The Year in Germany

DURING the preparation of this article an event has happened which consigns a large part of my notes to the waste-paper basket. The Kaiser’s interview in a London newspaper, printed in the final week of October, has attracted so much attention in the world, and has been received with such intense disapproval in Germany itself, as to make it wholly impossible to ignore it here. Although I am writing at a moment when the country is still tense with excitement over the event, it calls up in such a striking manner the personality of the Kaiser and his relations to his people, that it must perforce be treated here at the outset.

For the benefit of readers who may not have the facts at hand, it must be stated that the event was, briefly, as follows : The Kaiser had conversed with several Englishmen on the relations between England and Germany, narrating his own repeated efforts to gain the good will of the English people, and manifesting a certain aggrieved tone at having been misunderstood. He had, during the South-African war, drawn up a plan of campaign against the Boers, had caused his general staff to revise this, and had sent it to his grandmother, Queen Victoria. Moreover, about that time Russia and France made proposals to Germany for a joint intervention in behalf of the Boers, but Germany had rejected those overtures, and he had forthwith cabled this fact to the Prince of Wales, now King Edward. The Kaiser went on to explain under what difficulties he pursued this friendly policy, since the great majority of his people, and particularly all the lower classes, were hostile to England.

One of these Englishmen, believing the publication of these remarks would improve the relations between his country and Germany, wrote out in the form of an interview what had thus been said to himself and others, sent the matter to the Kaiser, and asked for permission to print it. The Kaiser sent the manuscript to Prince Bülow, with the request that he read it carefully and inform him whether it was suitable for publication; but the Chancellor, not suspecting that the matter was an interview with his Imperial master, passed it on to his subordinates for examination. One of these read it and gave it his approval; and Bülow, without having even looked at it, sent it back to the Kaiser with a favorable answer. Thus an interview was given to the world, with the full approval of the Kaiser and his government, which contained statements calculated gravely to embarrass Germany in her relations with a number of foreign powers, which has increased the distrust of England, and which has aggravated to an unusual degree the uncomfortable feeling of the German people in their relations with the monarch.

For several days after its publication no one knew that it had been submitted to the Chancellor; and the newspapers of all shades of political opinion at once began discussing it under the assumption that the Kaiser had again acted upon his own initiative, ignoring his constitutional advisers in publishing a most important political document. Criticising the interview under this assumption, even the most loyal Conservative newspapers condemned it with expressions of deepest sorrow and humiliation. They felt that the Kaiser had dealt a blow to the Empire’s foreign interests which must do permanent harm; they saw that it would intensify the foreign distrust of German policy, aggravate her political isolation, and render it more difficult for her to maintain satisfactory relations with her neighbors.

It would be difficult to make the reader understand how deeply this interview has wounded the national sensibilities of the German people, the relations between a European monarch and his people being of so much more delicate a nature than that between us and our presidents. We have grown accustomed, indeed, to a rough-and-ready form of speech from our “highest place,” as the German expression goes; yet we can ill appreciate what it means to the German people, with the danger of hostile machinations across their borders ever present in their minds, to have their already difficult position endangered through unpremeditated and indiscreet utterances from their ruler. I have lived long in Germany, and I recall many occasions when the Germans dissented from something said by the Kaiser, but none of those occasions can be compared with the present one. It is no exaggeration to say that the people have risen as one man to protest against this interview.

Nothing can better characterize the sharpness of popular dissent, than to mention the step taken by the Conservative party. This organization, composed chiefly of the old Prussian aristocracy, the most monarchic section of the German people, considered the case to be so grave as to require a public declaration on its part. A document was accordingly published in all the newspapers, formally signed by these “ pillars of throne and altar,” pointing out that the words of the Kaiser had frequently brought German foreign policy into difficult situations, and expressing the “ reverent wish ” that he would exercise greater reserve in making such utterances, so that “ the German people and Empire might be preserved from complications and dangers.”

