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6 1ST C o NC.KRSS )

2d S e s s io n

( DOCVMBSVT

SEN A T h

S o. m

NATIONAL MONETARY COMMISSION

The German Great Banks and
Their Concentration

in connection with

The Economic Development of
Germany

D R . J. RIESSER
Geheimer Ju*ti/rat an* Proteaaor at the Unfo*f«itT »♦ Bettla

T h ird edition com pletely revited and en larged

Washington : Government Pr

*»

61 st C ongress
2d Session

}

SEN ATE

/ D

ocum ent

N o. 593

NATIONAL M ONETARY COMMISSION

The German Great Banks and
Their Concentration
in connection with

The Economic Development of
Germany

DR. J. RIESSER
Geheimer Justizrat and Professor at the University of Berlin

Third edition completely revised and enlarged

Washington : Government Printing Office : 1911

N A T I O N A L M O N E T A R Y COM M ISSIO N.

W. A l d r i c h , Rhode Island, Chairman.
B. V r e k l a n d , New York, Vice-Chairman.
J u l i u s C. B u r r o w s , Michigan.
J o h n W. W e e k s , Massachusetts.
E u g e n e H a l e , M aine.
R o b e r t W . B o n y n g e , Colorado.
P h il a n d e r C. K n o x , Pennsylvania.
S y l v e s t e r C. S m it h , California.
T h e o d o r e E. B u r t o n , Ohio.
L e m u e l P. P a d g e t t , Tennessee.
G e o r g e F . B u r g e s s , Texas.
H e n r y M. T e l l e r , Colorado.
A r s 6 n e P. Pujo, Louisiana.
H e r n a n d o D. M o n e y , Mississippi.
J o s e p h W. B a i l e y , Texas.
A r t h u r B . S h e l t o n , Secretary.
A . P i a t t A n d r e w ,, Special Assistant to Commission.

N elson

E dw ard

TABLE OF CONTENTS.
Page.

Preface .........................................................................................

P A R T I.

I ntroduction.— T he tasks of banks in the economic life of the na
tion .............................................................................................................
1. General

considerations..................................................................

2. Special considerations.....................................................................
(o) T he tasks of banks during normal tim es........................
(b) T h e tasks of banks during critical tim es..........................

8
8
15

(c) T he tasks of banks in time of war and in preparing for
war (financial readiness for war and financial conduct
of war).............................................................................

P A R T II.

T he F irst P eriod (from

the

Middle of the N ineteenth C entury
Y ear 1870).

to the

Chapter . I .— Sketch of economic conditions in Germ any at the time
of the establishment of the oldest existing credit
banks................................................................................

Chapter I I .— T he German banks during the first period (1848-1870).

Influence of the Credit Mobilier, its merits and

defects..............................................................

Differences between the Credit Mobilier form of
organization and that of the German banks,
founded during the first period, especially the
Darmstadter

Bank

and

the

Disconto-Gesell-

schaft.................................................................

T he A . Schaaffhausen’seller B a n kverein .........

T he Berliner H andelsgesellschaft....................

The M itteldeutsche K red itb an k.......................

Concluding remarks............................................

P A R T III.

T he S econd P eriod (from 1870

C hapter

to the

P resent D ay ).

I. — (1) T able of events during the second period which

influenced the developm ent of German bank
in g ......................................................................

N at ion a l
Ch apter

Monetary

Commission

I .— (2) Sketch of the economic developm ent of Germany
from 1870 until the present.................................

page.
87

Preface................................................................

Growth of population................................

Growth of national w e a lth .......................

Progress of national incom e.....................

Investm ent of national w e alth ...............

Changes in the distribution of in com es..

Small and large scale in dustry................

102

Population engaged in industry, com
merce, and agricu ltu re........................

103

Progress of agriculture...............................

105

Necessary imports, unfavorable balance
of tra d e....................................................

Strengthening of the domestic m a r k e t..

113

T he founding of stock companies...........

115

Production, consumption, imports, and
exports of pig iron..................................

120

Production of coal......................................

122

Electro-technical in d u stry.......................

123

Chemical industry'.....................................

125

T ex tile in d u stry ...................

128

Domestic industry.....................................

129

Developm ent of facilities of communi
cation....................................................... '

130

Railroads..............................................

130

Postal facilities...................................

131

T elegrap h ............................................

I32

Telephone............................................

132

Merchant marine................................

133

Subsidies to n avigation.....................

134

The

Hamburg - American

Packet

Steamship C o m p a n y......................

135

T h e North-German L lo y d .................

136

Agreements with the International
Mercantile Marine C om pany........

136

S h ip b u ild in g ......................................

140

Navigation on the internal water
w a y s..................................................

141

Currency: T he R eichsban k.....................

141

Cartels,

Definition,

Germany'.

developm ent

Official in q u iry .................

Steel Works’ Union (Stahlwerksverban d)................................................

167
174

T a b l e

C o n t e n t s

C hapter I.— (2) Sketch of the economic development of Germany Page.
from 1870 until the present— Continued.
Preface— Continued.
Cartels,

Definition,

Germ any.

developm ent

Official in quiry— C o n t’d.

Struggle between the “ m ix e d ” and
“ p u re” w o r k s ..................................
International

agreements

175

regarding

the exportation of rails and girders.

182
183

Concluding remarks.............................
C h a p t e r I I .— The German great banks during the second period
Section
Section
I.

(1870 to the present)......................................................

186

Introduction...........................................

186

T h e current (regular) banking b u s in e ss ...................

191

D ebit operations of the credit banks (taking of credit)......

191

A . T he deposit business...................................................

191

x. General observations......................................

191

2. Deposits in foreign countries.........................

202

3. Deposits at individual Berlin great b a n k s ..

204

4. Deposits at all German credit banks and at
the Berlin banks..........................................

208

B. Other debit operations of the credit b an ks.............
The cheque system and its present use b y Ger

211

man ban ks....................................................
II.

Credit operations of the German credit banks.

credit)......................................................................................

219

A . Introduction.................................................................

219

215

(Lending of

1. Observations on the granting of general
bank c r e d it.............................................
2.

219

Observations on the granting of industrial
credit in particular................................

229

Objections to the methods used b y the
banks heretoforein lending c r e d it...

232

The proposal of F e lix H ech t regarding
the organization of a central institu
tion for long-term

industrialc r e d it ...

240

B. T he current-account business...............................

259

C. T he acceptance business.......................................

275

D. The discount business............................................

289

E. T he

“ lom bard”

(collateral loan) and “ report”

(carry-over) business.........................................

307

F. T he brokerage business..........................................

323

G. T he transformation, founding, issuing, syndicate
and security business.........................................
1.

336

T he transformation and founding business..

336

National

Monetary

Commission

C h a p t e r I I .— T h e German great banks during the second period

Page.

(1870 to the present)— Continued.
Section 2.— T he current (regular) banking business— Continued.
II.

Credit operations of the German credit banks.

(Lending

of credit)— Continued.
G . T h e transformation, founding, issuing, syndicate,
and security business— Continued.
2.

T he issuing, syndicate, and security busi
ness ................................................................

347

(а) The issuing business in general......

347

(a-) Methods used in the issuing
business proper and its
preliminary stages..........

348

(/3) T h e exten t of the German
issue business............

358

(б) T he issuing of industrial securities..

364

(c) T he floating of German State and
Communal loans.....................
377
(d) T he floating of foreign securities---384
(a) Principles underlying the
flotation of foreign secu
rities (see section 7 ) .
384
(/?) Am ount of foreign securi
ties issued in G erm an y..
392
(e) Amounts of listed securites issued b y
each of the (6) Berlin great banks
(see A ppendices V and V I ) ..........
(f) T he syndicate business.....................
(g) The security business.......................
T he

importance

395
396
402

of a strong

bourse......................................

406

Section 3. B ank groups and syndicates............................................

407

Section 4. T he over-sea and foreign business of the German

credit business...............................................................
Part taken b y the banks in developing German over-sea

420

import and export tra d e.....................................................
The opening of branches in Hamburg, Bremen, and Lon

420

II.

don, and the organization of over-sea and foreign banks,
and of domestic subsidiary banks for over-sea and foreign
business.................................................................................
1. Participations of the Deutsche B a n k .......................
2. Participations of the Disconto-Gesellschaft............
3. Participations of the Dresdner B a n k ........................
4. Participations of the Darmstadter B a n k ..................
5. Participations of the Berliner Handelsgesellschaft.
6. Participations of the A . Schaaffhausen’scher Bankv e re in ........................................................................
7. Participations of the Nationalbank fur Deutschlan d ...........................................................................
VI

432
432
440
445
447
450
452
453

T a b l e

o f

C o n t e n t s

C h a p t e r I I .— T he German great banks during the second period

Page.

(1870 to the present)— Continued.
Section 4. T h e over-sea and foreign business of the German
credit business— Continued.
III.

The common subsidiary companies of the German credit
banks for the promotion of over-sea and foreign business.

455

Section 5. General financial results of the German credit banks:
Gross earnings and their composition; general e x
penses; net profits; dividends; writing off; reserves.

460

Section 6. Character of the business management and business
developm ent of each of the Great Berlin B a n k s........

472

1. T h e Deutsche B a n k ..............................................

472

2. T he Disconto-Gesellschaft...................................

482

3. T h e Dresdner B a n k ..............................................

492

4. T he Darmstadter B a n k ........................................
5. T h e A . Schaaffhausen’scher B a n k v e re in ..........

498
507

6. T he Berliner H andelsgesellschaft.......................

517

Section 7. T he so-called export capitalism.

T he investm ent of

German capital in foreign industrial and commercial
enterprises and securities.

T h e establishment of

subsidiary banks ex clu siv ely for foreign business
with special reference to its connection with the
industrial export p o lic y ................................................

527

Section 8. Reform proposals concerning bank deposits, and their
justification.....................................................................

546

I. General observations................................................................

546

1. “ Safety of depositors ” a reason for reform proposals.

549

2. Particular proposals made with this end in view b y
Caesar Straus, Otto Warschauer, and Count von
A rnim -M uskau..........................................................

549

3. Reform proposals based on other considerations
(H eiligenstadt)..........................................................

553

4. Considerations on which the first-named reform pro
posals are b a sed ..........................................................

554

(а) Supposed superiority of the English bank
ing sy stem ...................................................

555

(б) T h e alleged small own resources (share
capital and surplus) of the German credit
b an ks............................................................

559

banks.

Coefficient

q u id ity .........................................................

561

II. Criticism of the individual reform proposals..........................

573

1. The creation of a central private deposit bank or of
a government

deposit bank

for the

German

Empire and of similar deposit banks for each of
the German S ta tes.....................................................
VII

573

National

Monetary

Commission
Page.

Chapter II.— The German great banks during the second period
(1870 to the present)— Continued.
Section 8 . Reform proposals concerning bank deposits, and their
justification— Continued.
II. Criticism of the individual reform proposals— Continued.
2. The granting of priority rights to depositors..............
3. The fixing of a legal ratio between savings deposits
and the share capital...............................................
4. Legal regulations regarding the investment of de
posits.........................................................................
5. Depositing a certain portion of the private deposits
*
at the Reichsbank....................................................
6. Publication of summary bank statements according
to a legally prescribed form.....................................
7. Penalty for “ banks and bankers who by public or
written appeals, or through agents solicit deposits
or savings” ...............................................................
8. A supervisory board....................................................
Concluding observations.....................................

577
578
579
580
589

597
599
600

P A R T IV.
P rogress op Concentration in G erman B anking during the S econd
P eriod (1870 to the P resent ).
C hapter I.— Causes of the concentration movement...........................
1. General causes.......................................................
2. Special causes.........................................................
C hapter II.— Causes determining the extent and rapidity of the
concentration movement......................................................................
Section 1. General causes..................................................................
Section 2. Special causes...................................................................
I. The liquidation of banks during the seventies..................
II. The cartel movement in industry during the nineties__
III. Mistakes of (Stamp and bourse) legislation........................
Decline of the class of private bankers...........................
IV. Special causes of the rapidity of the concentration move
ment during 1901—1904......................................................
1. The crises of the years 1873 and 1900.....................
2. The founding of the United States Steel Corpora
tion, February 23, 1901........................................
3. The founding of the Steel Works’ Union in
Dusseldorf, March 1,1904.....................................

602
602
606
613
613
614
614
614
618
619
635
635
639
640

o f

T a b l e

C o n t e n t s
Page.

C h a p t e r I I I . — Methods and forms of concentration............................

641

Section 1. Outward course of developm ent.....................................

641

A . T he several (8) great banks (see A p p en d ix V I I ) ..............

641

B. The aggregate capital power represented b y the great
bank groups.........................................................................

642

T he group

of the Deutsche B a n k ..................

II.

The group

of the Disconto-Gesellschaft.........

644

I I I . T he group of the Dresdner B a n k ............................

644

643

IV . T h e group of the A . Schaaffhausen’scher BankV.

v erein .......................................................................

645

The group of the Darmstadter B a n k ....................

645

Section 2. General tendencies and forms of concentration..........

647

I. Scheme of general developm ent.............................................

647

II. The two periods in the history of concentration..................

651

Tables regarding the general developm ent of concen
tration within the—
x. Great banks (see A pp en dix V I I I ,

Tables

1 - 8 ) .............................................................
2. A llied banks (see A p p en d ix V I I I , Table
1 0 ) ................................................................

1008
io n

Section 8. T h e several ways and forms of concentration, their
advantages and disadvantages......................................................

653

I. Local concentration...................................................................

653

I I . Concentration of capital and pow er.......................................

656

A . In a direct w a y ............................................................

656

1. B y means of increase of c a p ita l...........................

656

2. Through absorption ofbanking firms and fusions
of b a n k s................................................................
3.

658

Through the creation of permanent communities
of interest.............................................................

664

T he communities of interest in the mining re
gions

(Upper

Silesia

and

Rhineland-W est

phalia)...................................................................

666

(a) through the founding of subsidiary and
trust companies...........................................

667

(b) through acquisition of shares.................

672

673

(d) through exchange of shares.....................

677

B. In an indirect way, b y means of decentralization
of operations, v iz, through the founding of—
1. Commandites (silent p artn erships)..............

680

2. Branches...........................................................

684

3. A gen cies............................................................

696

4. Deposit offices..................................................

699

N at i on a l

M on e t a r y
part

Commission

v.
Page.

The mutual influence of concentration in banking and in in dustry. .
I. Industrial concentration and its principal causes.................

703
703

II. Influence of the banks and banking concentration on indus
trial concentration...................................................................
1. On

industrial

concentration,

unaffected

712

but

sligh tly affected b y the formation of cartels..........

712

(a) the electro-technical in d u stry.......................

713

(b) the chem ical in dustry.....................................

721

2. On concentration in industries with

strong cartel

tendencies (the mining and metallurgical indus
III.

tries) ................................
Influence of industry and industrial concentration on con
centration in ban kin g.............................................................

725
750

P A R T V I.
The situation resulting from concentration; advantages and dangers
of concentration; the outlook for the fu ture.......................................

751

N o t e s .............................................................................................................

785

A P P E N D IC E S .
I. B ibliography.....................................................................................

883

I I . German credit banks founded during the years 18 4 8 -18 5 6 ....

892

I I I . German credit banks in 1872.........................................................

893

IV . Representation of the great banks on the supervisory boards of
stock com panies............................................................................

897

Value of securities issued at the Berlin Stock Exchange b y the

V I.

Value of securities issued at all German Stock Exchanges b y
the great banks during the years 1897-1908..............................

959

V II.

Developm ent of concentration of the German great b a n k s .. . .

982

V III.

Progress of concentration within each of the great banks and

great banks during the years 1882-1908...................................

921

within the banks allied with th e m .............................................

1008

Notes to A ppendices V I I and V I I I ....................................................
I n d e x ..........................................................................

1013

1019

PREFACE.
In publishing the third edition of the present book,
which first appeared in 1905, the author has tried to com
ply with the general wish to avoid as much as possible
the mere reproduction of the text of the ten lectures on
which the early editions were originally based. Instead
of this, the present edition marks the partial realization of
the idea of the larger work which the author has con
stantly had in mind from the very beginning.
The author has tried to fulfil the expectation and
wishes of the critics (whose suggestions are always wel
come) to the best of his ability and so far as the time at
his disposal permitted. The present edition has been
completely reshaped and considerably enlarged— as indi
cated in the title of the book— although the fundamental
features of the work and the particular treatment of the
concentration movement have been retained.
For this purpose it became necessary in the first place
to enlarge on the description of German economic devel
opment from 1848 to 1870, and from 1870 up to the
present day, in so far as this development exercised a
determining influence on the growth of German banking.
In the second place an attempt has been made, as far
as existing material permitted, to present in nearly every
chapter the separate development of each great bank,
without, however, obscuring the picture of the general
development.

N at i on a l

M on et a r y

Commission

In a separate chapter a comprehensive view is given of
the general management and development of the six great
Berlin banks. Accordingly it also became necessary to
present a systematic description of the most important
debit and credit transactions of the banks. This per
mitted the generally desired and fully justified examina
tion of the question whether and to what extent the
German great banks have actually fulfilled in the inter
ests of the community the important and numerous tasks
set forth in the introductory chapter.
In discussing the credit and debit business of the banks
it became possible also to devote some space to the treat
ment of questions of technical methods and business pol
icy, which had been entirely kept out from the earlier
editions.
It will be found that the chapter (VIII) devoted to the
analysis and criticism of the reform proposals in the field
of bank deposits, which were discussed quite fully even
in the first edition, has been greatly enlarged, for the rea
son that these proposals may be said to occupy at present
the center of German banking discussion. A further
reason was that in the meantime the views of the various
experts have been published, as presented before the Bank
Inquiry Commission, of which the author was a member.
An analysis and appreciation of these views seemed there
fore pertinent.
Another subject which had to be passed over lightly in
the former editions— though against the wishes of the
author viz, industrial concentration and the influence
which the concentration of banking exercises on it, has
now been treated in greater detail. However, for lack of

X II

P r eface
space this chapter even now is limited to a study of this
movement in a few typical and specially important
branches of industry.
Suggestions as to form have also been adopted as far as
possible. Much discursive matter, hitherto contained in
the notes, has been incorporated in the text. On the
other hand large statistical tables, which formerly were
part of the text, and thus broke up the continuity of
presentation, have been removed to the end of the book in
the form of appendices.
A series of what I consider very important statistical
appendices has been substituted for those printed in the
earlier editions. For the preparation and checking of
these tables I desire to express my best thanks to Dr.
Berthold Breslauer, of Berlin, the editor of the statistical
part of the Bank Archiv. The tables showing the amount
of listed securities issued by the six great Berlin banks—
constituting Appendices V and V I— for the first time
provide complete material based on official data concern
ing this important subject.
Appendix V III— treating of the course of the concen
tration movement in the case of the eight greatest Berlin
banks— has been brought down to December 31, 1908.
It is hoped that the book in its new shape will meet
with the same friendly reception which has been accorded
to its earlier editions and that it will be found a reliable
reference work, equally free from fulsome commendation
and from undue depreciation of the work of the German
credit banks.
R ome, April, 1909.

X III

T R A N S L A T O R ’S N O TE .
Prof. Riesser’s work, Die deutschen Grossbanken und Hire
Konzentration, of which the present volume is a transla
tion, gives the most recent and fullest account of the
development, present organization, and practices of the
more important German so-called credit banks, par
ticularly the six largest banks, which, with the possible
exception of one, may be said to have their central office
in Berlin. The name credit bank, which has been retained
in the translation, in no way characterizes the actual scope
of activity of these banks, but is the term used in recent
German banking literature to differentiate the commercial
joint-stock and kindred banks without the note-issue
privilege from other banks having a more restricted and
special field of operations, such as the mortgage banks,
the mutual or cooperative banks, the savings banks, etc.
The book abounds in technical legal and banking
terminology, for which no exact equivalents in English
exist. In numerous cases no translation was attempted.
In other cases where the terms occur frequently through
out the volume, a choice of an English equivalent, though
more or less arbitrary, had to be made. This applies
particularly to the term Depositen, the definition of which
the author declares to be impracticable. (See p. 196
et seq.) In German bank statements different meanings
are attached to the term by various institutions, the only
common feature being that interest is allowed on these
“ deposits.”

T r a n s l a t o r ’s

Note

An important function of the German credit banks is
the financing of corporations and the selling to the public
of the newly created securities of these corporations.
Throughout the volume this latter practice has been
designated as the issuing activity of the credit banks.
The success of these operations depends largely upon the
“ issue credit” of the bank— i. e., the confidence of the
investing public in the soundness of the securities offered
by the bank. In several cases a literal translation of
German technical terms seemed entirely proper, though
such terms as pure and mixed works (p. 175), mine fur
naces, furnace mines (p. 369), heavy industry, and the
like, even with proper explanations in the text, may be
regarded by some as literary barbarisms.
The proofs of the translation have been submitted to
the author, who made several changes in the text which
do not appear in the German original. The figures bearing
upon American banking have been revised and brought
up to date. Thankful acknowledgment is due to
Dr. Robert Stein, of Washington, D. C., and Dr. H. G.
Friedman, of New York City, for valuable help rendered
to the translator.
Morris Jacobson.
W ashington, D. C., August, ig n .

XVI

TH E GERM AN G REAT BANKS AN D
TH EIR C O N CEN TR ATIO N .
P art I.

INTRODUCTION— THE .TASKS OF BANKS IN
ECONOMIC LIFE.
(i)

G E N E R A L C O N S ID E R A T IO N S .

Walther Lotz, in his excellent book on the methods
of floating securities (Die Technik des Emissiongeschafts,
1890), makes the following statement (p. 60):
“ One of the most prominent financiers in Berlin once
remarked to me that his profession was not affected by
the social question, which was usually regarded as the most
important factor in economic development, and that the
speculative banks adopted a neutral attitude toward it.”
To my mind this statement proves that the Berlin
financier in question has strangely misconceived the posi
tion and duties of German banking within the realm of
“ capitalistic economics.” 1 To prove this in detail is
neither the least nor the most unimportant aim of the
present work.
Within the range of capitalistic economics there is a
whole series of important and special economic tasks
devolving on banks and bankers.
To begin with, the funds are capital in the popular sense
of the word (that is, sums of money constituting com9 0 3 1 1 -1 1 -

N at i on a l

M on et a r y

Commission

ponent parts of wealth to be devoted to producing in
come)2 which accumulate in the safes of banks and bank
ers. It is the bankers’ profession and duty not only to
take care of the capital, but to turn it to good account,
i. e., to make it productive, particularly by placing it at
the disposal of others for industrial and other purposes.3
Banks have to receive the funds placed at their dis
posal for the purpose of investment and profitable utili
sation, and to direct them into proper channels through
the granting of credit.
The bank enters into relations on the one hand with
the capitalist who entrusts to it his available money for
productive investment and thus becomes its creditor, and
on the other hand, with entrepreneurs and others who
receive money for their ventures, and thus become its
debtors.
The part which a bank plays in its relations between
capitalists and persons engaged in various enterprises is
similar and as important as that of the trader who acts as
independent middleman between producer and consumer,
and who participates in the increase of values by trans
porting goods with or without intermediate manufacture
from districts where supply is plentiful to districts where
demand is great.
The so-called regular or current banking business is con
fined to the acceptance and granting of such or similar
credit (so-called credit and debit transactions). It in
cludes deposits, current accounts, bill, contango, lombard
and commission business.
The tasks involve, as far as is practicable within such
limits, the direct furtherance of the power of production of

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all industries, including (after what has been said above)
commerce,4 and indirectly the furtherance of the pur
chasing power of all classes of the community.5 They
necessitate endeavors for the investment of surplus capital
in a suitable and economic manner, and its utilisation
for credit transactions.
In the next place, banks and bankers have to provide
for a sound and constant regulation of the circulation of
money and the adjustment of money settlements in so
far as these functions do not fall within the province of
special public banks. They also have to provide for a
banking organisation of the whole commercial system of
payment, and above all for an increase of those forms of
settlement which tend to take the place of cash: in par
ticular the employment of checks, transfers {giro), and
bank clearing.8 Finally, they have to establish organic
relations between the systems of credit and payment,
by using their credit to convert the claims of their cus
tomers in the shape of bills, checks, money orders, etc.,
into current paper, and thus into ready money, using this
latter for the purpose of meeting payment on matured
obligations.7
The historical development of German banking, how
ever, has considerably enlarged the scope of these duties.
The transformation effected since the middle of the
nineteenth century in the whole system of communica
tions through the use of steam for ships and railways (see
p. 34), and the revolution in many industrial branches,
caused by the appearance of the steam engine, in con
junction with the creation of a large and unified German
economic territory through the customs union of the Ger-

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man States (Zollverein, 1833), paved the way for the ex
pansion and world-wide aspirations of German industry,
and thus gave the impulse to large-scale production in
many branches of industry.
Thus it became necessary that capital as well as credit
should be devoted to the building of plants and works in
sums and for periods hitherto seldom required, if produc
tion on a large scale was to be maintained and extended.
This could only be made possible by the issue of shares or
debentures.
The joint stock company proving the most reliable ally
of trade and industry, conducted on a large scale, it
became necessary to transform private concerns into joint
stock companies and to establish new industrial enter
prises in the shape of stock companies, whenever it was
desired to increase the credit of existing private concerns,
to enlarge or diversify production, or to enable domestic
industry to enter into competition with foreign producers.
The general public in Germany, wdiose funds were
meager compared to those of England, was neither able
nor willing at this juncture to participate directly or per
manently in such ventures as mentioned above. The
private individual fought shy of investing his capital in
enterprises, and, content with smaller interest, bought
government securities.8
Adequate assistance for the demands of capital and
credit could not be expected from the existing note-issuing
banks,9 whose increase had long been advocated in the
interest of increased facilities of payment, as the extent
of their activity was naturally limited by their special
functions. In the same manner private bankers, who at

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that time were very powerful, at least in several centers
(see below, p. 39), could supply only modest means for
such purposes— means which could neither suffice, nor
be tied up for any length of time. In addition to this, the
organisation of the banking business at that period was
in general neither prepared for, nor adapted to operations
of such a comprehensive and difficult nature (see below,
p. 40).
For these reasons such new and enormous demands
could be met only by the creation of special organs,
namely joint stock banks, which were called into exist
ence to satisfy these very requirements. In the natural
course of things the banks gradually became the pro
fessional and expert intermediaries in meeting the new
financial wants. This they were able to do only through
continuous and systematic study of the money market,
as well as of the markets for the newly created securities,
especially among their own customers. Moreover, both
the continuity of their existence and regard for their own
issue credit (Emissionskredit) , i. e., the permanent ability
of maintaining among the German public a market for
new securities issued under their auspices, insured a per
manent interest on the part of these banks in the newly
created undertakings as well as in the securities which
they were instrumental in placing on the market.
It is, therefore, too narrow a view, and consequently
incorrect, to assume that (10) “ the assistance of the numer
ous private bankers, equally conspicuous for intelligence
and wealth, would have amply sufficed for all the tasks
described above,” and that the German credit banks grew
up solely, or almost exclusively, because the general public

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‘ rushed madly after the most speculative of securities/
and because of the endeavours made to cater as far as
possible to this speculative craze for railway, mining,
and foundry shares.” It must, however, be acknowledged
that these reasons did play a certain part in the matter,
especially the desire of the smaller capitalists to par
ticipate indirectly in the industries promoted by the new
banks by the speculative acquisition of shares in these
banks (‘‘ speculating on speculation”).
It has been said concerning Saxony, that although
the number of private banks was large for the time in
question, yet “ their powers were inadequate to satisfy
the credit requirements.” 11 There is ample testimony to
prove that this was not solely a lcfcal symptom, and a
mere glance at the security issues made during that first
period leaves the same impression. Moreover it is stated
that it was just among private bankers of that period that
“ the necessity for concentration of capital was felt the most,
and that a remedy was being looked for.” 12 We know
that the committees which in almost all German States
were petitioning for concessions (in Prussia long in vain,
as is well known) for the establishment of note issuing
and credit banks, were composed for the most part of
private bankers.13
Schaffle 14 goes even further in the following statement
published in a monograph about 1856:
“ When industrial development has reached the stage
at which great industries are forced to acquire their capital
largely through the gathering of small capitals, special
economic organisations must develop on which special
functions regarding the initiative in stock transactions

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devolve. Banks for the promotion of such enterprises
meet this need.
“ As long as these premises for the economic justification
of speculative banks have not been scientifically refuted
scientists should not allow themselves to be terrified by
the mere catchword ‘ credit mobilier’, like children by a
bogy.”
In this manner then, according to historical development,
the stock issuing, promotion, and conversion business in
Germany became a regular banking business, i. e., a
branch of the regular business of credit banks, which at
the same time carried on the so-called current business.
On the other hand, in view of the relatively small amount
of the available funds for bank investment proper, no
attempts were made to establish special deposit banks,
as under the circumstances but little profit could be
expected from them.
Even those persons who on principle are opposed to the
whole capitalistic and industrial development as it mani
fested itself in Germany during the last decades, and who
have nb sympathy for this expansion of the regular busi
ness of the German banks, but rather deplore and find
fault with it, will not be able to alter this course as long as
the reasons exist which have led up to this development.
I am convinced that these reasons will continue to exist
for some time to come, owing to Germany’s rapidly
increasing population, her moderate wealth (at least in
comparison to other countries), also because of her inter
national position in trade and industry, a position attained
with difficulty, but which it will be even harder to main
tain permanently.

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It will be seen by the description of the historical
development of the sphere of activity of the German
banks, that a proper and socially sound administration
and organisation of the different departments of banking
(especially of the last-mentioned branches), is one of the
most important social problems. Moreover as there are
as many social problems as there are spheres of social
activity, and the various branches of banking are of the
utmost importance in the economic life of the nation, the
banking problem is closely interwoven with the majority
of the other social problems, a fact which is in absolute
contradiction with the statement of the eminent financier
quoted by fiotz.
2—
(a )

S P E C IA L

C O N S ID E R A T IO N S .

T H E T A S K S O F B A N K S D U R IN G N O R M A L T IM E S .

The proposition last enunciated must be proved in
detail by a discussion of the main directions of banking
activity.
It certainly does not lie within the power of the indi
vidual or the -legislator, or even of the administration of
the largest bank, to arrange matters in such a manner
that only the best sides of the capitalistic system may pre
vail in economic life. It is, however, the most urgent and
eminent duty of banks and bankers to endeavor, at least
within the scope of their activity, and as far as is within
their powers, to effect this as far as practicable, and to see
that the profit and loss account of capitalistic economics
is closed with a balance in favour of economic progress.
Above all, they must promote all the economic interests
of the nation, i. e., the interests of all producing classes

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without distinction, in so far as the services and the
credit required by them come within the sphere of bank
ing activity, and do not conflict with the necessary pre
mises of sound banking policy. These latter conditions
are determinative of the kind and extent of support
which the so-called “ credit banks” are in a position to
grant to agriculture.
In the next place they have to keep the amount of
credit to be granted within reasonable bounds, and to offer,
as far as is within their power, the utmost opposition to an
unsound demand for credit. The banks must therefore
endeavor to obtain at all times a comprehensive and accu
rate insight into the general conditions of the branches
of industry and trade chiefly dependent on them for sup
port, in order to be able to discriminate between necessary
requirements and false hankerings after expansion and
aggrandizement. They should also be able to intervene,
or at least restrain and check, in cases where the form
and extent of the credit received cause the fear of unsound
development.
Their duties toward the investment-seeking public are
those of the honest broker, who, by reason of his expe
rience and expert knowledge, is able to draw attention
to the advantages and dangers of investments, and par
ticularly to explain in a purely objective manner the
dangers connected with securities yielding excessive inter
est or dividends.
As regards acceptances, they ought to place their serv
ices at their customers’ disposal only for economically
sound purposes. They should keep the brokerage, the
contango and deposit business within normal limits, and,

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as far as it is possible to divine the purposes aimed at,
to operate in such a manner that these transactions may
not become a cloak for reckless and unsound speculation.
In the issue business they should take particular care
not to burden the market by an overproduction of securi
ties or by the promotion of shaky ventures, for thereby they
might not only cause heavy loss to the purchasers of such
securities, but also inflict lasting and severe injury on
their own issue credit.
More especially they should transform only such under
takings into joint stock companies as are naturally suited
to that particular form of commercial organisation. Be
fore deciding to promote or transform such undertakings,
they should make very cautious estimates regarding the
possible profits of these undertakings. In addition to this,
they should investigate the financial position of the whole
branch of industry, or business concerned, and, as far as
possible, form an opinion as to its future prospects and
risks. Finally, they should pursue not only a sound
dividend policy, but also a proper economic policy; resist
ing the temptation of momentary profits, they should
abstain from business that does not appear economically
sound, or might be detrimental to the business interests
of the nation.
The problems which the German banks have to solve
during ordinary times have become, step by step, more
comprehensive, more difficult, and more important.
Ih e number of these tasks and the sphere of activity of
the German banks have grown with the increasing size,
consolidation, and power of the country. The banks,
particularly the “ great banks,” were called upon to lendIO

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intelligent support to the Reichsbank (founded in 1875-76)
in its currency and discount policies, and in its endeavors
to introduce and promote “ giro,” clearing, and check
transactions, though this support was not always forth
coming to the full extent. Another task which fell to
their lot— and of which they can neither be said to have
acquitted themselves quite satisfactorily— was to support
the land policy of the government and municipalities by
means of the mortgage banks and real-estate companies
which they had established against purely speculative and
other undertakings which made no allowance for public
interests. In countless ways, especially by an active par
ticipation in the organisation of state and municipal
credit, they were called upon to make possible the accom
plishment of important state and administrative tasks, as
well as to promote the growth of German towns and the
development of German ports, railroads, and highways.
They were called upon to organise German inland naviga
tion, as well as to provide for the development of the
German railway system, and for the industrial utilisation
of electric light and electric power. They had to assist by
counsel and deed the business man crossing the seas as
pioneer of German trade. It became their function to
support the industrial export policy of the nation when
it came to be considered in Germany an economic neces
sity, and to promote the economic development of the
colonies, as well as of German cable communications by a
series of undertakings not promising immediate returns.
They had to strengthen our financial, and with it our
political, influence abroad; nor was this done without
many a bitter experience. For in this field they met the

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competition of the majority of the great powers in the
underwriting of foreign loans, the promoting of foreign
undertakings, and the opening of international business
relations, with the disadvantage that their rivals had
entered the field long before them. By assisting German
navigation, and establishing German banks abroad, they
imparted to the German name a renown previously un
dreamed of, thus extending by their activity the sphere of
German business and political influence. Finally, by a
cautious financial policy, they prepared our financial read
iness for war, and for the carrying on of war.
How and to what extent German banks acquitted them
selves of all these tasks will be set forth in the following
pages.
Difficult and numerous as are the problems of external
policy, those of internal policy are no easier. Success in
the latter field became conditioned upon the recognition
of two principles as the basis of all business activity.
Furthermore these principles had to be observed under all
vicissitudes, in the hurry of everyday life, in the pur
suit of business, and in the finding of ways and means
for the carrying out of new and urgent tasks as they con
tinually crop up.
These two principles are: The principle of the distribu
tion of risks, on the one hand, and the principle of the
liquidity of assets on the other.
Nearly all the mistakes made in German banking, and
the reproaches leveled against it, can be traced back to the
violation, or misconception, of these fundamental prin
ciples underlying every sound banking policy. The prin
ciple of the distribution of risks must be observed in almost

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all branches of banking activity; not only in the granting of
short or long credit, but also in the promotion, conver
sion, emission, and syndicate business. It implies, among
other matters, that no single branch of current business
shall be exclusively fostered in an excessive and unsound
manner at the expense of others; that the entire
amount of blank credit, granted after the most careful
scrutiny, shall not bear an unsound proportion to the
total of secured credit; further, that credit granted to a
single undertaking, or branch of industry, shall not be
too high; that in case of underwriting and share issues
provision shall be made for a fitting distribution of par
ticipations; for there is always the possibility of a sud
den change in political and economic conditions, as well
as of changes in the market which may affect particular
cases. It therefore becomes necessary to bear in mind
constantly the need of the diminution of risk, even in the
most promising ventures and during the most favored
state of the market.
The securing and maintaining of the liquidity of the
assets is another most essential task incumbent on a
banker. Indeed, in view of the variety of claims made on
the resources of bankers and banks, and of the multi
plicity of aims pursued by them, it is one of the most
difficult problems of banking policy. It is all the more
difficult, since the establishment of the right proportion
of the so-called quick assets to the liabilities, especially to
the obligations falling due at any time, or within a cer
tain period, does not always depend solely on the will and
discernment of the Bank. Possibilities have constantly
to be reckoned with; for instance, that the issue of new

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shares required to restore the necessary liquidity of the
bank’s resources after a great increase of business is im
possible during bad or critical times; that consequently
its assets would be tied up just at the very moment when
it might be called upon to relieve general embarrassment
by proper intervention.
It is, therefore, a matter of necessity to constantly con
trol the liquidity of the resources by frequent general
inventories (Generaldispositionen)— as is done, for instance,
with the greatest care, and at short intervals by the Ger
man “ great banks’’— in addition to the daily cash inven
tories (Kassendisposition),:15 further, to increase the
amount of the quick assets by a proper composition of
the security and bill holdings; to strengthen both the
visible and invisible reserves; and to regulate with the
greatest vigilance the extent of the obligations, as well as
their proportion to the liquid resources.
It may well be sa' 1 that, on the whole, the German
banks, or at least the greater part of them, and more
especially the “ great banks” have accomplished and are
accomplishing a good deal in this respect. In this way
the objections which are continually urged against the
inclusion of the deposit business in our banks’ spheres of
activity are most effectively refuted, or reduced to narrow
limits. For there can hardly be any question of ‘ dan
ger ” when the deposits, and the other obligations due at
short notice are balanced by more than ample security in
the shape of the quickest assets, and if, in addition, special
caution is exercised in the selection of the securities owned
by the bank, as was the case with the Deutsche Bank,
which on the last day of its fiscal year (December 31,

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1908) held among its assets some 40,900,000 marks of
securities, acceptable for investment in trust funds.
We shall have to go into this question later on in a more
detailed manner.18
(6 )

TH E

TASKS

BANKS

D U R IN G

C R IT IC A L

T IM E S .

If the sphere of activity of the banks, of which natu
rally only the most important features have been barely
outlined, is exceedingly extensive even during normal
times, necessitating great discernment, caution, knowledge,
and experience, it follows that the extent and difficulty of
such tasks becomes considerably augmented during and
after those economic crises which all countries experience
periodically.
There will probably never be a permanent cessation of
crises, any more than there will ever be permanent peace.
However, just as it is the duty of diplomats and states- '
men constantly to reduce the possibility and probability
of wars by the prudent removal, prevention, or mitiga
tion of all disturbances of the political equilibrium, so it
is the duty of the directors of the great banks to prevent
in an ever-increasing degree the breaking out of crises,
to guard against a disturbance of the economic equilib
rium as much as can be done by external influence,
and by a cautious and preventive business policy in all
the above-mentioned spheres of activity.
This implies to a continuously increasing degree an
accurate knowledge of the internal conditions of indus
try, commerce and the exchanges, also of the financial
and commodity markets, and the general international
situation.

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This duty entails above all a keen perception of those
symptoms which, like storm-petrels flying before the
storm, act as signals to the experienced observer.
Science, in modern times, with the aid of particularly
delicate instruments, has been able to record earthquakes,
and with accurate knowledge of the factors determinative
of a change of weather (as contained in the reports of
meteorological stations) to predict storms and give timely
warning to those concerned.
Similarly, undeterred by the course of contemporary
events, experienced observers, with the help of modern
scientific resources, and knowledge gained from former
crises, ought to be able to read disturbances of equilib
rium as from an economic seismograph, and thus predict
the approach of crises.
The study of the history of crises 17 shows in the most
striking manner that, provided the same causes exist,
the effects are as similar as if one crisis had “ copied”
its predecessor, as a schoolboy copies his neighbor’s
essay, or as a legislator frequently copies the draft of his
fellow-legislator’s bill. Crises may be defined as lengthy
and serious disturbances of the bases of either the pro
duction, supply, or market systems, of the payment and
credit systems, or of the mutual relations of these systems.
From the history of crises,18 the knowledge of which I
regard as indispensable to every director of a bank, it can
be established with certainty that almost without excep
tion every crisis (stock exchange, credit, commercial, pro
duction crisis, etc.) is preceded by a more or less rapid
rise of the rates for short-time credit, i. e., of the discount
rates.

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It will also be noticed that the cause of such a rise in
the discount rate is almost invariably an increase in the
demand for credit, a demand far exceeding the available
resources, which, wherever a central state note bank
exists, finds expression in a great increase in the demands
made on its funds.
The banks, by virtue of their accurate knowledge of
stock exchange conditions, of market quotations, of
“ reports” and “ deports,” and of the rates for daily
and ultimo money, are best qualified to answer the ques
tion whether such an increase in the demand for credit
is accompanied by a corresponding increase in stockexchange speculation. They are also able to draw fairly
accurate conclusions, from the extent and kind of bill,
acceptance and current account credit required by their
customers, as well as from the volume of their report
and collateral accounts, as to the existence, or the ap
proach, of such excessive speculation as is likely to cause
the outbreak of a crisis on the exchange. The greater
their clientele the more reliable are such conclusions.
The approach of an industrial or a commercial crisis
can be perceived or inferred not only from general eco
nomic conditions, but also from a series of phenomena
which take place in the field of bank transactions. The
imminence of such crises can be inferred from the rapid
growth of the claims made on the credit of the central
note bank, and in view of the growing intimacy between
industry and the banking world, from a series of occur
rences that become reflected in the internal bank man
agement, as well as in the impaired liquidity of the
bank’s assets and the decrease of available cash resources.
903110— 11---- 3

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Monetary

Commission

These symptoms need not manifest themselves in their
entirety nor simultaneously. Some of these occurrences
are: The increased credit demands, growing by leaps and
bounds and becoming more striking each day, and the ex
cessive, and finally complete withdrawals of existing cash
deposits. Further, the displacement of short-term credit
by long-term credit; the rapid rise in the number of bills
due that have to be extended; the constantly increasing
offer of securities of an inferior and unsound nature from
a banking standpoint. Other signs (though they are at
first not easily recognised as such) are the demand by man
ufacturers of bank credit, especially of acceptance credit,
not intended for current operating expenses but for pay
ing dividends, or for considerably augmenting fixed capi
tal, i. e., extension of plant, new machines, premises, etc.19
Next, the continual demand for advances without any
stated reasons, or for veiled purposes; the constantly
growing delay in the receipt of payments due, and of the
so-called “ specifications” in industry (which only gradually
become known to the bankers, and seldom to their full
extent); the great and rapid changes, especially the sud
den rise of prices of raw materials and manufactures;
finally, a superabundance of promotions, conversions, and
flotations, and the wholesale establishment of subsidiary,
affiliated, and trust companies.
Although Helfferich20has proved (I venture to say with
mathematical exactness), that in most cases (especially
as regards the last German crisis) the amount of the gold
production, gold imports and exports, never had the im
portance which Sombart ascribed to them; still, like the
fluctuations of the rates of exchange and discount (bank

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and private discount), these factors should also be care
fully watched.
Finally, important aids have recently been made avail
able which in a characteristic manner— though with some
limitations— help to diagnose the approach of industrial or
commercial crises. I have in mind the valuable reports
first published in Germany by J. Jastrow, the editor of
the Arbeitsmarkt and later continued in the Official
Labor Gazette (Reichsarbeitsblatt). These reports give
data regarding the labor market, especially the demand
and supply at the public labor exchanges and the extent
of unemployment. It was these reports I had in mind
when I referred above to modern scientific auxiliaries.21
Laxity in the observation and appreciation of such
causes, especially if produced by ignorance of former
crises at home and abroad, is one of the gravest and most
fatal mistakes of which bankers can be guilty. It is the
less excusable the larger the power and the capital of the
bank, the wider the field of economic observation and the
greater the influence which may be exercised by means
of a prudent business policy.
A deficiency in this respect prevents the bank manage
ment from taking measures at the proper time, i. e., before
the outbreak of the crisis, and thus if not preventing a
crisis, at least mitigating its severity. The extent, nature,
and opportuneness of such measures above all serve as a
reliable gauge of the efficiency, prudence, and foresight of
a bank management.
For, during a crisis, it is difficult, often impossible, to
pursue a restrictive business policy, to collect outstanding
debts, to call in credits, to decline to discount bills and

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Commission

acceptances; indeed such a policy is generally a serious
mistake, likely to cause an increase of the extent and
intensity of the crisis, for it may give rise to the disastrous
notion that money and credit are not merely dear, but are
not to be had at all.22 What is required is a preventive
policy, a cautious intervention before the outbreak of the
crisis. To do this it is necessary to give opportune warn
ings against drawing bills, increasing engagements, and
credit; to make seasonable reference to the abovementioned indications of the probable approach of a crisis,
while making provision at the same time for a slow and
prudent though consistent increase in the liquidity of
the bank’s resources. Provided this is done, the bank
can not only await quietly all dangers, but is also able
to offer support and aid in the form of discreet help, or
energetic and conspicuous intervention in order to
prevent or at least lessen and mitigate the collapse of
otherwise sound undertakings, temporary embarrassments
of clients, and serious disturbances of the market.
In this manner, the suddenness of the outbreak, as well
as the extent, duration, and seriousness of a crisis are
reduced.

