation has, however, thrown no light upon this subject.
The taking up of foreign loans facilitates t h e winning of
markets for our great manufacturing industries. B u t in
this m a t t e r our banks should be careful not to overstep
the limits so as to affect injuriously our balance of payments, even in cases where the policy of the Government is not altogether in accord with them. The tying
up of capital in foreign long-term credits is certainly a
mistake if we are so situated t h a t we m a y at any time be
obliged t o have recourse to short-term credits abroad.
I desire right at this point to express m y dissent from
the proposition advanced by Doctor Roesicke (p. 424) ° to
t h e effect t h a t under an unfavorable balance of trade
foreign loans should be " r u l e d out on principle," although
I believe we shall do well to consider the suggestion t h a t
the operations of the credit banks be subjected in some
measure to the supervision of the Reichsbank, whose control, however, should not be permitted to extend to the
point of driving German capital to the foreign exchanges.
a Stenographic report of the whole commission; opinions of the experts with respect
to Points III-V of the question sheet.
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If the essential postulate of every discount policy, in
our sense of the term, is the existence of available foreign credits, then our foreign liabilities, at a time of stringency, are apt to become very embarrassing to us in case
some country should attempt to draw out our gold by
every means at its command. On this account it is preeminently desirable, however welcome the investment of
foreign capital in Germany may be to us, that these investments should be such that the money can not be
easily withdrawn.
I do not believe that any substantial change in the
discount policy of the Reichsbank with reference to the
outside world, apart from the utilization of a large mass
of foreign exchange, can be effected.
The raising of the rate of discount, just as has been
done hitherto, should not be resorted to except in cases
of necessity, because it makes money dearer for our manufacturers and other business men.
I am not willing to admit that the regulation of the
importation of gold has nothing to do with the balance
of payments. The effect of a rise in the rate of discount under an unfavorable balance of payments can
not possibly be anything but temporary.
It particularly fails to have any effect under such circumstances at a time when financial stringency and lack
of confidence prevail abroad.
The free operation of the discount policy with reference to the outside world is obstructed because the rate
of discount depends also upon the domestic money
market. According to Geheimrat Von Lurnm it is only
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in six cases out of twenty-six that the raising of the rate
of discount was not dependent upon the domestic situation. The connection between the discount policy and
the rate of exchange has been very clearly set forth by
Schaer.
A further difficulty consists in the dependence of the
discount policy upon the private rate of discount. I
shall revert to this point presently.
The effect of the rise in the rate of discount is shown
in the fresh credits which we are accorded abroad.
The causes of an outflow of gold are a temporary
unfavorable showing in the balance of payments and a
sudden great demand on the part of the outside world,
as was the case last with the United States.
The means of checking such an outflow, apart from
the adjustment of the rate of discount, are—as, among
others, Herr Loewenherz has suggested—the calling in of
credits abroad, the issue of treasury bills, and the presentation of coupons for payment in foreign countries.
The effect in this direction of a rise in the rate of discount is visible in the greater eagerness of foreign countries to draw bills of exchange upon Germany and in the
fact that bills of exchange drawn on Germany do not
return abroad.
But even this effect can not be relied upon when there
is an unfavorable balance of payments, at least not as a
permanent result, or (assuming such a condition to exist)
in case of a financial crisis abroad.
In the course of this investigation the subject of the
difference between the discount rate of the Reichsbank
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and that of the private banks has been discussed. The
figures adduced with reference to this by Kommerzienrat
Rinkel I have found very interesting. The difference
between the official rate and the private rate seems to me
too great. To the Reichsbank it must be very embarrassing to be under tutelage in this matter to the extent
of not being permitted, in case the official rate of discount
is 4 per cent or over, to discount at a lower rate. The
reasons for such a provision have been put before us.
But since the adoption of this provision the status of the
private banks relatively to the Reichsbank has altered
very materially. In my opinion we ought to rely upon
the desire of the Reichsbank, and indeed all the banks of
issue, to consult the public welfare on every occasion, and
let them have a free hand in the matter of going below
the official rate of discount or at least give them the
benefit of less rigorous requirements.
That the great banks, in the adjustment of their rate
of discount, have intentionally run counter to the aims
of the Reichsbank seems to me out of the question. Conditions, however, are sometimes more potent than men.
I can hardly conceive that this great difference between
the private rate and the Reichsbank rate has not at times
interfered with the carrying out of the policies of the
Reichsbank. A too low-priced competitor is always inconvenient, and the Reichsbank and the big private banks
are, after all, competitors.
If it can be asserted that the discounting by private
banks is a great benefit to many persons, it is about all
that can be said. The mass of the people, the so-called
middle class, derives no benefit, at least no direct benefit
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from it, neither does manufacturing industry, unless in
very exceptional cases, such as where the biggest concerns
take advantage of it.
The amount of money which is actually available for
the purposes of private discount at a time of stringency
is always very limited. A natural result is that preference is given to customers whose patronage is especially
desired, which is as much as to say, to those having the
largest capital, as well as to large industrial concerns, in
which the bank has perhaps an interest.
This is, to be sure, a privilege of the banks, but it is
only the very large ones that can make gains out of this
private discounting, and if the small banks are obliged
to pay for their money i per cent higher than the rate of
discount of the Reichsbank—I have never heard of a
banker asking only i per cent above the private rate of
discount in current accounts, although there is nothing
to prevent his doing it—the result will be that the large
banks are strengthened and the small ones weakened, which
is not altogether in the interest of the public, however
advantageous it may be for us to have a number of great
banks in order to insure our financial position with respect
to the world.
What is needed to diminish the difference between the
official and private discount rates is the carrying out of
the plan that the Reichsbank has proposed to itself—
a very desirable consummation-^—of not allowing prime
bills to go to the other banks.
Having spoken so much at length, I think I had better
let some of the other members have the privilege of the
floor.
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Doctor WACHLER. The stress in the money market,
which began in 1905 and which in 1907, owing to the
occurrences in the United States, developed into a severe
financial crisis, leading in England and Germany to the
abnormally high discount rates of 7 and 7 ^ per cent,
respectively, has affected us so seriously that we ought to
consider whether unhealthy processes have not developed
in our economic fabric and what measures may be necessary, especially with respect to the conduct of the Reichsbank, in order to guard against a recurrence of such
conditions in the future. Although the strain of the
money market in the spring of 1908, at the time the
present investigation was started, had lessened materially
and we began to indulge in hopes of a return to normal
conditions, the particular need was impressed upon the
members of the investigating commission of inquiring
into the nature of the symptoms that seemed to point
especially to an unhealthy development of our economic
state, with the view of determining what means would be
likely to restore sound conditions and avert a similar
situation in the future.
I can not for a moment admit that the present money
stringency has had as its wanton and unnecessary causes
the unhealthy development of our industries and the
consequent excessive demand for credit to meet the
needs of investment, or the inordinate speculation of banks
and capitalists in mining or other foreign securities and
the great loss of capital incident thereto, or even the
issue of bank notes by the large banks for the purchase
of foreign securities, especially industrial securities, and,
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in particular, those representing electrical developments
and transportation interests—operations which just in
that critical year 1:907 occasioned an outflow of gold
from Germany to foreign countries—and therefore I am
not prepared to admit that it is incumbent upon the
lawmaking power to guard against the return of just
such economic occurrences regarded as prejudicial to the
public welfare and in particular to have recourse ultimately to a change in the organization of the Reichsbank.
We know that there have been monetary crises within the
last sixty years over and over again in various countries,
and it must be recognized that in the case of some of these
there have been peculiar underlying causes, such, for
example, as the Suez Canal and the Bontoux affair, in the
case of France. The fact remains, however, that precisely
the crisis of the years 1907 and 1908 can not be attributed
to any particular economic occurrences, but that its causes
have been bound up with the ordinary and natural
development of our economic condition.
We must remember that since the year 1901 more especially Germany has had an extraordinary economic development. Not only has its population been growing at the
rate of nearly 900,000 annually, but its natural products,
especially coal and iron, have increased at an enormous rate,
while at the same time its foreign trade has made immense
strides, not to speak of the coastwise trade. Between 1901
and 1907the total foreign trade increased from 9,500,000,000
marks to nearly 15,500,000,000 marks, or more than 60
per cent, and, what is especially significant, the excess of
imports over exports almost doubled in that period. In
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1901 the excess of imports amounted to 953,000,000
marks, in 1907 to 1,728,000,000 marks. It is possible that
the demand for capital in the case of certain industries
in the last three years may have had its share in the tension
of the money market, and there has doubtless been a heavy
outflow of gold from Germany to foreign countries, and
especially to the United States in the years 1906 and 1907,
but this has mainly taken place as a result of the demand
for raw materials needed in our industries, chief among the
imports being copper, various ores, cotton, and food
products, which, as it happened, had greatly advanced in
price. Of course there must have been some losses in
speculation, but these can not possibly have occasioned
any further considerable outflow of gold in the past two
years. They have been in part due, indeed, to the futile
attempt to regulate the stock exchange by legislation.
It would be altogether wrong to charge the great banks
with having overdone the business of the flotation of foreign securities to the detriment of our domestic interests or
with having unduly promoted the investment of domestic
capital in foreign industrial enterprises because, for one reason, these investments were, almost without exception,
initiated and consummated years ago, and, furthermore—
apart from the circumstance of their having been probably
stimulated by the commercial treaties that were harming a
number of our industries—because they were in a way a
benefit to German industry by affording better opportunities for the export of its products and secured a permanent revenue from foreign sources, which helped to make
the balance of payments more favorable to us.
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It has been admitted by the experts, with scarcely an
exception, that the stringency in the money market is
not due to any particularly unhealthy activity in any part
of the industrial field in Germany, and that, as a result
of the extraordinary development of international trade
and international financial relations, Germany, in its
monetary situation, and the Reichsbank, in the matter of
discount, can not help being affected to some extent by
the happenings in the money markets of London and New
York. It would be a mistake, however, to draw any general conclusions from the exceptional conditions that have
developed as a result of what took place in the United
States in 1907. It is interesting to observe that Doctor
Arendt himself, after reasoning out the matter most
thoroughly, has asserted in emphatic terms that the precarious state of our money market in 1907 was nothing
more than a transitory phenomenon and that the situation, when the business world had come to accommodate
itself to it, would soon be once more a normal one, so that
legislative interference would be altogether superfluous,
the remedy for the existing abuses being at hand in the
powers which the Reichsbank was allowed to exercise.
We must acknowledge that a surprisingly brief time has
sufficed to establish the soundness of this view, as evinced
by the actual development and present state of our money
market.
Our economic activities having thus been restored to
their normal state and the financial stringency having
been overcome without any radical changes in the organization or the policy of the Reichsbank, we have a right
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to conclude, with reference to either of these phases of the
situation, that there is no reason for undertaking any farreaching innovation, and in particular that the Reichsbank, in its existing organization, has stood the test thoroughly and has shown that even in a time of crisis it is
fully able to discharge the duties allotted to it.
Having made these preliminary remarks, I shall take
up question III of the question sheet, regarding the augmentation and preservation of the gold supply in the
country, and more especially in the Reichsbank. But
first of all I wish to say that I do not consider it necessary
or helpful to our discussion to repeat here in detail the
many arguments set forth so thoroughly in the hearings
of the experts, and that it is my purpose to do no more
than express my opinion broadly as being favorable to the
one side or the other, reference being had especially to the
arguments advanced in the course of this discussion.
Question III deals with the importation of gold from
foreign countries. In this connection the metal is to be
considered more especially in its quality of a commodity,
but also in its capacity as coined money. The question
is in what way it can be brought to Germany and kept
there, and specifically in how far the Reichsbank is in a
position to further its importation and to hinder its speedy
outflow. I believe that an inflow of gold can, in the natural order of things, depend only upon the total value of
the commodities which the world is willing to purchase
from Germany and the amount of money otherwise due
to her in foreign countries, and for which she can demand
gold; and it is most likely to take place when the
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balance of trade is itself favorable. Unfortunately, the
balance of trade, even if the statistics regarding it are
defective in some important respects and do not give an
altogether reliable view of it, has in the last twenty
years been decidedly unfavorable inasmuch as the imports of merchandise, as far as the reports have shown,
have been regularly in excess of the exports. In the last
few years the excess of imports has averaged between
1,500,000,000 and 1,750,000,000 marks. We must not
infer from this, however, that Germany is what we should
call a debtor State, for when we leave the field of exchange
of commodities and go further into international business
relations we find that commerce and navigation have
made the outside world our debtors on account of immense services, and that large sums come to Germany in
the way of interest on capital invested in foreign countries,
so that, as the exchanges have shown, with the exception
of the year 1907, the balance of payments has been regularly favorable to Germany.
The state of the balance of payments determines practically whether gold is to flow into the country or out of it.
Now, the Reichsbank can not make the balance of payments very different from what it is. In case of an unfavorable balance, it would not be able to bring about an importation of gold that would last very long, and all it could do
would be to cause sums of money to come from abroad
in the shape of loans by putting up the rate of discount on
the theory that capital seeks the place where it can expect
the biggest returns. As, however, this business of loaning
is bound after a certain time to seek its level, the result
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is that even the most strenuous discount policy can not
permanently bring gold into the country and keep it there
in the face of an unfavorable balance of payments. If,
therefore, the importation of gold from abroad is the
expression of a sound economic situation, coupled with a
favorable balance of payments, the Reichsbank has nevertheless various means at its command of encouraging
such importation. I should designate these means as
either banking (discount policy, foreign exchange business, gold-premium policy) or mercantile (removal of the
seigniorage, advances without interest, latitude in fixing
the price of gold, or, in other words, a variable price of
gold).
All the experts have agreed that the discount policy
and the buying of foreign exchange are very effective
means of attracting gold to the country and, in any case,
of hindering or obstructing the outflow of gold. But they
have at the same time warned us against the danger of
putting on the screws too tight in this matter of the rate
of discount, as such an operation would entail a heavy
burden on our whole industrial system. We must remember, besides, that under certain conditions, when a
country is badly in need of gold or currency, as was the
case with the United States in 1907, it is found impossible
to arrest the outflow of gold by means of the agencies
afforded by a movable rate of discount. It is likewise
the general opinion that the Reichsbank should have an
adequate stock of foreign bills of exchange, but extreme
caution in the conduct of the foreign-exchange business
is insisted upon.
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While all sorts of suggestions have been made regarding
the policy to be pursued with respect to the adjustment
of the rate of discount and regarding the foreign-exchange
business, it is universally acknowledged that the Reichsbank has managed its affairs with the requisite skill and
in the right way, and it would be superfluous for me to go
into any details, which would be merely repeating what
the various experts have stated so fully. It will be sufficient if I do nothing more than express my concurrence
with the statements and opinions embodied in the stenographic reports and my conviction that the management
of the Reichsbank has all along been proper in every way,
so that we may feel confident that the business of discount and that of exchange will continue to be carried
on in the right way and in the interest of the public.
There is only one thing I have still to say, and that
is that there has been a diversity of opinion among
the experts as to the manner in which the foreign exchange
ought to figure in the bank's statement. It is agreed
that the stock of foreign bills should not figure as a separate item, as this would make it more difficult for the
bank to exercise its influence in regulating the rate of
exchange. This view is entirely correct. On the other
hand, I should not consider it proper to include them in
the item of gold in the possession of the bank. They
will have to figure in the accounting in the same way as
the checks or other short-time drafts bought up by the
bank, even if in consequence the bank should, on the
face of it, derive no benefit from its foreign-exchange
business in the matter of its covering its liabilities. It
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will have to be content to be enabled, in the way open
to it, to influence the rate of exchange in a manner beneficial to the economic interests of Germany.
With respect to the scheme of putting a premium on
gold, all were agreed that recourse can be had to it
effectually only in a country in which the state bank is
not obliged to redeem its bank notes in gold, that it can
not affect the importation of gold and can at best merely
render the exportation of gold less easy, and that even
in the case of France it has but very rarely been adopted,
and when tried, it has been in such a way that the bank,
which is not bound to make payment in gold and which
is in the habit of paying out old and well-worn coins,
demanded a premium (up to T8¥ of i per cent) if anyone
asked for full-weight coins, a privilege which has not been
exercised since 1891. The imposition of a premium on
gold ought not to be urged in this country, for as its
advocates themselves admit, such a measure could not
lead to any important results. All that should be attempted with it is to protect the money market against
certain illegitimate proceedings of the arbitrage business.
We have to reckon with the fact, however, that with us
any premium on gold would be accounted a disagio, and
would therefore be impossible unless Article IX of the
monetary regulations were repealed. But such a repeal
would mean the abolishment of the gold standard, and
this can not, of course, be considered for a moment.
The importation of gold, considered in the light of a
trade in commodities, will be determined mainly by the
price which the commodity will fetch. It is urged with
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reason that the Reichsbank be allowed a somewhat freer
hand in fixing the price. The propositions respecting the
making of advances without interest, even for pretty
long terms in future, and the abolition ot the seigniorage
amount virtually to enabling the Reichsbank to institute a
variable valuation of gold. It is not worth my while to
rehearse the reasons for the recommendation that the
Reichsbank should in future adjust its valuation of gold
somewhat more in the interest of the importer, and I will
merely say that I consider them to the point.
In line with what I have discussed is the suggestion to
labor for the creation of a gold market in Germany and
ultimately in Berlin itself. The way to do this would be
to empower the Reichsbank to make public declaration
that it is ready, without charging the full amount of the
seigniorage, to pay somewhat more than 1,392 marks for
fine gold, so that everyone may know in advance that he
can dispose of his commodity here at that price. It would
also greatly promote the end in view to have recourse to
such measures as will induce the producers of gold to ship
the metal direct to this country, as, for example, the
establishment of a gold refinery and the like. There is
no doubt that it would be of the greatest advantage if we
could have a gold market here, which, in a regular and
natural way, would attract to Germany a portion of the
gold product that now goes almost exclusively to London,
so as to make it well-nigh impossible to procure the metal
in any other manner than by way of London. Doctor
Arendt, too, thinks that we ought to adopt every means
that will promote the establishment of a regular gold
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mart in Berlin, although he does not appear confident that
it is practicable. The difficulties in the way of such a
scheme were thoroughly discussed in the hearings of the
experts on May 13, 1908. Whether they can be overcome, the imperial authorities, after due inquiry and
weighing of the facts, can best determine. Meanwhile it
is intimated to the Reichsbank on every hand that it
might do well to lose sight to a certain extent of the purely
mercantile standpoint in its purchases of gold, and not to
be afraid to make an occasional sacrifice in order to
increase its stock of gold as much as possible and to
create the conditions which would enable it to secure for
the Empire a stable and not too high rate of discount.
The Reichsbank is in a position to do this now without
any change in the law if, pursuant to Article XII, section
3, of the coinage regulations, the seigniorage, hitherto
limited to a maximum of seven marks per pound, were
reduced by the Imperial Chancellor to a nominal rate.
That the Reichsbank is in reality in a position to draw
gold to itself without any change in the law under the
present conditions has been made apparent by the evidence furnished in the past few weeks concerning the stock
of gold in the Reichsbank. The discussions of the experts
have likewise shown that the Reichsbank has at the same
time been catering in a most obliging manner to the needs
of the industries that make use of gold. I insisted at the
time that it would be of great advantage if the Reichsbank,
without incurring too great a sacrifice, would accommodate
our manufacturing industry in this way. At the same
time, however, I stated my position to be that I could by
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no means admit that it is the duty of the Reichsbank to
look after the supply of gold for our industries, inasmuch
as the acceptance of such a proposition would entail
very serious consequences with respect to the duty of the
Reichsbank in various other directions. I will say, however, that I should under no circumstances advocate such
a measure as the one suggested by the first speaker, which
would have the direct effect of making it more difficult
for our gold industries to obtain their supplies of the
metal. We are all aware that the gold industry, which
has been using nearly one hundred millions of gold, unfortunately to some extent in the shape of coin, has been
extremely profitable, especially in the case of Pforzheim
and the neighboring places, which are engaged in this
industry. And, in particular, I want to remind you of
what Herr Dietz, if I am not mistaken, was telling us
about the refining business, to the effect that a large part
of the gold that is produced in Russia and which is not
used there for coinage purposes comes to our refineries,
which refine it and then let it go back to Russia. This is
such an important branch of industry, one which is of
so much benefit to our whole industrial system, that I
can not at all agree with those who are so positively
bent on making it difficult for our industries to obtain
their supplies of gold, even if they are driven to melt
down gold coins. When you get to the last word, what is
coin but a material for this industry? I can not conceive
what reason there can be for throwing obstacles in the
way of a manufacturing industry that is seeking to obtain
its supply of raw material. It may, indeed, be a matter
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of regret that industry is taking coined gold for its purposes, but the moment that gold leaves the mint the
Reichsbank, in my opinion, ceases altogether to have any
control over it. It would be a perilous thing, in my
opinion, to make any laws regarding the use of our coins,
apart from the fact that it would hardly be possible to
regulate the operation of such laws or, indeed, to enforce
them at all.
The outflow of gold, as a rule, is determined by the
state of the balance of payments. The movement of gold
is not brought about in an arbitrary manner by operations
in money changing, but it is the result of the conditions
shown in the balance of payments and of the state of the
international gold market. A resort to artificial means,
therefore, as a general thing, can do but little toward
counteracting such an outflow. The putting up of the
rate of discount will, it is true, have the effect of preventing gold that is drawing a high rate of interest from
leaving the country, and the Reichsbank, if it has a large
stock of foreign bills of exchange, can, by negotiating
them, likewise diminish the outflow of gold. But neither
of these means is anything more than a subordinate one,
and they can not arrest the natural movement of gold,
conditioned by the state of the international gold market
and the balance of payments. They are capable merely
of affecting it temporarily.
As regards the gold-premium policy, such premium being
defined by Landesberger and, Helfferich as a "variable
compensation which the Bank of France exacts for redeeming its obligations in gold coins or bars instead of in
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current silver, which is the same thing as granting its
credits in gold," such a proposition, as I have said
before, can not be adopted without a previous change in
the monetary regulations, and tending, as it would, to
abolish the gold standard, ought not to be entertained
for a moment in a country carrying on a large foreign
trade.
This is all I have to say with reference to question III.
The CHAIRMAN. I think it will be of interest to you,
gentlemen, and valuable for the purposes of this discussion, if I supplement the information which I have submitted to you with some statistical figures embodying
the later returns of the gold and exchange transactions
of the Reichsbank in the present year. The directors
of the Reichsbank, as you have already learned in the
course of these debates, are convinced that it is of the
utmost importance to the whole commercial and industrial system of Germany, as well as to our monetary
standard and banking institutions, that the stock of
gold in the Reichsbank be increased and our supply of
gold be kept, if possible, permanently at a considerably
higher level in order that we may be able to face such
extremely trying and abnormal times as we have just
had without having to fear for the security of our banknote circulation. But we are not able, as Doctor Stroll
has pointed out, to conjure up gold bars and foreign
acceptances from the ground. All we can do is to make
the best of the situation. And this, gentlemen, we ought
to do with consistency and circumspection. I do not
believe that gold has invariably to be paid in gold. It
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is only the net debit of our balance of payments that
has to be settled in actual gold, there being no other
way of effecting such settlement. I am thoroughly
convinced—and this applies especially to a time when
there is a favorable international balance, such as we
shall apparently have this year—that gold is nothing
different from any other commodity, say coffee, cotton, or copper [Exactly so!], which we are not obliged
to pay for in gold pure and simple, but for which we can
settle in paper, as the first instrument at hand. The
Reichsbank will have to avail itself of this period of a
favorable balance of payments and the conditions resulting therefrom—and it will have to do this in the future
as well as now—to increase its gold supply, to lay aside a
gold reserve, and to supplement its discounting activities
by energetic exchange operations.
I wish to submit to you the following returns for the
current year:
The gold importations into Germany up to date amount
in round numbers to 291,000,000 marks, and the gold
exports to 37,000,000 marks, the excess of imports being
therefore 254,000,000 marks. Of the imports the Reichsbank bought up 283,000,000 marks, and of the exports
3,000,000 marks was supplied by the bank, so that the
Reichsbank had an excess of 280,000,000 marks—a sum
larger than the excess of gold importations—flow into its
treasury. The stock of foreign bills of exchange amounts
at present to 126,000,000 marks. To this must be added
the sums growing out of foreign bills, which we have
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allowed to stand to our credit abroad, amounting to somewhat more than 50,000,000 marks, so that the sum of the
foreign bills and the foreign credits amounts at present to
176,000,000 marks. If we add this to the 280,000,000
marks of actual gold, we shall have as the total of what the
bank has laid aside in gold and reserves convertible into
gold the sum of 456,000,000 marks. The sum of the foreign bills and credits amounts at the present time to 19
per cent of the total of the domestic bills.
Freiherr VON GAMP-MASSAUNEN. Director Stroll was
right in saying that there is no sense in constantly speaking
with reference to France and setting up France as a model,
as the situation there is altogether different from our own.
I would go still further and say that there is no use in
always referring to the status and workings of the Bank of
England as something that should serve as a pattern to us.
Everyone will admit that in that country also conditions
are essentially different from what they are with us. It
was shown in the course of the discussions of the experts
that England and Germany—I mean to say the Bank of
England and the Reichsbank—are alone in the habit of
freely furnishing supplies of gold to the outside world. A
few of the experts and some of the members of this commission were inclined to doubt this. There were one or
two small countries which were credited with sending
abroad every now and then gold to the amount of a couple
of million marks. All in all, however, it is true that it is
only these two banks that freely supply gold to foreign
countries. Now, the position of the English bank with
respect to England is very different from that of the Ger-
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man bank with respect to Germany. In the first place,
the Reichsbank is obliged to minister to a very large extent
to the permanent needs of the Imperial Government, and
thus has to devote a great part of its resources to meeting
the demands of the Government in the matter of credit.
I am not expressing any opinion as to whether this is as
it should be or not. All I wish to say is that the Reichsbank is compelled to come to the aid of the Imperial
Government in case of necessity, and no one will deny
that in consequence the ability of the bank to serve the
needs of the country is very much curtailed.
There are two factors, besides, that combine to render
the position of our Reichsbank unfavorable in comparison
with the English bank. The Bank of England in times of
need has always the Bank of France at its disposal.
France has repeatedly placed many millions at the disposition of England when money was scarce there. Would
the Reichsbank be anxious to turn to France and ask for
financial aid? I hardly think it would.
Then you must remember, gentlemen—and this I
regard as the most important factor—England is at all
times able, even when the quantity in the bank is at a
minimum, to obtain its supply of gold, be it at a financial
sacrifice, from all the countries of the globe, as England
is a large holder of the securities of every Government. If
England should be hard up to-day and should send, say,
50,000,000 in Prussian consols to Berlin, the 50,000,000
would have to be paid down in gold on the spot, and the
gold would immediately be on its way to England. If
England should offer to sell in France or in Russia the
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securities of those countries which she has in her possession,
the gold would have to be delivered up without further
ado. We are not situated thus. Germany is only on a
small scale the holder of foreign government securities
that are readily convertible into cash. We are not the
possessors of large amounts of British consols or of French
rentes, and simply for the reason that we are not satisfied
with the interest afforded by these securities. As a
matter of fact, in the past few years, as far as my observations go, the holdings of foreign securities in Germany
have diminished considerably. Germany was formerly
in the habit of investing her superfluous capital, if I may so
express it, on a safe second mortgage; that is to say, she
preferred to buy up the securities of countries, which,
while their credit was not quite up to the level of that of
Germany, were regarded on the whole as absolutely safe
in the matter of their obligations. I include among
these securities Austrian, Hungarian, and Italian rentes,
Russian and Roumanian securities, and the like. Some
of our experts have stated that Germany, partly as a
result of the financial depression of 1907, has got rid of its
stock of these foreign obligations, which in the meanwhile
had advanced to the position of first-class securities. In
place of them we have got hold of a flood of American
securities. I am very sorry for this, and I personally
believe that the banks which have had a hand in this have
not done any particular service to the national welfare or
the German Empire. We have thereby placed ourselves
in a position of absolute dependence upon the American
market, which was formerly not the case. Among these
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securities there may possibly be some fairly safe ones, but
who can tell, gentlemen, whether these first and second
mortgage bonds of any sort of a railroad offer even a
moderate degree of security? The newspapers in the
United States are loud in their warnings. I t is asserted
in well-informed circles that a thousand million dollars
will hardly suffice to develop the American railway system
and bring it up to a state of efficiency. As a result of the
introduction of these American securities, we find ourselves to-day in a very uncomfortable position. When
securities of any kind are admitted to our exchange the
amounts are to be accurately specified, a regulation which
is enforced in the case of all domestic securities. In the
case of mortgage debentures (Pfandbriefe), indeed, this
regulation has been repealed in the new exchange code,
but previous to the institution of this code whenever the
district loan associations (Landschaften) proceeded to a
fresh issue of mortgage debentures, amounting to, say,
100,000,000 marks, then the operations in these obligations were to be confined to just 100,000,000 marks. But
if American securities happened to be sent over at this
moment to the amount of $20,000,000 or $30,000,000, it is
not only these $20,000,000 or $30,000,000—as I am told
by a member of the Berlin exchange—that obtain the
privilege of entering into stock exchange transactions in
this country, but securities of the same kind to the amount
of $400,000,000 or $500,000,000, or even $600,000,000,
are admitted to this privilege and can at any moment
be thrown upon the market. This makes an immense
difference in the situation.
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When Director Stroll asserted that the improvement
of the balance of payments was merely a matter of international labor, he overlooked the effect produced by the
influx of foreign securities. This destroys the logic of the
proposition, which otherwise would be a sound one, that
it is through productive labor alone that the balance of
trade and the balance of payments can be altered. But
if foreign securities to the amount of one or two hundred
millions land in the country, then our balance of payments is at once affected unfavorably. Our foreign
indebtedness is increased by one hundred or two hundred
millions, and this sum has to be paid abroad in gold.
As for Herr Wachler's declaration that he does not
consider it wrong, but, on the contrary, thinks it is right,
that our large banking houses should not stand aloof in the
matter of foreign securities—asserting that this is a duty
which they owe to the German Bourse, to the position of
Germany as a world power, and the like, and arguing, furthermore, that these securities often represent issues made
in the past—I must say that his view, as a whole, does not
appeal to me. I owe thanks to the president of the
Reichsbank for having, at my suggestion, placed before us
a table giving the statistics of the securities placed upon
the German market in the years 1900-1907. I find that
in the year 1905—that is to say, at a time when we were
on the eve of a serious financial crisis and when cautious
and far-seeing financiers foresaw that such a crisis was
impending and would be an acute one—foreign securities
amounting to no less a sum than 1,108,000,000 marks were
brought to the German market. I am sure that this mass
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of securities had an important share in rendering the
balance of payments unfavorable to us not only in 1905,
but also in the succeeding years, for the obligations
thus incurred had to be liquidated by payments made in
foreign countries in that year and the years following.
If this had not necessarily to be done in every case by
means of gold payments, the fact still remains that in
those years our balance of payments was unfavorably
affected to the extent of more than 1,100,000,000 marks,
for the reason that we had suddenly become debtors to
the outside world to that amount. Furthermore, in 1906
foreign securities came to Germany to the amount of
220,000,000 marks, and in 1907, 152,000,000 marks more
was added. Such figures ought to make us think and
bring up the question—a question I have elsewhere propounded—of the desirability of enabling some civil authority in the Empire to deal with the banks in a time of
serious financial stringency and to make them understand
that on such occasions regard must first be had for the
domestic needs of the country. If the banks at such
times do not deem it necessary in the interest of the public
to lay up reserves, then there is nothing left, I regret to
say, but to compel them to do so. I am of opinion that
the question ought to be considered whether some civil
authority—I am thinking, first of all, of the Reichsbank,
although I am sure the Reichsbank would not relish such
a mandate, as it is anxious to be always on good terms
with the great banks—should not be intrusted with the
power to intervene in this matter for the benefit of the
public.
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Doctor RiKSSER. And suppose the Reischbank were to
say "Yes"?
Freiherr VON GAMP-MASSAUNEN. In that case it would
assume a responsibility, and if the Reichsbank says "Yes "
over and over again, and the course of events should not
justify its position, then, I take it, the Imperial Chancellor
will have to draw his own inferences. [Laughter and applause.]
I can tell you, Herr Mommsen, there is not a person
who has so little faith in the Reichsbank. Between 1905
and 1907 the president of the Reichsbank would probably
have said " No;" and the present head of the Reichsbank
would have said " No. "
Gentlemen, the question has frequently been discussed,
and it is an important one: How large is the quantity of
gold actually in the possession of Germany? Some of the
members, those who rather dislike to hear an unfavorable
opinion expressed regarding the affairs of Germany, have
made a computation something like this: Altogether
there have been coined in Germany so and so many 20mark and 10-mark pieces; so and so much gold has been
imported according to the statistics; so and so much has
been exported; consequently Germany must have in the
neighborhood of 4,400,000,000 marks in gold. Director
Stroll has called our attention to an important point, one
which I was myself anxious to see discussed (I made a
motion to that effect), and that is, the melting down of
our gold coins for the purposes of our manufacturing
industry. There are two other factors that have to be
discounted in calculating our stock of gold. In the first
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place, we must estimate the amount, not given in the statistics, that is carried out of the country by travelers and
tourists, and secondly, the amount (a much larger one)
which goes abroad in the pockets of our foreign laborers.
Assuming that each of the 300,000 laborers from foreign
countries takes with him on an average the sum of 100
marks every year, we shall have the sum of 30,000,000
marks which in this way slips out of the country annually,
unnoticed in the statistical tables. It is evident, therefore,
that we have got to go about this calculation of our gold
supply more conscientiously. Are we to go on forever
groping about and trying to hide the truth from ourselves?
Some of our experts have been going about it in such a
way as to make one fancy that they rather preferred not
to have an actual count for fear of an unfavorable result.
Herr Arendt expressed this apprehension quite boldly.
He declared that we had better not have a census unless
we were prepared for an outcome that would throw us all
into consternation. I think, gentlemen, that we might
as well face the truth. There is no use in our going on
persuading ourselves that we have got 4,400,000,000
marks in gold. Director Stroll has let us know that this
does not tally at all with the estimate to which he has been
led by the facts revealed in the inquiry.
Director STROI^. Only as regards the use of gold in
industry.
Freiherr VON GAMP-MASSAUNEN. I suppose, then, that
you had already taken into account the sums carried off
by laborers.
(Interruption by Director Stroll.)
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0 8
Well, these are matters of opinion. I am of the opinion
that there is not a pfennig in the way of a credit item to
offset this debit representing the export of gold through the
agency of foreign laborers, because we are not sending out
any laborers to earn money for us abroad. Moreover, out
of the hundreds of thousands who have emigrated in the
course of the past decades, no more than a few thousand
have returned in recent years. The number likewise of
those who have come back to Germany on account of the
Russian troubles is very small. I believe that the East
Prussian Colonization Bank has succeeded in colonizing
just a few hundred in East Prussia. Of course, no one
will pretend that the return of Germans to their fatherland
can result in an importation of gold that will begin to offset
the outflow of which I have been speaking. I am of
opinion, therefore, that the vague estimate of many millions a year on account of emigrants and foreign laborers
is altogether inadequate.
Now, I wish to ask you, gentlemen, Does a census of the
gold in Germany really present such insuperable obstacles?
To begin with, statistics might be had of the gold in private
banks, in the hands of bankers, and in the treasuries of the
various public institutions, loan associations, etc.
Director STROIX. That is the very thing that is being
done.
Freiherr VON GAMP-MASSAUNEN. I can assure our esteemed director that it is not being done, or else it is done
in a desultory way, not simultaneously with all the various
funds, the postal treasuries, revenue funds, etc. But I
say again, What is to prevent a regular census of the gold
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supply being taken in a perfectly businesslike manner?
Of course, in the event of such a census, a few venerable
housewives will be found who have perhaps a couple of
20-mark pieces safely stowed away in an old stocking and
who will not rush straightway to the census taker with the
information. But I perceive that Herr Fischel has started
taking a census already [laughter], and I shall be but too
glad to let him peep into my purse. There isn't one of us,
I am sure, who is afraid to make correct returns to the
census taker. I am under the impression—and I believe
this is a pretty common notion—that the Reichsbank
itself is not particularly anxious to have a census taken,
and that the banking world in general is not very eager
for one, by reason of the dread of having the naked truth
sprung upon them.
I have still a few words to say regarding the consumption of gold in the manufacturing industries. Director
Stroll was kind enough, indeed, to restrict the sense of the
expression " Moloch of Industry/' but he would keep the
meaning intact in relation to the manufacture of gold
articles. He is even willing to go so far as to impose legal
penalties upon anyone who dares to do away with a gold
coin in order to gratify his personal interests. In that case
I should be one of those subject to the penalty, for my ring
is composed of bits of gold, to which a personal interest in
regard to our family attaches. I regard the use of gold in
manufacturing industries as something to which we have
no right to object as long as the Reichsbank declines to
come to their assistance by supplying them with the ingots
for which they have all along been asking. It certainly
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amounts to squandering the national labor to go on coining
20-mark pieces just to see them disappear in the melting
pots of our manufacturers, to whom it would be a great
advantage if they could procure gold bars having a lesser
value. Manufacturers make use of the gold coins primarily because they are guaranteed absolute security as to
weight and standard of purity. That can not be prevented,
say what you will, by any police regulation, as it is done to
meet a legitimate need; for how are the small goldsmiths
and others like them to get the gold they need otherwise
than by procuring such ingots from the Reichsbank?
Moreover, the manufacturers undoubtedly only take coins
that are full weight, rejecting all those that are at all worn,
and from this standpoint also the Reischbank should have
every incentive to meet the wants of industry.
As to the foreign-exchange business, I have nothing
special to say concerning it.
I should like to say a few words, however, regarding the
so-called "gold-premium policy" of the Bank of France.
Taking the testimony of the experts, I am justified in saying that such a premium on gold has no economic significance whatever, and for this reason it is not to be recommended. It only results in making the exporters of gold
take the full-weight coins from circulation, and this in my
opinion is substituting a greater evil for a lesser one. It
would really be better if the Bank of France were to supply gold to those who intend to export it for legitimate
purposes for a small consideration. The status of the
Bank of France with respect to this matter is different from
that of the Reichsbank, inasmuch as it is not obliged to
make payments in gold.
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I thoroughly agree with Director Stroll in his assertion
that the putting up of the rate of discount is justifiable
only as a temporary measure and can operate only as such.
But I believe that we should draw broader inferences from
this obvious fact than Herr Stroll has drawn. The conclusion that ought to be drawn is that the raising of the
rate of discount is to be resorted to only under exceptional
circumstances, and that the Reichsbank is in duty bound
to lay in such a stock of gold in ordinary times as will
enable it to meet a sudden demand without any considerable increase in the rate of discount. A number of the
experts have told us that the successive raisings of the
rate of discount in 1907 had, as a general thing, no practical
effect whatever upon the outflow of gold, but were only a
burden to our industry. The United States wanted
500,000,000 marks and had to have them. It took them
from Germany and from England, and as soon as the needs
of the United States were satisfied the exportation of gold
ceased.
Now, gentlemen, no one is going to dispute that the
gambler can afford to pay a somewhat higher rate of interest than the solid business man. While it is of no consequence to the speculator whether he pays 5, 6, 7, or 8 per
cent, an official rate of discount of 7 per cent, such as we
have had, to which the private banker claps on another
2 per cent, is most detrimental to our national industry.
It appears to me, then, that the Reichsbank ought to be
compelled to make it its policy more than it has hitherto
done—I always regard the critical year 1907 as marking
the end of the old ways and methods and exclude from my
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1908
criticism the year 1908, which marks the transition of the
Reichsbank to new ones—to lay up a large stock of gold
at all times, and especially when the financial market is
undisturbed, such a supply as will be proportioned to the
development of business and the demands made upon the
institution. It will not do for the Reichsbank to be constantly calling in evidence the years following 1872 or
1873 and pretending to look upon the present need for
1,400,000,000 marks as an illegitimate demand for credit
which has to be kept down by some sort of forceful
restraint. These 1,400,000,000 or 1,500,000,000 marks
represent a legitimate demand for credit on the part of
our industry and commerce, which it is the duty of the
Reichsbank to find the means of satisfying.
The suggestions of Herr Fischel impress me as being
excellent. In my opinion the creation of a gold market
in Berlin is perhaps the most important matter to be considered, and I trust the problem will be solved in a satisfactory way through the discussions of the commission.
The Reichsbank ought to be buying up the gold at those
times when not everyone is anxious to have it. The
abolition of the seigniorage would undoubtedly have
the effect of drawing gold hither. In regard to the question put by our president to the experts as to whether it
might not be sufficient if the Reichsbank were authorized
to pay 1,395 marks for gold, I am of opinion that this
would work well with a financier not connected with the
imperial exchequer at the head of the bank, and I think
the experiment ought to be made. If it should turn out
impracticable to get much gold in this way, I should not
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Commission
hesitate to impose upon the Reichsbank the obligation to
buy up all the gold that is offered at 1,395 marks.
In this connection the suggestion has been made of establishing a gold refinery. If it is actually our purpose to
have a gold market, and one that has life in it, we are
bound to provide some agency through which the value
of the gold that is brought to it is officially determined.
For, as the experts have informed us, gold does not come
in such a condition that its purity can be at once ascertained. It has got to go to the refinery. If the business
of buying and selling gold is left entirely to the private
refiners, we may be quite sure that they are not going to
buy up the gold unless there is more or less profit in it,
while what we are intent upon is to have the purchasing
of gold done in such a way that the purchaser shall not
make much by it. I do not say that it is absolutely necessary that we should have an imperial refinery, but there
ought to be at least some connection between the Reichsbank and this gold refinery—the refinery to ascertain the
fineness of the gold that is offered for sale and the
Reichsbank to be compelled, or at least authorized, to pay
the current price of 1,395 marks.
Regarding the putting up of the rate of discount, I do
not propose to enter into a discussion of the matter. I
should merely like to remind you, with reference to the
remark of Director Stroll to the effect that it would do no
harm if such a thing happened as the withdrawal of a
couple of hundred millions, that on the 30th of November,
1907, we were not so very far removed from the zero
point. The Reichsbank had at that date in its vaults only
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1908
470,000,000 marks, and if a few hundred millions more
had been carried out of the country, we should have witnessed a financial collapse in the Reichsbank and in all
Germany. ["That was an exceptional case!"]
Of course, such things are exceptional. But we must
recollect that we are living at this particular time and that
we have consequently to deal with precisely such exceptions. If it had not been for these exceptions, we might
as well have saved the expense of this bank inquiry.
Such exceptions can recur at any moment, inasmuch as
the importation of large quantities of foreign securities
may suddenly render an increased exportation of gold
necessary. I should moreover like to call your attention
to the fact that in the year 1907 we had to make heavy
payments abroad on account of our purchases of raw
material, the prices of which had been artificially driven
up to extraordinary figures by the trusts and other combinations in the United States. We were forced to pay
from 20 to 40 per cent more for copper than it was worth
and for cotton still more, and we have to reckon on the
possibility that what occurred in 1907 may occur again
in 1909, so that our manufacturers may be obliged to spend
hundreds of millions more for their raw products. And
then the Reichsbank, if it takes no precautions, will find
itself in the same situation as in 1907. The fact is that
conditions have changed entirely. Those times are gone
when the Reichsbank had to consider merely the effects
produced by the interchange of commodities and ran no
danger of being shaken to its foundations by inordinate
needs of foreign countries.
84713—10—19
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The raising of the rate of discount has the effect of
inducing the patrons of the bank to curtail their deposits.
When the rate is 3 per cent the deposits are left with the
bank. When it is 7 per cent the deposits are allowed
to remain only as far as absolute necessity dictates, or, in
other words, they are cut down to a minimum.
In 1901, when the official rate of discount averaged 4.1
per cent, the deposits amounted to 595,743,000 marks,
while in 1907, when the average rate was 6.3 per cent, they
amounted to no more than 577,938,000 marks, notwithstanding the fact that in these six years the business of
the bank increased by many hundred millions.
The information which we have gathered from the
experts relative to the development of the private discount
business has been quite a revelation to me. Herr Gontard
is in favor of repealing the regulation which prohibits the
Reichsbank from discounting bills below the official rate
when that rate is 4 per cent or over. On the other hand,
he called attention to the fact, and justly so, that the discounting at private rates benefited only the large commercial and industrial concerns. I do not agree with him in
the notion that it would be well to do away with this
restriction. If the conditions with respect to money and
credit at home and abroad are such as to compel the
Reichsbank to have recourse to such a high rate of discount, then we ought not, and indeed we have no right,
to enable and empower the bank to. dispense the gold to
the large dealers and manufacturers at a private and
lower rate of discount. Indeed, the Reichsbank itself
can not help taking this view of the matter. I myself
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recollect the oft-repeated complaints of the Reichsbank—
whether they were justified or not, I am unable to decide—
to the effect that the Seehandlung was encroaching upon
its sphere in offering money at a lower rate of interest.
It was on this account that the regulation was enacted
compelling the banks which operate under the charters of
the individual States of the Empire to conform to the
official rate of discount of the Reichsbank. But would
not the result be the same if the private banker were to
offer money at a lower rate? Of course it would. If at
the time when the Reichsbank is obliged to put up the
rate of discount in order to check the export of gold, the
large banking houses are placing many millions at the
service of the exporter at a lower rate, who can fail to see
that the effect would be the same as in the other case?
It is interesting to compare the records of the various
exchanges with reference to the difference between the
official and the private rate of discount. In the year 1907 a
the private bank discount was lower than the official rate
by less than % per cent in London on one thousand and
eight days, in Paris on one thousand and sixty-two days,
in Berlin on two hundred and twenty-three days; there
was a difference in London of between 1 and 1 % per cent
on sixty days, in Paris on one hundred and twenty-three
days, in Berlin on four hundred and eleven days; there was
at no time a difference of between 1X a n d 2 per cent in
London, while in Paris the figure was between these
limits on ninety-seven days and in Berlin on one hunts The figures here named have reference not to one year but to one
thousand five hundred and twelve days. The speaker made the requisite
correction at the next day's session.—Translator.
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dred and forty-eight days; and there was at no time a
difference of over 2 per cent in London or Paris, while in
Berlin the rate exceeded this on nineteen days. I think
this whole question ought to be taken up in a later stage
of our discussion, especially with reference to the desirability of instituting some sort of official supervision over
the posting of private discount rates. If it is considered
necessary to exercise supervision over the quotations of
prices in the case of every kind of commodity in order to
guard against the possibility of mistakes—or something
else—then we ought by all means to subject a matter so
important in its influence upon business as the fixing of
the private rate of discount to some sort of public
supervision.
We shall have to consider whether a situation in which
there is a difference of \]/2 to 2 per cent between the
official and the private rate of discount is not untenable
and whether it is not possible to apply a remedy in the
form of some official agency for keeping the public
informed. One or two of the experts have protested
against the notion that the banks through their low rate
of discount have interfered with the discount policy of
the Reichsbank, while others have emphatically confirmed it. For my part, I have no doubt that if in a time
of great stringency the great banks go on offering large
sums of money at a considerably lower rate of discount
the Reichsbank will be seriously affected in the conduct
of its discount business.
I will crave your indulgence, gentlemen, for a few
words regarding the origin of the recent crisis. Our
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experts have maintained over and over again that the
crisis of 1906 and 1907 was mainly due to the extraordinary development of our industries. I have not been
willing to admit the truth of this, and I want to remind
you once more that in the year 1907 68 of the larger
stock companies alone had bank balances to the amount
of 160,000,000 marks. This is an enormous sum, you
must acknowledge. But suppose our industry was responsible for the crisis, would you consider it fair to make this
a matter of reproach? Is there anything in it to cause
concern? Have we not been told, on the contrary, that
we must expand our industries if we wish to secure the
means that will enable us to maintain a favorable balance of payments ? It ought to be the duty of the Reichsbank, therefore, to adopt such measures as are calculated
to promote the development of our industries. Industry
has a right to demand this, not only in its own interest,
but because its activities are bound up with the general
interest of the public and because the balance of payments and the balance of trade would be still more unfavorable with respect to us if it were to follow the counsels of
those who urge contraction. The restriction of the output of our industries affects our foreign trade above everything else, there being least profit in this branch of our
commerce. If the Reichsbank complains that industry
is robbing it of its money, then, I say, the Reichsbank
must make it its business to have enough money on hand
for the ordinary needs of industry.
This is about all I have to say. I think I have touched
upon the main points, and I hope to have an opportunity
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later on of discussing some of them further. I am
extremely anxious, however, that we in this assembly
should come to some conclusion. I do not believe that
it is going to be of much help to those who will ultimately
have to pass on these questions that these twenty-three
experts have simply delivered twenty-three monologues.
I am sure this would not suit our president. We have got
to reach an agreement regarding specific questions. The
correct solution is usually between the two extremes, as
Director Stroll has remarked. Our discussions will have
a greater value if we cease to treat the subject from a
merely theoretical standpoint and make an honest effort
to get something solid out of these discussions and to come
to an agreement with our opponents in regard to certain
measures. I am under the impression that the valuable
suggestions of Herr Fischel in particular will meet with
general assent, and if we can reach an agreement in
regard to this and other questions I should consider it of
the greatest advantage to our whole economic situation.
Geheimer Oberregierungsrat MUIXER. Gentlemen, we
have heard several speakers discuss the question of the
consumption of gold in the industrial arts. I shall only
say in regard to this that measures have already been
taken to meet the wishes of the bank commission as well
as of the experts whom we have heard. That which
was requested is now being done. The Government had
the requisite forms prepared some weeks ago, to be sent
to those engaged in the industries in question, through
which we ought to ascertain how much gold coin—
specifically how much domestic and how much foreign
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coin—and what quantity of fine gold is melted down or
dissolved or used in any other way in the individual
manufacturing concerns. The forms are to be placed in
the hands of the proper parties through the agency of
the chambers of commerce. Not only the manufacturing
concerns using the precious metals wholly or in part
are to receive these forms, but also dentists, opticians,
and others; in short, all those engaged in repair work into
which gold enters. The papers have been sent out over
the greater part of the German Empire and part of them
have already been returned to the department of the
interior. Among the questions is one asking for a statement of the kind of alloy best adapted to the specific
manufacture. This question in particular was suggested
by the Reichsbank in order to obtain the necessary data
for the preparation of the various kinds of ingots and
other small bars in which gold can be supplied to the
consumers in the respective industries. I trust it will be
possible to tabulate the results before the close of the
year. But this hope can only be realized if the manufacturers send in their replies as early as possible.
Doctor RiKSSER. Gentlemen, in regard to the first question, whether the inflow of gold from abroad can be
effectually promoted by certain methods in the adjustment of the rate of discount or in the foreign exchange
operations, or by making advances of money without
interest, or by any other means, I have come to the
following conclusion:
I shall first take up the subject of the means afforded
by the adjustment of the rate of discount.
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I think it is necessary in the first place to make it
clear—especially for the benefit of those who imagine
that the conditions in question have originated through
some arbitrary process and can be altered by arbitrary
means—that a large and steady inflow of gold into our
country is an inevitable consequence of the growth of our
population, taken in conjunction with the habit, which
has been systematically fostered by our legislation since
1870, of carrying on business with hard cash. Until we
have learned to overcome this habit by the extension of
the methods for doing away with payments in coin—that
is, the use of checks and drafts, and the clearing-house
system—a thing that is going to take a long time, perhaps
whole generations—there is bound to be a constant importation of gold. With an annual increase in the population of about 900,000 souls, and on the assumption that
the present stock of gold in Germany amounts to about
4,000,000,000 marks—I refer to the estimate furnished
by the United States Treasury, whose figures, as far as
Germany is concerned, are based on German estimates—
it would be within the truth to say that an importation
of gold to the amount of something like 60,000,000 marks
annually would be rendered necessary. But owing to the
rise in the price of commodities, the enhanced cost of living, and higher wages (and not in any considerable measure on account of the sums sent home by foreign laborers) another 40,000,000 marks or so will have to be
added to the 60,000,000 marks, raising the sum to about
100,000,000 marks. But then comes another 100,000,000
marks, which, as we have gathered from the bank in-
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quiry, is the amount, approximately speaking, annually
consumed in the various industries into which gold
enters. We have therefore to reckon under ordinary
circumstances on the necessary importation of at least
200,000,000 marks of gold, and at a time of increasing
business prosperity the amount will be greatly swelled,
inasmuch as the increased numbers and higher wages of
laborers, the extension of manufacturing plants, and the
larger volume of business transactions have the effect of
putting more gold into circulation.
Apropos of the consumption of gold in the industrial
arts, I must remind you that one of the facts brought
out at the hearing of the experts—and their statements
left no doubt on this point—is the utter worthlessness
of our statistics concerning the movement of the precious
metals. As to the contention that this consumption of
gold in the industrial arts, in so far as it involves the melting down of our gold coin, has absolutely to be checked—
and that by means of legal penalties, if practicable—I
must say that I do not regard such stern prohibition as
justified by the circumstances, and still less do I believe
that it can be enforced, for nothing is easier than, when it
comes to getting gold from the Reichsbank (an operation
which need not be executed directly, but may be done as
well indirectly), to be silent regarding the use for which
the gold is intended or else to state it falsely or in disguised terms. I am utterly opposed to the forcible prevention by legal penalties of operations whose economic
necessity and usefulness may be. urged on solid grounds.
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So long as we have a favorable balance of payments,
which, under ordinary circumstances, is reflected, as we
should expect, in a low rate of exchange, this demand for
gold will be met, under normal conditions, spontaneously
without any action in the matter of the rate of discount.
When the rate of exchange sinks below the gold point
the importation of gold, as a rule, becomes a profitable
business, and as long as we can reckon on the present
annual output of about 1,600,000,000 marks such importation under these circumstances will, as a general thing,
go on automatically. All efforts to prevent gold permanently from coming to us when the balance of payments
was in our favor would be in vain unless means were
found of increasing our liabilities with respect to foreign
countries.