This frank disavowal of the monarch by his immediate political body-guard, which has no analogy in German history, was followed by another demonstration equally remarkable. When the Reichstag assembled, several days after the interview was published, the Chancellor was showered with interpellations about measures for preventing the recurrence of such indiscretions on the part of the Kaiser. It was long the tradition of this body that the monarch must never be mentioned in the debates, but it had been growing more and more difficult in recent years to observe this good rule, inasmuch as the Kaiser interfered so frequently and with such disturbing results in foreign and home politics. It was a new thing in German politics, however, that the representatives of the people should pause for two days to scold their ruler. Those two days will long be remembered as a most critical event in the relations between people and sovereign.

The emphasis of the Reichstag’s disavowal of the Kaiser left little to be desired, so far as mere words go. Speech followed speech, without one voice being raised in defense of the interview. From Socialist to Conservative there was an unbroken chorus of disapproval, — only pitched in different keys. Even the Chancellor, while dwelling upon such considerations as tended to alleviate the indiscretion of the interview, frankly disavowed its substance by admitting that it had done great harm. He went further, — he openly asserted that, unless the Kaiser exercised more reserve in his private conversations, neither he himself, nor any successor of his, could take the responsibility for the result. One speaker, an uncompromising monarchist, went so far as to say that the confidence of the people in the Kaiser had sunk to the zero point, — words which were received by the House with lively manifestations of approval. The foremost spokesman of the Conservatives described the interview as all the more serious for being the last link in a chain of similar occurrences which had for years caused “ an accumulation of cares, of disapprobation, of indignation in circles whose fidelity to Kaiser and Empire had never been doubted.”

Bülow had tendered his resignation to the Kaiser several days after the publication, as a means of protecting the monarch from the storm of criticism that had broken over his head. The latter, however, had declined to accept it, and the Chancellor had consented to remain in office. The resignation was apparently handed in, not primarily as an expression of disapproval of the published interview, but merely to assume publicly the responsibility for the blunders committed in handling the manuscript while it was in the Chancellor’s hands.

The resignation and the decision of the Chancellor to remain in office took the form of a mere personal arrangement between him and the Kaiser. The representatives of the people had not been consulted, and they had not expressed their wish in the matter. In the debates, however, it was pointed out by Socialist speakers, with great force, that the only means to compel the monarch to observe his constitutional responsibility was to be found in the resignation of his chancellor. Radical speakers insisted that the lesson to be drawn from the incident is that the ministers of the crown must be made responsible to the Reichstag, and it appears that they intend to move the adoption of a law for that purpose.

The tangible results of this heated discussion of the Kaiser and his interview appear at present to be very small indeed, — a voluble current of strong words, but no corresponding action. Numerous speakers demanded substantial guaranties that there be no further personal interference in foreign politics on the part of the monarch; but the only guaranty given was the “ firm conviction ” won by the Chancellor “ in these trying days ” that his Majesty “ would in future observe, even in his private conversations, that measure of self-restraint which is indispensable alike for a uniform policy and for the authority of the crown.’ ’

In these debates it became evident, to a degree never known hitherto, that there is a very wide chasm between the Emperor and his people. He does not understand his own people, he has completely lost touch with them, his courtiers only flatter him and prevent him from learning the truth, — such complaints formed the burden of these speeches in the Reichstag. And there was another serious note in them: the conviction uttered by various speakers that things cannot continue to go on as they have heretofore; that it is absolutely indispensable for the internal repose and the external security of the Empire, that the monarch keep himself more in the background; that there be a return to the Bismarckian dictum, “ The monarch dare not show himself publicly except when clothed in ministerial authority.” Some hopeful spirits, indeed, have expressed the belief that the Kaiser will restrain himself in future. To expect, however, that a man about to celebrate his fiftieth birthday shall transform his character, is, indeed, a heavy draft upon the faith of the traditionally critical Germans; and it is not to be wondered at that very many of them are quite skeptical as to any improvement in the relations between Kaiser and people. They fear that the “ personal régime ” which has given the country so much unrest in the past will go on unabated; and many hearts of true monarchists even are filled with gloomy forebodings of future trouble for the Fatherland.