A further effect of such a policy is that the

crisis is not followed by a period of lingering and latent
depression, which is frequently worse than the crisis itself,
and which renders recovery, i. e., return to normal condi
tions, much more difficult. It must be acknowledged, how
ever, that for persons standing in the midst of business and
practical life, and who are frequently confronted by occur
rences of a contradictory nature, or difficult to fathom, it
is far more difficult to perceive the approach of a crisis,
than for critics, who ex post, or after the outbreak, can
%

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easily review circumstances and symptoms that have then
become clear and connected.
As a general rule, however, threatening signs such as
are described above (p. 17) as almost regular harbingers of
a crisis, ought to be correctly diagnosed whenever they
occur not singly, but as connected or mutually comple
mentary symptoms of a serious affection of the body
economic.
It is a nobile officium, especially of the great banks, to
intervene after the outbreak of a crisis, not only where
their own clients or interests are concerned, to lend their
support, attempt reconstruction and thus to prevent or
at least remedy a serious disturbance of the market by
conspicuous and therefore especially efficacious action.
It will always redound to the credit of the great Berlin
banks and bankers that through their intervention imme
diately after the collapse of the Preussische HypothekenAktienbank, of the Deutsche Grundschuldbank and of
the Pommersche Hypotheken-Aktienbank, they prevented
(with almost immediate and favorable effect) the absolute
demoralization of the entire mortgage bond market, and
that through the reorganization of these concerns23 they
reduced to a minimum the losses sustained in wide cir
cles on account of the securities issued by these establish
ments. 24 The same applies to their intervention during
the catastrophe in Saxony.
(c )

TH E

TASK S

P R E P A R IN G
AND

FOR

F IN A N C IA L

TH E
W AR

BANKS

(F IN A N C IA L

CONDUCT

T IM E

W AR

R E A D IN E S S

AND

FOR

W AR

W A R ) . 25

Banks have also to make timely provision (as far as
possible) in times of peace for the eventuality of war.

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Commission

The marshaling of financial forces must correspond to
that of military forces, and just as military mobilisation
is made possible by careful plans made in times of peace,
so too the marshalling of financial forces should be facili
tated by schemes likewise devised in times of peace.
Weaknesses and gaps in the financial mobilisation may
be paid for as dearly as mistakes in the tactical deploying
of forces, for to both applies what I have said elsewhere,
“ that it is impossible without severe losses to evolve a
battle formation in the face of the enemy.”
The most important preparation for financial mobilisa
tion consists in fashioning the credit system in such an
elastic manner that in case of war it can cope with the
agitated and suddenly increasing calls for credit.
To meet this contingency, reserves must be created in
time of peace: reserves of considerable extent which can be
realised rapidly, i. e., mobilised. These must include on
the one hand a considerable amount of domestic firstclass securities, especially government and municipal
bonds, which in war times can be pledged, if necessary or
desired, at the “ war lombard offices” (Kriegs-LombardKassen) ,28 On the other hand, they must include foreign
Goldvaluten, i. e., bills and other claims receivable abroad
in gold, and prime foreign gold securities negotiable on
various foreign bourses, consequently possessing an inter
national market.27 Through the realisation of these gold
equivalents, and by calling in outstanding debts from
abroad, i. e., by utilising these reserves (the value of
which in such cases will be comprehended by the veriest
layman), a panic will usually be averted.

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B a n k s

The enemy, however, may endeavor to aggravate a
panic of this description by the sudden collection of out
standing claims, by an unlimited sale of our home securi
ties, and by other attempts to deprive Germany of gold.
Attempts may also be made to dislocate our capital, bill,
and security markets, and to menace the basis of our sys
tem of credit and payments. Such a panic might easily
occur during the first few days after the declaration of
war if the impetuous demand for ready cash and cash
reserves (Angstreserven) 28 is not amply and imme
diately satisfied. The latter demand often leads to pre
cipitate withdrawals of giro and current account balances
and of deposits, to the recall of credit, and to the precipi
tate sales of merchandise and securities.
Accordingly, the banks must endeavor to terminate
such conditions as rapidly as possible, as well as to stem
the feverish demand for, and the collection of ready
money from all depositories, and places of hoarding and
storing, so that normal conditions are reestablished, under
which all the expedients and substitutes obviating the use
of cash' will once more assume their normal importance for
circulating purposes.
Above all, the business policy described above (p. 20)
as indispensable during a crisis, must be pursued in times
of tension and agitation, which generally precede a war
long before its outbreak. Among others, restrictive meas
ures, such as the withdrawal of credit, the refusal to accept
bills, or to discount customers’ bills, must be avoided. In
the next place, interventions should be made in the mar
ket, and all means used for the gradual restoring of public
confidence in the solid groundwork of our finance and

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credit systems. It is such confidence which underlies not
only the acceptance of all cash substitutes (Geldsurrogate),
which abound to a far greater degree than ready money,
but also the determination to fulfil all pending engage
ments, or at least to terminate them slowly and cautiously,
as well as the resolution not to withdraw deposits, nor to
flood the market with securities at extremely low rates, &c.
The “ great banks” should cooperate in all these direc
tions, not only by word or through influencing their clients,
but by their own example, especially by exercising the
greatest reserve in withdrawing their credit balances from
the Reichsbank, and in presenting bills for re-discounting.
Besides this, they should aid those “ financial precau
tionary measures” which come within their sphere of
activity— i. e., those measures which may be undertaken
after the declaration of war in order to ease the market
and credit demand and to maintain our gold standard,
and the circulation of our bank notes.29
In Germany, as I have endeavoured to prove elsewhere,30
these tasks would be facilitated to some extent during the
critical weeks immediately following a declaration of war
by the amount of bullion likely to be at our disposal, which
includes the “ war treasure” of 120,000,000 marks in the
Julius tower 31 at Spandau (this latter, however, wrould
not go far); and by the further fact that the expenses of
mobilisation,32 as far as can be judged to-day, could be
covered by the issue of bank notes.33 Another gratify
ing consequence would be that during this particularly
critical time the Government would not have to apply to
the Reichsbank with extensive demands for cash; and
further, that in so far as the State did not prefer to meet

The

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Gr e at

Banks

its requirements by additional taxes,34 it could await a
calmer and more favorable condition of the money market
for contracting loans to defray the cost of war.35
The most important consequence of this fact is, that in
negotiating such loans,36 the cooperation and good offices
of the “ great banks ” and great banking establishments can
be counted on to a far greater degree, and with much more
certainty than if the negotiations took place during the
days immediately following the declaration of war, when
the resources of the banks would be taxed to an extraordi
nary extent.
It is impossible for the Reichsbank in Germany to
execute smoothly and successfully its numerous and diffi
cult tasks in war time without the assistance of the great
banks which form such an important factor in the whole
economic organisation of the country. The latter, how
ever, must prepare in times of peace in the manner de
scribed above, if they are to render effective support during
war time. On the other hand, it would be preposterous
to demand of them complete “ readiness for war,” such as
would exclude or paralyse the banks’ capacities for doing
their customary business.37
During the stages of deliberation by the administration
of the imperial treasury and the Reichsbank concerning
the adoption of the sometimes extremely complicated
financial measures for the maintenance of the German
currency and credit systems, as well as for affording relief
to the market, and facilitating money and credit transac
tions during war times,38 the directors of the great banks
and banking houses by reason of their practical experi
ence, their intimate acquaintance with the situation and
the receptive capacity of the money market, particularly

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Commission

by reason of their exact knowledge of the requirements
and capabilities of their clientele, should be amongst the
first called upon to serve as a “ financial general-staff” to
the imperial treasury and the Reichsbank.
The above presents a broad outline at least of the most
essential of the many and gradually increasing duties per
formed with untiring perseverance by the German banks.39
In order to appreciate their achievements, it should be
borne in mind that during the first period (1848-1870)
their work and progress was greatly hampered by crises
and European wars, by German political impotence and
lack of unity, by our lack of capital, and the medley of
German monetary and coinage conditions of those years.
I shall now proceed to outline the growth of these
duties during the two epochs of general economic devel
opment, and the development of the German banks (with
particular reference to the great banks). These two
clearly marked epochs extend from the middle of the
nineteenth century to 1870, and from that year to the
present day.
As far as is possible without effacing or obscuring the
picture of the general course of development of the Ger
man great banks, I shall endeavor to do what I omitted
in former editions of this book, namely, to show in what
manner, and with what success each individual great bank
participated in the common work. Indeed, a thorough
and proper appreciation of the course of development of
each great bank will become possible only after detailed
monograph studies of each of these shall have been
published.40
The most important works of reference used in this book
will be found in the appendix.

P art II.

THE FIRST PERIOD (FROM THE MIDDLE OF THE
X IX CENTURY TO THE Y E A R 1870).
Chapter I.— S ketch
Germany

the

of the
time

T H E O L D E S T E X IS T IN G

economic conditions

of the

establishment of

C R E D IT B A N K S .

In 1848— the beginning of the period about to be dis
cussed— about 200 years had passed since the end of the
Thirty Years’ War (1618-1648).
Even then, however, Germany, which in consequence
of her geographical position from remote ages presented a
favorite battlefield for the whole of Europe, had not yet
completely recovered from the thorough spoliation and
devastation she had undergone.
A re-establishment of her completely ruined trade and
of her. shattered fortunes was impossible during the
period from 1648 to 1815, owing to a series of European
wars. These were in particular the campaigns of Louis
XIV, the Spanish War of Succession, the Seven Years’
War, and the struggles against Napoleon. Those wars and
#
campaigns were once more fought on German soil by pow
erful enemies, who like Louis X IV seized parts of the coun
try (for instance, Strassburg, 1681), and devastated anew
other parts, such as the Palatinate and other Rhenish
countries. During the latter years of that period (18061815), the wars carried on with changing fortune against
Napoleon I, which terminated with his dethronement and

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banishment, prevented the beginning of recovery. It
was only during the three decades of undisturbed peace
(1815-1848), which preceded the economic epoch about
to be described (1848-1870), that the German nation had
time to recuperate and to engage in the first attempts to
rehabilitate trade, industry, and agriculture.1
Evidently, it is only possible to outline here the main
points in the economic conditions of Germany brought
about by this lengthy period of peace, and only in as far
as they bear on the development and tasks of German
banking.
The population of Germany numbered at that time
about 35,000,000, and was not more than that of France
(34,500,000). Of capital there was but little; it was
estimated that in Prussia there were 720 marks per head
of the population, whereas the amount for England was
2,860 marks, according to an estimate made almost
simultaneously (1845).2 At that period England had
almost completed her transition to a great industrial and
manufacturing country, supplying more than half of the
world’s requirements. Her annual coal production at the
beginning of the 19th century was about 10,000,000 tons,
while that of Germany toward the end of the century
was little more than 120,000,000 tons.
'In accordance with French example, serfdom, as well as
the hereditary subjection of the peasants had ceased in the
country during the first half of the 19th century, although
its abolition was slow, especially in the east of Germany,
where it had been firmly rooted for centuries. The aboli
tion of hereditary subjection did away not only with the
obligation to furnish hand and team for the benefit of the

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B a n k s

landlords, but— what proved of even greater and increas
ing importance— with the obligation on the part of the
peasant to remain on the estate, or in the village belonging
to the same. In German industry, despite modest attempts
at reform undertaken by the legislation of the individual
states, the system of guilds (Zunftwesen) was predominant.
Only a few German States, e. g., Prussia (by the laws of
1810 and 1811) and Nassau, had abolished the obligation
of craftsmen to join guilds, and to obtain certificates of
ability (Befdhigungsnachweis), and had introduced, on
principle, freedom of trade, an action against which a
vigorous protest was launched by the craftsmen’s “ par
liament” sitting at Frankfort-on-the-Main from July 15
to August 18, 1848. Fairs continued to enjoy great
importance in some towns even after 1850, at least for a
number of special wares.3 Trade was confined mostly to
local markets and fairs. Delivery trade by sample had,
however, started on a small scale. But the conditions
for economic reform in most of the German States had
already been created by the establishment in 1834 of the
Germaii Zotherein. It may be justly said, that this
great Prussian innovation, which transformed the par
ticipant German States into a unified economic area,
dealt the death blow to the mediaeval economic system
in Germany. It was only then that a uniform economic
policy became possible in the participating States, a
policy which soon asserted itself by its urgent demands
for protection of new and growing industries against the
overwhelming economic superiority of England.
The average annual value of the imports into the
territory included in the Zollverein for the period 1842-

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1846 has been calculated by K. H. Rau (Grundsatze der
Volkswirtschaftslehre, 8 ed., part 2, p. 318) at 210,303,000
thalers, or about 630,000,000 marks, while the exports
have been valued at 170,089,000 thalers, or about
510,000,000 marks, which amounts should be used only
with reservation. During the last decade of that period
the exports rose quite considerably. Industry was still
mainly of the so-called domestic type, and principally
carried on in the country. This applies particularly to
the manufacture of textiles (spinning and weaving).4 In
the country it was still customary to manufacture at
home nearly all the personal requirements in the shape of
clothing, linen, and other textile goods. Almost the whole
of the German industry seemed to center at that time in the
textile and mining industries, both of which were chiefly
carried on in the country.5 The number of workmen8
employed in these industries exceeded by far the com
bined number of workmen employed in all other industries.
The total number of workmen employed in the mining
and smelting industries within the limits of the Zollverein
(created on January 1, 1834) about the middle of the
nineteenth century was 60,800.7 In Prussia there were
48,659 workmen employed in the same industries (average
of the years 1848-1857), as compared with 101,908 accord
ing to the trade census of 1895. In 1840 the number of
steam-engines employed in the industrial area comprised
in the German Zollverein was not quite 500, whereas
there were over 5,000 steam-engines at work in England
about 1810. According to the Prussian Statistical Annual
(Preussisches Statistisches Jahrbuch),8 there were in 1852
only 2,124 steam-engines, developing 43,051 horse-power,
employed in the entire industry of Prussia, of which almost

3°

The

G e r m a n

G r e a t

B a n k s

half (according to number and power) belonged to mines
and foundries; machine factories occupied only the
fourth place in the list.
In the Kingdom of Saxony 9 the number of steamengines used for industrial and agricultural purposes
amounted in 1846 to 197 only, with 2,446 horse-power. At
the end of this period (1866), however, there were already
about 92,000 motors (100,000 H. P.) in use in Germany,
whereas in 1895 the total horse-power of all engines in use
was 3,400,000, of which 2,000,000 horse-power was em
ployed in industry. In 1840 the whole German freight
traffic (with the exception of ocean, town, and rural
traffic) was calculated at about 2,000,000,000 ton-kilo
meters, whereas in 1900 it was estimated at 40,000,000,000
ton-kilometers, or almost twentyfold.10
In i860 the whole of Germany’s industrial output
equalled only about half that of France; whereas to-day
she ranks second to England in Europe, and takes third
place in the world, only the United States and England
outranking her.
About the middle of the nineteenth century the pro
portion to the total population of industrial workmen 11
(including those engaged in flour mills and all home indus
tries) amounted in Prussia to only 2.98 per cent.
The enormous industrial growth that manifested itself
shortly after the establishment of the Zollverein and its
economic measures was due not entirely to that organi
sation, but primarily to the construction of (private)
railways, begun in 1835 with the line between Nuremberg
and Furth. This led at the outset to an almost feverish
activity in the mining, smelting, machine, and kindred
industries.

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As early as the middle of the last century there was
quite a considerable demand for pig iron, chiefly by
reason of the above-mentioned construction of railways.
According to Oechelhauser12 over 17,500,000 quintals (Cent
ner) of pig iron were used in railway construction from
1836 up to the beginning of our period (1850). The home
consumption, however, was not met by the home produc
tion. England had obtained a great start in the manu
facture of that material,13 coke blast furnaces having
been used as early as the eighteenth century in place of
the expensive charcoal fuel almost universally in vogue
in Germany during the middle of the nineteenth century.
In the Siegerland not a single coke blast furnace existed
at the beginning of the forties; the first coke blast furnace
in the Ruhr district was erected in 1847; moreover, the
existing blast furnaces were not very efficient.14 In 1847
the consumption of iron in the region comprised within
the Zollverein amounted to 28 Zollpjund (= 14 kilograms)
per head of the mid-year population (Sering, loc. cit.,
p. 51), as compared with 309.8 pounds in 1899.
The production of pig iron in 1850 was less than that of
France, and even of Belgium; it amounted to 208,000,000
kilograms (1875, 2,029,000,000 kilograms).
The output of coal amounted in 1850 to 5,800,000 tons,
as against 109,220,000 tons in 1900.15
In the district of Siegen 38,880 tons of iron ore, valued
at 124,974 thalers, were brought to the surface in 1850,
as compared with 997,680 tons, valued at 11,857,779
marks, in i900.1<s
In 1858 (according to Sering, loc. cit., p. 82) of the total
number of blast furnaces in Prussia, 56.9 per cent

The

G e r m a n

G r e a t

B a n k s

(1,328,429 Centners) used charcoal, 37.2 per cent
(1,527,989 Zentners) coke, 5.9 per cent (243,516 Zentners)
coke and charcoal. Mineral fuel (coal) was not used be
fore 1844 except in Silesia, and even there only in small
quantities.
As a result the iron imports from Great Britain reached
52 and 55 per cent of the total German consumption up
to the middle of the last century. This state of affairs
underwent a change only with the rapid growth of the
use of coal in Germany, and when the Zollverein aban
doned its free-trade policy by the imposition in 1844 °f a
duty on iron, which till then had entered free. It is
due to the energetic support of the German credit banks
that before long the following prophecy, contained in the
business report of 1856 of the A. Schaaffhausen’scher
Bankverein (p. 53), was fulfilled to the fetter:
“ The iron and coal output of Westphalia, and the
Rhineland, in the course of a few years, will not fall short
of that of Belgium; in the more distant future it will com
pete successfully in the international market with that
of England, provided one of the most important condi
tions for such competition— namely, the construction of
cheap means of communication— receives proper atten
tion.”
The following figures, giving the proportion of persons
engaged in industrial pursuits, as compared with the
entire population, apply to Prussia for the middle of last
century (1843):17
P e r c e n t.

Agricultural population.......................................................... 60. 84 to 61 . 34
Industrial population............................................................................. 23. 37
Persons employed in commerce............................................................ o. 97
90311s—xi----- 4

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Commission

In 1846 there was only 1 person employed in trade and
industry to every 12.2 inhabitants, though in 1850 the fig
ures were already 1 to every 8.5 inhabitants. In 1849 only
28 per cent of the entire population18 of Prussia lived in
towns, and the population of Berlin did not exceed
331,894 19 (exclusive of soldiers) in 1840, and not quite
500,000 in 1858, and gave employment to only 3,000
workmen in 1840, a number which rose, however, to
10,242 in 1856.30 In 1849 there were only 15 towns in
Prussia the population of which exceeded 30,000.21 Ex
cluding Berlin, the following now important industrial
towns had the greatest number of inhabitants:
A ix -la -C h a p e lle ( a b o u t ) ................................................................................. 46, 000
E lb e rfe ld ( a b o u t ) ............................................................................................. 35, 000
C refeld ( a b o u t ) .................................................................................................

30, 000

C h e m n itz an d D iisseld o rf e a c h ( a b o u t ) ...................................................

26,000

D o rtm u n d , D u isb u rg, E ssen , a n d S o lin gen e a c h ( a b o u t ) 22................

7,0 0 0

With the aid of foreign (English) capital, gas lighting
was gradually adopted 23 after 1826 by the larger German
towns (first of all by Hanover and Berlin); it was only
after 1859 that petroleum became popular for lighting,
especially among the middle classes.
The construction of railways may be said to have
started on a large scale only about the middle of the nine
teenth century. From 1835 to 1842 only railways of short
length and of merely local significance (between large
towns) to a total length of 87 German miles had been
constructed. These were the Nuremberg-Furth railway
in 1835; the Berlin-Potsdam, and the BraunschweigWolfenbiittel railways in 1838; the Eeipzig-Dresden line in
1839; the Eeipzig-Magdeburg, the Munich-Augsburg, the
Mannheim-Heidelberg, and the Frankfort-Mainz lines in

T h e

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B a n k s

1840; and in 1841 the Berlin-Anhalt, the DiisseldorfElberfeld, and the Cologne-Elberfeld railways. Up to 1855,
the date when the credit banks appeared on the scene, only
7,800 kilometers of railways had been built, which, spread
over the twenty years from 1835, meant only 390 kilometers
of new line annually. On the other hand, in 1865, ten years
later, almost double the amount of railway mileage (13,900
kilometers) was finished, or 610 kilometers of new line per
year, a performance in which the credit banks had taken
an active share. In 1875, or ten years later, there were no
less than 27,981 kilometers of railways in operation, again
a twofold increase.
This corresponds to the enormous increase of capital
invested in German railway construction during that
period. At the beginning of the fifties the amount of this
capital was stated as 140,000,000 thalers, in addition to
206.000. 000 thalers preference shares, or a total of 346,000,000 thalers (1,038,000,000 marks); somewhat over
a billion marks.24 At the end of that period (1870) the
invested capital amounted, according to Engel, to over
4.000.
000.000 marks (4,072,167,621 marks), in which sum
the preference shares are included.
As far as the means of transit in Germany were con
cerned, so-called “ Chausseegeld,” or road toll, had in
many cases to be paid to the end of the sixties, as a con
tribution toward highway construction and maintenance.
In Frankfort-on-the-Main, for instance, this toll was only
abolished on May 18, 1866. The highways in Germany
had in 1857 a length of only 30,000 kilometers as against
150,000 kilometers in 1900.

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Commission

The inland toll-gates in the majority of German States,
however, had already been abolished in 1834-35 by the
foundation of the Zollverein. This proved a great boon
in the economic field.
Equally beneficial in the legal field proved the adoption
in the fifties and sixties by the various German States
of uniform commercial legislation in the shape of the
Allgemeine Deutsche Wechselordnung and the Allgemeines
Deutsches Handelsgesetzbuch.
As far as means of transport were concerned, steam navigation made a modest beginning on the Weser in 1817
and on the lower Rhine and Elbe in 1818. During the
middle of the nineteenth century, however, steam-navi
gation made more rapid progress.
At the end of the fifties Germany had no less than 17
different independent postal administrations in addition
to the Prussian-Austrian Postverein,25 In 1867 theThurn
and Taxis postal monopoly came to an end by transfer
to Prussia.
Up to 1844 fees for forwarding ordinary letters within
the confines of Prussia went as high as 19 silbergroschen
(1 silbergroschen =
thaler, or about 2 x
/ 2 cents). And it
was considered great progress when an agreement was
made in 1850 with Austria, whereby the cost of forward
ing letters weighing less than 1 lot (lot = about half an
ounce) to the farthest of the three zones, or over 20 Ger
man miles (1 German mile = 7,420 metres), was fixed at
3 silbergroschen, or 9 kreuzer. It was only as a result
of this agreement that, at the beginning of 1850, stamps
were introduced in Prussia. Up to that time the fee for
conveying letters had to be paid in ready money at the

The

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B a n k s

post-office. Even during the forties the post-offices were
only opened on certain days in the week. There were no
postmen, not even in the towns, to say nothing of the
country; so that letters had to be called for at the postoffice. Letter-boxes were introduced for general use only
after 1850.
The slow development of postal facilities is best illus
trated by a statement of Karl Lamprecht (loc. cit., p. 143)
that in Saxony, the “ land of the Leipsic fair,” the postal
regulations remained unchanged between 1713 and 1859.
In Great Britain, on the other hand, uniform pennypostage had been introduced in 1840; uniform postage
was introduced in Austria in 1861, and in the North
German Federation only in 1868.
The receipt of a letter, even as late as the middle of the
last century, must have been regarded as quite an event,
except by large mercantile firms, for there were only 1.5
letters per head of population in Prussia during 1842,
and even in 1851, the beginning of the period under con
sideration, only about 3 letters annually.
The telegraph system26 was first opened for public use
in Prussia (Aix-la-Chapelle) in 1843, in Bavaria and
Saxony in 1850, in Wurttemberg and Baden in 1851,
in Hanover in 1852, and in Mecklenburg in 1854.
“ The charges of telegraphing were high and ill-arranged.
According to the zone tariff of 1858, which on the face of
it had already been reduced, it cost 2 gulden 6 kreuzers to
send 20 words from Frankfort-on-the-Main to Nuremberg,
or almost as much as to Amsterdam or Como (2 gulden 48
kreuzers); the shortest telegram to Bochum cost 4 gulden
12 kreuzers, almost as much as to Tilsit or Orsova (4

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Commission

gulden 54 kreuzers.)” 27 In 1850 only 35,000 telegrams
were sent in Prussia, as against 1,500,000 in 1865.
Only 102 joint-stock companies of all kinds, with a total
capital of 638,000,000 marks, or an annual average of less
than 27,000,000 marks, were formed in Prussia between
the years 1826 and 1850, that is in twenty-four years.28
On the other hand, during the following nineteen years,
the period from 1851 to the first half of the year 1870,
295 joint-stock companies, or almost three times as many,
with a total capital of about 2,405,000,000 marks,29
were formed in Prussia, making an annual average capi
tal of over 124,000,000 marks, or more than four times as
much as in the preceding period.
Among the German exchanges at the beginning of this
period, the one at Frankfort-on-the-Main was the most
influential for state loans and similar securities, whereas
the Berlin exchange took the lead in railway securities,
the amount of which, however, was not yet great.30
Sixty-three securities were quoted on the Berlin Stock
Exchange in 1850 as against 309 in 1870, and 1,872 in
1900. A t Frankfort-on-the-Main the first special organs
dealing with financial and commercial questions were pub
lished, viz: The Aktiondr, on January 1, 1854; the Frank
furter Geschdftsbericht, on July 21, 1856 (which, on August
27, 1856, became the Frankfurter Zeitung und Handelsblatt). In the meantime, however (before the publication
of the Frankfurter Geschdftsbericht), the Berliner Boersenzeitung, with the Thursday supplement, th e B erliner BoersenCourier, was published on July 1, 1855, in Berlin.
As far as the systems of coinage, money, and banks are
concerned, the following details may be of interest:

T h e

G e r m a n

G r e a t

B a n k s

During the whole of the period under consideration, and
to the final adoption of the common German coinage sys
tem in 1870, no less than 7 different kinds of coinage
existed in the various German States, which, with the ex
ception of that of Bremen, were all based on the silver
standard. Between the South German gulden and the
North German thaler standards a fixed ratio had been
established at the general coinage conference in 1838
(Dresdner Convention), but solely for purposes of calcula
tion,31 i. e., no State belonging to the convention was
obliged to admit the circulation of the coins of any
other State belonging to the convention.
The variety of the systems of coinage and standards
at home and abroad was doubtless one of the main rea
sons why bankers, who were called money changers at
that time, in the centers of trade and traffic at least,
formed a prosperous and well-filled profession. A t the
center of money changing for middle and south Germany,
namely, the free town of Frankfort-on-the-Main, there
were 109 private bankers in 1855, among a total of 1,131
firms;-and toward the end of the period under discussion
(1868-69), I92 private bankers out of a total of 1,829
firms.32 These private bankers, who in numerous cases
carried on simultaneously commission business or com
mission and forwarding business, formed a very respected
class, especially at Frankfort-on-the-Main, a long time
before the period in question, having identified themselves
with the general existing commercial interests. A most
striking proof of this is an occurrence which took place
in 1810: “ B y the order of Napoleon (at the time of the
Continental System) two French officials in Frankfort

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confiscated 185 chests containing English goods, the prop
erty of Frankfort merchants, and burnt them in front of
the gates of the town. Upon this the Frankfort bankers
refused to continue the discounting of French bills, and
caused thereby numerous failures in Strassburg, Nancy,
Rheims, and other places.” 33 Thereupon the Continental
System was soon repealed in Frankfort-on-the-Main.
What was true of Frankfort-on-the-Main, however, is
not applicable to other towns and districts. In Stuttgart,
for instance, there were in 1855 only 14 firms (including
the Royal Court Bank) which claimed to belong to the
banking and discounting profession, and only one each in
Heilbronn and Ulm. “ These were, however, partly carried
on in connection with other occupations, especially with
the forwarding business.” The modest position held by
these firms appears best from the fact that in the indus
trial census taken in 1855 (no changes of importance took
place between 1852 and 1855) 25 banking firms are men
tioned employing only a total number of 68 assistants.34
In the whole Kingdom of Prussia (in the territory
before 1866) the number of persons employed in the
money and credit business during 1858 (after several years
of economic prosperity), including principals and assist
ants, amounted only to about 1,800 (1,774), and these
were distributed among 602 enterprises, so that there
were 602 principals and 1,172 assistants, or about two
assistants to each business.
Of these 1,800 persons, 384 were employed in Berlin
alone.35
At the beginning of the period under consideration
modern methods of payment and credit had not yet devel-

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oped, and the giro and current-account business was
“ almost unknown,” with the exception of places like
Hamburg, where special conditions prevailed. Even in
a large commercial center such as Frankfort-on-the-Main,
at the beginning of the fifties, numerous porters with small
trucks laden with sacks and barrels of silver money could
be seen moving about the streets “ at any hour in the
forenoon.” 36 The discounting of bills was “ seldom prac
ticed” 37 in Germany, except in chief trade centers and
exchange towns, and a systematic fostering of the deposit
business was still less in evidence, either at the credit
banks (p. 73) or at the note-issuing banks existing at the
beginning of the period. The amount of deposits at the
Prussian Bank, for instance, totaled only about 22,740,000
thalers (equal to 68,220,000 marks) 38 in 1850, in spite of
the inflow of capital which had taken place in consequence
of the discovery of gold mines in California (1848) and in
Australia (1851), and the simultaneous discovery of new
quicksilver mines in Mexico. In other banks of issue the
deposits were for the most part much smaller.39
At the same time, however, powerful factors (mentioned
above on p. 28) were making for progress.
Above all, the era of peace that had prevailed in Ger
many for an unprecedented length of time (1815-1848)
had caused a relatively large accumulation of capital,
which was seeking profitable investment.
As early as 1844 the first industrial exhibition in the
Zollverein area stimulated industry in numerous direc
tions. The international exhibition in London in 1851,
at which the latest industrial progress and inventions
were shown, exerted a powerful influence on Germany. A

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few years later (1856) a great revolution took place in the
iron industry through the application of Bessemer’s prin
ciple of turning pig iron into steel40without the aid of
human power by inclosing the pig in pear-shaped cham
bers (converters) and by conducting heated air through it
from powerful blast apparatuses— a process adapted in
1865 by Martin to ore containing small amounts of phos
phorus and, in 1879, by Thomas and Gilchrist to ore rich
in phosphorus.
In the years 1834-1854^.niline colors were invented,
and in 1868 alizarine colors.
In 1840, Liebig published his manual on chemistry and
its use in agriculture, which laid the foundation of modern
agriculture. From 1831-1840 to 1871-1880 constant
progress, with few interruptions, was experienced in
agriculture. In the old Prussian provinces during this
period, the price of rye rose 69 per cent, that of wheat 60
per cent, and of barley 90 per cent; the selling price of
land not less than 200-300 per cent; the rents of the
Prussian domains increased from 4,500,000 marks, or 13.9
marks per hectare (1 hectare = 2.471 acres), in 1849, to
10,200,000 marks, or 35.6 marks per hectare, or an
increase of 156 per cent. These rises were frequently out
of proportion with the increases in the prices of agricul
tural products and in the productiveness of the area used
for agricultural purposes.41
As stated before, various industries, such as cotton
spinning, at the beginning of this period introduced manu
facturing on a large scale (production on a large scale had
commenced in the mining industry many years before).
The large industries were, however, unable to attain a

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dominant part in the whole of industry, in which home
production still played a leading part. In the last decade
of this period we can also perceive a tendency toward
increasing the exports of industrial products the rapid
development of which in the second period gradually
caused a complete transformation in the character of the
whole German economic organization.
Hand in hand with the large increase of population,
a serious transformation deeply affecting the whole of
agriculture (which at this period was at the height of
prosperity) had been gradually developing, which led to a
considerable portion of the country’s agricultural require
ments being met by foreign imports; wrhereas at the
beginning of this period, the exports of important Ger
man agricultural products, with the exception of rye,
considerably exceeded the imports.42 (As early as i860,
the imports of rye exceeded the exports by 259,000 tons.43)
Industry, particularly the mining, machine construction,
and metal industries, etc., received large orders owing to
the rapid increase of railway construction, and was pro
tected and strengthened, to some extent at least, through
the measures taken by the Zollverein against foreign
importations. The expansion of industry, however, and
with it the growing transition to large-scale industry
(Grossbetrieb), became an absolute necessity for the sup
port and employment of the population, which showed its
greatest increase at the beginning of this period, and
continued to grow in later years.
Between 1816-1845 the population had increased from
24,800,000 to 34,400,000 (by about 9,600,000 or 38.7 per
cent), whereas between 1845-1875 it had increased only
43

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by 8,300,000, or 24.1 per cent, and between 1865-1895
only 31.8 per cent.
This growth, noticed in most of the German States up
to the middle of the last century, was almost entirely in
favor of the rural population, though we must not lose
sight of the fact that a great many of the industrial con
cerns (as has been already mentioned), (p. 30) were
situated in the country. Loud complaints were heard
almost everywhere at that time that “ there were too
many people in the country,” and it was frequently stated
with the greatest emphasis that the country was unable
to support a population of that number, and ways and
means should be devised to meet the new conditions.44
As a matter of fact the population of the agricultural
districts (especially those east of the river Elbe) increased
in the period 1816 to 1877 nearly 91 per cent, while that
of the industrial western and southern parts of Germany
increased only somewhat over 23 per cent, whereas be
tween 1871 and 1900 the proportions were exactly the
reverse (26 and 79 per cent) .45
It was under such economic conditions that the first
German credit banks were established.
Chapter

II.— T h e

erm an

p e r io d

banks

d u r in c

the

f ir s t

(1 8 4 8 -1 8 7 0 ).

It is easy to realize at present the exceptionally strong
influence exercised at the beginning of this period (about
the fifties) by the very great and rapid development of the
German railway system, above all on the mining and
machine industries. In order to appreciate it, we need
only recall the startling growth of the mining and machine

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industries, occasioned by the rapid development of the
electrical industry during the second period, although
quite different financial and banking conditions exist to
day. In both cases, however, the immediate conse
quences were serious crises (1857 and 1900), which were
brought on, however, in part by other causes.
The mining and smelting industries were the first to
undergo this transformation of which we have been
amazed witnesses.46 It is these industries which are
mainly responsible for the spread of capitalism and the
development of large-scale production, as well as the
gradual and radical change in the general economic con
ditions of the country.47
The enormous demands of the newly constructed rail
ways for iron, coal, sleepers, locomotives, cars, etc., could
not be met even approximately by the means at the dis
posal of the industry of those days. New undertakings of
all descriptions, and the enlargement of existing ones, were
necessary. Figures and requirements, however, were cal
culated at ten times the right amounts, as is the wont of
reckless persons in agitated times, in whose minds the
prospective profits are sure to assume gigantic propor
tions. Thus, at the beginning of our epoch, following the
new railway enterprises, there arose in rapid succession,
and in strange medley, a large number of other new jointstock companies, especially in the fields of mining, smelt
ing-machine construction, and banking.
The list of German credit banks founded during the first
eight years of this period (1848-1856), and which were
mostly provided with share capital ample at least for the
period in question, will be found in Appendix II at the

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end of this book. Among them the following were promi
nent at that time, according to the amount of their capital:
(1) 1848: The A. Schaafjhausen'scher Bankverein at
Cologne, formed as the result of the reorganisation of the
old banking firm of Abraham Schaaffhausen (which had
been seriously affected by the troubles in 1848), with a
capital of 5,187,000 thalers, or, in round numbers,
5,200,000 thalers = 15,600,000 marks, of which about
3.000. 000 (3,199,800) thalers was immediately issued.
(2) 1851: The Disconto-Gesellschaft in Berlin, which
started however as a mere “ credit partnership” (Kreditgesellschaft). In 1856 it was transformed into its present
shape, namely, a joint stock company en commandite
under the name of the Direction der Disconto Gesellschaft,
with a capital of 10,000,000 thalers = 30,000,000 marks,
which was issued in two instalments of 5,000,000 thalers
each.
(3) 1853: ^ e Bank fiir Handel und Industrie, which
took up its headquarters at Darmstadt because no con
cession could be obtained at that time for a joint-stock
banking company, either in the free town of Frankfort-onthe-Main or in Prussia. The nominal capital amounted to
25.000. 000 florins = 42,750,000 marks, of which, however,
only 10,000,000 florins = 17,100,000 marks was issued at
first; it was only in the year 1856, when the Disconto
Gesellschaft was transformed, that the Darmstadter Bank
assumed the size first contemplated.
(4) 1856: The Mitteldeutsche Creditbank at Meiningen,
with a capital of 8,000,000 thalers (24,000,000 marks),
of which, however, 3,000,000 thalers (9,000,000 marks)
remained in the portfolio of the bank; in reality, there-

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fore, the capital was made up of 5,000,000 thalers only,
divided into 50,000 shares of 100 thalers each; moreover,
of this amount 1,000,000 thalers were redeemed in 1859.
(5)
1856: The Berliner Handelsgesellschaft with a share
capital of 15,000,000 thalers (45,000,000 marks), of which
only a small part was paid in at first, namely, 3,740,150
thalers; of this latter sum 800,000 thalers (4,000 shares of
200 thalers each) remained in possession of the company.
In the four years (1853-1857) the paid-up share capi
tals of the railway companies newly formed in the various
German States, which were almost exclusively in private
hands (see p. 35), amounted to over 140,000,000 thalers,
and that of the joint-stock banks (Bankaktiengesellschaften) to over 200,000,000 thalers (600,000,000 marks).
Of 259 mining, foundry, steamship, machine-construc
tion, sugar, and spinning companies, etc., existing during
this period, with a total capital of over 260,000,000 thalers
(780,000,000 marks), more than half were founded during
the four years mentioned above (1853-1857).48
During the one year, 1856, new joint-stock companies
with a ijominal capital of about 150,000,000 thalers were
chartered in Prussia alone.
In order, however, to comprehend properly the rush
that took place just then, it must be remembered that
during this whole period (about twenty years), from 1851
to the first half of 1870, only 295 joint-stock companies,
with a total capital of about 2,405,000,000 (2,404,760,000)
marks (see p. 38), were chartered.
Of this total almost half, namely 1,020,000,000 marks
(340,000,000 thalers), represented the capital of the rail
way and joint-stock bank companies founded in Prussia

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during these four years (1853-1857). Of the total capital
of 2,404,760,000 marks invested in Prussia in joint-stock
companies during 1851-1870 (first period), 2 250,960,000
marks were invested as follows:
Marks.
Mines, foundries, and salt w o rk s............................................

275, 410, 000

B a n k s ............................................................................................

94, 650,000

Insurance com panies..................................................................

158,460,000

R a ilw a y s ......................................................................................

1.72 2 , 440,000

so that these four classes of industrial and commercial
undertakings absorbed 92.7 per cent of the capital of all
joint-stock companies founded in Prussia during the
period in question.49
During this great process of transformation, which took
place in the same manner in all the other German States
up to 1856, scarcely any other aid could be called in than
that of the Bank fur Handel und Industrie, founded in
1853, which we shall style in the future, after its head
quarters and conforming to public custom, the Darmstadter Bank. For the Disconto Gesellschaft, founded
in 1851, emerged from the narrow confines of a “ mutual
credit partnership ” (auf Gegenseitigkeit beruhende Kreditgesellschaft) only after 1856, while the attention of the
A. Schaaffhausen’scher Bankverein was necessarily occu
pied during those years with strengthening the inner
affairs of the firm of Abraham Schaaffhausen which it had
taken over.
The Darmstadter Bank, founded at the beginning of this
process of transformation, purposely assumed the title of
“ Bank fur Handel und Industrie.”
“ It is in no way the task of the bank,” it was stated in
the first business report for 1853, “ to pave the way for
stock-jobbing operations, and to stimulate capitalists to

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unproductive gambling on ’change. On the contrary, the
bank is expected to promote sound and extensive under
takings by its own participations, and by investing out
siders’ funds intrusted to its care. By means of its em
inent position and clear insight into the whole situation
of German industry it is fitted to assist to the fullest
extent of its powers in directing capital and the spirit of
enterprise into the channels corresponding to the require
ments of the moment. Its offices at home and abroad are
intended to facilitate export and the thousand and one
other relations between German industry and the money
market. It is the right and the business of the bank to
receive the funds which some manufacturers may have
available for the time being and supply them to other
manufacturers who may require them. Through such a
constant exchange it hopes to stimulate and promote
industrial activity. Aside from the bank’s participation
in great industrial undertakings, it is likewise authorized
* to participate in the great creations and financial trans
actions of the governments, and to act as intermediary
in the placing of securities of foreign governments.”
There is no doubt that part of this program, including
the statutory regulations,50 was influenced by the organi
zation and aims of the Credit Mobilier (Societe generale
de Credit mobilier) founded in November, 1852, with a
capital of 60,000,000 francs. This is particularly true of
the debentures idea,51 and the fixing of the amount of the
capital. As a matter of fact among the founders of the
Credit Mobilier was Abraham Oppenheim, of Cologne, one
of the co-founders of the Darmstadter Bank, while one of

90311 — 11-----5

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the higher officials of the Credit Mobilier (Hess), was one
of the first directors of the Darmstadter Bank.
It may be of interest to note that the French estab
lishment alluded to, which was intended to put the Saint
Simon ideas into practice under the direction of the
Pereires, was heartily welcomed by the Government, as
well as by the general public, as an institution likely to
form a counterpoise to the excessive power of the pri
vate bankers, and more especially of the house of
Rothschild.
“ The founding of the Contango Bank, or Credit Mo
bilier,” says an article 52 published in Germany in 1856,
was based on a genuine and true principle belonging
entirely to our age. Enormous capitals had accumu
lated in the hands of several banking houses in different
towns in Europe. They dominated all business through
the enormous proportions of their capital. * * * They
made their own conditions as though they held a monop
oly. * * * No limits can be discovered to these tend- •
encies. This monopoly can be broken only by opposing
large capital with a still larger one, and this can be done
only by the association of many small capitals. Thus on
November 12, 1852, the Credit Mobilier Company was
founded with a capital of 60,000,000 francs, in 120,000
shares of 200 francs each.
The French Government desired simultaneously to
weaken the Bourbonist and Orleanist aspirations, which
were supposed to be represented by the house of Roth
schild, through the concession of a Banque Gouvernementale
which among other things was to influence the quotations

5°

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of government stock— of course in an upward direction
only!
Accordingly the Rothschilds (after co-operating in the
beginning) formed a very powerful syndicate of private
bankers as early as 1855 to fight the Credit Mobilier.
It is principally the Credit Mobilier, its organisation,
its unparalleled growth and decline within the short
period of fifteen years, that has influenced the public
mind to such an extent that German banks almost with
out distinction, and even up to the present day,53 are
designated as Credit Mobilier banks. The formation and
activity of that establishment form to a great extent54
the subject of one of the most brilliant French novels,
namely, “ L ’Argent,” by Emile Zola.
This result was largely the work of contemporary writ
ers, who, impressed by the failure of the Credit Mobilier,
naturally gave vent only to very adverse criticism.55 A
prominent place in this field belongs to the voluminous
work by Aycard,58published during the year of the failure
of the Credit Mobilier (1867). This book, containing 595
pages, \yhich unfortunately was used and is still used con
stantly as an authority, is from beginning to end (and in
this particular I quite agree with Plenge57) nothing but a
pamphlet. It is a clumsy work, overflowing with repeti
tions and exaggerations, which had its origin in the spite
and jealousy of a small banker, whose small power of dis
cernment prevented him from perceiving side by side with
the undeniable mistakes and faults of the Credit Mobilier
the incontestable services which that institution had ren
dered to the economic progress of his country.