Now, in the past few years, as far, at least, as our
methods of investigation—and I say this emphatically—
have afforded us correct and adequate returns, we have
been witnessing an almost uninterruptedly aggravated
state of our balance of payments, or, in other words, a
period of a high rate of exchange, without our being able,
from the results of these investigations, either to maintain positively or to deny that we have reached the point
where it can be said that the balance of payments is
actually against us. The former conclusion would,
however, appear to be fairly warranted by the fact that
short-time bills on London have been quoted during the
past two years on an average at 20.47, and in the period
1903-1907 at 20.45, a n ( i short-time bills drawn on Paris(
in the latter period at 81.20.
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T h e tendency of our balance of t r a d e to become adverse
t o us can n o t fail to affect our balance of payments.
This unfavorable tendency is the natural result of the
extremely high rate of increase in our population (for
whom food and occupation had to be provided in t h e
first place b y agriculture and after t h a t b y our manufacturing industry), as t h e large shortage in agricultural products h a d t o be m a d e good, and the needs of our manufacturers in the way of foreign raw materials supplied, by
importations proportioned to t h e accelerated rate of
increase of the population. I am not called upon at this
moment t o express an opinion regarding t h e actual extent
t o which our balance of t r a d e is against us, whether it should
be estimated a t about 2,000,000,000 or only 1,000,000,000
marks or perhaps no more t h a n 800,000,000 marks. B u t
this much is certain, t h a t from our unfavorable balance
of t r a d e — t h e process dates back to 1899—has resulted the
constantly aggravated state of our balance of payments
within t h e last few years to which I have referred, as we
have n o t succeeded in offsetting the excess of debit items
in our balance of trade b y the increase in our exports or
other means of augmenting t h e liabilities of the outside
world toward us or b y t h e calling in of loans made to
foreign countries and t h e like. This has been partly due
to t h e fact t h a t in t h e meanwhile t h e prices of the necessaries of life and raw materials t h a t h a d to be imported
from abroad have advanced greatly, and partly to t h e
circumstance t h a t we have had to import more or less of
some of t h e commodities, especially coal, t h a t we usually
export t o foreign countries. We were moreover under the
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necessity, in order to promote effectively the exportation
of the products of our manufacturing industry, upon which
our economic welfare so largely depends, of establishing
banks in foreign countries and of embarking in foreign
enterprises. Besides this, in order to secure a firm footing abroad, as well as for other reasons, economic and
political (see my book Zur Entwickelungsgeschichte der
deutschen Grossbanken, 2d edition, pp. 125-126 and pp.
129-131), we were obliged to grant long credits to foreign
countries, partly in the way of participation in foreign
undertakings and partly through investments in foreign
securities, which had necessarily the effect of rendering the
balance of payments more unfavorable to us, in so far at
least as the figures on the debit side representing such
investments were not offset by the credit amounts
representing the interest or dividends earned.
At this point I should like to say a few words with reference to what Freiherr Von Gamp has just said in regard to our foreign holdings. He appears to have been
quite wrought up by the fact of our having in 1905 made
investments in foreign securities to the amount of
1,218,000,000 marks, a proceeding which he described
as very unpatriotic, something against which it was high
time to take the most drastic measures, whether by means
of legal regulations or a supervision exercised by the
Reichsbank. Now, I should like to remind him that in these
1,218,000,000 marks there is a big item representing obligations of the Russian Government; that is to say, the very
securities whose disappearance from the first place in the
list he deplored at the beginning of his speech. It is pre-
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cisely the amount of these obligations that makes the column of foreign securities in 1905 bulk so large, while, according to the statistical tables submitted to us to-day
the grand total for 1906 dropped to 195,000,000 marks
and that for 1907 down to 142,000,000 marks. But suppose the case had been different, suppose the total for 1907,
instead of only 142,000,000 marks, had been 1,218,000,000
marks, as in 1905, still Geheimrat Von Gamp ought not
to lose sight of the fact that such a showing was altogether the result of previous engagements and that we
have got to live up to these engagements, even if we have
to meet them at a time when it is not convenient for us as
a nation or for our banks—I say emphatically, our
banks—to do so. No one will seriously contend that we
ought to renounce our engagements toward Russia or
break off our relations with foreign countries at the very
time when they need our assistance. What would become of our standing as a nation, a standing which may
be regarded as equivalent to so and so much capital, of our
whole financial and political reputation? As long as we
Germans are not willing to return to the old standpoint,
one which reflects the ancient mercantile system, and
do not intend to cut ourselves off from the outside world,
as long as we believe in bracing up our foreign connections
for the sake of such of our industries as seek a foreign
market—industries and exports essential to our very
existence—and as long as we feel that our political standing
and credit with foreign nations absolutely require that
we make loans like those in question, just so long shall we
have to keep clear of all legal enactments and supervisory
regulations in regard to this matter,
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The idea of a supervisory control has been brought forward with reference to another matter, that of private discount, in order to guard against what in parliamentary
parlance are called errors, but in the language of common
sense falsifications. In the case of dealings in futures in
the grain market, in which at one time it was also suspected that falsifications occasionally occurred, quotations
have for some time past been under the supervision of
agricultural experts. During all this time I have not
heard of a single case of falsification of the figures, not to
speak of such falsifications in a large number of cases.
It will turn out precisely in the same way with the supervision of private discount. Any system of supervision,
however, regarding the necessity or the timeliness of the
placing of foreign loans by the Reichsbank would be altogether impracticable. The head of a nationally constituted authority or, say, of the Reichsbank would thank
you for the pleasure of having to adjudge whether or not
the moment is opportune for the taking up of a foreign
loan. For a positive answer would mean the floating of a
royal Prussian or, as the case may be, an imperial German
foreign loan. It will be said that the loan has been placed
upon the market with the unreserved sanction of the
imperial chancellor or the president of the Reichsbank,
and the public in Germany is much more influenced by
such considerations than is the case in France, where something of this sort obtains. If the loan is rejected, it will
inevitably result in much ill-feeling on the part of the
country affected and no little friction, and, in addition, in
case engagements had been previously entered into rela-
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tive to the placing of the loan, the breach of contract,
which would play havoc with our reputation in every
quarter of the globe, would appear to have been sanctioned
by the government, which is simply inconceivable. An
innovation of this kind appears to me absolutely out of
the question.
I must ask your pardon for having allowed my subject to
run away with me, but I could not permit the utterances
of Freiherr von Gamp to go unchallenged.
If as an expression of the fact that our international
balance of payments is constantly becoming less favorable,
the rate of exchange, as has been the case these last years,
is a high one, such as to threaten an outflow of gold, it is
highly important to know whether it is not possible by a
vigorous application of the discount screw (to use financial parlance) to cause a steady flow of gold from abroad.
I am of opinion that practically all that can be achieved
in such a case by putting up the rate of discount is to
hinder or obstruct or retard temporarily a further rise in
the rate of exchange up to or beyond the upper gold
point, or, in other words, what we should accomplish would
be merely to stave off the moment when it pays to export
gold. Such a measure, therefore, can be regarded only as
a preventive. Neither do I believe that the putting up of
the rate of discount in a case like this will have the effect of
causing an inflow of gold from abroad unless we raise our
rate far above that prevailing in foreign countries. If this
were done, provided—and I wish to lay stress upon this—
the private rate of discount was correspondingly raised
(which will not be done voluntarily as a permanent thing),
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the outside world will be induced, irrespective of the state
of the balance of payments, to let us have temporarily the
use of gold credits in order to get the benefit of a higher
rate of interest, a proceeding which, inasmuch as those
credits may be withdrawn at any time, perhaps at a
critical time when we can least afford it, is not altogether
free from the danger of evil consequences to us.
The sale of large quantities of foreign bills in order to
support and supplement such a discount policy will, under
the conditions in question, merely accomplish a like
result, that of exerting a certain pressure upon the rate of
exchange, which has threatened to rise above the upper
gold point or has already advanced beyond it. Its action
will likewise be only preventive, tending merely to hinder,
lessen, or retard the exportation of gold, and even this will
result only, as Geheimrat von Lumm has pointed out, in
case the foreign bills are not credit bills but bills drawn
against merchandise. In regard to the matter of advancing sums without interest, I may say briefly that it is
possible by this means also to promote temporarily the
importation of gold to some extent, but this, as a rule, can
be effected only in case the rate of exchange approaches
the nether gold point—that is to say, when the balance of
payments is a favorable one or when the rate of exchange
is such as will still admit of the importation of gold.
As far as other means are concerned, I should regard
the creation of a gold market in Berlin, as Herr Fischel
has urged with such convincing arguments, as the thing
most needed and best calculated to facilitate, at least,
the importation of gold, and if under the circumstances
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such an inflow is actually possible to ensure its continuance
and to render it regular and constant.
I agree with Herr Fischel that to make such a measure
efficacious (it will in any case be a long time before it can
be made to show positive results) an essential requirement—aside from the establishment of a gold refinery or
the transfer of an existing one to Berlin—is the abolition
of the seigniorage, because it gives the sellers of gold the
assurance that they can dispose of it here at any time and
get for it a price at least up to its full value—that is, i ,395
marks for a pound of the pure metal—and, furthermore,
because disengaged gold that is sent out in the hope of
finding a customer is sent only to places where, as a result
of a fixed price and one up to the full value, this hope
amounts to an expectation. I should, however, like to
ask Herr Fischel whether he considers the removal of the
seigniorage adequate for the attainment of the object in
view and altogether practicable at times when gold can
be obtained more cheaply; that is to say, when the Reichsbank can get it for less than 1,395 marks a pound.
Mr. FISCHEL. This is not the case now.
Doctor RiESSER. Even if it is not the case now, it can
easily happen, and I should like to have some explanation
regarding it. He will reply, perhaps, that alongside the
great advantage that would be derived from a gold
market it will be of little consequence if on such an
occasion we happen to incur a little loss. But if he uses
this argument, I must express some apprehension that
England will try to extinguish the difference in our favor
in the selling price of gold, due to the removal of the
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seigniorage, by raising her price, even if that should result
in a loss. I can not say that I am actually afraid of this,
but it may happen.
I come now to the question of the prevention or reduction of the outflow of gold. While the importation of
gold has become a necessary consequence of the increase
of population, the habit of making ordinary payments in
hard cash and the use of the metal in the industrial arts
without regard for the international balance of payments
is bound to continue, as a general thing, so long as the
world's output of gold amounts to about 1,600,000,000
marks. The exportation of gold can, as a rule, become a
permanent process only when our balance of payments
is an adverse one and the rate of exchange rises in consequence so that it threatens to advance to the upper
gold point or has actually risen above it, so as to render
the exportation of gold profitable. Under these conditions the policy adopted in the matter of discount and
that of foreign exchange—differently from the preceding
case—would be a very important factor in temporarily
preventing, reducing, or retarding the outflow of gold, and
in this case the action would be not merely preventive,
but restrictive.
If, in the presence of an adverse balance of payments,
the rate of exchange has risen above the upper gold point,
or threatens to rise above it, so that an outflow of gold
has set in, or is about to begin, then, as a rule—that is,
in the absence of abnormal conditions, such as we witnessed
in 1907, when the United States carried away so much
gold—the putting up of the rate of discount, or its reten-
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tion at a high level, will be capable of temporarily preventing, checking, or retarding the further advance in
the rate of exchange and, along with it, the outflow of gold.
It must, however, be assumed in this case also that the
private rate of discount is correspondingly raised or kept
at a corresponding level, which is indeed to be taken for
granted, inasmuch as the instances (which, of course, are
conceivable) in which a merely temporary advance in
the private rate of discount for specific reasons—as, for
example, in order to pave the way for or facilitate the
placing of large loan issues—is artificially brought about
are extremely rare, and under the conditions which we have
here assumed to exist, which in particular would render
the flotation of securities impossible, they could hardly
occur at all. If the taking away of so much gold by the
United States in 1907 was actually effected in the face of
a very high rate of discount, I am sure that the explanation is to be found in the fact that Germany owed the
United States large sums on account of breadstuffs, copper,
oil, and cotton, which obligations the Americans, willing to
stand the loss involved in the high rate of discount, proceeded to convert into cash more suddenly and vigorously than would have been the case under ordinary circumstances. All the same, this occurrence should serve
as an intimation to us that we need not stick so closely
to an old notion which our theorists taught us, one that
assumed the force of an axiom, since it has been shown
that under certain conditions a foreign country, if it does
not mind the loss, however great, occasioned by the rate
of discount, will go ahead and take our gold from us.
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And now as to the foreign exchange policy. This, in the
case we have here assumed, can be rendered effective for a
certain time either as an independent agency or as supporting and supplementing the discount policy in a similar
direction and with the same limitations. For if it is impossible with an adverse balance of payments to keep the
rate of exchange permanently below the gold point, yet,
as a rule, it will be practicable, when the rate threatens to
advance to the gold point or has already risen to it, by disposing of a sufficient quantity of foreign bills, to prevent,
check, or retard temporarily the advance of the rate of
exchange to the gold point or a further advance of the rate.
If this foreign exchange policy is brought into operation
exclusively, it may possibly have the effect of temporarily
preventing, checking, or retarding an advance in the rate
of discount, while in other cases, or where this expedient
in itself is ineffective, the foreign exchange policy can not
fail to play an important role in aiding and supplementing
the discount policy. I have only to add, therefore, that
it is very desirable that the Reichsbank, as soon and as
often as the circumstances permit, should make it a point—
and a good beginning has already been made—to increase
its stock of foreign bills, and above all to keep it at an
adequate level to meet abnormal times, especially times
of great financial strain or of impending war.
In this connection I have still to make two remarks.
In the first place, under no circumstances should it be
proposed to give to this stock of foreign bills the capacity
of a reserve against bank-note circulation.
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Secondly, I should like to say a word apropos of Director
Stroll's misgivings regarding the heaping up of English
bills, which he seems to apprehend may not be honored
in the event of hostilities, as we have already once had
occasion to experience. I can not say that this is going
to give me any concern. As we are among the best customers of England, there is always in that country a large
stock of bills on Germany, so that England will be very
careful not to cause any trouble in connection with English bills, as in the event of war nothing would be easier
than for the German debtors to reciprocate very effectively.
In conclusion, I wish to say something concerning the
so-called gold premium policy. Although I do not believe
that in this matter there is going to be any great diversity
of opinion in this commission, still I think it is necessary,
owing to the importance of the question and to the indubitable fact that this gold premium policy has found able
advocates both in the press and in public bodies, to propound as briefly as possible the considerations which appear to me to militate against it.
One of the experts who have been in favor of this
expedient has referred to France as an illustration of its
operation. We have, however, already been reminded
more than once that the conditions in that country are
altogether different from those in ours and that there is
no sense in making a comparison. I think, however,
that it will be worth my while to expatiate somewhat on
the considerations which I have in mind and to sum them
up as far as possible. France is a creditor state, while
we are a debtor state. Inasmuch as her exports are
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nearly equal to her imports, she is much less dependent
upon the outside world than we are. France has for a
long time had a favorable balance of payments, while in
our case the balance of payments in the past few years, if
it has perhaps not been a positively unfavorable one, has
been getting less and less favorable. However, we have
had reason for not regarding France's balance as so
enviable from every standpoint; for the favorable position of France in the international balance is accounted
for, in the first place, by factors that do not apply to our
situation and which we should not care to see entering
into it, by the fact, above all, that her population and,
along with it, her industrial activity have been for a long
time absolutely stationary, and by the further circumstance—and I wish to lay special stress upon this feature—
that the available resources of the nation are far less
productive than with us, for the reason that in France
they are converted for the most part into savings-bank
deposits and rentes, while in Germany they become part
of the industrial capital, and that in addition the Frenchman ceases to toil at a much earlier age than the German.
It will not do to argue in opposition to this, as has been
done, I believe, by Doctor Arendt, to whose views I have
always listened with the greatest interest, even when I
have not been able to agree with him, that the average
per capita circulation of bills of exchange in France in
the years 1876-1907 increased.much more than in Germany, the amount having risen from 106 to 183 marks,
while the figures were with us 72 and 124, respectively.
For the rate of industrial development can by no means
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be gathered—witness the extraordinary growth in the
United States, with a minimum of bills—from the average
amount per capita in the way of bills of exchange, whereas
the increase of bank-note circulation, which has been
much more rapid with us than in France, serves as a
much better index, because it reflects, above all, as one of
the experts has pointed out, the demands of newly created
capital.
The favorable tendency of the balance of payments in
the case of France is further promoted by her vast holdings of foreign securities, as well as by the expenditure of
the hosts of foreigners, especially in Paris and along the
Riviera.
As far as the circulating medium in the two countries
is concerned, the main thing to be observed is that the
French have long since accustomed themselves to the use
of bank notes in a larger measure than we Germans, so that
the gold, which in consequence finds its way in much
larger quantities to the Bank of France, is not kept in
circulation with anything like the same pertinacity as in
this country. According to the estimate that I have
before me of the United States Treasury—allowance must
be made for the decidedly unreliable character of the
figures, but without data of some kind there is no going
ahead—the stock of gold in France at the beginning of 1907
amounted to 3,890,000,000 marks, of which 2,189,000,000
marks was stored up in the vaults of the Bank of France
and only 1,701,000,000 was in circulation, whereas (according to the same calculations) in Germany, out of a
total supply of 4,326,000,000 marks, only 634,000,000
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marks lay in the vaults of the Reichsbank, so that no less
than 3,692,000,000 marks was retained in circulation.
Granted, as I myself assume, that these estimates of the
United States Treasury regarding the stock of gold in the
two countries are altogether too high, they will nevertheless represent approximately the ratio of the amount of
gold in circulation to the amount that has found its way
to the great central bank of issue in the respective countries, and can therefore serve for the purposes of a comparison. They show that in this country the gold in
circulation was four times as much as that in the Reichsbank, while in France the corresponding ratio was onehalf [sic].
On the other hand, the bank-note circulation in France
in the year 1907 averaged 4,806,000,000 francs, while the
average circulation in Germany was only 1,478,000,000
marks. Furthermore, the Bank of France is not obliged
to redeem its notes in gold, and, finally, its notes are legal
tender, which is not the case with us.
If, notwithstanding this, the Bank of France should be
impelled, or has been impelled, to carry out its goldpremium policy in order to keep its stock of gold intact
for times of crisis or threatening war, that would be no
reason, from what I have said, considering our different
economic and financial situation, why we should regard
such an expedient as warranted and, above all, as one not
fraught with any serious danger. In view of the conditions prevailing in our country we can absolutely not
afford under any circumstances whatsoever to have any
doubts arise respecting the stability, security, and per-
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manence of our gold standard. Now, the imposition of a
premium when gold is taken from the bank would have
the immediate effect of causing our paper money to fall
below par and of unsettling our currency values. We
should thereby forfeit the advantage, acquired with so
much difficulty, of having bills of exchange in marks
placed on a level with sterling bills in international trade,
and consequently lose the dearly purchased independence
of our foreign commerce with respect to British influence
and mediation
As a matter of fact, it appears from the hearings of the
experts that in France itself there has practically been no
longer any talk of a gold-premium policy these last ten
years or so. The Bank of France in reality is satisfied for
the most part, in the case of the withdrawal of sums of
gold regarding whose destination or uses it is in doubt, with
paying out old, worn, and depreciated coins—something
which the Bank of England, indeed, and our own Reichsbank would not refrain from doing—and occasionally it
demands a small consideration from those engaged in the
arbitrage business who insist on getting new, full-weight
gold coins. It has repeatedly taken large sums from its
stock of gold in order to come to the assistance of other
central banks of issue, as, for example, when in 1906 and
again in 1907 it sent £3,000,000 to the Bank of England.
The further objection may be urged against the goldpremium policy that it can not, as one of the experts has
maintained that it does, take the place of an otherwise
necessary raising of the rate of discount, the fact being
that the enhancement of the price of gold taken for export
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through the imposition of a premium, even without any
change in the rate of discount, must necessarily lead to a
rise in the rate of interest in the country..
I will sum up what I have said by saying that what we
need above all is an improvement in the balance of payments—the attainment, if practicable, of a permanent
favorable balance, which in my mind will divest our
adverse balance of trade of all danger. For I am convinced
that the more favorable the balance of payments with
respect to a country, the less mischievous is an unfavorable
balance of trade. I have expressed this on a former occasion in another way, thus: The more favorable a country's
balance of payments, the more unconcernedly can it let
other countries "work for it," especially in the way of
supplying it with raw materials and the necessaries of life,
however much this may tend to render the balance of
trade an adverse one. But if we can secure or maintain—
let us hope we shall—a permanent favorable balance, then
we shall require neither a discount nor a foreign exchange
nor a gold premium policy. We are glad to be able to
note already at the conclusion of this inquiry a great improvement in the condition of the Reichsbank. The gold
on hand has increased in the course of the year 1908, in
spite of the lower rate of discount, by about 300,000,000
marks, or, if we include our foreign bills, by about
450,000,000 marks. But should our balance of payments
continue to be adverse, as it has been these last years, then,
in accordance with what I have tried to explain, something
can be accomplished, for the time being at least, by the
cautious application within modest bounds of the discount
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and foreign exchange policy, while the adoption of the
gold premium policy can only do mischief.
Mr. PETER. An improvement in Germany's balance of
payments is, in my opinion, the first requisite for a
strengthening of Germany's gold supply, and to bring it
about should be our principal aim.
The chief cause of our unfavorable balance of payments
is the ever increasing adverseness of our balance of trade.
Our commerce and manufactures have expanded in the
last few decades more than they had done before in the
course of whole centuries. The exportation of our
products and the German merchant marine attained to
new proportions. In spite of all this our balance of trade
continues adverse and is steadily growing more and more
unfavorable.
If this adverse balance of trade in itself does not necessarily betoken an unhealthy condition and if it will not do
to devote all our energies to finding the ways and means
by which it can be converted into a favorable balance,
nevertheless the extraordinary dimensions which the balance against us has attained in the past year is a legitimate
ground for anxiety.
A sum of 1,700,000,000 marks, or, if we reckon the
average annual importation of the precious metals, of
about 2,000,000,000 marks must be called alarmingly big.
Now, I am of the opinion—and my view has been confirmed by several of the experts who represent our manufacturing industries—that our exportations to foreign
countries would assume considerably larger proportions
if the foreign customs duties on our manufactured products
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were lower, and I would urge that on the occasion of the
renewal of any of our various commercial treaties adequate regard be had for our German manufacturing industry, so that it may be rendered increasingly capable of
competing with that of the world at large. For, gentlemen,
no one will deny that the increased cost of procuring gold
has been an incubus upon our industry. Even if I am
personally of opinion that the high rate of discount by
itself does not handicap our trade and industry to such a
degree as to render them incapable of participating in the
economic struggle of the nations, still I hold that every
measure which has for its object the cheapenig of gold
tends toward the good of our manufacturing industries.
I consider the new regulations regarding the Bourse a step
in this direction, for I could not help noticing even in my
rather narrow circle how, as a result of the prohibition of
transactions in futures, which was in force until this year,
spot transactions were greatly stimulated and how the
necessity of procuring the sums that were needed could
not fail to have the effect of making money dearer. After
this preamble I will attempt to answer the individual
questions.
As a result of the rapid increase in our population,
amounting to about 900,000 a year, an annual importation of at least 60,000,000 marks in gold is rendered necessary; that is to say, such a sum is required to meet the
additional demand for gold corresponding to the numerical increase of the people. To this must be added the
increased demand occasioned by the rise in the prices of
commodities, the higher rate of wages, etc., not to speak
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of the needs of the industrial arts into which gold enters,
concerning the extent of which my countryman, Herr
Meier, has enlightened us. Now, my opinion is that it is
the business of the Reichsbank to supply gold to our
industries [quite correct!], and the best way, I believe, to
do this is to supply it with gold bars so as to save the
seigniorage. The scheme of introducing a certain alloy in
our coin gold which would render its use in the arts difficult appears to me impracticable. I do not believe there
is anything in this "denaturing" of gold. As things are
at present constituted, the matter of gold imports is left
to the exclusive charge of the Reichsbank, and thus
the seriousness of the question that is now before us is
manifest.
To the question " How may the importation of gold be
eflfectually promoted?" my answer is: By continuing the
discount policy which has at all times been practiced by
the Reichsbank.
The operation of this discount policy has been a twofold one. Firstly, when the rate of discount with us is
higher than it is abroad the inducement of a higher rate
of interest will lead the outside world to buy up German
bills, and thus gold will come into the country. Secondly,
the greater the demand for German bills abroad, the
higher will be the rate on them, and consequently the
lower will be the rate on foreign bills in Germany.
There is, however, something else to be taken into consideration. The putting up of the rate of discount under
certain circumstances has a wholesome influence upon
the inordinate spirit of enterprise that is manifested by
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our trade and industry [quite correct!], and consequently
a favorable effect upon the balance of payments. The
Reichsbank has, however, never attempted (and properly
so) to depress the rate of exchange below the gold point in
order to induce a natural inflow of gold while artificially
maintaining the rate of discount at a high level. For if it
were to do this, we should have reason to fear that the
outside world, its suspicions having been aroused by the
circumstance, instead of buying up German bills might
on the contrary call in its credits in Germany. In spite
of the high rate of discount, the rate of exchange would
advance, and the result of such an expedient would be a
fresh outflow of gold in place of the anticipated inflow.
The rate of interest depends entirely upon the relation
between the supply of capital and the demand for it.
Any resort to artificial means in order to influence it—
such a measure has justly been characterized by one of
our experts as a dangerous expedient—far from doing
any good, would only have the effect of increasing our
indebtedness to foreign countries, and therewith our
dependence in financial matters upon the outside world,
and of exposing us to the danger of being compelled at
any time to repay the sums of gold that had come into
our possession.
If a sagacious adjustment of the discount policy is to
be regarded as the most efficacious means at our disposal of preserving our stock of gold, a well-regulated
exchange business ought to be considered a valuable
adjunct. We have all been greatly interested to learn
from the statements of Doctor Von Lumm how active
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0 8
the Reichsbank has been in developing its exchange
business, and I believe that the benefit resulting from it
to the money market will be a permanent one.
In regard to the important question as to how far the
stock of foreign bills should be accounted part of the
reserve against circulation, it seems to me that a definite
sum—100,000,000 strikes me as about the right amount—
might be reckoned as cash gold and added on to the
metallic reserve. I mean to include in this sum only
bills drawn upon the biggest banking houses. I think
that in this way the Reichsbank would be in a position
to expand its foreign exchange business, and I can not
see how our exchange business in general could be injuriously affected, as I imagine that the Reichsbank buys
up these bills right here in the country. The Reichsbank
would simply be following the custom of the OesterreichUngarische Bank in making a separate entry of only that
part of its foreign bills which is reckoned as part of the
gold reserve, while the remainder would figure under the
head of bills on hand, on the principle set forth by Geheimrat Von Iyumm.
There is no doubt that the importation of gold can be
stimulated by a liberal application on the part of the
Reichsbank of the policy of making advances without
charging interest. This may be readily inferred from the
effect of what the Reichsbank has already done in the
way of affording such facilities.
I attach much importance to the suggestions of Herr
Fischel relative to the building up of a gold market in
Berlin and the abolition of the seigniorage. There is,
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of course, no means of preventing an outflow of gold,
which is the natural result of the state of the balance of
payments. A well-directed discount policy will, however, have the effect of restricting it. It can keep it
within certain limits, and in this respect the discount
policy of the Reichsbank has been found to work well.
I lay special stress on this.
The so-called gold premium policy in my opinion does
not merit consideration in Germany, inasmuch as it presupposes a double standard. We have succeded admirably well with our monetary standard. We owe to it
the great development of our industries, and every attempt
to tamper with it I should resist with all the ardor of
conviction. Such proceedings would only inflict irreparable injury upon our standing as an industrial nation and
would oust the imperial mark bill from its position in
international trade, which it has so happily secured through
the efforts of our bankers and merchants.
Doctor LEXIS. It is not necessary for me, gentlemen,
to repeat that which has already been said by several of
the speakers and which was previously stated by a number
of the experts, to the effect that the outflow and inflow of
gold depend ultimately altogether upon the balance of
payments—the balance of payments in the strict sense of
the term, implying that the balance of trade is not the
sole determining factor. Let us suppose, for example,
that our yearly imports of merchandise amount to eight
billions and our exports to six billions, and that we further
receive from abroad, say, one and a half billions in the way
of interest, dividends, and other sums due to us. The
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balance of payments then will be adverse to the extent of
half a billion marks, and if this goes on for a few years our
whole monetary system will naturally fall to the ground, or,
in other words, our circulation will have come down to a
paper basis. Now, even under these circumstances, even
if the balance of payments were to continue regularly adverse in this worst sense, it would still be possible, of
course, to draw supplies of gold. Even a country whose
currency is on a paper basis can get gold if it is willing to
pay the price for it, and it would be practicable, so long
as we continued to have any credit abroad, in one way or
another, as, for example, by a higher rate of discount, to
draw upon the world's stock of gold under all circumstances. If the rate of interest is 7 per cent here and 3 per
cent in other countries, we shall be in a position, I repeat,
so long as there is such a thing as German credit with foreign nations, to procure supplies of gold. But in this way,
to be sure, our indebtedness will only have been further
increased, and our monetary system will finally be unable
to withstand such an aggravated situation. Under these
circumstances we should inevitably come down to a paper
standard. Now, I believe that the facts of our balance
of trade do not warrant any positive conclusions in regard
to the actual state of our balance of payments, for I am
convinced that the figures are altogether unreliable and
that our export trade would appear to much better advantage if we had more correct data. Our trade statistics
are naturally much less trustworthy in the matter of the
exports than of the imports. In the case of the imports,
most commodities pay duty and everything is therefore
84713—10
21
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carefully entered. In the case of the exports, and in
particular in regard to their value, we have no sufficiently
trustworthy statistics. I believe, consequently, that our
balance of trade is more favorable than it appears. And
as regards foreign liabilities toward us, such as are met by
dividends, interest payments, etc., I believe the situation
is more favorable than it was represented to be in our
previous discussions by one of the experts, who was too
conservative in his estimate of the amount of our capital
invested abroad. The fact remains, however, that the
rate of foreign exchange with us in the last few years has
not been altogether favorable. But if we were actually
so overburdened with debt as we should have to infer from
the commercial statistics and these unfavorable estimates
of the foreign indebtedness to us that does not figure in the
balance of trade, then foreign exchange would necessarily
have been so much against us as to have risen above the
gold-export point; that is to say, we should already in the
course of the past year have been gradually brought to the
stage of a premium on gold. I can not help thinking, therefore, that our balance of payments on the whole is always
in a measure in the neutral zone, and that, such being the
case, it will not be impossible by a resort to some lesser expedients, and in particular to the discount policy, to turn
the scales to one side if it should become necessary. There
can be no doubt, then, that a well-adjusted discount policy,
which indeed would be in line with the best traditions
of the Reichsbank, would be a very effective means of inducing a sufficient inflow of gold into Germany.
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The other means that have been suggested have also
their value. Of course we need a good stock of foreign
bills, of gold bills, that may afterwards be enlarged in a
practical way so as to be capable possibly of turning the
scales in favor of an inflow of gold. In this respect also
the Reichsbank has already had recourse to the necessary
measures and it is perhaps in a position to develop this
foreign exchange business further. I, for my part, should
not be opposed to having a definite moderate amount of
foreign gold bills legally included in the cash reserve of
the bank—not the whole amount of foreign bills. I say
not the whole amount, but, just as is the case with the
60,000,000 crowns in Austria, we might reckon 50,000,000
marks as part of the bank's stock of gold, a requisite being
that the bills be drawn on England. I do not, I confess,
regard the misgivings based on political considerations
that have been expressed with respect to this matter as
altogether baseless, but I can not say that I feel any real
apprehension.
As regards the question, "How can the importation of
gold be promoted by the establishment of a regular gold
market in Germany?" I am likewise altogether in accord
with the sentiments of Herr Fischel. I believe that it
would decidedly help the situation if the Reichsbank
could work along the same lines in this matter as the Bank
of England. If we assume, to begin with, that the
seigniorage was abolished, then the present minimum rate
of 1,392 marks might be retained as the rate at which the
Reichsbank is compelled to buy all the gold that is
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offered, just as is the case in England with the rate of
77s. 9d. Above this there is free play first of all up to
77s. io>^d.; this is the par of gold, the rate at which it is
coined. Now, the Bank of England, as everyone knows,
goes even beyond this; occasionally it will go as much as
i ^ d . higher, getting up to 78s., and even a shade above
that, if I am not mistaken. This would mean in reality a
sort of premium on gold. This is bound up with the fact,
however, that in England the gold coins, as compared
with gold bars, do not retain their full and absolute
nominal value, so that a certain average deviation is to
be assumed. And so the Bank of England is ready at
any time, when it happens to be in need of gold, to buy
up what is offered even at a price above par. The Reichsbank could do the same thing. It might give a little
freer play to competition, let us say, with the Bank of
England if need be, in the matter of attracting bullion.
Of course, the competition at times would be apt to be a
pretty keen one, but then the Bank of England is not
always so terribly anxious about increasing its stock
of gold. We should therefore have to expect a variable
price. The Reichsbank would have a free hand to go
from the minimum price of 1,392 marks to a higher one
which it thought suitable. It might possibly be considered expedient to go, say, as much as two-tenths per
cent above the par of 1,395 in order to attract gold.
When it comes to it, gold is in this respect merely a
commodity, like any other. Just because it is a question here of attracting bullion from the Transvaal or
from Australia and preventing it from going to England,
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inducing it to come direct to Germany, the operation
would have to be regarded simply as one of goods offered
for sale and bought. And indeed the price can be put
up as high as seems compatible with the average wear
of the gold coin. Beyond this point, to be sure, the
gold-purchase premium—which is not to be confused
with the other kind of gold premium—would result in a
regular premium on gold. Such a thing, of course, would
have to be averted by every possible means.
It would, perhaps, be feasible, even without the removal
of the seigniorage, for the Reichsbank to establish a gold
market of this kind here. It would only be necessary
to make a provision that the bank's gold bullion and
foreign coins be reckoned at 1,395 marks instead of only
1,392 marks, as is the case at present. I should regard
such a proceeding as entirely devoid of danger, for the
Reichsbank has at all times a sufficient supply of gold
in the form of German coins to meet all demands for the
redemption of its notes. Over and above this, therefore,
it could reckon its gold in bullion and foreign coin simply
at the par value of 1,395 marks. It might consequently
prove unnecessary to do away with the seigniorage.
There would be no need at all for the bank to coin. If
gold were wanted for export, the bullion could be made
use of at this price of 1,395 marks, which is in reality
determined by the nature of things. In this way the
scheme of gold purchases by the Reichsbank at a variable
price might, perhaps, be rendered feasible,, without the
necessity of abolishing the seigniorage, merely by means
of the provision that the bullion and foreign coins in the
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bank be reckoned at 1,395 marks, and the mobility and
availability of Germany's own gold would not be at all
endangered, for the bullion would at any time be available
for the purposes of export. In our country there is in
general no demand for large amounts of gold coin. Indeed,
Ricardo's idea was that bank-note circulation should be
covered exclusively by bullion, as he believed that bank
notes would by themselves be amply sufficient for internal
commerce, and when gold was wanted for foreign payments it would be easy to obtain bullion for these notes
and send it abroad.
As regards the question of the consumption of gold in the
industrial arts, it seems to me above all most important
and expedient that we should become thoroughly posted
regarding the actual state of things, steps toward which
end have indeed already been taken through the official
inquiry that has been instituted. On the other hand, I
should be altogether opposed to any sort of prohibitive
regulations such as Director Stroll has suggested. These
things have been done before; indeed, the practice was
formerly universal. Every country forbade not only the
exportation of gold and, in particular, of gold coins, but
above all the melting down of coin. In England, at the
beginning of the last century, at the time when the currency was on a paper basis the question was constantly
asked as to why bullion was so dear, and the regular
answer was that the trouble was not due to the depreciation of bank notes, but that, bullion being required for
export, and bullion alone being available for export on
account of the regulation against the melting down of
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coin, this was the reason why there was such a high
premium on gold bars by the side of bank notes. The
fact was disputed that paper had depreciated by the side
of coin. It was in regard to this matter that Ricardo wrote
his famous treatise. So we see that the prohibition of the
melting down of gold, which figured in these discussions,
is an ancient affair that has long since been shelved, and I
hardly think it would be advisable to revive it. Neither
do I think that there is much to be achieved by it. Every
year there is so and so much gold imported in the shape of
bullion and foreign coins, and if part is coined what is left
is, of course, available for the purposes of industry. Now,
if we prohibit our industries from melting down gold, they
will have recourse all the more to the imported bullion,
and foreign coins. There will then be that much less
of the metal available for coinage.
In reality, however, the melting down of coin would
be stopped by the very measure that has been suggested,
namely, that the Reichsbank shall place at the disposal
of our industries a suitable and specially adapted material, perhaps of the requisite fineness for direct use.
We all know that our gold industries make use of the
very lowest grades of metal that the market affords;
14-carat gold (of the fineness of 0.583) passes as the finest.
In England they use 18-carat gold. That is the ordinary
fineness there, and in France the regular standard grades
are about as high. In France a lower grade has, to be
sure, been introduced for the purposes of export. Now,
it is mainly because of this cheap and low-grade gold
that the product of our gold industries has been rendered
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available for export. The 14-carat gold is the fine grade;
the common gold is the 8 carat—one-third gold and twothirds copper. The latter is especially adapted to the
South American trade. It is just in the matter of the
exports that the German gold industry is most preeminent. Hence the large quantity of coin gold that is
melted down, and the salient fact in regard to it is that
the outside world pays for this consumption of gold.
But, what is more, the outside world pays for the cost
of the workmanship. Most gold articles contain mighty
little pure gold, but for all that they are not cheap, as
the main cost lies in the workmanship and not in the
little bit of metal that they are made up of. It would
therefore be much wiser to encourage this industry
than to restrict it in any way. In my eyes this large
consumption of gold in itself is only an indication of
the favorable state of our industry. And as regards
the evil of the melting down of coin, we shall have to
apply some other remedy, and that ought to consist in
placing at the disposal of our industries an ample supply of gold bars of the kind that they specially need.
A peculiar thing about this melting down of coin is
the perplexing statistics to which it is bound to lead.
We are glad to see such and such a quantity of gold
coined every year and figure out how large our stock of
gold must be, and then after a while we discover that
so and so many millions have disappeared and gone
into the melting pot.
This inability on our part to rely upon our reckonings
is a disagreeable thing, and what we ought to do is to
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endeavor to make our statistics more trustworthy so that
we may have a satisfactory basis for estimating the consumption of bullion in our industries.
I think I can say now that I have touched on all the
questions before us. As for the gold premium policy,
I have already at a previous stage of this discussion expressed myself fully on the subject. I am convinced that
it is out of the question as far as Germany is concerned.
Of course I am speaking here of a premium policy intended to hinder the outflow of gold. Another kind of
premium policy, however, may well be urged, such as
I have just been advocating, one intended to attract gold
by means of the offer of a somewhat higher price for
bullion than is generally got for it.
Mr. MULLER (Fulda). I wish to say, gentlemen, that I
agree with the view of the speaker to whom you have just
been listening that the most effective means of promoting
an inflow of gold is to insure a favorable balance of trade
and also a favorable balance of payments. You have
been reminded of the fact that the balance of trade and
the balance of payments may be of an entirely different
character. This is absolutely to be taken for granted.
But if the speaker meant to say that the statistics of our
export trade are not altogether reliable, I must tell you
that I am of a contrary opinion. Since the introduction
of the system of statistical returns it is particularly in
what relates to exports that the statistical figures have
been accurate and trustworthy. The statistics of imports,
which are mainly based upon estimates, are not nearly so
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reliable as those of exports, for which the so-called green
blanks have to be filled out.
(A voice: Valuation!)
In regard to the means at the command of the Reichsbank of promoting the inflow of gold, the first thing to do
is to make it clear that the Reichsbank, which we are
inclined to make responsible for all the evils in the land,
is unable to bring about a favorable balance of payments.
There are other and quite different factors involved. It
has means, however—we speak of these as minor expedients—of facilitating the importation of gold. These
are the three expedients that are set down in the question
sheet: First of all a suitably adjusted discount policy;
secondly, a properly developed foreign-exchange business;
and thirdly, the advancing of sums without interest.
Now the Reichsbank has for years been resorting at times
in a very energetic way to these expedients. And it has
indeed, especially in recent times, achieved positive and
far-reaching results. We can certainly afford to contemplate with great satisfaction the present condition of the
Reichsbank as compared with that in the past two years.
It is not my purpose to compliment the president of the
Reichsbank, but I will say that he has since the beginning
of 1908 brought about such an improvement in the condition of the Reichsbank that it is likely that the whole
inquiry would not have been instituted had we been a
year or two ago in the situation in which we are at this
moment. The average stock of gold has increased in the
course of the past half-year by 300,000,000 marks, and a
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further improvement is in prospect on account of the
foreign gold bills that are to be disposed of and the gold
shipments that are on the way, for which advances have
been made without interest. I must say that if such a
substantial improvement has been realized through the
consistent application of practical measures, we have a
right to express our gratification at what has taken place
[manifestations of approval], and I must say, moreover,
that this whole proceeding that has been instituted for the
reform of the status of the Reichsbank has no longer any
particular object ["quite true!"]; it has been completely
deprived of its raison d'etre by the force of circumstances,
and it is but fitting that we convey our full appreciation
of this to the Reichsbank. [" Quite true!"]
It has been able through its effective measures to
remove the grounds on which the whole agitation rests.
The measures may have been in part of a rather incisive
kind, and there were not a few who groaned under them,
but recovery was impossible without thoroughgoing
methods. An energetic cure had to be applied, even if
certain professional and industrial classes were thereby
greatly incommoded. I believe we have every reason to
be satisfied with the policy of the Reichsbank, and I congratulate it upon what it has accomplished. It will be
able now, when the question of the renewal of its charter
comes up and the bill for the purpose is submitted to the
Reichstag, to point to the results it has achieved and to
the extent to which its situation has improved in every
way.
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As a fourth expedient for increasing the gold supply,
Herr Fischel proposes the creation of a gold market in
Germany. I believe that this suggestion also merits
praise and consideration, and even if I personally do not
perhaps anticipate quite as important results as some of
the other members, I am decidedly of opinion that such
a market—it would be the second in Europe—ought
to be created; all the more so as there is little risk involved
and because the results will show whether there is any
great practical value in it and, above all, whether it has
the effect of inducing a regular and steady accession to
our gold supply.
In regard to the conditions that have especially affected
the balance of payments in the last few years, I merely
wish to dwell upon one point, which has already been
touched upon in this discussion, and that is, that the
situation in 1907 was an exceptional one. There was a
great increase in 1907 in the cost of the raw materials that
Germany has to get from abroad, and especially of the
principal raw materials, such as wool and cotton, an increase which in these two ai tides alone amounted to over
300,000,000 marks. The enhanced price of our manufactures resulting from the burden to our industries involved in the additional expenditure of about 300,000,000
marks had the natural effect of making the balance of
payments and the balance of trade more unfavorable to
Germany. Since then the situation has again changed.
Cotton has dropped to its normal price, while wool is but
slightly above its normal price, and, as a result of this, our
balance of payments and our balance of trade will make
a better showing this year than last.
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When we come to the second question (B) respecting
the causes of an outflow of gold, I believe that we have
to consider precisely the same reasons and remedies as in
the matter of promoting an inflow of gold The promotion of an inflow and the prevention of an outflow are
intimately connected; we have to deal with the identical
causes and remedies; answering question A is equivalent
to answering question B.
The question has also come up for discussion as to
whether the French gold premium policy may not be
worth trying in this country. I do not believe that the
French gold premium policy is an expedient calculated to
protect or to increase the stock of gold in the Reichsbank.
The speakers who have preceded me and who have taken
up this matter have shown in the most conclusive way
how different the situation in France is from our own, and
furthermore how largely this gold-premium policy exists
merely in the imagination of those who make use of it as
a weapon of agitation.
The Bank of France exacts only every now and then a
premium on certain kinds of gold coin. I regard the introduction of a gold premium as altogether unadvisable, as
a means not at all calculated to maintain our gold supply.
It would only tend to prejudice our financial standing
in the world at large. It would only create the impression
that Germany desired to establish an artificial premium
in order not to have to meet its liabilities toward the
outside world to the full measure. Any country that
introduces a premium on gold is bound to lose its credit
abroad* and German import and export—the trade of
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Germany in general—would suffer evil results from such a
measure more than sufficient to outweigh all the good it
could possibly effect. What does no harm perhaps in the
case of France could under the changed conditions easily
work great mischief for Germany.
(Bravo!)
Mr. KAEMPF. A great deal, gentlemen, of what this
discussion was intended to call forth has already been said,
and so, I suppose, I had better be brief. I do not care to
discuss the general questions that belong to the past, the
development of our industry and its influence upon the
position of the Reichsbank. We see that we have got
back to normal times or that we are about to get back
to them, and I should be almost ready to conclude that
it was hardly necessary to have recourse to extraordinary
measures such as the instituting of this bank commission.
In regard to the questions before us, I agree with those
who hold that it is only through a favorable balance of
payments that gold can be permanently made to flow
into the country and remain there. But the problem of
the balance of payments is an extremely intricate one and
hardly admits of a theoretical solution. The balance of
payments is not like the balance sheet that a bank draws
up at the end of the year, which shows how much it has
gained or lost in the course of the year, and which enables
it to set forth its condition with respect to assets and
liabilities. The balance of payments of a country keeps
fluctuating all the time, and there is no way of determining by any fixed principle what it is at any particular
time, and even if at a particular moment it appears to be
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favorable or the contrary, no indication is afforded of its
general or continuous state.
The factors entering into the balance of payments have
been analyzed in detail in the course of this discussion.
They include the balance of trade, the exchange of commodities, the investment in foreign securities, the dividends derived therefrom, and, in addition, the profits and
freights accruing from our trade with foreign countries.
On each and all of these matters the Reichsbank is naturally unable to exert any direct influence. The exportation of commodities can be promoted only by a suitable
commercial policy. The profits derived from foreign
trade and navigation will be large or small according to
the nature of the commercial relations which this country
sustains with other countries and to the extent to
which the outside world can be induced to avail itself of
the agencies at our command. Just as little can the
Reichsbank compel the investment of German capital
in foreign securities. But it is this very thing that needs
to be promoted as far as practicable. For the greater
the extent to which our capital is invested in foreign
securities the more will the dividends derived from them
tend to change an adverse balance of payments into a
favorable one.
While the Reichsbank is not in a position to exert any
influence with respect to these conditions, still it is enabled
to level out temporary fluctuations in the balance of payments and to counteract the effect of temporary unfavorable conditions, and to this end the discount policy and
the means which the Reichsbank has of facilitating the
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importation of gold are preeminently adapted. I believe
that the discount policy of the Reichsbank is fully capable of keeping down the fluctuations arising in the development of the balance of payments. I feel sure that
even in 1907, when the United States was drawing away
so much gold from Germany, the putting up of the bank
rate to seven or seven and one-half per cent contributed
to relieve the situation. The United States indeed was
not prevented thereby from getting gold from us, but
other countries were induced to send us gold. Thus
French and English capital kept flowing into the country,
so that in part, at least, the disadvantages resulting
from the drain imposed upon us by the United States
were offset. The same thing will take place in the future
whenever similar conditions present themselves.
If, then, the raising of the discount rate by the Reichsbank can not altogether be avoided, still I agree with those
who are of opinion that the bank should refrain as far as
possible from resorting to it, inasmuch as various industrial
interests are apt to be thereby injuriously affected. In
order to avert this necessity, recourse will have to be had
to other means calculated to counteract the evils resulting
from the fluctuations in the balance of payments.
Among the means that have been advocated is the foreign exchange business. I believe in this expedient. If the
Reichsbank, when foreign bills are comparatively cheap,
buys up such bills and lays in a stock of them, and when
there is an active demand for them goes about to dispose
of the bills, its action will tend to hinder an outflow of
gold. The bank will then seek to control the exchanges
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in such a way that there shall no longer be any occasion
for such an outflow.
Another expedient that has been suggested is the making of advances without interest to cover importations of
gold. I consider this an efficacious means of facilitating
and increasing gold imports. Of course these are merely
temporary expedients, for if the balance of payments on
the whole remains adverse the gold that is brought into
Germany in such a way will not stay in Germany.
The suggestion made by Herr Fischel also strikes me
as a likely expedient for attracting gold temporarily
into the country in case of emergency. Nay, more, the
establishment of a gold market may even have the
effect of making the permanent stock of gold in Germany
larger than it would otherwise be.
The raising of the purchase price of gold—and the
removal of the seigniorage is equivalent to it—will naturally tend to promote an inflow of gold into Germany.
And if a gold market should be developed in Germany,
a stock of gold will be accumulated, which will tend,
more or less, to become permanent. I am all the more
in favor of the proposition, inasmuch as the establishment of an international gold mart in Germany is
the first step toward making Germany, more than she
has hitherto been, a center of international exchange,
an international market. I trust that this may have the
effect of removing the obstacles that still stand in the
way of the establishment of international relations at the
German Bourse. I believe, gentlemen, that altogether
too little stress is laid upon this matter. If the whole
84713—10
22
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world will be ready to transact its business in Berlin, as
it now does in London, then credit balances from every
part of the world ^ill accumulate at this very place,
Berlin, just as they now do in London, and the more
credit balances from the whole world accumulate at one
place the cheaper money will be at that place and in
that country. Up to the present moment, however,
everything has been done that might tend to prevent our
Bourse from becoming a center of international financial
operations. Perhaps when an international gold market has once for all been established in Germany,
the understanding will more rapidly gain ground in
Germany of the beneficial properties of an international
market in general.
As for the premium policy, it is hardly worth while
my wasting any words on the subject. You may speak
of it from whatsoever standpoint you choose, but the
fact remains that whosoever accepts a premium on the
gold which he has contracted to pay will be regarded, if
not as a debtor who seeks to relieve himself from his
obligations, at least as one who has trickery about him;
and a debtor who is tricky in his methods will always
be regarded with a certain amount of mistrust by his
creditors, and I fear that if we were to introduce a premium on gold we should find ourselves in the position
of being accounted by the outside world as of doubtful
credit, which certainly can not be of any advantage as
regards our whole industrial development.
There is still another matter in regard to which I
should like to express myself, one which Freiherr von
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Gamp has brought up. He has favored us with a clear
exposition of the fact, gathered from the printed statistics, that in 1905 an inordinate amount of German
capital found investment in foreign securities. At the
same time he explained to us how it is that France has
such a favorable balance of payments. [" Quite true."]
He tells us that in France there is such a volume of
foreign securities that the interest, dividend, and amortization payments are sufficient to change an adverse balance of payments into a favorable one. I can not see
how it is possible to amass such a quantity of foreign securities unless by doing it gradually year by year, buying up
the securities and keeping them, so as gradually to reach
the point where the income derived from them mounts up
to a large sum. I am, therefore, of opinion that we are
not commiting any mistake whatever in making the
largest possible investments in foreign securities in order
that we may get into the same favorable situation into
which France has been placed by the policy it has pursued.
I have one point that I wish to touch upon—and I trust
that your Excellency, Mr. President, will not take it
amiss if I do not altogether share your view—and that is
the fact mentioned by your Excellency that under certain
circumstances the gold purchased by us abroad may not
have to be paid for with gold. Your Excellency pointed
to the fact that we are buying coffee, copper, and cotton
without having to pay gold for them. My opinion is that
the only way we can buy any of these articles, or gold
itself, from the outside world is by giving gold for them or
something that represents gold.
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The CHAIRMAN. But the gold need not be paid out.
Mr. KAEMPF. True; but in that case so much the less
gold comes into the country. For if there is due to me in
England a sum of £5,000,000 and I am not under the
necessity of buying with it either coffee or copper or cotton,
I shall sooner or later have gold come into the country
on account of these £5,000,000. I think that we ought to
look upon this whole matter from the standpoint that in
every case we have to pay with labor performed in Germany for whatever coffee or copper or cotton, or, if you
choose, gold, we may wish to import from abroad and
that this labor performed in Germany, when it is sold
abroad, represents gold.
But all these matters are of secondary importance. I
am of opinion that our whole policy should be directed
toward improving our balance of payments [" quite true"],
through increased facilities afforded to importers and the
raising of our markets to the level of international markets,
so as to make them capable of realizing commensurate
profits, and, as far as the Reichsbank is concerned, I believe
that it can do nothing else than to keep a close watch upon
the individual phases of the balance of payments as they
develop, in order, when the occasion requires, to apply the
measures whose operation we have heard discussed in
detail—the discount policy, advances without interest,
the foreign exchange policy, and the gold market. And
the Reichsbank must absolutely avoid anything that
might tend to lead to the impression abroad that we
are not willing to fulfill our obligations as the best of
debtors do.
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Mr. ROI^AND-LUCKE. The necessity under which Germany labored in the past year of bearing the burden of an
unusually high rate of interest is what gave occasion to
the summons for our assembling here. The cause of this
abnormal rise in the rate of interest was the convulsion
produced upon the world's economic stage, in the midst
of a terribly overstrained situation, by the New York
panic, as a result of which the United States was obliged
to procure gold from every possible source regardless of
the cost. Had Germany herself not been at the time in
such a state of tension, had she been able to plank down a
plain sum of two hundred millions in gold, the crisis, as
far as she was concerned, would not have been a very
acute one. But the situation happened to be what it was.
I personally do not consider this temporary strain, about
which there is such an extraordinary outcry, such an evil
as Herr von Gamp has depicted it to us. I think we had
better dispel our illusions and make up our minds to the
fact that, had there been no such thing as a New York
panic, we here in Germany, where only a few months
before there was a general feeling that our industrial activity had been overleaping all legitimate bounds, would
have had to undergo a long spell of hard times, or at all
events that our trials would have been bound to be much
more protracted than they are were it not that the sudden
culmination of the financial crisis in itself brought about
the possibility of a more rapid return of better conditions.
I believe that, apart from the political clouds that at
present hover over our economic horizon, we are practically agreed that the indications are already at hand of a
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speedy return to a more favorable economic situation.