In the home politics of the year the matter of chief interest has been the working out of Prince Bülow’s experiment of governing the country through a heterogeneous coalition of Conservatives, Anti-Semites, National Liberals, and Radicals. The Bloc indeed, did not move forward without considerable friction, as each section frequently suspected that it was to be used to carry out the policies of the other. Although many members of the Bloc thought its enemies justified in predicting that it would speedily break down, the combination did hold together during the past session. It did more; it passed at least two good laws. It revised the Bourse Law in a manner fairly satisfactory to the financial community, so that swindling speculators will henceforth find it less easy to get the sanction of the courts for repudiating debts incurred in stock operations. Another law regulates for the first time on a national basis the right of assembly and association, which had hitherto been in the hands of the individual states. It is interesting to note that this is another important step in the centralizing tendency in Germany. Centralization denotes in this case, however, a more liberal development; the new law is much more in accord with popular rights than most of the state laws which it supersedes, especially than that of Prussia. The functions of the police — that inscrutable providence of the German people — have been sharply circumscribed in the matter of dissolving public meetings.

It is characteristic of the present antiPolish policy of the government that the latter insisted upon including in this excellent measure an absolute prohibition of the use of foreign languages in all public meetings. The Radicals, however, refused to accept this reactionary provision, and for some weeks it looked as if the bill would fail altogether. But a compromise was finally agreed upon, according to which foreign languages may be used in public meetings during the next twenty years in districts where sixty per cent of the population has habitually used a foreign tongue; and, during election campaigns, such languages may be used generally in political meetings.

Still another law provided for increasing the size of battleships to be built, and for a more rapid displacement of old vessels with new ones, changes which will involve a total increase of nearly $140,000,000 in the ordinary naval expenditures during the next ten years, to say nothing of the additional cost of building the ships and arming them.

The Secretary of the Treasury, Baron von Stengel, was about ready to lay certain revenue measures before the Reichstag when it assembled, but subsequent difficulties frustrated his plans, and he handed in his resignation. Dr. Sydow, hitherto at the head of the Imperial telegraphs and telephones, was thereupon appointed Secretary of the Treasury. The appointment was received by the country with some misgivings, as he had never been identified with financial measures. He is, however, a man of great energy and capacity for mastering difficult details, and his friends look to him for a thorough-going reform of the Imperial finances. As this reform is now the overshadowing material interest of the German people, considerable attention will be given later on in this article to his financial scheme, which has just been laid before the Reichstag.

In Prussia matters have not gone well for the Bloc. The measure foreshadowed in my last article for the forcible acquisition of Polish estates was duly laid before the Diet. The discussion of the bill brought out intense antagonisms, and the line of cleavage between the parties was not along Bloc lines. The Radicals joined with the “ Centrum ” in opposing the dispossession of the Poles. As finally passed, the bill gives the Government the right to acquire, under the law of eminent domain, a maximum of 174,000 acres in the provinces of Posen and West Prussia, and to borrow $65,000,000 for this purpose and for further prosecuting settlement work. The final reading of the bill in the House of Lords stirred that usually somnolent body to a remarkable degree. The vote there showed how deeply, and on what uncommon lines, this radical measure had divided the minds of the people. While most of the titled lords of the land, including many intimate friends of the Kaiser, voted against dispossession, the university professors and mayors of liberal municipalities voted mostly for it.

In still another direction Prussian policy failed to satisfy liberal expectations. In January Prince Bülow, as MinisterPresident of Prussia, made a statement about suffrage reform which deeply disappointed all friends of that movement. It was therefore expected, when the Diet elections approached in June, that the Prussian people would be awakened by a violent agitation in favor of more liberal election laws. But nothing of the kind happened. The Socialists, indeed, made this their chief issue, and they carried a half-dozen districts, thus securing for the first time a foothold in the Diet; and the Radicals, too, gave out manhood suffrage as their watchword, but pressed it so feebly as to awaken the suspicion that their demand was not seriously meant.