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The Credit Mobilier, which, according to the amount of
its capital and the program outlined in its reports and
in the statements of its managing directors, was never
intended to be solely a flotation bank (Effektenbank),at the
very outset fixed its aims far too high, until they became
almost fantastic. For this program (although it may
have been the result of much forethought), was not one
that could be carried out with the ordinary means of a
bank, as it purposed an economic transformation on a
grand scale of the entire railway, industrial, and credit
systems.
Further, the Credit Mobilier injured its own interests
to a great extent (as was recognised when too late),
through the distribution of excessive dividends (1855
over 40 per cent), as well as by persistent adherence to its
scheme of the issue of debentures, a matter generally
impracticable within the compass of any bank, and espe
cially of one that had so many aims in view. That
scheme, rightly enough, was never executed owing to the
opposition of the Government. Thus it was debarred
above all from gradually increasing its share capital58 in
accordance with its growing business, and from strength
ening its reserves in order to attain the liquidity of
resources which is the sole justification and qualification
for the pursuit of constantly increasing tasks.
It is also true that through its precipitate procedure,
and through the attempt to carry out simultaneously all
parts of its program, which in turn necessitated constant
and increased support of the Bourse, as well as through
the flotation of a superabundance of new securities and
companies,59 the Credit Mobilier paved the way in no

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inconsiderable measure for stock gambling, agiotage, and
share swindling pure and simple. The last-mentioned
effect was largely due to the business reports, which were
true paradigms of inadmissible concealments and puffing
advertisements (justly denounced, at least in most cases,
by Aycard, although he does so in endless repetition),
which in turn caused the shares of the Credit Mobilier—
not without the influence of the institution itself— at the
very outset to become gambling stock of the very first
rank.00
The Credit Mobilier did not foster the regular customer
/
business to any extent worth mentioning. The large
amount of deposits (up to 145,000,000 francs), however,
that were intrusted to its care by the large railway com
panies which it formed, were invested to a considerable
extent in other railway shares, and industrial securities
of all descriptions, as well as in its numerous subsidiary
companies.61
This circumstance, coupled with the enormous and
permanent advances made to these subsidiary companies
(especially to the Societe Immobilikre which it had
founded), led to the complete immobilization of its share
capital, and thereby to the downfall of the bank, which
actually took place in 1867.
Moreover, strong speculation on the part of the bank 02
itself, in the closest relation to the enormous amounts of the
tied-up securities, took place, which resulted occasionally
in considerable gains, but frequently and probably in the
majority of cases, in great losses.
On the other hand, however, it must not be forgotten
that it was due above all to the boldness and tenacious

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energy of the Pereires that the enormous extension of
French railways, and partly also of foreign lines, was
brought about63 in the period from 1850 to i860,64
when the Pereires were acting independently. This
opened up new fields of activity to French industry,
and gave it an undreamed of power, extension, and
organisation.
In addition it must be admitted in praise of the Credit
Mobilier that, as Aycard himself is obliged to recognise, it
continued to protect the enterprises it had founded and
the securities it had issued, and that it was just the per
sistent exaggeration of this principle, which in itself is not
reprehensible, that constituted the main though not sole
cause of its downfall.
This downfall, however, was not prevented by the con
trol on the part of the shareholders, a remedy recom
mended as most efficient in many quarters, and facilitated
by the by-laws of the Credit Mobilier, according to which
any 10 members at a general meeting by a written appli
cation could place any subject on the order of the day.
Further (and this is not less important), the downfall
was neither prevented nor foreseen by the existing sub
stantial governmental control. No less important an
authority than Adolf Wagner,65 while under the first
impression of the crisis of 1900, thought it necessary to
propose for all German Banks a “ State Control Bureau,”
an institution which in the case of the Credit Mobilier
had existed from the very beginning in a form which
partly met, and partly even exceeded the wishes of Adolf
Wagner. The charter, dated November 20, 1852, contains

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the following regulations regarding the government con
trol which was by no means “ an empty form:” 66
“ A r t . 3. La society sera tenue de remettre, tous les six
mois, un extrait de son etat de situation au Minist&re de
l’Interieur, de l’Agriculture et du Commerce, au prefet du
Departement de la Seine, au prefet de police, ala chambre
de Commerce et au greffe du Tribunal de commerce de
Paris.
“ A rt . 4. En outre, la Societe devra fournir au Ministre
des Finances sur sa demande, ou a des epoques periodiques
par lui d^terminees, les memes etats presentant la situa
tion de ses comptes et de son portefeuille, ainsi que le
mouvement de ses operations.
“ Les operations et la comptabilite de la Soci£t6 seront
soumises h la verification des d£l£gues du Ministre des
Finances, toutes les fois que celui-ci le jugera convenable.
II sera donne communication h ces delegues du registre
des deliberations, ainsi que de tous les livres, souches,
comptes, documents et pieces appartenant a la societe.
Les valeurs de caisse et de portefeuille lui seront egalement repr£sentees.”
[ A rt . 3. The Company shall transmit every six months
abstracts of its condition to the Minister of the Interior,
Agriculture and Commerce; to the prefect of the police,
to the Chamber of Commerce and to the file office (greffe)
of the Commerce Court in Paris.
A rt . 4. The Company shall furthermore furnish to the
Minister of Finance, either upon demand or at intervals
prescribed by him, statements of the condition of its
accounts and portfolio, also of the movement of its opera
tions.

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The operations and the books of the Company shall be
subject to examination by the representatives of the
Minister of Finance at any time he may deem proper.
These representatives shall have access to the minutes of
the deliberations, also to the books, stubs (souches),
accounts, documents and other papers belonging to the
Company. They shall also have power to ascertain the
value of the cash and of the portfolio of the Company. J
I trust that I have given above, though only in brief
form, everything essential to form an opinion as to the
growth and downfall, the faults and excellencies of the
Credit Mobilier, without having omitted any of the im
portant points which formed the bases of Sattler’s 67 and
Max Wirth’s 68 criticisms. I shall now take up the ques
tion whether and in how far it is correct to designate the
German banks (especially those of the first period) un
reservedly as “ Credit Mobilier” banks.69
In the first place, as far as the by-laws are concerned on
which the Darmstadter Bank (Bank fiir Handel und In
dustrie) was founded, it may be asserted, that taken as a
whole, i. e.,as regards the large majority of its regulations,
they are copied, not from those of the Credit Mobilier
(which was founded the year before), but consciously, and
in some cases literally, from the statutes of the A. Schaaffhausen’scher Bankverein, established in 1848. Conse
quently, they rest essentially on a German, and not on
a French foundation, and were the product of German
business customs and views.
This applies especially— I can only refer to a few in
stances here— to the most important part of the pro
gram, namely to Chapter III, in which the “ sphere of

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activity and the powers of the bank” (sec. io )70 are gone
into minutely, and which is almost an exact copy of the
corresponding paragraph in the Schaaffhausen by-laws
(sec. 20). This is preceded, in the by-laws of both banks,
by the following fundamental principle of sound banking
policy (sec. 10, par. 1 of the by-laws of the Darmstadter
Bank and sec. 20 of the Schaaffhausen Bank by-laws):
“ The bank is authorised to carry on all kinds of bank
ing business— that is, such business from which it can
easily withdraw its money in case of need.”
The additional regulations of Chapter III of the by-laws
of the Darmstadter Bank are interesting. They were
evidently made with regard to the needs of the times.71 I
have pointed out above that they were partly a reproduc
tion of the corresponding clauses in the Credit Mobilier’s
program.72 They were lacking73 in the Schaaffhausen
Bank by-laws, which had been prepared five years earlier,
and under different economic conditions. According to
these regulations the bank was authorised:
(i)
To undertake all loans, or enterprises of a public
nature bn its own account, or partly on its own account,
to assign or transfer them, to realise them, or to partici
pate in underwriting them, as well as fo put in circulation
bonds payable to names or bearer to the limit of its under
taking or participation.
(k)
To arrange for and effect the union, or consolidation
of various anonymous companies, as well as the transfor
mation of industrial undertakings into anonymous com
panies.74
The programs of both of these two large banks belong
ing to the period under consideration75 (the by-laws of the

N ation al

M on e t a r y

Commission

Disconto Company were, in accordance with its origin
as a credit partnership, if anything more restricted) were
consequently neither fantastic, nor calculated to effect
revolutionary changes.
Naturally these pregnant differences in the by-laws
and programs could hardly be noticed, far less appreciated,
during the fifties. For the situation of general economic
conditions was almost identical at that time in France
and Germany, in so far as similar causes (described above)
produced similar results in both countries. In France,
as well as in Germany, an impetuous rushing forward
manifested itself from 1852-53 in all branches of industry,
especially in the mining and machine industry, caused
by the great haste with which railways were being con
structed. In both countries a vast number of promo
tions, transformations, and flotations came to the fore
during a very short period; these, naturally, required the
aid of the newly founded banks which perceived in such
undertakings a rich source of gain. Added to this (and
again as a result of the same causes, accompanied by
the ever present and apparently irrepressible spirit of
speculation in both countries), discount rates went up
strongly in consequence of the excessive demand for cap
ital. The rate of discount of the Bank of France, which
together with that of the Bank of England, was above all
determinative for Germany at that time, stood at 3 per
cent as late as 1852 (beginning with March), and that of
the Bank of England at only 2 per cent during AprilDecember, 185 2.78
During the year 1853 the discount rate of the Bank of
England gradually rose to 5 per cent between the 29th

The

G e r m a n

G r e a t

B a n k s

September and the 21st December. In 1855, between
autumn and the end of December, it went up to 5,^ per
cent and 7 per cent, after some fluctuations again to 7
per cent at the end of 1856, next to 8 per cent beginning
with October 19, 1857, to 9 per cent on November 5, and
to 10 per cent on November 9, 1857, a sufficiently sure
sign of an approaching storm. Similar conditions pre
vailed in the Bank of France, while the highest rate
recorded by the Hamburger Bank in 1857 was as much
as 12 per cent.77
A commercial and bourse crisis which was greatly
intensified by severe commercial crises in England and
the United States, broke out in 1857 simultaneously in
England, France, and Germany.
The situation in the two last-named countries was
bound to develop into a bourse crisis, even without the
simultaneous commercial crises in the United States and
England, in consequence of the excessive number of
company promotions, transformations, and new issues, as
well as through the collapse of the normal organisation
of the credit and money market produced thereby.78
The course of events on the Bourse was that which has
been constantly recurring. First of all, professional
speculators, upon learning at the Bourse of the universal
improvement in the economic situation, found that the
improvement was not sufficiently reflected in the bourse
quotations, and by heavy and continued purchases,
endeavored to bring about a lasting rise. It was only
then, as is generally the case, that the general public,
for the most part guided and influenced by the quotation
list, took up the matter. Its opinion, however, is based

National

Monetary

Commission

on slight practical knowledge. During times of a visible
rise of the market its credulity is exceeded only by its
hopes; it accepts the existing exchange quotations, how
ever high, as the basis for calculating the intrinsic value
of securities, while these calculations grow more and
more fantastic from day to day.
As the economic development and the course on the
bourses of both countries at that time proved nearly the
same, and as the participation of the banks of both coun
tries in excessive and irrational promotions, issues, and
flotations, above all in mining enterprises and railway
building (which first gave rise to the crisis,) was only
too obvious, the natural inference was drawn, that these
banks were identical in character and kind.
This conclusion, however, overstepped the mark. It is
true that the banks dating from this period, endeavored
from the very commencement to vindicate their right,
and even duty, to promote commerce and industry in the
most effective way, by participation in flotations, foun
dations, and transformations. The Darmstadter Bank in
particular had contemplated from the very outset the
creation of special “ organs at home and abroad” 79 for
this purpose.
This bank accordingly 80 began, during the first years
of its existence, to create such “ organs” on a large scale.
But it is equally true that attempts to found branches in
the various German States were unsuccessful, chiefly be
cause of the opposition of the different governments, which
gave home banks the preference over the branch estab
lishments of outside institutions.81 Thus only an agency
could be established in Frankfort-on-the-Main in 1854,

The

G e r m a n

G r e a t

B a n k s

which existed until 1864,. when it was replaced by a
branch. Only at Mainz, in the Grand Duchy of Hesse,
where the headquarters of the bank were situated, did the
bank succeed in opening a branch establishment as early
as 1854, while in the same year a silent partnership
(Kommandite) had been formed in New York (G. von
Baur & Co.), which, in 1856 and 1857, was followed by
the founding of further commandite connections in Berlin,
Heilbronn, Mannheim, Breslau, and Leipsic, and in the
sixties also in Hamburg, Stuttgart, and Vienna.82
Accordingly the account “ commandites, branches and
agencies” stood in the books of the bank at 8,433,701.43
florins as early as 1856.
The promotion of industry, however, was not the only
aim that the banks had in view at that period. It had
been emphasized at the very beginning that participation
“ in the great creations and financial transactions of the
Governments” also formed an essential part of their
program. This constituted a sphere of business activity
which the Credit Mobilier had constantly neglected in
favor of railway and industrial transactions, except in so
far as the exigencies of its position as a “ banque gouvernementale,” a position which it aimed at and which it was
intended to fill, necessitated a different attitude. In
contrast to this all German banks, (especially those
founded during the period under consideration,) fos
tered from the very outset this special branch, namely,
public loan credit (state, provincial, and municipal),
and have attended to this branch of business effectively
and successfully ever since.

N at ion a l

M o n et a r y

Commission

In the following list the principal loan transactions of
the Darmstadter Bank and the Disconto Gesellschaft, (the
two most prominent banks of the period,) are given:83
St a t e and Munic ipal L o a n s .
DARM STADTER B A N K .

1854: Baden state loan.
Bavarian state loan.
1858: Bremen state loan.
Swedish state loan.
i860: Swedish state loan.
1861: Swedish mortgage loan.
(Lottery) loan of the Canton Fribourg.
1862: Worms municipal loan.
1864: Austrian state lottery (Rothschild syndicate).
1866: Bavarian state loan.
Saxon state loan.
W iirttemberg state loan.
1868: Hessian state loan.
Brunswick (railway) loan.
Prussian 4 per cent state loan.
Ham burg 4)^ per cent state loan.
dis co n to - g e s e l l s c h a f t .

1859: Prussian (mobilisation) loan of 30,000,000 thalers, effected jointly
with the leading Berlin banks and firms under the management of
the Disconto-Gesellschaft, which was the origin of the so-called
“ Prussian Consortium (syndicate) ” constituted during subsequent
years.
1866: Four per cent Baden Loan (30,000,000 thalers), effected jointly with
the Seehandlung, and the banking firm of W. H. Ladenburg &
Sons, at Mannheim.
Four per cent Bavarian issue of premium loan bonds (3^,000,000
florins), jointly with the R oyal Bavarian Bank and the banking
house von Erlanger & Sons, Frankfort-on-the-Main.
Brunswick loan (2,000,000 thalers).
1867: Four per cent Baden premium loan bonds (12,000,000 thalers).
1868: Four and one-half per cent Mannheim municipal loan (3,200,000
thalers) for the construction of the Mannheim-Karlsruhe R ailw ay;
effected jo in tly with the banking firms of W. H. Ladenburg &
Sons and M. A. v. Rothschild & Sons in Frankfort-on-the-Main.
Prussian state loan of 40,000,000 thalers and 5,000,000 thalers
(Prussian syndicate under management of the Seehandlung).

The

G e r m a n

G r e a t

B a n k s

1869: Danzig municipal loan.
Prussian loans (agreement with Frankfort-on-the-Main) of 4,450,000
thalers and 550,000 thalers.

The German banks, following the example of the
Credit Mobilier, also founded industrial companies as early
as this period. Thus the Darmstadter Bank undertook
the promotion of the Wollmanufaktur Mannheim (paidup share capital 400,000 florins), of the Wiirttembergische
Kattunmanufaktur (paid-up share capital 500,000 florins),
of the Oldenburgische Ostindische Reederei (paid-up share
capital 250,000 florins), the Kammgarnspinnerei und
Weberei, Marklissa (paid-up share capital 300,000 florins),
the Ludwigshiltte, near Biedenkopf (paid-up share capital
360,000 thalers, jointly with the Mitteldeutsche Kreditbank), and participated in the transformation of the
Maschinenfabrik und Eisengiesserei Darmstadt into a joint
stock company (paid-up capital 200,000 florins), as well
as in that of the Heilbronner Masckinenbaugesellschaft.
The example of the Credit Mobilier in creating subsid
iary companies was also followed; thus the Darmstadter
Bank on November 5, 1855, founded the Hessian NoteIssuing Bank, known as the Bank fiir Siiddeutschland, with
a capital of 20,000,000 florins. Finally the Darmstadter
Bank, like the Credit Mobilier, made it a business prin
ciple from the very outset to remain permanently inter
ested in the companies which it promoted, not only
through permanent representation of its own directors on
the board of managers, but also by the holding of a large
number of shares, through which, however, severe losses
were frequently sustained.

N at ion a l

Monetary

Commission

Thus it participated in the seven industrial and com
mercial companies which it promoted or transformed
during 1856 (with a total capital of 1,580,000 florins) with
about one-third of the combined share capital of these con
cerns (813,157 florins). In contrast, however, to the Credit
Mobilier, the German banks never consented to tie up
their capital during the period in question by unlimited
advances to such subsidiary or affiliated companies.84
Furthermore, during those first years of impetuous
growth, some of them, like the Credit Mobilier, became
interested too extensively and too rapidly in railway and
industrial securities and enterprises, though thereby they
doubtless rendered great and permanent service to the
nation. The list below is intended to give a detailed
idea of the most important railway transactions in which
the Darmstadter Bank and the Disconto-Gesellschaft
participated at that time.
D ARM STADTER B A N K .

1854: Austrian State R ailw ay (taking over of shares).
1855: Extension of the Rhine R ailw ay from Nym wegen to Bingen.
Theiss R ailw ay (taking over of shares).
1856: Financing the Bingen-Aschaffenburg R ailw ay (via Mainz) and pro
moting the Elizabeth R ailw ay (taking over of shares).
1859: Four and one-half per cent bonds of the Rhine-Nahe R ailw ay (guar
anteed b y State) 4,500,000 thalers, jointly with the DiscontoGesellschaft.
18 6 1; Preference shares of the Cologne-Minden R ailw ay.
Private sale of shares and bonds of the Hessian Ludw ig R ailw ay. *
1862: Placing of bonds of the Livorno R ailw ay.
Conversion of the 4% per cent Thuringian R ailw ay preference shares
Issue of 1,200,000 florin preference shares of the Hessian Ludwig
R ailw ay.
1863: Preference silver shares of the Galician Carl-Ludw ig Railway, exempt
from taxation (Rothschild syndicate), of 6,000,000 florins.
F iv e per cent preference shares of the Moscow-Riazdn R ailw ay of
5,000,000 rubles, guaranteed b y State.

The

G e r m a n

G r e a t

B a n k s

Four per cent preference shares of the Hessian Ludw ig R ailw ay of
about 3,000,000 florins.
Silver preference shares of the Galician Carl-Ludw ig R ailw ay of
5,000,000 florins (Rothschild syndicate).
1866: Shares of the Hessian Ludw ig R ailw ay.
Shares of the M agdeburg-Leipzig R ailw ay Lit. B.
Shares of the A ltona-K iel R ailw ay.
Preference shares of the Upper Silesian and South-North German
Junction R ailw ay (Reichenberg-Pardubitz).
1867: Common and preference shares of the Fiinfkirchen-Bares R ailw ay
and construction of the line, as well as of the Siebenbiirgen and
Franz Joseph R ailw ay (Rothschild syndicate).
First preference shares of the M agdeburg-Halberstadt R ailw ay.
Bonds of the Russian Kozlov-W oronezh and Poti-Tiflis R ailw ay.
1868: Shares of the Hessian Ludw ig R ailw ay (1,000,000 thalers).
F iv e per cent bonds of the Hessian Ludw ig R ailw ay (guaranteed b y
x

State, 4,000,000 thalers).
F ive per cent preference shares of the Hessian Ludw ig R ailw ay.
Organization of the Alfold R ailw ay (Rothschild syndicate).
Construction of the Arad-Tem esvar line (Rothschild syndicate).
Shares and bonds of the Austrian North-W est R ailw ay.
Shares of the Rhine R ailw ay Lit. B. (5,000,000 thalers).

1869: F ive per cent preference shares of the Berlin-Potsdam-Magdeburg
R ailw ay of 7,000,000 thalers.
F iv e per cent preference shares of the Upper Silesian R ailw ay of
13,305,000 thalers.
Four and one-half per cent guaranteed shares of the Thuringian
R ailw ay Lit. C of 4,000,000 thalers.
Shares of the Cologne-Minden R ailw ay of 9,068,200 thalers.
1869-70: Purchase of the entire Brunswick railway system from the Bruns
w ick government on behalf of a syndicate for 11,000,000 thalers,
and an annual paym ent of 875,000 thalers for sixty-four years,
and transfer of its management and of the further extension
of lines to a special company.
D IS C O N T O -G E S E L L S C H A F T .

1853: F ive per cent bonds, guaranteed b y the State, of the Moscow-Riazdn
R ailw ay of 5,375,000 thalers; jo in tly with the Darmstadter Bank,
the banking firm of Sal. Oppenheim jr., & Co., and a St. Peters
burg house.
1856: Three and one-half per cent bonds of the Upper Silesian R ailw ay
Company.
1857: Four and one-half per cent bonds of the Cosel-Oderberg R ailw ay
(1,500,000 thalers).

N at ion a l

M on e t a r y

Commission

1859: Four and one-half per cent State guaranteed bonds of the Rhine
Nahe R ailw ay of 4,500,000 thalers (jointly with the Darmstadter
Bank).
1866-1868: Shares and bonds of-the Bergisch-Markische R ailw ay.
1867: First preference shares of the Nordhausen-Erfurt R ailw ay.
1868: Shares of the Alsenz R ailw ay.
F iv e

per cent

bonds of the Charkoff-Krementshug R ailw ay of

£1,716,000 (jointly with J. H. Schroder & Co., London).

In considering this great activity displayed by the banks
of that time in the underwriting and issuing of securities,
we must not forget that (as a glance at the list wall show)
these operations were almost exclusively confined to first-class securities, the introduction of which has proved of
great benefit to the German investment market. It must
also be borne in mind that the W'hole task of carrying out
the great development of the German railway system at
that period was performed by means of German private
capital (which was very small), and by the aid of banks,
with a total share capital extremely limited in comparison
to the magnitude of the undertakings.
The German banks at that time (almost without excep
tion) when heavily engaged, took immediate steps to
restore the liquidity of their resources and the equilibrium
between their assets and liabilities, whereas the Credit
Mobilier, greatly to its detriment, postponed such attempts
till the year preceding its collapse.
Thus the Darmstadter Bank, the capital of which had
been paid up in full in the first series (10,000,000 florins
in 1855) raised its capital to 25,000,000 florins, though the
attempt made in 1857 to bring it up to the amount of
50,000,000 florins (provided for in section 4 of its charter)
failed almost entirely by reason of the crisis of that year.85

The

G e r m a n

G r e a t

B a n k s

Consequently the bank, up to 1864, pursued the course
(justifiable from the economic point of view, though
hardly from a business standpoint) of reducing the loans
on current account from 4,500,000 florins (1857) to about
360,000 florins (end of 1859), and of reducing also the
“ Lombard and covered credits” and the “ loan and
mortgage ” accounts. The same course was followed with
regard to the item “ illiquid claims,” always specified in
the reports up to 186486 although the administration was
doubtless perfectly aware of the serious objections to
such reductions from a business point of view.
The Discon to-Gesellschaft likewise resolved, as early as
1856, or about a year after its transformation into its
present form, to raise its commandite capital from
10,000,000 thalers to 20,000,000 thalers. Owing to the
crisis of 1857, however, this resolution could only be
partly carried out, and was cancelled later on.87
Like the Credit Mobilier, the German banks in the early
years of their existence (1855 and 1856), mainly under the
influence of the highly inflated quotations of their shares,
made the great mistake of distributing excessive dividends,
instead of holding them down and using the surplus to
strengthen their inner position and reserves. Thus the
Darmstadter Bank paid dividends of 10.66 per cent in
1855 and 15 per cent in 1856, and the Disconto-Gesellschaft
13]/2 per cent in 1856 (10 percent for nine months). This
course naturally had to be atoned for, especially by ex
treme fluctuations of dividends during the next few years,
and by large decreases during bad years. The dividends
of the Darmstadter Bank and those of the Disconto-

N at ion a l

M onet ary

Commission

Gesellschaft during this period (up to, and including 1869)
are shown in the following table:88
Year.

Darmstadter
Bank.

DiscontoGesellschaft.

Per cent.

S 'A

io?3
10

1856.......... .................................................................

1857..............................................................................
1858.......... ........ ..........................................................

1859............................. - ..............................................
i860____________________ ________________
1861_____________________________________
1862____________________________________
1863............................................................................
1864____________________________________
1865________________ ______________ ____
1866..............................................................................
1867------------------------- -------- ------- ------------------------1868.......... ........ ............................................... ........
1869__________ ____ ____________________

S *

6'A

7 J4

i 'A

6'A
6'A

6 J4

4 'A

8
8

6'A
8
IO

9
9X

<J F o r n in e m o n th s .

The average dividend rate of the Darmstadter Bank
was: during the first decade of its existence (1853-1862), 6 %
per cent; during the second decade of its existence 18631872), 8.7 per cen t;89 that of the Disconto-Gesellschaft
during the first ten years (1856-1865) of its existence as
a limited joint stock company (Kommanditaktiengesellschaft)— 6.55 per cent; during the second decade (18661875), 13.15 per cent.90 It should be said though, that
neither bank neglected to increase its surplus, which, for
instance, rose in the case of the Disconto-Gesellschaft
from 16,600 marks in 1852 to 2,640,495 marks in i860,
and of the Darmstadter Bank from 39,109.8 florins in
1854 t° 1,553,363.18 florins in 1868.
In contrast to the Credit Mobilier, current account
business was fostered during the period under discussion
68

The

G e r m a n

G r e a t

B a n k s

by both banks with the greatest care and success, although,
in the case of the Darmstadter bank, not to the same
extent as the promotion and issue business.91
The development of the current account business in the
Disconto-Gesellschaft and the Darmstadter Bank during
the period is shown in the tables below (pp. 70 and 71).
The tables show that the deposits of the DiscontoGesellschaft amounted on December 31, 1869, to 2,274,228
marks, and those of the Darmstadter Bank in 1869 (the
end of this period) to 10,800,268.34 florins. It should be
said, though, that this large amount was due to exceptional
and temporary circumstances, discussed on pp. 73 and 74.
The other banks to be considered in this connection,
the activity of which during this period has remained
almost unnoticed in literature,02 likewise show on the
whole a satisfactory development.

T h e c u r r e n t b u s in e s s o f th e D is c o n to -G e s e lls c h a ft, 1 8 5 2 - 1 8 6 1

and

National

18 6 9 .

[According to the Jubilee Report, p. 260.]

Year.

Debits in
current
account.

Credits in
current
account-

Deposits.

Income from
interest, securities, and bills.

M arks,

M arks.

1,470,817
3 .3 0 7 .6 7 7

1856__________________ ________ ___________

4, 732. 728
S,783.026
31.03s,731
3 1 .635 . 3 4 5
37. 5 4 2 ,4 7 5
2 S. 9 0 4 . 3 7 4
31,718,296
35.3 0 7 .4 4 7

At the end of this period (1869)_________________

24, 270, 623

1,482, 73i
967,450
2,854, 736
2,998,599
8,095,688
4 . 9 5 2 , 7 09
4,718,695
6, 152. 5 4 9
12,724, 215
1 4 , 7 3 7 .3 0 8
29. 596, 211

1.921,233
2,229,633
2 ,1 4 5 .3 4 5
2,281,473
1,691,520
1,657,200
2,321,886
2 ,55°,3 4 7
3.586,030
4 . 3 3 9 ,420
M 2,274,228

54.44i

144,162
215. 5 3 8
281,478
1, 849, 9 7 9
2,049,073
1 , 9 9 0 , 306
1,235,670
1 . 7 5 5 .198
2,002,307
3,146,167

M arks.

69. 5 9 7
117, 690
103,791
131 . 4 4 5
284,597
5 5 4 .3 1 9
4 5 2 ,7 4 5
4 1 7 .3 2 7
3 9 4 , 5 45

461,387
801,940

Monetary
Commission

The

G e r m a n

G r e a t

B a n k s

I I . Darmstadter Bank, 1853-1869.

Year.

Credits in cur
rent account.

F lo r in s .

212, 4 5 7 -21
1853--.....................................
632,079.21
1854.............................................
388, 864. 34
1855-------------------------------------1856-------------------------------------- 2, 538. 4 3 °- 80
1857-------------------------------------7 I3 .S 0 7 -S8
1858____________________
226, 269. 39
1859-------- ---------- ------------------6 7 4 . 9 S2 - 5 8
i860.......................
619. 384- 19
1861........ ..................
5 7 0 , 7 75 -55
1862_________________
9 3 5 , 7 9 5 -3 7 ^
1863............................................. 1, 228, 338. 14
1864_______________
736, 860. 42
1865-------------------------- -------816, 519. 45
1866_________
511,963.36
1867_________
828,939.41
1868______ ____
783,450.58
1869.___________________
2. 244,432.41

Debits in cur
rent account.

Interest-bearing
deposits subject
to notice.

F lo r in s .

9 3 5 . 431 -33

2,754.870.35
5,605,238.53
8,972,184.27
7,043,015.22
8, 668, 037. 41
7.999.386.39K
5.674.30257M
4, 670,961.20
3, 701, 9 7 4 - 15
2, 7 2 4 . 9 3 9 47
2,261,145.19
2, 961,320. 20
3,464,719.80
3.243.465.15
9, 136, 926. 28
7 .4 2 9 , 5 3 3 -03

412,430.31
868,000.00
No data.
No data.
1,307,506.30
3,337,067.41
1,289,928.70
1, 292,170.48
1,276, 218. 50
1, 292, 170. 48
i . 7 3 2 ,989 -33

No data.
1, 183,879.18
No data.
No data.
No data.
10, 800, 268. 34

The A. Schaaffhausen’scher Bankverein, founded in
1848 with a business capital of 5,187,000 thalers (see p. 46)
(of which, however, only 3,199,800 thalers had been
issued at the start), during the first years of its exist
ence05 under the cautious and experienced management
of W. L. Deichmann, Gustav Mevissen, and Victor Wendelstadt succeeded in starting important industrial under
takings, as well as in establishing numerous industrial
connections, especially in Rhenish Westphalia. Thus, for
the purpose of mobilizing the industrial participations
of the firm of A. Schaaff hausen, it took a considerable
part as early as 1851 in the founding of the Hoerder
Bergiverks- und Hiittenverein, at Cologne,98 in 1852 in the
Coiner Berguuerkverein,97 as well as in the establishment of
the Colnische Baumwollspinnerei und Weberei; the Colnische Maschinenbau-Aktiengesellschaft, the Coln-Musener

N a t i on a l

M onetary

Commission

Bergwerks-Aktiengesellschaft, and the Colnische Riickversicherungs-Gesellschaft.
“ The board of directors,” says the business report for
1852 (p. 3), “ acted on the principle that the function
of a great banking institution is not so much to start
new branches of industry through extensive participa
tions, as to induce the capitalists of the country, by
recommendations based on exhaustive investigations, to
turn idle capital toward such enterprises, which, when
properly launched, in response to existing requirements,
and offering the guarantee of expert management, bid fair
to yield reasonable profits.”
As early as 1851, the item “ Participations in Industrial
Enterprises” amounted to 434,706 thalers. Up to 1858
the following promotions were added to those already
mentioned:
The Concordia, Colnische Lebensversicherungsgesellschaft;
the Agrippina, Colnische Transportersicherungsgesellschaft,
and the Colnische Hagelversicherungsgesellschaft.
The A. Schaaffhausen’scher Bankverein took part also
in the foundation of the Bank fur Handel und Industrie
(Darmstadter Bank), the Bank fur Suddeutschland in
Darmstadt as well as of the Colnische Privatbank at
Cologne. Further, it assisted at that time in the amalga
mation of the Rhenish, the Bonn-Cologne, and the
Cologne-Crefeld railway companies into one unified system
of railways, with a union railway station at Cologne.
The development of the current account connections,
mostly drawn from the industrial and commercial circles
of the Rhineland and Westphalia, is shown in the following
table:

The

G e r m a n

G r e a t

D e b it s in c u r r e n t a c c o u n t .

B a n k s

C re d its in c u r r e n t a c c o u n t.

Y ea r.
T o ta l
a m o u n t .98

N u m b e r.

Thalers.

Thalers.
472

624

604

59°
611

18 5 5 _____________________________

643
632

1 8 5 6 _____________

636

1 8 5 7 .........................

66S

639
621

1 8 5 8 _________

653

639

1 85 9___________ ______ ___________

622

i 8 6 0 _____________ _________

613
614

1 8 6 1 _____________________________

616

18 6 2 ________________ _______ _____

619

18 6 3 _____________________________

651

1 8 6 4 ____________

__________

T o t a l a m o u n t.

630

675
676
708
6 ,9 5 9 . * 8 5 .3 8

692

5 .3 4 5 . * 4 3 - 9 8

7. 2 1 2 .4 7 2 .0 5

5 .9 * 4 . 4 9 7 -6 6

1 8 6 5 _____________________________

8. 2 5 2 .6 3 1 .3 2

6 .2 7 0 ,1 9 1 .8 4

1 8 6 6 _______________________

7 .3 3 9 .3 6 9 5 8

5 , 6 6 1 ,2 9 0 .2 5

1 8 6 7 _____________________________

7. 1 1 3 ,8 6 0 .3 9

5 . 5 9 9 .0 2 8 .1 1

1 8 6 8 _____________________________

7 . 9 5 i . 485 . 26

6, 849 . 35 6 . 88

1 8 6 9 .................... .......................... .......

8 .4 3 3 .7 5 3 36

6. 5 5 5 . oo 8 . 36

As to deposits (it is important to establish this fact as
the result of a deliberate business policy), no appreciable
increase during the period under contemplation could be
expected, owing to the principles adopted by the A.
Schaaffhausen’scher Bankverein as well as by most of the
other credit banks.
“ According to the principles adopted after discussion
with the Board of Managers,” says the business report of
the Bankverein for 1850 (Appendix 2 to the minutes of
the general meeting, September 14, 1850) deposits are
received only on condition that three, six, and twelve
months’ notice be given before withdrawal. It is only
because of these principles and the low rate of interest
that the amount in hand is insignificant when compared
with former years. In the interest of the perfect safety

N a t i on a l

Monetary

Commission

of our institution we do not deem it advisable to endeavor
to obtain an increase in. the deposits through more attrac
tive terms; we much prefer to carry on the business with
our own means, to the extent that such action is at all
possible in the banking business and is in the interests
of our correspondents.”
The deposits at the Bankverein at the end of this period
(1869) amounted to 883,616.80 thalers.
The dividends paid on stock Lit. B (according to section
10 of the statutes, the capital and fixed dividends of 4 ^
per cent on stock Lit. A were guaranteed by the State)
during this period amounted to:
Per cent.

1848-1851......................................... ................ ........... ............... 4
1852 ............. .............................................................................. 6VS
1853 ---- ------- ------------------ --------------------------------------------------6%
1854 ...... ........ ...... ........ ........... ............................. ................. - 6K
1855 .................... ................... ...... ............................................. 9
1856 .......................................... .................................. .............. 9H 10e
1 8 5 7 - - - ........................... - ............1 ---------------------------------------------------- 9

1858 ______ _____________________________ ____ 6
1859 ---- 1 ........................ ............................. ............................... 6
1860 ___________________________________________6
1861 ........... .......... .......... ...........................................................6X
1862 -- ------- ------------------ ---------- ---------------- ------------------------7
1863 ...... .................... ............................................................... 7
1864--------------- -------------------------------- ---------------- ...................7%
1865 .......................... ............................. ..................................7%
1866 ___________________________________________71^
1867 ...... ........................................... ......................................... 7K
1868 .................. ........... ............................................................ 7%
1869 __________________ 1------------------- ------------------------8
1870 ...... .......... .......... - - - .....................- .................................... 8>£

The profits of the business were thus quite satisfac
tory,101and the surplus funds amounted, as early as Decem
ber 31, 1857, to 320,388.63 thalers.
The extension of the business by the establishment of
branches, agencies, and commandites had been contem-

The

G e r m a n

G r e a t

B a n k s

plated as early as 1853 (business report for 1853, p. 3),
and at the general meeting of September 29, 1855, a reso
lution was passed to add a paragraph (par. 82) to the by
laws, which read as follows: “ The company is authorised
to establish a branch in Berlin, as well as agencies and
commandites abroad.” This resolution, however, was not
carried into effect, owing to the refusal of the Prussian
Ministry of Finance and Trade to ratify the change of the
by-laws.
The Berliner Handelsgesellschaft, founded m 1856, de
voted itself successfully, from the very outset, to the fur
therance of the issue business (in accordance with section
2 of its by-laws, see note 73). Its nominal capital
was 15,000,000 thalers, of which, however, only 3,740,150
thalers were paid up (1859, 3,786,200 thalers); of the lat
ter, again, 800,000 thalers (4,000 shares nominally at 200
thalers) remained in the portfeuille of the company.
In 1856 it participated in the Carinthia Railway (merged
in 1858 with the Lombard Railway), and in 1862 in the
conversion of the \]/2 per cent preference bonds of the
Hamburg-Berlin-Potsdam-Magdeburg and Thuringia Rail
way; during 1867, in the flotation of the Baden 4 ^ per
cent state loan and 4 per cent premium loan, of the Magde
burg and Halberstadt original preference shares, and of the
Thuringia Railway shares. Further, it negotiated the
issue of the 5 per cent Kozlov-Voronezh and the 5 per
cent East Prussian Southern Railway preference bonds.
In 1868, when the commandite capital, which had
been reduced meanwhile to 7,500,000 thalers (of which
at that time 3,786,200 thalers had been issued), was paid
up to the amount of 5,625,000 thalers, it participated in

N at i on a l

M on et a r y

Commission

the issue of the \]/2 per cent Upper Silesian preference
bonds, the Russian Land-credit mortgage bonds, the
Yeletz-Orel preference bonds, the 4 l/2 per cent Prussian
state loan of 1867 Lit. D. to the amount of 24,000,000
thalers, part of which was issued in 1868, and in addition
arranged successfully for the public subscription and
placing of the 5 per cent (state— guaranteed) preference
bonds of theShuya-Ivanovo, Kursk-Charkov, andCharkovAzov Railway; of the \]/2 per cent preference bonds of
the Breslau-Schweidnitz-Freiburg Railway; of the j ]/2 per
cent Roumanian Railway bonds, and of part of the first
preference bonds of the Halle-Sorau-Gubener Railway.
Finally, in 1869, it took a nominal part in the issue of
the 5 per cent bonds of the Moscow-Smolensk Railway;
of the 5 per cent preference bonds of the East-Prussian
Southern Railway; of the 4 ^ per cent preference bonds
of the Magdeburg-Cothen-Halle-Leipzig Railway; of the
shares of the Breslau-Schweidnitz-Freiburg Railway, and
of the Gotha premium mortgage debentures; it also had a
secondary participation (-unterbeteiligt) in the taking over
of the original and preference shares of the Schlesische
Zinkhiitten, of the preference shares of the St. PetersburgBaltishport Railway, and of the loans of the Italian
Government raised on the church estates.
The commissions on the current business amounted to—
Thalers.

Silbergroschen.

Pfennige.

1 8 5 7 .....................................................
1 8 5 8 .....................................................

^ 5 9 .....................................................

102 10

i8 6 0 .....................................................

1 8 6 1 .....................................................
1 8 6 2 .....................................................

1 8 6 3 .....................................................

The

G e r m a n

G r e a t

1864..............................................................................

Thalers.
68, 106

1865,............................................................................

67,349

1866..............................................................................

82,210

1867

..............................................................................

78,735

1868..............................................................................

128,034

1869

............................................................................

1 3 4 ,6 5 4

B a n k s
SilberPfengroschen. nige.
22
....
28

-----

....

16
26

....

-----

The dividends amounted to—
Per cent.
^ 5 7 .................................................................................................................... 5*/«
1858 .................................................................................................... 5 Al

1859 ............................................................................................... * 5

(About half of which was taken from the surplus fund.)
1860
1861

................................................... ' . ........................................ : ...............4*4
................................................................................................................. 5

(About half of which was taken from the surplus fund.)
1862

................................................................................................................. 9

1863

................................................................................................................. 8

1864

................................................................................................................ .-8

1865

................................................................................................................. 8

1866

................................................................................................................. 8

1867

................................................................................................................. 8

1868

...............................................................................................................

1869

...............................................................................................................

All arrangements had been made, according to the
business report of 1857, for the establishment of commandites in other towns, but the realization of these
plans had to be postponed owing to the crisis.
Only the banking firm of Messrs. Breest & Gelpcke in
Berlin carried on business on account of the Berliner
Handelsgesellschaft since January, 1857. This firm, how
ever, sustained large losses in 1863 through the failure of
a large export firm at Danzig.
The Mitteldeutsche Kreditbank 103 was founded in 1856
with a capital of 8,000,000 thalers, of which 3,000,000
remained in the portefeuille of the bank, while of the
remaining capital of 5,000,000 thalers, 1,000,000 thalers
were redeemed in 1859 (see p. 47.) This bank, as stated

N at i on a l

M onet ary

Commission

before, should properly not concern us in this connection,
as during the period in question it was a note-issuing bank.
Its note issue amounted to 1,688,660 thalers in 1857 and
to 4,000,000 thalers in 1868. At Frankfort-on-the-Main
an “ agency” (August Siebert) was established in 1856,
which was transformed into a branch office in 1872.
The Bank took an active part shortly after its founda
tion in a series of industrial, state, and railway transac
tions, which, ho'wever, were not always successful.
Thus in 1856 it participated to the extent of one-third
in the purchase of the Ludwigshiitte, near Biedenkopf,
which was transformed in 1858 (under the name of
Oberschlesischer Huttermerein) into a joint-stock company
with a capital of 600,000 florins. This operation caused
serious losses to both partners (the Darmstadter Bank
participated to the extent of two-thirds).
The participation during 1856 in a cigar factory at
Wassungen in the Duchy of Meiningen also terminated
badly.
On the other hand, it attained satisfactory results in
its simultaneous participation in the Hochheim enterprise
of sparkling wines (Burgeff & Co.), which was transformed
into a joint-stock company in 1857; also in negotiating
a 4 K Per cent Swedish loan (jointly with the Darmstadter
Bank), and in a ioo-florin lottery certificate loan, guar
anteed by the Austrian Government, as well as in taking
over a preference loan of the Werra Railway (1,000,000
thalers), and in its participation in the establishment of
the insurance society “ Providentia,” at Frankfort-onthe-Main.

The

G e r m a n

G r e a t

B a n k s

It was interested in the development of the brown coal
industry in the Nieder-Lausitz district from the very com
mencement of this industry; particularly in the Eintracht,
Braunkohlenwerke und Brikettfabriken, and the Ilse,
Bergbau-A ktiengesellschaft.
In 1858 it participated in taking over the balance of
the Werra preference shares of 250,000 thalers; a 4>2 per
cent loan of the city of Bremen; and the 4F2 per cent
preference shares of the Frankfort-Hanau Railway.
I11 1862 it took a leading part in the founding of the
Deutsche Hypotheken-Bank at Meiningen.
During the greater part of the period under considera
tion, it devoted itself to the regular (current) business,
Its turnover amounted to—
At the main
office.

Year.

T h a le r s.