Had we not had the New York panic with its fearful
warnings and the necessity imposed upon Germany of
effectually restraining her industrial energies, we should
probably have had to endure several years of inactivity
instead of a single year, which would have cost us a great
deal more money than the present much less prolonged (as
we hope) state of industrial stagnation has cost us or is
going to cost us. I am convinced, gentlemen, that no
science or practical experience can ever transform the
undulations of industrial activity into a uniform level.
Yes, if we prefer the quiet of the graveyard we can have
that permanent level. The undulations are necessary, as
has been made clear to our satisfaction by several members of this commission and the experts who have been
called upon to give their opinion.
We have been summoned by the Reichstag to meet here
as medical specialists consulting in regard to the condition of a body, which in this case is the economic body.
The economic body has to be made more elastic, its digestion is to be improved, and we are told, "Take this arm
and strengthen it." Wherefore this summons, I can not
comprehend, unless the author of it first asks, "How are
we going to improve the blood of the economic body," a
question which is preeminently for the Reichstag to consider. I know that I am exposing myself to the charge of
repetition. I think I have already at a previous session
of the commission expressed my views regarding the
cause of the acute stage of our whole economic development in the last few years.
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I think I can afford to stand this charge, for even
from our standpoint we can not too often repeat that it
is, above all, for the Reichstag to see to it that our
financial policy and our policy in the matter of commercial treaties are sounder than they have hitherto been.
If the Reichstag is not willing to go ahead energetically
in this direction—it is not the only guilty party, for great
examples are apt to be the models of many others—
then we can not expect that our States and our cities
are going to act differently. The seven-league boots
that have been buckled to our feet in our whole progress
for a succession of years have come to be a nuisance.
Let us not imagine that between now and a few years
from now we can all of a sudden make provision in every
direction for our descendants for decades to come. We
ought to endeavor judiciously to make the cut of our
cloth conform to our resources and to keep it there,
and, therefore, I say once more that the fundamental
trouble that is at the bottom of this whole overstrain
is that we have been neglecting in our legislative bodies
and the corporations whose business it is to keep their
hands on their purse strings—whether high or low in
the scale is immaterial—to exercise a needed and wise
economy and to carry on a suitable and businesslike financial and commercial policy. We have, however, not been
summoned as general practitioners, but as specialists.
We have, therefore, to grapple with the question: Will
it ever be possible for the Reichsbank, in its whole organization and development, by shaping its policy in one
way or another, to attain to a state of greater elasticity
and influence?
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If, to begin with, I take up the first division of the question, "How may the importation of gold be effectuallypromoted? By suitable management/' etc.? I need
only refer you to the statements of our chairman. It
has become evident to you that the Reichsbank, even
in its present shape and form and within the regulations
that prescribe the range of its activities, possesses in a
large degree the element of elasticity, so that if Germany is at all in the position to import gold the Bank
is able to provide the facilities for such importation by
making use of the means that are at its command for
that purpose. That the Reichsbank can be made by
any rigid code of regulations to resort to these means
invariably at the right moment I do not, however,
believe. All that we have a right to affirm, therefore,
is that the Reichsbank, organized as it is, is absolutely
in a position, if it chooses to apply wisely the means at
its disposal, to perform the functions assigned to it with
respect to the importation of gold.
Can we, then, by one or other of the means which the
various speakers have advocated, promote the importation of gold? We ought, of course, to welcome every
effort directed toward the creation of an international gold
market in Germany, and, therefore, I am altogether in
favor of the scheme of Herr Fischel, whose suggestions
have a practical ring about them. But I wish to give
fair warning—and we might as well prepare ourselves
for the eventuality—that if the results are not quick
we shall more or less have exposed ourselves to the charge
of having instituted measures that were bound to be
fruitless. [" Quite true!"]
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Gentlemen, we have allowed the opportunity of creating an international gold market in Germany to slip by,
and if we are to be guided by the present political horoscope it will be a long while before an international gold
market will come into being in Germany. I am convinced that if such measures as that releasing the Reichsbank from the seigniorage and others of the same sort
should actually come to the knowledge of the world it
is altogether likely that, in spite of the stiff conservatism of the Londoners who represent the city, England
will very soon find one way or another of depriving
Germany of the advantage of the start she has got.
Even it the Bank of England would not be willing, of
its own accord, to take any such steps, still we must
take account of the nervousness displayed by large
classes of the British population, a nervousness which
will go so far as to make London itself feel that England can not afford to be deprived by Germany of the
start which it has in the gold market.
But I am not afraid that if England does this it will
eventually turn out that all our measures have been in
vain. I should just let events take their course. If
between now and three years from now we have not succeeded in doing much for our gold market, still let us hope
that the time will come when things will look different
in this world, and just as we are no longer politically the
focus of—I was going to say—universal mistrust, so nations
will bring money to us here in Germany, especially if we,
in the way Herr Kaempf has shown, should otherwise bestir
ourselves to make of the Berlin Bourse an international
exchange, which it might long since have been.
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Herr von Gamp has made one or two remarks which I
should not like to let pass unnoticed. He is not present,
and as I am not sure that I shall have another opportunity of replying to him, I think I had better not neglect
the present occasion. Herr Kaempf has already told us
that the question for us to ponder is: How shall we acquire
interests abroad; how shall we find ways and means, apart
from the exportation of our industrial products, of making
this or that foreign country be in debt to us for something, be it gold or the equivalent of gold? All in all, it
is not from this standpoint alone that it is necessary for
Germany, if she wishes to remain a great industrial country, with a population commensurate with its industrial
resources, and to continue to be a powerful state, to
become the possessor of foreign securities. Unless she does
this she is bound to sacrifice her commercial influence in
remote regions. Just take a little survey of the countries
which offer a field to German industrial activity and decide
between these two propositions: Shall we Germans content ourselves with simply sending out our travelers in
order to sell for money, or shall we invest money in promising undertakings in countries which we deem fit for the
purpose, in order to be enabled, directly or indirectly, to
exert an influence upon their import trade, an influence
essential to the most fruitful development of the industrial activity of Germany? But tell me, gentlemen, how
are we ever to attain to this high pitch of industrial activity
unless we succeed in exerting a certain influence upon the
purses of the countries in question? Those articles which
foreign countries buy from us merely on the strength of
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their superior workmanship are not apt to be a very important factor in our balance of payments unless we are willing,
with due regard to our resources, to exert our activity
also in the financial field—just as the English have done
and as they have always been able, and are still able, to
do in a much greater measure than we Germans—in order
to retain the hold which we have secured and to strengthen
it as far as possible. Otherwise the globe will soon be
partitioned off to our disadvantage, and we ourselves, with
the great need that we have to labor for our foreign trade,
are going to be left out in the cold. ["Quite true!"]
The charge has been occasionally made that our industry is responsible for the whole situation. And so it
is, even if it be only the innocent cause. You may tell
me, gentlemen, that industry has not overstrained itself.
I maintain that it has been expanded too rapidly—and I
don't mean merely in some one branch or another, but in
general. I myself have had the experience that when, up
to the beginning of 1907, I urgently advised this or that
manufacturer, as I frequently did, to desist from expansion, because presumably the possibilities of a market
would soon be diminished, the people were ready to laugh
at me. As long as the manufacturer has his factory working at its full capacity, as long as he sees good and profitable orders flowing in, you may warn him as you please; he
will, as a rule, not believe you; and consequently he
considers it necessary to enlarge his plant. Now, it was
not through undue self-confidence or shortsightedness that
our industry was developed to excess; I must again cast
the reproach for a too hasty expansion upon the Reichs-
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tag, the diets, and the common councils. Had we proceeded somewhat more deliberately with our cultural
evolution we should not have made it necessary at all
for industry to execute vast undertakings in an extremely
short time. We should have allowed it more time to complete those undertakings. Industry would not then have
been tempted to disregard foreign countries in a large
measure in recent years through having too abundant,
profitable, and convenient work here in Germany. It
would have continued to devote more attention to foreign
lands, would not have dropped, here and there, connections then existing and which it must now arduously
strive to resume; and we should, consequently, have experienced in Germany also a more gradual development,
corresponding better with our actual strength. Let us
not deceive ourselves; we increased our industrial equipment in the years 1904, 1905, and 1906 far too hastily.
If we believe that the expenditure for establishments and
supplies in the States and cities of Germany proceeded in
recent years largely on a scale and at a pace which must
naturally be succeeded by substantial and prolonged restriction, upon financial grounds, this necessary economy
involves the disadvantage for industry that the excessive
equipment actually exists and must conquer occupation
for itself in the markets of the world, which, for good or
ill, it had to neglect before.
Herr von Gamp spoke further of the gold industry. I,
too, regard our gold industry as decidedly useful economically. I can not verify Herr von Gamp's figures, but I
imagine that of the 100,000,000 that he specified a con-
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siderable portion must be reckoned as used in manufactured articles containing gold in some form, which are
sent abroad. To depreciate our 20-mark pieces in any
way would, in my opinion, be a very serious matter. If
you can produce at a comparatively low rate any sort of
small gold bars that would satisfy the manufacturers
it would, it is needless to say, be most welcome.
Herr von Gamp has addressed a pretty general reproach
to us, as if we desired that certain things should not be
made very clear. I think it is requisite that we, too,
should emphasize that we have no motive whatever not
to wish for ourselves all the definite knowledge and enlightenment that are attainable in any field. Only the
very narrow-minded would possibly want to stick their
heads in the sand and say: I should rather not have that
ascertained! When Herr von Gamp suggested that an
effort be made to ascertain the amount of gold in the
country, I at once responded that we should welcome
it most heartily; that it was precisely the banker who
was most interested in finding out as accurately as
possible what the gold backbone of the country actually is, so that he may be able to reckon with a factor
as definite as possible, instead of, as now, having to
calculate with uncertain estimates. Herr von Gamp
would like to have a series of laws. We would, in so far
as I can say " w e " in this connection, raise no objection to that, in spite of the fact that we have a superabundance of laws in Germany, and would support the
laws if we could promise ourselves that they would be of
some practical value. The more active, however, the
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law-making machinery is in this domain the greater,
presumably, will the confusion be, as Herr von Gamp
indicated, and the spirits which are meant to be laid will,
on the contrary, be vigorously aroused.
If Herr von Gamp imagines that a certain influence
will in the future have to be exercised upon flotations,
then I believe that he is mistaken as to the actual conditions. Were the foreign office or the Reichsbank, with
its present organization, simply to say to any one who
desired to make a flotation: We do not wish the flotationthen, I think, there would hardly be a single house engaged in this line of business that would ignore this consideration, in whatever shape it was urged upon it, and
say, I shall make the flotation anyhow. Herr von Gamp
underestimates the influence of the Reichsbank, which it
can exert even now if it desires to do so. But to put the
direktorium of the Reichsbank under the necessity, as
one of the previous speakers has already explained, of
sanctioning or rejecting, to a certain extent, every flotation, that would indeed be the most dreadful thing imaginable. I hardly think that any member of the present
direktorium of the Reichsbank would under those circumstances continue in his position at all; and if, possibly,
other gentlemen inclined to accept such a responsibility
would step into their places I should deplore it exceedingly, in the interest of our entire economic life and in the
interest of the Reichsbank. Our German public would
see in such an organization only this: Now the matter is
examined by the vState and rejected or sanctioned, and
if it is sanctioned the State is, naturally, responsible for
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everything. It is desirable that we should make the
German people as independent and discriminating as
possible in regard to financial concerns; such a measure,
however, would be exactly calculated to prevent that
desirable condition.
If we really wish to promote the drawing of gold from
abroad, we need only address a request to the Reichsbank
that it should proceed in the future as it has hithereto
done, and as was lately, in particular, exhibited to us in
a practical form; and if I consider both the inflow and
the outflow of gold—they can not, indeed, be separated—
I can only repeat the remarks made by one of the previous
speakers; let us make our balance of payments favorable,
let us seek to extend our business abroad as widely and
advantageously as possible, to have a wise internal
financial policy, and the balance of payments will assume
a healthy shape quite by itself. That in practice abuses
as regards gold exports may occur is, indeed, obvious;
but the Reichsbank is, by itself, perfectly in a position to
deal with such abuses. I should like to see the person
who, it might be through arrogance or on account of
some petty advantage, would persist in exporting gold
in spite of the wishes of the Reichsbank. In the interest,
however, of the standing of Germany—and that for the
present still plays a great part—a surrender of 10,000,000
marks will under certain circumstances be voluntary,
expedient, and necessary in order that we should not,
perhaps shortly afterwards, have to surrender twice or
three times that amount; and if a case stands thus, the
Reichsbank will, naturally, place the smaller sum voluntarily and quickly at disposal.
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As to the premium policy, I consider it of no value as
regards its practical effects; nay, under existing conditions I should even, as other gentlemen have already
remarked, consider it actually dangerous.
That I favor the proposition of Herr Fischel in regard
to the remission of seigniorage for the Reichsbank, I have
already observed; I would only add now that even if
we can not exert a rapidly favorable influence thereby
upon the condition of our gold market, we should not on
that account allow ourselves to be discouraged from
introducing such a measure. For there will come times
when we shall feel very comfortable with such an arrangement; only by looking forward to a gradual success in
the course of time can such measures be adopted—not
with the expectation that success will follow in the space of
a year's time. The gold market will, with us, be created
and vigorously developed only when Germany shall once
more inspire greater political confidence in the moneyed
people of the world than it does at present.
The CHAIRMAN. Herr Raab wishes to have the floor.
Mr. RAAB. I have as yet not requested it, b u t if permission has already been granted me to speak, I will
avail myself of it, particularly since the remarks of the
gentleman who spoke last assumed a critical tone in regard to our present economic policy and the action of the
Reichstag in the economic field. I belong to those
groups of the Reichstag that have supported the recent
economic policy, and we did this, among other things,
with the conviction that precisely this economic policy—
protection of domestic labor and the domestic market
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against an unnecessary flooding by foreign products—
exerts a favorable influence upon our balance of trade
and balance of payments also. I believe that this economic policy must be continued, nor can I perceive any
valid considerations against it in the complaints which
have been urged here. For the rest, I can subscribe to
almost everything that has been advocated here by the
majority. I would, indeed, characterize the discount
policy even more emphatically as an almost barbaric,
cruel instrumentality, because it cripples and burdens
our entire economic life enormously. This means should
not often be resorted to, and only under particularly
unfavorable conditions. It is desirable in the interest of
our domestic labor that a moderate discount rate be
exceeded as rarely as possible.
The extension of the foreign-bill business—I have
already expressed my opinion about it—I regard as
another means by which the drawing of gold from
abroad can be temporarily promoted. Furnishing advances without interest, too, in the measure in which it
is done at present, is doubtless to be regarded as occasionally useful.
But perhaps I may be permitted yet to revert to
something that I have already briefly discussed, namely,
that the drawing of gold from abroad might perhaps be
furthered by receiving deposits abroad.
The question sheet contains, it is true, only the question whether and how we can supply the Reichsbank's
stock of gold through domestic deposits. I have already
acknowledged that the question sheet does not fully entitle
me to discuss this matter here.
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(A voice: " In Question VI.")
It does not belong there any more than here, Herr
Mommsen, if we wish to speak of the drawing of gold
from abroad, for Question VI refers also only to domestic
deposits.
I know that there is a wide-felt need, particularly in
German circles, of an institution to which money may
be intrusted without any anxiety. There are a great
many Germans abroad; they save money, which they
must now, for the most part, intrust to foreign banks.
In the United States the people receive, as a rule, interest at the rate of 3 per cent on such money. If we had
an arrangement that would make it possible for Germans
abroad to deposit their money in the German Reichsbank, or even if the Reichsbank would simply receive
consignments of deposits, it would be most welcome to
many beyond the seas, and we should doubtless improve
our balance of payments. Now, these sums might, of
course, be demanded back in critical times, but this
would in fact never happen quite suddenly. I even believe that Germans abroad will never demand their
money back in critical moments as rigorously and anxiously as foreigners who have balances in Germany.
The objection has been raised against accepting domestic deposits that a fixed limit must be set upon the
amount of such moneys, but that, with the numerous
branches of the Reichsbank, it would be impossible to
oversee the amount of deposits placed at its disposal at
any moment. Now, gentlemen, if deposits from abroad
may be remitted to the central point in Berlin alone,
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then it is, of course, possible to ascertain the total amount
and to determine whether the fixed limit has been reached
or exceeded. Nearly all the other reasons that have been
adduced against the acceptance of domestic deposits are
likewise invalid in regard to moneys from abroad. I
need hardly demonstrate this in detail.
On the whole, I should think that my proposition, too,
if it is carried out simply, economically, and practically,
might contribute a small share toward influencing the
influx of gold from abroad more advantageously for us.
It might, besides, have a favorable effect upon our economic life. I assume that a great part of this money
would not be demanded back, but would be employed in
purchasing German goods and thus promote our economic
interests. I should be greatly pleased if my proposition
were to be included in our debates, if only for the purpose
of drawing my attention to difficulties and considerations
which may stand in the way of its execution.
I, too, consider it urgently necessary that we should
strengthen our stock of gold, that we should secure a better balance of payments. Now it strikes me as a somewhat inexpedient step to recommend here the investment
of German money in foreign loans without adequate
restriction. We are told, to be sure—and very alluring
instances have been spread before us—that the gold
which we invest abroad comes back to us, in the first
place, and, secondly, we gain the interest besides, for the
entire time; the amount that we have sent out, therefore,
is actually doubled or trebled, and improves our balance
of payments. But Herr Roland-Lucke has already
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spoken of the seven-league boots with which we should
really not yet have provided ourselves. It seems to me
that the whole state of our economic affairs should
emphatically warn us to exercise restraint in regard to
foreign loans; we can not engage in them, at any rate, as
long as conditions at home are still such that we have a
high money rate, under which industry and all our
domestic labor threaten to be crippled. If we wish to
take over and promote foreign bond issues, the money
for them ought to be taken only from a surplus which can
not be really well applied at home. If, however, as is
the case still to-day, our discount rates are higher than
almost anywhere else in the world, it is a proof that our
embarrassment at home is still quite considerable. At
such a moment to give the advice, "Send your money
abroad, so that you may gain the interest!"—that seems
to me as if one should say to a man who complained that
he could not make a living: "Lend out money and live
on the interest!"
As regards the question whether and how we could
make our balance of trade, and, as a consequence, our
balance of payments also, more advantageous, I would
still add the following: We can certainly not, as I think,
further promote our exports artificially to any great
extent. I am pretty well informed upon the subject;
our export trade is carried on at quite a small profit and
it has already made the greatest possible efforts to find
a market. We can not, then, it seems to me, develop our
export trade much more. Now, there is, perhaps, still
the other, negative means toward a more favorable
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shaping of the balance of trade; namely, the restriction
of imports. In our import list many articles are found
which we could produce ourselves. This matter rests,
indeed, upon somewhat delicate ground; but I think
that we could learn a little something from America.
The commercial treaties and tariff rates are, of course,
fixed; but the United States stretches a point in order
to maintain a favorable balance of trade. It puts up its
protective—really combative—duties, and besides, as far
as is possible, keeps imports out of the country by tricky
devices. Now, I do not wish to plead in favor of such
tariff chicaneries. But I believe that Germany often
exhibits a degree of complaisance towards imports which
is economically hurtful. Even if it is not the business of
the bank inquiry commission to devise ways and means
against it, I wished to present this idea to Herr RolandLucke, who considers that even our by no means harsh
protective policy goes too far. I think, on the contrary,
that our present economic policy must be maintained,
and in certain respects even reenforced, if the balance
of trade and the balance of payments are to be made
more favorable.
Doctor WEBER. Herr Raab began his remarks by saying
that he could not agree with Herr Roland-Liicke's position,
that our economic policy had affected our balance of trade
unfavorably; on the contrary, at the time this economic
policy was introduced, the assumption in the Reichstag
was that this protective policy would act advantageously
upon our balance of trade and our balance of payments.
If we examine the statistics which the president of the
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Reichsbank has so kindly had prepared, we find that in
Germany, in contrast with England, the amount of the
excess of imports over exports increased in the last five
years by about a billion marks, while in England the
excess of imports was reduced by a billion; and if Herr
Raab is of the opinion that our protective policy exerts a
favorable influence upon our balance of trade, it would be
bound to appear in the figures somewhere, debatable as
they may be in some respects. Our protective policy, be
it ever so justified on some grounds, has failed in this
regard.
We must recognize that Germany—whether this is to be
regretted or not—has consummated its transition from an
agricultural to an industrial state; it can not be denied that
we have become an industrial state, and it appeared also
from the remarks of most of the experts and likewise from
the statements to-day of different members of the commission, that they are convinced that we must aim especially
to increase our exports and that in our debates our attention must be specially centered, as Herr Roland-Iyticke
justly observed, upon this point: How can we make our
balance of payments favorable under any circumstances,
at least more favorable than it is to-day? Herr RolandLucke applied the comparison of the healing of the arm to
our economic body. This comparison fits perfectly, and if
Herr Raab meant to say that we must restrict our imports,
I really do not know how he can think that. Manufacturing and commercial interests do not import for pleasure;
it is only that we need the raw materials in order to keep
our workmen occupied to carry out our undertakings, and
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in order to have at our disposal the most necessary supplies
that we do not produce; and when we see in the reaction
which has now set in how great is the number of the unemployed in Germany, and when you hear from the
country in which I live, Saxony, that the factories are, in
part, working only three to four days a week, and partly
only six to seven hours a day, it furnishes a point of
view which is of greater weight than all of Herr Raab's
statements. If we are not in a position to keep our industries employed through a brisk activity in imports and a
corresponding activity in exports, we have conditions such
as, sad to say, prevail in wide circles in Germany to-day,
and as, whatever way we look at it, gives us food for
thought.
Several gentlemen, further—the last speaker among
others—made reference to foreign loans and the investment of German capital in foreign loans and enterprises,
and expressed their regret, based upon the table presented
to us to-day, that such considerable sums are tied up in
those securities. Freiherr von Gamp used the expression
that he was frightened at the figures regarding foreign loans.
I was frightened at the figures exhibited by the German
municipal loans and debentures in this statement. If you
compare the year 1900 with the year 1907, you find, in the
case of the foreign loans, granting that the figures of the
Deutscher Okonomist are authoritative, a retrogression
from 275,000,000 marks to 150,000,000 marks, while, on
the other hand, the municipal loans rose, in the same period, from 220,000,000 marks to 430,000,000 marks. If
anyone, therefore, ought to impose a restriction upon him-
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self, it would, perhaps, have been more appropriate to hold
up the municipalities and the debenture institutions.
Municipalities and the State must, before all else, return to
greater economy.
But those views involve, besides, a complete misunderstanding of the important function of foreign loans in
regard to our German economic affairs. It can not be
pointed out often and emphatically enough that we must
take up foreign loans in order to better our balance of
payments. I am not as optimistic as Herr Muller (Fulda),
who believes that our balance of trade and balance of
payments will be improved in the course of the next few
years; particularly in view of the fact that the steady
increase of population and the undeniable fact that our
agriculture is not in a position to augment its production
in proportion to the progressive growth of our population,
must make it increasingly necessary for Germany to
import greater quantities of foodstuffs, wheat, etc. We
are compelled, therefore, to create values to offset this
increasing importation of the necessaries of life and to see
to it that the growing need of raw material for manufactures, conditioned by the same fact of the increase of
population, shall be balanced by some other means.
The question of the consumption of gold by our gold
industry was, furthermore, raised. In view of the enormous figures of our balance of trade, a sum of 80,000,000
marks of gold used in manufactures ought not in itself, in
an economic field as vast as that of Germany, assume such
great importance. Herr Geheimrat Muller, too, investigated this question closely and accepted the figures,
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80,000,000 to 100,000,000, as correct. I can not test
them; they were only gathered from the estimates of the
experts. I think, however, that a slight improvement in
the condition of our export trade would at once counterbalance this consumption of gold in manufactures; and
the speaker before the last, Herr Roland-Lucke, remarked,
besides, that surely a great part of the gold manufactures
go abroad and yield equivalent values. I do not attach
the great weight that a number of the previous speakers
do to this use of gold in our manufactures. I am rather
of the opinion that no sort of difficulties should be put
in the way of the gold industries in procuring the gold
required.
I would, further, revert once more to the figures which
deal with the flotation of foreign loans, and would call
special attention to one point. Herr Geheimrat von
Gamp assumes that the sums, amounting to 142,000,000
in the year 1907 and 1,200,000,000 in 1905, that were
floated or offered on the Bourse really found their way
into the German Empire. That, however, is not necessarily the case. Those sums may be admitted to the
Bourse, but are not on that account all taken up in
Germany. In that respect, then, these figures do not
give a correct picture. On the other hand, Freiherr von
Gamp felt it his duty to give a prominent place to the
opinion—against which objection has already been
made—that it is requisite to introduce control over the
flotation of foreign papers. This question was thoroughly discussed last spring by the bourse commission of
the Reichstag, and, as far as I remember, the Government
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itself attached importance to declining such an office of
control under any circumstances for reasons which appear obvious at once and which are primarily concerned
with politics. The authorities of a State or an Empire
can not undertake to play the controller as to whether
to-day our great banks shall put Russian or Italian loans
on the market; for they might in that way, as is quite
evident, easily be drawn into diplomatic or political
conflicts.
Gentlemen, the individual questions that are put down
on the question sheet have been so exhaustively debated
that it is hardly necessary to discuss them much more.
I, for my part, too, am of the opinion that the policy in
regard to foreign securities, which the new president of
the Reichsbank has this year successfully continued in
the Reichsbank with reenforced vigor, will doubtless meet
with good success in the future, too. At the same time I
would express the opinion also that such a policy can
represent only a temporary expedient for bettering the
condition of our money market. As to the main thing—
it is not necessary to emphasize this every time—it must
be ever again pointed out that only by having quite a
favorable balance of payments, such as we formerly had,
will a deficiency of gold be permanently warded off.
But in any case I believe that Herr FischePs proposals,
approved by the speakers, would have an excellent
effect, especially if at the same time the question of the
purchase of gold and of advances for gold imports
were handled by the Reichsbank a little more commercially, perhaps, and not fiscally. I do not know for how
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long a time the Reichsbank grants interest-free advances;
perhaps this interest-free time may be somewhat extended.
I can not judge of it, however, offhand.
I am, further, of the opinion that a raising of the rate of
discount will, by all means, conduce to prevent the outflow of gold to foreign countries. It was pointed out in
the debate by one of the gentlemen that in November of
last year the United States drew away its credits with us.
I do not think that this is quite accurate; it was at the
time probably not so much a matter concerning American
credits with us as that other countries, with which the
United States had credits, drew on us; and, in this respect, the raising of the rate of discount constitutes a
good remedy against a too abundant outflow of gold to
foreign countries.
The question of a gold premium I regard as hardly one
to be debated. It has long since been settled in France;
and the arguments of the best advocate of the gold-premium policy, Doctor Arendt, have convinced me that he
himself is convinced that in Germany nothing can be done
with it. I only hope that he will make a vigorous use of
this change of view in the Reichstag as well. [Laughter.]
The fixing of the private discount rate, as related to the
official Reichstag discount rate, was also discussed this
morning. It would be a misconception of the character
of the private discount rates to suppose that the discount
policy of the private institutions must necessarily result
in thwarting the policy of the Reichsbank. It was also
said that this private rate benefits the great industries
alone. I do not share that opinion; the small industries
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and commerce likewise make active use of this private
rate; I can say this from my own experience, and it will
be admitted, too, by everyone familiar with the situation.
It is, therefore, a false view of the matter that the great
banks and the great industries alone take advantage of
this arrangement for the purpose "of procuring cheaper
money." It was even stated recently in a journal that
the firm of Mendelssohn & Co. and the Deutsche Bank of
Berlin fixed the private rate on the Bourse and exploited
it for themselves. I saw this assertion with astonishment
in a great political newspaper of Saxony. For that
matter, the Reichsbank, by the Imperial Treasury bills in
its possession, has the best means of controlling the level
of the private rate of discount.
Gentlemen, one point more I should like to call attention
to, and on this I have changed my opinion somewhat in
the course of the inquiry. I have become convinced that
there is some truth, after all, in the view that the stock
of gold in Germany is less than is estimated. I am of the
opinion that the various contributing elements—for example, travels abroad—cause more money to flow into
foreign countries than we assume. We have a rate of 4 per
cent, the Reichsbank is well provided, and, in spite of that,
we find that precisely in times when industry is languishing
and not as much money is expended for wages as at other
times there is a certain dearth of ready money. That is
an indication that there is less metal in many districts,
and that on an average, too, less is found in Germany than
is assumed in the estimates.
The question was put, in conclusion: What effect does
the discount policy, in particular, produce? That has
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already been fully discussed. Other means than the
raising of the rate of discount to check the outflow of gold
into foreign countries, I do not consider available; in my
judgment the only possible way for us to retain money is
by raising the rate of discount in times like last year; and
since we must reject the premium policy without question,
the Reichsbank will have no other way of checking the
outflow of gold into foreign countries than through its
policy in regard to foreign securities and to the rate of
discount. But I consider it regrettable, too, that, as
another gentleman has already pointed out, in times like
last year efforts should be made to check the outflow of
gold to foreign countries by artificial means, since that
can only conduce to render the credit of the German
Empire questionable abroad. In such times it is, in my
estimation, better, in the interest of the development of
our fatherland, to pay a higher rate of discount temporarily, and to give up without fuss the money that has to
go abroad, than to pursue the opposite policy. There
can, indeed, be no doubt on this point.
The CHAIRMAN. Gentlemen, it is a quarter of four
o'clock; I submit it to you whether I may permit another gentleman—it would be Herr Schinkel—to speak;
and in that case I, for my part, wish briefly to make a
request concerning the question whether we should create
a gold market here; and in this connection I would ask
the gentlemen who are specially versed on the subject to
give their opinion upon a question which, if it has not a
decisive bearing on the action of the Reichsbank, must
at any rate be considered.
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The Bank of England is free in its purchases whenever
it is a question of paying a price above 77s. 9d., and it is
free to decide what price beyond that it wishes to give.
According to the propositions made by Herr Fischel, the
Reichsbank would have to bind itself to be ready to
pay permanently or for a long period a price of 1,395
marks for all the gold offered to it. Now, Herr von
Lamm has already explained in his statement—and the
gentlemen agreed with him, too, on the point—that the
present system of interest-free advances presents a problem for the Bank, and he remarked: "The Reichsbank
must be quite sure that gold which would have come to it
anyway does not come to it by this means; and it can,
therefore, grant the interest-free advances to such houses
only as are worthy of perfect confidence and about which
it is convinced that they would otherwise not import the
gold. It may happen that quantities of gold are concerned which are not intended for Germany at all, but
only pass through Germany in the transit of traffic. In
such cases the Bank must guard against granting an
advance." This policy of carefully selecting the absolutely reliable firms, the Reichsbank is free to pursue as
long as it limits itself to interest-free advances. If the
Reichsbank, however, bound itself—and this is the question I propound to the gentlemen—to grant, permanently
or for an extended period, the fixed price of 1,395 marks,
would not the consequence perhaps be—since the firms
could not then be selected, but everybody's gold would
have to be accepted at a price of 1,395 marks—that a
number of persons or firms would avail themselves of the
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chance to speculate at the expense of the Bank? That is,
they would bring it gold which would perhaps flow to it
anyway. And, secondly, if the gentlemen agree with me,
do they perhaps regard this standpoint, in connection
with the main question, of such minor consequence that
it can be properly overlooked?
Gentlemen, I would beg you to take these questions
consideration in your answer; all the more because, as
Herr Roland-Lucke has already pointed out, with the
nervousness of the English market our action might provoke it to frustrate the creation of a German gold market
by preventive measures. And here the question is pertinent whether the present system, without the official
declaration that we must pay permanently—or it may
be, to begin with, until July i, 1909—1,395 marks, does
not seem calculated rather to check such preventive
measures? I beg the gentlemen, only for our information—the matter itself is, indeed, of the greatest significance—to take these practical considerations into account
also in their answer.
Mr. SCHINCKKIV. I must in the first place express my
regret that, owing to an unfortunate accident, Freiherr
von Gamp should again be unable to be present, just when
I can not refrain from reverting to several things which he
said to us this morning; for we should like to have him
come around toward our views, as we have already succeeded in having him do in the case of the gold premium
and on other points also. I can in the main and on the
whole, however, express myself very briefly, because I
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agree in general with what Herr Geheimrat Riesser and
President Kaempf have already fully enlarged upon here.
Our honored president said this morning, "Only don't
let us have too much talk on the subject of the balance
of payments; it is such-a boundless topic," and I can only
fully assent to his opinion. On the other hand, however,
gentlemen, the notion and the actual condition of our
balance of payments are too closely connected with the
questions that occupy us here to allow it to be wholly
eliminated from our discussions. Certainly the balance of
payments is of decided consequence in relation to the
Reichsbank's stock of gold and the importation of gold
into Germany; that, I think, is evident to all of us. But,
gentlemen, as to creating a balance of trade, the Reichsbank can do that just as little as anybody else. The
Reichsbank can be equal always only to its statutory
object—to be the regulator and to exert its activity in
regulating our money market. Conjure the Reichsbank
can not; and in this connection I may be allowed to contradict the view that gold can be made out of paper. I
am of the opinion that all the gold that we get must be
paid for in some way with gold or gold value, whether it
be with goods or by the relinquishment of our claims
abroad. To a certain extent an exception for the Reichsbank in a narrower sense is formed by the gold that it gets
from Germany itself through the issue of small notes. But
that is only borrowed gold, and the Reichsbank must
return gold for them, too, as long as its notes are always
redeemable in gold.
For the rest, the Reichsbank must never by any means
be held responsible if the balance of payments does not
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turn out to be such as to draw in gold permanently. If
we advance too rapidly in our economic developments—I
will illustrate this by an example: If we build too many
and too large ships, so that we are obliged to tie up a great
number of them, then we have committed an economic
error which affects our balance of payments unfavorably.
We have put money into the ships; these ships, however,
bring no freight surpluses, and therefore no gold values,
from abroad, and our balance of payments is unfavorably
affected thereby. If industry has expanded so considerably—I do not wish to cast a reproach upon industry for
it—that it must to-day keep a great part of its establishments at a standstill, then that, likewise, constitutes an
unfavorable factor for our balance of payments; for we
have in that way tied up money—of which we have not
much, indeed, to spare—and the balance of payments can
be maintained only by a profitable activity.
I would linger a moment more on the subject of the balance of payments. We agree upon this, too—I have to
my satisfaction heard it from all sides—that balance of
trade and balance of payments are two fundamentally different things. To be sure! It was explained, further, how
the balance of trade is supplemented by factors which can
not appear in the statistics. There were mentioned the
much-debated foreign loans, the interest which accrues
from them, the freights of our vessels; and commerce, too,
was now and then touched upon. I am of the opinion
that the last factor is extraordinarily underrated, for the
idea is quite extensively held in broad sections of Germany that commerce generally is not profitable. Now, in
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relation to our balance of payments, it is, as I shall presently illustrate by a few instances, extremely productive.
I will cite a few little examples—one should not tell
tales out of school, but the subjects that engage us here
are of so serious a nature that the question of business
secrets can not be considered—a few little examples
from my own experience that go to show how the balance
of payments may be made productive by the activities
of trade; and I naturally include in this the activities
of the banks also. I know a certain foreign bank. This
bank has in the twenty years of its existence in Germany
paid out up to this time 15,500,000 marks in dividends;
it has, furthermore, accumulated in the shape of surplus
and undivided profits an additional 4,500,000; this bank
has thus brought 20,000,000 marks into Germany and
distributed them here in the shape of dividends to its
shareholders. Now, that would not be extremely noteworthy; but if I disclose to you that this bank never
had a red cent of German money abroad, but that, because the exchange conditions of the country concerned
required it, it did business only with the money of that
country—and naturally also with the credit of the
sponsors back of the bank—then you will have to admit
that this 20,000,000 marks never impaired our balance
of payments. For no money ever left Germany, but the
entire capital was always put out at interest here, so
that this little bank alone effectively improved our balance of payments by 20,000,000 marks.
Another case is that of the German saltpeter works
which have been established in Chile, and this upon the
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basis of the acquisition of the lands and purchase of the
shares by persons who were then living in that country.
We did nothing but grant a loan of 15,300,000 marks;
and this 15,300,000 did not go out either, for the capital
was used to pay for machines which were produced in
Germany. In this sense even the money for the loans
remained here. The share capital—for we made it a
condition that the company must be a German one—
never left Germany. Consequently the shareholders
moved to Germany, and consequently, of course, collected their dividends in Germany, and of the entire
loan only 10,200,000 marks are still in circulation. Five
millions have already been returned, and not less than
7,000,000 marks have been paid out in dividends in
Germany.
I think, gentlemen, that through such simple examples—I mention them on that account, the thing in itself
may appear trivial to you—a fundamentally false notion
which has become fixed in many minds may be got rid
of, namely, that the factor of trade is really hardly to
be taken into account in the balance of payments. I
encountered it to-day in a perfectly unbiased quarter;
Professor Lexis endeavored to throw light on the balance of payments in connection with the balance of trade,
and he excluded that factor entirely. But it is in reality
a factor—the cases cited are only insignificant examples—
which, be it said for our consolation, makes good a great
part of our balance of trade.
One word to Herr Raab. The money that serves to
improve our balance of payments is money that is earned
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by our trade with foreign countries. If, as Herr Raab
would have it, trade should be confined as far as possible
to our own country, this redressing of the balance of
trade could not take place at all, and his native city of
Hamburg might as well shut up shop. For this I can tell
you out of my own experience: That as to the profit that
Hamburg's trade makes out of domestic commerce, she
certainly couldn't live on that. In a general way, the
entire profit that trade brings into Hamburg is a profit
made abroad, which improves our balance of trade.
I have endeavored to fill what appears to me a slight
gap in the discussion by these perhaps somewhat too
extended remarks.
I shall now touch very briefly upon the separate points
that are mentioned in the question sheet. Something has
been said about statistics and an ascertainment of the
amount of gold, especially by Freiherr von Gamp. I
consider that such statistics are hardly practicable and
very expensive, but if it will set you at rest I am willing
to waive this and shall make no opposition; let the counting go'on, then! Like all statistics, these, too, will be
misleading.
But I ask: What purpose can they really serve? I
did not in any way get at the bottom of what purpose
they are really to serve, either in the debates in May or
at present. And if we did actually determine by this
counting that there are in Germany instead of 4 billions—
which nobody believes—only 2 billions, shall we on that
account be any richer or shall we be any poorer? Much
more important is the question which was first touched
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upon here: Is business in Germany sufficiently saturated
with money? But with how much money it is actually
saturated is indeed of exceedingly minor consequence.
Turning now to the matter of foreign loans, I regret
the absence of Freiherr von Gamp. As I mentioned
before, he was at first glad that we had had those loans,
but regretted greatly that we no longer have many foreign
loans, and now he regrets anew that we are on the point
of procuring those loans again. Yes, gentlemen, there
were times when we did not congratulate ourselves upon
possessing Austrian rentes in such great quantities; when,
namely, the Austrians began to partially discontinue their
payments. We got rid of the Italians through no fault
of our own; the Italians drew them in at rates at which
they could no longer be of any use to us. That some sort
of equivalent must be procured for all this is, in my judgment, obvious. Now, here again statistics have been collected, but I almost regret the labor that has been expended upon them. These statistics—we could recognize
that in Freiherr von Gamp's remarks—again misled him
entirely; Herr von Gamp has once more completely confounded two things. We have already explained that the
prospectuses relating to admission to the Bourse give no
clue whatever as to the amounts that are actually to be
found in Germany; if out of a loan 20,000,000, say, are
really taken up in Germany, a prospectus must be issued
covering 400,000,000. Herr von Gamp remarked that the
other 380,000,000 have, in consequence, the right of domicile in Germany. Naturally they have that, but they are
not on that account yet in Germany; we have not, on
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that account, paid for them yet. On the contrary, with
the conditions that have prevailed in Germany it may
be assumed that the 20,000,000 have in the meantime
disappeared.
What the statistics are meant to prove on Herr von
Gamp's side is a thing perfectly inexplicable to me. For
if it is stated that in the year 1905—he supposed it was
a year of crisis; on the contrary, it was a year of the very
greatest prosperity—these 1,500,000,000 of loans were
really introduced here by way of prospectus, that does
not signify that those 1,500,000,000 were placed in Germany.
Now, as to the foreign-bill business. I need not dilate
upon that either; we have all become satisfied that, with
the excellent management of this branch of business by
the Reichsbank, a gap has here been filled, and that efforts
are being made to carry the measures still further for the
benefit of the economic policy of the Reichsbank.
One word more about bills upor England. I have
myself before remarked that bills upon England can
not possibly be reckoned as part of the stock of gold,
because it does really to some extent appear doubtful
how the thing will turn out in the event of war. But,
on the other hand, I must likewise add the opinion that
the English is not the worst portfolio that the Reichsbank
will have in case of war. In the first place, there are
many occasions when these bills may be used in neutral
countries for payments that we shall have to make, be it
for grain or for other great necessaries, in Holland or
elsewhere, and the Dutch will gladly accept a bill upon
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England as payment. But besides that, gentlemen, there
will be many a bill in the German portfolio of the Reichsbank which is not paid forthwith upon maturity. At all
events it is no mistake, but, in my eyes, a good feature in
the condition of the Reichsbank—we are, to be sure,
agreed that this should not be made public—if it has
many foreign bills as a reserve in its portfolio, in order
that it may exercise a regulative activity.
Gentlemen, I do not wish to enter into a detailed discussion to-day of the propositions made by my honored
friend Herr Fischel, because I understand from him that
he is to give us still further explanations. I am fully
aware that one of the experts, whose opinion had great
weight with us, the Director of the Frankfort Assay Office,
has in the meantime changed his views and has, I have
been informed, addressed a writing to the Reichsbank in
which he withdraws the opinion that he gave here as an
expert. I have not yet been able to work myself fully into
this belief. I hold that it would be exceedingly useful for
us—and I thoroughly sympathize with the movement—if
we were to succeed in creating a gold market in Berlin.
The difficulties loom up before me as very considerable. I
feel sure that the English market will not stand calmly by.
The Bank of England is in a position, as has already been
frequently explained, and as I also wish to emphasize, to
pay more than the normal price for gold. I am afraid that
if the price is raised here by 6 marks, owing to the abolition
of mint charges, England will follow suit. I would not be
positive in regard to this until we shall have listened to
further statements from our honored Herr Fischel.
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One point, however, I can not suppress even to-day, and
that is, that the Reichsbank should at once raise the
obligatory price that it wishes to pay by 6 marks. I have
on this matter had statistics collected which, however, I
understand from Herr Fischel, are not correct; and I have
greater reliance, as I said before, in Herr Fischel, as a
practical man and as a great expert in gold arbitrage, than
in our own people; but according to this estimate there
certainly were days in every month from May on when
gold could be bought in England below 2,790 marks.
Now, this may not be quite accurate; the costs may have
been forgotten, and Herr Fischel is surely better informed
about all this; but we could, at any rate, have got the
gold back from London by paying approximately 2,790
marks. I do not know but that there is great danger in
the Reichsbank unconditionally raising the obligatory
price at which it must buy gold, without limitation of
amount, to 2,790 marks per kilogram; times might occur
when it would be so flooded with gold that it would
have too much of it. Gentlemen, this sounds very singular; but, believe me, times will change, and times may
come when we shall not find it comfortable to have too
great amounts of gold stacked up unproductive in the
Reichsbank.
Gentlemen, it has already been mentioned here that conditions have changed immensely since the commission of
inquiry was called into session. I assent fully here to the
acknowledgment made by Herr Muller of Fulda to the
direktorium of the Reichsbank. I do not know, indeed,
how its concerns could have been better managed. But,
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gentlemen, I can not share a view which has been expressed here; if, namely, you believe that we owe this
change in the money market here to the beginning of an
economic improvement, then you are, unfortunately, upon
an altogether false track. [" Quite right."]
According to my observation, our present great abundance of money—and I may reveal the fact that there
are private banks that are rolling in money far more even
than the Reichsbank—is, unfortunately, a sign of the most
general stagnation. ["Quite right."] And we may not,
therefore, draw the conclusion that it was due to the
measures adopted by the Reichsbank that its condition
was improved, but that its condition was vastly eased
by this situation, which I willingly acknowledge has,
after the recent high rates of interest, its very good side, but
has also a very deplorable side, namely, that it is the sign
of an economic standstill.
And now I come to the question of private discount.
And here, gentlemen, I can not at all agree with the views
that have been advanced here in various quarters. First
of all—again I must mention that unfortunately Herr
Gamp is not present—I would say to him that it is just as
he remarked: In London, and not only in Paris, the conditions are really altogether different; the Bank of England can not be compared offhand with our Reichsbank.
The point was brought up here that there is a great difference between the London bank discount rate and the
Reichsbank discount rate. And why is that? Because
the Bank of England reserves to itself, in fact, the right to
discount or not to discount, a system not practiced with
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us by the Reichsbank. If the quality of the bill satisfies
the Reichsbank, it takes any amount that is sent to it, at
the official rate. This is a wonderful safety valve for
traffic in general; not only for the banks, but for all the
patrons of the Reichsbank. The Bank of England, on
the contrary, thinks nothing of simply announcing urbi
et orbe: We discount only £100,000 to-day, no more;
we have no need of bills. And I can tell you, gentlemen,
that there were days during the last crisis in England that
looked far blacker than was the case here with our higher
Reichsbank discount rate. But the existence of a private
discount rate is necessary here for the Reichsbank; for,
gentlemen, the number of bills discounted in a business
world such as that of Germany is infinitely greater in private transactions than the number finally discounted by
the Reichsbank. How could the Reichsbank prevent
other people, who have money in abundance, who must
buy bills, who have commissions for bills, from discounting at lower rates than it does itself? I see no misfortune
in that. All of us—commerce as well; I should like to
bring this out particularly—have the greatest interest in
having low discount rates. [" Quite right!"] We, just as
well as industry, just as well as agriculture, feel easy only
when low discount rates prevail; but there must, of course,
be no low rates artificially fixed by the Reichsbank. [' 'Quite
right!"]
The Reichsbank must take all possible factors into consideration in regulating the rate of discount; it must not
only prevent the outflow of gold, but it must fix its eyes
upon every possible thing, the home market above all,
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and one of its chief duties is to regulate all this by means
of its discount policy. If, then, occasions arise when it
raises the discount rate, there is nothing cruel about that;
it is simply a correcting of conditions which have arisen,
and the Reichsbank is exceedingly glad when the eagerness for private discount increases, for it is then so much
the better able to lower its discount rate. The private
discount rate can not fail, in any case, at least to furnish
a criterion by which it may regulate its policy, and I can
not see whom the lower private discount rate would harm;
on the contrary, the gentlemen here all ask for low interest
rates; if the Reichsbank is not in a position to reduce its
rate as much as they would like, they ought to be glad that
other people are satisfied with a lower discount rate.
Besides that, gentlemen—and I wish to lay special stress
upon this point—our exchange rates would be put up
all round if bills for foreign countries could always only be
discounted at the Reichsbank's discount rates. We need
for the maintenance of our foreign trade our exchanges—
that is, an unconditional gold standard first and foremost,
but secondly a rate of interest also which shall not be too
high in comparison with London; for otherwise the
pound-sterling bill will always be worth so much more
than the Reichsbank bill, and our exchanges abroad
would, therefore be entirely ruined if the foreign bank
bills could be discounted only at the Reichsbank discount
rate and not at a lower private rate.
I wish, furthermore, to tell Herr Raab that he is,
fortunately, greatly mistaken if he thinks that the German
Reichsbank has the highest discount rates in the world;
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those were his words. The world is bigger than that,
and, to set you at rest, I can say that the entire North
and many countries in the South have a very much higher
discount rate than the Reichsbank.
In regard to the premium policy, I need say nothing
further, since it has, as far as I can make out, been dropped
on all sides. Since we have heard what hopes and expectations Doctor Arendt attaches to the premium policy, no
one who wishes to maintain the gold standard will want
to hear anything more about that policy.
I may close my remarks by saying that not only agriculture, not only industry, but commerce, too, has the greatest interest in seeing low rates of interest; but besides that,
in having a free path for its traffic, otherwise it will not be
able to fulfill its great task of increasing and toning up the
balance of payments. [" Bravo!"]
The CHAIRMAN. I close the session for to-day, and ask
the gentlemen to be present again to-morrow at 10 o'clock.
(Close of session, 4.17 p . m.)
380
TUESDAY,
October 13, igo8—10 a. m.
Chairman, Wirklicher Geheimer Rat HAVENSTEIN, President of the Reichsbank direktorium. Gentlemen, we continue our debates upon Question III. At the outset I
must inform you that Herr Kaempf has just telegraphed
to me that he is, to his regret, prevented by illness from
appearing here to-day.
Then I would, on my own account, make a brief remark.
I noticed in the speeches delivered yesterday by Herr
Kaempf and Herr Schinckel that a remark that I made
yesterday was not understood as I should wish it to be.
I had a sort of feeling as if there were danger of my falling
into the odor of economic backwardness. And I am concerned to save my honored teacher, Geheimrat Wagner,
the feeling of having to blush for me. [Laughter.]
I observed yesterday, gentlemen, that the Reichsbank
must endeavor to strengthen its gold holdings; that to this
end it must take advantage precisely of those times when
there is a favorable balance of payments; and that we
may at least hope, in this way, by utilizing the prosperous times to raise the level, too, of our stock of gold,
permanently it may be, or for a long period. In that
connection I remarked incidentally that I did not share
the opinion of those who maintain that this is of no avail,
since gold can be paid for only with gold; that, on the contrary, I am convinced that gold could be paid for, in seasons
at least when there is a favorable balance of payments,
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like any other goods, with other values, particularly bank
notes; and that I cherished the hope that this gold may
remain permanently, either wholly or in part, in the
Reichsbank. Gentlemen, my only object in this utterance
was to enter a brief protest against the idea—an idea not
infrequently put forward—that gold can be purchased
only with gold and that, under all circumstances, be it
immediately or very soon, exactly as much gold will have
to be given out as has been taken in. I believe, too, that
Herr Schinckel and Herr Kaempf will agree with me in the
rejection of this idea. I coincide, of course, with both the
gentlemen in the view that any deficit in our balance of
payments can in the end be paid off only with gold or gold
values; likewise that these purchased items of gold constitute a part of our balance of payments; and that, finally,
all the goods that we obtain from abroad must ultimately
be paid for in gold or gold values. But I am also of the
opinion that by this direct purchase of gold the Reichsbank
is much more certain to bring about the result that this
part of the credit balance of our balance of trade will really
flow to the Reichsbank in gold, and remain there for a long
period, than would be the case if the Reichsbank were
to put its hands in its lap and rely upon this favorable
excess of our gross balance of payments to get itself paid
off anyway in actual gold, flow into Germany, and, finally
stream into the Reichsbank also. [" Quite right."]
For, gentlemen, it is by no means certain that the total
credit balance of the gross balance of payments, even
when it is paid in gold, flows undiminished into the
Reichsbank and remains there; and I am just as little
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certain that if the Reichsbank does not on its part lay
hold from the start of that credit balance by means of
gold purchases and gold imports, this credit balance
would be squared in gold and not perhaps in other asset
items, to the creation of which precisely the excess credit
balance remaining might perhaps give occasion.
Freiherr VON GAMP-MASSAUNEN. Gentlemen, yesterday
I pointed out how private discount rates in Berlin, London, and Paris are subject to considerable fluctuations.
I spoke, in that connection, of one year. It turns out,
however, that it is a question of 1,512 days. Now, in
the compilation which I have made, and which will
appear in the stenographic report, these 1,512 days are
not to be found everywhere, and the reason of this is, in
part, as I have been informed, that the number of exchange
days is not the same in all the different exchanges. Particularly in England there were evidently a considerably
smaller number of exchange days than in Berlin.
I would, further, request the chairman to let us have
an itemized statement regarding the foreign papers that
were placed on the market in the past few years, from
1900 to 1907, in order that we may investigate whether
the view is correct that the loans in question were in
general such as had already been introduced, so that
there was an absolute necessity for the flotation. I do
not, of course, wish to enter into the matter at all; but I
regard the clearing up of this point as desirable in the
general interest.
I would request in addition—I think that by consulting the Bourse Commissioners it will be possible—
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that the amount of foreign papers that actually reached
the Bourse be ascertained as accurately as may be. In
the case of stocks and industrial securities, etc., it will
indeed be possible to say that they were taken up in
Germany to their full amount, if these papers were not
simultaneously introduced at other exchanges. In the
case of other securities it might be necessary and proper
in making the estimates to consult the respective experts of the Frankfurter Zeitung and the Deutscher
Okonomist.
I would, besides, call attention to the fact that in
these estimates, notably last year, very material discrepancies are found. While the Frankfurter Zeitung
arrives at an estimate of 1,843 millions, the Deutscher
Okonomist makes it 2,135; nearly 300,000,000 more.
Therefore I would request that here, too, an attempt
be made to clear up the discrepancy.
Mr. SCHINCKEI,. Perhaps I may be permitted to make
a personal remark. As I understand them, I can but
assent to the observations of our esteemed president in
every respect. I, too, regard it as extremely desirable
that the Reichsbank should secure as much gold as it
can by any reasonable means draw to itself.
Doctor RiESSER. With His Excellency's permission I
would supplement my necessarily brief remarks of yesterday, spoken from a literary standpoint, upon the
question of foreign loans—for a road to agreement should
be sought, and may, I think, as to this point very possibly be found—by a few more detailed observations.