Nevertheless, the King’s speech from the throne in October surprised the country by announcing that a reform of the election laws was a fundamental necessity and would be undertaken during the present session. This announcement affected the country-squire element like tapping on a hornet’s nest. The Conservative party immediately gave it to be plainly understood that it would brook no tampering with the election laws, the stronghold of its power. According to their official organ, the Conservatives propose to “ protect the monarchic principle against the monarch.” Their newspapers are also printing threats from influential members of the party to cause the downfall of Bülow if he should persist in attempting to carry through election reform. How the government shall make this reform against the will of its intransigent supporters is one of its hard problems of the near future. The probability is that it will be frightened into further inactivity.

The business activity of the Empire for a twelvemonth has been in the shadow cast by the American financial panic. As soon as the seriousness of the breakdown at New York was understood here, German bankers, manufacturers, and merchants realized at once that it meant a sharp check to the high prosperity that they had been enjoying for several years; and their forebodings were speedily verified. The outward flow of the tide began forthwith, and apparently low-water mark has not yet been touched. Thus we have renewed evidence of the strong influence of the American economic movement over that of Germany, — an influence growing more visible from year to year.

For this reason, and for others, it is expedient to devote some paragraphs of this article to financial matters, — first to the economic movement of the year in its relations to the American panic, and then to the Imperial finances. Most English and French authorities, too ready to apply invidious treatment to German affairs, have for a year been drawing the most gloomy pictures of the business and financial position in Germany; and American opinion, always strongly influenced by the two countries just named, shared to some extent the unfavorable judgment formed at London and Paris. At one great international bank of New York the view was expressed in the midst of the panic that the German financial situation was more precarious than that of America.

Various phenomena were pointed to by English and French observers as grounds for their grave prognostications of German financial weather. Under the influence of the panic at New York, and the consequent American demand for gold, the Reichsbank was forced rapidly to advance its discount rate. Early in November it reached 71/2 per cent, the highest figure in its history; and throughout the final months of the year its note issues were of extraordinary volume. This was the direct result of the disturbance in New York, coming at a time when German business was making extraordinary demands for money and was supported by credit to a degree never known before. The President of the Reichsbank stated in the Reichstag in January that the volume of bills circulating in the Empire had undergone an increase of $2,060,000,000 during the preceding five years. The pressure upon the great credit banks had accordingly grown heavier from year to year. Owing to the depletion of the capital market it had become very difficult for manufacturing and other companies to float new issues of stocks or bonds; many of them had therefore been reduced to the necessity of raising money temporarily at the banks. These institutions, with their credit thus strained, had perforce to interpret the New York events as a warning signal to them to restrict credits. Several minor houses, which had unwisely tied up their resources in business ventures, were forced to suspend; and foreign critics thought that now, surely, the predicted German crash had come.

But the crash has not come, and it will not come. Foreigners who looked for a disaster evidently failed to take into their reckoning some important factors in the situation. In the first place, they assumed that, because the previous great period of prosperity which ended in 1900 was followed by sensational failures of banks and other companies, this more recent “ boom ” would lead to similar results. But they over-rated the business fatalities of the liquidation of 1900-1902, which amounted, in fact, to a very slight percentage of all German companies. Moreover, they failed to note that German business had been conducted on a much more solid basis in this latest period of activity than in that former one. A wild gamble in stocks continued right up to the turn of the tide in 1900; but in this more recent period the high-water mark in stock values was reached before the end of 1905, or nearly two years before the upward movement in industry and trade culminated. During those two years the speculating part of the community was predominantly on the “ bear ” side of the market, and there had been a steady scaling down of values in spite of rising dividends. Long before the panic broke out at New York, the aggregate shrinkage of values here had reached enormous proportions. The German exchanges were therefore in shipshape condition to weather the American storm when it did break upon them; hence the further scaling down of home stocks since then has not been very serious, while most bonds are higher than in midsummer, 1907.

But those foreign critics fell into a still graver error, — they underestimated the capital strength of Germany and its rapid growth during recent years. According to the best estimates the wealth of the German people now amounts to $50,000,000,000, and one writer of repute has just published the results of his inquiries showing a much higher figure. According to the recent estimate of M. d’Avenel, the national wealth of France is $47,000,000,000; and according to a late estimate of the wealth of Great Britain, which is undoubtedly too low, Germany is only $12,000,000,000 poorer than that rich country. Moreover, the German people are adding to their wealth about $950,000,000 a year, an amount certainly far greater than the savings of the French, and very likely greater even than those of the English.