1858

_ _______________

_________

i860______________ _______________
1861_____
______________________
1862 __
1863 .......... '
1864__
1865--------1866..
1867 _.
1868. .
1869 . .
.
____

96,095. 1 3 7 -0 1
73.318,091.3a
6 l , 3 1 3 , 7 0 9 .3 3
57. 790.084. 68
125,932, 187.58
165,869,918.46
216. 46
159.087,084. 14

At the agency in
Frankfort-on-theMain.
T h a le r s .

84,818,800.50
1 1 5 , 3 4 3 . 4i8.70

113,077. 1 9 3 -4 3
104.037,760.17
123,836, 361.49

1 5 9 . 529.

138,819,86794

105,770,692.99
102, 528, 831.20

184, 301,389. 66
263,770, 733. 68

9 5 . 3 5 5 .576.96
166,972,868.90
234,008, 308. 20

The commissions amounted to—
Thalers.

1857

............................................... - ...................... - .......... 58,067.39
1858__ _______ _____ _____ ________ __________
23,660.02
1859.............................................................................. 28,962.48
1860 ..................... * ........ ............................. - ..................... 34. 930.77
l86t- - - ..................... ......................... - ............................... 73,175.81
J862............... ............. ................. .....................' ________ 206,847.58

N at ion a l

M on e t a r y

Commission
Thalers.

1863
1864
1865
1866
1867
1868
1869

......................................................
___________________________________________ 115,046.66
___________________________________________ 10 1,401.46
__________________________________________
76,664.87
73,268.79
......................................................
___________________________________________ 146,407.43

The current account business showed the following
results:
Debits.

Credits.
Year.
Number of
accounts.

Amount.

Number of
accounts.

T h a le r s .

1859....................- .................
i860_____________ _____
1861___ ______________
1862__________________
1863--------- ------------------- ---1864_____ __________ .
1865.................................... .
1866__________________
1867______ __________
1868............................ ..........
1869_________ ____ ____

310

305
316
378
313

309
347

316
339

28s
316

4 9 3 . 810.

8s
688,059.09
768,511.91
1, 200, 912. 81

T h a le r s .

348
399
415
547

1, s 6i .3 ° o- 64
* . 9 0 1 , 9 5 5 - 53
*.833.521.41
1, 254, n o. 70

687
726
709
677

I . 5 5 3 .950.14
1, 388,034. 88
1 , 9 4 7 . 9 1 0 . 74

493

The following dividends were declared:

Amount.

388
636

981,676.98
1,642, 790. 67
3, 289.436.34
2.673.483.37
3, 879, 205. 88
3, 152, 198. 46
3 , 9 4 9 . 646. 69
2. 990, 217.87
3. o n , 208. 17
3.933.362. 84
4.638,430.31

The

G e r m a n

G r e a t

B a n k s

The deposits increased from 490,599.54 thalers in 1858
to 756,465 thalers in 1869.
The silent partnership (commandite) account stood, as
early as 1858, at 1,103,111 thalers, without thecommandites
being named. It is only in the report for i860 that a
Berlin commandite is mentioned, namely, Messrs. A. Wolffsohn & Co., whose place was taken by Messrs. G. Muller &
Co. in 1866. This commandite, simultaneously with the
Frankfort Agency, was changed into a branch office in
1873.
During 1869, 1870, and 1871 the original capital of the
bank, which had been reduced to 4,000,000 thalers, was
increased again to 8,000,000 thalers, and in 1872 to
16.300.000 thalers, equal to 48,900,000 marks.104
The liquidity of the bank’s resources was nearly always
maintained, although energetic intervention was occasion
ally necessary. Thus, at the end of 1859 the bank owned
securities to the value of 179,813.32 thalers; and succeeded
in reducing the same during one year (i860) to 132,210.32
thalers, or by 47,603 thalers.
The attitude of the banks during the crisis of 1857 was,
generally speaking, economically correct. The Darmstadter Bank, for instance, could point out in its report for
1857 that during that year it was able to ease and mitigate
the economic situation by retarding industrial promotions
and by opportune interventions on the stock exchange;
through which course, however, its holdings of securities
rose from 8,500,000 to 10,500,000 florins in 1858, and to
12.500.000 florins in 1859, causing considerable loss later
on. During that year (1857) if was able to advance con
siderable sums to the Hamburg Senate, as well as to
90311°— 11----- 7

N a t ion a l

Monetary

Commission

several banks, thus proving that it had seasonably and
successfully strengthened the liquidity of its resources.
The A. Schaaffhausen’scher Bankverein also empha
sized in its business report for 1857 (p. 1) that “ its large
available means had enabled it at the time of the crisis
to continue to grant credit to its old solid clients, as well
as to increase the same suitably wherever it appeared
advisable.”
Similarly, the Berliner Handelsgesellschaft report for
1857 (p. 2) states: “ During the crisis we have helped to
smooth over difficulties by opportune assistance in numer
ous cases where a proper assurance was given that the
assistance granted would be repaid.”
In all issue business and flotation activity, however,
the banks at that time were not slow to perceive clearly
the importance and necessity of the fundamental principle
underlying all prudent banking policy, namely, the dis
tribution of risk; a principle which was adhered to by
several banks in their issue transactions to an extent that
often proved disadvantageous to their profits.
In 1859 the Darmstadter Bank (probably for the first
time) formed a “ bank syndicate” 105 for the purpose of
taking over several engagements which had to be settled
in i860 (especially the Rhein-Nahe Railway bonds), a
proceeding emphasized in the business report of i860 in
the following words: “ This form has its decided advan
tages, as it reduces risk and facilitates operations.” 106
It must be admitted that the business reports107 of that
period left much to be desired as far as lucidity and con
ciseness are concerned (this was owing to the fact that a
proper form had yet to be found)- thus complaints,
82

N at i on a l

M on et a r y

Commission

European wars 110and grave crises111— it will be difficult to
accept the view of A. Weber that German joint-stock
banking may be said to have become a common form
only in the beginning of the seventies (op. cit., p. 47).
Neither can we adopt the extremely subjective view
point of Max Wirth, the South German contemporary
critic, concerning the activity of the German banks during
this period. In his book on commercial crises (p. 271) he
places the fact that the Darmstadter Bank participated in
1857 in the promotion of the North German Eloyd, under
the heading “ The requirement of industry and trade,”
following it up with an exclamation mark, and manifests
indignation at the bank’s promotion of the “ Concordia
Spinning and Weaving Works” (formerly S. Woller), still
flourishing in Bunzlau und Marklissa, by referring to it as
the “ Promotion of worsted spinning works in far-away
North Germany.”

P art III.

THE SECOND PERIOD (FROM 1870 TO THE
PRESENT DAY).
Chapter I.
(1) T A B L E O F E V E N T S D U R I N G T H E S E C O N D P E R IO D W H IC H
IN F L U E N C E D T H E D E V E L O P M E N T O F T H E G E R M A N B A N K
IN G S Y S T E M .
1 8 7 1 -7 2 ........ Termination of the Franco-German war; sudden influx of the
war indem nity of 5,000,000,000 francs; irregular expansion
of the German system of private railways, impetuous
growth of production, rise of workmen’s wages, of almost
all prices, especially prices of raw material and mining
products; strong speculative movement in all branches of
commerce and industry; beginning of the industrial cartel
movement.
Establishm ent of provincial discount companies in Ber
lin, Hanover, Aix-la-Chapelle, Bernburg, Elberfeld, H am
burg, Duisburg Ludwigshafen.
1 8 7 1 .............. Foundation of the Deutsche Bank, marking the commence
ment of a system atic development of the deposit busi
ness, of the industrial export policy of the credit banks, and
•

of the concentration of German banking.

i 8 7 3 ...................B o u r s e
i

8 74 ~

a n d in d u s t r ia l c r is is .

8 78 - • - E c o n o m i c d e p r e s s i o n .

i 8 7 5 ................... F o u n d a t i o n

o f th e “ R e ic h s b a n k ”

( b e g a n b u s in e s s J a n u a r y 1,

18 76 ).
i

8 7 ^ ................... B a n k d i s c o u n t r a t e f a l l s t o 3 K

p e r c e n t in B e r lin .

1 8 7 7 - 1 8 7 8 .. .R u s s o -T u r k is li w ar.
i

87 9 ~ i8 8 2 . . . E c o n o m ic

r e v iv a l;

fo r m a tio n

fo r e ig n

r a ilw a y

c o m p a n ie s ,

a n d t h e is s u e o f fo r e ig n lo a n s .

i 8 7 9 ................... B a n k

d i s c o u n t fa lls t o 3 p e r c e n t in B e r lin .

i 8 7 9 ................... T h e c o m m e n c e m e n t o f t h e c o n v e r s i o n o f G e r m a n
w ay

a n d m u n ic ip a l

ban k and

bon ds;

s ta te r a il

r e o r g a n iz a tio n o f th e

c o in a g e s y s te m , a d o p tio n

o f th e g o ld

G erm an
sta n d a rd ;

b e g in n in g o f th e s ta te p u r c h a se o f th e G e r m a n p r iv a te r a il
w ays;

t r e a t y o f a llia n c e w it h A u s t r ia .

1 8 8 3 -1 8 8 7 . . .D e p r e s s io n

s e c u r itie s .

a ll fie ld s ; c o n t i n u a t i o n

o f t h e is s u e o f fo r e ig n

N at i on a l

M on e t a r y

Commission

1887.............. Alliance with Italy.
1888-1890. . .Boom , large number of promotions, transformations, issues,
bourse speculation, difficulties in meeting paym ents on
the state loans of Argentina, Portugal, Greece, etc.
1891-1894. . .Depression and stagnation in all directions.
18 9 1.............. Failure of several Berlin banking concerns.
1893.............. Foundation of the Rheinisch-Westfalisches Kohlen-Syndikat.
1893...............Meeting of the bank inquiry commission.
1895.............. Commencement of an upward tendency; quotations of the 3
per cent Imperial consols rise to 100.30 and of the 3 per
cent Prussian consols to 100.40; beginning of a system atic
industrial policy of the banks; foundations, transforma
tions, issues; most of the great banks raise their capital.
18 96-9 7........ The upward movement intensified; brilliant development of
the electro-technical industry; further extension of the
German (state) railway system ; increase of the Imperial
N avy.
18 97 ............ Formation of the Rheinisch-lVestfalisches Roheisensyndikat;
fusion of interests (/nteressengemeinschaft)

between the

Deutsche Bank on the one hand, and the Bergisch-Markische Bank at Elberfeld, and the Schlesischer Bankverein
at Breslau on the other, in order to promote an industrial
banking policy (denoting the commencement of close rela
tions between the great banks and industry) which gave
an impetus to concentration of banking.
1898-1900.. .M arket at its highest; rise of the average bank discount rate
in Berlin to 5.33 per cent and of the private discount rate
to 4.41 per cent (1900).

Growth of money requirements

through the predominance of cash transactions in bourse
speculation instead of

time bargains, as a result of the

bourse law of January 1, 1897.
1898 ............ Outbreak of the Spanish-American war.
1899 ............ Transformations, new promotions, and issues show a new
record.
Outbreak of the Boer war.
1900 ............Quotation of the 3 per cent German Imperial consols falls to
86.74 (as compared with quotations of 99.63 of the 2J4
per cent British consols, and of 100.60 of the 3 per cent
French rente).

T h e Deutsche Bank takes over 200,000,000

marks of German Imperial and Prussian consols.
1900-0 1........ Crisis, fall in quotation of mining securities (end of March to
beginning of Ju ly); failure of the Pomeranian Mortgage
Bank, of the M ecklenburg -S trelitz M ortgage Bank,
of

the

Prussian

J o in t-S to c k

Mortgage

Bank,

the

Deutsche Grundschuldbank, the Dresdner Bank fur Handel
und Gewerbe, the Leipziger Bank, and of m any industrial

The

G e r m a n

G r e a t

B a n k s

undertakings especially in the electro-technical branch.
Energetic intervention of the great banks, strengthening
of the concentration movement; disposal to an American
syndicate of 80,000,000 marks 4 per cent state treasury
bills repayable in 1904 and 1905, maintenance of the low
bank discount rate (3^2 per cent) until the end of Sep
tember.
190 1-

1 9 0 2 ... Continued large needs of money on the part of the Empire,
the individual states, and municipalities, outbreak of the
Chinese troubles; foundation of the United States Steel
Corporation (1901).

190 2- 190 6.. .R ecovery; bank discount rate falls to 3 per cent (February,
1902), then increases to 4 per cent (October, 1902).
ruary 9,
1904:

Feb

1904, outbreak of the Russian-Japanese war.

Foundation of the Stahlwerksverband at Diisseldorf;

impetuous movement of concentration.

1905:

Founda

tion of the Oberschlesischer Stahlwerksverband.
1907 ............ American crisis; considerable rise of discount rates up to 7
percen t (average, 6.03 per cent).
1908 ........... Termination of acute crisis in America; recovery; money be
coming available; fall of the bank rate from 7 % per cent in
January to 4 per cent in December; average 4.76 per cent.
1909 ............Money circulates more freely; political troubles owing to
conflict between Austria and Servia; b a n k -la w amend
ment; in the last months of the year beginning of an
improvement in some branches of industry, especially in
the mining industry.

(2) SKETCH OF THE ECONOMIC DEVELOPMENT OF GERMANY
FROM

1870

UNTIL

THE

PRESENT.

The result of the victory in the great Franco-German
war was the creation of the German Empire in 1871.
Unity was established gradually also in economic life.
Weights and measures, the coinage and monetary sys
tems,1 the constitution of law-courts, procedure, and
law ,2 were unified by degrees, and the army and n a vy 3
linked firmly together for the protection of the gains
attained. A central note bank (the Reichsbank)4 was
founded for the purpose of regulating the money circula
tion and facilitating payments. Furthermore, a supreme
court for the Empire5 was created.

"'=

----

T h e

G e r m a n

G r e a t

B a n k s

19 0 2- 190 6.. .R ecovery; bank discount rate falls to 3 per cent (February,
1902), then increases to 4 per cent (October, 1902).
ruary 9,
1904:

Feb

1904, outbreak of the Russian-Japanese war.

Foundation of the Stahlwerksverband at Diisseldorf;

impetuous movement of concentration.

1905:

Founda

(2) SKETCH OF THE ECONOMIC DEVELOPMENT OF GERMANY
FROM

1870

UNTIL

THE

PRESENT.

N at i o n a l

M on et a ry

Commission

The right of free migration and free competition (rec
ognized as early as the sixties in the independent indus
trial legislation of the various German States) was intro
duced everywhere, at first through confederate and then
through Imperial legislation.
The epoch commencing in this manner represents one
of the greatest economic revolutions that has probably
ever taken place in any modern civilized state.
It does not lie within the scope of this work to attempt
to describe these changes exhaustively. The extent and
the development of the problems, however, which had to
be solved by the German banks during the period under
consideration, could hardly be comprehended without a
brief description of at least those chief factors of the
economic development which had particular influence on
the growth of German banking. It is only within such
limits that I have attempted to sketch them in the fol
lowing outline.
I will attempt to summarize the numerous important
factors in this development under the following two heads:
This development is characterized on the one hand by
an enormous expansion in almost all directions of public
and private activity, coupled with8 a further shifting of
the center of gravity of the whole economic fabric from
agriculture to industry; and on the other hand, by the
most intense concentration of forces, undertakings, and
capital. The following will give a detailed illustration:
The feverish rapidity of the economic development
during the period in question must be attributed above
all to the rapid growth of the population, for which sus
tenance and employment had to be found.

The

G e r m a n

G r e a t

B a n k s

The population in 1816 amounted to about 25,000,000;
at the beginning of this period (1870), to over 40,000,000;
and in 1907 to 62,100,000 souls. During the last few
years it has increased on an average by about 855,000
souls annually, as compared with an annual increase
during recent years of about 373,000 in England and of
only about 58,000 souls in France.
It should be emphasized however that this enormous
increase in the population of Germany is not due to an
increase of births, which have decreased in proportion to
the population during the last three decades. The increase
is due principally to the very considerable decrease in
mortality, i. e., owing to the fact that as a result of improved
hygienic conditions the number of deaths in proportion
to the population has decreased far more rapidly than the
number of births.7 Should this proportion change, an
eventuality bound to take place sooner or later, and
should the birth figures remain stationary or decrease
to a considerable extent, a continuation of the increase
in population hitherto recorded is out of question. Added
to this,'the excess of immigration, which occurred for the
first time in the years 1895 to 1900,8 (and which still con
tinues) may change again into an excess of emigration
which, from 1871 to 1895, amounted to about 2,500,000
souls. Finally, the increase in population may cease or
the rate of increase may decline, if there should be a
decline in the productivity of our national industry which
has been both a result as well as a cause of the increase of
population.
At the beginning of this period (1871) about 64 percent
of the inhabitants of Germany lived in the country, and

N at i on a l

M on e t a ry

Commission

about 36 per cent (as compared with only 28.04 per cent in
Prussia in 1849) in the towns. In 1893, however, the
percentage of country and town population was almost
equal, and in 1905 the percentage of people living in the
country amounted to 42.58 per cent only, whereas the
percentage of those living in towns had risen to 57.42 per
cent of the total population.9
According to the census of professions, trades, and occu
pations taken June 14, 1895, 26,000,000, or 42.7 per cent
of the population, were engaged in various professions,
trades, and occupations 10 (either as a main or subsidiary
means of gaining a livelihood) {erwerbstatig im Hauptund
Nebenberuf.) They were divided as follows:
Of the total number, 20,770,875, or 40.12 per cent of the
entire population, were engaged in various professions,
trades, and occupations as a main source of livelihood (erwerbstatig im Hauptberuf) , as compared with 17,632,008,
or 38.99 per cent of the entire population, in 1882.
According to the occupation census taken on the 12th
of June, 1907, the main results of which were published
in the “ Reichsanzeiger ” of February 10, 1909, No. 35, the
number of persons thus engaged was 26,827,362, or 43.46
per cent of the entire population. These figures show an
increase of 6,056,487, or 29.16 per cent, as compared with
1895, whereas the increase in 1895, as compared with 1882,
amounted only to 17.80 per cent.
The population of the chief industrial towns 11 had
increased to an extraordinary extent up to the end of 1905,
in comparison with the years 1843 or 1849. Thus, for
instance: Aix-la-Chapelle to about 144,000, as compared
with about 46,000; Chemnitz to about 241,000, as com-

T h e

G e r m a n

G r e a t

B a n k s

pared with about 26,000; Dortmund to about 175,000, as
compared with about 7,600; Essen to about 229,000, as
compared with about 7,000; Diisseldorf to about 253,000,
as compared with about 26,000.12
At the beginning of the period under consideration there
were 8 towns, in 1905 as many as 41 towns, with over
100,000 inhabitants. Berlin, which about the middle of
the nineteenth century numbered less than 500,000 inhabi
tants, in 1870, 774,000, in 1880 not quite 1,250,000, and in
1890 about 1,500,000,13 has passed beyond the second
million since December, 1904.
As stated by Ad. Wagner,14 it seems at the present time
as difficult to make a scientifically incontestable estimate
of German national wealth, as it is to estimate the amount
of income of the German nation or its annual savings.
A brief consideration of the facts will make this clear.
According to the most recent calculation made (1908) on
the basis of what is relatively the most accurate method,
taking as basis the Prussian supplementary tax (i. e., a
direct property tax), the wealth of Prussia amounted to
130 billion marks. Taking into account15 the proportion
of population (3/5) the German national wealth (given
by Mulhall in 1895 in his “ Dictionary of Statistics” as
^7.500,000,000= 150 billion marks) is estimated at 216 bil
lion marks, or to avoid exaggeration at 200 billion marks.10
Two years earlier (1906) the German national wealth was
estimated by E vert17 at 200 billion marks, by Ballod18 in
1908 at 251 to 266 billions, by Steinmann-Bucher (1908)19
at even 314 billions; and in a recent essay (“ 550 Milliarden deutsches V olkvermdgen” Berlin 1909) at 350 to 360
billion marks. Thus there is a difference of no less than

N at ion a l

M o n et a r y

Commission

160 billion marks 20 between the highest and lowest (200
billion to 360 billion marks) estimates recently made, al
though most of them were based upon careful and con
servative calculations.
Again, the result of the Prussian income tax assess
ment for 1907, chosen as a basis for estimating the Ger
man national income, gives a total income for the Prussian
population (1907) of 17,990,000,000 marks (11,747,000,000
marks for taxpayers; 6,243,000,000 marks for nontax
payers). Calculated on the proportion of the population
this would result in a German national income of 25 to 30
billion marks, and an annual income of 484 marks per
head of the population. These figures, however, should
be used with great reserve.21
As a matter of fact Steinmann-Bucher calculates the
present German national income (in his book “ 350 Milliarden deutsches Volksvermogen," p. 102) as being much
higher, namely, 35 billion marks, though the grounds on
which he bases his estimate seem inadequate.
The same remarks apply to any estimate of the annual
German savings, i. e., the amounts by which the German
national wealth is annually increased from the German
national income. This amount Schmoller 22 has placed
at 2l/ 2 to 3 billion marks, and it has been calculated by the
author of the Grenzbolen article already mentioned (p. 91)
at 3.7 billion marks on the basis of an average annual
increase of 1,700,000,000 23 marks in the value of property
subject to the Prussian supplementary tax.
It is plain that the same objections, or other no less
serious, may be urged against all estimates for foreign

The

G e r m a n

G r e a t

B a n k s

countries which have been made according to any of the
above methods.24
If, however, it be desired to give merely a general idea
of the development of national prosperity in Germany
during this second period, it may be pointed out among
other things that the total income during 1907 of all
physical persons in Prussia (including an allowance for
non-taxpayers) amounted in round figures to 16 billion
marks for a population of 38,421,000, while in 1896 the
total income of these persons amounted to slightly over
10 billion marks, for a total population of 32,379,000.
The increase of income was thus 56 per cent, while popu
lation increased during the same period only 17 per cent.
The amount of property assessed for property taxes in
1905 amounted to about 82,500,000,000 marks, showing
an increase of 17 per cent, as compared with 1899, when
it amounted to 70,000,000,000 marks. The figures for
the other German Federated States show a similar
development.25
If an attempt be made to ascertain the amount of
German national wealth invested in Bourse securities
(which would be especially appropriate in the present
volume), equally great difficulties will be experienced,
despite the material collected in regard to this subject on
the occasion of the German finance reform bills of 1908.20
If the table compiled in the report of the Aeltesten
der Kaufmannschaft von Berlin 27 be adopted, in which
(according to the market report of June 30, 1906) the
nominal and market values of the securities dealt in on
the Berlin Bourse were estimated at about 92% and 94^
billion marks, respectively, it is evident that for our

National

Monetary

Commission

purpose the figures are too high in one regard and too
low in another. Too high, because in the table the total
of securities bearing fixed interest includes the amounts
withdrawn from the market during 1906 by repayment;
further, because it does not contain the total amount of
foreign securities in German hands, but only the amount
of foreign securities listed at the Berlin Bourse. By far
the larger portion of these securities, however, were never
in German hands, as, for instance, Russian and Argentine
government bonds, as well as Russian and American rail
way securities.28 Another part of these securities, such
as the Italian, Austrian, and Hungarian state securities,
had passed or returned by the 30th June, 1906, from
German to foreign hands (especially to the countries of
their origin) in consequence of conversions or of foreign
demand.
On the other hand, the results obtained by accepting
the table as a basis, are in part far too low, as many of
the securities are not quoted on the Berlin Bourse, but
on other German exchanges. Other securities, such as the
debentures of small industrial undertakings, are not
quoted on any German bourse.
The Deulscher Oekonomist20 endeavors therefore to
solve the problem in a different manner. It starts
with the supposition that, according to the income-tax
statistics in Prussia, the Prussian income derived from
capital property has been valued (though far too low)
at 1,610,000,000 marks, which, capitalized at 4 per cent,
corresponds to 40,000,000,000 marks for Prussia,
and assumes that of these 40,000,000,000 about
20,000,000,000 are invested in mortgages, thus leaving

The

G e r m a n

G r e a t

B a n k s

a balance of 20,000,000,000 for securities invested in
Prussia, and accordingly about 30,000,000,000 for the
whole of Germany.
This method of calculation does not yield indisputable
results, the more so, because no statistics exist regarding
the total mortgages outstanding in Germany, the amount
of which for Prussia is estimated at 20,000,000,000 marks.
Thus every estimate must be more or less inaccurate.
Moreover, every purely schematic application of Prussian
to German general conditions is improper.
As a matter of fact it is assumed in the above-men
tioned supplementary volumes to the German finance re
form bill of 1908 30 that in 1907 the German public held
German public and quasi-public securities, as well as
mortgage and municipal bonds of private mortgage banks,
to the amount of about 35,500,000,000 marks; industrial
bonds to the amount of 2,500,000,000 marks, and shares
of an actual value of 6,750,000,000 marks, making a total
of 44,750,000,000 marks of securities in German hands,
or 14,750,000,000 marks more than the above-mentioned
estimate' of the whole amount of securities in German
hands.
As statistical details are lacking (especially the yield of
the stamp duties), it is impossible to obtain a reliable
estimate 31 of German investments held in the shape of
securities of all kinds. On the whole, we may assume
(on the strength of a number of data) that at least onethird of the national wealth is invested in securities.32
According to the different estimates of the German na
tional wealth (200,000,000 to 360,000,000 marks: see
above, pp. 91 and 92) it may be concluded that the

N a t i on a l

M o n et a r y

Commission

amount is between 66,000,000,000 and 120,000,000,000
marks, figures which present a wide margin, indeed. A
similar conclusion may be based on the issue statistics,
which, though somewhat incomplete, tend to prove that
1,200,000,000 marks, or about one-third of the annual
savings of the nation, is invested annually in securities.
Grave misgivings have been expressed, especially by
Ad. Wagner, regarding the tendencies shown by the de
velopment of German incomes during the period under
consideration. Wagner finds that it is in the main a
development along plutocratic lines and favoring the
interests of the money aristocracy, and he seems to think
that the entire economic development of Germany is
seriously menaced by “ this constantly growing concentra
tion of income, evidenced not only in the case of some
particularly rich persons, but also by a constant growth
in numbers of the classes occupying a high and even the
highest place in the economic scale.” 33
In a study, breathing a high spirit of patriotism,34 he
has lately pointed out that about the middle of the nine
teenth century there were only about 100 persons with in
comes exceeding 100,000 marks in the territory correspond
ing to the confines of present-day Prussia, whereas in 1891
there were 1,400 to 1,500, in 1902, 2,800, in 1905, 2,900,
and in 1907, 3,600 such persons. In another place he
states that the national wealth and national income have
increased out of all proportion in favor of the upper and
of the highest classes, and not inconsiderably in favor of
the lower classes (especially the working classes), whereas
the large middle class maintains its position with great
difficulty in the list of taxpayers, and (as far as its share

T h e

G e r m a n

G r e a t

B a n k s

of the national income is concerned) is falling into a less
favorable position from day to day.35
A consideration of the facts will show that none of
these misgivings can be deemed justified in all or even in
their main points.
In my opinion (see p. 113) the increase in the number
of persons with incomes exceeding 100,000 marks in
Prussia (of present extent), from 100 in the middle of the
last century to 3,600 in 1907, iseertainly a gratifying proof
of our economic development. But if we consider the
enormous growth of population in these 57 years, the
increase of such incomes does not seem very considerable,
but rather (relatively speaking) inconsiderable.
As a matter of fact, a smaller growth in the incomes
exceeding 100,000 marks might have suggested serious
misgivings regarding the development of national pros
perity, in view of the fact that during these sixty years
the entire standard of living, the entire consumption,
and thus the household budget of the individual, has doubt
less increased to a very great extent.
After all, we can see but little significance in the fact
that it is just the uppermost grade of taxpayers (men
tioned by Wagner) which has considerably increased
compared with the other classes, since those of its mem
bers who become wealthier must of necessity remain in
that grade, there being no higher grade to which they
could be transferred.
Finally, it may be pointed out that during the period
under discussion the number of those persons who have
been moving upward from a lower to a higher tax grade 36
has been constantly increasing; further, that the relative
903 i i ° — 11-----8

N at i on a l

M on et a r y

Commission

number (in proportion to the population) of non-tax
payers (i. e., persons in Prussia with incomes below 900
marks) who have been moving upward into the taxpaying
class during this period has also been constantly on the in
crease.37 This can be proved in detail. According to
Schmoller,38 in old Prussia the number of persons paying
taxes on incomes exceeding 3,000 marks was as follows:
Persons.

1852................................................................................. 43,489
18 6 7 ............................................................................................................. 7 2 , 9 8 3

In Prussia of to-day:
18 7 3 ...........................................................................................................

Persons.
123,284

1894........................................................................................................... 3 1 9 ,3 1 7

I9°2 ...........................................................................................

449,741

This shows, certainly, an absolute increase in the number
of taxpayers in Prussia (present-day area)39 with incomes
above 3,000 marks whose total taxable income (after legal
deductions) has risen from 2,792,345,342 marks in 1892
to 5,156,245,432 marks in 1907.
On the other hand, the income of persons subject to
the income tax in Prussia (present area) belonging to the
lowest grade (incomes between 900 marks and 3,000
marks) has risen from 2,911,981,421 marks in 1892 to
6,591,553.725 marks in 1907.40
Between the years 1907 and 1908 the group paying no
income tax (incomes below 900 marks) decreased in the
proportion of 5,555 to 5,242; the number of taxpayers
in Prussia (with incomes exceeding 900 marks) increased
19.5 per cent between 1892-93 and 1898-99, whereas
the population increased during the same period only 8.2
per cent.41

The

G e r m a n

G r e a t

B a n k s

Furthermore, the returns of the Saxon income tax, under
which until 1894 all persons receiving a minimum income
of 360 marks were liable to taxation, give the following
figures for every 100 persons assessed:
1879.

1894.

P e r cen t.

76. 3
3.300 to 9.600 marks-

___________________

- _

6S - 3
3 i- 1
2.8
.8

That is to say, the number of taxpayers in the lowest
grades decreased, and the number belonging to the other
groups increased considerably. Moreover, the largest
increase during the period mentioned took place in the
middle group of taxpayers (800 to 3,300 marks), supposed
by Ad. Wagner to be particularly endangered. Finally,
the total taxable income of physical persons in Prussia
has increased from 10,147,578,035 marks in 1896 to 15,873,774.007 in 1907.
In the memorial of the Admiralty, dated December,
I 9° 5 . entitled 11Die Entwicklung der dcutschen Seeinteressen im letzten Jahrzehnt,” proof is furnished of the enor
mous upward movement of incomes in Prussia, in which
not only the wealthy classes but also those with smaller
incomes participated (900 to 3,000 marks) almost to the
same extent. The increase of the national income by far
exceeds the increase of population.

N at ion a l

M on e t a ry

Commission

The fact that the classes with small incomes, which,
by the way, are not solely composed of workingmen, had
a large share in this upward movement, can also 42 be
proved by the savings bank statistics.
Of the 9,000,000 savings bank books43 in existence in
Prussia at the end of 1901, almost one-quarter were for
amounts not exceeding 60 marks, about one-seventh for
amounts from 60 to 80 marks, about one-eighth for
amounts from 150 to 300 marks, and only one-thirtieth
for amounts above 3,000 marks (at this stage depositors
begin to invest their savings in securities.).
The number of savings bank books grew as follows:44

Location.

Year.

Per 100in
habitants.

Books.

1891
349.354
1896
424.500
1882 3. 345. 00°
1897 7.643.000
1904 10. an, 976
1906 1 1 , 0 9 5 . 276

Per cent.
17. 1
ao. 3
xa. 1
*3-4
27. 71
29. 24

This number had doubled in Prussia during the time
from 1882 to 1897 and trebled up to the end of 1906.
The savings bank deposits totaled as follows:
Location.

Year.
1891
1896
1882
1897
1904
1906
1907

100

Amount.
Marks.
137.000. 000
190.000. 000
1,697, 000, 000
4. 967,000.000
7. 762. ooo, 000
8. 788,000.000
9. xai, 000. 000

The

G e r m a n

G r e a t

B a n k s

These deposits had almost trebled in Prussia between
1882 and 1906, and were more than five-fold at the end of
1907. In 1882 every eighth inhabitant of Prussia pos
sessed a savings bank book, and at the end of 1901 every
fourth inhabitant. The amount of deposits increased in
the German Empire from about 1,869,000,000 marks in
1875 to 13,889,000,000 marks in 1907, which denotes an
increase during these thirty-three years of 643.05 per cent.
From 1883 to 1907, or in twenty-five years, the deposits
have increased from 3,187,000,000 marks to 13,889,000,000
marks, or four and a quarter times.
Between 1883 and 1908, the deposits in the German
credit banks have also increased considerably; in credit
banks particularly, with a minimum capital of 1,000,000
marks each (which are of greater importance for the de
posit business 45), they rose from about 498,000,000 marks
at the end of 1883 to about 2,746,000,000 marks at the
end of 1908, an increase during these twenty-six years of
more than four and a half times.
It may be assumed that the greater portion of these
bank deposits, about two-thirds, consists of working
reserves of manufacturers and traders (doubtless includ
ing also the smaller ones), and of funds of capitalists de
posited temporarily, but destined for investment in secu
rities, mortgages, etc., and that only the smaller part
(about one-third) represents savings deposits proper.
The annual increase of the savings deposited with the
16,092 German cooperative credit societies (on January 1,
1908) was estimated at 225,000,000 marks.46 The ma
jority of the members belong most probably to the clasf
of the smaller and smallest tradesmen.

IOI

N at i o n a l

M on et a r y

Commission

German foreign trade (i. e., special imports and exports)
according to the memorial of the admiralty dated Decem
ber, 1905, entitled Die Entwicklung der deutschen Seeinteressen im letzten Jahrzehnt, rose from 7,300,000,000
marks to 12,200,000,000 marks in the decade from 1894
to 1904; the increase in weight was 60 per cent, and in
value 66 per cent.
During this period the special trade of England in
creased 38 per cent, that of the United States 59 per
cent, that of France 28 per cent, and that of Russia 23
per cent. Within the last twenty-five years German trade
has exactly doubled.47
The total number of establishments in trade and indus
try amounted, according to the census taken in 1895, to
over 3,000,000, in which about 10,225,000 persons were
at work.
Of these 3,000,000 establishments, nine-tenths— with
about 4,750,000 persons only— were small establishments,
as against only 19,000 large establishments, with over 50
persons each; the latter, however, gave occupation to about
3,000,000 persons, or almost to 30 per cent of all persons
engaged in trade and industry. As compared with the
census of 1882, the proportion of large establishments to
middle-sized and small establishments in 1895,48 had
increased 28.3 per cent in the mining and foundry in
dustries, 3.6 per cent in the chemical industries, and 2.2
per cent in the industry of illuininants.
By far the majority of the 19,000 large establishments
with about 3,000,000 persons belonged to industry proper.
The average number of workmen, clerks, and other
employees belonging to the trade insurance associations

102

The

G e r m a n

G r e a t

B a n k s

(.Berufsgenossenschaften) in commerce and industry was,
in round figures, as follows:
1886....................................................................................................... 3,467,000
18 95......................................................................................................... 5,341,0 0 0
1905....................................................................................................... 8,036, 000

There were 124,074 steam engines (not including those
used in agriculture and forestry) with 7,587,650 horse
power49 at work in the German Empire in 1907, which,
if the effective horsepower of a machine during a normal
working day is computed as equivalent to the laborpower of 10 men, replaced the work of 75,000,000 men.
Of these 124,074 (7,587,650 HP) steam engines, 27,921
(3.065,223 IP) belonged to the mining and foundry
industries; the textile industry employed 11,039 steam
engines (934,763 IP) and the machine industry 8,066
(891,088 IP) steam engines.
According to the occupation census of 1895 the whole
population of Germany was divided as follows: Agricul
ture, 3 5 .7 4 per cent; industry and mining, 39.1 per cent;
trade and transportation, 11.5 per cent. For Prussia alone
the following comparative data may be given:50

Agriculture. .

1843.

1895-

190 7.

P i r ren t.

P e r ce n t.

P e r cen t.

6 0 .8 4 -6 1 .3 4

2 3 -3 7
■

36. 12
38. 73
11 . 3 9

28. 5 9
42. 76
1 3 - 17

The population of the Empire engaged in agriculture
and forestry, which still numbered 19,250,000 persons in
1882 (19,225,455 souls, or 42.5 per cent of the population),
decreased in the thirteen years following (1882-1895), to
18,500,000 (18,501,307 souls, or 35.8 per cent), the whole

103

N a t i on a l

Monetary

Commission

population increasing during the same period 14.48 per
cent; that is to say, the decrease in agricultural popula
tion amounted to about 700,000 persons, or 3.77 per cent
of the total population. Although the number of farms
(landwirtschaftliche Betriebe) and the area utilised for agri
culture increased constantly during the thirteen years in
question, the number of agricultural laborers diminished
by over 254,000 persons.
During the same period (1882-1895), the industrial
population increased 26.12 per cent, and the commercial
population as much as 31.62 per cent.
Thus even the census of 1882 had made it evident
that a reversal had taken place; the industrial minority
of former times had become a majority, and the former
agricultural majority had been turned into a minority.
According to the census taken on June 12, 1907 (“ Reichsanzeiger” of February 10, 1909, No. 35), this condition
has become very much more pronounced.
The total number of persons engaged in agriculture
(those making agriculture their main occupation, includ
ing house servants, and members of the family) has de
creased still further, the number being 17,681,176 souls.
Of the entire population of the German Empire in 1882,
1895, and 1907 the distribution of the total population
by occupations showed the following percentages:

Agriculture (including gardening, stock breeding.
forestry, and fisheries)........................................
Industry (including mining and the building trades).
Trade and traffic (including innkeeping and tavern
keeping).............................

104.

1882.

18 9 S .

19 0 7.

P e r ce n t.

P e r cen t.

43. S

3 5 -8

3 3 -5

39-

IO . O

xi.S

28.6
42. 8
1 3 -4

The

G e r m a n

G r e a t

B a n k s

The distribution by occupations of the population en
gaged in gainful occupations in the German Empire in
1882, 1895, and 1907 is shown in the following table:

Agriculture (including gardening, stock breeding,
forestry, and fisheries)........................................
Industry (including the mining and building trades).
Trade and traffic (including inn keeping and tavern
keeping).............................................................

1882.

1895.

1907.

P e r cent.

P e r cen t.

4 3 -4
33-7

8 .3

36. 2
36.1
IO.

32.

37-2

i i - 5

Thus on the basis of the statistics of occupations it may
be stated with perfect assurance (with certain reserva
tions to be set forth presently), that of the German popu
lation more than two-thirds are no longer employed in
agriculture.51 It would, however, be entirely one-sided
and incorrect (as has been pointed out by Oldenburg,
Ballod, and especially by Traugott Muller, in a highly
instructive article52) to infer from these facts that Ger
man agriculture is on the decline, and that Germany’s
sole salvation lies in industry, especially in the export
industry.
It has already been mentioned53 that both the number
of farms (landwirtschajtliche Betriebe) and the area devoted
to agriculture,54 have increased during this period; and
the same applies on the whole to stock raising,55 as well
as to almost all agricultural productions, especially those of
fodder and potatoes. This increase was due chiefly to the
steady improvement in the systems of culture and meth
ods of work, as well as to the constantly growing employ
ment of machinery driven by steam and electric power.
Between 1882 and 1895, for example, the number of steam
plows in use increased from 836 to 1,696, and the number

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Commission

of steam thrashing-machines from 75,690 to 259,364. On
the other hand, the number of large distilleries increased
fivefold since 1870 in the districts east of the Elbe
(according to K. Eamprecht, op. cit., p. 187), in conse
quence of the introduction of the high-pressure boiler for
steaming potatoes.
The intensity of agricultural cultivation has also grown
considerably, and likewise almost without exception the
average crop yields. Thus, if the period from 1879-1888
be compared with the year 1899, an increase will be found
to have taken place in the case of rye from 980 to 1,490
kilograms per hectare, in the case of oats from 1,140 to
1,720, and of potatoes from 8,100 to 12,290 kilograms.
According to Ballod’s essay on the economic develop
ment of Germany since 1870, the home production of all
sorts of grains increased within the last two decades about
36 per cent, whereas the population increased only about
18 per cent.
The net proceeds, however— that is to say, the profit
ableness of agricultural undertakings, fell considerably
in many parts of Germany mainly because of the great
increase in the domestic cost of production, and of foreign
competition having the advantage of lower cost of pro
duction, and cheap transportation by land and sea. An
improvement in this regard has been noted only during
the last few years, due in part to the greatly increased
duties on agricultural products put in force by the latest
commercial treaties. Until then, much to the detriment
of the general economic interests in large parts of Ger
many, the condition of agriculture, affected as it was by
a heavy fall in the prices of its chief products,56 and the
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The

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B a n k s

growing encumbrances on landed property,57 had become
quite precarious. This condition, naturally, influenced the
amount of agricultural production 58 and, considering the
great influence of agriculturists on the politics and legis
lation of Germany, brought about— in some cases unnec
essarily— results detrimental to other classes, without
simultaneous advantages desired for and by agriculture.
Finally, certain improvements in the agricultural credit
system were introduced, partly by state aid, as in Prussia
by the foundation of the Prussian Zentral-Genossenschajtskasse (Central Bank for Cooperative Societies) (1895) and
partly through the establishment of “ Raiffeisen” loan
societies, and the Sehultze-Delitzsch loan and credit socie
ties. In this direction, i. e., of cooperative effort, much
remains to be done. The granting of credit by the Reichsbank, which in view of its own short-term obligations
may grant short credit only, can be depended on by
agriculturists only in exceptional cases in view of the
greater length of time occupied by the process of agri
cultural production.