We can not settle the exceedingly great balance of lia-
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bilities which remain to us in our exchange of goods
with foreign countries by consignments of specie (instead
of by interest and dividends on foreign securities or by
disposal of the latter). The mere attempt would cost
us dear and would lead to serious disturbances of the
money market—under certain circumstances to crises—
and might very greatly imperil the status of our currency and credit. We require, therefore, suitable foreign securities, and these such as are payable in gold, if
only on this account; but we need them also with a
view to financial mobility and as a necessary means of
squaring accounts in case of the withdrawal of considerable foreign credits. We require foreign securities,
furthermore, to enable us to draw gold from abroad to
satisfy such exceptionally pressing demands for credit as
arise, especially in the first days succeeding the outbreak
of a war or a crisis, as well as to cover the intense demand for specie, which is very apt to make itself felt at
such times owing to the temporary weakening of confidence in substitutes for gold. Finally, we require them
in order that, being in possession of such international
values redeemable at various bourses, we may be covered and insured against the losses in domestic values
that are to be expected in warlike times, and against the
ensuing weakness or overstocking of the domestic
bourses. Iyastly, we must not forget what important
services and political results have been made possible by
permitting or refusing to permit the listing of foreign
loans, and this by no means by us alone. We know to
what an extent the recommendation or the prohibition
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of flotations or of the advancing of money on foreign
papers—recommendations and prohibitions which need
not, indeed, be expressly stated—may be utilized for
political purposes by the Government, notably at times
when the State concerned may be injured by the direct
or indirect refusal of the flotation of its loans. I have
before remarked that in this sense " t h e political outpost
engagements are fought upon the economic field;" that
is, the character and direction of these outpost engagements, their time of occurrence, and their objects are
naturally to be determined exclusively by our public
policy.
At all events, the question that has been raised, whether
the flotation of foreign papers—and that to an extent,
too, which shall more than cover the sum required for an
excess of imports—is economically correct, can be answered
affirmatively only as a matter of principle; and, for the
reasons indicated, it can be proved to be correct only as
a matter of principle. In every individual case—I
emphatically grant this to Baron von Gamp—the first
thing to be demanded, on the strength of our experiences
of years, and especially in the eighties, will be that upon
the selection of these papers the requisite care shall be
expended
Freiherr VON GAMP. Quite right.
Doctor RiESSER. And that a careful discrimination be
exercised in regard to these foreign securities.
Freiherr VON GAMP. Quite right.
Doctor RiESSER. Furthermore, on the strength of our
experiences we ought, in my judgment, in the end to
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take only such countries into consideration as possess a
rich and extensive hinterland, or some other strong reserves
in the shape of good colonies or large provinces which
may be utilized; countries, therefore, which are in a position easily to bear and readily to overcome even bad
times. These are the results of the experiences we have
gone through, but which we had to go through first in
just the same way as foreign countries, notably England
and France, had to do on a much more extensive scale.
Besides, the time of the flotation—and this is likewise an
idea in which Freiherr von Gamp will concur, but one that
I expressed as far back as three years ago, in the year
1905—as well as the amount of the flotation and the
rate of interest must be determined by taking all the
elements concerned into consideration; for instance, the
financial condition, at the moment, of the country and
of the home market. Finally, I admit, in so far as the
fulfillment of obligations already entered into is not in
question—how the matter stood in this respect you will
never be able to ascertain from the statistics or from the
examination of the State Commissioners—that in periods
of great expansion of business moderation must be observed
in the interest of our balance of payments, as well as to
support the measures of the Reichsbank in regard to the
flotation of foreign securities and the giving of long-time
credits abroad. Nor do I by any means wish to deny
that many mistakes were made in this respect, because I
hold, in general, that it is exceedingly foolish to disown
past blunders; and that no mistakes will be made in
the future, that, I think, can not be believed or assured.
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I am, on the contrary, convinced that even if other bank
directors, who may be of an entirely different economic bent,
had been at the head of the German banks, mistakes
would likewise have been made; but we must strive to
learn from our experiences. With these limitations, however—which I fully admit and which I have myself made
heretofore—I agree with Herr Schmoller in the conviction
that Germany, if it wishes to maintain and strengthen
its consequence in the world market, must increase its
outside capital and can not diminish it.
I am deeply thankful that I have been permitted by
your great consideration and that of the chairman to
supplement my remarks in this manner.
Freiherr VON GAMP - MASSAUNEN. I agree essentially
with the remarks of the foregoing speaker; they correspond with what I urged years ago, particularly in Parliament. The examination will inform us whether the papers
concerned are really such as would be likely to be serviceable in relieving our domestic money market in difficult
times—in times of crisis and of war. But I do not believe
that the Siamese loan can be reckoned among these.
A VOICE: Precisely; that has a French market.
Freiherr VON GAMP-MASSAUNEN. Certainly; I am aware
of it; but I do not think that in case of war France will
be inclined to take that loan from us.
I feel convinced, therefore, that in this domain we shall
come to an understanding with Herr Geheimrat Riesser
who, indeed, in the main supported the warnings that I
gave. Only we are perhaps not quite agreed as to whether
importation in the past has given rise to such serious
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troubles as I think. But we both doubtless agree that it
is the object of this commission to do its best that we
shall in future have no further bad experiences.
Royal Saxon Geheimer Regierungsrat STEGUCH. Honored sirs: Freiherr von Gamp desires additional information beyond the statistics kindly submitted to us yesterday by the president of the Reichsbank in regard to the
introduction of foreign issues in the domestic bourses; as
to what part of these issues actually came to the domestic
bourses and how much remained in the country. Herr
von Gamp finds that there is a difference in the two sets
of statistics taken from the Frankfurter Zeitung and the
Deutscher Okonomist, which he would like to have cleared
up, and he believes he can obtain the desired knowledge
through the state commissioners at the German bourses.
As I am a commissioner at a German bourse, I am in
a position to give information to this extent—that as much
as it is possible to learn at the bourses has been ascertained annually for a number of years past through the
medium of the state commissioners at the bourses; this is
communicated to the imperial statistical bureau and
appears annually in its publications. What is thus recorded is of course only those amounts for which the right
of listing and of being dealt in is granted at the offices of
the several bourses. These figures may be found in the
publications of the statistical bureau of the Empire. But
beyond this, to determine how much of these sums actually came to the different banks and was disposed of, that
question the bourse commissioners will not be able to
answer. Neither do I believe that such further enlighten-
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ment can be obtained through the medium of the heads of
the bourses. For it is, as a matter of course, a secret
with the different flotation firms how much of the securities that they proposed to introduce proved actually to be
salable in this country. For that matter, even if the banks
that introduce such foreign securities wished to divulge
their secrets they would for the most part not be able at
all to determine how much of the securities sold actually
remained in the country. Gentlemen, these threads are
not so simple for the statistical bureau either, and not
even for the Reichsbank, that they may be unraveled
offhand. At any rate we can not hope for further enlightenment in this direction from the Bourse commissioners.
The CHAIRMAN. I for my part understood Freiherr von
Gamp to say that he wished to be enlightened first as to
the gold loans actually floated in this country—that is, the
separate loans that were regularly offered; secondly, he
desires a statement as to the amount of the foreign securities admitted into Germany, though not regularly offered,
which actually remained in the country. The last can
naturally not be expressed by definite statistical figures;
it rests only upon estimates. The first figures we shall, I
hope, be able to procure; for the second we are unable to
furnish definite material. In the publications of the Frankfurter Zeitung and of the Deutscher Okonomist, however,
data for estimating the separate loans are to be found,
which we, too, shall presumably be able to obtain; but
beyond that I can not, I believe, furnish any material.
Freiherr VON GAMP-MASSAUNEN. I thank the chairman
for his remarks. They meet the wishes to which I have
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given expression here. I have myself spoken with the
bourse commissioner of this place about the foreign
flotations, and he said to me: " I t is assumed in banking
circles that about so and so many millions have remained in
Germany.'' And I do not at all see why the banks
should not wish to tell this; and if they do not wish to
tell it, well, inferences will be drawn from their action.
But if the Frankfurter Zeitung and the Deutscher
Okonomist undertake such estimates, I can not regard
the bourse commissioners, as such, unsuited to undertake such estimates likewise. They are in the very
center of business, and they should be in the center of
business. I believe, therefore, that the preceding speaker
has somewhat underrated the capacity of the bourse
commissioners in this respect.
Doctor RiESSER. I would only remark that the Frankfurter Zeitung and the Deutscher Okonomist never made
comprehensive statistical estimates of the amount that
really remained in Germany.
Freiherr VON GAMP. Oh, yes.
Doctor RiESSER. There can be question only of isolated
and surely by no means of exhaustive attempts; for neither
the Frankfurter Zeitung nor the Deutscher Okonomist nor
the banks themselves, even if they wished to do it, would
find it possible.
Freiherr VON GAMP-MASSAUNEN. Besides the Reichsbank, the Prussian Ministry of Commerce would also have
to be taken into account.
The CHAIRMAN. Herr Assessor Fastenau has the floor.
He wishes to make a correction in the extensive and
admirable report which he submitted to us.
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Doctor FASTENAU. I should like to call attention to
the fact that in the printed compilation of opinions, on
page 118, alongside of the note "page 247," a misprint
has slipped in. We find there:
" It is by no means true that all professionals are agreed
that the acceptance of interest-bearing deposits is a
proper business for the Reichsbank."
As appears from the meaning of the suosequent remarks, this should read "not a proper business.''
Freiherr VON WANGENHEIM. Gentlemen, I should like
to take advantage of the opportunity alBforded by Assessor
Fastenau's correction of probably the only error that he
made in his compilation, to express to him, with the approval of all of you, I am sure, our best thanks ["quite
right"] for the pains he has taken in editing the opinions. I believe that it was only through this work
that we were all enabled to master the vast amount of
material laid before us; and every one who has once
engaged in such work will know what it means to make
such a compilation. [Applause.]
The CHAIRMAN. Gentlemen, we proceed, then, with
our yesterday's list of speakers, and I give Herr Geheimrat
Wagner the floor.
Doctor WAGNER. Gentlemen, what I have to say will
bear directly upon the remarks that were made yesterday
and that have since been repeatedly reverted to in our
debate. We must undoubtedly agree with yesterday's
speakers in the opinion that the investment of a certain
amount of Germany's capital in foreign countries is not
only expedient but to a certain extent necessary, for our
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entire economic situation. Some considerations remain,
nevertheless, and these considerations have, in my judgment, been too little touched upon, hitherto, in the
debates. In the first place, the consideration that, as
the history of the flotations shows, even in the case of
such as were issued by the leading banks, the losses sustained on many of these papers were enormous. It is true
that the flotation firms, when heavy declines occurred in
consequence of the debtor's suspension of payments,
postponements, and other such causes, would say later
on for the comfort of their respective shareholders:
"We hold none of that paper.'' But all the more did
such papers remain in the hands of those who had bought
the papers and to whom they had been recommended; I
could exemplify this by the Portuguese, the earlier Argentine loans, and many more. In this question we must
consider that even if subsequently a rise in the market
value of these papers may have occurred which balanced
the losses, those, nevertheless, who purchased them at a
high rate reaped no benefit from this, because—and the
smaller and moderate capitalists can not act otherwise—
they did not retain them permanently but sold them
when the price was low. This is certainly a very important point and must form an essential consideration in the
whole question.
But beyond this—and* here also I agree with Freiherr
von Gamp—the main thing after all is in fact the particular time of a flotation or introduction of foreign papers;
if the money market is already depressed, such flotations
in favor of foreign countries may render our situation
still worse. All in all, we must not deceive ourselves in
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this: Had we not admitted those loans in such great
quantities we should have a lower rate of interest throughout Germany, and that would be advantageous to our
domestic loans, the market prices of which, in spite of all
the little encouragements of recent years, have remained
very low or sunk even lower. This is a point which
must likewise be taken into account. From the tables
in the Frankfurter Zeitung and the Deutscher Okonomist
which were communicated to us, I, too, at least, gather
that it is doubtful whether the times of such flotations in
favor of foreign countries were judiciously chosen in
recent years. And I would add in this connection:
There can, in my judgment, unquestionably be no difference of opinion upon this, that even the most soundly
managed great central bank—and doubtless our German
one must be counted as such; it is perhaps the best of
all—is not in a position to determine permanently the
rate of interest and also the discount rate, and to permanently exercise—I expressly say permanently—an
authoritative and decisive influence upon the inflow and
outflow of gold. That depends upon other elements;
upon the balance of trade, upon the balance of payments,
doubtless also upon a number of the considerations repeatedly brought up yesterday, and, finally, upon the
creation and exportation of actual material capital. But
even here at particular times such a bank may nevertheless
exert a degree of influence, and here, in my opinion,
comes in the point that it is precisely the amount of the
stock of gold of such banks that constitutes one of the
decisive factors. One of our members, it is true, observed
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in yesterday's debate that the Reichsbank does not, in
fact, regulate its discount rate according to its cash and
its stock of gold. That may be the case at particular
times, but on the whole and in general it can not help
taking them into account. Now, we can not really deny—
although the statistical data do not, unfortunately, furnish quite positive proof for every period—that our
Reichsbank was in the class of those great banks that
were worst placed as regards their stock of gold.
I have just referred to the fact that the statistical
material is not sufficient for a strict proof. I would on
this occasion bring out a point once more that has already
been discussed here: I really do not see why we still
always keep something secret here and do not, like
other great banks—the banks of Austria and France, for
example—give in the weekly statements the amounts of
cash in gold, silver, and fractional currency separately.
That this was not done in the beginning of the currency
reform, thirty or twenty years ago, may have had its
good reasons; as regards the present, I believe, these
reasons have disappeared. We shall not thereby reassure foreign countries in any way; they will, perhaps,
often rather judge the situation to be worse than it is.
It must, indeed, be clear to us that for the covering of
the liabilities of the Reichsbank, since we stand and
insist upon the gold standard, gold only is to be considered; fictitious values like our bad silver money—now
the talers are also called in, and the new silver money
is worse yet by 10 per cent—which for the most part
represents only credit money, may be used, indeed, for
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calculations of the note-contingent, but as cash covering
for the actual liabilities to be really taken into account
these sums must be excluded. We must know what
the exact amount of the stock of gold is. I have frequently heard that hesitation is still felt as to imparting
this information regularly. But it is given anyway in
the yearly balance sheet. For the rest, what we know
shows us that if we fix our attention not upon a single
year but upon a longer period, we can not deny that the
banks in Germany have, on the whole, received comparatively little gold; the Reichsbank has a disproportionately small share in the new-found store of the precious metal. On the strength of a series of investigations,
which I can not now communicate here in detail but to
which I may refer because they really form the basis of
my computations—they are contained in a work of some
size, upon money and monetary affairs, which I am
writing and which will, I hope, make its appearance in
the course of this winter—I have reached the following
definite conclusions: Taking into consideration the period
since the great increase in the new production of gold
began—and that was in the nineties—that is, the period
from 1890-91 to 1905-6, and so far as possible including
1907,1 get this result: In round numbers—and they alone
can be considered; they are, in my opinion, more correct,
too, than exact itemized figures—about 5,500,000 kilograms of gold were produced in the whole world; by
1907 the amount had risen to about 6,500,000. The
first number represents a value of about 15,500,000,000
marks, the second about 18,200,000,000. Now, how
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much of this great quantity of gold did we in Germany
obtain? We do not, to be sure, know exactly what
amount is found in the channels of trade; probably it is
considerably smaller than we have hitherto assumed,
even if not to the extent that some pessimists suppose.
What we do know, however, is the condition of the
banks, and that is the very thing to be considered. Now,
it appears that in the Reichsbank's stock of gold almost
no increase took place from the beginning of the nineties
up to the very latest increase in the course of the year
1908. We had, in round numbers, 500,000,000 marks in
gold at the end of 1890, and we had no more at the close
of last year; in the interval greater sums were, of course,
on hand at times but a considerable and lasting increase
of gold holdings did not take place. Next worst—and
yet considerably better—is the position of the Bank of
England; it rose lately—here, likewise, I do not include
the latest increase in the year 1908; I generally close
with 1907—from not quite 500,000,000 marks in 1890 tp
660,000,000. As compared with this take other great
banks and similar institutions—why, the Bank of France
in the same period raised its stock of gold in hand from
about 900,000,000 marks in German money to 2,200,000,000
marks, in round numbers—although it, too, had somewhat less at the close of 1907—that is, some time previous—
thus more than doubling its stock. [Hear! hear!] In
the case of the American bank system, in so far as their
ready money is visible, the amount rose from about
2,000,000,000 marks to about 4,500,000,000, probably
even somewhat higher. The Austro-Hungarian Bank
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had not as much as 100,000,000 marks in gold in the
year 1890; at the close of last year it had over 900,000,000
in gold. The Russian Imperial Rente Department and
Imperial Bank still greatly increased their stock of gold
from 1890 to 1895, namely, from 900,000,000 to
2,300,000,000 marks; after that it was diminished,
through the absorption of gold in general business, by
600,000,000. But in spite of the Japanese war and all
that it entailed, their gold supply has on the whole
again risen greatly—namely, to between 2,300,000,000
and 2,500,000,000 marks—that is, it has again become as
great, and even greater, than ever before.
If we sum up all this, we find that these great banks and
bank systems received, between 1890 and 1902, about
2,500,000 kilograms of gold, say 7,000,000,000 marks, and
wind up now with over 12,000,000,000 marks in gold—that
is, with about 4,300,000 kilograms. In this improvement
the German Reichsbank has no share whatever. Well, this
is certainly something to think about; if in a period of the
most gigantic augmentation of gold through new production known to history, a period in which the increase
is still continuing to progress, the Reichsbank has not
permanently augmented its gold supply, or could not
augment it, we can see what a difficult position we are
in. We must reckon with these facts.
And there is still another circumstance; and this brings
me to the point to which Director Stroll referred yesterday; I agree with him in one respect, and differ, of course,
in another. Of the newly acquired gold, a certain amount
is taken away, for a longer or shorter time—let us say, pro-
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visionally, for an indefinite time-—for industrial purposes.
This is used up for plate and ornamental objects, etc.—
put into shapes, therefore, which for monetary purposes
do not enter into direct consideration. This, too, at all
events—and here I agree with Director Stroll—is a very
interesting result of our inquiry, that, according to all that
we have heard—at least in Germany, to begin with—the
actual consumption of gold in industry has hitherto been
materially underestimated.
We are for the present surely not sufficiently informed.
Whether the data in regard to the German gold industry
which the gentlemen have given are quite correct, remains
to be seen. Comprehensive data are lacking for Germany;
very correct ones can, perhaps, not be obtained at all; and
how the matter stands in the rest of the world we know
still less. One of the experts mentioned in the inquiry
that in other countries the increase of gold consumption
for industrial purposes had not been as great. Now, we
do not know this for a certainty. At any rate, if we assume that the consumption in the German gold industry is
so and so much greater than was before supposed, that it
is perhaps twice or three times as great, and that we have
of late annually used 100,000,000 marks (equal to between
30,000 and 40,000 kilograms) more gold for industrial
objects; if, furthermore, great sums in the other portions
of the world are to be likewise reckoned with, this important result follows: Even in the present period of gold
plethora the sums that remain for monetary purposes,
after industrial utilization, are not as great as has long
been supposed. They are still gigantic when compared
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to a time not long past, but yet much smaller than has
hitherto been estimated. In the eighties it once came to
the point—owing perhaps to the too low estimate made
even then of the amount of industrial consumption—that
at least half of the gold supply was secured by industry
and only a scant half remained for monetary purposes.
The estimates of the present period show that of the late
great production about 20 per cent—in some years perhaps 30 per cent—was used in recent years for industrial
purposes. Whether this will not now have to be increased
is a question which, in my opinion, decidedly requires to
be considered. If we find that Germany's share alone
amounted to between 30,000 and 40,000 kilograms annually, we must reckon for the whole world perhaps
150,000 kilograms, possibly even more; as much, may be,
as 200,000 kilograms; there would then remain at present, quite aside from the great gold production still ephemerally maintained, only about 300,000 kilograms for
monetary purposes. How things will go hereafter depends,
of course, upon the future of gold production; but it depends also, on the other hand, upon the further increase of
the industrial use of gold.
Now this brings us to the further question which has
been raised by Director Stroll: Can we not interpose obstacles to hinder the industrial users of gold at least from
melting our gold coins? To this I must answer decidedly
" No." It is of the essence of our monetary system, based
as it is upon the precious metals, and now upon gold alone,
that we take a material of high specific value as a basis—
formerly it was both metals, now it is gold alone, which,
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according to modern views is specially adapted for it—and
that this gold serves at the same time for purposes of
ornamentation and display. This ancient connection is
important, too, and is significant for the determination of
the value, for the steadiness of the value, of silver. If the
use of silver in industry had risen as much as that of gold,
we should assuredly not have had the heavy decline in
the relative price of silver that recent times have exhibited, namely, from i to 15 X or 16 to 1 to 35 or 40. This
free use of coined gold in industry must remain as it is.
He who does not want it places himself, in my judgment,
on the basis of a chimera, of money without intrinsic value,
that wholly untenable assumption to which the doctrine
of my Strassburg colleague, Knapp, is finally reducible.
That we can not do. We must adhere to money of intrinsic value—to gold, then, according to our assumption;
and the industrial use of it, even of minted gold, we can
not prevent.
But the measure that has been proposed by Director
Stroll would also, in my judgment, be fundamentally inapplicable; firstly, on account of our present views of economics and of economic jurisprudence; and, secondly, because it would do no good whatever, perhaps even do harm.
It is proposed that limitations be imposed upon the employment of coined gold for industrial uses. Well, as my colleague Lexis pointed out quite justly yesterday, this is in
the direction of the old policy, practiced in the middle ages
and also in later times, of preventing the outflow and melting of gold; and it would lead perhaps to still other measures—to the old plan, it may be, that the state shall have a
84713—10
26
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monopoly of the purchase of gold. This in our present
circumstances—we certainly do not wish to deceive ourselves on this point—can no longer in any way form a subject for consideration. It would mean a totally different
organization, not only of national production but of the
whole of our international trade; it can not be thought of
now. It is, I should say, somewhat similar to the idea of
the realization of perpetual peace. [" Quite right."]
But furthermore: Could we expect to be successful
with such measures, and how is the thing to be carried out?
The only way would be—and this was the policy partially
practiced in the middle ages—to exact a heavy seigniorage
on gold and to lay this charge on each coin, i. e., in other
words, we take away from the coin part of its standard
quantity of gold and thus make it a sort of token coin.
But then our monetary standard of full-weight coinage
would be abandoned, and that really will not do. And
besides this, the thing would not be a success. If we were
to repeat to-day the prohibition to melt gold coins, say, or
even if we should make it difficult to use newly coined and
unquestionably full-weight gold coins for industrial purposes, what, in the best case, would be the consequence
from the standpoint of those who support this idea? That
industry would then compete in the gold market and thereby perhaps raise the price of gold. That was what really
often happened in the policy of the middle ages and later
periods; the gold industry was, for example, forbidden—
that is, goldsmiths and silversmiths were forbidden—to
give a higher price for gold bars than did the management of the mint. The result with us, however, would
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be that actually a higher price than that given by the mint
would be offered by the manufactories working in gold,
and that, consequently, the buying of gold would be more
difficult for the German Empire and for the Reichsbank
which practically represents it in this field.
In short, I believe that the existing state of things can
not be changed. We must simply reckon with conditions
as they are.
Now, what, in my judgment, really follows from all that
I have permitted myself to say is this: We certainly
must—I beg you not to misunderstand me—for a practically unlimited time, for generations to come, continue
with the monetary standard and the coinage policy that
we have hitherto had; we must strive to maintain the
gold standard. But the phenomena of recent times, the
insignificant participation of Germany, and of its Bank as
well, in the acquisition of the new gold possessions of the
world, the great consumption of gold by industry, particularly German industry, show us that conditions,
though more favorable in degree, are not so entirely different in principle from those that prevailed when our
great Imperial Chancellor uttered those well-known
words, which have become classical, that it seemed to
him that the gold blanket was not broad enough to cover
everybody. It is now broader, but not as broad as optimists often assume. We are, therefore, really facing the
same question that came up twenty-five years ago, particularly if a diminution should chance to occur again in
the production of gold—and I think that this, too, will
have to be reckoned with, at least in the course of a few
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decades—the question whether the world can persist in
allowing gold to be the one sole standard metal; whether
even the present immense gold production yields sufficient
gold for that. This is, at any rate, actually a consequence
of our having deprived silver of its quality as standard
money. We undoubtedly allowed ourselves here in
Germany to be too greatly influenced by the belief that the
relative value of gold and silver would remain somewhat
the same as it was in the first half of the nineteenth century; but it has become entirely different, and this has
had a great influence upon the condition of our currency
affairs. And this condition acts, in turn, upon the Reichsbank. We have now that vast quantity of bad silver
money—5-mark pieces which are worth only about 2
marks; the newly coined 3-mark pieces, which, in spite of
their pretty appearance, are not worth 1 y2 marks; i-mark
pieces which are worth only 40 pfennigs. Practical men
who have discussed this question always say that this
does not matter at all. Now, we continue to have the
provision that silver coins of the realm are exchangeable
for gold on demand, and we must retain it. Have we
gold for them? Not a penny, separately. Everything
is always based upon the presumption that all will remain
calm and peaceful. Gentlemen, I believe there is here a
very weak point in our coinage regulations that concerns
our bank management; it can not even now, and most
assuredly not in critical times, count upon the amount of
gold required to redeem the silver money and the treasury
notes, and yet it should be able to count upon it, since
crises may easily occur. I do not know whether any of the
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other gentlemen have experienced anything of the sort;
most of them have the good fortune to be considerably
younger than I am. But when I was a young man, in
Vienna in 1859, I went through an experience that I will
tell you about. After long years of waiting, more silver
money was at length again seen in the channels of business,
and the Austrians, in their peculiar way, their light, somewhat airy manner, thought it was " h a r d " to carry about
this silver; and when the panic occurred upon the outbreak of the Italian war, the depreciation of paper money
was so great that while in January, 1859, o r ^ e e n d of
December, 1858, paper and silver were on a par, paper
fell to 67 at the time of Solferino and silver rose to 150.
[Hear! Hear!]
We are in a position where we, too, must reckon upon
the possibility of developments of essentially this kind,
with our difficult political relations, which are consequent
upon the mere fact of our geographical situation, and are
naturally brought about by the entire political development
of our country. In short, these investigations concerning
gold lead to this conclusion: We must apply more caution
and care in regard to the increase of our stock of gold
if we believe absolutely that we must adhere to gold alone
as the standard metal, which I do not wibh further to
dispute.
But now the question arises: How shall we acquire a
greater share of the world's gold, more particularly of
the gold newly produced? Here, too, I can only say:
Ultimately, only through a better balance of trade and a
better total balance of payments. Yesterday one of the
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gentlemen pointed out in this connection that we ought,
precisely on that account, to put no difficulties in the way
of bourse transactions. I am not prepared to accept this
at once; but I would, on the other hand, say something
in favor of the commercial policy that has so often been
attacked by that side. How would it be if the SocialDemocratic and Liberal voices had carried the day and
agricultural duties had not been introduced and raised?
Now, aside from the point that our financial condition
would in consequence be much more disconsolate still
than it now is, without the revenue from those duties
which we positively can not spare, the result would have
been that we should have had a much greater importation
still of grain, meat, oils and fats, and such like, and, in
so far, a still more unfavorable balance in that respect,
since in that case the German grain culture would probably have greatly fallen off. Whether we should have
been able to equalize this by an even more forced export
of manufactures and whether our position as regards the
provision of gold would not have become even far worse,
I shall not particularly discuss. My answer would be in
the affirmative. For we should then, like England, have
had to procure far greater quantities of grain from
abroad instead of drawing, as we do now, upon foreign
countries for less than a third of the wheat and less than
a tenth of the rye that we need; and if we could not
increase our exports of manufactures to a still greater
extent, we should have had to use other means of payment,
probably gold also. I believe, therefore, that the situation
would in that case have been far more precarious still.
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For the rest, we can not enter here into all these great
questions of commercial policy; we shall accept this policy
as it is at present.
Now, we rightly concern ourselves with the question
of further measures, to a certain extent of small measures.
Here I can only say: I agree essentially with what the
practical business men have stated. It is, naturally, of
no significance to a practical man for a theorist to say
this. [Vigorous dissent.] On the other hand, it is at
any rate interesting if we theorists agree with the practical men. Here I would first of all express the belief in
regard to the acquisition of gold that the discount policy
of the Bank is of essential importance in relation to
it. In yesterday's debates the critical condition in the
United States in the fall of 1907 was specially pointed out.
But we have for several years back had considerably
higher interest rates in the Reichsbank and a higher
private discount rate than have prevailed in Western
Europe. This certainly shows that this condition can
not be traced to the period of 1907 and to the American
crisis. Now it will be made a subject of complaint that
the raising of the rate of discount by the Reichsbank has
such a far-reaching effect upon our various industrial
classes. I am not going to argue that there is no cause
for complaint, but I can not see that there is any other
remedy for this industrial situation than an adequate
raising of the bank rate. In the matter of the monetary
standard there is no use in looking around for remedies.
It may be affirmed with reason that the first duty of the
Bank is not that of granting credits, but of making sure that
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the credits it has taken are secure, or, in other words, of
making the public have absolute faith that its notes will
be redeemed at any moment, and redeemed in gold, and
that all depositors can get gold for their deposits. To
this end the Bank must adjust its discount policy. If it
were to act in a light-minded manner, it would have to
pay the penalty in one way or another.
The question arises as to whether we have not some
other means at our command in the matter of the Bank's
policy than this operation which we call applying the discount screws. I do not believe we have. In France,
when the bills are being sorted with reference to the purposes of those who hand them in, a distinction is occasionally made with reference to whether or not the gold is
wanted for export. Perhaps this will be done here also,
every now and then. But whether this sort of thing is
actually practicable, whether there are sufficient facts on
which to base a conviction, whether it is wise or feasible
in the existing state of our economic system to restrain
the exportation of gold, these are questions in my opinion
which, to say the least, require an answer.
There remains the oft-mentioned subject of a premium
on gold. Here, too, I admit that I am altogether in
accord with those who handle these matters in practice.
I thought otherwise at one time, but that was a time when
I was not yet unreservedly in favor of a gold standard,
pure and simple, for Germany. If I stand by it now, I
can not very well advocate a gold premium policy. Even
a nominal premium on gold signifies conversely that bank
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notes are below par. I do not see how there can be any
doubt about it.
[Movement of approval.]
In France the state of things is different. There, in
addition to the gold coins, there is a silver coin which is
placed on a level with them as a tender, the 5-franc piece,
still in circulation in large quantities. We have nothing
of the sort and for good reasons. Therefore I am unalterably opposed to such a gold premium policy in the
case of a straight-out gold standard, and I have nothing
to add to what our practical men have said, and in my
opinion with perfect soundness, in regard to this point.
From this I come naturally to the question of the buying up of foreign bills and the permanent investment in
such bills on the part of the Reichsbank. In this matter
the example of the Oesterreichische Bank has been adduced as a sound one and as an example that might be
copied. I have been glad to see that we North Germans
can once in a while make up our minds to take a lesson
from Austria. As a rule, we act in such a manner as
though Austria were bound to occupy a second place in
such matters.
[Movement of disapproval.]
Never mind, gentlemen. There is many a thing that
they have managed better in Austria than we have here,
and particularly in what pertains to industrial and financial administration. This is due, perhaps, to the fact that
in Austria everyone connected with the law is obliged to
make a serious study of political economy. He has to
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stand an examination. There is no such thing here, and
now that I have touched upon this point I shall take the
liberty of digressing a little further. What I am going to
relate took place some time ago here in Berlin. I have
told the anecdote already more than once, but I am not
afraid to tell it again. A student was asked at his examination for a government position: "What is the meaning of direct and indirect taxes ?" He was absolutely
unable to answer the question. [Laughter.] Well, older
and more intelligent people are occasionally in the same
fix. [Laughter.] My colleague, who was relating this
occurrence to me, then asked me in an ironically jocular
manner: " B u t can not a student learn this difference
from your lectures?" "If he does not cut his lectures,
he can easily learn it," was my reply. But here comes the
funniest part. I thereupon asked my colleague: " B u t I
hope you did not allow such an ignoramus to pass?" He
replied: " Do you suppose I could be so cruel as to make
him flunk?" [Laughter.] What I want to say, gentlemen, is that our officials need a better education; they
ought to know more about matters pertaining to political
economy, just as is the case in Austria.
(A voice: "And in South Germany, too.")
Doctor WAGNER. Yes, in South Germany, too—in
Bavaria and Saxony, let us say. It is a fact that in
this respect the rest of Germany has got the start of
Prussia.
But let us return to our subject. Do we want the
Reichsbank to invest in foreign bills along the lines that
we see pursued in Austria? We do, but within proper
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bounds. I am convinced that my esteemed colleague,
Doctor Lexis, was right in insisting yesterday—I believe
he was seconded by one of the members—that if the foreign bills are to be accounted part of the legal gold reserve
against circulation the amount must be a very limited one.
["Quite true!"]
The amount suggested was 50,000,000 marks, 60,000,000
crowns being the amount in Austria. This figure is, of
course, a rather arbitrary one, but it may be about right.
The thing can be done only on something like this scale
or perhaps even a somewhat more modest one. Otherwise, if we were to introduce regularly the system of foreign-bill reserves in place of gold reserves two large banks
could agree among themselves simply to exchange their
stocks of domestic bills and to have no gold reserve left at
all. The Germans could say: "We have Austrian bills;"
and the Austrians, "We have German bills." The end
would be that we should be at a stage which we can hardly
regard as very desirable. Consequently this laying in of
foreign bills ought to be pretty well restricted.
We now come to the question of advances without
interest for gold imports. These are practical questions,
gentlemen, and if a mere theorist ventures to express his
views about them he has to confess in advance that he
can do this only "errors excepted." I will say, however,
that the scheme strikes me as a good one—I agree in this
with President Havenstein—a better one than that of
absolutely obliging the Reichsbank to buy gold, as is the
case in England. The Bank of England is obliged to
buy all the gold that is offered to it at a fixed price
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(£3 17s. 9d. for the standard ounce), paying for it in
banknotes, which may immediately be exchanged for gold
coin. To tell a bank "you must" at a certain fixed
price—in the case of our bank, say 1,392 or 1,395 marks—
that I regard, gentlemen, as going too far. The bank, on
the contrary, ought be permitted to have a free hand in
this matter. There may be a time, perhaps, when in order
to meet the stress of a gold stringency it may even go
above the coin price of 1,395 marks; but this is its own
business, and it must be left to act according to its own
discretion. I t may be urged, perhaps, that this function
ought not to be intrusted primarily to the Reichsbank,
but to the imperial government, as such; say, to the bureau
of coinage. But the fact is that the Reichsbank has once
for all the function of regulating the currency and is more
directly concerned with the operations relating to the
gold supply than is the administration of the mint, and it
is therefore more expedient that it be charged with the
business in question. Of course, it must be ready to
thrust a certain pecuniary interest of its own into the background. From what I can gather, the Reichsbank has
itself held this view of the matter. The sums in question
are indeed not so large as to play any r61e by the side of
the regular profits of the Reichsbank.
The question is, Can we succeed through these secondary
means in increasing the supply of gold, particularly in
times of financial crisis? I believe that the answer will
be that we probably can, but not in a very substantial
measure. A much more effective means, it will be said,
is to improve the balance of trade and the international
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balance of payments. This is the fundamental task, and
herein likewise I agree fully as a theorist with our men of
practical affairs. This is about all that I have to say
regarding the matter of gold importation.
In regard to the outflow of gold, the so-called premium
policy has already come up for discussion in this body.
I am one of those who are convinced that the scheme
ought to be rejected. Otherwise, I believe, we should
have to abide by the logical consequences and make a
radical change in the matter of our monetary standard.
But when we have once for all made the gold standard our
own, when we have laid down a special principle of law—
and I wish to express this in terms of a legal formula—
that everybody has a right to dispose of a gold coin in
the way he chooses (this being a logical inference from
the premises), then we have no right to place any special
obstacles in his way if he should happen to make up his
mind to send his gold out of the country. We have to
put up with this even if it should on some occasions
injuriously affect the money market. This is also a logical
consequence, of a gold standard, pure and simple. And
in this matter also we have uniformly had the experience
that the world is round and that it rotates; the gold that
goes out can just as easily come back to us. But this
question is closely connected with another, one which I
am not prepared to discuss at length just at the present
moment. A word or two, however, can do no harm.
We do not really know—the question has been repeatedly discussed—how much gold there is actually in circulation in this country. The estimates are altogether
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unreliable, including the one, it may be added, which is
the basis of all other estimates—that published by the
United States Mint. The figures of the United States
Mint are considered especially trustworthy. Can you
tell me why? The Americans have no means of knowing
better than we ourselves. They give regularly the
figures that are communicated by their legations in the
various foreign countries. Well, where do their ambassadors get these figures ? They have got to get their data
first from others, and so they question the bankers, private bankers, and merchants. These, however, have very
little trustworthy information on the subject. In short,
the data regarding other countries, as well as those regarding Germany, are more or less conjectural. They may be
perfectly accurate, or they may, for aught we know,
depart as much as 10 per cent, or who can tell how many
times 10 per cent, from the reality? Do you consider
that it would be practicable to act on the suggestion of
Herr von Gamp and undertake a census? Of course, if
that were feasible, it is the very thing I myself should be
in favor of doing. But whether it is feasible, that is the
question. Can we really expect to get accurate and
reliable information regarding the amount of gold coin
each person has circulating in business? Of course, the
managers of the public funds and the large banks, and
perhaps also some intelligent business men and private
individuals, will give correct returns, but how are we to
go about it when it comes to the great mass of the people?
They will at once, just as in similar matters, such, for
example, as the interrogation with reference to tax assess-
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ments and the like, suspect that there is something behind
it. They will make no returns or else make false ones.
There is no way of forcing people, and it would be impossible to devise a system of penalties for the purpose.
Every statistician knows that in the matter of the statistics of population it can be shown—by reference, for example, to the church registers—that the ages of male persons
are often reported too high, while females on an average
are made to be younger than they are. Such a census of
gold coins may therefore be characterized as a thing desirable in the abstract, but as something that is not practicable. The policy we ought to pursue becomes thereby
all the more evident. Let us begin by reckoning upon a
smaller total. It is not necessary to assume that there
is as much as three and a half billions of gold in circulation. Let us take a smaller figure -as a basis and adjust
our whole monetary and banking arrangements accordingly. This may result in some hardship here and there,
but in such matters it is better to exercise a little foresight than to be too easy-going on the supposition that
our stock is so much larger. In any case it is well to recognize the fact that it is desirable to have a goodly share
of gold circulating in the channels of business in order
that we may have a large reserve for times of emergency.
And here we come to a question in regard to which I
shall say but a few concluding words. If, as is the case,
we drive our gold from circulation in times of peace by
means of small paper money and banknotes of low denomination, just as we drive out our treasury notes with our
inferior silver currency, there is no doubt in my judgment
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that we are diminishing these reserves altogether too much.
It is a great mistake to allow this to take place on such a
scale in peaceful times. We can not prevent gold from
sometimes flowing for a while from the bank into the general circulation. There is a prejudice among the public,
one which I believe is in a measure justified, against small
paper money and banknotes of low denomination (in which
I include only the 20-mark bills and not the 50-mark
bills) in part for aesthetic and hygienic reasons and on the
ground of convenience and other considerations. I have
been for years in countries having a paper currency, in
Austria and Russia, and more than once in Italy, and I
can say that I have never taken kindly to small paper
bills. It goes against one's grain to be all the time compelled to handle instead of the actual metallic money,
which is better adapted to the purpose, these dirty bits of
paper currency. They can not help getting dirty; you
can see it on our small 5-mark and 10-mark treasury bills.
We have to reckon, then, with this constant flow of gold
into the general circulation.
In a calculation which was put forth here yesterday,
with reference to the extensive use of gold in our manufactures, as well as to the increase of population, with the
resulting increased demand for money for the purposes of
circulation, and in particular the demand for gold, it was
shown that we need annually for these purposes from
150,000,000 to 200,000,000 marks—that is, between 60,000
and 70,000 kilograms of gold. If this should turn out to
be true and if we can not devise any means of providing
a substitute for such a sum of money for the needs of
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business, we are once more confronted with the critical
question as to whether Germany is actually in a position
to draw annually upon the world's output of gold to the
extent represented by these figures (so and so many thousand kilograms) and to retain this quantity permanently
in her possession. This is an aggravation of our situation
with which we have got to reckon. The secondary remedies at our command are incapable by themselves of producing any adequate result, and to the extent that they
have an effect they are apt to interfere with the stability
of our monetary standard. It is only by spreading the
conviction abroad that it is possible under all circumstances to obtain banknotes for gold in Germany that you
can cause our foreign bills to be considered as good, so far
as the standard of value is considered, as the English
bills. In this matter I likewise agree with our practical
men, and I am especially in accord with what Herr Fischel
has said on the subject.
This brings me to the suggestions put forward by
Herr Fischel. I have learned a great deal from him in
particular in the course of this inquiry, and much in
regard to the point we are discussing. I think we ought
to do our best to carry out the schemes which Herr
Fischel has proposed. As to whether we can succeed,
Herr Fischel himself is not quite certain; it is doubtful
in any case. But the attempt is by all means worth
making, and I venture to make the suggestion—we
have not yet reached the point of reckoning on the gold
that our African colonies have begun to yield—that we
try to see if we here in Germany can not get the Russian
84713—10
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gold, which is nearest to us, as we have all kinds of industrial and commercial relations with Russia, to come in
considerable quantities to the Berlin market. A beginning has indeed been made already. Is it not worth
while to make an effort to create a regular market for
the importation of the Russo-Siberian gold? If we
succeed, we shall have scored a decided gain. But in that
way we shall excite the jealousy of England, people will
say. Well, gentlemen, there is no help for it. We are
always exciting her jealousy; we are doing it most unmistakably, for we are pretty strong competitors, and
the English are not going to allow themselves to be
fooled with fine words, no matter whence they come.
['' Quite true. Bravo."]
We have to do what the German merchants have
been doing. Their position was not always what it is
now, and just see to what a position they have attained!
In regard to this, I want to say: "All honor to the German merchant, to the German business man."
And now permit me to add a concluding remark, a
personal remark. The charge has been brought against
us from various sides—because in some of the things that
the public has had to deal with, we theorists have assumed an antagonistic attitude—that we are the foes of
those who engage in commercial and industrial undertakings and of merchants in general. We are far from
it. But for all that we must be permitted to express
ourselves freely in regard to individual questions.
["Bravo."]
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The CHAIRMAN. Geheimrat Lexis has the floor for a
brief remark.
Doctor LEXIS. I shall take the liberty, with reference
to the question of the gold census, to suggest, or rather
recommend, a means which may possibly enable us to
arrive at an approximate idea of the amount of gold
coin that has accumulated since the beginning of the
new coinage. What we have to do is to examine at a
particular time the stock of gold in the Reichsbank and
the various public treasuries and ascertain the relative
amounts that are left of the coinages of the individual
years. We shall find that so and so many per cent of our
coins date, for instance, from 1886, and so and so many
per cent from 1887, our calculations being based on the
proportions found to exist in the Reichsbank and
the public treasuries. Now we know how much gold
was coined in each of these years, and so we can take
the respective ratios and compare them, and thus make
a rough estimate of the proportion of old coins in our
stock of gold. We shall have to ask, for example,
whether the ratio of the existing amount of gold coin of
the year 1879 or 1880 to the total coinage of that year
is a smaller per cent than the corresponding ratio in the
case of newer coins. This is what we have to find out,
and then on the strength of these ascertained facts we
shall be enabled at least to establish some sort of mathematical basis from which we can draw conclusions,
which, if they do not go beyond probabilities, will, at
any rate, be in some measure an answer to our inquiry.
It is not necessary for me to enter here into the details
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of such a count. All I wish to say is that there is a
way of arriving at some sort of an estimate that will be
of interest to us.
Doctor SCHMIDT. Gentlemen, in the course of these
debates much space has been devoted to theoretical discussions respecting the balance of trade and the balance
of payments. The balance of payments pursues a very
tortuous path and the speakers have laid stress upon the
fact that in the settlement of the international balance
shipments of gold play but a very subordinate part by
the side of the exchange of securities, the placing of
German issues abroad, the floating of foreign loans in
Germany, and the passing out of foreign obligations
from Germany. In regard to the floating of foreign
securities, it has been pointed out that the imperial
government is able, without the actual exercise of constituted authority, to exert sufficient influence upon those
engaged in the business to prevent the floating of undesirable securities. If we had legal regulations to the effect
that the admission of foreign securities to the Berlin
Bourse shall be made contingent upon the sanction of
the Imperial Government, the Government would be
provided with a lever that would enable it more effectively
to assert its political and economic position with respect
to the outside world. In France, as everyone knows,
the Government has the right to decide, through the
agency of the minister of finance, regarding the listing of
any particular obligations on the Paris Bourse, and there
is no need of telling you to what an extent, owing to the
importance of the Paris Bourse, the French Government
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is in a position to exercise pressure, in a political and,
above all, in an economic sense, upon countries seeking
to obtain admission for their loans. The French Government makes this admission dependent upon certain
concessions of a political or commercial character by
giving its sanction on the condition of greater favors
shown to French industry.
To a certain extent our Government already possesses
these powers, as was pointed out yesterday by Herr
Fischel and Herr Roland-L,ucke. Should the question
have to be considered of establishing these powers on a
constitutional basis, by the enactment of a regulation
providing that the listing on the German Bourse be made
contingent on the sanction of the imperial commissioner,
it would be well, of course, to consult the wishes of the
Government in the matter, as it would naturally be
reluctant, as we are told, to have such sanction bear on
its face the official sanction of the Imperial Government.
I believe, as was stated by the speakers yesterday, that
the existing state of things suffices to enable the Government to hold up undesirable loans or prevent their being
placed at an inopportune moment.
The balance of trade has been discussed over and over
again in detail, and we have been told that Germany
imports foreign commodities to the annual value of
8,500,000,000 marks, which is 1,500,000,000 in excess of
its exports. We shall certainly have to try to make our
balance of trade more favorable or, at least, less adverse,
by carefully attending to our export business- and perhaps also by narrowing our imports so as to accus-
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torn ourselves to use more of our own products and
less of those of foreign countries. We are not bound in
this connection to turn our thoughts just to French
champagne and think of our domestic product (laughter);
but what I have reference to is the apparel that we
wear, the Parisian garments and millinery, to which our
ladies take perhaps too readily. There is no doubt in
my mind that we shall find a whole array of foreign
articles for which we could substitute those of our own
manufacture.
In my opinion the importation of gold should not be
regarded as essentially different from that of any other
article. Just as we are obliged to import grain into
Germany, cotton and wool and tin, and the copper for
our copper works and electrical establishments, in order
to satisfy the demand for them, so we have to import
into Germany the gold for our gold industries and the
gold that constitutes the backbone of our currency, as
far as it is needed to meet the demand, and, with our
imports amounting to 8,500,000,000, we ought, I believe,
to have no special difficulty in procuring annually the
200,000,000 that are required to keep up our supply of
gold on a par with the growth of our population. When
we have to deal with such a sum as 8,500,000,000, a
couple of hundred millions represents a very small percentage indeed.
I do not mean to say, however, that we should simply
leave it to our commerce to procure each year this quantity of gold that Germany requires. This should be, in the
first place, the business of the Reichsbank, whose duty
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it is to regulate the circulation. And it is, above all,
desirable that the Reichsbank shall strive with all the
means at its command, from the most weighty to the
most humble measures, to keep its stock of gold up to as
high a level as possible. We have heard from Geheimrat
Wagner what a small fraction of the increase in the
world's gold in recent years has come to the share of
Germany. This appears to be due to the fact that the
Reichsbank in the past few years has relegated the matter
of gold imports to commerce in a greater degree than it
has itself been active and energetic in providing the
requisite means for promoting it.
Chief among the means that have been proposed is the
discount policy, which is to have the effect of attracting
gold and of preventing its outflow. Undoubtedly the
discount policy is a very effective means of facilitating
the importation of gold and of obstructing its outflow.
It is not absolutely true, however, as we heard it stated
here yesterday, that gold flows toward the place where the
rate of interest is highest, a condition which is to be
brought about by putting up the rate of discount. We
were ourselves told yesterday that the Reichsbank has
gold credit balances abroad to the sum of about 50,000,000
marks, on which it is getting perhaps 1 per cent interest,
while here the Bank is charging 5 per cent on loans secured
by imperial bonds, and even in the case of the large sums
on which it has to pay the excess-circulation tax it has to
turn over 5 per cent to the imperial treasury. You see,
therefore, that it is not a universal and irrefragable proposition that gold seeks the locality where it can earn the
highest interest; that there are other determining factors.
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The foreign-exchange policy has been warmly advocated
on all sides. We have been told that it is absolutely
necessary for a bank in Germany to keep a stock of gold
bills in order, when exchange is unfavorable, to prevent
gold from being exported as long as possible by satisfying
the demand through these bills. There are some objections to this, however, when the total investment in
foreign bills reaches inordinate dimensions; for the laying
in of a supply of foreign bills amounts to just this: That
in the case, for example, of bills on London, or, in other
words, English bills, the Reichsbank discounts at i ^ per
cent, while it discounts German bills of the same class at
4 per cent. This is like favoring the outside world,
granting credit to foreign countries at a lower rate than
to our own country, so that our business world is in a
measure placed at a disadvantage, especially if the
Reichsbank allows its discount policy to be influenced by
these investments.
It has been proposed to reckon these foreign bills in
the Reichsbank's gold reserve, but serious objections have
been raised to such a proceeding, objections in which I
fully concur. It is proper, however, that the bank should
take these investments into account in weighing the circumstances that guide it in settling upon a rate of discount
When the Reichsbank is paying a tax on excess circulation and consequently can not by any means lower its
rate of discount, it will have to regard the total sum
invested at a low rate of interest in foreign bills as so
much to be deducted from the amount of bank notes it
can put in circulation above the regular quota. These
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considerations, which enter into the counsels of the
Reichsbank, more especially in its private capacity,
should by all means be allowed to assert themselves in
order to protect German industry from the handicap
that would result from the necessity of maintaining a
high bank rate, the official rate of discount, merely because
the Reichsbank has invested in a large stock of foreign
bills on which it gets an extremely low rate of interest.
The other means of drawing gold into the country have
been successfully applied by the Reichsbank this very
year, to the great satisfaction of all the members of this
commission, and we can only urge it to continue consistently on this course. To get as much gold as possible
from abroad must ever be the main endeavor of the
Reichsbank, and every facility must be provided that
will tend toward that end. Our existing monetary regulations in reality impose a tax on gold imports. If
anyone imports bullion into England to the value of
£1,395, he gets for it exactly £1,395 *n c ° i n o r bank notes.
But if he brings bullion into Germany to the value of
1,395 marks, he gets for it only 1,392 marks in bank notes.
This seigniorage represents in a measure a duty on gold,
which, of course, makes it considerably more difficult to
import it. It is therefore well worth considering whether
it would not be well, following the example of England
and the United States, for the Government to reimburse
the Reichsbank for the expense of coinage. The Imperial
Government derives such a large profit from the coinage
of nickel and silver currency that it can well afford to
regard the expense entailed by the gold coinage as offset
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by such profit. As it is, the bank would probably be
able ultimately to defray this cost out of its own pocket.
In any case, in order to facilitate the importation of gold,
we shall have to do away with this impediment and to
let the importer get the value of his gold in bank notes or
in coin.
The advancing of funds without interest is certainly an
excellent means of securing for the Reichsbank a part of
the world's gold product. There are still possibly other
means that may be tried, as, perhaps, the higher valuation of the gold coins that circulate in international
trade; for example, sovereigns and 20-franc pieces, which
at the present time pass strictly by weight and fineness. The importation would be greatly encouraged if
the bank were from time to time to fix the purchase
price for the various coins. This would facilitate the
arbitrage business and make the importers and bankers
feel safer, so that each can say to himself that if he comes
with, say, 500,000 sovereigns to the Reichsbank in Berlin
he will get so and so many million marks for them. There
is the danger, it is true, one that has already been pointed
out, that in this way a quantity of underweight coins—
of course, they have all to be up to the passing weight—
may get in, so that more than 1,395 marks will be paid
for every pound of pure gold in the coins. But the supply
of foreign gold coin is mainly laid in against a financial
crisis, when gold leaves the country and the rate of
exchange rises so high as to compel an exportation of
gold, and we must remember that the most important
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foreign bill is that drawn on London, the rate on which
we have seen go up to 20.70, par being 20.43.
I am delighted, therefore, to see that the Reichsbank is
taking measures to secure accessions to its stock of gold
from abroad, and I trust that it will pursue this policy
with vigor. For nothing short of a large supply of gold
in the Reichsbank will enable us to regard with less anxiety
the outflow of the metal from our country. If the Reichsbank had a stock of, say, two billions, which I do not
regard as something unattainable, it could afford to look
on without any particular concern when gold to the
amount of 300,000,000 is withdrawn from the country in
the course of a quarter of a year, just as the Bank of
France does at all times. If we could carry out the scheme
of making Germany a gold market that would attract a
considerable quantity of the gold produced in the world,
the result would certainly be most gratifying. As we ourselves produce no gold, we are dependent for the maintenance of our gold supply on the product of other countries. If the refining of this gold could be done in Germany and a market created for the metal, it would be
easy for the Reichsbank to have a considerably larger
supply. I hope we shall succeed with this project.
Mr. FISCHER. After the various technical and extremely
interesting expositions to which we have been listening,
I must confess, gentlemen, that it is with some reluctance
that I rise to address you. Our chairman, however, has
expressed a distinct desire that each member of the commission shall make known his views, and it is this that
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induces me to take the floor, although I fear I have little
that is new to tell you. I therefore ask you in advance
for your indulgence, all the more as I am afraid I shall
not be very concise.
A number of concrete questions have been submitted to
us on the question sheet, and at first sight it may seem as
though they might be answered in a few words. This is
not the case, however, in my opinion at least. For these
questions may almost be said to contain an element of
hypnotic suggestion. They exert a hypnotic influence
upon us, carrying our thoughts back to the troubles that
we experienced at the close of the past century, troubles
which we have fortunately overcome. All the same the
phenomena were of such a serious character that we naturally keep reverting to them for a time, and we feel impelled to improve our conditions wherever improvement is
called for. We have, therefore, in the first place to ask
ourselves whether there are any evils that we have to remedy. What are these evils, and is there any way of getting
rid of them wholly or in part, or of mitigating their influence; and if so, what are these means?
