courts have not reached the point of regarding the law and the constitution wholly as ends in themselves. The modern tendency is to regard even the more fundamental institutions as means to social ends, and nothing in economic theory can further this tendency more than a constant recognition of the existence of economic gains and costs to society for which such institutions are responsible.

The whole problem of value to society is of course more than economic, but its economic aspect is far from exhausted. The chief thing to be striven for is that this central problem shall have all the light that can be thrown on it from all angles, and that problems of exchange should be treated with this aim constantly in mind.

In summary, the great issue seems to be between standards of value which accept the exchange outcome as measuring the values of the goods exchanged, however they may preface this with studies of the conflicting social forces which are at work, and, on the other hand, standards of value which do not accept that measure as exact or final. Being a heretic on the main point, I tend to minimize distinctions which seem less extreme.

J. M. CLARK.

UNIVERSITY OF CHICAGO.

GERMANY'S FINANCIAL MOBILIZATION

SUMMARY

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I. Preliminary measures: banknotes and treasury notes of small denominations authorized in 1906, 724. The joint stock banks required to publish more frequent statements, 726. — II. The four war measures passed August 4, 728. — The Darlehnskassenscheine, 728. — III. The Reichsbank; redemption of notes discontinued, 732. Stock of gold increased, chiefly from the internal circulation, 734. Discounts of treasury bills, 736. IV. The Darlehnskassen, 737.-V. War Credit Banks, 739. VI. Foreign exchange, 742. - Appendix I, Issues of Darlehnskassenscheine, 745; II, Reichsbank Statements, July, 1914, to March, 1915, 746.

I

INTRODUCTORY

As a preliminary to the following discussion of the financial measures which Germany resorted to at the outbreak of the war, it will be necessary, in order to obtain a clear understanding of the situation, to review briefly the course of development of German banking policy during the last decade.

The rapid industrial and commercial progress achieved by the Empire almost continuously since the middle of the nineties was naturally followed by severe strain on credit resources which failed to allow for the possibilities of a political crisis. When in 1905, however, the first differences arose between France and Germany over the Morocco affair, the German Government became aware of the dangers of such a heavy strain upon its monetary and credit system, and the problem of a financial mobilization was at once taken

up. The efforts of the responsible officials were probably stimulated by the Reichsbank, whose directors were best in a position to discern the effects of political events upon the money market and who realized that the German currency system rested on a metallic foundation far from strong enough to withstand successfully a great crisis. And apart from these circles, there were many other prominent men able to define their attitude regarding this very important question; they put before the public valuable essays on the subject of financial mobilization.

These facts should be borne in mind in order to understand the course of German banking legislation since 1906 and the banking policy of the German Reichsbank. The first step was to grant the Reichsbank the privilege (Law of February 20, 1906) of issuing banknotes in denominations of M. 50 and M. 20. The purpose of this legislation was admittedly to replace a part of the precious gold in circulation by small bills, or to meet a part of the need for gold coin with the issue of smaller notes; as a result gold would flow in greater amounts into the Reichsbank. On June 5, 1906,

another statute was passed according to which the Reichskassenscheine (treasury notes) were to be issued in denominations of M. 10, replacing those of M. 20 and M. 50.2

1 Heretofore the smallest denomination had been M. 100, as provided for in the Bank Law of March, 1875.

These treasury notes are the only paper money issued by the German Empire. They were created by a law passed April 30, 1874, when the maximum amount was fixed at M. 120 millions. To increase the imperial war chest of gold, which amounted since 1871 also to M. 120 millions, it was ruled on July 3, 1913, to issue a further 120 millions of Reichskassenscheine. Up to the end of July, 1914, about 85 millions of this new issue had been put into circulation, and the war chest had been accordingly increased; the total amount of gold in the chest (205 millions) was promptly delivered to the Reichsbank for the credit of the Empire at the outbreak of the war. On March 22, 1915, a new bill was passed providing for the issue of a further 120 millions Reichskassenscheine in denominations of M. 10. This new issue, however, is to be entirely covered either by Darlehnskassenscheine or by currency: it is to be with

In 1908, when the time approached to renew the charter of the Reichsbank, an official inquiry was held with the purpose of disclosing all means and ways to help in the policy of strengthening the German monetary system. The six questions propounded to the authorities finally sifted down to one: how was the position of the Reichsbank to become stronger in the future? This official inquiry resulted directly in the passing of the bank act of June 1, 1909. In Article 3 of this act the notes of the Reichsbank were declared

"legal tender" 1 a quality they had not possessed before. By this provision the public was to grow accustomed to considering the Reichsbank notes "as good as gold."

Simultaneously with this legislation, which had in view the strengthening of the Reichsbank, German banking policy was extended to the private joint stock banks. The government fully realized that an improvement in the German credit system could only be achieved by finding a way to induce these institutions to use more restraint and discretion in the granting of new credit. In view of the fact that the country owed its great economic development largely to the stimulating influence of the private stock banks, a destructive legislation against these useful institutions was considered inadvisable. Therefore an attempt was made

drawn later and replaced by Reichsbank notes of the same denominations, the issue of which is already provided for in the same bill.

1 As the American definitions of "lawful money " and "legal tender" differ from those customary on the Continent, it may be stated that in Europe the term "lawful money "implies the unit standard,· either the unit standard coin, or government notes, or banknotes not convertible into coin, according to the respective monetary legislation. The term "legal tender" is applied only to such government notes or banknotes as have been declared by law to be instruments of payment, but which are upon demand redeemable in gold. For instance, the notes of the Bank of France and of the Reichsbank, previously “legal tender" notes, became "lawful money at the outbreak of the European war, when these banks by special legislation were released from their obligation to redeem the notes in specie. The notes of the Bank of England, however, remained legal tender notes, for the bank continued to redeem them in gold.

This was

to influence the banks by other means. accomplished in two ways. In the first place the banks were compelled to publish a so-called "ZwischenBilanz" (intermediate balance sheet) every two months, instead of once a year as heretofore. The purpose was to subject the banks in their conduct of business more fully to public criticism. The measure was to act as a restraint upon the banks, in view of possible political conflicts. In the second place, the Reichsbank requested all banks to increase their "Giro-Guthaben " (deposits) with it, thus increasing its own working capital as well as the bank's cash reserves.

Owing to this far-sighted policy credit conditions in Germany improved materially. The money which had been borrowed for short terms from foreign countries, particularly from France, was repaid, and the proportion between cash available and short term obligations considerably increased. Such a development was doubtless favored by the slackening of business in Germany after the end of 1912, which would in any case have caused an increase in the banks' cash on hand.

Apart from the improvement in the monetary and credit conditions the German Government also succeeded in enhancing its own resources by adequate tax measures. These measures resulted in the passing of the well-known tax law of June 3, 1913, authorizing what was expressly called an extraordinary "Wehrbeitrag " (contribution for the country's defence). The total yield of this tax had been estimated at approximately M. 1,200 millions, to be collected in three annual instalments. Up to the middle of the year 1914 the receipts had aggregated about M. 300 millions.