Agriculture requires a system of

credit adapted to its peculiar conditions of production. A
permanent organisation for this purpose would benefit
agriculture as much as the community at large, since the
common good requires that not only the interests of the
consumer but also those of the producer be guarded.
In other directions, too, the injudicious use of the above
data (see pp. 104 to 106) may lead to false conclusions.
In the first place, we must not lose sight of the fact that
a considerable amount of economic activity which in
our statistics is classed under the head of industry is
either largely of an agricultural nature, for instance, the

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Commission

manufacture of beet sugar and starch, distilling, brewing,
milling, etc., or else closely connected with agriculture,
such as baking, butchering, the manufacture of food and
drinks, brickmaking, etc.69 It must also be borne in mind
that our statistics do not take into account those persons
who, in addition to their main occupation were engaged
in agriculture as a secondary occupation. According to
Troeltsch (loc. cit. p. 121), the number of such persons
in 1905 amounted to 3,700,000.
Further, it must be remembered that although between
1882 and 1895 the number of independent producers in
agriculture increased by 2.9 per 1,000, the number of de
pendent wrorkers (abhangige Arbeiter) decreased 16.1 per
1,000 during the same period, the agricultural labourers
having turned to other occupations, mostly industrial,
without returning and without being replaced.00
Finally, the period under consideration witnessed the
completion of a movement which set in during the earlier
economic period (1848-1870), namely, the gradual devel
opment into independent branches of industry of a whole
series of occupations, such as spinning and weaving, origi
nally carried on as homework in the country, and there
fore classified under the heading of agriculture. These
occupations no longer center in the country.
In this manner the number of persons occupied in
agriculture decreased statistically, without an actual de
cline of agriculture as such, and without a decrease of
the number of persons actually employed in agricultural
pursuits.61
Care should therefore be taken not to overstretch the
conclusions drawn from the figures showing the per

108

T h e

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G r e a t

B a n k s

centage (seepages 104 and 105) of persons in Germany fol
lowing agricultural, industrial, and trade pursuits, nor to
pit against each other too sharply the two expressions
“ agrarian state” and “ industrial state,” which as the
result of indiscriminate use are assuming more and more
the character of dangerous catchwords, suggesting that the
two economic stages thus designated are essentially antago
nistic. It is only by avoiding these errors that a proper
appreciation can be gained of the share of German agri
culture in the national wealth and production, in fact in
the entire economic life of Germany.
All these considerations, however, do not impair the
correctness of the above statement (p. 88), namely, that
the center of German economic life has been shifted more
and more from agriculture to industry.62 The causes of
this fact are of very varied nature.
The larger the growth and the rate of growth of the
German population, the less German agriculture was able
to emplov and sustain it.
It is true hat, until the beginning of the period under
consideration, German agriculturists exported consider
ably more of their products (especially grain, with the
exception of rye), mainly to England, France, Holland,
and Switzerland, than was imported from foreign coun
tries.63 It is also an established fact that during the period
in question the necessity of exchanging German manufac
tured products 64 for foreign products of the soil (more
especially wheat and vegetal raw materials) became more
and more pronounced. Furthermore, agriculture, despite
great efforts and successes, was not able to increase in the
same proportion and with the same rapidity as the popu109

National

Monetary

C o mm i s s i o n

lation. The deficit in agricultural production thus en
tailed, which despite all protective duties amounted as far
back as 1898 to over 2,000,000,000 marks per annum, had
consequently to be met by importation from abroad.
Similarly, German manufacturers were quite unable to
satisfy their requirements at home, especially of raw ma
terials, as the required raw products are not to be had at
all in Germany, or, if the colonies be taken into account,
only in insignificant quantities. Consequently a large
portion, in some cases the largest portion of the require
ments of German industry, has to be procured by imports
from abroad. The most striking instance of this is fur
nished by the textile industry occupying the first place
in Germany’s export trade, which has to obtain from
abroad about nine-tenths of its raw materials (cotton,
jute, silk).65
The annual import requirements of foods and delica
cies, cattle as well as raw materials, and half-manufac
tured goods necessary in German agriculture and industry
for further manufacture, or for direct use, could not be
paid out of German national capital (Nationalvermogen)
unless the nation was to be gradually impoverished; pay
ment had to be made in another way.
An inconsiderable part of this payment is made to
foreign countries in such German home-grown raw mate
rials as are not needed for home use. The greater part of
the payment, however, is made in manufactured goods
supplied to foreign countries which import into Germanv
food and raw materials, or, in other words, in exporting
the results of German home labor in return for foreign
products of the soil.66 These manufactured goods consist

The

G e r m a n

G r e a t

B a n k s

principally of woollen and cotton manufactures, sugar,
machines, silk goods, coarse iron manufactures, chemical
products, etc.
In 1908 by far the larger part of our special exports
consisted of manufactured goods, namely, 65 per cent.
Raw material exported amounted to only 25 per cent,
foods and delicacies to 10 per cent.
The “ industrialisation” thus characterized caused in
the first instance by an increased population that had
to be fed and employed, in its turn became the cause
of a further increase of the population. It was intensified
by the circumstance that simultaneously the industrial
demand for means of production was constantly growing
through “ the displacement of organic by inorganic mat
ter,” as Sombart has pregnantly characterized this
recent technical development.
The tree of the forest has to make room for the iron
girder for building purposes, and is replaced by coal for
purposes of fuel. Animal manure and animal labor are
being displaced by chemical fertilizers (ground Thomas
slag, potash, Chile saltpeter, etc.), by steam engines, and
electric motors; through the discovery of aniline dyes
fields sown in madder became free for other cultures.
At the end of 1907 the special exports from the German
Customs Union amounted to nearly 6.4 billion marks
(6*389,860,000), and the special imports to about 8 billion
marks (7,664,000,000)67, whereas exports from the Ger
man Customs Union between 1842-1846 averaged, accord
ing to K. H. Rau, about 510,000,000 marks and imports
about 630,000,000 marks.88

National

Monetary

Commission

The excess of imports for home consumption into Ger
many at the end of 1907 (more than half of which came
from Great Britain, the United States, Austria-Hungary,
and Russia) over German domestic exports (almost half
of which were sent to the above-mentioned countries),
or our adverse trade balance (Warenverkekrsbilanz),
amounted thus to almost 1,300,000,000 marks (1895:
800,000,000).
It will be found, however,69 on comparing the import
and export figures of 1907 with those of 1882, that on the
whole the imports of 1907 have increased proportionately
much more than the exports.70 Of raw materials and
half-manufactured goods the imports increased 200.1 per
cent; and the exports only 77.5 per cent. Of manufac
tured goods the imports increased 222.1 per cent; and the
exports only 183 per cent. The opposite tendency may
be noted for the period before 1882, when the growth of
imports was on the whole smaller than the growth of
exports.
Further, commencing with 1882, it will be found that,
on the whole, the quantities of manufactured goods
exported have formed a constantly decreasing portion of
the total German industrial production.
Finally, it will be found that the increase in German
industrial production (in the most important branches)
was greater after 1882 than the increase in the average
number of persons employed; that since 1885 the increase
in the number of gainfully employed persons has been
greater than the increase of the general population, and
on the whole 71 greater than the increase of production
and of the quantity and value of the exports.
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The

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G r e a t

B a n k s

All these factors warrant the conclusion that since
about the beginning of the eighties the consuming power
of the German nation, i. e., the home market, developed
more speedily and vigorously than the foreign markets.72
It can scarcely be doubted that this was due to the
greater accumulation of capital during the same period—
that is to say, to the growing development of national
prosperity.
This growth raised the productive power of the indus
trial population on the one hand, and the purchasing
power of the nation on the other, allowing at the same
time a portion of the added available means to be utilized
for the improvement of the German balance of payments.
This improvement of the German balance of payments
has been caused during the last twenty-five years, espe
cially through the acquisition of foreign securities, which
rendered foreign countries “ tributary” to Germany in so
far as they had to pay her interest.

Additional improve

ments have been brought about by the granting of long
and short term credit to foreign countries, by the consid
erable growth of Germany’s shipping, and by her partici
pation in foreign undertakings. The necessity and the
benefit of these improvements, especially of the last
named, will form the subject of a special chapter (Sec.
VII of this part).
There can be no doubt, however, that an unfavorable
trade balance (P a ssiv itd t der W irtsch a ftsbila n z) of a
country is the less dangerous the more favorable its bal
ance of payments, for it can then more easily afford to let
other countries “ work for i t ” and supply it with raw
material and food.
9 0 3 1 1 "— i

Ir3

N at i on a l

M onetary

Commi ssi on

During the last few years there have been noticed cer
tain though not absolutely indisputable indications that
the German balance of payments, while not unfavorable
throughout, yet evinces a certain tendency in that direc
tion.73 This should serve as a warning to utilize the in
creasing accumulation of capital primarily, and to a greater
degree than hitherto, for the strengthening of the home
market; or, in other words, to increase home production and
purchasing power, particularly the agricultural production
of foodstuffs and our colonial production of raw materials,
and to employ our surplus funds only secondarily in
the service of so-called “ export capitalism.” 7*
Industrial, commercial, and banking circles must not
forget that the strengthening of agriculture and its ca
pacity for absorbing industrial products forms one of the
most indispensable means of strengthening the entire
home market; on the other hand, the agricultural inter
ests should not overlook the fact that the most careful
fostering of the export industry, within the limits essential
for the strengthening of the home market, is in turn
demanded in the interests of national economy.
In my opinion the inferences to be drawn from the
above for the German credit banks are clear. As re
gards the past, they have rendered effective service in
promoting the development of the national economic
forces by participating to a considerable extent in the
strengthening of the home market, by increasing the
productiveness amd purchasing power of the nation,
and by sharing in the above-described (p. 113) improve
ments of the German balance of payments. The favor
able effects of the activity of the credit banks should be
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T h e

G e r m a n

G r e a t

B a n k s

admitted even by those persons who, in a spirit of exag
geration, hold the German credit banks responsible for
everything unfavorable that has happened in the indus
trial and commercial development of Germany.
On the other hand, as regards the future, the German
credit banks must aim at restraining “ export capitalism”
still further than has been the case hitherto, particularly
during the last few years, more especially at times when
the home market according to all indications stands in
need of available home capital.
Furthermore, as far as it is practicable and in conformity
with Germany’s international economic and financial
relations, they will have to shape the forms in which
export capitalism is to operate, especially by fixing the
dates of issue of foreign securities and the rates of
interest with due regard to the interests of national
economy, and of the domestic money and capital market.
We shall resume now our review of the economic con
ditions of the period under consideration.
As far as the formation of joint stock companies was
concerned (vide, p. 38) only 102 companies, with a
total capital of about 638,000,000 marks were founded
during the twenty-four years between 1826-1850 as com
pared with 295 companies, with a total capital of about
2>4° 4 >76o,ooo marks, founded between 1851 and the first
six months of 1870. A t the end of 1908 the total number
of companies founded in the German Empire since 1871
(including undertakings that had been transformed into
joint stock companies) amounted to 6,249, with a share
capital of 9>439>530,ooo marks (vide, p. ii9 ),o r about
9 K billion marks. These figures do not include the large
115

National

Monetary

Commission

number of limited liability partnerships that had been
established during the same period. During the years
1867-1873 no fewer than 1,005 German stock companies
were licensed, and 682 were newly formed. From the
second half of 1870 to 1874 there were founded 857 com
panies with a joint stock capital of 3,306,810,000 marks.
The sudden influx of the 5 billion francs of French war
indemnity caused a great abundance of money which let
loose a veritable rage of speculation and enterprise. This
overproduction of new undertakings, just as in 1857, was
one of the main causes of the crisis of 1873. By Sep
tember, 1874, out of the above 857 companies, no fewer
than 123 were in process of liquidation and 37 in the
hands of receivers.75
As compared with the capital stock of the companies
founded between 1851 and 1870, the amount of capital of
the stock companies founded in the principal trades and
industries between 1870 and 1874 shows the following
increases:76
Building trades, about twenty - seven - fold (from
17,420,000 marks to 486,640,000); brewing, about twentyfour-fold; stones and earths, about nineteenfold; banking,
about ninefold (from 94,650,000 marks to 838,270,000
marks); metal working and machine construction, about
sevenfold; agriculture, about fivefold; chemicals, fuel
materials and illuminants, about fourfold, and sugar
manufacturing, about twofold.
In the mining industry, not mentioned in the above list,
the number of companies founded between 1870 and 1874
was also quite considerable. In fact, as regards the abso
lute amount of capital newly invested during these years,

116

The

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G r e a t

B a n k s

394.950.000 marks, this industry takes front rank.77
But inasmuch as the share capital newly invested in this
industry between the years of 1851 and 1870 reached the
large total of 275,310,000 marks, the increase during the
following period does not appear so striking.
As the German railway system had already been con
structed to a considerable extent by the end of the for
mer period (1851-1870), the capital of newly created rail
way companies was considerably smaller in 1870-1874
(778,000,000 marks) than in 1851 to 1870 (1,722,000,000
marks).
In 1883, 1,311 joint-stock companies published their
balance-sheets, showing a capital of about 3,918,000,000
marks. Among these, 128 companies (or about one-tenth
of the total number) with a capital of 571,250,000 marks
(or about one-seventh of the total capital) belonged to
the mining industry.78
During the subsequent period, the years 1889 and 1890,
which were years of great industrial prosperity, are most
notable, for the large number of company flotations.
In 1896 there were 3,712 joint-stock companies with a
paid-up capital of 6,845,760,00079 marks.
Their distribution80 was as follows: 235 mining and
foundry companies with a capital of 1,022,330,000 marks
(or, including loans and reserves, 1,381,860,000 marks);
235 machine-building companies,81 with a total capital of
324.720.000 marks; 259 textile-industry companies, with
a capital of 414,910,000 marks; 378 brewing 82 companies,
with a capital of 367,200,000 marks; 164 building com
panies, with a capital of 172,760,000 marks; 98 banking
companies, each with a capital of more than 1,000,000

117

N a t i on a l

Mo net ary

Commission

marks, and a total capital of 1,240,300,000 marks; 108
companies in the chemical industry, with a capital of
332,870,000 marks; 39 companies in the electrical industry
with a capital of 195,610,090 marks.
From 1897 to the year 1900, when the crisis broke out,
there was again a flood of flotations. In these four years
no fewer than 1,208 joint-stock companies were floated 83
with a capital of 1,730,000,000 marks, among them 53
banks with a total capital of 124,776,000 marks.
In 1900 the total number of all German joint-stock
companies amounted to about 5,400. It was ascertained
that in the case of about 4,600 companies there was a
paid-up capital of 6,800,000,000 marks, and together with
loans and reserves, about 7,800,000,000 marks.84
We have already proved in detail by the list of new7
companies founded between 1897 and 1900 what a super
abundance of flotations preceded the crisis of 1900, just
as was the case before the crisis of 1873. Of the 4,000
joint-stock companies the year of whose flotation we are
able to ascertain, more than 1,600 are found to have been
founded in the years 1890-1900.
Nearly nine-tenths of all joint-stock companies belong
to industry; the rest to the banking business, with the
exception of 150 insurance companies, which, however,
claim nearly a third of the share and debenture capital.
The tab le85 given below shows for each year the
number and combined capital of the joint-stock companies
floated since 1871. Their number amounted at the end
of 1908 to 6,249 with a joint-stock capital of 9,439,530,000
marks, which, compared with 1900, represents an increase
in joint-stock capital alone of nearly 2]/2 billion marks.

118

The

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G r e a t

B a n k s

Table of joint-stock compa ny flotations, 1871-1908.

Joint-stock capital.
Com panies
founded.

Year.

T otal.

Average
for each
com pany.

M a rks.

1 8 7 1 ..................................................................................

207

758, 76 0,000

3 , 6 5 0 , 000

1 8 7 a ........................

.............

479

1,4 77 .7 30 .0 00

3 , 8 5 0 , 000

1 8 7 3 ..................................................................................

242

544,180,000

2 , 2 5 0 , OOO

1 8 7 4 ..................................................................................

1 0 5 , 9 2 0 ,0 0 0

1,18 0 ,0 0 0

1 8 7 5 ..................................................................................

45.560,000

830 ,000

1 8 7 6 ............................................

18 ,180,000

4 3 0 , OOO

1 8 7 7 ..................................................................................
1 8 7 8 ..................................................................................

43,520,000

9 9 0 , OOO

42
45
97

13.250 ,0 00

3 2 0 , OOO

57,140,000

I , 2 7 0 , OOO

91,59 0 ,0 0 0

9 4 0 , OOO

III

1 9 9 ,2 4 0 ,0 0 0

1 , 8 0 0 , OOO

94
192

56,100,000

6 0 0 , OOO

1 8 8 3 ..................................................................................

1 7 6 ,0 3 0 , 0 0 0

9 2 0 , OOO

1 8 8 4 ..................................................................................

153

i l l . 240,000

7 2 0 , OOO

i 8 8 S ..................................................................................

5 3 .4 70.0 00

7 6 0 . OOO

1 8 8 6 ..................................................................................

11 3

103,340,000

9 2 0 , OOO

1 8 7 9 ..................................................................................
1 8 8 0 ..................................................................................
1 8 8 1 .........................................................
1 8 8 2 ....................................................

.............

1 8 8 7 ..................................................................................

168

128,410.000

7 6 0 , OOO

1 8 8 8 ..................................................................................

184

193,680.000

I , 0 2 0 , OOO

1 8 8 9 ..................................................................................

360

4 0 2 , 5 4 0 ,0 0 0

I , 1 2 0 , OOO

1 8 9 0 ..................................................................................

236

270,990,000

1 , 1 6 0 , OOO

1 8 9 1 ..................................................................................

160

9 0 ,2 4 0 ,0 0 0

5 6 0 , OOO

1 8 9 3 ..................................................................................

77,260,0 00

8 1 0 , OOO

1 8 9 4 ..................................................................................

88,260,000

9 6 0 , OOO

1 8 9 s ..................................................................................

l6 l

250, 680,000

1 , 5 6 0 , OOO

1 8 9 6 ...........

l82

268,580,000

1 , 4 8 0 , OOO

1 8 9 7 ........................

254

3 8 0 ,4 7 0 , 0 0 0

1 , 5 0 0 , OOO

1898. . . .

329

463,620.000

I , 4 0 0 , OOO

1 8 9 9 ........................

364

5 4 4 . 3 9 °,000

1 , 4 9 0 , OOO

1900. . . .

261

34 0, 460, 000

I , 3 0 0 , OOO

190 1 . . . .

158

158 ,250 ,0 00

I , 0 2 0 , OOO

1 9 0 2 ....

1 1 8 , 43 0,0 00

I , 3 6 0 , OOO

.............

3 0 0 , 0 4 0 , OOO

............................

104
192

140,650,000

I . 3 5 0 , OOO

3 8 6 ,0 0 0 ,0 0 0

6 2 , 0 2 0 , OOO

1 9 0 3 ........................
1 9 0 4 .............................

1 9 0 5 ..................................................................................

0 3 .5 7 °.0 0 0

1 9 0 6 ..............

212

4 7 4 .510 ,0 00

I . 2 2 0 , OOO

1907

212

253.790.000

I . 2 6 0 , OOO

1908 w .

15 1

162,500,000

I , 0 8 0 , OOO

6, 249

9 . 4 3 9 . S 3 ®. 000

T o t a l .........................' ......................................

0Transformation into a stock company of the Krupp firm.
6 H o h e n l o h e - W o r k s C o m p a n y ( L i m i t e d ) 40,000,000 m a r k s .

119

............................

N at i on a l

M on et a r y

Commissi on

The average dividend income88 for the years 1870-1900
of shareholders in companies whose shares were quoted
on the Berlin exchange may be seen from the following
table:
Gross
| income.

Net ^
income.

P e r cen t.

P e r ce n t.

7-65

Stone and earthen industry (building material, glass, china) . .

7.62
8.86

“ 7 - 43
5-39
7 - 75

7 -05

9. 81
8.38

Life insurance.........................................................................

9-33

8.38

5-64

5 - 13

7-34

6 . 44

I I . 24

“ 6. 70
11.24

° 1880-1900.
The above explains why during the periods under consid
eration (especially during the years of great industrial
development, 1886 to 1889 and 1895 to 1899) there has
always been such a great demand for shares in industrial
companies. This of course increased the over-production
of enterprises, especially as large amounts of inert capital
continued to be stirred since 1879 by the nationalization of
the railways and the great conversions of state loans.
As far as that branch of industry is concerned which
played such an important part in the whole development
of the first period, viz, the mining and smelting industry,
the following details are noteworthy:
The German output of pig-iron in 1870 amounted to
only 23 per cent of the English output, the English iron
industry having occupied the first place in the world up to
1890, since when the American iron industry took the

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G e r m a n

G r e a t

B a n k s

lead. In 1880 the German output rose to an amount
equivalent to 35 per cent of the English output, in 1890
to 59 per cent, and in 1900 to 93 per cent; the English
production in the same year (1900) only equalled 63 per
cent of the American output.91 After the expiration of
the fifties the German output of pig-iron exceeded the
Belgian, and in 1880 the French output. (See p. 32.)
From the beginning of the period under consideration
to the end of 1907 the production of pig-iron in the Ger
man Empire (including Luxemburg) rose from 1,346,000
tons (1870) to 12,875,000 tons (1907). In 1907 the total
output of France amounted to 3,589,000 tons, that of
Great Britain and Ireland to 10,083,000 tons, whereas
that of the United States amounted to no less than
26,194,000 tons.92
The importance of the last item can be gauged by the
fact that in 1875 Germany and the United States pro
duced about the same amount of pig-iron (in round num
bers, each 2,000,000 tons), whereas at the end of 1907 the
production of pig-iron in the United States was more
than double that of Germany (including Luxemburg);
and, further, that between July 1903 and July 1907 the
pig-iron output of the United States increased by no less
than 140,000 tons per week, or 7,000,000 tons annually.93
Despite the very considerable growth in Germany’s
output of pig-iron during the period under consideration,
she was not able in the long run to meet her home con
sumption. Imports, especially from England, had to
be relied on to an increasing extent, and in 1907 they
totaled 443,624 tons.

121

N a t io n a l

M onetary

Commission

The pig-iron consumption in the German iron industry
increased considerably during the last few years of the
period in question (considering also the imports and
exports of pig-iron and the pig-iron contents of machinery
andiron manufactures imported and exported), namely,
from over 6,500,000 tons (or 111.50 kilograms per head
of the population in 1904) to 9,250,000 tons, or 147.60
kilograms per head of the population.94
As far as the proportion of exports and imports is
concerned, the same remarks apply as those made above
(pp. 112 and 113) regarding the development of industry
in general. In consequence of the great increase in home
consumption, the iron exports despite the greatly in
creased output, could not grow permanently, falling from
the high level of 480,575 tons attained in 1906 to 275,170
tons in 1907.
The output of co al95 increased in Germany during the
second period from 26,398,000 tons in 1870 to 143,185,000
tons in 1907 (valued at 1,394,271,000 marks); the output
in France amounted in 1907 to 36,168,000 tons; in Great
Britain and Ireland (including lignite) to 272,114,000
tons, while that of the United States amounted to not less
than 425,156,000 tons.
In 1907 the output of German coal amounted thus to
one-half the English output and to about one-third the
output of the United States.
The total value of all German mining products
grew from 314,000,000 marks in 1871 to about one and
three-quarters billion marks (1,844,920,000 marks) in
1907.M

iae

The

G e r m a n

G r e a t

B a n k s

The total production of the German electro-technical
industry, the enormous growth of which, beginning with
the middle of the nineties, exercised such a strong influence
on the other industries, causing in the main the general
over-production and the crisis of 1900, amounted as early
as 1898 to 228,700,000 marks. Of this sum 211,100,000
marks, or 92.3 per cent, was represented by the value
of articles belonging to the strong-current branch (which
was hardly developed twenty years before), and only
17,600,000 marks by the value of articles belonging to
the weak-current branch.
In 1883 Emil Rathenau, being convinced at the Paris
Exposition of 1881 of the far-reaching importance of the
new invention, formed together with Siemens & Halske
the first joint-stock company in the electric industry,
under the name of the D eu tsche E dison g esellsch a ft fu r
angewandte E lek trizita t. This company became inde
pendent of Messrs. Siemens & Halske in 1884, and de
veloped in 1887 into the existing concern of the A llThis firm was suc
cessful in improving the three-phased current to such a
gem eine E lektrizitd ts-G esellsch a ft.

degree that in 1891 300 horsepower was transmitted, with
very little loss of power, over a line of 175 kilometres to
the exhibition at Frankfort-on-the-Main, a feat that made
a great and permanent impression.
In 1896, as has been pointed out (p. 118), as many as
39 electrical joint-stock companies existed, with a total
capital of 195,610,000 marks, whereas in 1900 there
were quoted on the German exchanges the shares of 34
joint-stock companies in the electrical industry, with

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M on et a r y

Commission

436,000,000 marks capital (22 in Berlin alone, with
396,700,000 marks capital).
The rate of dividend income of the shareholders of
these 34 companies amounted, between 1883 and 1900, to
8.38 per cent.
During the nineties, up to the crisis of 1900, feverish
activity, coupled with an almost chaotic and incalcu
lable number of enterprises and forms of financing pre
vailed in the electrical industry, which in a very short
time had gained, at home as well as abroad, a position of
the highest importance. Eberstadt97 quite truly remarks
that at that time the great electrical companies “ were
simultaneously machine-construction factories, suppliers
of energy, and financing institutions,” and there was
scarcely a form of management or financing which was not
utilised in the nineties by the electrical industry. There
were syndicates, subsidiary companies (Tochtergesellschaften), and trust companies,98 the latter especially
intended to relieve the banks of part of their enormous
financial and other tasks connected with electrical under
takings,99 operating companies proper,100 and manufactur
ing companies, as well as financing institutions, increases
and reductions of capital, silent participations, commandites, issues and sales in the open market, fusions, pooling
of profits (Gewinngemeinschaften) , buying of shares,
separations and combinations, independent and syndi
cated enterprises abroad, conventions, syndicates and
cartels at home and abroad. In short, a medley of under
takings which might well have led outside observers
during those years to imagine that far more paper was

124

The

G e r m a n

G r e a t

B a n k s

produced in the electric branch of industry than power
and light.
To-day, when a condition of relative quietness has set
in and the early movement may be said in a sense to have
terminated, it will be seen that the sphere of activity of
the electro-technical industry, although only comprising
a relatively small number of prominent companies (see
Part V, sub. II, ia), has extended very largely.
Trade and industry headed by the mining industry, as
well as a considerable number of secondary electric rail
ways, and more recently agriculture, absorb a constantly
increasing amount of light and power. The change of
standard railways from steam to electric railways, which
is only a matter of time, will create new and profitable
employment for the electro-technical industry.
In 1907 the German exports of products of the elec
trical industry amounted to about 153,000,000 marks and
the imports to about 8,000,000 marks.101 In 1907 the
electrical industry gave employment to 100,966 workmen,
as compared with 54,417 in 1898.
According to a circular inquiry made by the German
home office in 1899, the total value of the products of the
German electrical industry amounted to 228,700,000 marks,
as compared with 45,000,000 marks in 1891, a fivefold
increase in eight years.
As regards the chemical industry,102 according to Hiibner (“ Jahrb. f. Volksw. u. Statistik,” Vol. TIX , p. 146),
9 German chemical joint-stock companies, with a capital
of 7,300,000 marks, existed during the period 1854 to 1859;
in the seventies, however, their shares were no longer
quoted on the stock exchange.

“ 5

N ational

Monetary

Commission

The enormous growth of the chemical industry and its
dominant position in the world market date really from
the beginning of the seventies. Beginning with the sum
mer of 1870 to the end of 1874, no less than 42 companies,
with 42,000,000 marks capital, were formed.
In 1883, according to the D eutscher O ekonom ist (1885,
p. 75), no less than 51 companies, with a total capital of
127,220,000 marks, published their balance sheets.
In 1896 there were in existence 108 joint-stock com
panies, with a total capital of 332,890,000 marks, their
number having thus doubled since 1883.
The number of establishments in which more than 100
persons were employed, increased, between 1888 and 1898,
from 156 to 247, or about 60 per cent in ten years.
In 1902 there were 7,539 establishments in this indus
try employing 160,841 workmen with a total wage list of
about 164,000,000 marks, as against 5,758 establishments
with 110,348 workmen and a total wage list of 98,621,506
marks in 1894, and 4,464 establishments with 85,143 work
men and a total wage list of 67,300,000 marks in 1888.
From 1882 to 1895, or in thirteen years, the number of
workmen employed in the chemical industry increased 61
per cent. A t the end of 1898 a total of 216,580 workmen
and other employees in the German chemical industry were
contributing to the obligatory insurance funds. The total
wages and salaries of all workmen and employees, accord
ing to the B e rich t Tiber d ie Verw altung der B erufsgenossenschaften der chem ischen In d u str ie for 1908, page 3, amounted
to 248,731,687 marks.
ments was 8,699.

The number of insured establish

126

The

G e r m a n

G r e a t

B a n k s

According to the census of June 14, 1895, there were
then in the chemical industry:
Number.
Small establishments (i to 5 persons)--------------------------Middle-sized establishments (6 to 50 persons)----------------Large establishments (51 persons or more).......................

8. 228
1, 781

Employees.
18,122
25.993

376

71,116

10.38s

10* n s . 231

The results of the latest census have not yet been pub
lished. Large establishments, while forming only a very
small part of the total number, gave employment to
almost two-thirds of all the workmen employed in the
chemical industry.
In 1907, 8,816 factories employing 207,704 hands figured
in the lists of the state insurance authorities, i. e., belonged
to the trade association of the chemical industry.104
The total amount of wages and salaries paid to workmen
and officials in the chemical industry amounted in 1907 to
230,223,733 marks.
The imports into Germany of raw materials for use in
the chemical industry and partly and wholly manufac
tured chemical products amounted in 1907 to 43,586,417
metric quintals of 100 kilograms each, valued at
55 2»4 I 4 >ooo marks, and the exports to 31,539,353 metric

quintals, valued at 640,418,000 marks.105
In 1907 the import trade decreased somewhat while the
exports fell off considerably; the only large increase being
shown in the exports of artificial indigo.106
A change in the English patent law directed against
the predominance of the German chemical industry, and
introduced on the 1st January, 1908, provides that every

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M on e t a r y

Commission

holder of a patent must manufacture his patented
invention in England after four years’ time from the date
when the patent was taken out in that country. As this
law was given retroactive force, and became applicable
twelve months after it had been passed, many German
chemical factories had to erect branch factories in England.
This naturally increases total expenses, but on the other
hand allows the goods manufactured in English branches
of German chemical factories to enjoy preferential duties
granted by some English colonies to the mother country.107
It may, however, become necessary to make a corre
sponding change in the German patent law, so far as Great
Britain is concerned. The ultimate result of the latest
unpleasant move on the part of our English competitors
may thus cause more harm than good to British industry,
as was the case with the act which provided for the com
pulsory marking “ Made in Germany ” of imported articles
of German manufacture.
Further details regarding the concentration movement
in the chemical industry are given below (Part V, sub.
II, ib).
The census of June 24, 1895, gives the following data
regarding the number of establishments and average num
ber of persons employed in the textile industry:
Number.

Employees.

193.358
8,674

1 4 7 .4 7 7

3, 260

587.599
993.257

The very important position occupied by the textile
branch in German industry is very evident from these

128

The

G e r m a n

G r e a t

B a n k s

figures, as according to the census of 1895 the total number
of German establishments of all descriptions amounted to
3,144,977, employing on an average 10,299,269 persons.108
Of the 450,000 to 490,000 home workers, counted in
1895, almost one-half belonged to the textile branch of
industry, although the number of textile home workers
had decreased by 90,000 persons between the years 1882
and 1895, and in various branches of the textile branch
by one-fifth to three-fourths of the original number.
Since, however, despite this great decrease of hand-loom
industry in the textile branch (due principally to the
growth of large-scale machine industry), there was in 1895
a falling off of only 18,000 persons employed in home
work in German industry as a whole, as compared with
the number in 1882, it is evident that home work has not
declined in many German industries, but rather increased.
Ludwig Pohle109 is quite right in calling special attention
to this very interesting fact and to the above figures.
The fact should also be emphasized that the number of
home workers increased in the large towns from 31,000 to
71,000 between 1882 and 1895, having thus more than
doubled during these thirteen years.110
In the 3, 144,977 establishments mentioned above as
existing in the German Empire in 1895, the 10,269,269
employees were distributed as follows:111
Number.

Total.......

903110—11—

129

Average
number
employees.

2 .934.7*3
19 1,3 0 1

4.770.669

18 .953

3 , 044 . * 6 7

3.*44,977

10,369,269

2.454.333

National

Monetary

Commission

The number of large establishments is relatively small,
although between the years 1882, when they totaled
9,974, and 1895, their number had increased no less than
90 per cent. In view of this, the fact is particularly
striking that almost one-third of all persons occupied in
industry were employed in these large industrial estab
lishments.
If we turn our attention to the enormous development
of the means of communication during this period, taking
the railways first, it will be seen (p. 35) that the network
of German railways comprised 27,981 kilometers as long
ago as 1875. As far as main lines are concerned, the Ger
man railway system was completed in the main during the
eighties. In the second period (the one under considera
tion) the private German railways were acquired by the
State, and the network of main and branch lines (standard
gauge) in Germany 112 at the end of 1907 totaled 56,196
kilometers, including 51,871 kilometers of railways owned
by the Government or managed on Government account,
and 4,320 kilometers of private railways.113 Of 53,822
kilometers in 1904, 33,734 kilometers belonged to the
Prussian-Hessian Railway Union.114
The capital invested in these standard-gauge main and
branch lines amounted at the end of 1902, in round fig
ures, to 12,lA billion marks, and at the end of 1907 to about
15K billions, or at the end of 1902 to 258,000 marks per
kilometer, and at the end of 1907 to 277,100 marks per
kilometer of railway line.
At the end of 1906, 1,284,676,000 persons and
508,270,000 tons of goods113 were conveyed by these
railways. An average number of 20 railway journeys is
130

T h e

G e r m a n

G r e a t

B a n k s

thus shown for every inhabitant of Germany during the
year.
The total traffic receipts of the standard gauge railways
amounted in 1907 to 2,745,000,000 marks, and the total
expenses of operation to 1,894,000,000 marks. The sur
plus of traffic receipts over expenses of operation was thus
851,000,000 marks; the rate of profit on the capital in
vested amounted to 5.60 per cent, and the percentage of
expenses of operation to traffic receipts (coefficient of
operation) amounted in 1907 to about 69 per cent.
The home requirements of the German railways for
rolling stock alone amounted in 1907 to 288,000,000
marks. The requirements for operating material and
superstructure of the German railways during the last
fifty years, which were principally met by German mining,
metallurgical, and machine construction industries, have
been estimated at about 5 billion marks.118
In addition to the standard-gauge main and branch
lines, on April 1, 1907, there were in operation 3,719.2
kilometers of public street railways (K le in b a h n e n ) and
8,991-9 kilometers of secondary railways (nebenbahnahnliche
K le in b a h n e n ) . 111 To these must be added the narrowgauge state and private railways (end of 1907, 2,100 kilo
meters),118 besides sidings, mining, agricultural, and forest
railways not used by the general public.
As far as the postal service is concerned, it has been
pointed out (p. 37) that in Prussia during 1851 only about
three letters were received per head of population; in 1906,
over 5 lA billion letters and post cards (5,393,300,000)
were dispatched in the German Empire (including Bavaria
and Wurttemberg), averaging 86 letters per head of

131

N at ion a l

M on e t a r y

Commission

population. Printed matter (newspapers), samples as well
as parcels and articles of value are not included in the
above total.119 In 1904 the number of mail matter dis
patched averaged 115 per head of population, and in
the same year there was one post-office to every 14
square kilometers of area and every 1,458 inhabitants.
A t the end of 1907 there were 40,083 post-offices in Ger
many; at the end of 1906 there was one post-office to
every 1,530 inhabitants and 13.60 square kilometers.
In 1882 one telegraph office did duty for every 133.7
square kilometers; in 1904 there was one for every 18
square kilometers, with a total of 35,100,000 telegrams, or
an average of 0.65 telegram per head of population. At
the end of 1907 the number of telegrams dispatched
amounted to nearly 44,000,000, and the number received
to 46,000,000. At the end of 1907 there was an average
of 0.71 telegram sent per head of the population, and a
like number received. On the same date there were
37,309 telegraph offices in Germany.120
As to telephones,121 which were adopted during the
period under discussion, there were in Germany, at the
end of 1907, 30,901 towns and villages, etc., provided
with long-distance telephone offices (1899, 13,175). At
the end of 1907 87,521 (1899, 1,964) places could com
municate with each other by telephone. Over 927,000,000
telephone conversations took place in 1903, and
1,466,000,000 in 1907. In 1907 there were 18.2 telephonic
messages per head of the population. In Berlin alone
there were in 1898 over 40,000 telephone call places, with
68,000 kilometers of line, over which 38,000 conversations
were carried on daily. In 1904 there was one telephone
132

The

G e r m a n

G r e a t

B a n k s

office to every 23.5 square kilometers and 2,448 inhab
itants.
The total value of all German merchant vessels
amounted at the end of 1897 to about 300,000,000 marks,
at the end of 1899 to about 500,000,000,122 and at the end
of 1905 to about 810,000,000 marks (as compared with
290.000. 000 marks in 1895 and 426,000,000 marks in 1898).
On the 1st of January, 1908, Germany possessed 4,571
seagoing vessels (merchantmen), with a carrying capacity
of 2,790,435 net registered tons, and a total crew of 71,853
men.
These 4,571 merchant vessels included 2,345 sailing
vessels of 433,749 net registered tons, 304 tugs of 99,903
tons, and 1,922 steamships of 2,256,783 net tons regis
ter.123
The net registered tonnage of the German merchant
marine (steam vessels) has increased from 375,000 tons
in 1884, to 2,257,000 tons (in round numbers) in 1908.124
According to the memorial of the admiralty, dated De
cember, 1905, entitled “ D ie E n tw ick elu n g der deutschen
Seeinteressen im letzten Ja h rzeh n t ” (Introduction, p. VI),
the shipping at German ports increased between 1893 and
J9C>3 by over 52 per cent, or from 27,500,000 to almost
42.000. 000 net registered tons. In 1907 it amounted to
56,129,000 net registered tons. In the same memorial it is
stated that Germany has been progressing about four times
more rapidly in international sea traffic than in popula
tion, while the increase of trans-marine traffic in German
ports has been almost six times as great.
As far as sea-going steamships are concerned, the Ger
man merchant marine occupied in 1874 fourth place,

*3 3

N at i on a l

M onetary

Commission

whereas the British, American, and French mercantile
fleets took the first three places in the order named.
In 1884, however, Germany caught up with the United
States (the ocean fleet of which had decreased considerably
by that time), and in 1889 France was outdistanced. In
1908 Germany, with a net tonnage of 2,328,000 tons,
occupied the second position on the list, although possessing
only 11.2 per cent of the steamships of the world’s mercan
tile marine. On the other hand, England, whose progress
naturally was relatively smaller during that period, pos
sessed in 1908 no less than 10,350,000 net tons, or 50.2
per cent of the world’s mercantile fleet of steamships,
which latter amounted to 20,633,000 net registered tons.125
As regards her sailing fleet, Germany between 1880 and
1901 occupied fourth place among the nations, owning in
1880 957,000 tons out of the world’s sailing tonnage of
6,994,000 tons. In 1908 it occupied only sixth place,
with 459,000 net tons register. The following are the
figures for the other countries:126
Tons.
1,591,000
1, 419, 000
667.000
569, 000
510.000

E n g l a n d ...........
U n ite d S t a te s
N o r w a y ............
R u s s i a ...............
F r a n c e ..............

The officers and crews of the German seagoing ships
(sailing vessels, tugs, and steamships) numbered on Jan
uary 1, 1909, 72,450 persons, distributed as follows: Sea
men, 34,308; engineers, 23,201; and various, 14,941.127
It is pleasing to note that subsidies were granted by
Germany solely for the maintenance of regular lines of
mail steamers of the North-German Lloyd and the Ger

134

The

G e r m a n

G r e a t

B a n k s

man East Africa Line (the Hamburg-American Line does
not receive any subsidy) to eastern Asia, Australia,
Africa, and New Guinea beginning with the year 1894.
The amount paid in 1909 did not exceed the very mod
erate total of 7,440,000 marks, equal to 1.85 marks per
registered ton.128 These amounts include also the pay
ments for carrying the mails.
As against this small amount Great Britain has been
paying since 1902 to the Cunard Line alone a yearly sub
sidy of £150,000, besides granting to that company a
loan of £2,600,000, bearing only 2 ^ per cent interest.
The total subsidies granted by that country were not
less than 34,000,000 marks (1.95 marks per registered
ton). France spends 53,000,000 marks in subsidies
(28.00 marks per registered ton), Austria-Hungary,
26,000,000 marks (26.70 marks per registered ton), and
Japan, 28,500,000 marks (24.70 marks per registered
ton).129
The most prominent of the German shipping compa
nies are the following:
1.
The Hamburg-American Packet Joint Stock Com
pany, at Hamburg, founded May 27, 1847, with a capital
of 300,000 marks (Hamburg currency), which has under
gone not less than sixteen increases from 1853 to the present
day.130 This company began operations in 1848 with 3
sailing vessels, steamers between Hamburg and New York
being introduced only in 1856.
A t the end of 1908 the company’s share capital amounted
to 125,000,000 marks, and its surplus amounted, on Jan
uary 1, 1909, to 16,800,000 marks.

13s

N at i o n a l

M on et a r y

Commission

The amount of bonds issued was originally 55 x
/ 2 million
marks. At the end of 1908 the outstanding bonds
amounted to 76.4 million marks.
The number of the company’s ocean steamers amounted
at the end of 1908 to 162, with a book value of 185,953,076
marks.
2.
The Norddeutscher Tloyd, at Bremen, was founded
in 1857, or ten years after the Hamburg Company, banks
and banking firms participating to a considerable extent.
Its original share capital amounted to 9,513,772 marks
(28,643 shares, at 100 former Bremen gold thalers). In
1859 tte company started a regular fortnightly service
with four steamers between Bremen and New York.
The company’s share capital totaled 125,000,000 marks
at the end of 1908, while its surplus funds have been
used up by losses.
Its bonded indebtedness originally amounted to 70
million marks. A t the end of 1908 the bonds outstand
ing amounted to 76,034,700 marks.
The company’s ocean-going fleet numbered at the end
of 1908 127 vessels (besides 2 schoolships), with a book
value of 189,114,000 marks.
Between 1902 and 1903 these two companies 131 made
essentially identical agreements 132 with the International
Mercantile Marine Company, which was founded Jan
uary 1, 1903, by American bankers and shipowners, with
a capital of $120,000,000 (of which $60,000,000 were
common and $60,000,000 preference shares), and which
comprised nine American and English steamship lines.
This company, which is named the “ Morgan trust,” after
the originator of the association, is authorised to issue

136

T h e

G e r m a n

G r e a t

B a n k s

bonds to the extent of $75,000,000, of which $50,000,000
were issued at once. The contracts with the two German
companies, which are almost identical in tenor, have
been concluded for a term of twenty years, and contain
a stipulation that either party has the right after the
expiration of ten years to demand their revision; should
a revision not be agreed to, a year’s notice may be given
for the termination of the agreement.
These international agreements contain the following
points:
1.
A demarcation of fields of operation: the right of
traffic to and from all German ports is reserved to the
German companies; the trust’s ships may enter German
ports only by their consent, whereas German ships,
coming from New York, may enter English ports for the
purpose of embarking passengers (each company 75
times yearly in any direction). The German companies’
ships bound for South America, Mexico, and the West
Indies, as well as those bound for such countries with
which the trust maintains no service, may also touch at
English ports.
On the other hand, the German companies abandon
in the main all claims to the Anglo-American freight
business.
Belgian ports (at which German ships had not called
before) are not to be touched by the German companies’
ships on their way to North America; the status quo
forms the basis of the arrangement for calls by German
or trust steamships at French ports. The German com
panies, however, are at liberty to increase their sailings
from French ports at their own discretion. In case such
137

N a tio n a l

M onetary

Commission

an increase takes place, the trust is entitled to an equal
increase.
Should any of the contracting parties desire to found
a new line (permanent reservation is made expressly in
favour of the newly instituted lines of the HamburgAmerican Company between New York and the West
Indies and between New York and eastern Asia), notice
of the intention must be submitted to the common com
mittee of supervision. This committee does not possess
the right of veto, but the other contracting party has
the right, in such a case, of participating to the extent of
one-third in the proposed line (coasting lines excluded).
An agreement has been arrived at whereby the return
tickets of cabin passengers on North Atlantic lines of the
various companies are valid for all lines belonging to the
combination. Negotiations were likewise pending for a
common time-table for first-class steamships with alter
nating departures during the quiet season. These nego
tiations however, it seems, were not successful.
The agreements contain—
2. A reciprocal participation in profits whereby the
German companies allow the trust annually a quarter
of the amount of the dividends paid in excess of 6 per
cent, whereas the trust pays to the German companies a
quarter of the amount which they may lack in order to
pay a dividend of 6 per cent.
3. An arrangement for mutual accommodation in cer
tain cases; i. e., each party before applying to outside com
panies must charter ships from the other party in the event
its own tonnage is found insufficient; also a provision

138

The

G e r m a n

G r e a t

B a n k s

to the effect that both parties under certain conditions
are to support each other against outside competition.
Both contracting parties bind themselves not to acquire,
directly or indirectly, shares in each other’s concerns.
The evasion of this prohibition has been made more diffi
cult by the German companies in 1902 (after the conclusion
of the agreement) by alterations in their by-laws to the
effect that in certain questions of national importance
resolutions may be passed only by a majority of threefourths (in the Hamburg-American Company by fourfifths), and at two consecutive general meetings, and that
the members of the executive and supervisory boards must
be Germans domiciled in Germany.
The supervision of the proper execution of the agree
ment is placed in the hands of a committee consisting of
an Englishman and an American belonging to the trust
management and the directors-general of the two German
companies.
The agreements become null and void in case of war
between Germany and Great Britain or the United States,
or in case of war between Great Britain and the United
States.
In 1908 an agreement was arrived at between the Ham
burg American Steam-packet Company (Hapag) and the
Woermann Tine on one side, and the North German
Eloyd and the Hamburg Bremen Africa Line on the other
side. (At first only till the end of 1912.) The agreement
creates a limited community of interest between the
companies involved and regulates the traffic to West
Africa by excluding any independent action in connection
with the West African traffic by any of the parties to the
agreement.