In my opinion the evils have been of a twofold character. On the one hand, we have witnessed a most pronounced upward movement, which, as has already been
pointed out by a number of the speakers, and especially
by Herr Roland-Liicke, has partially overshot the mark.
But there was another evil which I should particularly like
to discuss, consisting in the fact that the mechanism of
exchange at our command had not been organized before
in such a way as to meet the demands of even a normal
economic development. I think it is important for us to
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discover the reason of this backwardness of our monetarysystem. At any rate, it was the conjunction of these two
circumstances that produced such a difficult situation in
the past year. To this was added the acute financial crisis
in the United States, which occurred at a most inopportune time for Germany and made the situation so much
the worse. But I feel sure that it would be a great mistake on our part to regard this circumstance as the sole
cause of all the troubles that we have experienced. It
was only the last drop in the bucket. Even without the
panic in the United States, we should, in my opinion, be
compelled to face very serious difficulties.
I do not hesitate to say this, inasmuch as we have
weathered these storms safely and are now fortunately
able to discuss these things calmly and to see them somewhat more clearly than we could have done the past year.
I desire to say also that I am much gratified with the
meeting of this commission of inquiry. I have learned
much in the course of this investigation, especially from
our scientific men, and I deprecate the notion that science
and practice are necessarily at odds in this matter. I do
not believe that we practical men are inclined to underrate science. On the contrary, we have the greatest
respect for it as the foundation of our practical deductions,
and the conclusions which it draws from its reasonings,
as well as the intellectual tasks which it performs day by
day, facilitate our labors and inspire us with greater
confidence.
In the course of the hearings of the experts there were
loud complaints of the high rate of interest which we in
Germany had to endure. I, for my part, regard the rise
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in the rate of interest which we have witnessed as a very
necessary and wholesome, even if a very distressing,
remedy and as one absolutely indispensable under the
circumstances. In regard to the first-mentioned evil, the
wave of high speculative values oh which we were borne
aloft, I am sure that no one is going to tell the Reichsbank
that it should, or that it can, by whatever means it may
have at its command, make its influence felt in a decisive
way with respect to such a conjuncture; a general feeling
of optimism will always lead a community in times of
good business to overtax its strength and endeavor to
accomplish too much. It is not within our power to
prevent this. It has, however, frequently happened in
financial crises—as history has taught us—that the banks
of issue have exposed themselves to the charge of having,
through their action in the matter of the rate of interest,
and through an over granting of credit, hastened the
course that business was taking. I do not see how in the
case which we have been witnessing such a charge could
be brought against the Reichsbank. On the contrary, it
began at an early stage, by putting up the bank rate, to
issue warnings, and to curb the immoderate pace of business. The managers of the bank were but too often
criticised on this very account, but the subsequent course
of events showed convincingly the wisdom of their policy.
Nothing is more dangerous than when a vessel under
full sail is suddenly caught in a storm. The prompt orders
of the Reichsbank to furl the sails were no doubt interpreted in an unfriendly spirit by some of the passengers
who were anxious to sail along as fast as possible. I am
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convinced that we owe to the Reichsbank the fact that we
brought our ship into port comparatively safe and sound.
I consider it a matter not admitting of any doubt that
the raising of the bank rate is a means which the Reichsbank is bound to adopt in such a situation and under
all circumstances, regardless of the criticism which its
actions may provoke among certain classes. It has to
make use of such means, not merely in order to improve
its own position, but also with reference to the whole
economic situation. I regard the discount screws—
screws are never pleasant things—[laughter] as absolutely necessary in order at a time of unusual industrial
expansion to oppose a barrier against inordinate activity.
In this sense I should, of course, consider the workings
of the discount policy most salutary. As for the effects
in other respects, and in particular the effect upon the
monetary movements, I shall take the liberty of reverting to them later on in the course of my remarks.
I have referred to another evil—the inadequacy of
the monetary mechanism which we had here in Germany to satisfy the needs even of a normal development;
or, in other words, the insufficiency of our circulating
medium. It will perhaps be found practicable in the
future, if we can not do away with it altogether, at
least to mitigate this evil to some extent. I am not
anxious to engage in the dispute relative to the factors—
be they the inordinate demands of industry, the immoderate granting of credit, or the rise in prices, or something else—that are responsible for the excessive demand for the instruments of exchange which has marked
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the recent tide of overproduction and overspeculation,
for I believe that what has occurred was something
quite natural and not at all surprising. We shall never
be able to do away with the ups and downs in our industrial development, and it would by no means be desirable—and I agree herein with some of the speakers who
have addressed you—that we should attempt to do it.
A resort to the means at our command for this purpose
would only interfere with the natural process of development and cause us to sink below the level of other
nations, for we should only be curbing individual activities and personal initiative, and restraining that free
action which in other respects is so salutary.
I propose to demonstrate to you, gentlemen, by means
of a few figures, that we had been lagging behind very
much in the matter of our currency. I will ask you in
this connection to glance over the statistical data which
the Reichsbank has placed at our disposal, as they throw
much light upon this very matter. We find, on page 14
of Table I, that in the year 1898—that is, ten years
back—the Bank had in its vaults on an average 850,000,000
marks in gold and that in 1907 the amount was 843,000,000
marks. We read, on page 23, that in 1898 the Bank had in
circulation notes to the average amount of 1,124,000,000
marks and in 1907 to the amount of 1,478,000,000 marks.
With an increase, therefore, in the circulation of 354,000,000
marks, there was a decrease of 7,000,000 marks in the
metallic cash. The amount of notes not covered by metal
increased from 274,000,000 marks to 635,000,000 marks.
This in itself, irrespective of the above-mentioned reason,
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would impel the Reichsbank to proceed more or less
cautiously with its discount policy. The wish, so frequently expressed, for a permanently lower rate of
discount is hardly in keeping with the situation created
by a constantly increasing amount of uncovered bank
notes. We can readily conceive that the increase in the
currency in the course of the past ten years conditioned
by the natural and normal increase of business, as well
as by the excessive strain of capital and credit, had
necessarily to be in the form, first of all, of an increase in
the bank-note circulation. But the increase in such
circulation should be accompanied by a strengthening of
the metallic reserve on which it rests. If this is not the
case, the time is bound to come sooner or later when we
shall find ourselves in the situation in which we were
toward the close of last year—of having to keep such
anxious watch over our metallic reserve and of being
made so uneasy by each successive withdrawal of gold as
to be obliged to resort to the most drastic remedies.
What we are bound to do, in my opinion, is to take permanent steps to have a larger quantity of gold than we
absolutely need, a much larger quantity, for we must be
prepared not merely to meet any possible internal crisis,
such as is apt to occur in such a highly developed and
progressive country as Germany, but also to face the
disturbances in the industrial life of other nations with
which we are permanently connected by international
relations. Only in this way can Germany hope to maintain permanently her position in the world's market and
as one of the chief seats of international financial opera84713—10
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tions. And the maintenance of this position is of great
importance not only with respect to the industrial situation of Germany but also as affecting her political position
among nations and her relations, commercial and financial, with other countries.
Now, the question that we ought to put to ourselves
is, What is the reason that the development of monetary
mechanism has not kept pace with the needs of business?
This is a most difficult subject, and all the more difficult
in that in all one's utterances one has involuntarily an
eye on the future, while, in order to form a judgment
regarding conditions, it is necessary to go back to the
past for even partially reliable premises. In my opinion
the trouble does not consist exclusively in the fact that
too much gold has found its way into the channels of
domestic business, but also in the circumstance that the
accession of gold from abroad has at times been inadequate. The existing output of gold in the world is ample
enough, I believe, to meet the needs of every country
in which this metal is the monetary standard, after making
every allowance for the increasing demands of industry.
If this has not been so evident on its face in the last few
years as we might perhaps have anticipated from the
actual size of the product, it is to be explained by the
fact that so much of the gold has found its way to new
territory to meet the needs of countries which have
sought to place their currency upon a solid gold basis
in place of an unstable monetary standard. To these
countries belong Austria, Russia, Italy, Argentina, and
others. They have absorbed gold on such a scale that
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the inflow greatly exceeded the quantity that would
have been required to meet the normal increase in the
circulating medium. The gold product of single years
had to be drawn upon in order to fill the gaps resulting
from the failure to bring into requisition the product of
many former years. Had it been a question merely of
meeting a normal demand, the quantity of gold obtained
from the earth that would be at the disposal of other
countries would without doubt have been so large that I
can by no means share the apprehension that a sufficient
supply would not have been left for Germany.
In the attempt to explain the fact of our not having
obtained a sufficient supply of gold, the matter of the
balance of payments was extensively dwelt upon, but
this is a subject, gentlemen, that I can approach only
with great hesitation. There is no doubt that a very
favorable balance of payments furthers the importation
of gold. How do we stand in this regard? The balance
of payments comprises a number of factors, among them
some that we are not able to calculate with certainty.
To establish an equation out of a number of unknown
quantities is in itself not a particularly alluring task. To
begin, however, with the most important factor, the balance of trade, we can set it down as some progress at any
rate that the fact is recognized that in the commercial
intercourse between nations it is not the balance of trade
by itself that is the dominant circumstance, but the entire
balance of payments. But we are still far from the point
of being able to ascertain the figures of the balance of
trade with absolute accuracy. The employees of the
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statistical bureau, I am convinced, are discharging their
duties most zealously, but they can, of course, do no more
than work up as much as is offered to them. In most
countries the statistics of the balance of trade are conscientiously prepared. In spite of this we come across
some queer showings. We find that the total of the
imports of all countries taken together does not agree by
any means with the total of the exports. We find this
in the crassest way if we take, for example, the exports of
a particular country, say England, to one of the South
American States and compare the figures in the British
statistical tables with the figures concerning imports
from Great Britain in the statistics of the transatlantic
country in question. There is frequently such a discrepancy between the figures that we can see at once that
there is no possibility of getting an adequate presentation
of the figures of the balance of trade. As a general thing
the errors are in the direction of making the excess of
imports greater than it actually is.
I am convinced that this is the case with Germany.
In the course of the hearings of the experts, after listening
to the interesting remarks of Geheimrat Mueller, I expressed myself to the effect that I should consider it portentous if, as some actually thought, our balance of trade
should exhibit an adverse balance of two billions. I do
not believe that we should be in a position to offset such
an adverse balance by any resources at our command. I
am convinced that this figure is not correct and that it
can not be correct. In all probability the excess of imports does not exceed 1,000,000,000 marks. In spite of
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all this the statistics of the balance of trade are of great
service to us, as they can hardly fail to exhibit with a
fair approximation to truth the relative movement of
trade from year to year and consequently afford instructive lessons. They indicate the periods that are fraught
with danger with respect to our economic well-being,
those in which we export too little and consume, or say
rather, import too much. The increase in our adverse
balance in the last few years of 700,000,000 marks is
therefore of great significance and one of the causes of the
increased difficulty of satisfying our needs in the matter
of a gold supply. Now, if it is so hard to deal with this
factor—the figures of the balance of trade—how much
harder is it still in the case of the other factors that enter
into the balance of payments ? In the first place, what is
the meaning of balance of payments? It is very easy for
us to pronounce this term, but the meaning it conveys is
by no means a very clear one. We can conceive of two
different kinds of balance of payments. The first is the
one that we obtain if we take the balance of the exports
and imports, together with the regular payments of one
kind or another which recur year by year, as, for example, interest on foreign loans, profits derived from foreign undertakings, freights, profits from trade, sums expended by tourists, wages paid to foreign laborers, etc.,
and, in addition, investments in foreign securities or sales
of securities abroad. They may perhaps be regarded as
representing the primary conception of a balance of payments in contradistinction to a balance of trade. This I
shall term a primary balance.
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There is, however, in reality a second balance of payments, one which, as I have been thinking, requires years
for its settlement. This is the balance of payments which
results if in making up our figures we reckon the means
that serve to liquidate the differences in the crude balance.
What are these means? In the first place they are the
shipment of gold; that is to say, the importation and
exportation of gold. The second means is the movement
of money or of capital. The movement of money itself,
however, manifests itself in ways differing entirely from
each other. It may consist in the purchase or sale of
securities abroad or in the setting on foot of undertakings
in foreign countries or participation in such enterprises
according to whether there is a surplus or a deficit in the
balance of payments. But whether this movement, or
what part of this movement, belongs to the first category
or the second, it is impossible for anyone to determine, for
it is so fluctuating and varies so much from week to week
and from month to month that there is no way of ascertaining how much of it is a normal process and how much
results from the necessity of settling the international balance. The difficulty is increased by the fact that there
are monetary movements which enter as factors into the
settlement representing short-term investments, such as
the sale of treasury bills and of bills of exchange, the
extension of loans, cash loans made to foreign countries
or received from them, etc. But where the border line
begins between the sale of securities and the issuing of a
loan, between the sale of treasury bills and the issuing of
government bonds, it is extremely difficult to determine.
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I believe, therefore, that the state of the balance of payments, of which all the speakers here have made so much,
declaring it to be closely interwoven with our monetary
situation, hardly admits of being determined with any
approach to accuracy. While I fully recognize the importance of this question, I am inclined to think that its significance is overrated by those who make it alone responsible for the inadequate inflow of gold into this country.
A primary favorable balance of payments promotes the
inflow of gold, but it is not, as far as I can see, a sole
determining factor.
The matter of the inflow of gold, it seems to me, has to
be studied in its various phases. First of all, we have to
ask ourselves whether we are getting in an easy and normal way so much of the total product of gold as ought to
fall to our share. Let me try to make my meaning clear
to you. If a certain large quantity of gold is produced in
the world, and if this product, after a part of it has gone
to satisfy the needs of industry, is made use of in the world
at large in the form of money, it appears to me to be a
necessary part of the process that each country at intervals appropriates a share of the output. Let us imagine,
for a moment, that this was not the case and let us assume,
taking an extreme hypothesis, that a single country got
possession of the entire gold product. There would in that
case be such a superabundance of gold in that cotuitry
that the equilibrium in its position with respect to other
countries would be altogether disturbed; that is to say,
the prices of commodities, as well as those of interestbearing securities, would be completely altered. If every
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other country were to get gold and we got none, then, on
the other hand, we should have a dearth of gold as compared with other countries; that is to say, they would be
able to pay higher prices for commodities and securities
than we, and it is this very circumstance that finally brings
about some sort of balance. If the primary balance of
payments is unfavorable, the effect of it is to raise the
rate of interest, and in such a case the rate of interest has
a much greater influence upon the movement of money
than the balance of payments can have, for the reason that
it affects the rate of exchange and brings about a corresponding movement of money from one country to another.
Supposing that there were no special means—e. g., the
sending of gold from one place to another for the purpose
of settling a balance—made use of in order to even out the
ultimate balance of payments, we should, as a matter of
course, have to reckon in the balance of payments, perhaps even in the balance of trade, that part of the gold
product that we import, and are obliged to import, in
order not to lag behind in relation to other countries.
Apart from this importation, which is needed to maintain
the equilibrium, we need a special increase in our circulating medium, as has been pointed out by some of the
speakers, on account of the constant and rapid growth
of our population and business. Even if the new-born
part of the population is not so very loud in its demands
in this respect [laughter], yet the old stock will all the
more vehemently assert its rights in the matter of business.
Yes, the whole of Germany is daily getting older, stronger,
and more industrious, and I wish to remind you that it
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1908
would not be desirable for us to lapse into the condition
which prevails in a neighboring country, where people
as a general thing cease from work after a brief period
of active life.
[Exclamations of approval.]
That under these circumstances it is much easier to
maintain an equilibrium between the demands of business
in the matter of a circulating medium and the supply
that is obtainable I think is self-evident. But this very
energy inherent in the German people, this desire to
progress in the ability to do, as well as in the enjoyment
of what life affords, this striving to reach a higher stage,
I consider a great blessing, even if every now and then
they may temporarily overshoot the mark.
As I have said before, I do not on the whole consider
the balance of payments, as it is naturally evolved, quite
as important as it is usually considered with reference to
the supply of money, for I share the opinion expressed
by some of the members that gold is a commodity, and a
commodity which it is just as necessary for us to procure
as many other articles that we import from abroad. The
demand for gold does not play so predominant a part in
the movement of commodities, as a whole, that the procuring of it should present insuperable difficulties. If our
balance of payments is in itself not a favorable one, the
inflow of gold will not take place so easily and so uniformly;
but it is bound to assert itself eventually, because we need
gold. I do not think that a constant unfavorable balance of payments is conceivable, and least of all one that
will cause us permanently to export circulating medium.
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The exportation of this circulating medium would take
place only in case we substituted other and cheaper
currency for it, capable of performing partially, at least,
the functions that gold performs at present.
The desirability of a more favorable balance of payments, on which some of the speakers have dwelt, I fully
recognize in so far as an increase in our exports is involved
in the matter. If the object in view is to be attained
through a decrease in our imports, then I should not be
inclined to regard the consummation as unqualifiedly
desirable, for the increase in our imports is to be ascribed,
above all, to the growing prosperity and the industry of
our people and the increased consuming capacity resulting
therefrom. There may be a few articles that we could
produce ourselves and which we import, but I do not
think that this is of sufficient importance to alter the
situation materially.
In the course of the hearings of the experts I have
heard various assertions relative to the matter before us.
Firstly, that we have undoubtedly had for years an
adverse balance of payments.
Secondly, that this is evinced unmistakably by the
rate of exchange, which, taking the average of each year,
has been against Germany.
Thirdly, that when the balance of payments is adverse, gold can not be imported, but can, on the contrary, only be exported.
These opinions, as a rule, were held by one and the
same set of persons.
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This all sounds so plausible that I was inclined to
adopt these views as my own. But I doubt their validity, because they are not in accord with actual experience.
We find, on the contrary, that in the decennial period to
which I have reference, we have actually imported gold
to the net amount of 1,735,000,000 marks. From this
we must infer either that it is not true that we have an
adverse balance of payments, or that it is not true that
the rate of exchange is evidence of such an adverse balance, or else that it is not correct to say that the existence of an adverse balance of payments precludes the
importation of gold.
As far as I am concerned, I regard all three propositions as unsound. I do not by any means believe that
the past ten years, taken together, have resulted in
an adverse balance of payments, whether we have reference to what I call a primary balance or to an ultimate
balance. I am convinced, on the contrary, that, in
spite of the significant figures of the balance of trade,
we have a favorable balance of payments. The proof of
it is that we are placing more or less money in permanent investments abroad. The relatively inconsiderable
sums that we borrow in one country or another in the way
of short-term loans prove nothing to the contrary. They
can not avail to hide the fact that through the development of our credit operations and through our more extended relations with neighboring countries and with fardistant ones, Germany is assuming every year more and
more the position of a creditor nation with respect to the
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Commission
outside world. If there were only some way by which
the figures could be placed before our eyes, just as is
done in the case of the balance sheet of a bank on the
31st of December, we should be astonished by the showing. We should find that, relatively to the sums that
foreign countries advance to us in the way of shortterm loans, we are actually loaning large sums of money
to the outside world. What we do is this: We are a
producing country, and we produce more than we need.
The surplus we bequeath to our children, investing it
partly abroad and partly at home; and this is as it should
be. We have to do this if we want to make sure that
there shall be no lack of bread in future years.
But, besides, we are merchants; we are intermediaries.
At times we loan out more money than we have to spare,
and the money comes in such cases from the cheapest
money market over to Germany. I consider this very
desirable, for such operations are advantageous to the
community, and the profits resulting from them may
constitute a large factor in the adjustment of the balance of payments.
Permit me to revert for a moment to the subject of
the rate of exchange. We have heard it stated, and I
believe special stress was laid upon the matter in the
hearings of the experts, that the rate of exchange, taking
the average, was continually against Germany, and it
was argued that an importation of gold into this country
was not possible on account of our having an adverse
balance of payments. This way of looking at the matter
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I consider altogether erroneous. To deduce the rate of
exchange from averages is a very unsafe operation, for
everything depends upon just when the movement of the
rate of exchange touches the lower or upper limit. This
takes place at those times of the year when there is either
a great supply of bills or a great demand for them. At
other times the sums involved are relatively unimportant.
Now, if we are going to make one day or one period count
for as much as every other, we shall arrive at an erroneous conclusion; and the result which we should reach in
our investigation in regard to the best policy to be pursued by the Reichsbank would be a very false one if it
amounted to nothing more than making us fold our arms
and say " there is nothing to be done because the conditions are adverse."
I thought I would just trace the movements of the rate
of exchange in the last decennial period, and what I have
discovered is certainly very remarkable. I find that in
each individual year the fluctuations were so great that
there were always times when it was profitable to import
gold, and also times when exportation was profitable. I
must mention here that when the rate of exchange on
London is between 20.56 and 20.53 the gold-export point
is reached, and that when the rate drops to 20.35 a s a
rule the gold-import point is reached, especially if importation is encouraged by the making of advances without
interest.
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In the years 1898-1907 the fluctuations of London
exchange (Berlin quotations for short-time bills on
London) were as follows:
Highest.
20.535
20.565
20.50
1899
1900
1901
1902
1903
1904
1905
1906
1907
20.47
20.475
20.495
20.495
20. 48
20.505
20.55
Lowest.
20.37
20.39
20.39
20.36
20.385
20.35
20.325
20.35
20.39
20. 42
The very high rate in 1899 is connected with the outbreak of the Boer war.
It appears to me that these rates of exchange do not
by any means show that our balance of payments for a
long term of years was an adverse one. ["Quite true."]
At the close of 1906 and in 1907 this may temporarily
have been the case.
I should like to add with reference to this matter that
it is a mistake to draw our inferences all the time exclusively from London exchange, for the rates of exchange
with regard to other countries are also significant. If I
have chosen to take the rate of exchange on London it is
because I do not care to bore you with too many figures.
The same facts, however, are exhibited in the case of
Paris exchange. But neither London by itself nor Paris
and London combined is decisive in this matter. We have
to consider the exchange relations with respect to all
countries; that is to say, with respect to other countries
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than the two in question. To get an average out of all
this, to try to calculate from such data how the rate of
exchange actually operates—excuse me, gentlemen, but
I am not enough of a theorist to believe that this can be
done. It is my opinion, therefore, that we may as well
lay aside this factor, and that we need not regard it as one
that ought to affect our notions with respect to the attitude
of the Reichsbank in the future.
I have already said something regarding the policy
of the Reichsbank in the matter of the discount rate
with reference to meeting a condition of overstrained
capital and credit. I attach the greatest importance to
the discount policy of the Reichsbank with respect to
the importation of gold and the prevention of its exportation. As the balance of payments comprises a number
of factors, possessing a certain amount of mobility, such
as the exportation and importation of securities, loans
that are made, etc., the one means at our disposal is to
try to influence the force of these movements through
the rate of discount.
I believe, however, that the raising of the rate of discount on the part of the Reichsbank operates in more
than one way. If the Bank puts up its rate the first
effect is to cause Germans to demand payment of sums
due them abroad, and a further effect is to cause foreign
creditors to extend the term of loans made to Germans,
either by not demanding immediate payment on account
of the higher rate of interest or by the much more natural
method exemplified by the action, let us say, of an American holder of a bill of exchange against Germany on
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account of cotton sold, who will not discount this bill
in Germany, but instead disposes of it in some other
country where a lower rate of interest prevails. Such a
proceeding would, in a case like this, be equivalent to
the extension of a loan. The raising of the rate of discount will have its effect upon the capital invested by
foreigners in this country. It will, moreover, affect the
movement of securities, inasmuch as a smaller amount
will be bought in Germany and a larger amount sold to
the outside world. It will hinder the floating of foreign
loans in Germany and perhaps altogether prevent it, a
point that has been repeatedly touched upon in the
course of these discussions. A further effect of a rise in
the rate of discount will be that the prices of commodities in Germany will fall, or at least that an advance will
be checked, and that, in consequence of this, exportation
will be promoted and importation prevented or retarded.
Above all, the spirit of enterprise will be curbed, which
will result indirectly in a diminution of consumption.
I therefore regard the proper adjustment of the rate
of discount as a very important matter in relation to the
possibility of permanently providing Germany with the
necessary currency. One can not serve two masters at
one and the same time. It is not possible to have a
rate of interest as low as that in France and at the same
time be interested in a number of undertakings, to maintain Germany's position in the world's commerce, induce
foreigners to invest money in Germany, and prevent our
money from being sent abroad on a large scale. However regrettable it may be that certain branches of indus-
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try should be made to suffer temporarily by the raising
of the rate of discount, still I think we should not lose
sight of the fact that every immoderate fall in the rate of
interest has the inevitable effect of compelling us to put
up with an excessive rise later on. Of course the Reichsbank has to be careful to observe the right measure and
not go too far in one direction or the other.
Now, the discount policy of the Reichsbank would be
a very simple matter if we were in a position to prohibit
other countries from likewise putting up their rate of
discount. The necessity of raising the rate to 7% per cent
has been called in question. Well, I regard this as a very
crude way of judging of the situation. (You are not the
person whom I have in mind, Freiherr von Gamp.) The
opinion has been general in the community that the
resulting hardship might have been averted. But if we
are able to put up our rate of discount in order to draw
gold, let us not forget that other countries can do the
same; and if they do, their raising of the rate will operate
in the same way with respect to drawing away gold from
us and keeping it away from us as our raising of the rate
does with respect to other countries. I am convinced,
however, that the raising of the rate last year, in spite
of the very large exportation of gold, had an excellent
effect upon the monetary situation. It had undoubtedly the effect of strengthening the Reichsbank for, on
the one hand, the drain upon its stock of gold was not
as large as it would otherwise have been, and in the next
place the bank was not so much affected by the exportation of 200,000,000 marks of gold, inasmuch as it was
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enabled to strengthen itself by drawing upon the money
in circulation. As a matter of fact, our figures show
us that the stock of gold at the close of 1907 compared
favorably with that in the preceding year. Consequently
there is no sense in complaining if the remedy which our
doctor prescribes for us tastes bitter.
The suitable adjustment of the discount policy is, in
my opinion, the best means that can be applied.
Arid now, gentlemen, I come to the secondary means.
I, myself, have suggested a lesser means in the course of
this discussion, whose importance I do not wish you to
overrate, but which, I believe, may be of some value in
the future.
Realizing that we have had sufficient money for every
possible purpose, including investments abroad, but that
our foreign credit balances have not been ample enough
to secure for us a sufficient supply of gold, we can not
help concluding that there may be something at the bottom of this condition that calls for improvement.
I consider it a great disadvantage for Germany, as I
explained fully at the time of the hearings of the experts,
that in the distribution of the world's gold product—
that is to say, in the procuring of the share of it which
we require—we are less favorably situated than other
countries, especially England, in that we have heavier
charges to defray for the reason that we are located off
the beaten track and remote from the sources of supply,
and that the gold does not come to us direct. We can
not shake off this disadvantage any more than we can
prevent England from having such an array of natural
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advantages—I need not enumerate them, as they are all
familiar to you—with respect to the concentration of the
gold supply at its own market. London is bound to remain the chief market for gold, and the Bank of England
will always be preeminently in a position to supply itself
with the metal, to get hold of what is offered by paying,
if necessary, a higher price for it.
Now, here is an idea that has occurred to me: There
are three leading countries of prime economic importance
and making use of a vast amount of gold in their business
transactions which have the gold standard and therefore
are equally interested in having a continuous stream of
gold coming to them, with the result that they are active
competitors in this regard. But apart from the fact that
these three countries are very differently situated with
respect to the advantages which they possess for procuring their gold, there are essential differences with
regard to the terms prescribed in the matter of the purchase of gold. These three countries are England,
the United States, and Germany. France has indeed likewise a very large share in the international money movement, but she does not play the same role either in
industry or commerce as the other three countries. A
comparison of the trade statistics of France with those of
the countries I have mentioned will suffice to prove this.
France, however, occupies a very favored position in that
she is constantly receiving large sums of money that the
outside world has to pay her. She has not the gold
standard pure and simple, and she can intrench herself
behind the possibility of paying in silver. For France,
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therefore, the problem of how to secure a constant supply
of gold is not a very pressing one.
And now as to the terms on which purchases of gold
are made. In England there is no seigniorage. If I
take a bar of gold to the British mint, I get back its full
value in coined sovereigns, weight for weight, without
any deduction whatsoever. If I carry gold to the United
States mint, the same thing takes place as in England.
The gold is received at its full par value, the precise weight
in American gold coins being paid out without deduction
of seigniorage. Indeed, the United States Government
goes so far in the matter of upholding the gold standard
that the Treasury regularly furnishes bullion for export
at an insignificant premium (only four-tenths per 1,000).
Now, let us glance at the situation in Germany. Although we have, to begin with, an unfavorable geographical position, being situated off the main thoroughfares
of commerce and obliged to pay increased transportation
charges, although we have not the same relations with the
gold-producing regions as England has, and although we
do not possess the same monetary standard, recognized all
over the world and employed by so many countries in
their international payments, and are besides handicapped
in various other respects, we compel everyone who brings
his gold to us to pay on a pound of the pure metal, the par
value of which is 1,395 marks, the sum of 3 marks, which
is charged in the way of seigniorage. The Reichsbank pays
down 1,392 marks. We have not to deal here with a
merely theoretical question, as to whether it is a sound
principle that a state shall provide the metallic currency
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needed for the business of the country and assume the
expense of coinage, as is the case in England and America—as a mattei of fact our Government does partially
provide for the expense of the currency by withdrawing
from circulation coins that are not full weight and substituting fresh coins—but the question before us is an
eminently practical one, as to whether it is expedient to
add greatly to the inherent and inevitable disadvantages
under which we already labor with respect to other countries, especially England, in the matter of procuring our
gold supply, disadvantages which are bound to be permanent, by making a relatively unfavorable price (1,392
marks per pound) the normal price. Are we bound to
place ourselves in the position of a nation whose birthright is ignored in the distribution of the world's gold
product? When, at the time of the establishment of the
Reichsbank and the institution of the gold standard, we
settled upon this amount that was to be deducted in the
way of seigniorage, we allowed ourselves to be guided by
the practice of France. In France an equivalent deduction is made. This gave rise to serious complaint formerly, when the situation in that country was not as
favorable as it is at present. But even now, in spite of
the fact that France receives and absorbs such a large
share of the world's gold product, this is not without its
inconvenience, as the country obtains its gold only through
indirect channels, and in getting it is subjected to great
fluctuations in sterling exchange. The rate on sight
drafts on London has to fall considerably below par in
France in order that that country shall not be shut off
from its gold supply.
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We are similarly situated in Germany, and this I regard
as not very desirable. If, as a matter of fact, we are not
obliged to pay more than 2,784 marks for a kilogram of gold,
the result is that, even if the gold that is to be imported
from England is not held there at too high a price, we
can get it over to Germany only if the rate of exchange
here falls more or less below 20.35, a n d then only in case
the operation can be effected without loss of interest.
As a matter of practical business there is this additional
sacrifice involved, that the necessary sums have to be
advanced without interest. Now, considered merely with
reference to the question of our gold supply, there would
be nothing particularly regrettable in the fact of the rate
of exchange falling frequently to such a level, as long as
this movement was dependent merely upon the necessity
under which we were of obtaining gold or as long as we
could say, " As we must have the gold, the rate of exchange
will have to come down. ,, And this is just what takes
place in the course of years, as far as I can make out.
But why does it take place and under what circumstances?
Because, when there has been no inflow of gold for some
time, the rate of interest with us necessarily gets to
be considerably higher than in other countries, because
this higher rate affects all the various factors that I have
mentioned, and, finally, because it exerts such an influence upon the rate of exchange that gold is finally forced
to come "to us. But this whole operation requires considerable time. During this period we have to suffer from
the disadvantage of having to work with too little cash—
with an insufficient reserve. I regard this as a drawback,
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nor do I consider the great fluctuations in the rate of
exchange very desirable. In between there may be times
when we are compelled to replenish our gold reserves,
and when, by the offer of special inducements, we are
virtually obliged to submit, as is the case at present, to
a much higher purchase price.
It is for this reason, gentlemen, that I have proposed,
as one of the lesser means, that we should do away permanently with the seigniorage paid at the Reichsbank,
that is to say, that the price of gold should be fixed at
2,790 marks per kilogram of the pure metal, or 1,395
marks per pound. It is obvious that, when this has been
done, even with less violent fluctuations in the rate of
exchange, there will be an inflow of gold into Germany. I
consider it of great importance that this higher purchase
price be permanent, fixed for a long term of years. In
that case I believe that gold would more frequently
come to us in the course of the year, for it will be sent to
us regularly if the producer or the dealer is sure—which
is the main thing—of getting a favorable price, the par
value, in Germany. I regard it as necessary not merely
that we pay this price, but that we pay it regularly.
Only in this way can we cause a part of the gold that
now goes to England to be sent hither, and that without
its being necessary for the Reichsbank every time to
resort to some special arrangement in the way of advances
without interest, which at times is a rather expensive
expedient.
It is of great importance, in my opinion, that the inflow
shall be regular and sustained (which would remove one
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of the disadvantages under which we now labor as compared with England), in order that the Reichsbank may
not be obliged after a long stoppage to go into the market
like any ordinary mercantile concern and that we may
not be compelled afterwards to pay for our gold more than
what would otherwise have been the average price. I
have expressed myself so fully in the course of the inquiry,
and especially of the hearings of the experts, concerning
this point and more particularly the conditions of the
London gold market and our relations to it, as well as
the advantage that, in my opinion, would result from the
abolition of the seigniorage, that I have had to content
myself here with referring only in brief terms to the subject. I must, however, insist that it will not do to say
once for all that in future there is to be no such thing as
making advances without interest (irrespective of whether
or not the purchase price is fixed even above 2,790 marks).
Such advances may become necessary in very exceptional
times, as when we are intent on obtaining large amounts
of gold speedily or have to face the competition of other
countries and the special measures to which they have
ecourse (including this very thing of advancing money
without interest). But a resort to such an expedient
should be regarded as an exceptional measure.
It has been argued in opposition to what I have been
saying that gold has been imported in recent years in
spite of the low price, but this is explained by the fact
that at certain times we have by no means adhered to
the price of 2,784 marks. We have practically raised the
price by making advances without interest, in which we
have occasionally gone to considerable lengths.
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However expedient advances without interest may be
at certain times, there is occasionally a peculiar disadvantage connected with them. If they have to be made
for a comparatively large number of weeks it frequently
happens that the gold arrives before the expiration of the
term, in which case not only the amount of the gold that
has come but also that of the advances is at the disposal
of the money market, or in other words, a double amount,
as a result of which the rate of interest in the open market
is inordinately depressed, which the Reichsbank is not
particularly anxious to see just when it is exerting itself
to attract gold and has been putting up the rate of discount for the purpose. Cheap money in the open market
would, as a general thing, by causing a rise in the rate of
exchange, be an obstacle to the importation of gold.
The expedient in question is therefore not an altogether
unobjectionable one.
In connection with my suggestion I have something else
in view. An idea has occurred to me—something which
perhaps is incapable of being realized at the outset in its
full scope, and what it amounts to is this: That if, as a
result of the increased and at all times steady price of
the metal, we secure much more regular shipments of
gold from abroad than heretofore, whether they be to
some extent direct from the mines or from London, or
from whatsoever country that may wish to send us bullion or coin (I presuppose that the purchase price of foreign coins will be correspondingly raised), a situation will
gradually arise in which temporarily we shall be receiving
more gold than is necessary to meet the needs of the
Reichsbank for the time being. This would afford us an
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opportunity of supplying gold for a while to other countries
to which, by reason of our central location, we are more
accessible than London, so long as we have more gold on
hand than we need; in other words, we shall be approaching the ideal state in which, in addition to the one gold
market hitherto existing in London, a second market has
been brought into being in Germany.
Of course, I do not believe for a moment that there is
any use in our trying to oust England from its position
as the great gold market of the world. We should never
succeed, and it would be in vain to attempt it; but it is nowise ordained that, if there is one market, there can absolutely be no idea of a second one developing. It is not
so long since, as I recollect, no one imagined that there
could be a cotton market outside of Liverpool. Cotton
and Liverpool were two conceptions that could not be
dissociated from each other. No one thought of buying cotton elsewhere than at Liverpool. We have recently
seen, however, how it was possible to establish another
market for cotton, which in course of years has grown to
be very important—the one at Bremen. The same was
the case with respect to the English bill of exchange. It
was an axiom that all payments in countries on the other
side of the ocean had to be made by means of English
bills of exchange. As a result of our energetic way of
doing business, the German bill of exchange is now also
accepted, if not to the same extent as the English, at
least to such an extent that our industry is thereby greatly
benefited. I think, therefore, that you would do well,
gentlemen, in considering the matter in question, to lose
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sight of the ways and habits of business. Business is in
a perpetual state of evolution, and if we can offer inducements people will find their way to us in spite of London.
On the other hand, I do not wish to dispute what Herr
Roland-Lucke said yesterday, that in any case the development of a gold market in Germany must be a slow process, and that it is bound to take years before it can work
well. I have expressed the same thing myself repeatedly
in the course of these discussions.
All the same, it is worth while to make the attempt, for,
if we should eventually succeed in establishing a gold
market in Berlin, the Reichsbank would have the advantage, just as is the case at the present time in London with
the Bank of England, of being in a position when gold
comes, by offering more than 2,790 marks a kilogram, to
make sure of getting its supply first in case of urgent need.
There is another way, it seems to me, in which such a
gold market would operate for the public good, and that
is in meeting the needs of the gold-manufacturing industries, which would no longer be obliged to melt down
our 20-mark pieces. Furthermore, there would be times
when orders for gold would come from some of the neighboring countries, such as Scandinavia, Austria, Switzerland, etc., which could obtain a supply from us by paying more than the Reichsbank figure of 2,790 marks when
the Reichsbank was not intent upon the purchase of gold
by reason of having gradually accumulated a stock sufficient for all needs. It would be a good thing, too, if
the Reichsbank, at times when customers for gold did not
happen to be forthcoming, would temporarily lay in a
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larger stock of gold at the purchase price of 2,790 marks
than it absolutely needed in order to be able, later on,
when the demand stiffened, to dispose of some of it at a
higher price, as, for example, 2,793 marks. My idea is
that the Reichsbank should be a very active factor in the
gold trade.
I should like to say a word or two at this place in reply
to the question that has been raised as to whether, in case
we were to fix our price in the way it is fixed at the English
and American mints, the other countries would not be
likely to follow suit and raise the price of gold similarly.
In my opinion there is only one other country that could
undertake to make such a change, and that is France.
In France the percentage that is deducted is about the
same as with us, and it would be natural to ask whether
it is not a useless thing to perpetuate such a disadvantage,
and all the more so when another country has been added
to the number of those that have emancipated themselves
from it.
But France has weighty reasons for not imitating our
example in the matter of putting up the price of gold.
The economic conditions in France are such that there is a
superabundance of gold flowing into the country year in,
year out. If a time came when this was no longer the
case, the people there would perhaps be tempted to do
what we have done. But even if France were to embrace
such a policy, it would mean for us only that our needs
would be in competition with those of France, a condition
which already exists. One effect, however, would be
that sterling exchange in Paris would not fluctuate as
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much as it does now. If gold were to be bought in
London on French account, the price being, let us say,
77s. io>£d., then the rate of exchange would not fall, as at
present, to 25.13, but as a result of the higher purchase
price of gold in France, it would remain at 25.19. But
even under existing conditions France is the chief purchaser of gold. Is it likely therefore that she would be
anxious to get more? I hardly think so. Neither is it
in her interest at present to pay a higher price for it.
As far as England is concerned, I can not see that any
change is called for in the regulations governing the
Bank of England. What* object the English would have
in changing their price to one 6 marks higher and assuming this loss in addition to the expense of coinage, considering that England is forever going to have the lead
in the purchase of gold? The Bank of England is able,
as it is, whenever it is badly in need of gold, to buy it by
putting a higher price on it. It is legally not bound to
pay more than 77s. 9d., the mint value being 77s. io>^d.;
and, if there is no competition, it occasionally lowers
the price that it offers to this minimum limit. It can
afford to do it because other countries have to reckon on
higher transportation charges and other expenses, while
it has the advantage of being able to pay even as much
as 77s. io>^d.—and this price it pays frequently—without suffering any loss on account of mintage, as there
is no such thing as seigniorage. If it were to go regularly above this price, which corresponds to a par of 2,790
marks, it would suffer a direct loss at every purchase if
it were to convert the gold into sovereigns, and in England,
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just as in this country, recoinages are required every
year. The bank would have no interest in anything of
this sort. At the present time it pays exceptionally
even more than 77s. ioj^d, in order to get a higher
price for the gold later on, although it has never in the
past few years, to my knowledge, paid as high a price
as that mentioned by Geheimrat Lexis, 78 shillings.
A MEMBER: 78s.
o^d.
ANOTHER MEMBER :
Market price.
Mr. FISCHER. Yes, the market price was 78s. o%&. and
more, but not so the purchase price of the Bank of
England.
We have to distinguish between the market price and
the purchase price of the Bank of England. If Geheimrat
Lexis meant the market price, then I have nothing to say;
in that case I simply misunderstood him yesterday. Even
now it often happens that the Bank of England does not
stick at the price of 77s. io>£d., and is ready to go higher
when it comes to the buying up of foreign coin, which
does not always take place when it is most convenient for
foreign countries, in order to encourage the shipment of
coin from other countries to England. In this way it paid
more for German gold coins last year than their actual
gold value. It is a rather unnatural condition, this willingness of the bank to offer an exceptionally high price
just when Germany is in any case obliged to export gold.
We have before us a very singular situation, the Bank of
England with a big stock of 20-mark pieces, running up
to several million pounds sterling, which it has secured
at a premium — that is to say, by paying more than
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77s. io>^d.—and the Reichsbank possessing a still larger
amount of sovereigns brought from Australia, which likewise have had to be paid for at a price considerably
above the gold value. [" Quite true!"]
Both the Bank of England and the Reichsbank intend
to dispose of the coin later at an advanced price, at a time
when exchange is unfavorable, and by means of their sale
to check the exportation of domestic coin.
You see now where we are going to land if we allow ourselves to drift into a situation where we have to rely upon
extraordinary conditions.
I wish to say emphatically that if we are now in a very
unusual position, if for the past ten years we have been
getting too little gold, I am of opinion that we should take
energetic steps, as the Reichsbank has been doing, to remedy the situation as quickly as possible. I believe, however, that it would be far preferable to procure gold
regularly in the course of each year by paying 2,790 marks
for it than to be in the habit of procuring it spasmodically
at a considerably higher price by making long-term advances without interest, as we have found it necessary to
do this year.
There is a further question which I think I ought perhaps to try to answer—one put by our chairman—as to
how the new policy would be likely to work with respect
to the point that Geheimrat von Lumm raised in his
address. I quote from his words: 4<The bank says,
' We grant these advances without interest only to reliable
parties who we feel sure are not importing the gold
simply as so much merchandise which is in transit in
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order to reexport it in some other form.'" Of course,
gentlemen, if we are compelled temporarily to pay such
unusually high prices by means of advances without
interest as we are paying just at the present time, then
such a 'precautionary measure is decidedly in order,
perhaps even necessary, although I do not believe
that anyone will be anxious to exploit the Reichsbank
for the purposes of this sort of arbitrage business. If
afterwards, however, gold has to be exported, we must
remember that it will not be possible to get it at par. To
obtain bullion it would be necessary to bid above the
bank's fixed price of 2,790 marks, and, if anyone proposed to export 20-mark pieces, the price, owing to the
wear of the coins, would be 2,796 marks. In future no
one would offer to sell gold to the bank at 2,790 marks in
order afterwards to export the same thing when the price
was higher, for this would mean a loss. But if the bank
now, by means of long-term advances without interest,
pays a price which is practically equivalent to 2,798
marks a kilogram, then it has a right to say: "If I pay
this unusually high price, I must make sure that no one
comes along and enters into dealings with me with the
object afterwards of sending gold out of the country in
the form of 20-mark pieces.'' As these cost only 2,796
or 2,797 marks, the precautions that are now taken
are not unwarranted. I believe that the question as to
how these things will turn out in future will suggest its
own answer if it is put in this form: If the Reichsbank
is to go on permanently paying a price of 2,790 marks, is
it conceivable that anyone will deliver gold to it at this
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price in order to export it at a cheaper price? I consider
this an impossibility for, inasmuch as gold can never
cost less than 2,790 marks, no one can find any profit in
exporting it, even in the form of 20-mark pieces, as these
would cost at least 2,796 marks a kilogram.
It has been further argued that the Reichsbank at the
present time pays the higher price represented by the
advances without interest only when it is certain that
otherwise the gold would not be imported, and when the
amounts involved are large. Now, I must tell you frankly
that I do not believe in this twofold criterion and that
I do not believe in it even when it is applied by reason of a
large sum being involved. It is possible that the Reichsbank occasionally procures gold at as high a price as
2,794 o r 2>795 marks, or at even a somewhat higher figure,
by making advances without interest, while at the same
time it obtains certain quantities from other sources
more cheaply. It appears to me that in that case it
either pays too much for its gold or that those who offer
it gold at a lower rate must be lacking in business sense,
for the effect of long-term advances without interest,
which is equivalent to the payment of a higher price for
gold, must manifest itself in the rate of exchange and the
price of gold in general. But when the rate of exchange
is down to 20.36 or 20.35, then I certainly do not expect
the Reichsbank to offer anyone an excessively high price.
There is still another point to be considered. If the
price is permanently 2,790 marks, the question could not
possibly arise whether an importation of gold might not
take place with the price as low as 2,788 or 2,787 marks.
84713—10
30
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The procuring of small doses I consider of no value whatever with respect to our getting the supply of gold that we
need. I believe that the history of the past ten years has
taught us this, and that we had better get rid of the notion
that we ought to try to procure small quantities of gold at
a lower price, unless we are willing to pay the penalty of it
later on. As long as the Reichsbank has not yet adopted
the principle in question, as long as its operation has not
yet been invoked, it will naturally happen every now and
then that gold finds its way to the bank in small quantities at a low price, but always (barring very exceptional
cases) merely as the result of a violent downward movement of the rate of exchange. But what I regard as one of
the most desirable concomitants of the introduction of the
new policy is the fact that the rate of exchange will be
more stable, not fluctuating so violently either downward
or upward, which will be of great advantage with reference
to the German bill of exchange.
The limitation of the range of the rate of exchange is, in
my opinion, one of the fundamental advantages to be
derived from our gold standard. The introduction of a
gold standard has for its object to secure a stable measure
of value not only for our domestic business, but also for
our international trade. Such a stable measure of value
facilitates commerce. But the limitation of the range of
the foreign exchanges possesses an additional advantage,
which I consider very important. Whosoever brings gold
into Germany, be it for a shorter or a longer time, must be
desirous to derive a profit over and above what an investment in his own country would yield. But the interest
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which he obtains is bound to be diminished through t h e
losses which he sustains on account of t h e fluctuations of
exchange. Now, if t h e fluctuations of exchange in Germ a n y are greater, it means t h a t foreign countries will send
their money hither only in the anticipation of obtaining
a higher r a t e of interest. I t means t h a t we are debarred
from the' great benefits which t h e London market enjoys
at present and which have made this market so import a n t — t h e participation of t h e whole world in t h e financial
operations of England and t h e interest t h e world has in
sterling bills of exchange and in t h e maintenance of credit
balances in London. The fluctuations of exchange not
only result in loss t o t h e investing capitalist b u t they also
have the effect of causing foreign customers to drop away.
If in the past year by reason of the high rate of exchange
investors in German exchange lost more t h a n they expected to gain through t h e difference in the rate of interest, it would be a difficult m a t t e r to induce t h e m t o engage
again in similar transactions, inasmuch as they do not
regard these as t h e safest of all operations, b u t rather as
speculations which they do not care t o engage in on principle. If we consider t h a t in every country, just as in our
own country, there is a strong desire to keep t h e money as
far as possible from going abroad, it is evident t h a t in t h e
violent fluctuations of our exchange we place a dangerous
weapon in t h e hands of t h e outside world, of which it will
certainly not fail t o avail itself.
I should like, gentlemen, to revert, in a few words, to
t h e question of t h e use of gold in t h e industries. I a m
one of those who believe t h a t it would be very difficult
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to prevent industry from making use of our German coins
if there is any advantage in it. We have heard of cases
where the Reichsbank supplied full-weight coins to manufacturers, who of course obtained in this way a cheap
raw material. But there can be no inducement to melt
down coins in general, and worn coins in particular, if
by carrying on a very extensive business in foreign gold
in Germany—I mean a business in foreign coin and
bullion—we afford industry at all times an opportunity
of easily procuring its gold without having to take 20-mark
pieces. In any case it would not do to hinder industry
by artificial means from obtaining the gold that it needs.
I should like to say a word here in behalf of Doctor
Stroll, who made a statement which, it seems to me, was
based upon the impression that there was something in
the composition of the German coins which made them
especially available for the purposes of industry. I believe
that this notion was due to the fact that a wrong explanation was given to us by the experts of the gold industry.
These experts asserted that "we can not melt down any
other coins, even if they are cheaper, because there is
something in the alloy of the foreign coins which renders
them unserviceable." This suggested the idea that it
might be practicable to introduce the same composition
in our own coins. The information which we received,
however, was not correct, being based upon an error. In
particular, what the gentlemen stated regarding the
Russian coins is altogether at variance with the actual
state of things, for, as a matter of fact, Russian coins
are being constantly shipped from here, day after day, to
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Pforzheim to be melted down in the gold industries there.
These coins are bought because they are cheaper, because
there is at all times a steady supply of them, and because
there is a market for such coins in Berlin. In other words,
it is easy to get hold of them. But if industry in the
past has mainly made use of German coins this has been
due, in my opinion, to the fact that for a long period our
situation with respect to foreign exchange was not a
favorable one, the German coins being thereby rendered
cheaper. If they had been regularly dearer than other
gold, industry would have tried before to make use of
other coins. I think it would be a good thing if the
Rekhsbank could attend to the needs of industry in such
a way as to do away with the necessity of melting down
coins. I think it will be prompted all the more to do
this if in future, by reason of the abolition of the seigniorage charges, it will have to assume the expense of
recoinage, which ought to make it more intent than ever
on the suppression of all unnecessary expenses in connection with minting.
I should like to call attention to the fact that the assay
office in New York converts some of the bullion which it
receives into small ingots specially adapted to the needs of
manufacture, which it supplies at a very low figure, making
a merely nominal charge, so that it practically supplies
industry with the gold that it needs.
I wish furthermore to make a suggestion with reference
to the statistical inquiry that has been set on foot (and
which I consider very valuable) relative to the needs of
industry and the various kinds of gold required for its
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uses. The melting down of German gold is going on not
only in Germany but also in Switzerland, where a great
deal of gold is consumed in the manufacture of watches.
I should like to ask the question whether it would not be
possible through our relations with Switzerland to get
some light upon the situation there, and perhaps to induce
the authorities to take steps to ascertain in the interest of
German statistics how many German coins have been
melted down in that country in the past few years. We
ought to have this, it seems to me, for the sake of greater
completeness in our estimates, especially as I have no
faith unfortunately in the practicability of the scheme
suggested by Freiherr von Gamp of gauging our stock of
gold by means of a general census of the quantity actually
in possession of the public. I t would, of course, be of
great advantage if we could have an accurate idea of the
amount of gold that is in our possession, circulating from
hand to hand. The impression that the banking world
was not anxious that such information should be at hand
is, in my opinion, altogether unfounded. If here and
there some member of the banking fraternity is not in
favor of such an investigation, it is probably owing to the
conviction that the scheme is not practicable and that the
data obtained would in any case be altogether untrustworthy. The kind of investigation proposed by Geheimrat
Lexis would all the same be likely to furnish some valuable
material, although it would not be calculated to give us a
clear notion as to the extent of our gold supply.
For my part, I should like to submit the following for
your consideration: Would it not be a good thing if the
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Reichsbank were to keep regularly an account of the
amount of bank notes returning to it and of the quantity of
gold coming into its vaults from all over the country?
Although this might not enable us to have a clear idea of
the circulation, inasmuch as the bank notes can find their
way back quicker than the gold, still we should have some
knowledge of the ratio of paper payments to gold payments, and valuable material will have been supplied
bearing on the question of how far our circulation is
saturated with gold.
Well, gentlemen, this has been quite a little digression.
I find that I have been making large drafts upon your
patience, and I am afraid that the hour has arrived for the
noon recess. Would you prefer to have me continue after
the recess?
(Exclamations of ''Rather go on now!")
With reference to the consumption of gold in industry,
you will perhaps find some data that I wish to submit to
you of interest.
I have obtained the following tabulated information,
which I consider reliable, regarding the" use of gold for
industrial purposes in France in the years 1898-1906.
Amount.
Kilograms.
18,240
Francs.
62,800,000
21,600
74,400.000
20,800
71,600,000
74,400,000
21,600
24,600
18,250
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Value.
84,700,000
20,300
62,900,000
69,900,000
2i,065
27,800
95.700,000
72,500.000
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We find, therefore, that the consumption in 1898
amounted to 62,000,000 francs and that the figures
increased until in 1906 the amount had become nearly
96,000,000 francs.
These data are derived from reliable sources and I
have been otherwise assured of their correctness. In
France these statistical tables are prepared from the
figures supplied by the stamping offices. As all gold articles that are manufactured have to bear an official stamp
marking the fineness of the gold, very fair data are afforded
relative to the use of gold in the industrial arts. You
will observe that there has been a considerable increase
there, as well as in Germany, and I agree with the speakers who have asserted that we must be prepared for a
further increase in the consumption of gold in the arts.
A good deal has been said here about the mistakes in
our estimates of the gold in circulation, arising from the
circumstance that no account is taken of the gold carried
out by foreign laborers. It is possible that I have not
fully grasped the meaning of the speakers, but from the
figures that werfe adduced it appeared to me that it was
taken for granted that the sums earned by foreign laborers left the country. I do not believe that is the case. I
believe that these sums, in so far as they are not expended
here, go abroad for the most part in another form, and
that consequently they constitute a factor only in our
balance of payments and not in our balance of gold movements. To a certain extent, it is true, the foreign laborer
carries off gold coins with him when he leaves Germany.