Yet Germany cuts a far smaller figure in the world of finance than France. The reasons are obvious. Speaking in the rough, it may be said that the French are lying back on their money-bags and collecting tribute from other countries, while the Germans are using for purposes of further production all the new capital they can create. The Germans are putting their profits back into their business every year and making it still more productive. Moreover, the rapid growth of German population as compared with the French must not be reckoned wholly as an asset. The Fatherland is, indeed, adding above 900,000 to its population every year, but this new army of children is a huge drain upon the wealth of the country for the first twenty years of their lives. The difference is this, — France invests in bonds; Germany in babies.

Germany’s foreign capital interests, however, are by no means small. According to an official publication the German people own $3,800,000,000 in foreign securities, besides having $2,400,000,000 invested in foreign undertakings of all kinds. Even in the midst of the recent period of dear money and heavy capital demands at home, the press had frequently to criticise the great banks for placing foreign securities upon the German market to the damage of home interests.

Still another ground for the exaggerated views held abroad as to Germany’s financial weakness remains to be mentioned. The great prosperity of the Empire has for several years found expression in high prices for money, and the high discount rates attracted much French money to Germany. The amount of such lending, however, has apparently been grossly exaggerated by French writers. Thus, a French Socialist newspaper was recently quoted in this magazine as saying that France lends Germany every year 1,600,000,000francs ($320,000,000). On the contrary, the great bankers of Berlin, whose opinions should be authoritative in the matter, assure me that these lendings never exceed $50,000,000at any one time. Moreover, at the time of the American panic the amount held was certainly much lower than usual, inasmuch as French bankers — influenced partly by their growing apprehensions as to the soundness of business conditions here, partly by the assistance they were giving to London, and partly, it was believed, by political considerations — had been steadily drawing home their money for some months before that event.

The capacity of the Reichsbank to cope with the critical situation that confronted it a year ago was also manifestly miscalculated by foreign financial authorities. We Americans, in particular, should do well to note how successfully this great institution withstood the immense pressure of that time. Its metal stock, indeed, ran down almost to $161,000,000 at the end of November, as compared with the year’s maximum of $234,000,000, registered on May 23; but after the first heavy demands of America had been satisfied, gold began at once to flow back into the Reichsbank, attracted by its high discount rate. This year it hasbeensteadily drawing gold from abroad and from home channels, so that its metal stock was on November 10about $85,000,000 greater than a year ago. By making a very free use of its note-issuing privilege a year ago it was able to meet the demands for money. At the end of December its circulation touched high-water mark, at the huge total of $449,000,000. For the final week of the year it was expanded by more than $75,000,000. Still more recently, at the end of September, the circulation was increased $104,000,000 in one week, and that in a time of easy money conditions. With these figures before him, the American reader will not wonder at the statement that Germany has never had a money panic in the American sense.

The growth of Germany’s economic power has been too substantial and on too vast a scale, it has been too directly the result of her own industry and scientific thoroughness, to give room for twitting her with being dependent upon foreign money markets. German development has not been financed by outsiders, least of all by the traditional enemies of the Fatherland.

A few figures may be given here to illustrate the massive character of that development. The imports of merchandise into Germany in 1907amounted to $2,080,000,000, having doubled since 1896; while exports, which amounted to $1,630,000,000, have doubled since 1895. Comparing Germany and France during the past fifteen years, it is found that German imports gained 117and exports 132per cent, while French imports gained less than 43and exports about 58per cent. Germany’s coal consumption has almost doubled in twelve years; it reached 208,000,000tons in 1907. Her pig-iron production in that year was 13,045,000 tons, having almost doubled in ten years. The turnover in the business of the Reichsbank in 1907registered the huge aggregate of $71,190,000,000; and it, too, almost doubled in ten years. Deposits held by the saving-banks of the Empire at the end of 1905 amounted to $3,018,000,000. The gain during the previous five years — for the most part a period of sharp business depression — had been not less than $744,000,000. The new listings of home securities on the German exchanges from 1897 to 1906 aggregated $5,590,000,000; and of the $3,260,000,000 foreign securities listed in that time it is estimated that somewhat more than $1,000,000,000 was bought by Germans.