139

N at i o n a l

M onetary

Commission

Shipbuilding, which was promoted by German banks to
a great extent,133 became prosperous again only in the
eighties. It was only about that time that the British
practice of substituting iron for wood as the main mate
rial in shipbuilding, which began about i860, was first
followed by German shipyards. The “ Vulkan” at Stettin,
the shipbuilding yards of Fr. Schichau at Elbing and
Danzig, of Blohm & Voss at Hamburg, and of the “ Weser ”
Joint Stock Company at Bremen stand at the head of
German shipbuilding. In this industry the joint-stock
companies showed in 1907 a total share capital of
54.000. 000 marks and a debenture capital of about
25.000. 000 marks.
According to the occupation census of 1895, 22,731
persons were employed in German shipbuildii%, a number
which must have considerably increased during the last
fourteen years.
According to the data of the Germanischer Lloyd a
total of 368,440 gross registered tons of shipping (seagoing
steamships and sailing ships, river boats, other vessels,
and war ships) were built during 1907, the figures for 1908
being 279,137 gross registered tons; a large part of Ger
man sea-going merchant vessels (up to 1905 about onethird) is still being built abroad.
Germany’s share in the shipbuilding of the world (mer
chant vessels exceeding 100 tons) as compared with Great
Britain’s has been as follows:

1892-1897________________
1898-190s-------------- ------------- -----------1906-1907---------------------------------------

Germany.

Great Britain.

P e r cen t.

13.8

140

67.4
60.3

The

G e r m a n

G r e a t

B a n k s

American shipbuilding (iron and steel vessels) in 1907-8
increased about sixfold as compared with 1892-1897.
If we turn from sea navigation, with its enormous di
mensions, to inland navigation, which has developed con
siderably since the forties of the last century, it will be
found that 14 new joint-stock companies were founded in
this field during the eighties and six additional companies
in the nineties.134 The economic value of the German
waterways was estimated in 1895 at over 1,500,000,000
marks.
On December 31, 1907, there were 26,235 vessels, with
a carrying capacity of 5,914,020 tons, occupied in inland
navigation, including 22,923 without power of their own
and 3,312 ships with power of their own (steamships and
motor boats).135 The total length of navigable waterways
was 13,748.6 kilometers.138
In 1895, 22 per cent of the total traffic fell to the share
of waterways and 78 per cent to that of the railways. The
amount of traffic carried on each kilometer of waterway
was 750,000 tons, and on each kilometer of railway 590,000
tons.
I take it for granted that the large increase of the
German navy during the period in question, which in
its turn resulted in important orders to and great activity
of various branches of German industry, is generally
known.137
We shall now take up the subject of currency (Z a h lungsverkehr) .
Before the foundation of the German Empire there
existed in Germany 31 banks authorised to issue bank
notes; to-day there are only 4 private note banks (in

141

N at ion a l

M on e t a r y

Commission

Bavaria, Saxony, Wiirttemberg, and Baden) in addition to
the Reichsbank inaugurated on January i , 1876, in accord
ance with the law passed on March 14, 1875.
The Reichsbank,138 which took the place of the old
Preussische Bank, is a bank under the supervision and
management of the Empire, established with private
means and constituting a corporate body (juristische
Person) though not a joint-stock company. According
to section 12 of the bank law it is allotted the task “ of
regulating the money circulation of the whole Empire, of
facilitating payments, and of utilising available capital.”
The original capital, divided into shares (each bearing
the name of the owner), amounted at the time of founda
tion to 120,000,000 marks, and since the supplementary law
of June 7, 1899, has reached the amount of 180,000,000
marks; the surplus funds amount to 64,814,000 marks.
The management of the Reichsbank rests in the hands
of the Imperial chancellor, and, subject to his authority,
in those of the president and of the Reichsbank directors,
who are appointed for life; supervision is carried on by a
board of bank curators (curatorium), consisting of the
Imperial chancellor as chairman and four members.
The cooperation in the management by the share owners
(chiefly in an advisory capacity) is exercised through the
general meeting, and through the central committee
elected from its midst, which consists of 15 members and
15 alternates. The committee, which meets at least once
a month, under the chairmanship of the president of the
board of directors, receives monthly reports of the general
business situation as well as proposals for measures that
may be deemed necessary. (Sec. 32.) I ts expert op inion is

142

The

G e r m a n

G r e a t

B a n k s

also to be heard on a number of questions, such as the dis
count rates and the maximum amount to which the funds
of the bank are to be applied to loans on collateral (see sec.
32 a -f); it elects 3 deputies, whose duty it is to exercise
supervision over the management of the Reichsbank, and
who are authorized to inspect the books of the bank, and
to participate in the meetings of the board of directors
(with advisory powers). No business with the Empire,
or the German Federated States for which unusual terms
are to be made, is to be transacted unless approved by a
majority of the central committee.
At the chief branches of the Reichsbank, established in
large towns outside Berlin {Reichsbankhauptstellen) , dis
trict committees are formed from among the shareholders,
invested with the same functions as the central committee.
The local committees in turn elect 3 deputies for the con
stant control of the business management of the local
office. Over 500 various branches are in existence at the
present day.
The Reichsbank has the right to issue bank notes with
out direct limitation according to the requirements of its
business.139 Its right is only limited indirectly by section
17 of the bank law, w'hich enacts that the bank must
possess in bullion and Imperial treasury' notes a minimum
of one-third of the amount for w^hich notes are issued,
and for the remainder— discounted bills fulfilling the re
quirements of the Bank Act {bankmassige Wechsel) ; fur
thermore, that a tax of 5 per cent must be paid on the
notes issued in excess of the cash reserve, i. e., bullion,
treasury notes, and notes of other banks, and of its
so-called tax-free contingent.
(Sec. 9.) The latter

143

National

Monetary

Commission

amounted, according to the Bank Act, to 250,000,000
marks, and since the liquidation of various private note
issuing banks to 472,829,000 marks. The bank is bound
to redeem its notes at all times “ in German gold coin,” 140at
the main office in Berlin on presentation, and at its branch
offices in so far as the available cash and money require
ments permit.” (Sec. 18.)
In view of its power of issuing notes, i. e., obligations
that may fall due at any moment, the Reichsbank is
allowed to engage only in certain classes of transactions.
It is confined to transactions in precious metals; to the
discounting of bills running for not more than three
months and for which 3 or at least 2 persons of known
solvency are liable; the purchase and sale of imperial gov
ernment bonds, of the bonds of Federated States, or of
domestic municipal corporations payable at their face
value at the latest in three months; the granting of
interest-bearing loans on collateral for a period not exceed
ing three months on movable pledges exactly defined by
law (sec. 13, clause 3 a-c); the purchase and sale of Ger
man debentures, exactly defined by the Bank Act (sec. 13,
clause 4 and 3b) (even if not due after three months); the
collection of commercial bills, the purchase and sale of
precious metals or of securities of all kinds on account of
third parties (security being given in advance); the re
ceiving of interest— and noninterest-bearing moneys on
deposit and on giro account, with the proviso that the
amount of the interest-bearing deposits must not exceed
the limits of the combined capital and the surplus funds
of the bank; finally, the custody and management of
articles of value.

144

The

G e r m a n

G r e a t

B a n k s

The Reichsbank is required to publish from time to
time the rate at which it discounts or advances money on
collateral (sec. 15); like all other note banks (sec. 8), it
must publish the state of its assets and liabilities under
date of the 7th, 15th, and 23d, and the last day of every
month (at the latest five days after the above-mentioned
dates). It must also publish within three months after
the end of the financial year an exact balance sheet of its
assets and liabilities, as well as a statement of its profit
and loss for the year. All these statements must be
published in the “ Reichsanzeiger.”
From its foundation to the present day the Reichsbank
has fulfilled all the tasks devolving on it under section 12
of the bank law in an almost exemplary manner. The
details are well known and can only be summarized here.
The Reichsbank has rendered service in the first in
stance in facilitating payments through the introduction
on April 10, 1876, of “ giro” transactions, the principle of
which is that in lieu of payment in cash between the
“ giro” customers of the banks, book transfers may be
made by writing off the amount to be paid from the
account of the payor and transferring it to that of the
payee. “ Giro ” transactions form the most simple method
of settling claims and counterclaims at one and the same
bank, namely, by transfer from one account to another.
Since 1883 so-called compulsory clearance ( “ Verrechnungs-Zwang” ) has been introduced for “ giro” customers,
according to which all claims of a “ giro ” customer arising
out of bill or collateral credit granted by the Reichsbank
are not paid in cash, but placed to the credit of his “ giro ”
account.
\

903“

° — 11— *— i x

145

National

M on et a r y

Commission

Since 1896 most of the imperial treasuries, as well as
the state treasuries of Prussia and Baden, have opened
“ giro” accounts with the Reichsbank.
The number of “ giro” accounts increased from 3,245
in 1876 to 24,821 in 1908; aside from the governmental
treasuries these accounts stand mostly in the name of
large commercial and industrial concerns,141 so that up to
the present the “ giro” transactions of the Reichsbank
have partaken of a somewhat plutocratic character.
Therefore, in the interest of the more economical use of
cash as means of payment, the introduction of the postal
transfer and check system on January 1, 1909, must be
welcomed, as largely extending the circle of firms and per
sons who settle their claims and counterclaims by means
of transfer. As the Reichsbank has also joined this postal
transfer and check system, transfers can be made by firms
possessing postal-check accounts to Reichsbank “ giro”
accounts of other firms by means of the Reichsbank
postal-check account. In the same manner the possessor
of a postal-check account, who likewise has a “ giro”
account at the Reichsbank, may have the amounts stand
ing to his credit in his postal-check account transferred
to his “ giro” account at the Reichsbank.
Through this interlocking of postal check and Reichs
bank “ giro” systems (which latter might be considerably
extended), and through a still greater fostering of the use
of checks, whose ultimate liquidation, however, should
be effected by transfer and clearance, rather than by cash
payment, the present antiquated and unsatisfactory meth
ods of payment in Germany will be considers- jly improved

146

The

G e r m a n

G r e a t

B a n k s

A great and necessary improvement would be brought
about by suitable agreements with foreign postal savings
banks, central note banks, and credit banks, whereby their
transfer systems might be made to cooperate with the
transfer systems of the German post-office and Reichsbank.
A first step in this direction is the arrangement of Feb
ruary i, 1910, for the clearing of postal checks and trans
fers between the German postal administration and the
postal savings bank administrations in Vienna and Buda
pest as well as the Swiss postal-check bureau.
The “ giro” transactions of the Reichsbank with private
persons, private firms, and public treasuries in 1907 were
as follows:
A verage am ount of each a c c o u n t_______________ ____ __
A verage volum e of transactions per a c c o u n t____________

Marks.
24, 116
io, 876, 564

whereas the total volume of “ giro” transactions during
1907 amounted to 260,656,851,081 marks.14*
The number of postal-check accounts amounted at the
end of November, 1909, to 23,847, with a total balance
of 70 ,955.349 marks to the credit of persons and firms
having such accounts.
The means at the disposal of the “ giro” department
strengthen the operating resources of the Reichsbank or
its power to serve the whole economic community by way
of bill and loan transactions, and enable it to make the
most rational use of its bank-note issue. A t the same
time the currency set free through the “ giro” method of
payments can be utilised for credit business.
The “ giro” business of the Reichsbank, which is re
stricted to its customers, should be supplemented by the

147

National

M on e t a r y

Commission

clearance system, which aims at discharging claims and
debts (especially checks, bills, etc.) among a number of
institutions and their clientele by means of balancing
their accounts— i. e., with the least possible use of cash.
A clearance system [Skontrationsverkehr] of this de
scription, which has long been organised on a much larger
scale abroad in the form of clearing houses, (especially
in England and the United States), was instituted in Ger
many as late as 1883, in which year the Reichsbank
founded clearing branches [Abrechnungsstellen]. A t the
close of 1908, when there was a total of 17 clearing houses
with 198 members, the amount of paper presented for
clearing had increased to 10,531,271 from 1,979,012 in
1884, and the total sum cleared from 12,130,196,000
marks in 1884 to 45,960,854,400 marks in 1908.
In the three foreign financial centers, the total value of
clearances was as follows:
1884.
Marks.

France (Chambre de Compensation des
Banquiers de Paris)____________
England (London Bankers’ Clearing
house comprising City, Country, and
Metropolitan Clearing....... ...... ......
United States (Associated New York
Clearing-house banks).......................

1907.
Marks.

3 . 3 5 5 . 47 S.OOO

81 . 389, 310 , 000

118, 464, 479, 000

360, 081, 939, 000

143.186,557,000

!a 366, 165,106, 000

The small amount cleared at the German clearing
houses at the present time as compared with the clear
ing houses of the two last-mentioned countries is due on
the one hand to the gratifying circumstance that large
payments in Germany are effected with outside places by
means of “ giro” accounts, or transfers on the books of

14 S

The

G e r m a n

G r e a t

B a n k s

the Reichsbank or post-office, and on the other hand
to the less gratifying fact that payments in Germany
are much less effected by means of checks which in turn
would pass through the clearing houses.
It should be stated, though, that the check law of
March n , 1908, passed after protracted opposition, has
removed a series of obstacles that have hitherto stood in
the way of the development of the check system in
Germany.
The total turnover of the Reichsbank 144 amounted in
1908 to 305,244,504,000 marks, or, in round figures, 305^
billion marks, as compared with about 47 JT billion marks
in 1877 and about 142 billion marks in 1897; in these
total turnovers, cash payments are superseded by “ giro”
transfers to a constantly growing extent. Thus the
volume of giro transactions increased from 41 billion
marks in 1886 to 188 billons in 1905, and it is due mainly
to this circumstance that the Reichsbank has been able
to operate with a relatively small amount of bank notes
even in periods of increased business activity.
The doubling of German bank-note circulation in 1907,
as compared with the average for 1881-1885— despite
the great increase in gold coinage and in the extent of
the giro transactions, is a clear proof of the enormous
growth of the requirements for means of payment on the
part of the greatly increased population during the period
under consideration.

149

Reichsbank.

1 8 8 1 — 1 8 8 5 ____

_ _ .............. _
________

.........
„

........

____ ___

1 8 8 6 - 1 8 9 0 __________________________

1 8 9 1 - 1 8 9 5 - ------------ -- ---------------- ---------------------------------. . . ............. ................ -

M a rks.

6 8 1 ,0 0 0 ,0 0 0

IS-

736, 800, 000

913, 400,

Amount.

M a rks.

Per head
of
population.
M a rks.

Amount.

Per head
of
population.

M a rks.

1 , 9 1 2 , 7 0 0 , OOO

-5

5 7 1 , 3 0 0 , OOO

1 6 .8

1 6 .0

2 . 2 6 8 , 9 0 0 , OOO

59- 9

5 2 2 , 6 0 0 , OOO

14- 7

OOO

19- 0

2 , 2 8 5 , I O O , OOO

59-

4 9 9 .5 0 0 ,0 0 0

13- 5

1 , 0 0 7 , 4 0 0 , OOO

19. 8

2, 7 02 ,

70. 4

5 2 3 , 4 0 0 , OOO

13- 5

I O O , OOO

20. 5

3 , 0 5 2 , 8 0 0 , OOO

7 8 .8

5 6 5 , 6 0 0 , OO O

14. O

21-5

3 ,4 4 7 ,4 0 0 ,0 0 0

88. 2

5 9 2 , 3 0 0 , OOO

13.9

3 . 8 9 7 , 4 0 0 , OOO

99. 1

5 9 1 , 3 0 0 , OO O

13-4

I , 4 7 8 , 8 0 0 . OOO

►0

I , I 1 4 . 8 0 0 , OOO
1 , 2 5 8 , 6 0 0 . OOO

_________________

1 9 0 1 - 1 9 0 5 ------------ ------------------------------------------------------------------------------------------------

Commissi

Per head
of
population.

oS'i

1 8 9 6 - 1 9 0 0 __________________________________________________

Amount.

Bank of England.

M on e t a r y

1 8 7 6 —1 8 8 0

Bank of France.

National

The average circulation of bank notes amounted to—

The

G e r m a n

G r e a t

B a n k s

The reserves of the Reichsbank for the issue of bank
notes amounted to—
Cash.
Aver- Highest.
age.

1896—1900_______
1908______ ____

T
Low- Aver- High- Low- Aver- High- Lowest.
est.
est.
est.
age.
est.
age.

Per
cen t.

P er
c en t.

79-5

102. 9
89. 4

S i- 9
49-9

72.8

Gold.

Metal.

P er
cen t.

Per
cen t.

P er
cen t.

Per
cen t.

76.4

99-4

82.6

49-7
44. 2

52 .4

66.9

51-5

71. 7
6S-6

Per
c e n t.

32.6
32.0

As compared with this, the note issue reserves held by
the banks of France and England were as follows:
Bank of France.
Metal.
P e r cen t.

1886-1900__ _
___ _ ____________
1907------------- - ------------ -------------------------- -

Bank of England.

Gold.

Metal.

Gold.

P e r cen t. P e r cen t. P e r cen t.

87.8
84. 1

52. 0
56. 2

76.3

99. 0
129. 9
120. s

98.3
129. 1
117. 7

The proportion of reserves of the Reichsbank to bank
notes knd other moneys falling due daily (the giro assets
in the first instance) was:
Cash.

Metal.

Gold.

Aver High Low Aver High Low Aver High Low
age.
age.
est.
est.
est.
est.
age.
est.
est.

55-1

Si - 0

7 3 -o
68. 1
58. 2

S3 - a
38. S
38. 2

60.0
S3 - 9
46.9

151

69- 3
65- 7
S3 - 7

S3 - 1
36.8
*0
fO

66. 2

1876-1880_______
1896-1900 ______
1908.------- ------------

26. s

42. 1

36-3
36.1

47- 1

2 4 .1

4 2 .6

24. s

19- 0

N ational

Monetary

Commission

This proportion in the case of the other two banks was
as follows:

The average amount of gold in hand at the Reichsbank
(current gold-coin of the Empire, bars, foreign coin, etc.)
during the period in question was:

Amount.

Per cent
of the
total
stock of
bullion.

M arks.

231.59 3 .000
251.092. 000

4 4 -1

5 1 3 . 5 7 4 .00°

63.6
66. 1
68.6

611.296.000
584.091.000
693.561.000
785.1 9 5 .000

43-5

73-8
7 7 -1

The amount of Reichsbank notes in circulation unse
cured 145 by cash 146 or m etal147 is rightly regarded as
the real “ elastic” part of the whole note issue, as it
adapts itself very closely to the varying state of the
market, and the requirements of the business community,
the varying amounts forming a very reliable gauge of the
state of and fluctuations in the demand for means of
payment.
The following tables may serve as illustration.

152

Average stage.
Percent
age of
the fig
ures for
Amount in 1876, or
thousands of for the
period
marks.
18761880,
respec
tively,

Year.

1876-1880. __________________
1881-1885____________________
1886-1890___ __________ . __
1891-1895------------------------------------1896-1900____________ ______
1901-1905------------------------------------1906..___ ________ ________
1907.................................. ........ ........
1908______________ _________

102,263
117.113
73.943

48, 879
228,623
278.736
438,461
S31.056
4 i 5 . 319

IOO. O

114. 5
72.3
4 7 -8
223.7
272.4
365.4
4 4 2 .5
346. 1

Lowest stage.

Highest stage.

Date.

Jan.
7,1876
Dec. 31. 1884
Dec. 31. 1889
Dec. 31. 1895
Sept. 30,1899
Sept. 30,1905
Dec. 31
Dec. 3 i
Dec. 3 i

Amount in
thousands of
marks.

242,201
306,551
396,058
441,683
664,633
920,285
1,045,476
1,098,805
927.625

The

(a) Amount of bank notes in circulation unsecured or exceeded by cash.a

Date.

Mar.
Mar.
June
Feb.
Feb.
Feb.
Feb.
Feb.
Aug.

23,1879
15.1883
7, 1888
23. 1895
23, 1898
23,1902
23
23

u T h e a m o u n t s o f b a n k n o te s e x c e e d e d b y c a s h a re p re c e d e d b y a m in u s s ig n .

DiSerence
between
highest and
lowest
Amount in
stages in
thousands of thousands of
marks.
marks.

25,350
4,082
— 170, 630
— 177, 764
— 28,103
- 41.388
126,136
248,242
148,890

267, 551
302, 469
566.688
619, 4 47
692, 7 36
961,673
919. 3 4 0
850,563
7 7 8 , 735

&
3

to
ft
s

Amount of bank notes in circulation unsecured or exceeded by bullion and specie. °

H ig h e s t s ta g e .

A v e r a g e s ta g e .

Y ear.
A m o u n t.

1876

D a te .

A m o u n t.

D a te .

A m o u n t.

D iffe re n c e
b e tw e e n
h ig h e s t a n d
lo w e s t
s ta g e s .

1876
1880

1876-1880_____________

1881-1885...............................................................
1886- 1890. ___________________ . . .
1891-1895------------------------ - - - -------1896-1900........................ .... — ............ ..........
19 07

....................................................

1908-------- ------

----------------------------------

159.777
105,

IIO

82, 706
263,423
318. 933
496,271

635.443
505.077

100.0

102.3
67-3
52- 9
168. 6
204. 2
284.7
364- 6
289. 8

D e c.
D ec.
D ec.
D e c.
S e p t.
S e p t.
D e c.
D ec.
D ec.

31,1880
31,1881
31. 1889
31,1895
30, 1899
30, 1905
31
31
31

283,701
344,948
425.957
467,012
696,040
95°.431
1, n o , 881
1, 181,743
995.243

M ar.
M ar.
June
Feb.
F eb.
Feb.
Feb.
Feb.
A ug.

23, 1879
15, 1883
7,1888
23,1895
23,1898
23, 1902
23
23
22

21, 5x 1
4i . 743
137.113
142, 47°
6,388
4.944
181.859
35° . 76o
245.387

The amounts of bank notes exceeded by bullion and specie are preceded by a minus sign.

262,190
3° 3.205
563. 07°
609,482
689, 652

955-375

929,022
830,983
749.856

Commission

1901-1905------ -------------------------------------1906. ........................ .............. ........ ....................

156,206

M on e t a r y

P e rc e n t
a g e of
th e fig
u re s fo r
,
re s p e c
t iv e ly ,
fo r th e
p erio d
.

L o w e s t s ta g e .

N a t i on a l

(b)

The

G e r ma n

Gr e at

Banks

In 1907 the greatest amount of gold in hand was
759.181.000 marks (on May 23), and the lowest amount
471.848.000 marks (on November 30).
The average metallic reserve was:
•
1876_______
1880______________________

........

............

556,749,000

...

586,131,000

_____

693,105,000

...

1 8 8 1 .---------- -------------- -------- ------------------------1885

_____ ___________ ____ ___ .____

1886

___________________________ ___

Marks.
510,593,000

1890_________________

562,091,000

801,019,000

1895

... .......... ..............

. . . __ __

1896

____________________

1900

__________________________________________

1,0 11,7 6 3 ,0 0 0
891,988,000

1901 _
1905-----------------------

8 17,137,0 0 0
9 11,4 11,0 0 0
972,959,000
1,019,065,000

1908--------

The differences (Spannung) between the official rate of
discount and the private rate (market discount) averaged
by four-year periods as follows:
Berlin.

Paris.

London.

P e r ce n t.

1.19
0. 98
1.04
1891-1895.........................
1901-1905.............................................................
1905................
1906..............

*55

0.71
I. OI

0.51
0. 43
0. 50

0. 51
0. 64

°-55

o- 93
i -° 3

0. 09
0. 60

0. 43

0. 28
0. 06

National

Monetary

Commission

The average rates of discount of the central Banks in
Germany, France, and England since the institution of
the Reichsbank was as follows—

1876

Reichs
bank.

Bank of
France.

Bank of
England.

P e r cen t.

4. 16
4. 42

r877
1878
1879
1880
1881
1882
1S83
1884
1885
1886
1887
1888
1889
1890
1891
1892

4 -34
3 - 70

4. 2 4
4 - 42
4 54

4- 05 I
4. 00
4. 12
3.28

3-40

2. 28
2. 21
2.58
2.81
3-84
3.80
3 - 08
3 - 00
3 - 00
3 -00

2.61
2. 90
378

2.51
2. 76
3 - 48
4 - 15
3-57

2.96
2. 9 3
3 -°5

3 - 41

3 .0 0

338

3-32

3 - 10

3-30

3. 68
4 . 52

3 - 09

3 - 00

3-78

2.52
05
2. 11
2.00
2. 48
2. 63
3 - 25

1897
1S98
1899
1900
1901
1902

3- 81
4 - 27
5-

3.00
2. 70
2. 50
2.50
2. 10
2.00
2. 00
2. 20
°3.06
4

5-33

- 25

3 - 96

4. 10

3 - 00 |

3 - 73

3-32

3 .0 0

3-33

1903
1904
1905
1906
1907
1908

- 84
4. 22
35 - 15
6. 03
4 - 75

3-oo
3-oo
3 - 00
82

3-75

3- 20
4. 07
3. 12
3-M

18 93

1894
1893
1896

3 - 66

3-32

3 - 75

3 - 00

33.00
4 - 27

3 - 46

4 93

-04

3-01

In 1906 the rate of the Bank of France was 3.00, and
that of the Bank of England 4.27; the rate in 1907 of the
Bank of France was 3.46, and that of the Bank of England

156

Th e

G e r m a n

G r e a t

B a n k s

was 4.93; and in 1908 the rate of the Bank of France was
3.04, and the rate of the Bank of England was 3.01 per
cent.
The private rate of discount (market discount) averaged
as follows:
B e r lin .

1 8 76 ..
1 8 7 7 ..
18 78 ..
1879-

i8 8o _ .
1 8 8 1 _.
1882.

i88S -

1886.
1887 .
1888.
1889.
1890.

1891 _
1892 _
1893.
1894.
1895-

1896.
1897-

1898.
18991900.
1901 _
1902 .
1903.

1904.
190s1906.
1907.
1908.

1884.

London.

Per cent. Per cent. Per cent.
2. 25
2. 25
3- 04
2. 25
3 17
i- 75
2. OO
3- 07
3- 5°
2.60
2. 25
i- 75
2.50
2. 25
3- 04
2. 88
3- SO
3- 75
3- 89
2.38
3- 38
2. 56
3- 00
2. 90
2. 42
2.60
2.46
2.04
2. 8s
2. 16
2. 23
2. 05
2.30
2. 42
2.36
2. I I
2.38
2.75
2.63
2. 70
2. 65
2. 64
3.68
3- 78
2. SO
3-02
2.58
1.83
1.80
1.47
2. 22
2. IO
3- 17
1-74
0.97
1. 77
2. OI
1.63
0.81
1 83
152
3-04
3-09
1.96
1.87
2.12
2.65
355
2.96
4- 45
3- 29
4. 41
3- 7°
3- 17
2.48
3- 06
3- 20
2. 19
2. 99
2.43
2. 78
3-40
3-01
2. 19
2. 70
3- 14
2. IO
2. 66
2. 8s
2. 72
4.04
4- os
3- 4°
4-53
5- 12
2. 2s
2.31
3- 52
00
0

1883.

P a r is .

N ationa l

M on e t a r y

The average bill
amounted to—

Commission

investments of

the

Reichsbank

18 76-18 8 0....................................................................................

Marks.
356,518,000

18 8 1-18 8 5 ....................................................................................
1886-1890....................................................................................
1891-1895 . . •...............................................................................

366,955,000
463,214,000
554, 142, OOO

1896-1900...................‘ ...............................................................

724,438,000 ‘

19 0 1-19 0 5 ....................................................................................

839,752,000

1906..............................................................................................

989,445,000

I9<>7..............................................................................................
1908..............................................................................................

1.10 4 ,537,0 0 0
967,729,000

Since a central note bank always has to be in a position
to redeem its notes (covered according to law in a special
manner) on presentation, and to meet its other daily
obligations (for which the mode of covering is not pre
scribed by law), the general principle ought to be observed
that, in so far as the law does not permit exceptions, its
credit business must be strictly in keeping with its debit
business, a principle which need not be so strictly main
tained by the credit banks.
Accordingly a central note bank should grant shorttime credit only, either by discounting short-term bills
or by making short-time loans on collateral.
The discounting of short-term bills ought to occupy the
first place in the credit business of the Reichsbank, as
the latter is bound under section 17 of the bank law to
secure, by short-term bills, two-thirds of the notes it issues.
The Reichsbank in the course of time has acquired a
constantly growing percentage of the entire number of
outstanding bills. It is thus able to extend its note cir
culation, as the short-term bills falling due provide it
continually with the means of redeeming its bank notes.

158

The

G e r m a n

G r e a t

B a n k s

Collateral credit business at the Reichsbank is relegated
to a secondary position, since collateral claims, for obvious
reasons,148 can not be used as reserve for notes. Never
theless, collateral credit (which is likewise granted for three
months only) is normally less expensive to the debtor,
although since 1896 the rate of interest on collateral loans
has been 1 per cent higher than bank discount, for the
reason that interest on loans on collateral is computed
only for the actual duration of such loans, and that the
debtor may repay at any time part or the whole of the
loan. Lending money on merchandise has been discarded
more and more in favor of lending money on securities.
Thus at the end of 1908 only 5,390,100 marks were loans
on merchandise, whereas 170,533,650 marks were loans
on securities. The amount of loans on collateral, as a
whole, rose almost constantly, as follows:
Amount of loans Annual averon collateral
age outstanding.
made.
M arks.

M arks.

3 . 293.301.200

74,180,000
72, 033,000
83,631,000
98,140,000

1908 (decrease of the total and of the annual average).. 2.812,171,450

9 1 . 3 9 7 . 000

1904-------______ _____________ ___________
1906___

1 . 9 5 7 . 411.820
2, 093,427, 625
2, 7 7 3 .191 . 4 7 5

Apart from the possible difficulties of realisation, it
involves greater risk for the bank to grant credit on collat
eral than bill credit, as the nature of the credit required
cannot be recognised so easily as in the case of bills.
In granting short-term credit it is incumbent on the
Reichsbank administration to aim at regulating, through
the interest or discount rate, the domestic demand for

N ational

M on e t a r y

Commission

short-term credit which concentrates at the Reichsbank
and which is expressed to a great extent in its bill invest
ments.
When credit is rendered more expensive by a high dis
count rate, which latter naturally influences immediately
the rate on loans on collateral and, gradually, general
interest rates throughout the country, excessive demands
for credit at home, as well as excessive speculation, over
production, and overvaluation of goods and securities
are restricted to a certain extent. Provided that the
private rate of discount is high, and that exceptional
circumstances (similar to those in 1907) do not intervene,
a high Reichsbank rate of discount can also check, di
minish, or retard the outflow of gold to foreign coun
tries.149 As a rule, however, it will not cause gold to be
imported from abroad, unless domestic discount rates are
raised far higher than those abroad, and private rates of
discount are raised correspondingly and kept at a corre
sponding height. In all other cases “ screwing up the
discount rate” will not cause gold to flow in from abroad,
but merely prevent temporarily a further increase in the
foreign exchange rate, thus preventing or postponing the
advent of the moment when the export of gold might
become profitable.150
Complaints have been made against the Reichsbank for
having raised the bank rate (especially in 1907) without
necessity, at all events for having maintained it at an
exorbitant height, thus severely injuring the interests of
trade, industry, and agriculture.
It was also stated that the Reichsbank was too obliging
as far as credit demands were concerned, particularly

160

The

G e r m a n

G r e a t

B a n k s

toward the credit banks, and the average amount of its
bill investments in 1907 (1,104,537,000 marks) and of its
investments in collateral151 (98,140,000 marks) were
pointed to as a proof of the complaint. In particular at
the so-called “ heavy terms” (schwere Termine) (the first
day of the quarters; also the fortnights from Septem
ber 15 to 30 and December 15 to 30) it was said to
have weakened its position unnecessarily by granting
bill and collateral credit of too comprehensive a nature,
and that it discounted a great number of financial,
credit, and nominal bills (Leerwechsel)— i. e., such bills
as were not based upon real, bona fide commercial
transactions.
Finally it was urged that, because of its limited holdings
of foreign bills, the Reichsbank was unable to exercise
any appreciable, even if only temporary, pressure upon
the rate of exchange, whenever this rate had gone beyond
the “ upper gold point,” or tended in that direction; that
it was therefore not in a position to pursue an independent
foreign bill policy (Demsenpolitik) , which was demanded
by the circumstances, or at least to support and supple
ment its discount policy by means of a corresponding
foreign bill policy, even though subject to the same
limitations as its discount policy.
I consider that the proceedings of the bank inquiry
commission instituted by the Government in 1908 at the
instigation of the Reichstag, and the statements of the
experts examined at that time, go to show that only the
last mentioned objection can be sustained, and that only
to 3, limited extent.

9 0 3 1 1 ° ---IX------ 12

l6 l

N at ion a l

M on et a r y

Commission

The amounts of foreign bills held by the Reichsbank
since 1876 were as follows:
1876
1877

_________________________________________
--------------

Marks.
1,672,000
1,873,000

1878
1879

--------------------------------------------------------------------------------------------------------

5,351,000
3,560,000

1880

_________________________________________

9,584,000

1881

-----------------------------------------------------------------------------

7,481,000

1882

----------------------

5,590,000

1883

---------

4,004,000

1884

--------------------------------------------------------------------------- -

4,631,000

1885

------------------------------------------------------------------------------

7,951,0 0 0

1886
1887

_________________________________________
_________________________________________

16,961,000
7,864,000

1888

_________________________________________

3,316,000

1889

_________________________________________

3,798,000

1890

_________________________________________

5,420,000

1891

_________________________________________

5,306,000

1892

__________________________________________

4,715 ,0 0 0

1893

-----------------------------------------------------------------------------

4 ,113 ,0 0 0

1894

_________________________________________

2,540,000

1895

__________________________________
_________________________________________

2,569,000
2,753,000

1896
1897

-----------------------------------

1898
1899

_____________________________________________________________________

_________________________________________

4,934, OOO
19,045,000

2,4 11,0 0 0

1900

________________ _______ ________________ -

26,753,000

1901

_________________________________________

26, 946, OOO

1902

_________________________________________

22,733,000

1903

-----------------------------------------------------------------------------

24, 068, OOO

1904

-----------------------------------------------------------------------------

22,212,000

I 9 ° 5 ------------------------------------------------------------------- -------- 3 3 , 093,000
1906 ----------------------------------------------------------------------------43,244, 000
1907

-----------------------------------------------

44,461,000

1908

------------------------------------------------------------------------------

70,881,000

On the other hand, as a result of the deliberations of the
bank inquiry commission, it has been firmly established
that, on the whole, the Reichsbank has not gone too far in
the amount of credit granted, although it was considered
advisable that in the future stricter principles should be
observed in discounting bills, and that the discounting of
162

The

G e r m a n

G r e a t

B a n k s

long-term bills and the granting of any kind of permanent
credit should, at least on principle, be abandoned.
Neither could it be proved that the Reichsbank during
1907 had raised the discount rate arbitrarily. On the con
trary, the majority of the members of the bank inquiry
commission, and of the experts examined, were of the
opinion that the raise of discount rates was in the main
only the natural and necessary consequence of industrial
credit requirements, which in turn were not arbitrary, but
for the greater part legitimate and necessary, and that
had the discount rate not been raised, the situation of the
Reichsbank would have been much worse, and the drain
of gold much larger. As a matter of fact, the fixing of
the discount rate by the Reichsbank has solely a ‘ ‘ declar
atory,” and not a “ normative” (Constitutive) significance.
The majority referred to were decidedly of the opinion
that, for the same reasons, the continued high rate of
discount, although much to be regretted, was a necessity.
In the course of the deliberations it became necessary even
for the 'most outspoken advocates to abandon the view
that the Reichsbank ought not to comply fully with the
sudden and abnormally large demands for credit that
arise at the so-called “ heavy terms” (schwere Termine),
and which come principally from the credit banks.
It will hardly be denied that the credit requirements
at the so-called “ heavy terms” are particularly legiti
mate and such as can not be deferred, and that these
requirements are met at the time by the Reichsbank in
the shape of short-term discount and collateral credit.
These requirements are: the credit demands on the first
day of each quarter, when, in accordance with German

163

National

Monetary

Commission
—

custom, rents, mortgage interest, salaries, wages, interest
payments, coupons, and frequently bills, etc., fall due, and
between the 15th and 30th of September and December,
the periods characterized by a similar natural increase of
credit demands on the part of all business interests.
The fact that the credit banks fall back to a very considerable extent on the Reichsbank just at those periods
is a necessary consequence of their being the agents of
the credit requirements of trade and industry, and that,
accordingly, the assistance sought is mostly for the satis
faction of the above requirements— i. e., the needs of
third parties— and only to a relatively small extent for
their own uses.
This does not prevent, however, the recognition of the
fact that the credit banks (as may, however, happen under
every system of banking) have frequently been too liberal
in satisfying the credit requirements of trade and industry,
and this not only in cases where operating credit was
granted in the shape of short-term credit, but also in cases
where investment credit was concerned, which in the early
stages may have worn the garb of operating credit and
developed only little by little into permanent investment
credit.
Nor is there any doubt that the demands made on the
money market, and above all, on the Reichsbank, were
frequently increased by a superabundance of issues,
promotions and transformations that were not always
justified.
As far as the resources of the Reichsbank were con
cerned, the majority of the commission proposed that
these should be increased, though it was deemed advis-

164

The

G e r m a n

G r e a t

B a n k s

able to effect this increase by a gradual increase of the
surplus instead of an increase of capital.
In addition, it was considered advisable that section 2
of the bank law should be changed, and that, following the
example of England and France, the bank notes issued by
the Reichsbank should equally be declared legal tender.
Naturally, the obligation of the Reichsbank to redeem its
bank notes in gold was to remain and, if. possible, be even
more sharply emphasised.
The necessary proposals in these two directions are con
tained in the draft of a bill (art. 1, par. 2; arts. 3 and 4)
laid before the Reichstag in February, 1908, and since
made law, containing amendments to the bank act.
{Entwurf eines Gesetzes betreffend Aenderung des Bankgesetzes.— Reichstag document, No. 1178.) The provi
sion, however, in force in England— which I consider both
necessary for and practicable in Germany, notwithstand
ing the argument to the contrary found on page 12 of the
report of the bill— according to which bank notes are not
to be legal tender for payments made in its giro and bank
note transactions by the Reichsbank itself, has been un
justifiably omitted. Further, the draft authorises the
Reichsbank to buy checks, provided that two persons of
known solvency are responsible for the same, an authority
which the bank did not possess until then. This latter
measure is also in accordance with the views of the
majority of the members of the bank commission. On
the other hand, the permission granted by article 5, Sec
tion III, of the act of June, 1909, to use checks (which
in distinction to bills can not be accepted) as part of the
note reserve seems to be of doubtful wisdom. Finally,

165

N at ion a l

M on e t a r y

C o mm is s i o

article 2 of the act provides for an increase of the tax-free
“ contingent” of uncovered bank notes of the Reichsbank
from the present amount (472,829,000 marks) to 550,000,000 marks, so that the bank will have to pay the
5 per cent tax merely on the amount by which its note
circulation exceeds its cash reserve (see note 145) plus
this note contingent of 550,000,000 marks. The system
of a tax-free note contingent has thus been upheld, it
having been proved that this factor has had no influence
upon the discount policy of the bank. The Govern
ment and the majority of the commission were of the
opinion that the passing of the bounds of the tax-free
contingent was serving as a danger signal to the commer
cial public, although, as a matter of fact, from 1891
(before which date the bounds were never exceeded) till
1907 inclusive, this limit has been exceeded not less than
164 times.152 The last-named fact may therefore be said
to have brought about merely an increase of the tax-free
note contingent.
In concluding this review of the activity of the Reichs
bank during the period under consideration, it must be
acknowdedged that the regulation of our money circulation,
and of our systems of payments, credit and currency,
with which that institution had been intrusted, has been
in good hands. In particular it may be said that by
means of a circumspect discount policy, by opportune and
energetic intervention in 1900 as well as in 1907, i. e.,
during the most critical periods, the bank has been of the
greatest aid in preserving the German money market and
the entire economic organisation from lasting disturbances
of the gravest character.

i for FRASER
Digitized

166

The

G e r m a n

G r e a t

B a n k s

The above review of the most important factors which
influenced the development of industry and banking in
Germany during the period in question, would be quite
incomplete without a brief reference to the cartels formed153
during this ei;a,154 and especially to those formed begin
ning with the period 1873-1875.155 These combinations
developed to an enormous extent in German industry,
and their growth was due in a great measure to the direct
influence of the German credit banks.
Cartels in the great majority of cases are either
“ necessity’s offspring” or at least due to its influence
or after-effects.156
They are associations, founded by contract for certain
periods of time, of independent enterprises belonging to
kindred branches of industry or of branches of industry
with nearly identical interests,157 the individual members
of the association retaining their independence but join
ing for the purpose of regulating production and sales
according to common points of view and in the common
interest.
A sharp distinction must be drawn (at least outwardly
and legally) between cartels and trusts, for the latter
although following the same aims158 represent permanent
and organic combinations of undertakings which have
sacrificed their independence, and do not always belong
to the same branches of industry, but possess common
interests.
Cartels are formed principally in branches of industry
which, like the mining and chemical industries, produce
staple articles (vertretbare Artikel), and in large quanti
ties (Massengiiter). Their formation is rarest and most

167

difficult in branches of industry producing special articles,
or which work up half-manufactured articles.
Furthermore, cartels are formed most rapidly and
easily in those industries engaged in the production of
staple articles, which show an organic, local, or capitalist
concentration into a limited number of large or “ giant”
concerns (Riesenbetriebe); this has been the case for some
time in the mining industry, and more recently in the
chemical industry.
The formation of cartels is slowest and most difficult in
cases where both conditions— i. e., the production of
staple goods, and a limited number of large works— are
lacking. It is more difficult and unwieldy where a con
siderable number of middle-sized, and small (and more
over scattered) works exist side by side with large
concerns (Grossbetriebe).
The “ necessity ” for the formation of cartels in Germany
was clearly recognized, especially during the crisis of 1873,
as a result of the economic situation; by this means
overproduction at home and ruinously cheap prices were
to be terminated; this “ necessity” likewise was the
origin of the protective-tariff movement of the seventies,
which was intended to ward off, or decrease foreign com
petition. The simultaneous introduction of a protective
system of duties is by no means indispensable for the
formation of cartels, at least not in the case of strongly
developed industries, as may be seen in the case of Eng
land. It seems to be only an attendant feature, easily
accounted for, in case of feeble industries, and which, in
some degree certainly, is likely to promote the formation
of cartels.

The

G e r m a n

G r e a t

B a n k s

It is quite correct, and has been conclusively proved by
Sering, that at certain times, and under certain supposi
tions the iron industry in particular can not dispense with
protective duties, and that well-organized cartels enable
protective duties to become effective in favor of producers.
More than this, however, can not be said; consequently
the assertion that the organized iron or steel industries
can attain their aims only “ under the system of protect
ive duties ” 159 is in my opinion incorrect.
No official statistics existed up to the end of 1905 regard
ing the total number of cartels established in the German
industry, consequently the figures found scattered here
and there for earlier years must be accepted with reserve.
In 1896 there are said to have been 250 cartels in the
whole German industry,160 one-fourth of which belonged
to the iron and chemical industries, one-sixth to the
earthen and stone industries, and one-ninth to the textile
industries.
According to investigations made in the iron industry,
which,, however, can not be regarded as exhaustive, 44
cartels (conventions, syndicates) existed in that industry
in 1903.
In the statistics contained in the Denkschrift ilber das
Kartellwesen (p. 24), laid before the Reichstag during
December, 1905, the number of domestic cartels is stated
to be 385, divided as follows:
Coal industry, 19; iron industry, 62; metal industry
(excluding iron), 11; chemical industry, 46; textile indus
try, 31; leather and india-rubber industries, 6; wood
industry, 5; paper industry, 6; glass industry, 10; brick
making industry, 132; earths and stone industry, 27;

169

N ationa l

M on e t a r y

Commission

earthenware industry, 4; food and delicacies, 17; elec
trical industry, 2; miscellaneous, 7. About 12,000 works
participated directly in these cartels (p. 25).
Numerous complaints before, during, and after the
serious crisis of 1900 among nonorganized branches of
industry, as well as in wider circles, against the price
policy pursued by the cartels,181 led to serious charges
against the cartel system, and ultimately, as usual, to its
absolute condemnation as being positively detrimental to
the public welfare. These complaints gave rise to an
official investigation by the imperial home office, which
lasted from November 14, 1902, to June 21, 1905. The
memorial (Part I) elaborated in the same governmental
department, and laid before the Reichstag on November
28, 1905, simply gives a review of the existing cartels
in Germany.102
In continuation of these investigations, it was pro
posed to bring out a compilation of the legal provisions
and regulations applying to cartels at home and abroad,
including also the most important decisions of the supreme
tribunals. Further, the results of the official inquiry
were to be tested in the light of specially prepared price
statistics. The material was to be brought down to
date “ in all cases where the conditions determined in
the investigation had changed,” and, if necessary, the
material gathered was to be supplemented “ through the
extension of the investigation to other cartels.” (See
p. 18 of the memorial of 1905.)
The first part of the memorial is accompanied by
reprints “ of all available by-laws (Statuten), company
and delivery agreements, etc., and business regulations”

170

The

G e r m a n

G r e a t

B a n k s

pertaining to cartels “ in order to afford an insight into the
forms of organisation of the combinations '’ (pp. 18-19).
In addition to the associations of producers, the memo
rial treats also of the associations of consumers and
dealers.
In conformance with the outlined program, Part I I lfi3
of the memorial, laid before the Reichstag on March 25,
1906, contains the provisions of the German civil and
penal laws, including the decisions of the supreme court
of the Empire. Part III, submitted to the Reichstag on
March 2 1 , 1907,164 is devoted solely to a review of the
cartels in the coal industry.
Finally, Part IV, laid before the Reichstag on Novem
ber 3, 1908,165 deals with the foreign cartel laws, including
those of the European countries, the United States, and
the British Colonies (Australia, New Zealand, Canada,
and Cape Colony).
This is not the place to discuss in detail the results of
the official inquiries preceding the publication of the
memorial, nor the inquiries themselves, wffiicli by no
means exhausted all aspects of the subject, especially
the important question of export bounties. It seems
advisable, however, as the conclusions drawn from this
inquiry are likely to occupy the attention of the legisla
tive authorities, to examine some of the questions more
closely. It should be stated at the very outset that in
Germany, as opposed to the United States, all the rail
ways are state property, and that any domination over
the railway tariffs by the cartels is out of the question.
According to my conviction, the official inquiry has
established the following preliminary conclusions.