But there is no doubt that he exchanges this gold for the
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gold of his own country, which he does very often the
moment he reaches the border. Both on the German
side of the boundary and on the other side there are
numerous exchange offices at the railway stations in
which such exchange business is conducted. I believe
that when the laborers take the gold with them across
the frontier and exchange it at some place close to the
boundary, it does not return to Germany through the
mails, but through the channels of the ordinary traffic
that is being carried on along the border, and in this way
is overlooked in the statistics of imports. I consider this
all the more probable because otherwise the sums which
the laborers might thus carry off with them in the course
of the year would, according to my calculation, reach
such a figure that we could not have helped noticing the
effect upon our circulation by this time. In estimating
our stock of gold it is necessary to take into account the
consumption in the industrial arts, in so far as that
involves the melting down of 20-mark pieces. In my
opinion, however, the other factor, the sums carried out
of the country by laborers, is of little consequence.
A VOICE. HOW about tourists?
MR. FISCHEIV. The tourists who carry away gold go with
it when they have left our border to some exchange
office. The gold is not melted down, but is sold to Germany and comes back again. If this were not the case, we
should have to assume, on the other side of our account,
that we had a large inflow of foreign coins which foreign
tourists brought with them. I do not think we ought to
lay any stress on this factor. Anyhow, it is customary
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in calculating the statistics of our stock of gold to deduct
at once, as far as the information is procurable, the
amount of our coins which the great foreign banks happen to have in their vaults as well as the amount melted
down in foreign mints.
I have still a few words to say in regard to the situation
in England. To begin with, I think Freiherr von Gamp
is right in asserting that we are overdoing this matter of
constantly referring to England as a pattern for us to be
guided by in every respect. But all the same, there are
a good many things about England that we ought to know,
and many things which it is undoubtedly interesting to
study. It must certainly have struck us as something
very remarkable that, whereas the putting up of the rate
of discount in England immediately affects the rate of
exchange in such a way that gold pours from every side
into England and conditions soon become normal, our
experience in Germany has been that, apart from the
abnormal conditions of the past year, the effect has by
no means been so pronounced whenever we have resorted
to what we term applying the discount screws.
I believe there are various reasons for this. A chief
reason is that when England puts up the rate of discount
not only are loans called in and the numerous drafts
drawn in foreign countries upon England against credit
not renewed to the full amount, but the whole world
proceeds to buy sterling exchange. The raising of the
discount rate of the Bank of England to a certain point
will necessarily send up the rate of exchange on England
in other countries. But if the raising of the discount
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rate in Germany does not at once aflfect the rate of
exchange, the reason is that, while in the case of sterling
exchange only a small margin has to be allowed for loss,
the loss in transactions in German exchange in foreign
countries is always treated as an unknown quantity.
This is due to the fact that gold can at all times be
readily procured in England and that England is regarded
as the only country in which gold is free to come and go.
The English always point to the fact that London is the
only free market for gold as the reason why they are
bound to be in a position to procure money and gold more
easily than other nations. I believe therefore that the
question of the exportation of gold is one to which we
ought to devote special attention.
When I urge that the Reichsbank should encourage
the importation of gold by raising and steadying its price
so as to provide itself with as large a stock of it as possible, one reason is because I hold it to be extremely
injurious that a doubt should arise at any time as to
whether gold can be exported from Germany. Yes, I
wish that there might be no further occasion even for the
mild reproach that we are not glad to do it. I believe
that we can properly maintain our foreign trade only by
giving to gold the character that belongs to it. Its office
is to adjust and to balance international transactions.
The importation of gold must be facilitated, and gold
must also be allowed to flow freely out of the country.
I should like to make clear to you by a little instance to
what lengths foreign prejudice and misconception as to our
situation is carried. In February of this year, when I was
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in England, I talked with a great many people, some of
whom occupy important positions in financial circles. I
found that there was no general knowledge of the fact that
at the end of last year—that is, a few months before—
large sums of gold had come from Germany to England.
I found everywhere the impression that no gold at all had
gone into England from Germany. When I thereupon
said, " B u t you have constantly seen from the reports of
the Bank of England that gold has been imported, and
surely these reports are not false,'' I was met with the
reply, " Was not that gold from Russia? " So firmly convinced were these gentlemen that German money could
not come in. I had a good deal of trouble in establishing
the opposite idea.
Now, if it was thoiight that the gold must have come
from Russia, that was perhaps due to the circumstance
that in former times Russia appeared so often in London
as a buyer of gold. Probably the English were thereby
firmly convinced that Russia would bring gold back again.
Hence it seems to me we are safe in concluding that we
need not be very anxious about the effect that would be
produced abroad if we were to fix a full price on gold.
For even if we should go more frequently and for longer
periods into the foreign markets as buyers of gold, or if, as
the case may be, we should have gold sent here to us, still
there is absolutely no need of our assuming that this will
have an injurious effect upon us. It may even happen, on
the contrary, that on this account more confidence will be
felt in the German currency than is the case now.
In this connection I should like to return once more to
the question of whether London particularly might feel
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called upon to adopt counter regulations. Yes, the Bank
of England has, to be sure, calmly seen how in this year
almost all the gold that came out of the Transvaal has been
again exported. Often it would have required just half a
farthing to secure the gold for the bank. It is evident,
therefore, that the bank makes no strenuous efforts to buy
gold except when gold is really needed. The idea that it
will have gold h tout prix, and that it encourages an unnatural inflow, seems to me to be accordingly ruled out.
After the Baring crisis in 1890 the Bank of England pursued the policy of permanently strengthening its cash supply because the situation of the bank was perceived at that
time to be too precarious, and the statistics show us that
the whole increase of its stock of gold took place within a
short time after this event. In the Bank of England there
was in the year 1890, 440,000,000 marks of gold. We find
that by the year 1896 the stock of cash had risen to
900,000,000 marks. Since this time there has been no further increase, while in the year 1907 we find the amount to
be 700,000,000 marks, a figure which gives the approximate
average for recent years. The Bank of England allows a
few million pounds to go back and forth, but when it is in
good condition it makes absolutely no unusual efforts to prevent other countries from receiving gold. And this can
be easily explained. The note circulation of the Bank of
England is an almost completely stable one; the Bank of
England has therefore no occasion to increase abnormally
its gold supply in order to strengthen the note cover. If
we are differently situated, that is precisely because our
note circulation is not at all a stable thing, because, on the
contrary, it is constantly being extended.
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I will call attention to another point. If the Bank of
England were inclined to make reprisals, would it not
have taken means much sooner to prevent Germany
from being able to buy up the whole of the Australian gold
production of this year, which usually flows naturally into
the Bank of England in the form of sovereigns? I really
think, although the exact figures are not known to me,
that Germany has bought up even more than the full
amount of the gold produced this year; sovereigns that
have been used in Australian business have actually
been exported along with the rest. This measure, which
was necessary for us, has led to no obstructive regulation
on the part of England, although it could have been very
easily managed if England had so desired; it would have
been sufficient to say to the Australian banks that the
Bank of England was also willing to make interest-free
advances.
Now, I must reply, in a few words, to what Freiherr
von Gamp has said in reference to the flotation of foreign
loans. •
The statistics that have been submitted to us, and to
which Freiherr von Gamp refers, give no sure basis, and
contain two groups of figures. Those of the Frankfurter
2eitung, which come much nearer the truth than the other
set, rely on estimates that make no claim at all to being
complete. The second set of statistics, with the big
figures which Herr von Gamp quotes, gives an entirely
false impression; for if the aggregate face value of the
issues which have been put out at the same time in
Germany and in other countries, is cited, without ref-
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erence to that part of it which comes to Germany; then
these figures can tell us nothing. Especially with regard
to the Russian loan of 1905, I wish to contradict an error
which crept in when Freiherr von Gamp said that it was
issued at a time when our relations were already strained.
The loan was introduced in 1905, at a time when there
was in our money situation absolutely no ground for
supposing that it was not desirable to introduce a foreign
loan. In that year our rate of discount fell to the abnormally low level of 1 ^ per cent. If we recognize the principle that we should save money, and in particular that
we should do so in our dealings with foreign nations, in
order that we may have it at some later time as a reserve
in the form of foreign loans, then one would think that
no moment could be more appropriate for such a flotation
than that in which the rate of interest is so low and in
which at the same time there is every indication that we
possess money for which there is no employment. But
I, too, share the view that every introduction of a foreign
loan must be put through with proper judgment and
tact (I expressed this view even so long ago as the time
of the hearings of the experts). It is very true that not
every time is suited to the carrying out of a flotation.
Only I should like to make a little remark in this connection. We have, on many grounds, a motive for accustoming foreign nations to dealing with us; for we need them
for the investment of the surplus of our savings. Desirable as it is to choose the moment wisely, still we are not
always in a position to seek such financial operations
according to our pleasure. If, for example, a country has
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for ten years made no loans, and if at a certain time it has
need of money, then it is not at all likely that we could
say, " Would it not be better if you were to wait a year? "
By such conduct as this we should often wantonly and
foolishly lose valuable connections.
But I can add this further consideration to quiet the fears
of Herr von Gamp: No such inordinately large sum has
come to Germany from the 1905 loan of 500,000,000 that
we need ever be anxious on this account as to our monetary relations. On the contrary, the loan has, because
of its special nature, met with approval in different countries, and has even spread to other lands. It was at once
placed on the market in Russia, Germany, and Holland,
and that even in the early days of January. At the
beginning of 1905 there was no question of a crisis. But
at the end of the year 1905 there certainly appeared in
Germany circumstances somewhat less propitious. But
from that very instance it became evident that the maintenance of friendly financial relations with other countries is of great importance to us. The sums that were
invested at that time by Russia in German loans at ^H
per cent are in my estimation very significant. Apart
from that, a great deal of money came at that time to
Germany from Russia to be put out at interest in the
form of deposits. If we had broken the financial thread,
England or France might have had the advantage of this
transaction.
But I should like also to bring into the discussion
another bit of my experience. At the end of 1905 we
saw, to be sure, that our money supply was dangerously
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small. Do you know what happened then? We obtained gold from Russia. Russia sent us 100,000,000 in
gold, which came in toward the end of December, and
which has remained with us ever since. And, indeed, no
gold of any kind has run out of Germany because of the
receipt of the 1905 loan. I ask you to draw for yourselves a picture of what would have happened if in the
year 1906, or even in the year 1907, we had not had at our
disposal this sum of 100,000,000 in gold. Let us not forget that the international money business is a very sensitive thing. It is very dangerous to draw general conclusions from unfavorable circumstances that arise at a
particular time. Many things that were not in the least
intended are sometimes brought about in this way.
I will not revert in detail to the question of the rate of
private discount, for I have already taken up altogether
too much of your time. I will make just one remark. If
it is said that the rate of private discount ought often to
be not so low, then I fully agree. And if one of the members of the commission could show us how to accomplish
something in this line and how to eliminate more or less
the competition of foreign countries, I should be very
grateful for such a suggestion—I should even be ready to
pay a premium for it. But if the object is to be accomplished by letting the moneys lie without gathering any
interest, then I must say that that is a dear and very
uneconomical proceeding. And if we look to foreign
countries for examples in this matter, we should not forget that it is precisely in the form of private discount that
foreign money deposits are made. I ask, then, whether it
84713—10
31
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is really very much to be desired that we pay more dearly
for these moneys? I certainly oppose no objection to
this, for it is greatly to the interest of us bankers that
the rate of private discount be not too low. But I hardly
think that a commissioner of the Reichsbank could accomplish this. In the year 1894 people in a neighboring country were very much afraid of increases in the rate of exchange. So a commissioner was sent to the Bourse to
prevent such increases. I beg your pardon, gentlemen,
but he did not succeed in doing it.
Now, as to the holding of a greater quantity of foreign
bills by the Reichsbank, I can only say that I welcome
such a measure heartily, even though the foreign-bill portfolio is not quite as important for us as it is for countries
that have large interest payments to make abroad upon
national obligations. I believe that the proper management of our foreign-bill policy may be a valuable means
of strengthening our general money policy and of influencing the rate of exchange at times when an exportation
of gold is to be feared. The sale of foreign bills will have
a much greater effect if the sale is made by the Reichsbank
than if the sale is made out of the supply of foreign bills
possessed by private bankers or by private banks, because
through the distribution of these by the Reichsbank, just
as through the distribution of gold by the Reichsbank,
money flows back out of general business and out of the
open market into the bank. A contraction of the general note circulation takes place, which has the same effect
as a raising of the rate of discount, and which in so far
tends to lower the rate of foreign exchange. It strengthens
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thereby the effect of a simple sale of foreign bills. In the
transactions of the private banks money merely changes
hands. But through the lowering of the rate of exchange
an exportation of gold can at times be diminished, retarded, postponed, or perhaps even entirely prevented.
The portfolio of foreign bills serves, moreover, another
very useful purpose. This is that one can set a limit to a
downward movement of the rate of exchange by purchasing at low rates. A foreign-bill portfolio of the Reichsbank on the present footing, which exists for a time and
which goes out of existence for a time, can certainly be
made to have a moderating influence upon the market for
foreign bills. But we must not count upon too great
results from this, for experience teaches that often even
the very largest sums fail to accomplish anything in the
foreign-bill market. In relation to the rate of interest
they are particularly ineffective. But I welcome it as a
further means of increasing the effect of the discount
policy. And it has also the advantage—which is not at
all to be despised—of enabling the bank to import gold
against its stock of foreign bills (and that without regard to
the price of gold), and by this means avoiding the necessity
of raising the rate of discount. Otherwise, we should, in
these instances, be obliged to raise the rate of discount
merely through want of a certain quantity of gold. In
critical times, therefore, the bank may employ its stock of
foreign bills almost in the same way as it employs a gold
reserve. Nevertheless, I should be opposed to having it
counted in with the metallic cover, for we must not overlook the fact that the function of the metallic fund is to
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redeem the notes as they are presented, and for this purpose the foreign securities can not be used. It is even a
mistake—and one that I very much deplore—for us to
count the imperial treasury notes as part of our note cover.
[Bravo!] I have already spoken of the advances free of
interest, and said that they are an efficient means of
encouraging the importation of gold at exceptional times.
I should like, however, to lay down once more my chief
principle with regard to this matter. For ordinary times
we ought to make arrangements—by raising the purchase
price of gold—by which in a natural manner, day by day or
month by month, there would be an influx; but we ought at
the same time to be able to take now and then more energetic active measures. In cases of urgency we shall be able
to produce quick effects through advances free of interest,
perhaps in conjunction with temporary further increase
of the price. But it is desirable that we should regularly,
as a general thing, receive gold, in order that we may
strengthen our holdings continuously and promptly. In
this way we shall be less often called upon to make acquisitions later of a special and hasty kind. It is better to
receive the gold too early.
A member of the commission has proposed that we buy
up also foreign coins, particularly sovereigns, by the
piece and without reference to the weight. I object to
this because I am afraid that people would hunt up the
bad coins to send to Germany, and would send the heavier
ones elsewhere. Light coins cause too great a loss in
case of recoinage; they would, it is true, be available if
there should be an exportation of gold to the country
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-f
0 8
.
from which they came; but this may happen not to take
place for a long time, and, on the other hand, exportation
to other countries may become necessary, and for that
these light coins would not be available. Such a measure
as this, of buying up by the piece, could be considered
only as an additional resource in very exceptional times.
In general I would not recommend it.
I come now to the last question under B: How is the
outflow of gold into other countries to be obstructed?
To a considerable extent this question has already been
disposed of by what has been said before. It is to be
obstructed by management of the discount policy, with
additional help, if necessary, from sales out of the foreignbill portfolio. A policy of premiums on gold, which was
proposed by one of the experts, should be rejected without
hesitation; I have already, in the course of the hearing,
expressed in detail my views on this point. The exportation of gold can not always be prevented, nor would this
be desirable. The exportation of gold, indeed, has, of
itself, a tendency to correct the very market conditions
that led up to it; for we must not overlook the fact that
when we export gold other countries are importing it,
that, therefore, at the same time that there is at home a
rise in the rates of interest there takes place abroad an
easing of the money situation, so that a double change
in the prices of stocks and goods takes place, there is
pressure here, and at the same time other countries are
better able to buy up goods and stocks from us. In this
way the equilibrium is very soon reestablished.
Gentlemen, I must beg you to forgive me for having
spoken so long. But in closing I desire to express the
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Commission
pleasure I have had in seeing how in this investigation
we have come near to agreement on a great number of
subjects. I for my part admit that much that I have
heard—from the other members as well as from the experts—has interested me greatly, and I am convinced
that the investigation has been of much use in clearing
up our ideas.
I thank you again for the patience with which you
have listened to me.
The CHAIRMAN. I think I shall be expressing the feeling
of all of us when I thank Herr Fischel very warmly and
sincerely for his most interesting and enlightening speech.
[Bravo!]
I should like to say to him, in reply to the doubt that
he expressed, that his speech to-day has only strengthened still more the lively interest which was aroused in
us all by preceding observations on the subject of the
creation of a German gold market. I should advise the
Reichsbank Direktorium to give further careful consideration to this proposition, taking counsel together, in small
groups, in order to find out whether, and if so how, it
may be carried into practice.
There is still just one little question that I wish to ask
Herr Fischel. Do the London and American mints give
gold coins immediately upon the delivery of bars, or do
they take some time to do it?
Mr. FISCHEL. AS to the American mint, it pays, I
know, on the next day. In regard to the English mint
the question really can not be answered with certainty,
because for years no private parties have taken gold to
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the English mint. For a long time it has been in practice
the case in England that all the coinage has been done
on account of the Bank of England, as it is done here
on account of the Reichsbank. The English mint is,
I believe, not bound to give gold immediately upon the
delivery of bars. It is only bound to have the gold it
receives coined as soon as possible. With the arrangements that are now made this can not, I think, take
much time. If long delays were allowed to intervene at
all, it would have to be intentionally. But in England,
when the rate of interest is low, even such delays as might
take place would not really matter much. The Bank of
England is able to profit by the fact that the mint does
not make immediate payment in sovereigns, for it is
thereby enabled not to pay quite the full price, being
not obliged by law to pay more than 77s. 9d. In point
of fact, however, even when no other buyers are in the
market, it pays, besides this price, a little commission to
the brokers, and it also takes upon itself the cost of assaying; thus it pays in reality more, even though it abides by
its minimum price. But this is not entirely conclusive for
our case, since we are differently situated in consequence
of the greater freight charges that we have to pay, and
in consequence of other circumstances that exist here,
such as the deduction made for assaying and for losses
in smelting, all of which expenses together may be valued
approximately at one-tenth on the thousand. In my
judgment, then, the true par of the minimum price paid
by the Bank of England is, in consideration of what
has been said, and assuming that exchange is at par
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(20.43), almost precisely 2,790 marks. But I should not
be afraid of evil consequences if, through the establishment of a price of 2,790 marks, we were obliged to pay
somewhat more than the Bank of England. If anyone wishes to contend against the customs that have
hitherto prevailed and to create a new market, he will
have to be very liberal in his conditions. It is also to
be feared that under any circumstances the most important market for gold will still be in London; that it
could not be diverted from London by another country
even through an increase of the price; and that at best
we shall succeed, by means of our measures, in obtaining
gold regularly, but that we can never aspire to attain a
degree of importance in the gold market equal to that of
England.
Mr. MOMMSEN. Gentlemen, after the very detailed
expositions of the subject made by Herr Fischel, I can, I
think, sum up very briefly my answers to the stated questions. The circumstances have been placed before you,
and it is not necessary to take up the separate points
again. One of the observations of Herr Fischel I wish particularly to bring up again. In a rather long exposition
he submitted his view that our balance of payments is
not nearly so unfavorable as it has hitherto been represented to be by all the experts and by most of the members of the commission, with the exception of Herr
Schinckel. I myself consider the view of Herr Fischel
to be absolutely right, especially when taken in conjunction with what Herr Schinckel has said. I think that the
whole showing of the figures furnished by the Reichsbank
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statistics in a certain sense proves this view to be right;
for it is hardly credible that, if we had had in recent years
so heavy an unfavorable balance of payments the figures
would still have remained where they are.
I should like to bring still another figure into the discussion. Herr Fischel gave the figures of the stock of
metal in the Reichsbank for 1898 and 1907, and explained
that it had diminished by 7,000,000—from 850,000,000 to
843,000,000. On the other hand—and you will excuse
me if I fill out this statement—I wish to bring forward
the fact that in the same period of ten years the stock of
gold was not diminished, but was, on the contrary,
increased at the Reichsbank by 50,000,000; and since for
the question we are here considering the stock of gold is,
after all, the most important factor, we can not, I think,
draw any very unfavorable conclusion from the figures of
this ten-year period. Expressed in figures, the stock of
metal was diminished by 1.2 per cent, but the stock of
gold alone was increased by 9 per cent. Here, then, we
have at hand figures which appear to argue against the
existence of a heavy unfavorable balance of payments,
and I should be greatly pleased if the further discussion
of the subject finally enforced the conviction that we are
not on the wrong side of the ledger in the sense in which,
through the publication of our balance of trade, we
always appear so to outsiders. I think Herr Schinckel is
quite right; the profits secured by German commerce,
which surely form an essential contribution to the improvement of the balance of payments, are in general
greatly undervalued and are not given nearly enough
weight in reckoning the balance.
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I see that Herr Geheimrat von Gamp, who was not
among us yesterday afternoon, is absent this afternoon
also. If he were here, I should have been glad to say a
few words about the view of foreign loans which he has
held for many years. Since he is not here, I can sum up
my ideas very briefly. I merely wish to point out that
we must have as secure a position as possible in international commerce; and yet it is proposed that we be
deprived of the only means we still have under our present unfortunate economic policy—I will not dwell further
upon that point—of being able to influence in some
measure the international market. For without admission to the Bourse we are not in a position to fulfill the
desires of our home capital to participate in foreign loans.
Even Herr von Gamp, if he looks at the matter from this
point of view, will certainly not deny that this is of
enormous importance, not only for our economic life, but
also for our whole international policy.
That the position of our bourses is not such as for this
purpose it should be, we are all agreed. Herr von Gamp
is always pointing to the admission of large amounts of
foreign loans. Gentlemen, the question in this aspect has
not nearly the importance that Herr von Gamp attributes
to it. I will even assume for the moment that the figures
are correct. They are, as Herr Pischel has already fully
established, absolutely incorrect; this is at once obvious
from the fact that from two quarters different statistics
are given which claim, both of them, to be correct, but
which are diametrically contradictory in the very most
important and fundamental points. Let us take up the
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0 8
foreign state loans of the year 1905. The Frankfurter
Zeitung appraises the nominal value at 724,000,000, the
market value at 676,000,000; the statistics of the Okonomist appraise the nominal value at 866,000,000 (about
140,000,000 more than it was estimated to be by the Frankfurter Zeitung), and the market value at 711,000,000
(that is, only 45,000,000° more). There can be no question but that there are gross mistakes in these figures.
It could be further proved in the case of other figures,
but I will not go into the matter in detail.
A thing that is of much greater importance in its effect
on the outflow of German capital into other countries has
come about in consequence of our bourse law, to which
we have often referred in other connections—namely, the
fact that people at large in Germany have begun to speculate very extensively in foreign securities. These are
securities that can never be reckoned up in these figures,
nor can they, indeed, be specified at all; and it will be a
long time before this situation is changed. The figures
that are given in those estimates do not, moreover, in the
least prove what Herr von Gamp in his remarks wished to
prove. He reproaches the bankers with inducing the
public to invest too much money in foreign stocks.
Now, gentlemen, in the year 1905—this, too, has
already been referred to—there was actually such a large
supply of money in Germany that one could truly say that
it was not necessary to invest all this money at home, that
some of it might be invested abroad. Now, even from
these statistics (which, to be sure, are themselves wrong,
but which probably give the figures in fairly correct pro<*The actual difference in the figures is 35,000,000—Translator.
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portions), you see at once that in the year 1906 the investments in foreign securities fell to one-tenth of what they
were in the year 1905, and that in 1907 they fell to onefifteenth of the same amount. Why, even if the commissioner whom Herr von Gamp wishes to bring in in some
legal way were present, even he could have done nothing
more. All he could have said is that when the rate of
interest is high investments in foreign securities must be
curtailed; and this was done anyway.
I think that too much weight ought not to be given to
this matter. In my opinion, and here I beg to differ with
Herr Geheimrat Wagner, it has no effect upon the regulation of the rate of interest; and I think that many, or
perhaps all, men of practical experience will agree with
me that the investment of German capital in the foreign
paper admitted here to the bourses has exercised no
influence whatever. It is not in itself sufficient to exercise
a real influence; and, as a matter of fact, the paper has
never been taken over by the people except when there has
been a good opportunity for doing so. This regulates
itself quite automatically through the market.
Herr von Gamp also reproached the banks with having
lent their services to enable the public to sell Austrian,
Italian, and Russian securities which he has designated as,
if not first, at least second, as distinguished from third,
mortgages, and to buy other paper in exchange. I think
that in this the banks are really not at all to blame.
People always imagine that the public sells only on the
advice of the banks. Generally the public feels that it is
much wiser than the banks; it buys and sells as it thinks
best, and the banks can do nothing to change matters.
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Now, Herr von Gamp referred to another question, that
of the private rate of discount. He maintained—I shall
not go into the particulars—that the private rate of discount, and the profits which the great private banks
obtain from it, must exert an influence upon the discount
policy of the Reichsbank. I think that if our chairman
and the gentlemen of the Reichsbank administration were
to answer this question they would undoubtedly take
the stand that there can be no question of any influence
upon the bank discount rate exerted through the private
discount rate as such. The private discount rate is, to be
sure, an indication that the money question is becoming
easier or more difficult, as the case may be, and for this
reason the Reichsbank must, in shaping its discount policy,
follow carefully the changes that take place in the private
discount market; but as for an influence, in the proper
sense of the word, and especially as for any intentional
influence, there can be absolutely no question of such a
thing.
Gentlemen, let me say a few more words about the
remarks of Herr Geheimrat Wagner. First, I am glad to
find that I am in entire agreement with him in what he has
said about the theoretical and the practical men in relation
to the questions that we are here considering. I believe
that we all have reason to make use of every opportunity
to learn something from the theorists; and I am glad that
the theorists thoroughly recognize, in regard to the most
important phenomena, that they may also learn from the
practical men. I welcome this as a particularly happy
result of this whole inquiry. I see that agreement can
thus be arrived at on many points on which each side
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formerly held to preconceived opinions. I am inclined to
think that in the case of both practical men and theorists
it has been here shown that the preconceived opinions are
not in such bad shape as we thought. Although we have
for the most part very different economic principles from
those of Herr Geheimrat Wagner, we arrive at almost the
same final conclusions in regard to the questions which
have chiefly concerned us here to-day. And more than
this we really can not ask—especially we practical men,
who are after all personally interested only in the final
results.
Now, Herr Geheimrat Wagner had admitted that the
investment of capital in foreign securities is useful and
necessary. On this we are all agreed, with the exception
of Herr von Gamp, and even he found the assumption to
be necessary for his introductory remarks, though he abandoned it in the last nine-tenths of his speech. But Herr
Geheimrat Wagner lays stress upon the great risks which
are still involved when the German public invests money
in foreign loans. He sees these risks especially in the possibility of losses caused by decline of price. Well, gentlemen, we have never doubted that one may lose money on
securities, both domestic and foreign. One may also gain
money on them, and I think that, striking a balance, our
German public has lost on foreign securities much less
money than it has gained. At any rate our German public has lost much more money in recent years through
our first-class domestic securities (I have in mind Prussian consols and government loans) than it can have lost,
all told, through foreign securities. [Laughter.] I think,
therefore, that we should not give so very much prominence to this point that there is a possibility of loss.
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It is true that the public may suffer an immediate loss
on a stock of this kind. Let us suppose, for example, that
the people who take over the loans place them at a small
profit, and the public afterwards has to pay the losses
caused by decline in price. After all, this is everywhere
the case, and as regards the great undertakings of business
it does not matter if a loss is occasionally entailed by such
a decline in price. Losses of this kind, in an economic
sense, can properly be spoken of only in case the promised
interest on foreign loans is not received; for the investing
public which buys such papef, or at least the large public
that we have in mind, should, by rights, not buy these
securities in order to sell them again immediately, and so
to profit by a rise in price, but to hold them for a long time,
and the public that buys them in this way hardly ever has
occasion to complain of losses of property; and the cases in
which interest is not paid are extremely rare, and, indeed,at the time in which we live and of which we are speaking,
they really do not come up at all. It may be hoped that
they will not occur again in the future. At any rate, I
think that if this is the only risk that Herr Geheimrat
Wagner is afraid of—that losses may be suffered through
such paper—then we ought never to sell any paper on the
Bourse, for this feature is shared by all domestic and
foreign paper. And on the other hand there are the very
great advantages that are produced if the German bourse,
like the English and French bourses, can also take over
foreign loans. Gentlemen, this taking over of foreign
loans is often not particularly in the interest of the German
banks, but is often in the interest of the foreign policy of
the country. I do not know whether the news that I read
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in the paper this morning is true; but if it is true it is very
instructive. The question is what is to be done about the
Balkans. England can not grant to Russia the privileges
she wishes in the political domain, but as compensation the
English ministry is said to have offered to the Russian the
taking over of a loan. That is a political move which may
be of great value to England.
Gentlemen, so much for these matters. I will go no
further into the particulars. The position that I take
with regard to the particular questions here asked is in
line with the expositions of the subject that Herr Fischel
and Herr Schinckel have already given us. I will not
burden you further with my statement of the case.
Freiherr VON WANGENHEIM. Gentlemen, I permitted
myself yesterday to say to the honorable chairman that
I have no intention of entering here upon answers to the
separate questions. I have two reasons for this. In the
first place I agree with Herr Geheimrat Wagner that it is
probably of little use for the purposes of the inquiry as a
whole that we laymen should express our views on the
technical questions, of which we can not judge as well as
the experts. I believe that during the inquiry extremely
valuable material from a technical standpoint has been
gathered together and that this will contribute to the
improvement of present conditions. I conceive that one
mistake, and one factor in the failure of our national
economic policy, lies in the fact that essentially we confine
ourselves, by a purely mechanical method, to taking up
the separate phenomena and symptoms and drawing consequences from them as to further developments. If a
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fundamental result, a lasting benefit, is desired, there is
no course open to us but to treat the question in all its
bearings as an organic whole, and thence to deduce conclusions for the alleviation of critical conditions.
Now, I wish to put forward as briefly as possible the
general standpoint of political economy. I have, however, already explained to the honorable chairman that
I should be very glad not to take up your time and should
be perfectly willing to submit my remarks in writing. I
have no vanity in the matter.
A VOICE. Then we could not reply to them.
Freiherr VON WANGENHEIM. First a few preliminary
remarks. I will not enter upon a discussion of controverted points of political economy. I will touch upon
only two points, one of them being in reference to the
ideas just expressed by Bank Director Mommsen. He
said, in reply to the remarks of Herr von Gamp, that it
would not be right to speak of the great losses on foreign loans; that we have much more cause to say that
losses have been incurred in domestic loans. But Herr
Mommsen contradicted himself by saying shortly afterwards: The public can not talk of losses so long as it
receives its interest. From domestic loans it has certainly always received its interest.
Now, as to a fundamental question that was bandied
about yesterday by Herr Raab and Herr Weber. Herr
Raab was, to my mind, right in saying that in the matter
of the much-discussed balance of payments and balance
of trade the point of interest is to diminish imports,
and I think that what Herr Raab meant to say has been
84713—10
32
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seriously misunderstood. In making out the final outcome of our economic balance too little consideration is
given to the fact that a considerable quantity of new
values is produced yearly in increasing measure by German agriculture, the only branch of activity, indeed,
that does produce entirely new values. You will admit
that manufactures have only to do with elaboration
which, through the expenditure of capital and labor, creates greater values. New values are really created only
by agriculture—or, if you like, by God through agriculture—out of the inexhasutible resources of the soil,
out of rain and sunshine. Now, this is what I wish to
say in opposition to Doctor Weber. If we go deeper
into the question of how far an increase in German
agricultural production is still possible we find such
large sums that we are obliged to admit the advisability,
from the standpoint of the general economic interests,
of adopting energetic measures to develop and encourage German agriculture, especially in the East; for in
this way, apart from the gain in grain and cattle, there
is created in agriculture a market which will enable our
manufactures to get on without a considerable part of
our exports in case other countries will not take them
into their markets.
For further treatment of this question I should like
to refer you to an extremely interesting book by Herr
Geheimrat Doctor Traugott Miiller (who is unfortunately
ill just now), of the ministry of agriculture, Agrarstaat
oder Industriestaat (Agricultural State or Industrial State).
It appeared in the yellow calendar of Mentzel and v.
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Lengerke, I think in 1902. Another work by the same
author ought really also to be read in this connection;
this is a paper on "The Development of German Agriculture/ ' written for the Paris Exposition.
Gentlemen, in all that I am about to say I beg you
will understand that I wish to make no personal attack
whatever and no attack upon any calling or any class
of the community. My position is that every branch of
economic activity deserves the protection of the State
and the protection of the community, but only so long
as that branch of activity understands that it must
accommodate itself to the needs and demands that the
community expects it to fill.
I wish, in the first place, to review briefly the arguments that have thus far been made. I have taken
pains to treat the matter in as short space as possible.
RESULTS OF THE BANK INQUIRY.
I have already (in the session of May 20) mentioned
the fact that my friends, and, indeed, the whole German
people, are especially interested in having the questions
that are submitted to the Inquiry answered from the
standpoint of the economic interests of the whole community. The two volumes of stenographic reports before
us fully confirm the misgiving that I then expressed;
much the greater part of our discussion was carried on
from the point of view of our great banks. In the report
of the whole commission, therefore, we must take particular care that the standpoint of the general economic
interests is again given the leading place.
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The following consideration forces us to arrive at the
same conclusion. The stenographic reports (filling more
than 800 quarto pages) comprise such an enormous mass
of material and details that a clear-cut answer to the
question of what is to be done can be arrived at only if
one can simplify into the clearest possible form the conflict of opinions which repeatedly brought a good deal
of excitement into the discussions.
I rest in this matter on the assumption that we shall
probably best learn what we wish to learn from our respected opponents.
There are, then, in the stenographic report the following particularly important points:
1. Herr Schinckel said on page 24:® "AH that regulates
itself. Any legal interference might injure the development of this matter, too."
2. Herr Kammerer said on page 48:a " I hold that nonintervention is the very most essential and important element of the case."
3. Herr Roland-Lucke said on page 52: a "If we did
not have to confront economic ups and downs, what
would become of the school which, more or less, from
generation to generation, creates anew the natural and
necessary experience? Where would be the chance for
inner contemplation, in which each man, so long as he is
in active life, examines himself and asks, What mistakes
have 1 made? So if we could succeed in preventing, with
all possible wisdom and scientific method, such crises and
complications in the economic world, we should be doing
<*Stenographic reports of the entire commission.
experts on questions III-V of the list.
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the worst sort of service both to the economic world and
to economic science/'
4. Herr von Pflaum says on page 53:° " Trade and
commerce are anyway not adapted to being constantly
regulated/'
5. One of the chief points made by Herr Fischel was this,
on page 173:^ " Freedom of business intercourse is certainly the most important and sacred of all our liberties. "
6. Herr Doctor von Schwabach said, on page 316: a
" If I may be allowed to sum up, I think I shall have to
say to the expert who spoke just before me that the general and final result will be that things will remain as
they were—that is, in regard to the management of the
whole policy of the Reichsbank, and above all in regard
to the development of business life."
Gentlemen, these citations will probably be enough to
enable you to draw the conclusion that in the discussions
of our bank inquiry, the chief point for us to decide is
whether we are for or against free trade in gold, in money,
and in credit.
I can here, I am glad to find, declare myself in agreement with Herr Geheimrat Riesser, who, on the first
bankers' day at Frankfort-on-Main, as also in his work
on the history of the development of the German great
banks, and in our discussion here on May 22, explained
that the German banking system should not be treated
from the standpoint of merely private economics, and
that it is growing farther and farther out of the sphere
of legal regulation on the basis of mere private rights. A
<* Stenographic reports of the entire commission. Remarks of the
experts on questions III-V of the list.
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bank, he says, is to-day not simply a business—it is also
a public office. Geheimrat Riesser is, therefore, as much
opposed to the individualistic or free-trade system as he
is to the system of state socialism (p. 174 a). Very much
to the point! But between these two extremes there is
the possibility of public legal regulation with maintenance
of private ownership of the means of production. The
conceptions of public function on the one hand, and free
action or self-limitation on the other, are mutually exclusive. The extremely able argument of Bank Director
Gwinner, on May 13, seems to me to be also pitched in
the same key. So I am in the very agreeable position
of being able to attest that the contention for and against
free trade in gold, money and credit has not by any means
found the representatives of the great banks all on the
same side.
In what remains of my speech I had better, perhaps,
consider as a separate question the present system of free
trade in gold.
A. F R E E TRADE IN GOLD.
The untenableness and absurdities of the organization
of the international gold market that prevails to-day, as
Doctor Arendt has pointed out (p. 69 6 ), may best be
seen in the fact that we have to-day an annual gold production of 1,600,000,000 marks, and that the demand of
the United States for 500,000,000 marks toward the end
o Stenographic report of Subcommission II. Remarks of the experts
on question VL
& Entire commission. Experts on III-V.
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of last year was able to cause such a wide-spread crisis in
the international money market.
There is also a really dangerous uncertainty in the position of our domestic gold market itself. Expert Meier of
Pforzheim said (p. 317°) that, according to an inquiry
held by the Imperial Department of the Interior at the
beginning of the nineties, our industries used up from
30,000,000 to 40,000,000 marks of imperial gold a yearIn reality, however, 100,000,000 marks a year are drawn
by our industries from the Empire's stock of coin by
melting. In the last seven years 665,000,000 double
crowns have been coined in Germany. On the other hand,
in these seven years manufacturers alone have used
700,000,000 marks—that is, 35,000,000 more than were
coined. The gold used in all branches of the German
jewelry business combined is estimated by the experts
Lowenherz (p. 319 a ) and Meier (p. 349a) at from
130,000,000 to 180,000,000 marks a year.
Then we have also the custom our domestic banks have
of sending to any foreign business connection, in return
for the small sum of one-tenth of 1 per cent, any desired
quantity of our German gold coins—a transportation of
gold which is to-day very incompletely taken account of in
the statistics. (This is especially true of the transcontinental export.)
Freiherr von Gamp was consequently able to sum up
thus the situation of our German gold market (p. 399) \a
"We must not deceive ourselves any longer and suppose
that we have 3,600,000,000 marks of gold, whereas we
really have perhaps only 2,000,000,000, or even less."
a Entire commission.
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Now, the partisans of free trade in gold have made the
following proposals for improving the unfortunate condition of our gold market. In Berlin a new international
gold market is to be inaugurated, for which Professor
Lotz, in particular, of the Brentano free-trade school,
insists upon the necessity of always giving free scope to
the outflow of gold into foreign countries (p. n 8 ) . a
This free international gold market in Berlin is to be
created by the removal of the charge for gold coinage; by
longer grants of interest-free advances from the Reichsbank
on importations of gold from abroad; by lower freight
charges for gold on the steamship lines subsidized by the
German Empire; by an increase of the price paid by the
Reichsbank for gold; and by the erection of a refinery
in Berlin (pp. 59-124). a
In criticism of these proposals we may point to the
fact that even Schinckel and Doctor Wachler (p. 318)°
arrive at the conclusion that the great need of gold felt
by our industries should not in the future, as in the past,
be met in the main out of our stock of 20-mark pieces.
Nevertheless our industries should not on this account be
obliged to resort to the free gold market—a point which
was established by the expert Meier of Pforzheim (p. 318)°
in the noteworthy observation that "if every individual
enters upon the world market to buy gold, gold will
become dearer even for the Reichsbank.'' In spite of
our present annual production of 1,600,000,000 marks of
gold the time of the individual buyer seems to be past, so
a Entire commission.
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far as any sensible regulation of the gold market is concerned. This is illustrated by the fact that the Reichsbank has declined to deliver gold to those engaged in the
arbitrage business at the frontiers, and that in 1907 the great
banks of Berlin refused to draw American finance bills
(pp. i35 a and 141, 1765). In consideration of all these
points, only one logical conclusion can be drawn—there
must be a consistent abandonment of free trade in the
gold business.
The Reichsbank should nevertheless use all available
means of increasing, as far as possible, our stock of gold.
But the exportation of gold out of Germany should not
be free. Every demand for gold which does not accord
with our economic interests should be refused. In this
category should be included not only the American finance
bills and arbitrage at the frontiers, but also the ill-advised
practice the banks now have of giving to foreign business
connections, in consideration of a charge of one-tenth
of 1 per cent, any desired quantity of our gold coins.
Our bank act of March 14, 1875, needs, therefore, to
be supplemented by a clause to this effect—that any
exportation of gold out of Germany in sums exceeding
a certain stipulated amount shall require the express
consent of the Reichsbank, on the ground of a better
protection of our economic interests. Acts contrary to
the Reichsbank's decisions on these points, or circumventions of such decisions, must be punished in the same
way as violations of the coiniage laws. Gentlemen, I
should like to refer in this connection to a remark of
°Subcommission I I .
& Entire commission.
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Doctor Stroll, who said yesterday (I think with great
truth) that " coined gold is worthy of state protection."
I do not mean, however, that it is worthy of protection
only against German industries!
Our need of gold for manufactures and trades should
be met by the Reichsbank exclusively, which in meeting
this need should practice the greatest possible economy
with regard to our stock of gold coins. Only on the basis
of this privileged position of the Reichsbank will reliable
and continuous German gold statistics become possible.
But the necessary keystone of this discontinuance of
free trade in gold would be formed by an international
syndicate of banks of issue for the unified organization
of the purchase of gold. The world market for gold would
then for the first time receive a sure basis. Mutual competition on the part of the great banks of issue in respect
to the purchase of gold would thus be obviated. And
such incomprehensible occurrences as came about last
year because the United States needed 500,000,000 marks
of gold would be rendered out of the question hereafter
under the regime of such a syndicate. It can not but
seem desirable that Germany should embrace the earliest
opportunity of bringing about such an improvement in
the relations of our gold market to tjie economic life of
the world at large.
I shall now go on with B.
B. FREE TRADE IN MONEY AND CREDIT.
The great inconveniences that German economic activity suffered in the past year are still the starting point of
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all our thought for the future. I am thoroughly convinced that one ought not to judge by exceptional years,
but I shall endeavor to prove that these exceptional years
have, in our country, recurred at decidedly regular intervals. Hence I should consider the idea that we are now
forever rid of hardships to be a portentous mistake. The
considerations that I am about to submit to you lead me
to fear that within a reasonable time we shall be obliged
again to face the same situation. This point was very
effectively made by the expert Bergrat Kleine, of Dortmund, in the session of May 21 (p. 312 ff.).a Kleine
referred to the fact that " at the end of last year our rate
of discount was 7% per cent, whereas at the same time the
rate in France was only 4 per cent; in Spain, 5 per cent;
in the Netherlands, 5 per cent; in Italy, 5% per cent; in
Portugal, sH P e r cent; in Austria, 6 per cent; in Belgium,
6 per cent; in Norway, 6 per cent; in Servia, 6 per cent;
in Russia, 7 ^ per cent, and in Roumania 8 per cent." We
had consequently the doubtful honor of having as high a
rate of discount as any country but Roumania, and a
higher rate than any other except Russia. Moreover, the
private banks receive a discount 1 per cent higher than
that received by the Reichsbank, and also make a charge
of about, on the average, one-half per cent for certain
extra expenses. So that anyone who could obtain credit
at the private banks, but not at the Reichsbank, was
obliged last year to pay 9 per cent discount. In the case
of building contractors in Berlin, this rate of interest even
rose as high as 11 and 12 per cent. But it is not only last
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year, but ever since the foundation of the Reichsbank,
that we have had a considerably higher rate of discount
than the countries with which we have to compete.
During the period from 1886 to 1907 the average rate of
discount at the Reichsbank was 4.07 per cent; in France
it was 2.87 per cent; in England, 3.28 per cent; in Austria, 4.17 per cent; in Russia, 5.44 per cent; in Belgium,
3.29 per cent; in the Netherlands, 3.16 per cent. Thus,
with the exceptions of Austria and Russia, which do not
much affect our competition in the world market, all other
nations have had an appreciably lower rate of discount
than ours. This high rate for money must necessarily
have upon our exports the effect of an export tax.
It is also the case that from 1886 to 1907 the rate of
discount was changed in Germany far more frequently
than in other countries; that is, it was changed here 116
times; in France only 29 times; in England, to be sure,
186 times; in Austria only 40 times; in Russia, 50 times;
in Belgium, 82 times; in the Netherlands, 52 times. It
is clear that these frequent changes in the rate of discount must have a most disturbing effect upon business
calculations with regard to other countries.
Finally, another factor enters into the case—that the
difference between the bank discount rate and the private
rate is greatest in Germany. It amounted, at one and
the same time, in Berlin to 1.01 per cent; in Paris to 0.38
per cent, in London to 0.6 per cent; in Vienna to 0.37
per cent, in Brussels to 0.48 per cent; in the Netherlands to 0.34 per cent. We have, therefore, in Germany
the most unfavorable circumstances in every department
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of the movement of the rate of interest. From this the
expert Kleine rightly concludes that it is absolutely
essential to introduce a better order of things into the
situation.
The advocates of free trade in money and credit (for
instance, Doctor von Schwabach (p. 316) , a in opposition
to general public feeling on the subject) maintain, to be
sure, that " Nothing is more disagreeable to bankers than
a high rate of discount." But this assertion is weakened by the fact that, at least at critical times, the
Reichsbank has always had the greatest business success
when there has been the highest rate of discount.
[Laughter.]
A VOICE. Of course, because it is the Reichsbank.
Freiherr VON WANGENHEIM. Thus we have in 1882,
with a discount rate of 6 per cent, a net profit of 7.05
per cent of the capital stock; in 1890, with a discount
rate of 5.5 per cent, a profit of 8.81 per cent; in 1900,
with a discount rate of 7 per cent, 10.48 per cent profit,
and in 1907, with a discount rate of 7 ^ per cent, 9.89
per cent profit. In quiet years this profit was 2 or 3 per
cent lower. (Reichsbank statistics of the Bank Inquiry,
I, p. 5.) And, moreover, apart from this, the profits of
the Government increased from about 15,000,000 marks
to 34,000,000. Even Geheimrat Riesser, in his wellknown treatise, Zur Entwickelungsgeschichte der deutschen
Grossbanken, mentions the fact (p. 54, 2d ed.) that in
critical times the banks are often able to distribute par-
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ticularly high dividends.® It follows that the interests
of the banks, are in this matter sharply contrasted with
the interests of all the rest of the nation. Any policy,
therefore, that has the interests of the whole nation in
view will have to discard the free trade now prevailing
in money and credit. But since this new system with
regard to our money and credit business will therefore
necessarily remove the great evils prevailing in this
department of our economic life, and since it is admitted
that these evils are coincident with what economists
designate as an "economic crisis/' it becomes necessary
to give a separate treatment of this concept and its
attendant phenomena.
THE NATURE OF ECONOMIC CRISES.
From 1857 on, we may count up at least the following
economic crises, in the modern sense: 1873, 1882, 1890,
1900, and 1907. If we include the crisis of 1857, we find
that in the fifty years beginning with 1857 there have been
six crises, or a crisis about every eight or nine years.
And according to Riesser the history of the development
of the German great banks really begins only with the
crisis of 1857. It has, to be sure, been maintained that
every crisis is different from every other, and one has to
admit that two crises are not as like each other as two
peas. But these differences are only in the outward
phenomena, not in the inner nature, of the crises. In
o Riesser does not explicitly make this observation, but it can be established by the material that he gives on pages 53, 54, and 325 of the aforementioned book, that at critical times the banks are often able to distribute particularly high dividends.
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their inner nature all crises are alike, as the authorities
on the subject unanimously agree.
The advocates of free trade in money and credit (for
example, Roland-Liicke, p. 52°) maintain again, among
other things, that we could not do without economic ups
and downs as a school of mistakes made from generation
to generation. The answer to this is very simple; such
a school becomes superfluous when mistakes can no longer
be made; or it becomes useless for practical economics
when the mistakes are not corrected. Analogies from
nature have also been pointed to, from which we are
supposed to conclude that with all life change is indissolubly connected. Certainly the concept of life and
the concept of torpidity are mutually exclusive. We
opponents of free trade in gold and credit do not ourselves
wish to remove what is normal and sound, but only what
is diseased, from present conditions in the domain of
the money and credit business. If you insist on having
an analogy from natural science in support of our theory,
you may find one in the temperature changes of the
human body. Everyone knows that even the temperature of a healthy man undergoes certain slight variations.
But when this temperature curve moves up and down
in sharp zigzags then, in the judgment of the doctors, a
serious crisis is at hand, after which there is either a
speedy change for the better or else death. The aforementioned six crises since 1857 show many effects in the variations of the rate of interest, as well as in the variations
of price, and in the curves formed by the variations of
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securities is shown this very characteristic sharp zigzag
motion that takes place in a serious crisis of a disease.
Our practical politics must succeed in eliminating these
variations for the future if our whole body politic is not
to be utterly destroyed.
The same view ought really to be supported by all
those advocates of free trade in money and credit who
in the course of our discussion have come forward with
so much energy in favor of giving the Reichsbank a
larger share in the foreign-bill business. Their motive
in doing this was that the rate of foreign exchange might
be rendered more stable. Very well; but if one wishes
to bring about greater stability in the rate of foreign
exchange one must in consistency help also to eliminate
those characteristic sharp zigzag movements which are
attached to every crisis. Otherwise one can not escape
the just reproach of inconsistency. I hope, therefore,
that for the rest of my speech I may count on the warm
support of this particular division of the advocates of
free trade in money and credit. And is not the gold standard supposed to have been introduced in order that a
measure of value might be obtained which should have
the greatest possible stability?
But here we meet again with new objections.
i. It is said that it is absolutely impossible to get rid
of the zigzag movements at the outbreak of a crisis.
2. If the attempt were really made in critical times to
keep the rate of interest low by artificial means, much
worse disturbances would result.
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3. Professor Lotz did not see in the events of 1907 a
crisis, but only a danger signal, since there were not
many bankruptcies (p. 145).°
4. The automatic regulation of economic development
through changes in the rate of discount is therefore
absolutely indispensable.
I shall reply first to the third and fourth objections.
Anyone who does not belong to the Brentano free-trade
school will regard the events of the past year also as-a serious crisis. In particular the producing classes in town
and country are agreed on this point. Note also this—it
is extremely interesting to observe how in this critical
year agricultural circles, and especially the agricultural
cooperative societies, were much less in danger than
were the other trades and professions, and this because
of the excellent management of the Preussenkasse and
of the cooperative societies under its direction. In the
same way experience teaches that the raising of the
rate of discount, especially last year, completely failed
to produce the effect expected by the scholars. " In spite
of the high rate of discount, 17,000,000 marks of gold
were drawn out of the country." (Doctor Brosien, p.
63.)a " In the past year gold has flowed into the country
with the lower rate of interest and out of the country with
the higher rate of interest." (Doctor Arendt, p. 39.) a
And "each time that the discount screw was tightened
the demands for credit on the Reichsbank were not diminished, as one would have expected, but on the contrary
very considerably increased. Since October 29 we have
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had a discount rate of (y]/2 per cent, and from November
8 until the end of the year we had a discount rate of 7%
per cent. At the same time the bill portfolio of the
Reichsbank was increased by 171,000,000 marks, as
opposed to an increase of 107,000,000 and 118,000,000
marks, respectively, within an equal space of time in
1906 and 1905. And the demands on the Reichsbank
for loans on collateral have within this period been increased by 269,000,000 marks, as opposed to an increase
of 140,000,000 and 180,000,000 marks, respectively,
within an equal space of time in 1905 and 1906." (Landsburgh, p. 255 ff.)a The old scholastic recipe has consequently proved itself ineffective. For this reason too,
then, we are obliged to abandon the course of policy as
to the Reichsbank that we have thus far pursued.
To the objections given under 1 and 2 above I reply:
Means that are "artificial"—that is, not in accord with
the inner nature of the circumstances—should certainly
not be employed. It was for this reason that we attributed so much value to the expert investigation of these
conditions. It was for this reason that this Inquiry was
instructed to set forth these circumstances as clearly as
possible before answering the question, What means of
cure shall be adopted? And here I come up against
another grievous mistake made by the advocates of free
trade in money and credit—a mistake that is connected
with the answer to the other question. From what point
is the crisis in each individual case to be dated?
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Many seem to agree with Professor Lotz that the crisis
is identical with the bankruptcy of enterprises. This view
does not distinguish between cause and effect. The concept of "disease" in the scientific sense begins, as every
one knows, with the setting in of the cause of the disorder.
And here we opponents of free trade in money and credit
must be particularly thankful to the expert Herr Kommerzienrat Rinkel, who, in the session of May 12 (p. 59 ff .) a ,
so effectively explained that the crisis begins with the
too low rate of private discount soon after the last smash.
At this moment and at this place the natural means of
remedy must begin to be applied. For the last dictum of
all wisdom is this: We must endeavor to prevent disease.
And by far the best social remedy is still prophylaxis.
If, then, one is looking for a means that is truly'' artificial,''
one that is not suited to the inner nature of the circumstances, it is to be found in the present unwise raising of
the rate of discount, which quietly lets the evil appear and
then in the acme of the crisis, when little change can be
made in the whole unfortunate situation, applies an unpractical remedy from which only the money dealers derive a
clear profit, and every one else derives nothing but injury.
I rest my further observations on the following view:
Our development to-day in the business in money and
credit is in all respects an unsound one. Hardly has a
crisis ended with the smash and do matters seem to be
adjusting themselves in their normal courses when, with
the excessively low rate of private discount, the germ of
disease for the next crisis in the economic life is sown.
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We have to-day in fact no normal, healthy economic conditions whatever. For this reason the proper means of
improving the situation must be applied permanently.