Returning once more to the American panic, one of its first effects here was to advance sharply the rates of foreign exchange. Even after the Reichsbank had raised its discount rate to 71/2 per cent, the price of London bills continued to rise. This was the result of the American pull for gold, New York usually getting German gold by way of London. Even after the rate of exchange on London was considerably above the “ gold point,” — the price, namely, at which it becomes more profitable to send gold abroad than to pay with a bill of exchange, — the great Berlin bankers refused to export it, under the impression that their selfrestraint would be gratefully remembered at the Reichsbank. The cry was forthwith raised at London that Germany no longer possessed a free gold market, a conclusion which did much toward intensifying the distrust abroad of the German finan cial position. The Reichsbank, however, which never imports or exports gold itself, but leaves such transactions to the great private banks, publicly disclaimed all responsibility for preventing the movement of gold.

The outward movement thereupon began, and during the month of November above $28,000,000 was sent to England alone. For the last quarter of the year the total exports reached $43,000,000, most of which found its way to New York. Yet Germany’s contribution toward staying the American panic, curiously enough, is treated in most discussions of the subject as a slight matter in comparison with the aid extended by the Bank of France. That aid was given in a more spectacular way, in a single transaction negotiated through the Bank of England; while gold went from Berlin as the result of many different transactions, and the names of the banks concerned were never mentioned. Hence the $16,000,000 from the Bank of France looked bigger, created a bigger sensation, than the $40,000,000 from Germany.

As the atmosphere clears up, after the blowing over of the American storm, it is seen that Germany has come through it comparatively unscathed. Notwithstanding the fact that that disturbance came at a time when Germany’s investible capital seemed well-nigh exhausted, the German market has this year surprised experienced financiers of Berlin by the facility with which it has absorbed new issues. Thus the listings of government and other bonds on the Berlin Exchange during the first eight months of 1908 reached the large aggregate of $500,000,000. Almost the whole of this was subscribed and paid for by Germans. It is evident that the capital strength of the country has not been impaired by recent events.

At this moment the Empire is upon the eve of the most important financial event in its history. The Government has just laid before the Reichstag bills for raising annually $120,000,000 of new revenue — probably the largest scheme of taxation ever undertaken by any nation in a time of peace. Nothwithstanding the rapid economic development of Germany since thefoundation of the Empire, the national finances have never been in a satisfactory position. Deficits have grown to such an extent of late years, and loans of such large volume have had to be raised to meet them, that the need of radical reform is now evident to everybody. The bad condition of the finances, furthermore, together with the impending fiscal legislation, has been one of the chief causes to create abroad that impression of Germany’s financial weakness to which reference has already been made. All Germans feel this to be so; accordingly one of the most frequent arguments put forth for financial reform is the political necessity to remove that impression to make the world understand that Germany’s armaments by land and water are, and will remain, amply backed up financially.

The financial policy of the government has certainly been the sorriest chapter in the history of the Empire. That policy amounts to an inglorious breakdown of that efficiency which foreigners have learned to admire in many other spheres of German life The newly-born Empire set out upon its career with the French war indemnity of $1,000,000,000 in its coffers; but this was exhausted by 1877. The fateful policy of covering deficits with borrowed money began in that year, and it has continued down to the current year. It will also go on for some years to come.

Since 1877 there has been only one year in which the national debt has not been increased. It now amounts, according to recent official statements, to $1,013,000,000, or a little more than the French indemnity. The debt has been doubled since 1895. For the past eight years, government publications again admit, expenditures have exceeded receipts by $471,000,000, or an average of $53,000,000 a year. The national debt has already cost the country in interest and administrative expenses about $380,000,000; and yet Germany could have kept out of debt altogether, as Prof. Schanz has recently shown, if the revenues had been increased by only about $12,000,000 yearly.