N at ion a l

M on e t a r y

Commission

The charge brought against the Rhenish Westphalian
Coal Syndicate of having raised prices too high and too
rapidly during the years of greatest trade prosperity
(Hochkunjunktur) viz, 1898-1900 was proved unfounded;
as to the complaint that it did not reduce prices suffi
ciently and speedily enough after the crisis, no common
ground for the conciliation of the divergent views could
be found.168
The opinion that it is bad policy, unpatriotic, and in
compatible with the public welfare to sell goods abroad
at lower prices than at home can be regarded as refuted.
In the event of overproduction at home, sales to foreign
countries are generally167 necessary in order to dispose of
the surplus home production and to relieve the home
market as far as possible, whereas the determination of
price in such cases is governed chiefly by foreign compe
tition and prices prevailing in the international market.
The aim of the seller being always to obtain the highest
sale price possible, it may therefore be assumed as a
general fact that the regrettable occurrence of foreign
sales being effected frequently below home prices and
even below cost is solely due to the causes just named.
On the other hand, I am of opinion that the following
charges have been proved: The cartels in general, and
especially those in the mining industry, frequently lacked
all close touch and proper connection with each other, so
that a common business policy was out of question, even
if for these reasons only. A proper policy should at least
have set itself the task of establishing a proper relation of
prices for the products of the various industrial branches,
especially a ratio of prices for raw materials, half-manu-

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factured wares, and finished commodities. Instead, the
coal syndicate pursued its own price policy (which was
certainly moderate throughout) without reference to the
coke syndicate; the latter in turn pursued its less mod
erate price policy without reference to the pig-iron syndi
cate,168 etc. Such a common business policy, moreover,
was out of question, because (a) the cartel system
(.Kartellierung) never comprised the whole process of
production, i. e., the production of the raw material, of
the partially manufactured goods, and the finished article,
but only a single part, or parts, of the process of produc
tion, and because, furthermore, (b) the syndicate contract
frequently excluded a whole series of articles, as well as
all foreign business, from the cartel’s sphere of influence.
It is clear, therefore, that the increase of prices fixed for
Germany by the cartels of the raw-material industries
benefited at first those cartels only, and that they were
able to dispose of their home surplus in foreign markets at
prices below those prevailing in these markets, and some
times .even below cost.
In the iron industry these facts caused considerable
injury, in the first instance, to the cartels formed in
industries following in the process of production, namely,
the production of partially manufactured goods. These
cartels in their turn endeavoured as much as possible to
shift the injury to their consumers, the industries follow
ing in the process of production, i. e., the industries
engaged in the further working up or finishing of the
partial manufactures. Hence, it followed that the further
an industrial branch was removed from the beginning of
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by the otherwise consistent (an sich naturgemdsse) business
policy of the raw-material cartels mentioned.
The unorganised industry of the more highly finished
products, therefore, was weakened and injured to a high
degree, and to a twofold extent; by unrestrained domestic
competition as well as foreign competition on the one
hand, and by the enforced raising of home prices for raw
materials and partially manufactured materials on the
other.
A considerable number of these evils which were cal
culated to counteract the essentially true purposes aimed
at by the formation of cartels, and which would have led
eventually to the disruption of the cartels,170 have been
removed at least for a certain number of industries by the
formation, on March 30, 1904 (retroactive to March 1), of
the Steel Works’ Union (Stahlwerksverband, Ditsseldorf),
which united the Semi-Manufactures Producers’ Associa
tion (the so-called Halbzeugverband), the Girder Manufac
turers’ Association (Tragerverband), and the Rail and
Sleeper Combine, the total production of which, at the
time of its foundation, amounted to 7,900,000 tons (of
1,000 kilograms). The advantage of this union,171 which
was extended on April 30, 1907, for a further term of five
years, consists principally in uniting within its sphere of
activity the whole German output of partially manufac
tured articles, and a very considerable portion of the roll
ing mills’ output. Further advantages of the combination
were the fact that all the works belonging to the union
were so-called “ mixed” works and that it comprised at
least some of the mutually dependent cartels. The new
combination has also taken in hand the export trade, and

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is endeavouring, in conjunction with the Rhenish West
phalian Coal and Iron Syndicates (by means of contractual
arrangements), to regulate it in the common interest by
fixing export premiums and establishing a special clearing
house for exports. The export premiums, which amounted
to 2.50 marks per ton, were abolished, beginning with
July 1, 1907.
The union also has the avowed intention, carried into
effect since by a series of measures, to harmonise as far as
possible its own business policy, and more especially its
price policy, with that of the cartels following or preceding
it in the process of production. In particular its aim is to
fix the prices of all syndicate products in accordance with
the prices of the raw materials in such a manner as to par
take of the benefit of the customs duty while showing the
utmost regard for the interests of the industries of the
more highly finished products.172
However, according to the memorials of February,
1908,173 and June the 5th, 1908, presented by the “ pure”
Martin. Steel Works (engaged in the production of crude
steel only) and the “ pure” rolling mills (which only roll
steel and iron, but do not produce the iron and steel
material), to the Secretary of State for Home Affairs and
to the Reichstag, the Steel Works’ Union had shown no
consideration for the interests of the finishing industry
as evidenced in many instances. It was stated that the
Steel Works’ Union, with the object of suppressing the
“ pure” rolling mills, had systematically kept the home
prices of half-finished material (the so-called “ A ” products
of the syndicate) so high that the “ pure” rolling mills not
only had no profit, but at times a clear loss in the sale of

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the products manufactured from this half-finished mate
rial. For, simultaneously with the rise of prices for the
products “ A ”— which they on their part could not manu
facture (as most of the members of the Steel Works’ Union
could), but had to purchase— there had been a fall in the
selling prices of the products “ B ” of the Steel Works’
Union, comprising iron plates and bar iron, the sole
product of the “ pure” rolling mills.
The entire advantage of the Steel Works’ Union de
pended on the duty-free importation of such raw mate
rials as coal and ore. As it imported the latter free of
duty in those exceptional cases where it did not possess
ore of its own, the mixed works (Thomas Steel Works)
were able to keep the cost of their products below that
of the other works.
The superiority of the “ mixed” works belonging to
the Steel Works’ Union, it was claimed, was therefore not
based exclusively on the natural advantages of concen
tration, but chiefly or exclusively on the fact that these
works, being able to obtain their material without duty,
made a selfish and wrong use of the duty on imported pig
iron, half-finished, and scrap iron for the benefit of the
syndicate products and to the detriment of the “ pure”
works. In the opinion of the “ pure” works, these duties
were unnecessary, in view of the equally high cost of pro
duction abroad, especially in England.
This superiority of the mixed works, the argument went
on, rested on the further fact that although the cost of
material to the pure works was enhanced by the amount
of the import duty, the former made it impossible for
the pure works to realize the benefit of the customs duty

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in the prices of their products by refusing to sanction the
organization in a syndicate of the producers of finished
iron, especially of rolled plates and bar iron.
Under these conditions the “ pure” Martin Steel Works
and the “ pure” rolling mills demanded at one time a
suspension and early removal of the import duties on pig
iron, half-finished iron, and scrap iron (cfr. memorial of
5th June, 1908), and at another (cfr. memorial of Febru
ary, 1908)— the introduction of import certificates for pig
iron and exported articles (i. e., for half-finished articles—
bar iron, plates, and wire), by which means they could at
least secure to themselves the unhampered supply of ma
terial for articles to be exported.
The Steel Works’ Union pointed out in its answer to the
above-mentioned memorials that the mixed works were
at a considerable disadvantage as compared with foreign
countries, both as to general conditions of production,
especially cost, and as to the far smaller social burdens
imposed abroad, particularly in England. A compensation
could b.e found only in better technical arrangements, in
savings in the cost of production and in a decrease of the
cost of transportation.
There could be no question of a systematic suppression
of the “ pure” works. This might be seen from the fact
that the total sales of half-finished material amounted in
1907, to 1,200,000 tons, whereas the firms who had com
plained purchased only 340,000 tons, the production of
which required the services of only 5,000 workmen of the
Steel Works’ Union’s total labor force of 360,000 men.
Added to this were the export premiums continually paid
by the Steel Works’ Union also to the above-mentioned
9 0 3 U 0— 1 1 ------1 3

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works, which helped them to tide over bad times, to saynothing of the ever-increasing deliveries of half-finished
material to these works which were a matter of record.
The cutting of prices of iron bars and plates very often
emanated from the “ pure” rolling mills, in fact it often
exceeded the amount of the export bounties.
It was a matter of regret that owing to objections of
several members of the Steel Works’ Union, and to other
obstacles, the desired formation of bar iron and plate iron
syndicates had not become possible. The removal of
duties on half-finished material, pig iron, and scrap iron
desired by the “ pure” works would result merely in a
dissolution of the Steel Works’ Union. These duties
were indispensable as a protection against the enormous
power of the American steel combination against the
advancing Russian iron industry, and, lastly, against the
constantly growing British protectionist tendencies. The
abolition of the duties mentioned would prove at the
same time of general disadvantage to the whole home
industry, and especially to the rolling mills, as it would
entail the removal of the duties on iron bars and plates.
For these duties acted chiefly as prohibitive duties, a fact
disputed, however, by the “ pure” rolling mills.
Finally, in the opinion of the Steel Works’ Union, the
import certificates (for the export of articles worked up
from imported pig iron or half-manufactures), demanded
by the “ pure” works, were too rigid in character and
could not be adjusted to varying market conditions. This
pliability, however, was essential to their successful appli
cation. If the demand of their substitution for the export
payments made by the syndicate were to be granted, they

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might easily assume the character of true export boun
ties, especially at times when home and foreign prices
were equally high.
As a sequence to this at times quite acrimonious contro
versy, the Steel Works’ Union decided upon the reduction
of the domestic price of half-finished material by 5 marks
per ton (this came into force on the 1st of July, 1908).
But this did not help the “ pure” works, since this reduc
tion of the price for half-finished material had been antici
pated, and accordingly the selling price of sheet and bar
iron had fallen 10 to 15 marks per ton; that is, below the
cost to the “ pure ” rolling mills. Since November 27, 1908,
the prices on fashioned bar iron (Formeisen) have likewise
been reduced for the first half of 1909 by 5 to 10 marks
by a resolution of the Steel Works’ Union.
As no important improvement has taken place in the
condition of the “ pure” rolling mills, a condition which
resembles in a striking manner the present condition of
the private banking business with relation to the great
banks, it will be necessary to consider the demands of
these works. It may be noted in this connection that
some of the great banks are found in their camp, at least
with part of their interests, though the large majority of
the great banks and by far the greater part of their inter
ests are doubtless identified with the Steel Works’ Union.
The carrying out of the plan to create bar iron and
sheet iron syndicates (which it would appear has been re
cently supported even by the Government) would seem
to be the most radical, and perhaps the only way of im
proving the doubtless precarious condition of the “ pure ”
rolling mills. Such a plan should certainly be supported

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by all means in the interests of German trade and
industry.
We must not forget, however, that the scheme to form a
general sheet-iron syndicate was wrecked not only by the
opposition of three South German members of the Steel
Works’ Union (de Wendel, Maxhiitte, and Dillingen), but
also by the opposition of a great number of Siegerland
works. The formation of the wrought iron syndicate on
the other hand seems to have come to grief owing to the
opposition of various works, as well as to the demands of
wholesalers who insisted upon being guaranteed a mini
mum profit for handling the products.
Another plan would be the extension of the number of
“ pure” rolling mills by the erection of Martin works,
which would make them independent of the supply of
half-finished material from the Steel Works’ Union. It
was on these grounds that the plan was strongly advo
cated in a memorial of the “ Association of crude iron and
half-finished material consumers,” which in the main sided
with the “ pure” rolling mills against the contentions of
the Steel Works’ Union.
The construction and successful working of new Martin
works presumes, however, the removal of the import duties
(as desired by the “ pure” rolling mills) on pig iron, halffinished products, and scrap iron. It is, however, very
doubtful if the removal of duties would be in the interest
of national industry, and even more so whether the
change would prove of permanent benefit to the rolling
mills themselves.
In the first place I am not convinced that these import
duties have been used in a selfish and wrongful manner

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by the Steel Works’ Union in order to crush the “ pure”
rolling mills. On the contrary, it seems to me that even
the strongest combination is hardly able in the long run
to realize through its domestic selling prices the full pro
tective duties on the half-finished material, because in
the main we export half-finished material. Certainly in
periods of booms the influence of prices in the world
markets will largely equalise the influence of duties and
freights on inland prices. Even the average inland price
for grain (the imports of which largely exceed the exports)
has not always equaled the average foreign prices plus
freight and duty.
In the foreign markets the determining price factor as
a rule and in the long run is mainly the condition of the
international market as affected by supply and demand.
Prices in the world market are quite independent of
domestic prices and are the result of altogether different
factors. There is no reason, therefore, why they should
correspond to the domestic prices plus protective duties
and the freight difference.
I also share the opinion of the Steel Works’ Union that
once a breach has been made in the customs wall for iron
such as the pure works desire by the removal of the
duties from half-products and by the introduction of im
port certificates, the abolition of the remaining iron duties
would necessarily follow. For it will be difficult in the
long run to maintain free trade for the export business
and to continue to make use of protective tariffs for other
branches of the iron industry, such as pig iron, bar iron,
sheet iron, and wire.
It seems to me that much as the removal of protective
duties may be desirable on principle the removal of the

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duties on pig iron and half-products which, like the cartels,
are the means not only of raising but maintaining the
prices of domestic products, would be premature, for the
reasons stated in the memorial of the Steel Works’ Union
and in view of present conditions. Nor can we be quite
sure that at no distant date the raw material {Einsatzmaterial) of the Steel Works’ Union now entering duty
free (at least the ores) may not become subject to foreign
export duties.
Added to this is the fact that as long as the agrarian
protective duties continue, the one-sided removal of the
industrial protective duties would mean an unfair burden
ing of the industrial population, which would moreover
be left unprotected against foreign competition.
To return to the other purposes of the Steel Works’
Union (Stahlwerksverband):
The union endeavors, by a series of measures intended
to insure regular work for syndicate undertakings, to
reduce the cost of production, a matter which hitherto has
not been influenced in the slightest degree by the syndi
cates. Finally, it has promoted the formation of dealers’
associations, limited to certain districts, especially the
Rhenish-Westphalian, the Middle-German, and the South
German girder dealers’ associations, the existence of which
was at one time endangered through dissension, but which
is now assured for another five years, dating from the
summer of 1907 to June 30, 1912.
The Steel Works’ Union, by reason of its organisation
and of its freer attitude toward the export trade, is in a
position to pave the way for international agreements
with the chief exporting countries. In fact it has suc-

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ceeded in bringing about such agreements, although only
for a short period each. On November 28, 1904 (retro
active from October 11, 1904), an agreement concerning
the export of rails was arrived at between England, Ger
many, France, and Belgium, to begin with, for a period of
three years (till March 31, 1908), and on November 24,
1904, an agreement was concluded between Germany,
France, and Belgium with reference to the export of
girders for the period of two and one-half years (until June
30, 1907).174
Both agreements have been extended indefinitely and
barring unforeseen incidents are likely to remain in force
until June 30, 1912, the date of the expiration of the Steel
Cartel agreement.
The United States Steel Corporation (acting also for
the Lackawanna and Pennsylvania Companies), founded
February 23, 1901, with a capital of $1,400,000,000, joined
the International Rail Cartel later on. The Steel Corpora
tion does not comprise, as is frequently stated, the whole
steel production of the United States, but so far “ only”
two-thirds of the American steel output, and controls
about 1,500 miles of railway, or rather less than 1 per cent
of the whole railway mileage of the United States.175
We shall close the review of the period with this men
tion of the international agreements, which were initiated
in Germany and in which up to the present German indus
try has been able to secure an eminently satisfactory posi
tion in accordance with its industrial achievements. This
period is characterized not only by expansion and concen
tration in the fields of trade, industry, and particularly
banking, but also by the greatest revolutions in the eco
nomic field; it marks the era of international trade, the

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precursor, and in part also the cause of the new era of
“ world” and colonial politics. It was a period of vast
inventions and discoveries, which created perfectly new
industries, and fundamentally transformed existing ones,
and which imposed on the industries (often protected
by high customs duties) great tasks in the international
market, which were achieved to a considerable extent.
The revolutionary character of this epoch, however, ex
pressed itself in two tremendous crises— in the crisis of
1873 and that of 1900.
This period marks the complete transformation of the
character of German industrial organization, begun in the
last decade of the preceding epoch. The new order, de
spite the partly sound, partly inadequate, arguments
urged against it, possesses no doubt the great merit of
having provided— principally by increased export trade—
food and occupation for the enormously increased popu
lation, which, it was stated as early as the middle of last
century, agriculture was no longer able to sustain. More
over, the view seems fairly justified, at least to a certain
extent, that the recent growth of imports, which, as was
pointed out above (pp. 112 and 121), in certain branches
largely exceeded the simultaneous growth of exports, is a
fair indication that the large increase of production during
late years is due primarily to increased home demand.
The following question, however, should not be sup
pressed in this recapitulation of the past and forecast of
the future: What will happen if imports into Germany
continue to increase greatly, and exports fall off consider
ably? This danger must be borne in mind as a serious
eventuality, at least for some industries, a danger which
may result from high protective duties likely to be

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introduced abroad, especially in America and the British
Empire, as well as from existing German commercial
treaties.
As far as the latest commercial treaties are concerned
they offer one gratifying advantage benefiting the whole
community, namely, the assistance and support against
foreign countries demanded by agriculturists and abso
lutely necessary in many directions and parts of the
country. As a result of this support agriculture was able
to recover its former vigor and prosperity by internal
means, especially by a more vigorous and concentrated
development of agricultural credit and cooperation. This
development is highly desirable from the point of view
of national interests, as it tends to reduce the necessity
of foreign grain imports to the smallest extent possible.
But inasmuch as only such governmental measures can
be of general or permanent benefit in which consideration
for the interests of one class of the community goes hand
in hand with due regard for the interests of the com
munity as a whole, it is our earnest hope that the protec
tion of bur home agriculture may not have been accorded
at the expense of commercial and industrial development,
or even of important branches of industry or industrial
export branches.
Much depends on the vigor of commerce, especially
the vigor of industry, which must continue to advance
and must not rest for a moment. Its further progress
will depend, first and foremost, on the powerful and
judicious support of those institutions but for whose
constant and energetic cooperation the great economic
achievements of the period could not have been attained,
to wit, the German banks.178

Chapter III.— The German Great Banks during the second

period (1870 until the present).
Section I.— (1).

INTRODUCTION.
The activity of the banks in the economic life of society
has often been likened to that of the heart in the human
body.
This comparison is quite proper. For just as it is the
function of the heart to regulate by means of certain
organs the circulation of the blood, which through countless
arteries and veins flows through the human body and
returns to the heart, so, as was shown above, it is the
function of the banks to regulate by certain economic
measures the circulation of capital, which flows from them
and returns to them, and which may properly be regarded
as the life blood of the modern economic organism.
The multiplicity and importance of the functions of
the human heart can best be seen from a study of the
functions of each part of the human body in the entire
organism. In a like manner some idea of the tasks ful
filled by the German banks during the more recent period
can be had from a discussion of those leading factors in the
general economic development of the period, which were
furthered by the banks, particularly through their activity
in the credit field, by floating enterprises and issuing
securities.
Inasmuch as important phases of this activity have been
described in the introduction and in the chapters devoted

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to the early period of German banking, and as this activity
has proceeded on the whole along the same lines, though
on a larger scale, during the more recent period, it will be
sufficient to point out merely the special tasks undertaken
by the banks during this period.
For only in this manner will it be possible to achieve our
main purpose of presenting a complete picture of the
influence and activity of the banks in the general economic
development during the two periods.
But in contrast with former editions of this book I shall
endeavor in each of the subsequent chapters to describe,
at least in outline, the share of each of the large banks in
the common task. It will then be seen that, notwith
standing the similarity of the purposes and of the general
development, each large bank has shown a peculiar char
acter and development, has pursued a peculiar business
policy (cf. Sect. 6, below) and that this policy, even within
the same bank, has shown numerous and at times radical
changes depending on the change of management, times,
and purposes.
Before proceeding with our inquiry let us recall what
amounts of capital were at the disposal of the German
credit banks for the achievement of their tasks at the
beginning of the present period. As stated before, of the
total amount of about 2,405,000,000 marks which repre
sented the share capital of the stock companies founded
in Prussia during the nineteen years’ period of 1851-1870,
the share of banking capital was 94,650,000 marks, that
is to say, less than 100,000,000 marks, or about 5,000,000
for each year (cf. p. 48, supra).

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In 1870 the capital of the large banks founded during
the earlier period showed the following amounts:
Bank fur Handel and Industry, 25,046,000 florins (42,936,000 marks).
Disconto-Gesellschaft, 10,000,000 thalers (30,000,000 marks).177
Berliner Handelsgesellschaft, 5,625,000 thalers (16,875,000 marks).
A. Schaaffhausen’scher Bankverein, 5,200,000 thalers, (15,600,000 marks).
Mitteldeutsche Kreditbank,178 5,000,000 thalers (15,000,000 marks).
In 1870 a Konzession was granted to the Deutsche B a n k 179 with a capital
of 5,000,000 thalers (15,000,000 marks).
During the same year the Commerz- und Disconto- Bank at Hamburg was
founded with a nominal capital of 30,000,000 marks, of which 15,000,000
marks wrere paid in.
In 1872 the Dresdner Bank at Dresden was founded with a nominal
capital of 8,000,000 thalers, equal to 24,000,000 marks, of which 40 per
cent were paid in, i. e., 3,200,000 thalers (9,600,000 marks).
In 1881 under totally changed conditions the Nationalbank fur Deutsch
land was founded with a nominal capital of 45,000,000 marks, of which
20,000,000 marks were paid in.

Further substantial increases of both the number
and capital of the German credit banks followed in rapid
succession during this period. As early as 1872 the com
bined capital of the then existing German credit banks
(enumerated in Appendix III, at the end of the volume)
exceeded 1,000,000,000 marks (1,122,113,000 marks). Of
the total number, however, not less than 73 banks, with a
capital of 432,500,000 marks, were compelled to wind up
their affairs during the six years of business depression
which followed the crisis of 1873.180
Here again I shall depart from the method followed
in former editions. Following the usual classification of
banking business into credit and debit transactions, I
shall, as stated in the preface, take up the discussion of
the principal credit and debit transactions (Aktiv- und

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Passiv- Geschdfte) of the German banks with particular
reference to the great banks.
At the outset the following general considerations
should be emphasized. It is regarded as a fundamental
rule both for banks of issue and for credit banks, which
are not permitted to issue notes, that the charactei of
their debit transactions shall determine the character of
their credit transactions,181 or, in other words, that a
credit bank must not grant credit different in character
from that which it receives. This proposition must in
deed be recognized also as the fundamental principle of
credit banks, but it is to be understood in the sense
that a credit bank, in proportion as it has procured
moneys repayable on demand or within short or longer
terms, or has contracted credit obligations which become
due on demand or within short or longer terms, must
invest the funds at its disposal in such a manner that it
shall be in a position to meet its obligations at all times
when they become due.
At the same time, however, a bank may assume that,
at least in normal times, not all the moneys due will be
claimed simultaneously, just as a fire insurance company
is justified in assuming that not all the insured houses
will be destroyed by fire at the same time.
No general and fixed rules can be laid down as to the
percentage of the claims likely to be presented for pay
ment. Such a percentage can be estimated only on the
basis of the experience gathered during a long time by
the individual bank, with due regard to the experience of
other banks and to its own peculiar character; in other

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words, by using the care and precaution customary in
business, and more especially in the banking field.
The general practice of the German large banks is
even more cautious,182 since they dispose of their funds in
such a manner as to be prepared at any moment to repay
one-third of all outsiders’ funds (fremde Gelder), irre
spective of whether they are payable on demand or after
longer or shorter terms, by the aid of resources which
may be regarded as being of first-class liquidity, i. e.,
cash, including bank notes, sight drafts, and checks,
contango (Reports), bills, also the so-called “ Nostro”
credits, i. e., credits held with first-class domestic and
foreign banks and banking firms.
“ Outsiders’ funds” (fremde Gelder) include the deposits
(Depositen) , the credit balances on current account, and
other balances not on current account, resulting from
loan operations and other issue business, or from the
coupon service, or from interest-bearing funds held until
settlement day to the credit of domestic and foreign
states, provinces, districts, communes, commercial and
industrial concerns, of land banks, note banks, and other
banks, insurance companies, administrations, corporations,
institutions, foundations, and private capitalists.
The liquid assets stated above include the so-called
reports, which as a rule, or at least primarily, comprise only
such as can be realized in the international market, as for
instance those concluded in London and which become
payable on an average within a fortnight (instead of the
usual term of four weeks). Similarly bills mentioned
among this class of assets must be such as can be used
for international transactions. They may be in terms

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of German currency, since there is normally a large de
mand abroad for German prime discounts. Only in the
second place do the banks resort for this purpose to
short-term or shortly-due bills which may be rediscounted
at the Reichsbank.183
Such a constant readiness for the repayment of a third
of all “ outsiders’ funds” (not only of deposits), must be
regarded as more than sufficient, since never yet in the
history of the German great banks has there been a case
when payment of one-third of all the liabilities has been
demanded suddenly without notice. Were the Reichs
bank to reckon with the possibility of a sudden presenta
tion of one-third even of its notes only, it could not
maintain its present mode of calculating its liquid assets.
As a matter of fact, there is no legal provision whatever
for cash security, so far as the giro-claims of the Reichs
bank are concerned.
S e c t io n

1. T

2.—

THE CURRENT (REGULAR) BANKING
BUSINESS.

e b it

O p e r a t io n s

B anks
(a )

(T a k in g
the

of
of

d e p o s it

the

G erm an

C r e d it

C r e d it ).
b u s in e s s .

(j ) General observations.
As stated before (see pp. 73 and 74), the German banks,
during the first period, proceeded mainly on the principle
of carrying on their business, as far as possible, with their
own means. In the interest of their own security they
did not deem it advisable “ to bring about an increase in
the amounts of deposits by granting more liberal terms.”
Their customary practice, therefore, was to accept deposits

191

N at i o n a l

M on et a r y

Commission

repayable only after three, six, or twelve months’ notice,
on which, moreover, only a small interest was paid.
The systematic fostering of the deposit business by
the German banks, which in England is regarded as an
essential element of banking,184 is due to the initiative of
the Deutsche Bank, which almost immediately after its
foundation in 1870 began to devote itself energetically to
this class of business.
Already during the Franco-Prussian war, toward the end
of 1870, the Deutsche Bank opened special deposit offices,
at first in Berlin, then in a number of suburbs, also in
Wiesbaden, Hamburg, Leipzig, and Dresden. In this
manner manufacturers and capitalists were enabled to
invest productively even the smallest available amounts
(of not less than 10 thalers), while the Bank was in a
position to use these deposits— which became its prop
erty with the restrictions mentioned above185— for certain
business purposes, having been the first to reach the con
viction that, in view of the large demands and tasks pre
sented to the banks their credit business could no longer
be transacted with their own means. Since, however, even
the use of only a portion of the deposits for its own busi
ness, even with the observance of the required restric
tions, can be permitted only in case the remaining por
tion is adequately secured by most liquid assets (stets
greifbare Mittel), the Bank at the same time took exem
plary precautions to provide for this form of securities
and adopted a special organization of the deposit business,
so arranged that the special division created for the pur
pose might, when necessary, be separated at any time and
made independent.
192

The

G e r m a n

G r e a t

B a n k s

The opening of these deposit branches186 on the one
hand made it easier for manufacturers and capitalists
to obtain bank credit; on the other hand it brought the
Bank in contact with a constantly growing number of
customers, whose financial standing was known and who
formed a regular and steadily increasing circle of sub
scribers to the stocks and bonds issued by the Bank.
Conditions in Germany, unlike those in England, pre
sented a number of serious obstacles to a vigorous growth
of the deposit business.
In the first place, the general custom in Germany among
manufacturing and other circles is to keep on hand much
larger amounts in cash than actually necessary. In the
case of the smaller traders and manufacturers this is caused
partly by the fact that often they have no regular bank
connections. For this reason they keep idle at home the
money needed to meet maturing obligations, and even
much more, from sheer timidity, merely using so much of
it as is required for their current business. The same and
similar remarks apply to many capitalists, who, following
old-time tradition, are often given to hoarding their cash
resources in the most primitive fashion.
To the extent, however, that the patent advantages of
interest-bearing investment helped to overcome this tradi
tional inertia, it was the deeply rooted custom among large
classes of the German population to turn over small sav
ings to the savings banks. The latter, in many cases,
were older than the credit banks, and ow^ed their origin
to, and were identified with, local conditions. They wTere
convenient for the deposit and withdrawal of money, even

90311 — 1 1 ----- 14

193

National

Monetary

Commi s s i o

in the smaller towns, besides being either public institu
tions or, at least, under state control.
Finally, at the beginning of the seventies, the amount
of available national wealth was relatively small. Since
the deposit business presupposes large amounts of surplus
funds, the establishment of special deposit banks would
have proved unprofitable and was therefore out of the
question, at least for a good while.
Under these circumstances all that the German credit
banks could do at first was to use their utmost care and
efforts to prepare the ground for a gradually developing
deposit business. It was utterly out of the question, in
view of the then existing conditions and habits of the
people, that the latter would take their savings to the
credit banks in the same manner as to the savings banks.
In fact, the deposit offices had to create their own deposi
tors. Their mode of procedure in this matter, allowing
for certain differences of conditions, was not much unlike
that of the English deposit banks during the early period.
As pointed out before the Bank Inquiry Commission, the
deposit offices extended credit to manufacturers and trad
ers, thus enabling them to pay their creditors through their
intervention. The creditors quite often were induced
not to draw the money due or to re-deposit it, receiving
for it a higher than the customary rate of interest.
After the connection had been made in this or similar
manner, it followed, as a matter of course, that the persons
to whom credit was extended, as well as those who shared
in it, gradually came to deposit at the branch their cash
funds and reserves and to transact there all their banking
business.

194

The

G e r m a n

G r e a t

B a n k s

The new customer began to draw checks upon the
deposit office, to discount there his commercial bills, to
have the office attend to most of his payments, and lessen
the risk in his import and export business. The office
granted him acceptance credit, undertook the investment
of his funds and the management of his property in secu
rities, gave him information and advice and procured for
him advantages of all sorts. In this manner the deposit
offices, which from the mere profits of the deposit busi
ness would never have been able even to defray their
operating expenses,187 and which therefore were equally
interested in enlarging the scope of their business opera
tions, gradually assumed the character of so-called
Wechselstuben (exchange offices), engaging in all classes of
banking business, like the central parent bank, or its ordi
nary branches, except dealing in securities on own account
and undertaking syndicate business (Konsortialgeschdfte).
This was carried so far that the new competition caused
loud complaints among the private bankers affected
thereby.. It is thus seen that the origin of commercial
deposits at the German banks is altogether different from
that of the savings deposits at the savings banks. Sta
tistically this may be proved by the observation that the
amounts of deposits increase or decrease in accordance
with the general increase or decrease of credit operations.
Equally different are the purposes for which deposits are
made at the two classes of banks.
The client of a savings bank, belonging almost exclu
sively to the middle and lower classes, has in mind an
institution which shall permanently and securely keep and
administer his savings deposits, and pay him the highest

195

National

Monetary

Commission

possible rate of interest. The client of a commercial bank,
belonging mainly to the middle and higher classes and
particularly to the commercial and industrial groups, as a
rule has in mind the temporary deposit and utilization of
his surplus funds, being therefore in most cases satisfied
with a low rate of interest until such time as he can invest
them permanently in securities, mortgages, or industrial
enterprises; moreover, he is particularly interested in turn
ing over the administration and use of these funds to the
bank which attends to his other banking business.
With few exceptions the former has but one character.188
He is a depositor of savings and nothing else. The latter
has a Protean character; one day, in virtue of his deposit,
he may be a creditor, some other day, in virtue of his cur
rent account— or other connections with the bank, he may
be a debtor. He .may become creditor as well as debtor,
for a thousand and one reasons. Thus, unlike the savings
bank depositor, he is not presumed to exclude the right of
hypothecation or detention of the deposit on the part of
the bank.
For this reason it is very difficult to give a definition
of the German term “ bankmdssige Depositen” , since in
Germany the term comprises not only what are known in
England as current accounts, but likewise what are known
there as “ deposit accounts.” As these various designa
tions are far from uniform and on the other hand are
coterminous, it is almost impossible to obtain, for the
various German banks, uniform and comparable data of
“ deposits” on a scientifically unobjectionable basis. For
these and other reasons some banks have heretofore either
failed altogether to give any separate account of their
196

The

G e r m a n

G r e a t

B a n k s

deposits, or have shown the latter combined with the socalled “ creditors” accounts. This is true of the Darmstadter Bank (which, however, has of late been giving sep
arate data for deposits), of the Berliner Handelsgesellschaft, the Commerz- und Disconto-Bank, the Mitteldeutsche
Kreditbank, and the Nationalbank fur Deutschland. Other
institutions, such as the Deutsche Bank and the Dresdner
Bank comprise among deposits on the one hand all “ cred
itors ” of their deposit offices and exchange offices— a
proceeding which can be explained only in view of the
peculiar development of the German deposit business just
described— and on the other all those “ creditors” who
may have intrusted moneys to other offices of these
banks upon receipt of so-called “ Depositenquittungsbucher”
(deposit receipt books) or else without such books but
expressly designating them as “ deposits.” 189
The Disconto-Gesellschaft, while stating separately the
“ deposits” in its regular reports, as well as in its jubilee
report of 1901 (p. 260), seems, however, to include under
that head the current accounts of larger domestic and
foreign firms and corporations, since the amounts of these
deposits show oscillations which can not be explained ex
clusively by contemporary business conditions or the state
of the money market.190 On the other hand, its reports
up to the year 1908 invariably grouped under the head of
“ creditors” instead of “ debtors,” the balances daily due
{die taglich fdlligen Guthaben), held at its deposit offices.
It is plain both from the account of the development of
the German deposit business and from the purposes for
which these deposits are made and received, that, as was
pointed out also at the third general convention of Ger
man bankers at Hamburg 191 (Sept. 5 and 6, 1907), only

197

N ational

Monetary

Commission

an exceedingly small portion of the deposits of the
German credit banks— in my opinion less than onethird— is made up of what may properly be called savings
deposits. By far the larger portion— not less than twothirds if not three-fourths— of these deposits represent
“ operating reserves” of traders192 (cash on hand, reserve,
etc.) or of funds of traders or capitalists temporarily
deposited but destined for investment in securities, mort
gages, industrial enterprises, etc. This opinion is shared
unanimously by other students of the question, including
the experts heard in 1908 before the Bank Inquiry
Commission.193
Between 1870, when the systematic fostering of the
deposit business on the part of the German banks may
be said to have commenced, and 1891, that is to say,
during twenty-one years of the most intensive fostering
of this branch of business, those banks which hold by
far the larger part of the total deposits, namely, the 143
German credit banks having a capital stock of at least
1.000. 000 marks each, had accumulated total deposits
amounting to 386,000,000 marks.
Nine years later, according to a compilation of the Deutscher Okonomist, 118 of the largest German credit banks
had accumulated 997,000,000 marks of deposits; i. e., after
thirty years of fostering of this branch of business, these
banks had succeeded in attracting not quite 1,000,000,000
marks of deposits.
After another nine years, on December 31, 1908, the
total deposits of all German credit banks reached about
2.750.000. 000 marks, of which about 2,250,000,000 were
the share of the 143 German credit banks having a capital
of at least 1,000,000 marks each.
198

The

G e r m a n

G r e a t

B a n k s

The large increase within the last nine years is due not
merely to the growth in the volume of credit operations—
the prime cause of growing deposits— and of the general
prosperity, but above all to the large increase in the number
of the deposit offices of the great Berlin and provincial
banks, especially notable during those years. It is also
due to the fact that owing to improvements of the bank
statements and the more thorough work of the private
statisticians, the statistics comprise now the operations of
nearly all German credit banks, 413 in number, with
all their branches, silent partnerships (Kommanditeri) ,
agencies, and deposit offices.
In view of this circumstance and the fact that this total
represents the result of nearly forty years of concentrated
and consistent effort, even this result can not be regarded,
either absolutely or relatively, as a great success. Hence
the statement194 made as early as 1904 that there was
“ an unhealthy growth of deposits,” seems entirely un
founded. This becomes especially apparent when the
above total is compared with the total volume of the sav
ings deposits held by the German public and private sav
ings banks, which, on December 31, 1906, had reached
a total of 13,250,000,000 marks, and by December 31,
1908, amounted probably to between 14,000,000,000 and
15,000,000,000 marks.
To this should be added the savings and other deposits
(jremde Gelder, less credit balances on current account)
held by the 16,000 cooperative credit associations (Kreditgenossenschajten) in city and country, which on December
31, 1906, amounted to about 2,000,000,000 marks, also
the amounts accumulated in the note banks, people’s

199

National

Monetary

Commission

banks, and, since January i, 1909, in the check depart
ments of the post-offices 195 (which latter amount is likely
to continue increasing but can not be considered in this
connection).
It is perfectly improper either to calculate a percentage
of growth for arbitrarily chosen periods or for unequal
numbers of banks, or by comparing percentages to make
the growth of deposits in the German credit banks appear
considerably larger than in the savings banks or in the
English joint-stock banks.
Thus, for instance, the total deposits of 92 credit
banks at the end of 1892, 408,000,000 marks, were taken
as 100, and, compared with the total deposits of 118 credit
banks at the end of 1907, 997,000,000 marks, an in
crease of 144 per cent was found. As against this increase
the much smaller percentual growth of the same business
at the English joint-stock banks between the years 1890
and 1900 was pointed out, the number of which had
decreased during that period from 99 to 82 while their
deposits had grown from 335,000,000 to 572,000,000
pounds sterling, or only 71 per cent.
It is always easy to afford both to friends and oppo
nents a small satisfaction 196 of this sort by calculating
percentages and proceeding in the one case— i. e., of the
German deposits— from a low level, and in the other—
i. e., of the English deposits— from the high level of
£335,000,000 or 7,000,000,000 marks, since the per cent
increase in the case of the English joint-stock banks, in
view of the high level of their deposits from which the
start is made, can, in the nature of things, be but small.
It follows that the extent and gravity of the fallacies and

200

The

G e r m a n

G r e a t

B a n k s

blunders will differ merely according to the year which
is chosen as the base of comparison. An even larger
blunder is committed by those who calculate first the ag
gregate deposits of the savings institutions, credit banks,
note banks, and cooperative credit societies, and then
arrive at the “ conclusion” that the percentual share
held by the credit banks in the aggregate is constantly
increasing, while that of the remaining institutions is
constantly decreasing. This is a graver blunder for the
reason that in this case figures of entirely different
nature— namely, of deposits in savings banks and those in
credit banks and similar institutions— are thrown together
and the calculations of percentages are then based on the
totals thus obtained.
It is, therefore, not surprising that with such methods,
which, however, often lead to important economic and
legislative conclusions, startling though arithmetically
correct results are obtained, showing a considerable per
centual decrease of deposits in savings institutions, while
the absolute figures for these deposits show a continuous
and almost regular increase to between 14,000,000,000
and 15,000,000,000 marks on December 31, 1908, for the
country as a whole, as compared with 2,750,000,000
marks of bank deposits.
By using equally fallacious methods it is quite easy to
make the following totally different calculations:
In 1891— i. e., sixteen years ago— the German savings
banks had about 5,250,000,000 marks of savings de
posits.107 On December 31, 1906, they held 13,250,000,000
marks. The increase was, therefore, almost threefold.
In the same year, 1891, the 143 German credit banks,

201

with a capital stock of at least 1,000,000 marks each,
had 386,000,000 marks of deposits. On December 31,
1906, these deposits were 2,250,000,000; there was there
fore a much larger, almost sixfold, increase.
If, however, instead of 1891 the year 1900 is chosen as
a starting point, it is seen that the deposits of the Ger
man savings banks amounted then198 to approximately
9.000. 000.000 marks, as against only 997,000,000,199 that
is, less than 1,000,000,000 marks deposited in the German
credit banks. As compared with the above given figures
for the end of 1906, the savings deposits are seen to have
increased by about 4,000,000,000 marks, the deposits in
the credit banks by much less— i. e., only by about
1.500.000. 000 marks. In other words, different results
will be obtained by percentual calculations according as
the level used as base of comparison is higher or lower.
(2) Deposits in foreign countries.
As compared with the aggregate absolute figures of
deposits in the German credit banks of 2,750,000,000
marks on December 31, 1908, and approximately
2.500.000. 000 on December 31, 1906, the corresponding
aggregate for the English deposit banks (including the
Scotch and Irish banks as well as the Bank of England)
may be estimated at about 6,250,000,000 marks at the end
of 1905. According to Edgar Jaffe 200 their current and
deposit accounts (gesamte fremde Gelder) on that date
aggregated 19,000,000,000 marks, while according to the
London Economist of May 19, 1906, whose lower data we
shall use as a matter of caution, they aggregated only
16.750.000.000 marks. If of this total201 two-thirds is
allowed for current accounts and only one-third— which

T h e

G e r m a n

G r e a t

B a n k s

is too low rather than too high an estimate— for deposit
accounts (held against deposit receipts with seven, four
teen, and more days’ notice), we arrive at approximately
the above total of 6,250,000,000 marks— i. e., an amount
equal to the aggregate outsiders’ funds {gesamte fremde
Gelder) held at the end of 1906 by the larger German
credit banks (with share capital of at least 1,000,000
marks each).
To these 6,250,000,000 marks of savings accounts
should be added for Great Britain (exclusive of Ireland)
deposits in the post-office savings banks and in the trus
tees’ savings banks of about £216,500,000,202 equivalent
to about 4,500,000,000 marks— making thus a grand
total of 10,750,000,000 marks. These latter banks have
to invest their available funds in British consols and
pay a fixed rate of interest of 2]/2 per cent.
In the United States 203 the total amount of visible
deposits of all kinds, including savings deposits, held by
banks and private bankers on or about June 30, 1909,
was about $14,100,000,000, or slightly in excess of
59,000,000,000 marks. Of the total, the note-issuing
national banks held $4,898,500,000 (about 20,500,000,000
marks) while other banks and firms held 9,209,000,000
dollars (about 38,678,000,000 marks). Of this latter
total, $3,713,000,000 (about 15,595,000,000 marks) rep
resented the deposits held by savings banks, $2,467,000,000
(or about 10J/3 billion marks) deposits in the state banks,
about $2,836,000,000 (or 11,911,000,000 marks) deposits
in the loan and trust companies, and about $193,000,000
(or 810,600,000 marks) deposits held by private bankers.
The national banks are banks of issue; there is, however,

203

N a t i o na l

M on et a r y

;

Commission
"

no central institution to rediscount their bills. A series
of obligations 204) has been imposed upon the national
banks by twelve acts, especially those of April 3, 1864,
and of March 3, 1869, viz:
(a) To hold a cash reserve of 25 per cent of their deposits
in the reserve cities and of 15 per cent in the other cities.
(b) To publish quarterly statements and balance sheets.
(c) Not to assume obligations in excess of their total
liabilities, less bank notes and deposits.
(<d) Not to loan to any single person a total amount in
excess of one-tenth of their capital stock (a provision
which, according to an inquiry made in 1900, about 40
per cent of all national banks circumvented by subdividing
accounts, etc.).
(e) To transfer 10 per cent of the dividends to a surplus
fund, so long as the latter is below 10 per cent of the
capital.
(/) To make five reports each year to the federal
comptroller of the currency. The latter, moreover, may
examine the banks at any time and enforce the observance
of his orders and of the legal provisions under penalty of
closing the bank.
The above comparison shows plainly that the volume
of the German bank deposits even now is relatively small
as compared with that found in England and in the
United States. It also seems to be considerably below
that held by the French banks.205
(3) Deposits held by individual Berlin great banks.
The following figures show the growth of deposits in
some of the Berlin great banks which devoted themselves
first and most energetically to the deposit business.