There has been much talk to the effect that times may
arrive which are difficult to deal with because the Reichsbank and all the great banks are full of money that they can
not invest. I should like to refer here to a certain aspect
of our economic situation and to commend it to the very
particular attention of our banks. Gentlemen, you forward to-day, especially through the agency of the banks,
great quantities of foreign enterprises, and you unhappily
fail to observe how many opportunites we still have at
home of investing money at advantageous rates for the
general economic good. In my own special province, the
cultivation of the German moors, this becomes very
clearly apparent. I have always felt positively distressed
by the fact that German capital now goes outside the
country in order, for example, to drain the Pontian
marshes, while up to this time it has been impossible—
even for me, in spite of the great efforts that I made to
draw attention to the matter last winter, on the occasion
of the quarter-century jubilee of the Association for the
Cultivation of the German Marshes—up to this time, I
repeat, it has been impossible even to attract the notice
of our financial circles to this side of our national economic
life. Please understand—the statistics hitherto have not
been quite exact—that there are probably in Germany
over 500 square miles of moor at our disposal, of which an
extremely small part has hitherto been cultivated; and
that we could to-day, with a rational system of cultivation,
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bring a large part of our heaths to a state of high productive capacity* Please understand, further, that in a
very considerable part of the area now used for agricultural purposes an enormous increase of production might
be obtained if we were able, with the money that is now
invested in foreign enterprises, to do continuous work and
on really large lines to improve the condition of the small
agriculturist through the introduction of rational methods
of agriculture. Precisely at those times when it is often
very difficult to invest money profitably it would be a
national duty to spend this money as far as possible in our
own country and for investments of this kind. It is true
that the rates of interest will not be exorbitant, but they
will certainly be able to hold their own in competition
with the rates on state paper.
What, then, is the exciting cause of the disease in the
case of our great economic crises? This question also had
best be answered first by an account of the development
of the present conditions.
First of all let us describe the course of the economic
crisis.
As soon as, after the last crash, the confidence of the
people has been in a measure restored, the great banks
begin to place money at the disposal of the market at a low
rate of discount. According to the present system of free
trade in money and credit, the height of the rate of private
discount is determined exclusively in the interests of the
private undertakings of the bank in question. What other
interests can there be? A foreign state, like Russia or
Austria, is interested in the consequences of a new issue of
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its securities. Therefore, through the medium of a great
bank, it places millions as cheap money at the disposal of
the Bourse. In all these and similar cases the business
calculation by which a low rate of private discount—even
lower than the net cost—is brought about is just as clear
as the actions of the bear on the corn exchange, who sells
his wares below cost in the open market in order thereby
to obtain the larger profits from his final speculation in
corn. A very low rate of private discount is indeed the
soul of successful flotations. If 4 per cent Greeks are put
on the market and the rate of private discount is 4 per
cent then nothing results. But if at such a time money is
offered at 3 ^ per cent, then the speculators have a business
opportunity; they may take over the 4 per cent Greeks
at par and pay with money borrowed at 3% per cent.
The final profit on exchange is an additional advantage,
and as soon as the period of successful new issues is introduced, then the love of speculation is again aroused in the
people. Their own possessions become weighed down
more and more with mortgages and loans on collateral, and
bill credit and current-account credit from the banks and
from other enterprises, in order that they may avail themselves of more and more money for participation in more
and more enterprises of all kinds. At such times money
is virtually forced upon the people by the credit institutions, as was shown especially by the expert Bernhard (pp.
48-51).° And in case an individual bank does not wish
to take part in these anxieties of speculation with credit
it is driven into doing so by competition. This unsalutary
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influence of competition in the direction of the development of a more precarious credit, which is of course added
to by the love of speculation aroused in the people, has
often been the subject of remark in this Inquiry. Thus
Doctor Moritz (Eichborn), on page 34,® Von Mayer (Hannover), on page 53, a and even the director of the Dresden
Bank, Doctor Mueller, on pages 55 and 3i, a have spoken
about it. The last-mentioned speaker shows how the
banks are compelled through their connections with foreign countries to grant still more credit abroad, even when
money at home is dear, for the sake of maintaining these
business connections. The expert Bernhard was able to
refer, on pages 21-23,° to the fact that through establishments that are offshoots of our banks this granting of
credit to all the world is greatly furthered by the speculation in foreign securities in Germany, and that, according
to the calculation of the Frankfurter Zeitung, within five
and one-half years (ending with the middle of 1906) actually
3,500,000,000 marks were spent in introducing foreign
securities into Germany through our banks. How generally throughout the banking world this excessive and
unsafe granting of credit has spread like an epidemic may
be most strongly established by the explicit confession of
the new Reichsbank President, Herr Havenstein, who says
that even the Reichsbank itself has in the last two years
"often passed beyond the bounds of what is safe in the
granting of credit" (p. 83). Likewise on page 87: a "Our
whole economic life is built up on credit more and more, in
a way that is becoming hardly safe." And he says that on
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December 7, 1907, an order was issued to all the offices
of the Reichsbank directing them to discontinue every
grant of credit that " rests simply upon a money-making
scheme/' It is well known what terror this order caused
in circles far and wide, and with what great leniency it is
therefore applied. Drastic examples of this granting of
credit even by the Reichsbank are mentioned also by the
expert Lansburgh on pages 285 and 286.a
Thus whole branches of industry at home and abroad
owe their existence to the promoting activity of the
banks and bourses—for example, the Luxembourg iron
industry. And the look of the business situation in the
great banks shortly before the general break-up is very
adequately characterized by Geheimrat Riesser, in his
book Zur Entwickelungsgeschichte der deutschen Grossbanken
as follows: "Sudden increases in the demands for credit,
which become more and more conspicuous; great and
finally complete withdrawal of certain bank credits; crowding out of short-time credit through long-time credit; increasing prevalence of the extension of bills when they fall
due; a constant increase in the offerings of second-class
securities and securities not acceptable for banking purposes; the use of banking credit, especially of acceptance
credit, on the part of industry not for the current needs of
the trade, but for the payment of dividends or for a considerable increase of the fixed capital (increase of investment, purchase of machines, lands, etc.); continued taking
of advances when the object of the expenditure is either
not given or else largely concealed; more and more hesita-
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tion in calling in at the proper time the payments that
fall due; large and sudden changes in prices, particularly
in the prices of raw material and merchandise; finally, an
excessive number of promotions, reorganizations, and
flotations, and the institution of a vast number of mere
subsidiary companies—ancillary and trust companies."
At this stage it is perfectly clear that the banks can not
get rid of the spirits they have evoked. All resources are
tied up. When the heavy obligations involved in the
great speculative enterprises have to be met, the further
carrying on of business becomes more and more difficult;
the claims made upon the central banks of issue become
more and more disquieting; money on call becomes dearer
and dearer. Any chance event may now lead to the
collapse of the whole fictitious system of values. This collapse then runs its course in the form not only of bankruptcies but also of readjustments, of falls in prices of
goods and stocks, reductions of wages, formations of syndicates, and the absorption of the small and the average
speculators by the large ones—until, after another general
quieting down, the whole game begins anew with the low
rate of private discount.
After the collapse, the business life on the Bourse becomes
just as noticeably quiet as at the time of the springing
up of speculation it is noticeably feverish in its activity.
This general absence of business after the collapse is
quite independent of differences in legislation affecting
the Bourse. The expert, Doctor Arendt, refers (p. 20)a
to the fact that on May 11 of this year 300 members of
the London Stock Exchange were unable to pay their
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dues. The distress was just as bad in the bourses of
Brussels and Paris, as well as in Berlin.
Now, for the economic effect of this crisis: The development to which our social order is tending in consequence
of this free trade in money and credit is very well described
by Prof. Adolf Wagner in the words: "Aristocracy of
money; yes, plutocracy " (p. 261).a And anyone that is
somewhat acquainted with the history of the development of nations knows that this means for every nation
the beginning of the end. About sixty years ago, according to this same passage by Wagner, there were in what
is now Prussia only 100 persons with an income of more
than 100,000 marks; now we already count 3,000 such
persons. The part of the population that pays a property
tax forms every year a smaller fraction of the whole population. It fell steadily from 14.14 per cent in 1895 down to
13.78 per cent in 1905. The first 10,000,000,000 marks of
property was still owned in Prussia in 1896 by nearly
3,000 persons. In 1905 the first 10,000,000,000 was found
to be divided among only 1,500 individuals. While the
whole wealth of Germany has increased by at most a third
since the beginning of the seventies, the capital commanded by the great banks of Berlin has within the same
time increased tenfold. And this gigantic power is
wielded, according to the testimony of the expert Heyman, of Berlin (p. 6), a by 12 or 13 people. Already in
1905 385 German industrial syndicates, comprising 12,000
establishments, were connected with these great banks.
While wealth is thus being concentrated in fewer and fewer
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hands, the number of workmen in the trade unions in
Germany has, according to the expert Kleine (p. 313), 0
increased from 3,473,000 in 1886 to 8,625,000 in 1907—
that is, in twenty-two years there has been a 248 per cent
increase in the number of wage workers. With the more
and more widespread eagerness of the people for speculation and for pleasures, to which already half the wealth
of the German people is devoted in the form of stockexchange securities, the migration from country to city
stands in the closest causal relation. Prof. Adolf Wagner
has pointed out that by this extension of plutocratic rule
the movements of the population are also controlled.
According to the material collected by Professor Ruhland
in .his System (vol. 3, p. 173 ff.), the population is also
affected by the plutocracy in such a way that it ceases to
increase. The fact that to-day no one thinks any longer
of economy has been the subject of repeated complaint in
the inquiry, as by Menck (p. 322)°, but in especial by
Bank Director Gwinner (p. 177)a, who said: " Everyone has
considered himself richer than he is, and all have spent
more than they could afford. There has been no lack of
work; but there is even now a lack of economy." The
deceptive idea of "being richer" is, however, particularly
called forth through the influence of speculation upon the
course of prices; only in this way could the prices of the
securities dealt in on the New York Stock Exchange have
lost in the past year $4,000,000,000, or 17,000,000,000
marks. The middle class is in a situation of greater and
greater difficulty. Money is drawn away from the prov-
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inces and from the middle class and applied to large enterprises, as the expert Marwitz (p. 45) a has in particular
established. In consequence of crises a more or less large
number of day laborers are thrown out of work, while previously not enough could be done, working day and night.
But the phenomena of international economic competition may also be traced back to those international
establishments for the opening up of new lands, which,
after each year of crisis, go into the world market
with excessively cheap offers, and thereby cause those
phenomena of overproduction from which the agriculture
of central Europe has had to suffer so much. (See the
special investigation of the subject by Prof. Dr. G. Ruhland.) The character of the agricultural competition of
the United States may be most briefly indicated by the
fact that from 1856 until the present time the American
railroads have been insolvent to the amount of about
42,000,000,000 marks, of which European capital formed
at least a half. Finally, mention should be made in this
connection of an expression of Field-Marshal Count
Moltke, which is to be found in the preface to the popular
edition of his book on the Franco-Prussian war, and
which reads as follows: "The great conflicts of modern
times break out contrary to the will and the wish of the
rulers. The Bourse has in our day acquired an influence
so great that it is able to call an armed power into the
field to fight in its interests. Mexico and Egypt are
invaded by the armies of Europe in order that the demands
of high finance may be liquidated." Since then our wars
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have become "money wars." Note, for example, the
Spanish-American war, the Boer war, the disturbance in
China, the conflict with Venezuela, the Russo-Japanese war,
etc. This is the horrible reverse side of what is generally
described as our modern strong position in the commerce
of the world, attained through the international relations of
our banks. And this is the aspect of the case which Bank
Director Mueller of the Dresdener Bank has not set forth.
And now for the question, What is the exciting cause of
the disease in our modern economic development?
It is very far from my mind to cast the blame for our
economic crises upon any individuals whatsoever. Whoever has concerned himself somewhat seriously with
historical problems knows that not persons, but ideas,
bear the real responsibility. We have been living since
the beginning of the fifties, and especially since the
beginning of the seventies, in the age of free trade in
money, gold, and credit. And the effects could not have
been other than what they have been. Meanwhile, however, we recognize more and more clearly that this path
leads to no good end. And so the days of free trade in
gold, money, and credit must also be numbered, just as
the days of the vassal state and of absolutism were numbered. All those, indeed, who conceive the task here set
before us in the sense I have indicated, who recognize this
as the true situation, and who nevertheless do not do what
they can to introduce the new and better order of things
which the case demands—all these will assuredly render
themselves personally responsible for all the economic ills
that will consequently overtake the German people.
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The true cause of all our economic crises can no longer
be the subject of any doubt after what has been premised.
It lies in the great abuse of credit for uncertain and therefore unsound speculative purposes. I will not here
devote any more exhaustive discussion to the meaning of
" speculation/' Every expert knows what sort of speculation I have in mind. It is empty speculation in the
broad sense, which creates no values, but only transfers
values created by others. This transference of values
extends to the products of others' labor in the past, the
present, and the future. Connected with all this is the
fictitious creation of values, whose soap bubbles tend to
burst more or less completely in every crisis.
The symptoms of this reprehensible misuse of credit have
all been rightly described in former discussions of the subject. Bank Director Gwinner spoke on page 97 a of the
precipitate tempo of our development, which leads to the
mischievous custom of putting up new factories out of
borrowed money. Prof. Adolf Wagner (p. 3 3 ) b and
others have referred to the feverish haste of our economic
development, which discounts in the present the product
of labor that is only to be performed in the future, the
result being always that after a few years the cart gets
stuck in the mire. In particular the order of the president
of the Reichsbank issued on December 7, 1906, establishes
a sharp distinction between sound and unsound credit, even
though it kas reference immediately only to bill credit.
The bank officials are instructed to subject the bills to a
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very careful test with regard to their business origin.
Those bills which are drawn for the purpose of permanently acquiring working capital, not to speak of those
which are based solely on money-making manipulations,
are to be treated with great circumspection. The object
should be to accept only bills that are sound, that are
based on actual business transactions, and to reject
factitious paper. Rembours bills the Reichsbank has
never refused to buy, but it has refused to buy drafts by
foreign banks upon domestic banks after it has been
found upon closer investigation that it was a matter of
finance bills (p. 305). a The president of the Preussenkasse, Doctor Heiligenstadt, sought therefore (p. 136) 5
to express the distinction here in question when he distinguished between covered and empty bankers' bills.
The expert Bernhard emphasized in this connection the
point that the certainty that bills will be redeemed can no
longer be taken as the principle by which to judge them,
since it has been found by experience that the bills which
in general are most sure to be paid are always the fictitious
bills, the pro forma bills, and the accommodation bills.
But if the origin of credit from sound economic processes
is absolutely required for its justification, then all empty
and speculative demands for credit are at once seen to be
unjustified, and with them also the business of dealing in
bills (p. 147). a Freiherr von Gamp has observed in a
number of cases (e. g., pages 140, 157, and 295 a) that not
only unsound bills, but also unsound credit on collateral
a
Entire commission. Experts on III-V.
& Subcommission II.
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loans, if it stands in no relation to sound business processes, should be ruled out. Bank Director Gwinner
called attention (p. 176 °) to the fact that in recent years
almost everybody has universally regarded it as sound business to take their stocks to the bank and speculate with
the money advanced on them. Thus even the well-to-do
rush into debt to slake their thirst for speculation, and
often do so to the very limit of their capacity. This must,
of course, lead to a serious crisis, with unbearably high rates
of discount, which in turn render it extremely hard for
productive industry to make progress. For this reason
this kind of business must be characterized as unsound.
Doctor Arendt rightly laid stress on his idea that the
international business in speculation is a much more
decisive factor in determining our balance of payments
than the whole volume of our trade (p. 20)a. Our national
economic situation suffers, according to the expert testimony of Leiffmann (p. 15),° Bendix (p. 16),0 Kaempf
(p. 18),a Fischel (p. 37), a and others, under an adverse
balance of trade. It will also, therefore, be necessary in
the international business in payments and demands to
test the origin of the demands (causa debendi) and decide
whether they are of a sound and economically justified
character. And, finally, it is indispensable that we at
once subject to a careful revision the whole body of principles of our banking policy, including the provisions of
our bank act of March 14, 1875. If it is customary, as
Adolf Wagner says it is, for the great banks to go on doing
business with the last available penny (p. 1726), this may
0 Entire commission.
Experts on III-V.
528
b
Subcommission II.
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seem permissible according to an extremely individualistic
conception of the activities of banks. But as soon as we
recognize with Geheimrat Riesser that there is a growing
tendency for the activities of banks to be molded by
public regulation, then we must see that the principle of
"getting something out of" the last penny forces us
necessarily into unsound and economically dangerous business, and is very largely the true cause of the constant
reappearance of the germ of our disease—the gross misuse
of credit for unsound speculative purposes. The same
consideration holds for section 12 of our bank act, according to which it is provided that the Reichsbank has to look
after the utilization of its available capital, and is directed
to regulate the circulation of money only within the
Empire, and to facilitate the balancing of payments.
These provisions must clearly be essentially modified if
free trade in gold, money, and credit is at length to be
abolished. The utilization of available capital should
manifestly be limited by the presence of sound, economically unobjectionable demands for credit. The facilitation of the balancing of payments should be directed
only toward such payments as are proved to have an
economically justifiable origin. And the regulation of
our gold and money affairs must obviously extend beyond
the Empire, since it is now precisely international business
that has such an injurious effect upon our economic
condit : ons in consequence of an unwise regulation of that
business.
Only upon the basis of these principles can our economic life be gradually cured of its lis. The rejection
84713—10
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of unsound speculative credit stands in the closest relation to the general and very dangerous indebtedness of
the people. With the rejection of such credit all those
efforts are bound up which are directed toward the introduction of a cash system into the business world. All
the different efforts that are made to relieve landed property of its debts are also connected with this. When
new constructions and extensions of old ones, and, of
course, the distribution of dividends and shares, have as
a basis an actual corresponding amount of money or
property, when the buying of stocks is restricted to the
accretions caused by our economy, and when all demands
for credit have a foundation in legitimate business, then,
and not until then, will the rate of discount exhibit a
quiet and steady downward movement; then, and then
only, will a constant, ample, and cheap supply of money
be available for the purpose of encouraging productive
labor in town and country; then, and then only, shall we
be freed from the worry over an adverse balance of trade;
then, and then only, will that unsound, precipitate, feverish energy disappear from our business life, that energy
which has increased the capacity of certain industries
until they now produce ten times the quantity for which
there exists a real demand; then, and then only, will
this state of things give place to a quiet, but even and
constant, progress. Every one knows that one makes
much more progress in walking by taking good, even,
steady steps than by short runs and long pauses for getting one's breath. The lower classes have, it is true,
profited considerably from the existing system, but they
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have to be subject to the frightful risk of periodic unemployment. The independent middle class is to-day noticeably deteriorating. Riches are concentrated more and
more in a few hands, and here they serve only too often
to bring about ruin. The reform I have advocated is
directed toward steadily encouraging the constant, but
for that very reason more and more rapid, progress of
all parts of the working population. If at the same time
the seeking for pleasure and the rage for speculation
should retreat step by step, this would be pure gain for
our body politic.
CRITICISM OF THE FREE-TRADE
OF REFORM.
PROPOSALS
Our latest development in the domain of the money
and payment business was criticised by the expert Doctor Arendt (p. 80 a) in the following words: " If by means
of checks and post-office savings banks and small notes
and all such methods we diminish the reserve gold circulation in the hands of the people, then we lose security
in critical times and we find ourselves in the situation of
having our whole coinage system rest on nothing but
paper.'' Kommerzienrat Rinkel has especially pointed
out (p. 61) a that through the law concerning checks the
banks are given the extremely important privilege of carrying on a stamp-free business in checks, without reference
to assets. "Every banker in a crossroads town can have
checks drawn upon him against which there are no assets. But when a check is drawn on Krupp, that check
0 Entire commission.
53i
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Monetary
Commission
must be stamped. This is a privilege of the banks as
distinguished from all other tradespeople. But if the
banks have the privilege of putting out into the world
the check, which is after all a substitute for the bank note,
then everyone must admit that the same guaranty may
properly be demanded of them as is demanded of the
notes of the Reichsbank, which must be covered by gold
to the extent of one-third/' It is very plain that the
modern facilitation of the payment business harbors the
frightful danger of our falling more and more into the
general habit of accumulating debts and into the very
regrettable misuse of credit for unsound purposes. So
much is said and written nowadays about financial
mobilization. At any rate, this very dangerous general
indebtedness is in sharp contrast with any such mobilization, even for the rich. In this way years must come in
which every declaration of war is followed by the immediate bankruptcy of great departments of our whole economic system. And the next crisis, upon which, to
judge from our experience, we may count in about eight
years if the present system is retained, will necessarily
be even more serious than the last. The recent laws
directed toward the facilitation of payments absolutely
require important supplementary clauses calculated to
prevent a far greater misuse of credit than any we have
hitherto experienced.
One of the members of the commission, Herr Fischel,
defended (p. 325®) the placing of foreign loans in Germany
on this ground: "We need an increasing indebtedness of
a Entire commission.
532
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foreign countries to ourselves in order to be able to pay
for our increasing importation of foodstuffs." Now, by
far the greater part of the people pay for their bread with
the earnings of their labor, not with interest on debts
which foreign countries transmit to us. If, therefore,
Herr Fischel has at heart the nourishment of the German
people, he must first of all help to prevent the interruption, through crises, of the opportunity of Germans to
work; and he must help to bring it about that, when new
agricultural countries competing with ours are opened
up—as in the case of Mesopotamia—the mass of our agriculturists do not fall into new distress. Under these circumstances we shall earn more at home, and shall at least
be better able to pay for our bread than we are with these
periodic crises and a somewhat larger indebtedness of
foreign countries to us. Since we can not have both—
that is, both an increasing foreign debt to us and a constant opportunity at home for work and for productionit can hardly be questioned which policy is the better for
the German people, not counting the banking class.
A good deal of space has been given in our discussion
to the question of whether the Reichsbank ought to make
more of a custom of buying up foreign bills than it has
hitherto done. And on May 12 of this year the Reichsbank had already in its possession foreign bills to the value
of 112,000,000 marks, whereas last year at the corresponding time its foreign bills amounted to only 36,000,000
marks. The buying of bills such as these, drawn upon
foreign countries and paid in gold, ought to furnish to
the Reichsbank the means of rendering our rates of
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Commission
exchange with foreign countries more stable, and of
obtaining gold from them in time of need, when a crisis
is approaching—for instance, in case of war. The AustroHungarian Bank seems to have been in recent years particularly successful in thus keeping its rates of exchange
tolerably stable. But in dwelling upon this we forget
several things. We found out last year by experience
how hard it is to obtain large sums of gold from the free
market of foreign countries. The United States needed
500,000,000 marks of gold. This threw half the world
into serious financial difficulties, and France, Germany,
and England had to combine—at a perfectly peaceful
time, too—in order to collect this amount of gold. It is
certainly difficult to imagine how, after a declaration of
war between European powers, the billions that will be
consumed in the first European war are to be raised in
like manner without an economic catastrophe extending
over half the world. The expert Lowenherz, a banker in
Berlin, has for this reason very aptly declared that the
purchase of gold is without a doubt to be preferred to the
purchase of bills. Gold is a palpable and everywhere
available means of payment, while bills are a promise to
pay at some future date. Prussia has hitherto held to the
safe principle that only ready money is to be counted as
forming part of the preparedness for war. Would it be
well for the German Empire now to adopt the custom of
counting promises made in foreign countries to pay at some
future date—promises the fulfillment of which requires, under certain circumstances, the mediation of business friends
in neutral states, since in case of a war with England the
534
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English banks will certainly not be willing to give to the
enemy the unmistakable support of honoring its bills
with gold? And how little would this foreign-bill policy
avail in face of an economic crisis! The real efficient
cause of crises—the misuse of credit—is left free and
unrestrained, while we buy through the Reichsbank some
100,000,000 marks of foreign bills, in order to palm them
off on foreign countries by way of a slight mitigation when
the rate of exchange on our bills is rising. Essentially, as
the expert Lowenherz again explains in the passage I have
mentioned, the purpose that these bills serve is that of
satisfying the speculative demands of high finance. The
more foreign bills the Reichsbank buys the more bills
can our great banks draw on their affiliated establishments and business connections abroad. The whole (ostensibly preventive) foreign-bill policy of the Reichsbank
will consequently have the result that so much the greater
quantity of empty bills are drawn by us upon foreign
countries. It is, therefore, difficult indeed to see where,
outside of great-bank circles, the advantage of this policy
of the Reichsbank comes in.
THE REMEDIES I PROPOSE.
Bank Director Gwinner—who, on page 99,° admitted, as
a farseeing politician, that there is some confusion in our
banking business, that the exaggerated tempo in our
economic development is matter for regret, and that con- •
sequently something must be done—wished that we might
have clear and simple laws and intelligent judges. With
this demand I have but to express my complete agree-
a Entire commission.
535
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Monetary
Commission
ment. Nor should any blows be directed at the great
banks, as Gwinner fears they will be. For the matter in
question is, as I have already explained, not a condemnation of individuals, but the introduction of a new idea.
But if the receipts of the banks should be diminished
through a radical prohibition of unsound speculation, then
with the great concentration of the banking business that
exists to-day there is nothing to prevent us from introducing an increase in the rates of commission for all regular banking work—at least an increase to the point at
which they stood at the beginning of the sixties. But as
for the promised virtue of self-restraint on the part of the
leaders of the banking world, much as I value this virtue in
particular instances, I can make but little of it as a contribution to my proposed reform. As was the case in the
large industries before the legislation for the protection of
the workingman, so in banking, too, free competition tends
toward a deterioration in business habits and customs.
Here, too, therefore, legislation must step in to help and
improve. Nor is this anything of an innovation—a point
upon which Prof. Adolf Wagner has already laid stress in
the course of the discussion. By the bank act we took
away the freedom of the private banks of issue. Through
the establishment of the gold standard we abolished free
coinage of silver. We have special public regulations for
the mortgage banks, the cooperative societies, and the savings banks. Furthermore, we have lately by law—especially by the check law—granted to the private banks new
and decidedly important privileges. Our State would be
committing an actual neglect of duty if, after the experi-
536
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ences of the last crisis, it did not take charge of bringing
better order into our dealings with gold, money, and credit.
All the details of my programme I have already given in
the course of my speech. Nothing remains now for me to
do but to sum them up.
The principle of the reform consists in the abolition of
the present freedom of trade in gold, money, and credit.
My proposals for the better management of the business in
gold are given under A. Here I shall confine myself to
proposals as to the money and credit business.
In this direction there is above all a most pressing need
of a rational restriction of the utterly inordinate amount of
our debts. This restriction must proceed on the lines of the
demands made by sound, legitimate business in our own
country. Credit must be refused to all baseless speculations of whatever kind. We must break away from the
principle of banking management that prevails to-day,
that all available means must be profitably invested.
The credit business must be managed in accordance with
the demand for credit for legitimate operations. Any lowering of the private rate of discount below the Reichsbank's rate of discount in order to stimulate speculation
must be prohibited, as a matter of principle. The rate of
private discount must be fixed in accordance with the rate
of discount at the Reichsbank. The present unrestrained
liberty of flotation of domestic and foreign securities must
also cease. And in the bill business, as in the collateralloan, check, and current-account business, proof must be
demanded in every case that there is a foundation in the
shape of sound and bona fide business.
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National
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In the general economic life the transition from the
present state of affairs must be managed with as great care
as was used by the Reichsbank administration on the occasion of the recent cleaning up of its stock of bills. It will
therefore not be possible to confine ourselves here to the
proclamation of new laws. It is almost more important to
create a special organ, an independent central office, as a
department of control, as was proposed by Professor
Fassbender in his written opinion on page 280,0 and by
Prof. Adolf Wagner years ago when he was writing about
the control of issues. This office must be placed under the
direction of the chancellor of the Empire and provided
with all powers that are suited to its great task—the task
of preventing for the future the recurrence of general
crises in the domain of money and credit. For this purpose there should be a concentration upon this office of
the whole administration of justice, so far as this problem
is concerned. This office should further be required to
make each year a public report with practical proposals
for the supplementing of its powers with reference to the
task assigned to it. Experience will show in a few years
whether the right men have been appointed for this office
or not.
Finally, there must be created a very thorough and
widespread public understanding of the whole traffic in
gold, money, and credit in its relations to sound business
transactions and to unsound speculation. This must be
accomplished by means of prescribed yearly accounts,
bimonthly accounts, and running reports of the more
a
Subcommission II.
538
Bank
I n q u i r y
of
1908
important business of the day. On the basis of the
international syndicate of central banks of issue which I
have suggested, a better regulation of the international
payment and credit business would be easily arrived at.
Finally, I should like here to touch for a moment upon
an old pet scheme of mine, which Herr Geheimrat Freiherr
von Gamp has already brought forward so ably in the session of May 20. I think that there might be a combination of all those banks which already have the character
of deposit banks (there are, according to the incidental
remark of the president of the Reichsbank, already about
twenty of them) and of all those persons or corporations
and offices who might be willing to enter by a special
declaration into a specific obligation to refrain, for a considerable period of time, from all speculative business in
state securities—that there might be formed a combination of all these for the purpose of dealing in 3 X per cent
state paper on the basis of the nominal value. Then this
class would at least be sure to lose nothing henceforth
through changes in the price of such paper in the open
market. This paper would, of course, have to be excluded by law from being dealt in on the Bourse.
Gentlemen, such are the proposals I wish to make to
you. I know that they will not meet with any excessive
cordiality at your hands. But I have considered it to be
my duty, in the interest of those portions of the people
which I represent and whose ideas I have here expressed,
to have these general views embodied in the report of our
proceedings. It may be that in the Reichstag they will
meet with approbation and fulfillment.
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Doctor RiESSER. I wish first of all to declare that I
consider it to be out of the question—and I, for one, must
refuse to join in such a discussion—that we, who have
been called together to express our views only upon particular stated subjects, should give voice to our opinions
as to the right and wrong of an economic system that is
a complete departure from that we have thus far had—a
system which would shove back the whole of our present
economic arrangements to the happily bygone conditions
of earlier times, in which Berlin was a village and Germany a geographical concept and a quantite negligeable.
I think, therefore, that the circumstances demand that
we refrain here from going into the details of this proposition, and that we wait and see whether the arguments
have sufficient convincingness and inner worth to persuade any considerable portion of the nation that, in spite
of the fundamental changes that have taken place meanwhile in our whole economic situation, we must give up,
without regard to all previous successes, the whole economic system that we have been pursuing, and must go
over to the new system which has just been explained
to us.
I wish to make another observation. Since Freiherr
von Wangenheim has himself stated that the memorial
that he has read to us was drawn up partly by himself and
partly by another, I will not suppress my conviction that
the greater part of this memorial, as seems to me to be
proved by the evidence of many quotations and the
repetition of diverse cherished ideas, owes its origin to
Herr Professor Ruhland
540
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I n q u i r y
of
1908
Freiherr VON WANGBNHEIM. That is so.
Doctor RiESSER. Who has, indeed, already had the opportunity, as an expert, of developing his views here—I may
say, by the way, that he did so against sharp and effective
opposition, and that I, too, can not fall in with them—
and who has now simply repeated these views of his.
Whereas in his text-book he lays down the proposition
that whoever puts forward new economic ideas that are
of value to the community should receive not only a
patent free of charge, but also a compensation from the
State, he will not be surprised, after what has been said,
if I for my part am convinced that the advocacy of the
views expressed in the memorial will hardly avail to
establish a claim to a free patent and state remuneration.
And one more personal word. As I have already
explained to Herr Professor Ruhland himself, I stand by
every word that was quoted by him on a previous occasion and by Herr Von Wangenheim to-day from my
book Zur Entwickelungsgeschichte der deutschen Grossbanken, in so far as my words have been rightly
quoted, and have not been torn from their context in
order that they might be made to prove something quite
different. In particular, I wish expressly to assert that
I can not subscribe to the view—still largely entertained
by the parties interested—of our banking system as
purely individualistic and a matter of private business,
a view which, as is evinced by the drift of opinion among
a section of our manufacturers, is not at all identical with
the "free-trade" position with which it has been confounded in the memorial. On the other hand, I must
541
National
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Commission
affirm just as emphatically that the exaggerated views
regarding state socialism entertained by Professor Wagner
and others appear to me fraught with just as much danger
as the exaggerated theories regarding the noninterference
of the State in private undertakings. I must, however,
protest energetically against my being misquoted. This
applies to the assertion, which I am alleged to have made,
that banks pay out especially large dividends at a time
of financial crisis, the implication being conveyed that the
banks, are eager to make the most of financial crises and
that they even welcome them. I acknowledge my
children, but I am not obliged to let children be put off
on me, and this is a changeling that I never brought into
the world. [Laughter.]
The CHAIRMAN. Herr Geheimrat Wagner will be permitted to make a personal remark.
Doctor WAGNER. My name is frequently mentioned,
gentlemen, in the document of Herr Von Wangenheim.
I shall not deny that in the main the opinions I entertain
are correctly stated in it. There is only one point about
which I am in doubt. I am unable just at this moment
to settle the matter. It is something about an expression
which is mentioned as having occurred in a treatise prepared by me many years ago. I shall leave the point
undecided. I can not deny that I share certain fundamental views which the speaker has propounded.
On the other hand—this I shall say merely by way of
an addition to a personal remark—I consider it utterly
impossible, unless we are willing to sit here for weeks and
months, for a commission like this to enter into a minute
542
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of
1908
discussion of the subject that has just been brought up.
We are asked to deal with a very far-reaching programme, in favor of and against which many arguments
can be adduced, but a thorough discussion of which at this
time and place is impracticable. I believe I have not misconceived Herr von Wangenheim's purpose in supposing
that he merely desired to submit a memorial to us
[movement of approval], and as such, as an expression of
his fundamental views, I consider his paper excellent.
Mr. SCHINCKBIV. I intended to take the floor merely in
order to add a brief remark to what I stated yesterday.
I must, however, say a few words with reference to what
we have just heard.
It is not my intention, of course, to enter into the
details of this memorial, which sets so ambitious a programme before us. It has been asserted that the author
of it is Professor Ruhland himself. But the fact remains
that it was presented by our worthy colleague in this
commission, Freiherr von Wangenheim, and he has certainly appropriated it. It is therefore due to him that
we define, however briefly, our position with respect to
this matter.
I must say that this memorial has come as quite a shock
to me, not because I can not bear the burden of the
reproaches which it heaps upon all those who have a
share in our present-day economic activities, but because
it is an evidence to me that our hopes that the discussions
of this commission might bring about a compromise between conflicting opinions have been shattered. There
is an unbridgeable chasm between the views expressed
543
National
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Commission
in this memorial and those held by me and many members of this commission
I need not say that I have no personal pique in this
matter. It is my purpose merely to call attention briefly
and calmly to some points which, in my opinion, ought
not to be allowed to go uncontroverted.
Freiherr von Wangenheim affirms that agriculture is
in reality the sole agent of production. I had flattered
myself that I had proved pretty conclusively yesterday
that trade is also productive. There is no use in my
going further into this matter. I do not believe that
Herr von Wangenheim would understand me. But Herr
von Wangenheim has also asserted that industry is
not an agent of production, but that it is in reality a
business whose aim is to impart superior quality to the
commodities produced. Herr von Wangenheim will perhaps be kind enough to admit, then, as an agriculturist,
that agriculture is nowadays also a business that simply
improves the quality of things. Industries manufacture
from the raw materials articles of consumption. Agriculture is not capable of doing anything else. It sows
and reaps. In between, however, is the operation of
imparting quality. That kind of agriculture which
would be content to-day with letting everything grow as
it pleases would be sure not to produce anything. Agriculture is also obliged nowadays to make use of extraordinary means in order to improve its products, such as
artificial manures, machinery, etc. But, as it is, agriculture—that is a point on which to lay special stress—
will never succeed in producing more than what will
544
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of
1908
just cover its expenses unless it is willing to concede to
trade the rank and importance which it actually possesses
and which agriculture, for some unfortunate reason, has
continued to begrudge it. Agriculture can no longer
exist—at least it can not produce a surplus for the good of
the German people—unless it enlists trade in its service.
This brings me to that remark about the cultivation of
our moorlands, which stirred my sympathies so powerfully. Well, what is it that hinders so greatly the cultivation of our heaths and moors? Why, the lack of means
of transportation, and nothing else; and it is the agricultural interest itself that, for reasons which I have hitherto
been unable to fathom, sees to it that no more canals are
constructed and that the question of transportation is
denied the consideration which it deserves. I protest
against the charge that German capital is not sufficiently
interested in such matters. On the contrary, too much
money is paid out for value received in undertakings of
the kind in question. To begin with, excessively high
prices have to be paid for the estates, as well as the heaths
and moorlands, that are to be bought. To this must be
added the fact that the wages of laborers are much too
high, which is a great obstacle to the carrying out of the
necessary projects.
So much for agriculture. I do not care to go into
details.
What impressed me most painfully was the idea that
our money, our gold, and our credit are henceforth to be
placed under a protective tariff. Well, if the agricultural interest were actually to succeed in bringing this
84713—10
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about, it would, of course, be the end of all things. It
would mean nothing more or less than the sacrifice of
our monetary standard, for which we have striven and
fought so hard, and for the sake of whose maintenance
and proper guardianship on the part of the Reichsbank
we are assembled here. If this policy, which is urged
upon us from the standpoint of the agricultural interests
pure and simple, should be approved in Germany and
put into practice, then we might as well at once abandon
our international trade altogether. This is the object
that is actually aimed at.
[Protest from Freiherr von Wangenheim.]
Yes; and what would happen if we had no longer any
foreign commerce? Then we could sell our ships and
abolish our embassies and consulates in the countries
across the seas, and we should have to revert to the
primitive condition of an agricultural state, to the condition of a country like Servia. This complete isolation
from the world would be disastrous, not only to our agriculture but to the German people. Of course the anticipated low rate of interest would not be realized; on the
contrary, if we shut ourselves off from the outside world
and mean to rely entirely on our own resources and to make
our living out of agriculture alone, then we shall witness in
Germany a rate of interest as high as that which at present obtains in such agricultural countries as Servia. The
result of such a policy of isolation would be that our
German people would have to starve.
I say "our German people," because I protest stoutly
that we are just as much the representatives of the Ger-
546
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man people and have its welfare just as much at heart as
the agriculturists. [" Quite true!"] It is being dinned into
our ears that only the gentlemen who are advocating this
agrarian policy in such an ultra fashion are the representatives of the German people. I must protest emphatically
against this.
Another thing that I have to protest against as a bank
manager is this holding up of the Preussenkasse as a
model to us. The gentlemen who are especially interested
in this fund are in the habit of asserting on every occasion
that it has rendered great services to them. I am happy
to hear this. But the Preussenkasse is not at all a private
banking institution, but an institution subsidized by the
State, which there is no sense in holding up to us as a
model. Another charge that was brought was the spasmodic manner in which credit has been granted. Where is
the granting of credit done more spasmodically than in
the case of the Preussenkasse? Every couple of years it
was found necessary to increase the capital fund paid in
by the Prussian Government in the way of a subvention,
in order to meet the ever-increasing demand for credit. I
deny emphatically that the granting of credit by the Preussenkasse is based upon a better and more solid foundation
than is the case with our great banks. Of course, opinions may differ. My humble opinion is that the solidity
which is attributed to the Preussenkasse and which is
supposed to rest altogether upon the joint responsibility
of the cooperative institutions is not such a sure thing as
it seems, because naturally the element of personal credit
is more largely involved in the cooperative institutions
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than in the case of our credit operations. That the
Preussenkasse may have been of great service to the agricultural interest I do not mean to dispute. But we insist,
and shall continue to insist, on our position that the
first requisite of a bank of credit conducted in the interest
of the public is that it shall stand on its own feet and not
have to be subsidized by the Government. For if the
principle of government subsidies were universally introduced into business, we should have a socialistic state.
We should moreover soon have a state in which there
would be nothing left to subsidize.
To have a lecture read to us such as is contained in
this memorial is a very wholesome thing. It is very
good to be compelled once in a while to listen to something of the kind. I should just like to say, however,
that the State, as such, unfortunately does not as yet
derive its revenues from agriculture—I am an agriculturist myself—but on the contrary would relapse into
an insignificant nullity if it had to-day to rely upon the
revenues which agriculture affords. The national revenues, the taxes, etc., that are raised at present, are derived in the main, as everyone knows, from manufactures
and commerce. This fact ought to receive greater recognition in all our discussions. But we are not thinking,
as I said before, of a national subsidy.
It is clear to my mind that everything that Freiherr
von Wangenheim has propounded to us is in reality a negation of all that we have discussed and advocated in this
assembly. If it were actually a fact that agriculture alone
looked after the interests of the German people, the thing
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would have such a depressing effect upon us that we
could all do no better than to quit work and retire to the
country, or, if that were impracticable, to emigrate.
Another assertion that was made was to the effect that
a high rate of discount is just what the banks desire. I
have stated here on every occasion that the banks are
not a particle interested in having a high rate of interest.
If the words used have reference to the Reichsbank, then I
say that I can not for a moment believe that the Reichsbank puts up its rate of discount in order to increase its
receipts. It does it for entirely different reasons, and if
it happens thereby to make a profit there is no reason
whatever why it should be reproached for it.
As I do not believe that on account of this negation of
everything that has entered into our discussions we are
bound to resign ourselves to letting agriculture have the
upper hand everywhere, I should like to express in a few
words what I had intended to say in connection with the
matters discussed yesterday. It relates primarily to the
proposition of Herr Fischel. I hope and believe that the
Reichsbank will be induced to assent to Herr Fischers
proposition that the seigniorage be dropped and the purchase price of gold thereby raised by 6 marks per kilogram, I think it important that the precise manner in
which this is done be carefully considered. It seems to
me that it would not do simply to declare that the price
is hereby raised by 6 marks, but that it would be better to
say "the Reichsbank has decided that in future the
seigniorage shall not be deducted from the actual value
which it gives in 20-mark pieces for the gold that is
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brought to it." This would serve to prevent a false impression from being formed abroad, where proceedings of this
kind are not always judged in their proper light, and
might have great influence upon the policy of the Bank
of England.
I wish to say just a few words regarding the question of supplying our manufacturing industries with the
gold which they require. The subject managed unfortunately to slip out of my address yesterday. We were, all
of us, greatly moved, of course, when the gentlemen from
Pforzheim told us how nicely they could make use of the
20-mark pieces which the Reichsbank furnished them.
But I think I can remember that it was shown to us by
the refining establishments that that industry has not by
any means been getting its entire supply of gold out of the
Reichsbank's 20-mark pieces, but that at the present time
it obtains a large part from the refining establishments.
We hope it will continue to do this in the future, for the
Reichsbank is certainly not going to make it its business
to see to it that its brand new 20-mark pieces are despatched, as they have been heretofore, to Pforzheim.
Herr Meier, of Pforzheim, assured us that they could not
make use of the 20-mark pieces that had been in circulation, as they had. lost too much in weight, and that it
paid them better to buy their gold in the open market.
I do not consider the danger that industry in future will
seize upon the coined gold too eagerly a very formidable
one. If we cease to encourage such appropriation of our
coined gold by our readiness to supply new 20-mark
pieces, industry will find it more to its purpose to buy the
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0 8
gold in the form of the very alloy which it needs from the
refining establishments, paying for it a price 2 marks in
excess of what is now paid these establishments by the
Reichsbank.
I can not help protesting against the notion, which is
nothing but a fiction, that it is incumbent upon the
Reichsbank to monopolize in,a measure the gold in Germany in future, and that it is to be the only place whence
gold is to be distributed. We know that the refining
establishments continue to draw gold in considerable
quantities from every conceivable source in order to place
it at the disposal of the industrial arts. This is as it
should be. It can not be the duty of the Reichsbank to
supply industry at special rates with gold ingots of a particular composition. I should regard it as very unfortunate in the interest of free trade, of which I am still a
champion, if the new regulations should ultimately result
in making the Reichsbank the only place where gold can
be sold or procured. I do not believe that Herr Fischers
proposition contemplates anything of the sort. The idea
is that, if we establish a market here, there should be as
many purchasers as possible so that the gold business
shall by no means be concentrated in the Reichsbank.
I do not believe that the demands of industry would
greatly affect the condition of the Reichsbank. I do not
think that industry will ask the Reichsbank to part with
the gold which it has secured at a considerable sacrifice.
This may take place indirectly in so far as the gold that
goes to the refining establishments and thence to the
manufactories might otherwise perhaps have found its
way to the Reichsbank.
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I should further like to call the attention of the gentlemen who are troubled with indigestion on account of this
gold industry that 80 per cent of the entire product of
this industry is exported. Now, when we reflect that the
articles manufactured in the Pforzheim establishments for
the foreign market are not pure gold, but that as Herr Meier,
of Pforzheim, has said, the watchword of this industry is
" Put as little gold as possible into your wares " [laughter],
then we see that the exportation of 80 per cent of these
products means a plus in our balance of payments. It
creates a larger item in the column of exports than the
amount of the gold that it actually drains off from Germany. I should therefore like to caution you against
laying too great stress on these demands of the gold industry with reference to the condition of the Reichsbank,
demands which, in my opinion, ought in no way to be
checked.
Mr. GONTARD. Freiherr von Wangenheim has just been
talking of financial mobilization.
Financial mobilization, however, makes me think of
mobilization in the ordinary sense, and I am willing to
say that in the event of mobilization there is no one to
whom, as my chief, I should be more ready to intrust
myself than to our esteemed Rittmeister von Wangenheim.
Freiherr VON WAGENHEIM. I am no Rittmeister. [Laughter.]
Mr. GONTARD. But here, in this arena, where we are
discussing economic matters, I regret that I can not intrust myself to his leadership. There are, indeed, a few
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points in regard to which I am in accord with him. I am
not very far removed from him, for instance, in regard to
the regulation of the issue of stocks. Herr von Wangenheim will also be ready to admit that I, as is clearly
evinced by my previous utterences, am not bound by any
ties whatsoever to the great banks, and that I regard the
power of the great banks, the moneyed aristocracy, as, to
a certain degree, a very serious matter. But when we
enter the domain which Herr von Wangenheim has seen
fit to deal with in his discourse, we enter the domain of
politics, one in which tactics play a great role. I believe,
however, that tactics are not going to promote the progress of our discussions in this inquiry, and I am therefore of opinion that we can not afford to indulge in such
entertaining argumentations. In one respect I stand on
the same platform as Herr von Wangenheim. We are,
both of us, anxious to achieve practical results. As a
means of achieving practical results, I would recommend,
first of all, a fusion of Freiherr von Gamp and those who
share his views with their opponents, in the matter of the
supervision by the Reichsbank of the issues of securities,
and then the adoption of the proposition of Herr Fischel,
as well as that of Herr Raab. In order that we may not
lose too much time, I shall refrain from quoting from my
printed opinion and shall confine myself to one or two
remarks.
As regards private discount, I adhere to my opinion
that it is on the whole of little benefit to the industrial and commercial middle class. All that we can say
is that it may be of advantage at times when money is
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plentiful; at a time of great financial stringency we can
not expect much from it. Now, I should like to come to
an understanding with my esteemed countryman, and I
believe we shall find a basis for such an understanding in
the declaration that it is extremely difficult to determine
where the industrial and commercial middle class actually
begins.
I heartily recommend the suggestion of Herr Raab to
the attention of those specially qualified to deal with these
matters. A banker, Director Weill, has said in his expert
opinion that it would be a good thing if the Reischsbank
itself were to establish some sort of branches in foreign
countries, if only for the sake of its foreign exchange business and gold-import operations. I do not think Herr
Raab's proposition involves the danger that the sums
paid in may suddenly be called for in a time of stringency. The money represents for the most part savings,
and especially the savings of unmarried people, who have
to look out for their future and who, even at a time when
there is much speculation, are not likely to withdraw their
money.
I will take the liberty of expressing myself briefly in
regard to the foreign exchange policy, a matter which I
consider of the utmost importance. Although in general
I am anxious to have our capital remain at home, nevertheless I consider that it may be advantageous to the
Reichsbank under certain circumstances to buy up foreign bills abroad. There is always in the end some sort
of balance between what the Reichsbank does and what
the great banks do, and perhaps, as an actual result, it
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would amount to the same thing whether the great banks
buy abroad or the Reichsbank buys directly abroad.
I am surprised to find that so much stress is laid by
some of the members of this assembly, and especially by
persons whose opinions command great respect, upon the
Hague Peace Conference. I agree in this matter with
Director Stroll, and not even the contention of Geheimrat
Riesser that there are also large credit balances in Germany to the account of England can alter my views. It
is all a matter of the totals of the credit balances on the
one side and on the other. We have, however, also to
reckon with the character of the Englishman, who is extremely patriotic and who might serve as a model to us in
such matters.
It seems to me that a large stock of foreign bills might
be a good thing for the Reichsbank as a means of enabling
it to invest its funds more readily, for the amount of domestic bills is not likely to increase so very much. Herr
Roland-Lucke has already called attention to the fact
that the numerous trusts that exist in this country have
introduced such conditions in the matter of payments as
to prevent the accumulation of a large mass of bills. This
is precisely the case in my branch of business. Formerly
there were three-months bills, but now it is either cash or
bills at one month's or two months' sight. In Alsace, it
is true, this is not the case, as was shown by one of the
experts, but there is little prospect that the conditions
prevailing there will spread further into the Empire.
I do not see how the Reichsbank could be called upon
to keep the oublic posted in regard to its investments in
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foreign bills. The bank would thereby be more or less
crippled in its operations.
The proposition that part of the stock of foreign bills
should be regarded as an addition to the gold reserve does
not appeal to me, although I do not say that the scheme
is impracticable.
With respect to the advances without interest there is
nothing more to say. The Reichsbank has had recourse
to them till now with excellent results.
I am not in favor of including gold that is still in transit
on the ocean in the reserve against bank-note circulation.
Even if the insurance policy is in our hands, the gold is
not yet in the possession of the Reichsbank.
I am decidedly in favor of Herr Fischers proposition.
As far as the main matter is concerned, I place full reliance
on the ability of Herr Fischel and his friends.
I see no reason for imagining that the steamship companies will do much to help along the importation of gold.
I do not believe the whole matter amounts to much.
There is one thing more that I desire to dwell upon at
the risk of having to hear Herr Fischel say: "God protect
me against my friends; I can protect myself against my
foes.'' This is the question: Would it not be feasible for
the Hamburg refinery and the other concerns of the same
kind to join forces with the Reichsbank in order to establish a gold refinery which should be under the direction
of the Reichsbank and independent of the great banks?
It might at le&st be possible to agree to have the buying
done at one place, although I am aware that the raw
material which goes to the refineries is not all of uniform
composition.
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As regards the premium policy, I wish to say one word
with reference to the opinion delivered by Doctor Bendixen (Hamburg). He spoke of a superabundance of
gold. A time may come perhaps, which we can hardly
imagine to-day, when the price of gold will drop below
anything that we can conceive of now. On the other
side, I have been extremely interested in what Doctor
Arendt had to say. It is a momentous question as to
what will happen when gold is no longer to be had in
sufficient quantities. As for the premium policy itself,
we have all reached the conviction that it is out of the
question in connection with the redemption of the i ,000mark notes and the issue of 10-mark pieces, and that the
premium policy is consistent only with the double
standard, not in the scientific sense of the term, but as it
is widely understood.
I am going to take the liberty in conclusion of appending
a word to a simile which Herr Fischel made use of. He
spoke of the ship of the standard. May I be allowed to
add a helmsman to this ship of the standard? We do
not intend by any means to make gold our absolute
autocrat for all time to come. But we still continue to
have the gold standard, and, if it is our desire to see our
helmsman successfully direct the course of our exchanges,
I should like to append another wish, that this commission may call out to him, with reference to the gold
standard, "Stick to the course we have been sailing."
Mr. FISCHEL. I wish to revert briefly to a remark made
by Herr Schinckel. He was discussing the question of
the manner in which a declaration of the Reichsbank, to the
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effect that it would fix a higher price for gold, should be
published. I do not think there will be any difficulty in
settling upon the right form. I should not like to be misunderstood, however, in regard to my standpoint in this
matter. If I spoke of the abolition of the seigniorage, it
was merely in order briefly to set forth the grounds of my
conviction that we ought to pay the full price for gold, a
belief based on a consideration of what other countries are
doing. I t is not my idea by any means that we should
enact a law abolishing the seigniorage. I can imagine
that the passage of such a law would be attended with
various difficulties—if for no other reason, on account of
the fact of our having a mint not only in Prussia, but also
in other countries, as, for example, Bavaria. The burden
of the loss sustained by the mints if the seigniorage is to be
discontinued might not be fairly distributed. The main
thing is that the Reichsbank shall pay the price of 2,790
marks and that everyone can reckon on obtaining this
price in Germany. I now have to say something about
the financial side of these measures. I t appears to me
that if the Reichsbank were obliged to assume the expense
involved in the renewal of our coinage, which is effected
by coining a fixed quantity of gold annually, the burden
would not be a very great one. I have already stated that
at the rate at which we have been coining up to the present
time the sum involved annually would be about 270,000
marks. I now have to qualify this statement in one respect. If we should succeed in prevailing upon our manufacturers to desist from melting down 80,000,000 marks in
the gold coin of Germany every year, we should not have
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to provide for the recoinage of this amount, and therefore
the sum that would actually have to be coined in order to
strengthen the volume of the gold circulation sufficiently
would probably amount to less than what I have stated.
I regard it, however, as a matter of no great importance
whether it is the Reichsbank or the Imperial Government
that assumes the expense. In any case three-fourths of the
profits of the Reichsbank, as everyone knows, go to the
imperial treasury. The burden consequently would not be
great for the Reichsbank, and, as it is, the bank shoulders
the same kind of burden in making advances without
interest.
