M. 4,756 millions on September 30 to M. 2,643 millions on October 7. It is probable that the government contributed at least M. 2,000 millions to this decrease. The amount may have been even larger, because some of the subscribers to the war loan probably discounted bills at the Reichsbank in order to raise the required funds.

The subsequent rise of the item "Commercial paper and Treasury bills" viz. from M. 2,643 millions on November 7, 1914 to M. 4,437 millions on March 15, 1915 was undoubtedly caused by new financial requirements of the Empire. These figures illustrate that the Reichsbank is the center of the entire financial mobilization in Germany.

IV

THE IMPERIAL LOAN BANKS (DARLEHNSKASSEN)

The Darlehnskassen have so far accomplished their object in every way. They have relieved the imperial Reichsbank, and at the same time offered an opportunity, especially to business concerns, of receiving advances on security upon which in ordinary periods money could be raised only with difficulty. Since granting loans on the part of the Darlehnskassen implies automatically an increase in the circulation of Reichsbank notes, as explained above, the loan banks in their desire to prevent a dangerous depreciation of the paper money, grant loans solely in cases where the real value of the security offered is commensurate with the amount applied for. On the other hand, the regulations of the loan banks respecting acceptable security were made very comprehensive. In addition to stocks, bonds, and raw products, "all non-perishable merchandise

is

eligible. But notwithstanding these easier conditions for obtaining credit facilities, full precautions are taken, inasmuch as only marketable goods and merchandise of probably lasting value are accepted. Furthermore, loans are granted only up to 50 per cent or at best up to twothirds of the appraised value of the security. One must also take into consideration that the borrowers are liable to the Darlehnskassen with their entire property for the repayment of the loans. This explains the fact that the Darlehnskassen as a matter of principle grant loans only to reliable firms or parties deserving credit. The intrinsic value of the Darlehnskassenscheine can therefore hardly be doubted. The precautions dictated by a due regard for the quality of the paper-money resulted in a smaller volume of business for the Darlehnskassen than the authorities may have expected. According to official statements only M. 226.6 millions had been paid out from August 5 to September 23, 1914. For the period from September 23 to October 7, 1914, however, new loans to the amount of M. 850.1 millions were reported. On October 7, 1914, M. 710.4 millions (or 63.7 per cent out of M. 1,115.7 millions) were apportioned to loans granted on subscriptions to the first war loan. At the end of October not more than M. 332.6 millions had been borrowed on other security and on merchandise. On March 15, 1915, the larger part of the loans granted against these subscriptions having been repaid, the total amount of the outstanding loans was only M. 583 millions. These figures do not in themselves evidence a lesser importance of the Darlehnskassen, which became evident again in connection with the financing of the second war loan. The subscriptions to this amounted to M. 9 billions, and some of the subscribers without question called upon the Darlehnskassen for assistance when the various instalments

became due.1 Under these circumstances the great joint stock banks are considerably relieved, not being obliged to withhold otherwise available credits from the business world.

V

WAR CREDIT Banks

The perfectly justified precautions taken by the Darlehnskassen in connection with their loans made it necessary, however, to add to the organization for credit facilities during the war another institution. In Germany business to a very large extent is based upon receiving and granting credit. The disturbances in business caused by the war were bound to make themselves felt, especially with concerns which had at their disposal neither sufficient bank credit nor pledgeable security. Their situation was critical in so far as, on the one hand, they had to meet maturing obligations for materials, supplies received, work performed by others, especially wages, as well as the requirements for maintenance of the business; on the other hand they had to reckon with bad debts, cancellation of orders and cessation of regular earnings. The difficulties thus faced by many business houses through no fault of their own could not, of course, all be removed simply by credits granted to them by the Reichsbank, the Darlehnskassen or by private banks. Either the security available was insufficient or the required indorsements

1 The first instalment of the new war loan became due April 14. There were paid in about 6 billions instead of 3.4 billions as required according to the terms of subscription. To judge from the statement of the Darlehnskassen these institutions may have contributed temporarily about M. 1.2 billions of these 6 billions, for the amount of loans granted by them increased from M. 344.6 to M. 1,573 millions during the week April 7 to April 14. Of the latter amount M. 521 millions were granted against hypothecation of the new war loan warrants. In accordance herewith the amount of Darlehnskassenscheine by the Reichsbank rose from M. 165 millions on March 22 to M. 932 millions on April 15.

of their bills were wanting. Under the circumstances, it was deemed advisable to create an institution of an intermediary character, which would bear the greater share of the risks involved. The so-called War Credit Banks are designed to serve this purpose. They were established throughout the country, have their own capital, and the obligations undertaken by them are guaranteed, and losses, if any, refunded, by the respective municipalities and commercial associations. The War Credit Bank of Greater Berlin, for instance, was established with a capital of 18 millions of marks, of which 25 per cent are fully paid in. In addition thereto, there is a liability of 11.5 million marks by official bodies or commercial organizations.

Inasmuch as the officers of the War Credit Banks are in close touch with local conditions and are known to be extremely careful and scrutinizing in their investigations, the Reichsbank did not hesitate to declare its willingness to discount the bills of these War Credit Banks up to an amount aggregating 3 to 5 times the amount of their capital stock.

Another type of War Credit Bank was established on a coöperative basis, with the special object in view of assisting the German middle classes. The smaller communities were particularly interested in these latter institutions, as they were designed chiefly to assist during the critical periods those whose financial strength was temporarily insufficient to bear the heavy burdens imposed by the war.

The entire organization in Germany, then, for credit facilities during the war may be summarized as follows. Owing to well planned modifications of the German bank act, the Reichsbank may now be looked upon as a War Credit Bank on a large scale. By releasing the bank from its obligation to redeem its notes in gold,

the government as well as commercial and industrial concerns were enabled to obtain the required credit facilities, and the issue of the first war loan could be postponed until its success was warranted by the condition of the German money market and until private banking institutions had been supplied with sufficient funds to insure the continuance of unimpaired credit facilities for Germany's commerce and industries.

By establishing the Darlehnskassen the German credit system was suitably extended to supply all requirements, and the possibility of investment of the Reichsbank's funds in non-liquid collateral loans was forestalled. As the Reichsbank was further authorized to treat Darlehnskassenscheine as cash security within the meaning of section 17 of the bank act (requiring one-third cash against notes outstanding) the granting of credit facilities by the Darlehnskassen automatically tended to increase and extend the efficiency of the Reichsbank. It is true that the Reichsbank's gold reserve itself has so far been sufficient cover for its note circulation as prescribed by law; this new provision, however, created a second reserve in the event of an unusually large expansion of the Reichsbank's note circulation.

Finally, the financially weaker concerns for whom the stringency of war times would have meant economic ruin are taken care of by Germany's financial mobilization, support being extended to them by the newly organized War Credit Banks.

It is due to this carefully planned and admirable organization that Germany alone of all the countries at war was able to do without a moratorium, thereby preventing a stand-still of her national trade, commerce and industries, and retaining her commercial and economic powers almost unimpaired in spite of the war.