204

The

G e r m a n
(a)

G r e a t

B a n k s

D eu tsch e B a n k .

The amount of deposits (expressed in millions of marks)
held by this bank were:
1871....
1872....
1873....
1874 —
1875....
1876....
1877- • . .
1 8 7 8 ___
1879.. ■ ■
1880....

...
...

9
7

. . . 1 4
...

. . . 1 3

1881 . . . .
1 8 8 2 ___
1883....
1884 . . . .
1885....
1886....
1 8 8 7 ___
1 8 8 8 ___
1 88 9 . . . .
1890....

...1 4
. . . 18
.
.
.
.

.
.
.
.

2
3
3
3

7
2
0
8

•••47
•••47
.. .52

1891...
1892...
1893.. .
1894...
1895...
1896...
1897.. .
1898...
1899...
1900...

...5 8
...6 9

•••75
.. .85
•••

••
..

1901....
1902....
1 9 0 3 -----1 9 0 4 -----1 9 0 5 -----1906....
1 9 0 7 -----1908....

. . .
.. .
...
...
...
...
...
...

214
213
237
286
341
381
476
489

155
191

The number of deposit accounts at the Deutsche Bank
rose from 3,867 in 1883 to 21,771 in 1895, the latest year
for which the respective figures are available.
It may be seen from the foregoing table, that the de
posits of the Deutsche Bank amounted to 8,000,000 marks
at the end of the first year after its organization and
equaled the amount of its capital in 1894, reaching the
total of 489,000,000 marks on December 31, 1908, as
against a capital on that date of 200,000,000 marks. The
most remarkable feature about the above figures (espe
cially ki view of the above mentioned wide extension of
the term “ deposits ”) is the almost uninterrupted growth,
both absolute and relative, of the deposits as compared
with that of the capital.
The number of deposit accounts increased relatively
much more than that of other accounts (including the
current accounts, which numbered 230,203 at the end of
1908).
The average size of the deposits at the Deutsche Bank
has steadily decreased from 4,138 marks in 1883 to 2,570
marks in 1893 (no later data have been published). This
goes to prove that the aim of attracting even the smallest

205

N a t i on a l

M on e t a r y

Commission

available funds is being more and more thoroughly at
tained.
About two-thirds of the total deposits throughout the
period have been held by the central office at Berlin.
The number of deposit offices was 74 at the end of
1908, compared with 12 in 1895 and 44 in 1905. The rules
regarding the deposit business at the Deutsche Bank are
reprinted by Joh. Fr. Schaer.206 The principal points,
which in the main are typical for all the large banks, are as
follows:
(1) The minimum deposit must be 100 marks.
(2) Each depositor, who does not stipulate a fixed term
of repayment, receives an account book in his name, in
which are entered all deposits. Each deposit must be
accompanied by a deposit blank, filled out by the depos
itor and handed to the cashier together with the amount
deposited.
(3) The account books, which, however, do not contain
the amounts withdrawn by the depositor, must be pre
sented each quarter for balancing.
(4) Deposits repayable at a fixed date are made against
bank receipts.
In case the amount to be withdrawn is 30,000 marks or
over, written notice must be given before 12 o’clock of the
preceding business day.
The rates of interest paid on deposit are published by
notices at the tellers’ windows of the deposit branches and
may be changed at any time; this change, however, does
not affect rates on amounts deposited for a longer term
if the change of the general rate is made prior to the
stipulated date of repayment.

206

The

G e r m a n
( b)

G r e a t

B a n k s

D resd ner B a n k .

The deposits of this bank show the following growth (in
millions of marks:)
1875....
1876....
1877....
1 878.. ..
1 879. . . •
1880. . . .
1881....
1 882. . . .
1883—

•
.
.
•
.
•

2. 8
3-2
3-0
2. 9
3. 6
4. 0
5-7
4. 8
5- 1

1884...
1885. . .
1886...
1887.. .
1888...
1889.. .
1890...
1891..
1892..
(c)

.
•
•
.
•.
•.

6. 4
6. 6
11.4
10. 4
13-8
13- 1
11.5
13- 7
15-3

1893. ..
1894...
1895. . .
1896. ..
1897. . .
1898...
1899. ..
1900...

••
..
■ •
..

15-7
20. 6
31 . 1
39. 18

••
••
..
••

37-4
55-2
62. 9
94-5

1901 . . . • •
1902... . .
1903-••
1904. . .
1905. ..
1906...
1907. . .
1908...

••
••
..
..
..

77-5
93.2
136.7
163.5
199.0
224. 8
224.5

D is c o n t o - G e s e e l s c h a f t .

The deposits of this bank show the following growth (in
millions of marks):
1871...
1 872. . .

.
.
1873-•• .
1874.... •
1875.... .
1 876. . . .
1 877. . .
1878.. .
1 879. . .
1880... •

14.8
16. 8
64. 8
36.5
9. 2
11. 3
7-5
7. 2
9-7

1881 . . .
1882. ..
1883..•
1884. ..
1885. . .
1886.. .
1887. . .
1888...
1889.. .
1890...

..
..
..
••
..
..
..
..
••

21 . 0
13.2
15.2
35-2
18. 13
7. 8
20. 2
14. 7
36. 5

1 891. . .
1892. ..
1893. ..
1894. . .
1895. . .
1896. ..
1 897. . .
1898.. .
1899. ..

..
..
.
..
••
■ ■
••
••
..

17
16
19
29

2
17
7
8
34 1
38 3
34 0
43 8
49 3

1900...
1901 . . .
1902...
1903-•
1904. . .
1905. . .
1906. . .
1 907. . .
1908...

..
..
..

48. 0
75. 0
78. 8
91 . 0

..
••
..
..

110. 0
153-4
144.3
218. 5

It should be noted, however, that in the case of the
Discontp-Gesellschaft prior to 1908 deposits included both
“ creditors on current account” and “ deposits repayable
upon notice. ’ ’ The above figures, as was pointed out before
(p. 70 and note 94), show great variations, inexplicable
by the mere change from prosperity to business depression
during the respective years. Thus, deposits in 1872 show
a total of 16,800,000 marks (exact figures 16,726,163
marks), in the following year the total reaches 64,800,000
(exact figures 64,788,366 marks). In 1874 the total drops
to 36,500,000 marks (36,502,613 marks) and in 1875 even
to 9,202,000 marks. During the years of business recov
ery, 1878 to 1880, deposits did not rise above 7,000,000,

207

N at i on a l

M on e t a r y

Commission

8,000,000, and 9,000,000 marks; in the following years,
1881 to 1888, they are considerably larger, though vary
ing a great deal. The exact figures for the latter period
were as follows:
Marks.
1 8 8 1 ............. ........................
1 8 8 2 .............
1 8 8 3 ............. ........................
1 8 8 4 ............. ........................

Marks.

19,7 84 ,613

1 8 8 5 ........................................
1 8 8 6 ........................................
1 8 8 7 ........................................
1 8 8 8 ........................................

13,216,197
15,215,781

35,256,915
18, 2 7 6 , 9 65

7- 761,959
20, 2 05 , 6 6 0

But inasmuch as up to the 1908 report the “ daily due
credits ” were grouped not with “ deposits” but with
“ creditors,” it would be correct to include with “ de
posits ” the respective amounts, if these were known for the
earlier years.
The growth of deposits during the decade 1901-1908
on the whole shows but little oscillation.
The deposit offices of the Disconto-Gesellschaft in 1908
numbered 11, as compared with 1 in 1895 and 8 in 1905.
(

a r m s t a d t e r

a n k

The growth of deposits in this bank (in millions of marks)
proceeded as follows:
1870...
1 8 7 1 ___
1872 —
1873-••• •
1874....
i 8 7 5 - - >1876... .
1877....
1878... .
1879... •

22. 4
27.3

9. 1
1.9
5.6

5-7

1880...
1881....
1882...
1883....
1884...
1885....
1886...
1887...
1888...
1889...

•
.

18.5
20.0

•

16.5

•
.
.
.

15- 2
14. 1
1 9. 1
19.7

1890....
1891....
1892....
1893....
1 8 9 4 207. .
1895....
1896....
1897....
1898....
1899....

10. 9
11.8

4-4
10. 6

3° . 2
36. 2

39- 7
31-4
37- 1
34-9

1900... ..
1901... . .
1902...

43. 2
46 . 8

1903-.• • •
1 9 0 4 . . . ••
1905-.• . .
1906... ..
1907... ..
1908...

72-3
17 4 - 5
147.8
148.1
161.5

(4) Comparative growth of deposits in all German credit
banks and in the Berlin banks.
The growth of deposits during the last 20 years in all
German credit banks with a capital of at least one million
208

The

G e r m a n

G r e a t

B a n k s

marks each, numbering at present 158, is shown by the
following figures (in millions of marks):
1889.. .
1890...
1 891. . .
1892. . .
1893. . .

370.98
408. 01
385.96
389.86
377-19

1894..
1895..
1896..
1897..
1898..

486.39
493. 26
546. 42
604.39
712. 53

1899..
1900.
1901.
1902.
1903.

1904.
19051906.
1907.
1908.

812. 96
9 9 7 - 32
1.035- 11
1, 104. 13
1, 261 25

1,565
1. 839
2, 141
2,423
2,745

96
92
12
69
81

The corresponding aggregate figures (in million marks)
for all Berlin banks were:208
18 8 9 ..
18 9 0 ..

1.30 .9 9
1.3 8 . 1 4

1891.. 105-34
.
1 8 9 2 . . . 1 0 3 .2 5
119 .90

i 89 3 - - -

18 94..
18 9 5 ..
1896..
1897..
18 98 ..

.
.
.
.

163. 69
196.13
219.44
2 2 8 .2 5

•

330-39

1899.. •

338 . 1 7

1900. . 4 H - 6 4
190 1 . . • 447-23

1 9 0 2 . . . 5 0 1 .2 2
190 3-• . 5 7 8 . 2 4

1904..
7 8 3 .4 2
1905..
883.82
1 9 0 6 . . . 1 ,0 29 . 62
1 9 0 7 . . . i , 158. 71
1908.. . 1,2 4 6 .9 7

Of the total deposits in the German credit banks about
two-thirds constitute deposits in the Berlin great banks.
This is due, on the one hand to the lack of zeal in fostering
the deposit business shown by the other credit banks as
compared with the Berlin banks (which have by far the
larger number of deposit offices), and, on the other hand,
to the general fact of the concentration of capital in
Berlin. The five greatest Berlin banks on December 31,
1908, held the following deposits:
B a n k ...........................................................................

Marks.
489, 238, 000

Dresdner B a n k ...........................................................................

224, 575, 875

Disconto-Gesellschaft................................................................
Darmstadter, B a n k ...................................................................

218, 544, 301

Deutsche

108, 814, 032

Schaff hausen’scher Ba n k v e r e i n ..................................................
1.

72, 335, 365
“ 3 . 5° 7 . 5 7 3

Of these, the Dresdner Bank and next to it the DiscontoGesellschaft, both of which opened their first deposit offices
as late as 1896, come nearest to the Deutsche Bank in
the successful cultivation of the deposit business.
Of the total outsiders’ funds (gesamte fremde Kapitalien) held by the 158 credit banks with a capital of at
9 0 3 11"— 1 1 ------1 5

209

N at i o n a l

Monetary

Commission

least i ,000,000 marks each, the following percentages are
represented by deposits proper:
A t the end of—

Per cent.
34-7

190 5

......................................................................................................................................

1906

...................................................................................................................................... 3 3 . 9

1907 ......................................................

36.5

1908

37.0

.....................................................................................................................................

The corresponding percentages for the Berlin banks
were:
A t the end of—
Per cent.
........................................................................................................ 27. 5
i 9 ° 6 ........................................................................................................

27. 5

1907 ............................................................................ 3i -5
19 0 8

..................................................................................................................................

33-7

It should be noted, however, that during this period, in
addition to the above mentioned banks, only the Darmstadter Bank was carrying deposit accounts, while the
Berliner Handelsgesellschaft, the Mitteldeutsche Kreditbank, the Commerz- und Disconto-Bank, and the Nationalbank fur Deutschland had no such accounts.
Of the total deposits reported at the end of 1907 for all
banks with a capital of at least 1,000,000 marks each, 47
per cent (as against 39 per cent in 1895) fell to the share
of the Berlin banks, and 41 per cent to the share of the
Deutsche Bank, the Dresdner Bank, the Disconto Gesellschaft, and the Darmstadter Bank.
Between the years 1895 and 1908 deposits increased
relatively much more in the Berlin banks than in the pro
vincial banks, though deposits in the latter constitute a
larger per cent share of their total “ outsiders’ funds”
(fremde Kapitalien) than in the Berlin banks.209
On the whole it may be said that—
(1)
The distribution of dividends by the banks is be
coming steadier in proportion as their deposit business
develops.
210

The

G e r m a n

G r e a t

B a n k s

(2) The floating and issue business is relegated to the
rear in proportion as the deposit business conies to the
front.
(3) To a large extent it is the credit accorded to com
merce and industry by the German credit banks from their
own means and their deposits that has caused the develop
ment of the productive powers of the commercial and
industrial classes. It is this factor, combined with the
increased productive power of agriculture, which made
possible the remarkable growth of the purchasing power
of all classes and callings of the nation.210
This fact alone should suffice to keep us from adopting
ill-considered “ reform ” propositions, equally hazy at times
both as regards their underlying principles and their future
effects.
B.

THE

OTHER DEBIT-OPERATIONS OF THE

CREDIT BANKS.

Of the other debit-operations of the banks the greater
part need not be considered in this connection, since the
German, credit banks do not issue bank notes, nor do
they (with the exception of the so-called mixed mort
gage banks) issue mortgage bonds, or other bonds {Schuldverschreibungen) , such as were intended to be issued by the
Credit Mobilier.
To some extent, however, the credit operations of the
credit banks in the shape of bill rediscounts, bill accept
ances, of sales of drafts or in the line of current accounts,
or in the form of mortgage and lombard credit, must be
treated in the same manner in which these forms of credit
are treated when taken by other institutions.

211

N ational

Monetary

Commission

The details of these operations will be discussed in sub
sequent parts of the volume. It is, however, proper to
state at this place that the Berlin great banks in order
to raise cash offer private long-term bills for rediscount
at most, and even this rather unwillingly, in foreign
markets or to their own clients, but never at the bourse.
Ordinarily, however, as will be seen below, money is ob
tained at the Seehandlung (Prussian State Bank) by means
of the less conspicuous hypothecation of bills. The paper
offered for rediscount to the Reichsbank either consists of
short-term private bills, or else of such long-term bills as
may shortly fall due.
A very considerable portion of the bill holdings of the
Reichsbank is probably made up of the rediscounted bills
of the credit banks, particularly about the time of the
monthly and quarterly settlements, when the demands
upon the banks on the part of the business community are
especially heavy.
It is also asserted— though it would be difficult to prove
it— that in Germany just as in England, the credit banks
resort to large-scale rediscounting operations at the
Reichsbank and at other credit banks and banking insti
tutions shortly before the dates when their balance state
ments are issued, in order to be able to show the largest
practicable figures under the heads of cash on hand, giro,
and bank credits. It goes without saying that such assets
are counterbalanced by corresponding liabilities of the
banks in the shape of bill obligations of the rediscounting
banks.
There is also but little doubt that in times of money
scarcity when German private discount rates went up

The

G e r m a n

G r e a t

B a n k s

considerably, while money rates in foreign markets were
comparatively low, some foreign capital, possibly even in
considerable amounts, may have been obtained by the dis
counting of German bank acceptances. This seems to have
taken place on a particularly large scale in 1899 at London
and to have occasioned caustic remarks directed against
this practice of boarding-out of finance bills211 “ made in
Germany,” a criticism which was repeated with little or
no reason in 1908 regarding the then numerous American
bills of like character, a subject which is discussed later on,
on page 278.
The practice of credit banks of “ boarding out ” bills—
i. e., buying at home private bills and depositing them for
short terms in London or Paris whenever money rates are
low abroad and high at home— has nothing in common212
with the cases above cited. This practice as a rule par
takes of the character of bona fide arbitrage transactions,
based upon the differences of interest in the domestic and
foreign markets. This is not infrequently done by the
great banks, which in that case assume the risk of loss
involved in an unfavorable turn of exchange rates, that
may occur in the meantime.
A rather different practice is presented by other re
corded cases,213 involving efforts of obtaining abroad the
lacking operating capital by means of a somewhat hidden
and complicated hypothecation of bills, which do not seem
to have been always of prime quality. Foreign banking
houses, according to preceding agreements, are said to
have taken from the German credit banks the “ discounted
bills indorsed by the latter and permitted themselves to
be drawn on or else to have given their checks on Paris

213

National

Monetary

Commission

or London. The foreign house was not expected to dis
pose of the bills, which were redeemed shortly before
maturity, either by means of fresh bills or of short-term
bills on Paris or London. The bills were returned bodily,
the giro of the German bank was canceled, and the
same bills were discounted at the Reichsbank five or ten
days before maturity.”
It is patent that in such cases the German credit bank
runs heavy risks if, during the interval, a financial crisis
develops and as a result the renewal of the operation is
refused.
Another practice is reported by Ad. Weber.214 Accord
ing to him, credit banks at first, when granting credit
to their clients, drew in turn upon the latter to their own
order, disposed of the bills accepted by their debtors, and
thus procured fresh money for themselves. According
to Weber, this practice was quite common in eastern Ger
many as late as 1901. A similar procedure (in the shape
of so-called solo bills— Solawechsel) is reported by von
Lumm215 to have been quite common in Alsace-Lorraine.
It is also stated216 by Schar that larger and smaller bank
ing institutions will at times “ take from their clients ficti
tious, i. e., indorsable lombard bills and have them redis
counted upon the additional strength of their indorse
ment”— a statement which I am not in a position to
verify. I judge, however, that none of the great banks
were ever guilty of any of the above practices.
Generally speaking, the practice of the mutual drawing
of accommodation bills between credit banks may be
regarded as very uncommon in Germany, although there
has been no lack of assertions that the case of the City of

The

G e r m a n

G r e a t

B a n k s

Glasgow Bank, in England, was not without its German
counterparts. That bank “ attempted to hide its enor
mous deficit, the result of excessive credits granted to a
number of export firms, by accepting in increasing amounts
drafts of these firms, also by taking over mere accom
modation bills drawn by these firms and passing them on
for discounting.” 217 Although not exactly in accord with
our systematic arrangement, it may not be quite out of
place to mention, in connection with the deposit business
just discussed, that the credit banks often undertake the
management of the financial transactions (Kassenjiihrung)
of their depositors, by attending to their collections and
paying their obligations on their current and check ac
counts and by representing them in giro, postal-transfer
and clearance operations.
Regarding the giro system used by the large industrial
and commercial firms, which in Germany is at present
concentrated in the Reichsbank, some data were given
above (p. 147), where mention was made also of the postaltransfer business, instituted on January 1, 1909. The
latter institution fills a serious gap so far as the class of
middle-sized and small traders is concerned, but is likely
to be used in time to an increasing extent also by private
capitalists and public treasuries.
The current-account business of the credit banks with
their customers is found discussed in detail below (see
Section 2, II, B).
We have but a few remarks to make on the subject of
the bank-check business, as the latter does not come prop
erly under the head of credit, but under that of methods of
payment (Zahlungsverkehr.) Accordingly, it is treated here

2JS

N at ion a l

M onetary

Commission

only in so far as, like the “ cash keeping” for depositors, it
is one of the means by which the banks attract available
funds for productive uses, thus bringing about an increas
ingly large concentration of credit at the banks by dis
pensing with cash for payment and making it available
for the purposes of credit.
This concentration of credit brought about by the
check system, and in particular the agitation in its favor
carried on during recent years in various ways with the
consent and cooperation of the Government, including the
passing of the check act, has been vehemently attacked by
a recent writer, who takes the view that, by the “ artifi
cial fostering of the check and deposit system,” 218 funds
which in his opinion without such fostering would “ pos
sibly” (p. 20) or, “ surely” (p. 21) have found their way
into other channels (on this point see II, A ,. 2a) are
directed to the banks, where they are turned into credit
for large-scale industry (p. 19).
Now, in point of fact the agitation for the adoption of the
check system had been started long before the passage of
the check act, and the recent considerable increase of
deposits, on the basis of which alone checks may be issued,
likewise antedates the passage of the check act.
The above agitation was fully justified, in view of our
downright naive methods of payment,219 and of the crying
need of reform in this field, tending to dispense with the
use of currency which might thus become available for the
purposes of credit. Since this purpose could be attained
only very incompletely without the apex of the structure—
i. e., the transfer and clearing system— the check act pro
vided for tax-free checks (now again abolished) only in
216

The

G e r m a n

G r e a t

B a n k s

case these checks were drawn upon such public or private
institutions or concerns which, like banks and banking
firms, as a rule participate in the transfer and clearing
system, and therefore presented the best guarantee that
the real purpose of the check system— the redemption
without the use of currency— would actually be attained.
As a matter of fact, not only private banks and banking
firms, but, as is admitted by Lansburgh (pp. 13-14), like
wise public banks, credit associations, and even savings
institutions (under certain conditions), were authorized by
the check act to honor tax-free checks drawn on them,220
and surely it can not be said of the savings banks that
they, like the cooperative societies, “ deal, in the main,
only with a definite narrow circle of persons.”
Despite the agitation, the use of checks in Germany is
still insignificant,221 even if the estimate of the Statistical
Journal of the year 1902 may have been somewhat exag
gerated, according to which the liquidation of commercial
transactions in Germany required from nine to fifteen times
the amount of currency and bank notes that was required
in Great Britain.
Notwithstanding the large increase in the use of checks
since that year, the general fact noted by the English pub
lication is only too true. It is difficult to give statistical
data regarding the extent to which the check system is used
in Germany. According to the 1907 report of the Deutsche
Bank, the number of checks paid during that year by the
Berlin central office and by all its German branches,
amounted to over 10,000 per day, while the total amount
of these checks was about 5,000,000,000 marks for the year,
ihe material obtained at the beginning of 1909, in answer

217

N at i o n a l

M on e t a r y

Commission

to an inquiry sent out at my request to all the German
credit banks by the Central Association of German Banks
and Bankers, can be used only in so far as the banks in
their replies were able to give comparative data for the
years 1900, 1903, and 1907, as well as to indicate sepa
rately their check business, and to present distinct figures
of their giro business with the Reichsbank, which in the
case of most banks is lumped with their cash business.
Full information along these lines was furnished by 59
banks only, and the data furnished by even these institu
tions permit only of the general conclusion that their
check business has grown to a considerable extent since
1900, both absolutely and relatively, when compared with
the simultaneous growth of their cash business. This
conclusion is confirmed by the following three tables,
though it would not be quite safe to draw general con
clusions from these data, since conditions in Oldenburg
and Mecklenburg are somewhat peculiar (see below Part
IV, Chapter III, Sec. 3, II B 3).
Mecklenburgische Hypotheken- und Wechselbank
and Note Bank).

(Mecklenburg Mortgage

N um ber of
check a c
c o u n ts .

A m o u n t t o th e
c r e d it o f c h e c k
d e p o s ito rs .

Marks.
1900

, 792

1 6 . 9 2 3 . 7 i8

1901

1 1 ,8 0 1

1 7 .5 6 7 ,4 3 2

1902

1 2 ,4 0 0

9°3

1 2 ,8 2 6

I
1904

473.030

19 .
19 , 424, 624
2 3 .7 8 1 ,0 9 7

1906

13. 44S
13.943
14.519

1907

I S ,

189

2 2 ,8 4 3 ,7 2 1

1908

6, 57i

2 6 ,6 6 7 ,3 6 5

190s

218

2 4 .6 7 9 ,9 9 7
2 3 .4 7 1 ,0 3 2

The

G e r m a n

G r e a t

B a n k s

Oldenburgische Landesbank (Oldenburg State Bank).
Amount to the Number of
credit of check check books
depositors.
issued.

Number of
checks paid.

M arks.

1 9 0 1 ...........................................................................................................

1 , 1 7 9 , IOI

647

1 9 0 2 ...........................................................................................................

I . 785.319

831

1 9 0 3 ...........................................................................................................

2 ,4 0 5 ,8 7 8

1,09 6

1 9 0 4 ...........................................................................................................

2, 3

1.325

2 5 .9 7 0

1 9 0 5 ...........................................................................................................

2 ,9 1 5 .0 9 8

1 ,67 1

36, 458

1 9 0 6 ...........................................................................................................

3 .2 4 3 .3 4 7

1 .9 5 5

4 3 ,0 6 6

1 9 0 7 ...........................................................................................................

3 ,9 5 4 ,4 6 4

2, 326

5 1 .1 9 1

1 9 0 8 ...........................................................................................................

4 ,1 7 2 .5 9 8

2, 721

7 1 ,2 9 0

9 0 , OOO

939

15. 5 i

2 1 ,0 1 6

Oldenburgische Spar- und Leihbank (Oldenburg Savings- and Loan Bank).
Amount of
deposits.

Turnover.

M arks.

1900........................................................
1 9 0 1 ........................................................

1902........................................................
1903........................................................
1904. ......................................................
1905........................................................
1906........................................................
1907........................................................
1908........... '............................................

Number of
checks paid.

M arks.

1, 276,843
1,767,490
1.958,398
2,033,279
1.930,392
2,348,635
2, 232,684
2,352,811
2, 972,897

19 . 752.327

24. 583.977
31,242,725
35,429.217
36,079,704
45.870,731
46, 254, 761
48, 850, 513
2535 i. 0 9 7 ,674

17,270
18,659
22,255
26,077
27,686
27, 918
29.74 7
3 2 , 299
47 . 3 1 9

II. THE CREDIT OPERATIONS OF THE GERMAN
CREDIT BANKS (LENDING OF CREDIT).
(a )

in t r o d u c t io n

( i ) Observations on the granting of general bank credit.
In view of the rapid increase of population and the
correspondingly rapid development of credit in Germany
both during the first and second periods, it is not sur
prising that, except in a few directions, German banking

219

N at i on a l

M onetary

Commission

practice has not yet developed definite principles in the
granting of bank credit. Generally speaking, the dis
position shown toward the banks has been that of cap
tious criticism rather than of friendly appreciation of
what has been actually achieved. The critics should not,
however, forget that even the oldest German credit
banks date back no more than about sixty years, and
that the greater part of these banks are not even 40
years old. And yet in this relatively short period of four
to six decades our German credit banks have been obliged
to occupy in the national economy the place held by
the “ maid of all work” in the private household. They
were called upon to discharge almost simultaneously
nearly all the tasks outlined in the introduction to this
book, and which devolved upon them as the champions
of the energetic and progressive classes in industrial life.
Except such tasks as came within the sphere of special
banks, such as the note banks, the provincial cooperative
land mortgage associations (Landschaften), the mortgage
banks, or the cooperative societies, the credit banks had
to take upon themselves all or nearly all the tasks which in
England are apportioned as a rule under a strict division
of labor among deposit banks (with a further subdivision
between city, west end, and suburban banks), merchant
bankers, colonial banks, and even bill and stock brokers.
In the internal trade of the nation and in its commercial
relations with foreign countries it was incumbent upon
them not only to be at their posts, but ever to occupy
the outposts, to ward off sudden hostile attacks upon
the industrial forces of the nation, and to ensure their
safe and uninterrupted progress.
220

The

Ge r ma n

Gr e at

Banks

The failure of the banks, therefore, to develop clear,
consistent, and organic principles for the regulation of
credit transactions and the lending of bank credit can
occasion no surprise, if we bear in mind the breathless,
nerve-racking activity of the period and the competition
among the numerous credit banks. It has been asserted
that the banks are the “ directing force of the spirit of
industrial enterprise” of the nation. This claim, how
ever, whether made by the friends of the German banks
or by its secret or open enemies, is greatly exaggerated.
The banks can indeed exert an influence on the extent
and the rate of speed of production, though not directly,
but only indirectly. They can do so only to the extent
that they assist with their credit in the development of
production on a large scale, with its greater division of
labor, its concentration and decentralization of estab
lishments. In the midst of industrial progress even
the banks may not realize that production is too much
accelerated. Excessive production does indeed lead to
exaggerated demands for and in turn to excessive lend
ing of credit by the banks. But even if the mutual
competition of the banks could be disregarded, it would
be naive to suppose that the banks might suddenly decide
to refuse credit to their great industrial customers,
because they had come to the conclusion that production
was excessive and overdone. When evidences of this are
present, together with other symptoms that suggest an
impending crisis, the banks in the first instance can do no
more than communicate these fears and issue warnings to
their clientele as a whole. Except under special condi
tions, the general restriction of credit is not to be expected,

221

N at ion a l

M onetary

Commission

unless the. general industrial situation, or the general
condition of the banks, makes this step inevitable, for
the sudden restriction of credit would prove ruinous not
only to individual establishments, but might under given
circumstances bring about a general panic.
In a just appreciation of all the factors at work in our
economic development we must not forget that while
the banks are the pioneers and the greatest promoters
in the accumulation of capital, the growth of capital
has in turn been influenced and accelerated by the wonder
ful inventions made along technical and other lines during
recent times.
These considerations are in no way intended to deny the
justice of the criticisms repeatedly and emphatically
made with reference to the indiscriminate granting of
credit. On the contrary, such criticism is beneficial so
long as it is not too sweeping and does not reject the
whole system on the ground that errors have been made
in single cases, or makes the most serious charges against
the administration of the “ nation’s wealth” by the
banks.
Nothing would be further from the truth or better
calculated to- call forth contradiction than to deny that
many grave mistakes have been made, not only in the
flotation of securities— a branch of banking that has
absorbed so much time and energy— but also in those
branches which are concerned with the facilitating of
payments (Zahlungsverkehr) and the granting of credit.
I have deemed it my duty to call attention conscientiously
to these mistakes in every section of this book. On the
other hand, nothing would be more one-sided than the

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failure to recognize the natural causes of these errors.
So long as mere human beings are at the head of such
enterprises,errors, though sometimes different in character
and direction, are bound to be made under any banking
system. These can be avoided in part or lessened only
gradually, as a result of the experience acquired under
the system itself, as affected by local conditions.
I do not regard it, however, as an error in the justnamed sense that the German banks, as has been repeat
edly charged, have used their resources and their organi
zation in a one-sided and excessive manner in the interests
of trade and industry, and too little in the interest of
agriculture, a charge that in former times was often
brought against the Reichsbank (223) . In an able address
on the “ Problems of the Money Market ” (224) the president
of the Prussian Central Bank for Cooperative Societies,
Heiligenstadt, has pointed out that “ agriculture in
Germany was the last great branch of industry to adopt
the modem methods of money and credit economy. In
consequence it found the instrumentalities and institu
tions of the money market already firmly shaped. Agri
culture, therefore, can not well expect that, even if it
were possible, trade and industry, or, in other words, all
other business interests, should be subordinated to the
special needs of agriculture.” In fact, however, such
subordination is possible only to a slight degree, and its
scope is particularly limited in the case of the Reichsbank.
As a note bank, the latter must see to it that its notes, or
one large part of its short-time liabilities, and likewise its
other short-time liabilities arising from its giro business,
should be offset by corresponding credit business {Activgeschdjte)— i. e., short-term credit, granted by way of

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discounting paper or making loans on collateral. Now
the situation is essentially the same in the case of the
credit banks. Agriculture requires long-term credit to
conform to the extended period of production involved.
Moreover the credit needed is such that the bank can not
reimburse itself for it through the subsequent issue of
stocks or bonds. On principle, therefore, the credit banks
can make agricultural loans only to a limited extent. Not
having an adequate knowledge of the basic conditions of
agriculture, of the profitableness of such undertakings, or
of the trustworthiness of the managers of such enterprises,
the banks would find it almost impossible to allow them
blank credit.
In agriculture mortgage credit (Realkredit) must
naturally play the leading part. Here, however, special
organizations based on landownership must step in. For
a number of years this has been done in an adequate meas
ure by the mortgage associations (Landschaften) and
similar public institutions, also by the banking institutions
and loan banks established by the mortgage associations,
the mutual credit societies (numbering about 16,000 225),
and the mortgage banks for urban real estate on the one
hand, and in-Prussia the State Central Bank for Coopera
tive Societies on the other. The credit based on mort
gages and other real estate security which has been
extended to German landowners must be estimated at
present at least at 40,000,000,000 marks ($10,000,000,000).
The German credit banks have participated, both
directly 226 and indirectly, in extending such credit by tak
ing part in the establishment of mortgage banks, making
temporary loans on personal security to agriculturists for
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a more or less limited period, to be repaid in fall or
winter,227 thus providing for the needs of planting and
harvesting, or for the purchase of lean cattle and the
acquisition of equipment and raw material for industries
subsidiary to farming. This is particularly true of the
provincial banks and notably of the very small banks,
which thus seriously impaired the liquidity of their assets.
It may be said that these operations fall essentially within
the scope of the local banks, as these are in a better position
to judge of the trustworthiness of borrowers on personal
security, and to determine the probability of repayment
of such loans. Nevertheless it has been demonstrated that
“ every year, during the season when young and lean
cattle are purchased, many millions of marks are placed
at the disposal of the trade by the Berlin banks, through
the intervention of the local banks. ’ ’ 228
German credit banks have hithereto done little for
the craftsmen and the small manufacturers and trades
men, except when the banks have been closely connected
with the, cooperative credit societies as in the case of
the Dresdner Bank. The reason for this lies in the fact
that on the one hand unsecured credit (Blankocredit) is
naturally out of the question in most of these instances,
and on the other hand no proper security can be furnished
for personal credit (Personalcredit) which would more
over have to be in most cases long-time credit. Moreover
German craftsmen, small business men, and petty traders
have been reluctant to open bank accounts. Unable to
maintain adequate balances, these classes are unwilling to
subject themselves to what they presume would be bur
densome conditions. Moreover as checks have hitherto
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been used but to a small extent and long book credit is
customary in their business, the aid of the banks in making
and receiving payments was not thought indispensable.
As things stand, there is still much to be done through
cooperative credit organizations in which the banks can
help a good deal. The postal transfer and check system
inaugurated January i, 1909, will prove particularly
beneficial in this connection, as it will provide the
craftsmen and small business men with a substitute for
bank accounts, which few of them now have. It will
induce them to accumulate with the post-office for use in
making payments not only cash immediately needed for
this purpose, but also such sums as may be required for
that purpose in the more distant future. This will, how
ever, come about only gradually owing to the absence of
any provision for paying interest on balances kept on de
posit with the post-office department. This is unfortunate,
for it will retard the adoption of the new system. There is,
however, one good feature in the nonpayment of interest,
in that it will serve as an inducement to the depositor to
use his deposits in excess of the irreducible minimum of
100 marks required, in paying off his debts at the earliest
possible date. This would be a good beginning in the direc
tion of shortening among craftsmen and small business
men the period for making payments, a highly desirable
reform, heretofore often attempted in vain.
The Reichsbank has now joined in the postal transfer
system, and under treaties to be concluded both foreign
private institutions and postal savings banks (see p. 147)
are expected gradually to join in the system. This would
lead to the happy result of bringing about the organic
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union which has heretofore been almost completely want
ing between the giro (transfer) business of the Reichsbank,
ministering chiefly to the needs of the large industrial
and commercial interests, and the postal transfer system,
which, it is hoped, will meet in a large measure the needs
of the craftsman and small business man.
In concluding these general introductory remarks I wish
to call attention to the following: I have repeatedly em
phasized the fact that the mighty rush in the development
of our entire industrial life and of our system of bank
credit was the absolutely inevitable consequence of the
rapid increase of population. We must not, however,
forget the point on which Adolph Wagner has often in
sisted, namely, that this growth of population was not only
a cause but also an effect of the excessively rapid growth
of our general industrial and credit systems, and that for
this as well as other reasons, a less rapid progress would
be highly desirable. On account of the natural causes
pointed out above (p. 89) I have no doubt that this rate
of growth in population will not prove continuous. In the
same way, and from equally natural economic causes, there
will undoubtedly come about a slackening in the pace of
general industrial development, and with it in the expan
sion of our credit system, and the concentration of indus
try and banking. We are already beginning to feel this.
Here, too, flood tide will of necessity be followed by ebb.
This, however, absolves no one from the duty of help
ing to build up and maintain strong dams while the flood
is rising, so far as it is possible and practicable to do so,
in order to keep the turbulent waters from going beyond
all bounds and inflicting irreparable damage. However,

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these dams must be erected at the proper points, and built
by experts possessed of the requisite theoretical knowledge
and adequate practical experience. These dams should
do no more than keep the river in its natural bed and un
less the conditions are exceptional and the reasons for a
different procedure compelling, the dams should not be so
constructed as to force the river to seek a new channel
and in so doing destroy flourishing fields.
I also wish to refute another view which has found fre
quent expression of late, and which was presented also be
fore the Bank Inquiry Commission. It is claimed that as
a result of their connections with the banks and the system
of bank credit, private concerns have to an increasing ex
tent abandoned the policy of investing their reserves,
as formerly, in German Government securities. These
reserves, it is contended, have been pressed by the banks
into the service of German trade and industry229— that is to
say, have been put into channels which these funds “ would
not have chosen of their own accord.” The official ap
pendices to the report on the Imperial financial reform
bill of 1908 230 have effectually removed every ground for
such assertidh, particularly as regards recent years. They
demonstrate on the one hand that the German investing
public have displayed an extraordinary and increasing
willingness and power to purchase domestic securities
offering safe investment and a steady, though relatively
low, rate of interest, and on the other hand that both
public and private institutions have absorbed but a
“ relatively small ” part of public issues, at least as com
pared with similar institutions abroad.
It is true that among these “ domestic securities” there
are included municipal loans and mortgage bonds, issued
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by German public and private institutions. Bearing in
mind the considerable issues of securities by the Empire and
the federal states, and the fact that comparatively little
of this is in the possession of state or private institutions
in Germany and foreign countries,231 there can be no doubt
that by far the greater part of the Imperial loans, and of
the securities issued by the federated states is in the hands
of the German public. The proportion so held, it appears,
has not declined in the past decade; on the contrary, it
has increased, and the increase has more than kept pace
with the growth of wealth in the country.
(2) Observations on the granting of industrial credit in
particular.
In the foregoing it has been pointed out that one reason
for the failure of the credit banks to develop in this period
firm and consistent principles to govern industrial credit
lay in the fact that even now part of these banks date
back only six decades, the rest only four decades, and that
in this period they were called upon to discharge simul
taneously a multiplicity of tasks. Another reason lies in
the fact that the German credit banks have developed
very differently, each in its own way and along special
lines.232 In this there are advantages as well as disad
vantages. A further reason is, that German industry,
though much older, did not begin its great expansion
before the second period.
German industry had still to learn slowly and gradually
the fundamental principles governing the taking of credit—
as to kind, amount, and the right time— in the same way
as the banks had to evolve the fundamental principles

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applying to the granting of credit. It can not be doubted,
therefore, that through ignorance of correct principles, or
an overestimate of the duration of a period of prosperity
or as the result of a certain amount of megalomania or
of competition, sins were committed on both sides, in
borrowing as well as in lending. It can be demonstrated
without much difficulty that in many instances indus
trial ventures took too much long-term credit from the
banks, or took it at the wrong time, to put into improve
ments, extensions, or new construction, sometimes with
out stating these to be the purpose of the loans, and
that the banks often accorded such credit to industrial
ventures in too large amounts and at inopportune times,
sometimes even after symptoms of an impending crisis were
apparent. In a number of instances, and particularly
before the panic of 1901, it can be demonstrated that some
banks had offered their credit unsolicited to industrial un
dertakings, or “ thrust” it upon them,233 or at least made
it so easy to obtain that the existing mania, great as it was,
for new construction and reconstruction, was further in
tensified. It'should not, however, be forgotten that on the
other hand at certain times the opposite charge has been
made against the German credit banks that they were
tying up their resources in stock-market speculation.
“ One of the worst results of the present situation,” says
Eberstadt (Der Deutsche Kapitalmarkt, Berlin, 1901,
p. 115), “ is that industry finds ‘ the tables all taken’ and
that the banks are positively in no position to furnish
adequate credit for industrial needs.”
Finally it has undoubtedly often happened, as we shall
explain more fully later, that German credit banks have
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lent their credit to industrial concerns according to the
usual principles— i. e., by granting short-term credit to
industry in the same way as to commerce, a kind of
credit well enough suited to commerce but as a rule
entirely unsuited and too costly for industrial needs.
Lastly, in consequence of the excessive decentralization
of German banking, the banks in granting their credit
have at times disregarded the principle of distributing
the risk, giving too much credit to one industry, or one
branch of industry, or even a single establishment. The
Leipziger Bank went under because, with a capital of
48.000. 000 marks, it had allowed loans to the extent of
93.000. 000 marks to the Trebertrocknungsgesellschaft
(company for the utilization of desiccated lees).
The Dresdener Kreditanstalt fur Handel und Industrie
failed because it had extended too much credit to the
Kummergesellschaft. Aside from these mistakes, however,
the truth is that the capital available for commercial and
industrial enterprises in Germany was not equal to the
demand and capacity for industrial expansion existing for
the most part independently of any stimulation by the
banks. To this fact more than any other are to be at
tributed all the crises that have taken place. Had not
the banks accumulated the available capital by accepting
deposits, and made it serviceable for productive purposes,
it is a question whether this maladjustment would not
have been far greater, the results much worse, and the
crises far more severe.
If the reproaches cast on German banks would restrict
themselves to the formulation of the charges just men
tioned, every objective critic of the German banking

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system might readily admit their justice, the more so as it
is scarcely imaginable that these or similar mistakes could
have been avoided in any other banking system, where
banks have had an equally short existence.234 The injus
tice lies in the exaggeration which has unfortunately gone
to great extremes and taken peculiar forms. This is par
ticularly unfortunate for the reason that the criticism is
rarely accompanied by any proposals for reform, and still
more rarely with any practicable proposals. In both direc
tions the climax is reached in a work bearing the some
what sensational title “ The management of the nation’s
wealth.” 235 I can not ignore this work, because the au
thor’s views have been highly appreciated by those who
are opposed on principle to the German banking system
and who have used the author’s arguments as grist for
their own mills. It may be stated that the author was
himself a bank official, though not indeed one of the bank
directors who are treated with such scant indulgence
in the above work and in his other work, entitled
“ The German Banking System.” 236 That which is
correct or partially correct in the book had been said
before in a more thorough and better way by Heiligenstadt and Bernhardt in the “ Plutus ” and elsewhere— thus,
for example, the statement that the banks have been too
ready or too generous in granting credit to industry and
that thereby they have increased the speed and extent of
the process of Germany’s “ industrialization”— a point
that obviously can not easily be proven.237
This is moreover expounded with endless repetition,
and of course with the usual embellishments that the
control of the “ nation’s wealth,” the utilization of the
232