I shall take the liberty still of saying a word concerning
the refining establishments, of which I had spoken in the
course of the inquiry and to which my predecessor on the
floor has just referred. I am by no means disposed to
interpret the alliance which he proffers me in the sense
in which he interprets it; it is quite welcome to me. If
I have taken up the matter of refining, it has been for the
following reason. I have frequently heard the contention, especially in England, that there is no use in sending
the gold that is produced to any other place than London, as it is there only that it can be properly refined and
placed quickly on the market. What is aimed at in my
proposition is merely that the Reichsbank shall endeavor
to meet such a contention by a declaration to this effect,
that u w e are willing to accept the gold not merely in the
state in which it is fit for the mint, but also when it has
still to undergo the preliminary process of refining/'
Whether, in order to do this, it will be necessary to estab-
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lish a refinery in connection with the Reichsbank is
essentially a technical question, and the matter of expense
will have to be taken into account. Hitherto establishments of this kind have been connected with chemical
industries, and they can, perhaps, be conducted more
economically than a refinery that is concerned with only
a single branch of business. If the Reichsbank were in
a position to make arrangements with the existing establishments, so that it could say that it was prepared to
receive at once unrefined gold and pay for it immediately
according to the approximate value, I should feel that my
plan was being successfully carried out. As a necessary
condition, the Reichsbank will have to ascertain beforehand the capacity of the existing refineries. I believe
that a combination of this kind would be facilitated by
the privilege enjoyed by the Reichsbank of the free transportation of gold through the mails. But it would be
necessary for the refineries to accord such rates for refining
as would meet British competition. I am under the
impression, however, that the German establishments
are already being run at a lower cost than the English,
so that they can afford to make this concession, and even
pledge themselves to reduce their charges still further if
British competition should demand it. It would, of
course, be of advantage if these concerns would also cater
to the needs of the gold manufacturers. The Reichsbank
ought to restrict itself as far as possible to its own special
function, that of regulating the currency. If it could be
partially relieved by the private establishments of the
duty of supplying manufacturers with gold, that would
be a further advantage.
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Herr Gontard put this question: How would it be if
we were to have a period of cheap gold? This could happen only in case of a fundamental change in the constitution of those countries which have hitherto been buying
gold at its full value. As for Germany itself, it could get
its gold more cheaply only in case of a fall in sterling
exchange. Such a fall in the rate of exchange is the very
thing, however, that I should seek to avert by means of
the measures in question.
Freiherr VON WANGENHEIM. I greatly regret, gentlemen,
that my expressions have aroused the indignation of some
of the members. I stated at the outset that I should have
been very glad to have spared your feelings and to have
handed in my opinion in writing. Professor Wagner
would have been ready to assent to that. But it would,
after all, have been a little queer to drop an egg like that
into the nest on the sly, and then go off without saying
anything about it.
Herr Schinckel has altogether misunderstood me in
regard to some matters. I have participated so many
years in the political and economic life of our people and
have learned so much in the course of our many conflicts,
that I have long ago got over the illusion that Germany
might at some time become again a purely agricultural
state. That is entirely out of the question. I said, however, in my introduction, that I am anxious that the state
shall extend its protection and aid to every branch of the
national activity, but that this protection could be claimed
only by those classes which are willing to make themselves
and their interests conform to the interests of the public.
84713—10
36
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The banking fraternity is included in this test. When we
say that we must have liberty of movement, we do not
mean to deny the necessity of making certain regulations
in behalf of the public interest. It is the abuses only that
I have been inveighing against.
I have been represented as having said that agriculture
alone creates values. No, what I said was that, speaking
strictly, it is agriculture alone that creates really new
values. You will agree with me that industry must have
raw materials which it has to work up. Through this
manipulation a value is created in so far as the value of
the commodity is enhanced. This I am perfectly willing
to admit, and in this sense commerce also creates values.
But really new values, such as have not been in existence
before, are actually created through the labor of agriculture alone.
[Exclamations of protest.]
I did not ask for a duty on gold but only for protection
against abuses which are hurting German industry.
Neither did I say that a high rate of discount was just
what the banks wanted, but what I did say was that a
statement had been made here to the effect that the
bankers disliked nothing more than a high rate of discount,
and I did add that this statement did not harmonize very
well with the fact that banks declare high dividends in
times of financial crises.
["You had said something before that."]
Neither did I recommend the Preussenkasse as a model.
All I said was that it was interesting to observe that a
section of the agricultural interest was not so badly affected
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by the crisis, thanks to the activity of the Preussenkasse,
which managed to have the necessary funds at hand when
they were wanted. That it is altogether different in its
structure from the other banks I am perfectly willing to
admit.
In conclusion, I shall repeat once more what I said at
the beginning. My economic standpoint is fundamentally
different from that of most of you. Prof. Adolf Wagner
has already stated that in some respects his views do not
differ altogether from mine. In the discussions of the
Bank Inquiry a number of practical suggestions were made
with respect to individual technical questions, which, no
doubt, will lead to some improvement in the situation.
But all this can not bring about a permanent reform, and
therefore I have considered it my duty not to withhold
this expression of my views.
I have to tell Geheimrat Riesser that I can not at this
instant reply to his rebuke. The quotations were given
to me, but I am unable at this moment to verify the
passages in the book.
Doctor WACHLER. I am sure you all experienced a sense
of relief, gentlemen, when Herr von Gamp declared a little
while ago that there was a prospect that this discussion
would result in reconciling the conflicting opinions. After
the address of Freiherr von Wangenheim, however, I must
say that this prospect has almost faded away. For there
is no doubt that such widely different views of the world
prevail in this assembly that there is no possibility of
reconciling them. Nevertheless I think that some of the
arguments of Herr von Wangenheim ought not to go
unchallenged.
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The notion that agriculture alone creates new values
has been assailed as it deserves. I can not see why industry does not create new values in precisely the same way,
at least the mining industry, which produces coal and
mineral ores.
Freiherr VON WANGENHEIM. NO, sir; that industry exhausts.
Doctor WACHLER. Yes; but does not the harvest exhaust the earth each year? I wish to remind you that
in our economic policy throughout we have always laid
the greatest stress upon the manufacture of finished products and that, in particular, in the discussion of tariff legislation a preeminent position has been assigned to the
industries that convert raw materials into finished wares,
because it was recognized that it is from them that the
rewards of labor are chiefly drawn.
Freiherr VON WANGENHEIM. That was not intended to
be anything else than a merely theoretical exposition.
Doctor WACHIVER. That may be, but then one must be
prepared to abide by the inferences. For, according to
your view, we should be apt to infer that the manufacture of finished products meant less for the economic welfare of the people than the industry which creates fresh
values.
It is a matter of regret that in support of this view various utterances have been adduced which were made in
the course of the hearings of the experts, as, for instance,
the assertion that there had been too rapid a development of manufacturing industry in certain exceptional
cases, so that one was tempted to maintain the thesis that
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this kind of industry had had an unhealthy development,
to the detriment of other forms of economic activity. This
is not the case, of course, nor is this what Herr Gwinner
meant to affirm. All that he intended to say was that
there were certain features in our economic domain that
were not right. But these individual things that are
wrong only go to prove that industry on the whole has
been thoroughly sound.
The subject of the abuse of credit was thereupon discussed and, as an evidence of this abuse, reference was
made to a statement of the president of the Reichsbank
to the effect that some of the Bank's establishments had
granted credit in certain cases where, according to the
rules and principles of the Reichsbank, such action was
not warranted. To this extent, then, the authority of the
president of the Reichsbank can be invoked, that it is a
fact that there have been abuses in the granting of credit.
This is true, indeed, but then these things have been exceptional. It is altogether wrong, therefore, to make this the
basis of an assertion that there has been, as a rule, an unjustifiable dispensing of credit. The credit has been practically throughout an entirely legitimate credit. But
Freiherr von Wangenheim will probably reply to me that
he merely wants to do away with the abuse of credit and
that he does not mean to interfere at all with legitimate
business. Now, it is very hard to say what is actually
legitimate and what amounts to an abuse. We can gather
from the statements of the experts that there is no such
thing as an absolute criterion. But if such a criterion is
impossible, any supervision in this matter that might be
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attempted could hardly have any value. It has been argued that, as long as we have supervision in the case of
private insurance as well as of mortgage banks, there is no
reason why our liquid credit should not be subjected to a
similar supervision. It is very questionable, however,
whether such supervision is of any value. All that I have
heard in regard to private insurance companies is that
supervision is a nuisance and has not proved of any benefit
thus far. In the case of the mortgage banks little has
been gained by such supervision, as was well attested by
a particular case of flagrant mismanagement, where the
bank conducted by Messrs. Schultz and Romeick ["quite
true!"] was declared a court bank to Her Majesty, the
Empress, and a month later became bankrupt.
Much is being said about the need of greater economy
in the national administration and the desirability of retrenchment in the matter of public works, but on every
side we hear nothing but a clamor for state supervision
and the creation of new officials in order to supervise
where there is no need of supervision. These are crass
contradictions.
Something has been said about the Preussenkasse.
The Preussenkasse has been enabled to grant credit on
such favorable terms to the cooperative institutions only
by withdrawing inordinate sums from the Reichsbank.
Another matter that Herr von Wangenheim particularly dwelt upon was the support given to manufactures
and trade by the credit banks, and it is to this aid that he
attributed the unhealthy expansion of industry. Now, I
should like to call the attention of Herr von Wangenheim
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to one industry with which he is pretty familiar, the
potash industry. This industry has hitherto not had the
benefit of any aid from the great banks, but owes its
development entirely to the efforts of mining companies
and the operations of petty dealers in mining shares. I
have in no way been able to discover, although I have
made frequent inquiries, that the great banks have to any
considerable extent a hand in the potash industry. This
industry has had a phenomenal development in the last
two decades. There is probably not far from 500,000,000
marks invested in the industry to-day. The value of the
product amounted to about 97,000,000 marks in 1907;
it was probably somewhat less in 1908. This quantity,
amounting in value to 97,000,000 marks, could have
been turned out by from eight to ten of the existing
establishments, which together have to work with a
capital of between 70,000,000 and 80,000,000 marks.
The potash industry, therefore, has had this altogether
unhealthy development in so short a time without any
support from the great banks. Herr von Wangenheim
can learn the lesson from this that it is not primarily
the great banks that set industries going or urge them to
heedless expansion, but that there are other classes in the
community who are engaged in this sort of thing and
for whose doings there is no remedy. It was evident
years ago that the potash industry was tending toward
overproduction. In spite of this new mining concerns
were started almost every month and new ones are
springing up all the time. The result will be that the
only combine which has till now remained unassailed
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and which has commanded universal respect can no longer
endure or perhaps will even collapse before the expiration
of the term for which it was organized, which will be in
1909, to such an extent are new concerns thrusting their
pretensions upon this potash combine. Here we have a
plain example of the way in which an enormous and
economically important industry which has had no connection with the great banks can, through rash expansion
pave the way for its own destruction.
I am therefore of opinion—and everyone knows that I
have no special interest in taking the great banks under
my protection—that we should be careful about accepting
the statements regarding the influence of the great banks
upon the expansion of industry, and not throw blame
upon an economic factor which is of the greatest value in
connection with our whole development and which is undeserving of such blame.
Doctor RIESSER. I have to say to you, gentlemen, that
Freiherr von Wangenheim has to leave to-day and can
no longer be present to-morrow. I shall therefore ask to
be allowed to say a few words more, so as to give Herr
von Wangenheim a chance to reply if he desires.
I must first of all take the liberty, after Freiherr von
Wangenheim has been good enough to declare that the
passage in my book alleged by me to have been misquoted, which I have just placed before his eyes, is not
at the place where it should stand according to his memorial, of affirming once more that the tenor of his assertion was that I had said that the banks "declared especially high dividends at times of crisis/' with the impli-
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cation that they were interested in crises and their occurrence and were not sorry to see them brought on.
I am sure that we can not undertake at this moment to
make a counter statement such as a memorial of this kind
actually calls for. We have to deal here with divergent
views of the world and absolutely opposed economic systems, as well as with altogether unlike premises, in regard
to which we naturally can not come to an understanding—
least of all, considering the occasion that brings us together. What we have a right to ask, however, whatever
be the economic faith that one professes, and what we
have a right, in particular, to demand of Professor Ruhland, is that he shall not leave out of consideration facts
with respect to which the advocates of every economic
system are agreed.
This applies, to begin with, to the insistence on the free
importation of gold and the prohibition of gold exports,
as it would be hard to find anybody who believes that
there could be an importation of gold from abroad if the
free exportation of gold was systematically forbidden.
This applies, likewise, to the remarkable proposition
that the opportunity for labor ought not to be permitted
to be interrupted by financial crises, as Professor Ruhland, who told us not long ago that he was convinced that
his economic system would render such crises impossible,
remained alone in his conviction, and will continue to
remain alone. To speak of a perpetual absence of financial crises is like speaking of perpetual peace. Financial
crises are bound to occur under every economic system,
and, as was sufficiently attested by the experiences in
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England under the system of banks of deposit, they will
take place under any banking system. Practical experience will perhaps enable us to get rid now and then
of some particular defect in our economic system which,
perhaps in conjunction with other circumstances, has been
productive of financial crises; but then we are sure to fall
into other errors capable of producing similar results.
As to Professor Ruhland's denunciation of the fact that
nowadays " every banker in any cross-roads town allows
checks to be drawn on him" against which there is no
credit balance whatever—
Freiherr VON WANGENHEIM. N O ; it was Herr Rinkel.
Doctor RiESSER. I beg your pardon; it was Herr
Rinkel. All I have to say is, that the assertion is simply
false. No one dares, unless he be a swindler, to draw a
check advertently on a banker without the certainty that
he has a credit balance on the banker's books, or at least
without the assumption, amounting to an assurance,
that he will ha^e the necessary credit balance before the
check is presented for payment. Furthermore, the statement of Herr Rinkel that the new regulations prohibit
the drawing of checks on anyone but a banker is false.
On the contrary, anyone can draw a check on any legally
qualified person, the only condition being that he must
pay the stamp tax, which is not exacted in the case of
checks on bankers, not because it was the intention of the
law to favor bankers, but because it was found desirable
to encourage the system of transfers of credit and counter
accounts as a substitute for cash payments in connection
with checks.
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One word more in conclusion. We all urge our individual propositions only in so far as we are convinced that
we are going to serve the public good. The only difference, therefore, between us and the advocates of the views
set forth in the memorial is that our beliefs and experiences have led us to different conclusions regarding what
the public welfare demands from those which our opponents in the field of economics have reached.
Freiherr VON WANGKNHEIM. Pitch into me as much as
you please; that is all I have to say. All that Professor
Ruhland did was to collect the materials for me, nothing
else.
There is only one word I have to add. I did not quote
in the way Geheimrat Riesser stated. I merely called
attention to the fact that the banks are frequently able
to declare specially large dividends in times of financial
crises.
The CHAIRMAN. The last speaker on the list for to-day
has had the floor. The names of a few members are put
down for to-morrow. I adjourn the meeting for to-day
and request you to be present to-morrow at 10 o'clock.
(Close of session 5.05 p. m.)
57i
October 14, 1908—10 a. m.
Chairman, Wirklicher Geheimer Rat HAVENSTEIN,
president of the Reichsbank direktorium. I shall first
allow Herr Schinckel to have the floor in order to make
a personal remark.
WEDNESDAY,
Mr. SCHINCKEIV. Contrary to my custom, gentlemen, I
have written down the few words which I still wish to
say, as I attach importance to their appearance in the
report.
The reply to my rejoinder, with which Freiherr von
Wangenheim had unfortunately to leave us yesterday,
can not be left unanswered, as otherwise there would be a
gap in our discussions.
The programme contained in the memorial which was
read to us by Freiherr von Wangenheim was strongly
tinged with the view that agriculture alone creates fresh
vatlues, that agriculture is therefore a factor in the economic life of Germany deserving of prime consideration,
that on it preeminently the welfare of the German people
depends, and that it is consequently necessary in the
interest of the public welfare to protect it by means of
legal regulations against the oppression and injury to
which, it is alleged, it is subjected on account of the
trusts and stock speculations with which industry and
trade are permeated.
While we fully appreciate the importance of agriculture,
which, as a matter of fact, is sufficiently protected by
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legislation and national subventions (witness the Preussenkasse), nevertheless we can not too strongly assail this
conception of it, because the premises upon which Freiherr
von Wangenheim bases his propositions, which so vitally
affect our whole economic existence, are, as I shall proceed to demonstrate, false premises.
If we establish steamship lines, which perhaps may not
touch Germany but which every year bring thousands of
foreigners to Germany, and if the result is that a big
stream of money is set flowing into the country, money
which otherwise would never have come to Germany,
then fresh values are thereby created. If we establish
banks in foreign countries, which in the course of the year
send millions to Germany in the way of surplus earnings,
then fresh values are thereby created for Germany. But
I am going to give you a much more apposite and altogether unimpugnable illustration afforded by industry,
which, according to the view of Freiherr von Wangenheim, exercises merely a secondary activity, that is to
say, is supposed to concern itself exclusively with giving
a finish to commodities.
When a capitalist whose money is invested in industrial
undertakings works his coal seams and veins of ore,
adding perhaps foreign ores so as to obtain better results,
and then charges his blast furnace in order to produce
iron, he does precisely the same thing by utilizing the
process of combustion as the agriculturist who takes a
crop of hay from his meadows, adds some oil cake
imported from abroad, and feeds the mixture to his cow
in order to produce milk.
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And when the same capitalist passes his pig iron through
the Martin furnace in order to produce steel, he exercises
precisely the same kind of activity as the agriculturist who
passes his milk through the centrifugal separator in order
to convert it into a superior article, butter. It is merely
a matter of taste whether we designate these forms of
activity by the catch phrase " creation of fresh values " or
in any other way. The one kind is of no less importance
than the other with respect to our whole economy. Quod
erat demonstrandum.
But even with respect to the formation of trusts there
is no difference between agriculture and manufacturing
industry. Even the agriculturists have not scorned, for
example, to organize an alcohol ring in order to make their
profits as large as possible. And if, indeed, working for
profit or money making is to be branded as plutocratism,
I myself can bear witness as an agriculturist that agriculture goes to work, and is compelled to go to work, just as
strenuously as trade and industry, with the most modern
appliances (often introduced from abroad) to secure as
large a surplus as possible in that decried and horrid
money.
But if the premises of Freiherr von Wangenheim are
false, his conclusions will not stand the test of criticism
either, and therefore his propositions respecting the
enactment of restrictive regulations extremely inimical
to business are useless and not to be entertained.
Doctor WAGNER. Gentlemen, the expressions which we
have just heard tempt me to take the liberty once more of
saying a few words in regard to the matter before us,
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although I substantially defined my position in a personal
remark which I made yesterday. I think, however, after
a further consideration of the subject, that it may be worth
while for me to make a few additional remarks.
I can not deny that I am in accord with some of the
fundamental views set forth in the extensive memorial of
Freiherr von Wangenheim yesterday, although not with
his physiocratic theory, which Herr Schinckel has
just assailed with perfect reason and which has been
almost universally rejected by German theorists. We are
willing to admit that the labor expended in industry and
trade, as well as in the field of finance and banking, is
essentially just as productive as that expended in agriculture without meaning thereby to ignore in the least the
immense importance of agriculture and agricultural tenure
as the foundation of our whole economic development.
But I want to say—and I think this ought by all means to
be inserted in our protocol, although I admit that I have to
some extent a personal interest in the matter—that I consider that it is simply impossible and beyond the scope of the
task assigned to us to deal with so extensive a programme,
based upon theories which would seek to give a new
direction to our economic development. ["Quite true!"]
Our duty, as I interpret it, is to deal with certain important, although not momentous, problems relating to the
reform of our monetary credit and banking system, it
being assumed, as was stated at the time in the introductory address of the imperial secretary, that we are to
adhere essentially to the existing gold standard. My
attitude as a theorist toward the gold standard is in some
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respects somewhat skeptical. I have hinted at this here
and there, but on the whole I have kept back my scruples.
I believe that we are bound to take this condition for
granted—I personally have tried as far as possible not to
lose sight of this fact—and to consider it our business to
remedy or remove certain defects that have manifested
themselves in the financial system reared on this foundation, while preserving, I must repeat, the foundation itself.
No other course is possible.
A part perhaps of what Freiherr von Wangenheim proposed further on could be introduced in some measure
into our discussions in connection with Question VI,
where we shall have to consider more closely the question
of the status of the stock banks and, among other things,
also that of the regulation of the deposit business. But
in the discussion of these questions it seems to me that it
is rather the technical features of the points involved that
have to be considered, with reference to which we can then
take up the discussion of the individual matters that are
to enter into the framing of legislative bills and administrative regulations. But as regards the broad programme
contained in the memorial of Freiherr von Wangenheim,
we are obliged to refrain from entering into a discussion
of it. I, for my part, am quite ready to do this in spite
of the fact that, as I have already said, I agree with some
of the views propounded by Freiherr von Wangenheim.
It is my belief, among other things—a belief which I
can not disclaim here, as I have expressed it on every occasion—that we are in a serious stage in our development,
owing to the fact that the distribution of our national
84713—10
37
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income and wealth is progressively in favor of the upper,
especially the uppermost, classes, on the one hand, and,
on the other, in a marked degree in favor of the lower
classes, especially that of the laboring people; while the
large middle classes, who are designated as independent
persons in the classification made for the purposes of taxation, barely maintain their position in the census lists as
regards numbers, and as regards their share of the national
income (a fact the truth of which is borne out by my investigations with respect to Prussia) are losing ground.
But these are not the questions with which we here in this
commission have to concern ourselves. If the Imperial
Government or the Reichstag were to decide to-morrow
that an inquiry be also instituted relative to the great
fundamental problems which have been touched upon
by Freiherr von Wangenheim, I should in some respects
regard the proposition as something by no means to be
rejected offhand. But then we should have a different
task from the one that is ours now. Here we have to settle the questions before us on the basis of our actual economic existence and of our gold standard.
I considered it important that this should be inserted
in the report of our proceedings.
Count KANITZ. I regret exceedingly that Freiherr von
Wangenheim can not be present to-day. I hope that he
will take his seat here again to-morrow and that he will
be able to make a rejoinder to the expose with which Herr
Schinckel has just favored us. A large part of what is
contained in Freiherr von Wangenheim's memorial, as the
member who has just spoken pointed out, reflects the
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1908
ideas of the physiocratic system, which more than a hundred years ago, as Geheimrat Wagner will tell you, were
in a measure the prevalent ones in the science of political
economy. I shall not attempt, of course, at the present
moment to present the bright and dark sides of this system. This would not be relevant to the task before us.
I must be allowed to say a word, however, gentlemen,
with reference to a very different matter which Freiherr
von Wangenheim has communicated to us. He expressed
our thanks yesterday to the gentleman who digested and
edited the opinions of the experts for the remarkably
painstaking and able work which he has placed in our
hands. To this expression of thanks I should like to append the wish that we may be permitted to lay the work
before the public, as far as that is feasible, by means of the
press, so that this extremely valuable compilation may at
least be made accessible to the members of the Reichstag.
It would give me great satisfaction if this assembly should
adopt a resolution to the effect that this compilation be
placed at least in the hands of all the members of that
body.
Doctor RiESSER. But not the epitome merely. We
consider it important that everything shall go into the
report.
Count KANITZ. I regard this digest as more useful.
Mr. MOMMSEN. Let us take up this matter afterwards
by itself.
Count KANITZ. I do not think that any member of
the Reichstag will find it possible to wade through all
the stenographic reports, but I am sure they will all be
579
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delighted to get the main points in these opinions in that
terse, clear-cut form in which they are embodied in this
compilation.
We find, gentlemen, right at the beginning of this compilation this sentence: "The main determining factor in
regard to the international movement of gold is essentially
the balance of payments.'' This is undoubtedly correct,
and in order to form a clear conception of the character
of the balance of payments, what is required, of course,
is accurate statistics. This brings me back to what Herr
von Gamp said yesterday. He was complaining of the
untrustworthiness of the statistical data relative to the
issue of securities and cited as an instance the fact that,
according to the estimate of the Frankfurter Zeitung,
the total of the securities floated in 1907 amounted to
1,842,000,000 marks, while Der Deutsche Okonomist
computed it at 2,135,000,000 marks, the difference
amounting to about 300,000,000 marks. This discrepancy does not appear to me excessive, considering that,
taking it all together, we have to rely on mere estimates.
It would be especially difficult to compute the amount of
German capital that is being invested in foreign securities.
For we are concerned here, gentlemen, not merely with
foreign securities that pass into the hands of German
capitalists but also with the large sums of German money
that are invested abroad in foreign securities through the
intermediation of foreign banks and agents, and therefore
naturally do not figure in the statistical data.
The regulations relating to the Bourse, which have
unfortunately been radically modified, have been charged
580
Bank
Inquiry
of
1908
with driving capital abroad, and in this connection I
should like to say a few words in reply to what Herr
Mommsen stated yesterday with reference to the operation of these revised regulations. As I have myself had
a modest share in the making of these regulations, I
believe I have a right to say that it will not do to denounce them in this easy manner. Of course this is not
the time for engaging in a discussion concerning the
Bourse. I wish merely to say that the law relative to the
Bourse was deprived of its substance by the supplementary bill, so that virtually nothing was left but the title—
the superscription—and the imperial commissioner is not
invested with any powers. Consequently all that there
is in the new law is that anyone can do or not do just
as he pleases. But for this we have no need of a law.
I, for my part, could not make up my mind to vote for
this supplementary bill.
Another member of this commission made a suggestion
yesterday which impresses me very favorably in various
respects and might afford a means of obtaining some sort
of statistical view of the gold movement. He proposed
that all the gold coins in the vaults of the Reichsbank
should be examined and the dates of coinage noted. A
comparison of the relative amounts would enable us to
calculate approximately how much gold has gone abroad
in the course of a year and how much has remained at
home. I believe you will agree with me, gentlemen, that
it is quite possible to carry out such a scheme, but at the
same time I can not help thinking that there are serious
mechanical difficulties in the way. The coinage of
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double-crowns since 1871 amounts to 3,744,000,000
marks and that of crowns to 732,000,000 marks. The
minting of imperial gold coins has been going on for
thirty-seven years. Now, if such a sifting of the coins
is to be undertaken, the teller must either have in front
of him a box with 37 compartments or a sheet of paper
divided into 37 columns, one for each year, spread out
before him, or else he must have an assistant to whom he
simply calls out that this coin belongs to such and such a
year and that to another. Let us suppose that it takes
on an average only two seconds to get through with a
coin. This would mean 30 coins per minute, 1,800 per
hour, 18,000 per day of ten working hours. This would
amount in thirty .days to 540,000 coins, amounting in
value to 10,800,000 marks. To go through the 820,000,000
in the Reichsbank in this way would require the labor of
80 employees for thirty days. [Laughter.]
Well, even if our esteemed president, Herr Havenstein,
if Herr Glasenapp, Herr von Lumm, and all the members
were to take a hand at this job [laughter], and let their
professional calls shift for themselves, I think it would
hardly be worth our while to go to all this labor, time,
and trouble. I am of opinion, therefore, that this otherwise rather inspiring proposition is, after all, not practicable.
Geheimrat Wagner brought forward another question,
which I myself once broached in the Reichstag, as to
whether it would not be a good thing if the Reichsbank
were to insert in its weekly reports a separate statement
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of the amount of gold and silver coins in its vaults. I
hardly think that there would be any special difficulty
in the way. I was told years ago that the Reichsbank
was in the habit of confidentially imparting this information in very precise figures to the other great banks.
This fact was communicated to me by a resident of
Vienna. Yesterday I learned from Herr von Glasenapp
that once through some accident such information was
actually carried to Vienna, but that the managers of the
Reichsbank continue to preserve absolute secrecy in
regard to the amount of gold and silver in the bank. I
should state, on the other hand, that in the statistical
reports concerning the Reichsbank, that is to say, in the
11
Statistical Yearbook,'' separate statements may be
found regarding the stock of gold and silver, no weekly
figures, however, being given, but only the average
for the year. For instance, I find here on page 233—
A VOICE. In the annual report of the Reichsbank!
COUNT KANITZ. All that is stated, however, has reference to the average for the year, and I should conside
it a great gain if such separate statements could be
had in the weekly reports. I should be very grateful
to our president if he could possibly give me an affirmative declaration in respect to this matter.
Gentlemen, one of the most important factors in our
balance of payments is, of course, the balance of trade.
If we are here in consultation to suggest remedies for the
unhealthy movements of gold which we have witnessed in
the last few years, we can not help casting a glance at our
balance of trade. I regret that we are not likely to be
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in a position for a long time to come to alter materially
the undoubtedly unfavorable state of our balance of trade,
inasmuch as our relations with foreign countries are settled for years ahead by our commercial treaties. I regret
that these agreements have been concluded on the basis
of such low customs tariffs. I regret that the very comprehensive work undertaken by the Economic Committee—Oberbergrat Wachler, who was a member of this
committee, will perhaps confirm what I am saying—was
simply turned over to the imperial ministry. We had
drawn up a new tariff, providing for very different duties
and considerably higher ones than those afterwards embodied in the schedule submitted to us by the imperial
ministry, and I am pretty sure that our balance of trade
would make a much better showing if our propositions
had not been rejected. It is unfortunate that the Imperial Chancellor, Prince Biilow, was obliged to give up
so much of his time to other business that he has been
able to devote so little attention to matters of commercial
policy. The fact remains, and we can not change it, that
our balance of trade is an adverse one.
Herr Mommsen remarked yesterday that the profits of
trade were set down too low in our statistical tables. I
am willing to admit the assertion with respect to some
articles, but not with respect to others. Quite the contrary may be the case. When we see, for example, that
our trusts, especially the iron trusts, sell their products
abroad at a lower price, indeed a much lower price, than
they do at home, but that the full domestic price is
given in the statistical tables, it is evident that excessive
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figures are assigned to these articles in the exports, and
that therefore the figures of the balance of trade are misleading, making it appear less unfavorable than it really
is. Permit me to demonstrate this by a single example.
About three years ago a new gasometer was set up in
Copenhagen. Bids were invited by advertisements inserted in all kinds of domestic and foreign journals.
German and English firms appeared as bidders An English firm finally got the contract as the lowest bidder.
The curious feature of the affair was that the gasometer
was constructed of German material, sold by a trust to the
English firm at a reduced price, which material was
shipped direct to Copenhagen from the works in Westphalia, a profit being still left to the English contractors.
You see, therefore, that the trade statistics, in the way
they are prepared, have some dark sides to them, and this
not only in the sense in which Herr Mommsen expressed
himself yesterday, but contrariwise also. Sometimes the
profits of trade are reckoned too low, while the figures
given for exports are too high. The showing, therefore,
in the trade statistics may be too favorable a one and not
justified by the actual facts of commerce.
Our statistics show that our imports in 1907 amounted
to 8,747,000,000 marks and our exports to 6,850,000,000
marks. This means an adverse balance of 1,897,000,000
marks, without reckoning the precious metals. Comparing this with the facts presented by the United States,
I find that the exports from that country in 1907 amounted
to 7,899,000,000 marks, while the total of the imports was
only 6,024,000,000 marks, the balance of trade being in
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favor of the United States, therefore, to the extent of
1,875,000,000 marks. The balance of trade was still more
favorable in 1906', the figures for the exports and imports
having been respectively 7,324,000,000 marks and 5,151,000,000 marks, the balance in favor of the United States
being therefore 2,173,000,000 marks. Now, if the balance
of trade is the dominant factor in the movement of gold,
then the United States ought to have escaped the gold
famine, ought actually to have been swimming in gold, by
reason of this extraordinarily favorable balance of trade.
But in reality it turned out just the other way. The gold
famine was most severe in America; it was in America that
the gold famine began last year, spreading thence over the
European countries. Other factors must therefore have
been involved in the matter.
I shall designate one of these factors, if you will allow
me, one to which brief reference has just been made, the
activity of the trusts and combines, not always justifiable,
in my opinion, from the economic standpoint. Last year
I brought forward an interpellation in the Reichstag relative to the bank discount. Before making it I discussed
the matter with the president of the Reichsbank, Herr
Koch, and we were agreed that the gold famine, in the way
in which it originated in America and spread over Europe,
was to be attributed in the main to the proceedings of
President Roosevelt against the trusts and combines in the
United States. The result was—I do not mean to say
exactly a shock to American trade and industry—but a
certain lack of confidence in their future development.
Everybody believed that a great panic was impending, and
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1908
in this panicky situation everybody kept his money tight
in his pocket. Gold disappeared from the surface and had
to be brought over by force from Europe. Such were the
main features of the gold famine. The American people,
of course, sought various means of relieving this gold
famine, and the Secretary of the Treasury threw a great
quantity of Panama bonds upon the market in order to
haul the gold out of the pockets of its owners, as he expressed it.
You will therefore perceive, gentlemen, that various
factors enter into this matter in addition to the balance of
trade and the balance of payments. The balance of trade
is naturally, as I have already said, one of the main factors
in the balance of payments. We might, with some degree
of safety, take into account alongside of it the profits of
maritime transportation; that is to say, the total gains of
our shipping companies. We are not likely, it is true, to
get a correct idea of the actual figures. The dividends
of the North German Lloyd, for example, have been in
recent years: In 1902, nothing; in 1903, 6 per cent; in
1904, only 2 per cent; in 1905, 7% per cent; in 1906, %%
per cent; and in the past year, 1907, much less, in fact, zero,
as far as I am informed [exclamation of " I t did declare
one " ] ; in any case, a merely nominal dividend, very much
smaller than in the preceding year. By reason of these
spasmodic fluctuations in the dividends, it hardly seems
to me that the profits of the shipping business, although
they have to be taken into account, particularly in the
case of the British balance of payments, play altogether
a very important r6le.
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And now, gentlemen, I come to the question: In what
way can we perform the task intrusted to us; what can
we suggest in the way of a remedy to hinder the flow of
gold abroad; and how do we propose to compel the gold
that is now in the country to remain where it is? I think
that in this matter it would do no harm just to cast a
glance at the Bank of France. Geheimrat Wagner called
our attention yesterday to the wonderful way in which
various foreign banks have developed, as well as to the
way in which they have managed to increase their stock
of gold, while that of the Reichsbank has remained stationary. I want to lay stress upon the fact that this gold
famine which we have had, especially in the past year, did
not affect France in the least, the Bank of France having
managed to get along with a discount rate of 4 per cent,
while we have had to endure a rate of 7 ^ and even 8}4
per cent. I refer you to an article, which attracted considerable attention, published by the former president of
the Reichsbank, Herr Koch, about two years ago, in the
Deutsche Revue. " W e are apt to have a false impression," he says, "with respect to the manner in which the
Bank of France disposes of the matter of gold payments.
It redeems its notes, as a rule, unless the amount is small,
in silver; and in the granting of credit, barring exceptional
cases, it likewise pays out nothing but silver. When it
pays out gold, which it hands out in the form of bars or of
foreign coins, it makes a small charge, which in French
parlance is designated as a premium. Such a procedure
would be utterly out of the question in Germany. If the
Reichsbank, renouncing the principles which have hith-
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erto guided its conduct, were to refuse to pay gold when
its notes were presented or when it had to meet other liabilities, as, for instance, in the case of the withdrawal of
deposits, its little stock of silver talers would soon be
exhausted. We should inevitably witness a general
state of anxiety, our credit abroad would be affected, the
notes of the Reichsbank would lose their present character, and the monetary standard of the Empire would be
endangered. A great part of the deposits would soon be
withdrawn from the Reichsbank if the depositors became
apprehensive that they would no longer receive gold,
but silver and paper/'
Permit me, gentlemen, to say a few words with reference
to this utterance of President Koch. It has been the
rule of the Bank of France to pay out gold to those depositors whose deposits have been made in gold. If the
Reichsbank were to adopt this principle, it goes without
saying that those who have deposited gold would receive
gold. I believe on the whole that, although we have no
right to tamper with our monetary standard, we should
do well to follow in a considerable measure the example
of the Bank of France, and that we should find therein
an effective remedy against the recurrence of such crises.
The Bank of France redeems its notes in silver. What
prevents us from doing the same? The answer of
President Koch to this question was that the effect
would be to endanger our monetary standard and undermine our national credit. But tell me, gentlemen, has
the national credit in France been in any way undermined? Is not France about the wealthiest country at
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the present time? Does not the national credit in France
possess a stability the lack of which we sorely feel? The
3 per cent French rentes are at par or almost at par (99
and a fraction), while our government obligations are
somewhere around 83. How can anyone say, then, that
our national credit would be shaken if the regulations
relating to our metallic currency were, without sacrificing
our gold standard, to be modified in such a way that
our banking institutions could pay sums above 20 marks
(the limit fixed by the law of 1873) in silver or in bank
notes?
When on the 14th of January last I declared in the
Reichstag with reference to this matter that the Reichsbank was bound by Article IX of the currency laws of
1873, Herr Kaempf exclaimed "Thank God!" Well,
gentlemen, I am not one of those who keep saying
"Thank God!" for it is this very requirement that has
brought us into our trouble. I see no reason why the
paragraph in question can not be revised; why we should
not insert, in place of 20 marks, a much bigger sum, say
1,000 marks. Why not make the amount of silver per
capita larger than what is provided for by the supplementary regulations relating to the currency? The
amount per capita, as you are aware, was raised from 15
to 20 marks. I should consider a further increase very
desirable. I have taken the liberty on a former occasion
of expounding the view which I am now laying before
you, and I think I am justified in asserting that what I
have witnessed in the interval is not calculated to alter
my opinion.
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This is about all I have to say, gentlemen. I have
nothing better to propose than what I have suggested.
Let us not be forever thinking of the balance of payments
and constantly pointing to this or that circumstance as
responsible for the gold famine, while insisting at the same
time that it is beyond our power to alter these conditions
and that the discount screws remain as before the only
means of protecting in some measure the stock of gold in
the vaults of the Reichsbank. What terrible mischief
the high rate of discount has wrought throughout the
country, we all know. Every business man, every artisan,
every agriculturist, every owner of an industrial establishment feels it all over. I trust we may never have to
witness a recurrence of such times as these have been. Let
us go to work, gentlemen, and do something positive. No
good can come out of these halfway measures.
The CHAIRMAN. I beg to be allowed to say a word with
reference to a question raised by Count Kanitz. He suggested that the Reichsbank should in future publish separately in its weekly report the amount of gold and silver
in its vaults. I am able, first of all, to confirm the statement made to him by Herr von Glasenapp that hitherto
no information has been given out regarding the stock of
gold on hand each week, and that if such information did
once get abroad in Vienna it must have happened through
some accident. All that has appeared in the report of the
managers is the amount of gold and of silver at the close
of the year, as well as the average amount throughout the
year, and, in addition, there is a scientific work which gives
statistical tables exhibiting the average amount of the
various kinds of money for each year.
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I will say, gentlemen, that the Reichsbank has received
a large number of petitions relative to the extension of
the scope of the weekly bulletins. I had occasion some
time ago to bring the suggestion of Count Kanitz to the
notice of the directors, and I can assure you that of all
the requests that were communicated to us this one appeals
to us most strongly, and that the objections which formerly stood in the way of the publication of such separate
statements appear to us so far removed that we hardly
need to hesitate any longer to keep the public informed of
the stocks of gold and silver in our possession. I can not,
however, hold out this prospect of a favorable issue in the
case of various other petitions that have been presented
to us, and in particular such as request us to make public
the total of foreign bills and of credit balances. It is in
great part this very uncertainty regarding the amounts in
question that enables the Reichsbank to put forth its
strength in connection with its stock of foreign bills.
["Quite true!"]
I hope, therefore, that, beginning with next year, we
shall be able to comply with the wishes of Count Kanitz.
Freiherr VON CETTO-REICHERTSHAUSEN. I should really
have preferred, gentlemen, to take the floor later on—
that is to say, when we should have come to Question VI,
in connection with which I should have had occasion to
express my views in detail regarding a number of the
points that have thus far come up for discussion. But in
as much as Freiherr von Wangenheim set forth his programme yesterday in an address which might produce the
impression that he, as the chief representative of German
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agriculture, had presented the agriculturist platform as
far as concerned the whole purpose of this inquiry, I feel
prompted right now to explain my attitude with respect
to this programme of Freiherr von Wangenheim.
There is no doubt, gentlemen, that German agriculture
for a time received less attention than it deserved in the
industrial activity of our country and in the economic
policy of the Government. It took some time before we
fully recognized the prominent position to which agriculture, as an economic factor, is entitled. That it should
have happened thus, I, for my part, do not find it difficult
to understand. It was due to the rapid and splendid development of manufacturing industry and to the fact
that the achievements of industry and commerce present
themselves more readily to the view of the upper classes,
and, generally speaking, of people of education, than the
results achieved by agriculture. But the wrong involved
in this lack of appreciation of agriculture has, we are
happy to admit, been made good in the course of years.
From the moment when, in 1879, o u r former imperial
chancellor, Prince Bismarck, adopted the policy of affording protection to the labor of the people, German agriculture began to receive its dues, while, on the other hand,
the agriculturists themselves found it to their advantage
to abate their immoderate demands, and, with a keen insight into the workings of such a policy in regard to their
own interests, adapted their attitude toward manufacturing industry and trade to the actual conditions. I believe
I can say that neither do sincere friends of agriculture and
the agriculturists themselves nowadays pretend, on the one
hand, that agriculture has an exclusive claim to being
84713—10
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regarded as a productive agent, nor do they insist, on the
other hand, that industry and trade are trying to assert
such a monopoly. I believe—and I have been confirmed
in my opinion by the discussions relative to the tariff and
the commercial treaties—that, fortunately for our entire
economic condition and our means of existence, a middle
course has been found, to which the far-seeing representatives of agriculture and of trade and industry alike have
successfully betaken themselves.
The position taken by Freiherr von Wangenheim in his
address yesterday is, as we can gather from our previous
discussions, identical with that of Professor Ruhland. I
must confess that when I read the statements of Professor
Ruhland, in which he refers to me as a collaborator, I was
rather taken aback. I did at one time, it is true, work
together with Doctor Ruhland in a particular branch of
political economy, that which is concerned with the credit
system, and in this field I have in many respects shared
the views of Doctor Ruhland; but I must solemnly protest against the assumption that the views which Doctor
Ruhland sets forth in his latest work on economics, in
some respects a most interesting book, are all such as I
have adopted after many years' experience. President
Schinckel, if I remember right, referred to a declaration
of Freiherr von Wangenheim to the effect that agriculture
ought to be regarded as possessing a certain monopoly;
that it alone creates values, and that it alone can claim
to be considered a productive industry. It was impossible for me to follow the statements of Herr von Wangenheim closely. They were read, besides, rather indistinctly,
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and they were so drawn out that I was not able to get the
whole thread and substance into my brain; but I believe
I can safely say that these utterances did not embody the
notion that agriculture alone is a productive industry,
everything that the nation produced being derived from
it. It is correct to say, of course, that agriculture is the
source whence a large number of values are derived, and
that it is the foster mother of the whole people in so far as
it actually provides our raw materials on a vast scale in
the form of primary products and especially our food supplies. We ought not, however, by any means to forget
that manufacturing industry is also a great productive
agent, converting raw materials into finished products;
that it is not agriculture alone that supplies the raw products of nature, in part already in a form fit for immediate
use, if I may so express it, but that such production involves processes in entirely different spheres of industrial
activity. The range of this kind of productive activity
transcends our imagination. I need only remind you of
the latest discoveries which have been made in the industrial field for the benefit of agriculture. If we can
obtain nitrogen from the atmosphere by means of electricity, we must admit that this is a new form of primary
production, something that no one ever thought of before.
[An interruption.] If not primary production, at least a
transmutation of previously existing elements into a superior substance. Well, all we can say is that both sides are
claiming decidedly too much.
But there appears to be something besides that has been
overlooked by many, the fact—and this is the question that
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concerns us at the present moment—that the claims of
agriculture in the matter of the currency and of credit are
of an essentially different character, and should be of a
different character from the claims of trade and industry—
essentially different for the reason that the nature and
methods of agricultural production are essentially different
from those of manufacture as well as of trade, which I
should by no means designate as an unproductive industry.
The efforts which German agriculture has been making in
recent years in order to have the currency and the credit
system adapted to its peculiar needs are fully justified.
We must be careful to discriminate between the requirements of agriculture in the matter of the currency and of
credit from the needs of manufacturing industry and of
trade. ["Quite true!"]
If we proceed from this standpoint, gentlemen, I believe that, on the one hand, you will have due regard for
the legitimate demands of agriculture, and that, on the
other, we shall reach a compromise which will enable us
to carry on our discussions from the standpoint of the
needs of our economic fabric taken as a whole. This is
the position which in my opinion is taken by a large
number of our agriculturists, with whom I fully agree.
As a delegate to this assembly of the Council of German
Agriculturalists, I should like to modify the impression
produced by the exposition of Herr von Wangenheim
yesterday, whose standpoint, in my opinion, was rather
one-sided, and to declare that although my views are in
many respects fundamentally in accord with those of
Herr Wangenheim, I am not able to go so far in my
deductions as he did yesterday.
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On the other hand, gentlemen, I can not help protesting
against the violent remonstrances that have been heard
on the other side. It appears to me, in particular, that
the interpretation which our honored colleague, President
Schinckel, has placed upon the utterances of Herr von
Wangenheim is not warranted. I think that it does
injustice to Herr von Wangenheim.
And now, gentlemen, I have sufficiently explained my
position to you. I believe that it was due to myself and
to you that I should try to throw some light upon this whole
matter by means of such an exposition as I have made
(which in reality would have been more fitting in the
general discussion), which will give you a clear idea of the
standpoint of a large section of the agriculturists, which
standpoint, I believe, will and can constitute the basis on
which the representatives of agriculture and those of trade
and industry will be able to prosecute their labors in unison.
Mr. FISCHER. After the excellent and exhaustive statements which the majority of the members of this commission have made in the course of more than two days, it is
hardly proper for me to repeat what has already been heard,
and in part said more than once. I agree in the main with
the views held by the great majority of the members and
in particular with those expressed by Director Peter, except as regards one point. He seemed to consider it
almost a matter of course that a considerable share of the
sum invested in foreign gold bills should be reckoned as
constituting part of the stock of gold in the Reichsbank.
I should be sorry if that were so or if it were regarded as
necessary, for I fear that a large section of our people
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would look upon it as a concession to the outside world.
To some it would appear as an official declaration, as a
recognition of the fact that in reality the foreign, that is
to say, the English monetary standard is better and purer
than the German. I believe that this is neither right nor
necessary.
I need hardly say that I appreciate as fully as the rest
of you the value of Herr Fischers suggestions with respect
to the eventual establishment of a gold market in Berlin.
Nothing will please me more than to see this brought about,
and especially if it were found practicable to put these
suggestions to a practical test without recourse to the machinery of the law—without any legislation, I say, because
I believe that any changes which experience might dictate
could more readily be introduced if there was no need of
resorting to new legislation. To a layman like myself the
idea would naturally occur that it would be advantageous
to have the refinery which Herr Fischel has in mind associated, partially at least, with the Berlin mint. In this
connection I beg to be permitted to express the hope that
that gold-devouring Moloch, the industry which turns out
gold articles and which is so actively carried on in my
vicinity in the towns of Pforzheim and Gmund, will find
the Reichsbank ready to do all that is possible in the way
of satisfying its special needs. I am naturally opposed to
any police regulation prohibiting the melting down of imperial coins, as I can not imagine that it would work satisfactorily, and I believe moreover that such a legal regulation would be altogether superfluous if the Reichsbank
were to adopt the policy of supplying this industry directly
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or indirectly with the necessary ingots, plates, and bars of
the required composition, so that there would be no need
of melting down German coins. I feel that this industry
is all the more deserving of assistance of the kind in question because there is no other industry in Germany so
large a percentage of whose income goes to improving our
balance of trade, as the great bulk of its large output is
exported.
As regards the last subject, the premium policy, it is not
worth while in my opinion to waste words upon it, as long as
it is our purpose to adhere to the gold standard, pure and
simple. I regard it as a very gratifying result of this bank
inquiry that up to this very moment no direct assault has
been made upon our gold standard. Even Doctor Arendt
would not mind seeing a strong silver wall built for the
maintenance of the gold standard.
Mr. SINGER. It is very kind, gentlemen, on the part of
our president to offer me the floor. You will find it natural, however, in view of the circumstance that, out of
consideration for my health, I have been unable to participate in the labors of this commission in the way I
should have wished, if I confine myself to a few brief
utterances. I should consider it presumptuous on my part
to undertake a detailed exposition of matters to which
I have been prevented from giving the attention which
has been bestowed upon them by the other members of
the commission. I must also frankly confess that the
state of my health has prevented me from going over the
reports of the discussions so thoroughly as to be sufficiently
informed regarding each point to justify my speaking
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at length. I shall therefore only beg to be permitted to
make a few brief remarks, mainly with reference to what
Herr von Wangenheim said yesterday and what was said
to-day by Count Kanitz.
The relations between the agricultural interest and the
Reischbank have for a number of years been rather
strained. I can look back over a period of twenty-five
years that I have been a member of the Reichstag, and
I know perfectly well that the complaint of the agricultural interest regarding the Reichsbank and its conduct
has meant just this, that the agriculturists have always
insisted that the Reichsbank has not shown itself sufficiently attentive to their needs, while it has been altogether too intent on catering to those of trade and industry. I must say that throughout all these years I have
regarded the attitude of the Reichsbank in this respect
as, on the whole, fully justified by the circumstances.
To my mind it is very evident, although I am not sure
that the members will agree with me, that the Reichsbank, in the discharge of its functions as a regulator of
the currency, has the duty of looking after the interests
of trade and industry, and that the peculiar interests of
agriculture, apart from those served by institutions provided for the public as a whole, can not possibly receive
that special attention on the part of an institution such
as the Reichsbank is, and is bound to remain, which those
engaged in agriculture would like to receive.
The preference for the double standard evinced in the
utterances of the two members I have referred to and in
those of some of the other speakers, as Herr Wagner and
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Herr Raab—the regret expressed, even if reluctantly,
that the gold standard is to be maintained under all
circumstances—this it is, gentlemen, that explains to me
why the agriculturists are constantly insisting that the
Reichsbank is neglecting their interests.
But there can be no doubt that, considering the fact
that Germany has been converted from an agricultural
into an industrial country, and that this transformation is
going on at an accelerated rate, it must be regarded and
prescribed as the chief duty of the Imperial Government
and of its credit and monetary institution, the Reichsbank, to look after the interests of trade and industry,
however distasteful this may be to our landed gentry.
The demands set forth in the expose of Freiherr von
Wangenheim are not calculated in my judgment to serve
here as a practicable basis for legislative measures.
If Count Kanitz believes, as he stated to-day, that
the depressed state of industry, the crisis through which
we are passing—in short, the whole situation in which we
find ourselves at present—is the result of what he considers injuriously low rates in our tariff, then I must say
that his is a view which is diametrically opposed to my
own. I am, on the contrary, of opinion that our policy
with respect to commercial treaties and the tariff, which
is carried on under the auspices of the agricultural interest and is inordinately influenced by the requirements
of the great landowners, is in great measure responsible
for the industrial crisis, and I should like to add right
here by way of a side remark that, judging from actual
facts, I can by no means share the Utopian view of those
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who fancy that we have got over the crisis, that we are
afloat again, and that we have returned once more to
normal conditions. [" Quite right!"]
I can not help fearing that the coming winter will bring
us some bitter experience in this respect. If you will only
consider how rapidly unemployment is increasing and to
what an extent, by reason of the high prices of the necessaries of life from which we are now suffering, the lack of
work and the resulting diminution of the opportunities
for work, the depression of wages, etc., the purchasing
power of the masses has been diminished, then you will
see why I can not understand how anyone can imagine
that all is well again, that we are getting back to where
we were, and that we can afford to regard what took
place in 1907 as an unpleasant recollection. The facts,
gentlemen, are very different; the contrary is unfortunately the case.
As to the great question with which we are concerned,
I have to say, gentlemen, that the suggestions which have
thus far been offered in the way of a solution afford no
means of averting a crisis. ["Quite true!"]
One of the members has expressed himself to the effect
that, as a matter of course, the circulation of money and
the business resulting from it pursue an undulatory course.
This is true, but not in the sense that it must inevitably
be so, inasmuch as these upward and downward fluctuations are merely the necessary consequences of the present
constitution of society. The capitalistic system of production brings about from time to time economic crises,
and the result of the unrestrained production is, that at
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certain times, as, for example, when there is a glut in
the market resulting from unsatisfactory domestic conditions, sales of merchandise are reduced, or, if at the same
time political conditions abroad exert their influence,
stoppages in production ensue, which, through their effect
upon demand in general, have an injurious effect upon
trade, industry, and agriculture.
I hardly believe, therefore, that as a member of this
commission, in which the imperial secretary was kind
enough to enroll me, I am called upon to enter into an
analytical discussion regarding the regulation of production and the steadying of the markets with my esteemed
colleagues, whose views of the world I do not share and
whose political opinions are entirely at variance with my
own. Such a disquisition would only weary you without
doing me any good. I take it to be my business rather
to consider on the basis of actual conditions whether the
propositions presented in the question before us are calculated to avert, or at least to mitigate, the economic evils
in the matter of bank discount and the outflow of gold
from Germany which the year 1907 has brought to a head.
To begin with, gentlemen (this is perhaps a heretical
view, but I think I am in duty bound to express it), I see
no reason at all to complain, as others do, if the rate of
discount—I am not speaking, of course, of an excessively
high rate, which I likewise consider harmful—goes up a
little. I do not regard this in itself as an evidence of
unhealthy economic conditions. It seems to me, on the
contrary—and my opinion is based on many years'
experience in mercantile affairs—that a stiff rate of dis-
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count is actually always a sign of good business in the
matter both of manufactures and of trade. An increasing demand for money is generally an indication that
business is booming. I can not quite agree with Herr
Roland-Iyticke in his view that industry is in reality
responsible for the hard times through its inordinate
expansion and the establishment of great plants which
are idle for want of business. This may be the case to
some extent, but I think that we can not overlook the
fact that the great banking institutions are also to blame
in this matter. We are all aware that, owing to the great
mobility and cheapness of capital and the active encouragement afforded by the great banking institutions,
all kinds of undertakings have been set on foot; that the
owners of industrial establishments, by reason of the
high prices paid for their plants in the conversion of
their concerns into stock companies, have been absolutely
incited to enter into capitalistic co
@FedFRASER