That a country with so much intelligence, character, and efficiency as Germany undoubtedly has, should go on piling up its national debt like this in a time of profound peace, is certainly a most astonishing phenomenon; and some explanation of it seems called for. If we ask a bankrupt why he failed, we shall most likely learn that his income was not big enough; if we ask his friends, they will probably tell us that he spent his money extravagantly. In the case of Germany both explanations would apply, — the Empire has never had adequate and steady sources of revenue; and its expenditures, niggardly enough in many ordinary items, have been lavish in the extreme with the army and navy.

Several causes might be alleged for the insufficiency of the revenues. The bulk of these is collected in the form of customs duties and internal taxes upon various commodities. All these are indirect taxes, subject to varying yields in revenue as the prosperity of the country changes. Moreover, the internal taxes upon spirituous and malt liquors and tobacco are far lower than in most of the other great nations. The individual states have stoutly asserted their right to all forms of direct taxation; and the Empire, which might long ago have been helped out of its financial perplexities by a national property or income tax, has had to cast about for other sources of revenue. If Bismarck’s proposal, that the Empire nationalize the railways, had not been frustrated by the refusal of the South German states, the national treasury would now be in an enviable position, the net earnings of the various stateowned railways of the country having amounted in 1907 to $164,000,000.

Looking at the other side of Germany’s balance-sheet, it appears evident that her financial embarrassment is due, in the first instance, to the rapid growth in army and navy expenses. During the past five years, ending with 1908, the national expenditures have been increased by $93,000,000, and the army and navy are responsible for not less than $73,000,000 of this amount. No country in Europe has poured out money upon its military equipment so lavishly as Germany. Comparing her with France and Italy, we get the following result: from 1893 to 1906 Germany increased army appropriations by 23, and those for the navy by 260 per cent, while France in the same time made increases of 10.7 and 25.5, and Italy 14 and 30.7 per cent, respectively. In the midst of her financial embarrassments, however, Germany has provided for a still further enlargement of naval expenses. The naval bill passed by the Reichstag in its last session was calculated by the government to increase the ordinary naval budget to $95,000,000 by 1917, as compared with $55,000,000 for 1907; and this estimate does not include the plans for building and arming new ships.

Under these circumstances a further big increase of the national debt is a certainty. The government, in its report accompanying the finance bills just laid before the Reichstag, says that the new loans and extraordinary appropriationsin sight will add another $238,000,000 to the national debt by 1913. Of this amount, $124,000,000 is for carrying out the ship-building programme, in addition to the increase of ordinary expenditures upon the navy mentioned above.

The new taxation is therefore obviously due to military expansion. The government’s report, however, ignores this fact and seeks an explanation for the new taxes in other directions — for increasing the salaries and pensions of government officials, for pensions for widows and orphans, for making up the arrearages of the individual states in their contributions toward the support of the general government, for the amortization of the public debt, for making up the losses to be incurred by reducing the sugar tax and abolishing the tax on railway tickets.

The question has been asked with some doubt in the foreign press, whether Germany is able to raise the new revenue required. In answering it, attention must be called to one point at which Germany has an advantage over other countries. It is that the Empire and the states, particularly the latter, draw large revenues from other sources than taxation. While the aggregate cost of the Imperial and state debts is now about $180,000,000 a year, the revenues from railways, forests, mines, and similar sources, amount to not less than $240,000,000. Another point to be remembered is that the Empire has at its disposal certain sources of revenue which have been hitherto rather neglected, as compared with the practice of other countries. Thus Germany collects but 67 cents per head of its population on brandy and alcohol, while England collects $2.77. The Imperial beer tax yields only 20 cents per head, that of England $1.16; the German tobacco taxes only 32 cents, while the English customs tax produces $1.65 per head. England collects about $93,000,000 from the estates of deceased persons; but the German Empire only touched this source of revenue two years ago with a tax on collateral heirs, which yields only a small sum.

On the other hand, it must be pointed out that taxes of other kinds are very high in Germany. The Secretary of the Treasury recently said in a magazine article that state and local income taxes in many Prussian towns and country districts were equivalent to from 12 to 15 per cent of incomes, not to mention other local, state, and Imperial taxes. The former Minister-President of Bavaria recently said that the richest tax-payers in many cities of that kingdom are paying, in all forms of taxation, from 15 to 16 per cent of their incomes. From trustworthy statistical studies it seems probable that many wage-earners, too, are paying out from 8 to 10 per cent of their earnings in taxes. From these facts it is evident that the new taxes will bear with great weight upon the people.

The government’s financial scheme provides for raising this revenue in the following manner: from brandy and alcohol $24,000,000, from beer the same amount, from tobacco $18,000,000, from wines $5,000,000, from death-duties $22,000,000, from electricity and gas $12,000,000, from placards, posters, and newspaper advertisements $8,000,000, and the remainder by assessments upon the states.

It is proposed that the government monopolize the wholesale trade in brandy and alcohol, buying the product of the distilleries, refining, and selling it to retailers. This is a radical proposal, inasmuch as there are no industrial monopolies owned by the State in Germany. The estate tax contains one feature hardly less radical. It provides that in the settlement of the intestate estates of deceased persons the State shall become the next of inheritance after the nearer relatives. These latter are defined as being children, parents, grandparents, and brothers and sisters and their descendants. Where such relatives do not exist, the estate lapses to the State. Two years ago the Reichstag passed a law taxing the inheritances of collateral heirs, but the present bill taxes each estate as a whole, before any division is undertaken. Estates worth less than 20,000 marks ($4760) are exempt from the tax. Beginning with estates of that value as the nether limit, the tax is one-half of 1 per cent, and it reaches the maximum of 3 per cent with those worth $238,000. Persons able to do military duty, but who have been excused from it, will pay for this exemption with an additional 11/2 per cent tax on any legacies or inheritances falling to them.

Although the death duties just quoted are extremely moderate (the English rates range from 1 to 15 per cent), intense opposition to this bill has been manifested by the landed aristocracy. The Conservatives, the political party of the aristocracy, have declared these death duties to be a shock to their feeling of the unity of the family. Although the bill makes a large concession to their objection by permitting the estate tax upon landed property to be paid in twenty-year installments, it appears probable that the Conservatives will reject the measure. Their publicists are advocating, in lieu of the death-duties, a tax upon the dividends of joint-stock companies; but this proposition encounters the difficulty that the Prussian government is itself just now about to pass a law of that kind.

Other features of the government’s scheme have met with sharp opposition. The proposed taxes on electricity and gas, including the incandescent lamps used in burning them, meet with the strongest objections on the part of the industries concerned. The newspapers of all shades of political attachment are naturally united in opposing the tax upon advertisements.

That the German government should propose taxes like the two last mentioned is striking evidence of the embarrassing situation in which the Treasury finds itself. A tax upon electricity is a blow at one of the most vital moving forces of Germany’s economic development. It will almost certainly be rejected by the Reichstag. In view of the conflicting interests of classes and parties, of industries and sections, it seems highly probable that others of these taxes will be rejected or much modified. Then substitutes must be found somewhere. But where? — that is the embarrassing question.

From all this it will be evident that Germany is learning that its ambitious, expansive Welt-politik is a heavy burden to carry. Many voices have already been demanding that expenses be reduced; yet nobody but the Socialists has suggested that the Empire might curb its naval plans and manage to exist with its present fleet. It was a wholesome sign, however, to hear all parties in the Reichstag protest against the Kaiser’s remarkable view that the fleet might be needed for operations in the Pacific Ocean. It can only be hoped that all these tax-bills will lead the German people to examine anew the general political considerations which induced their statesmen to adopt the maxim that the future of the Fatherland lies upon the water. Many Germans, indeed, reject that maxim; but the Germans are politically meek. Also, they disperse their power through numerous petty parties, each, as a rule, representing some narrow special interest. On large, foreign questions it is in the main true that they submit to what the authorities in their wisdom think best to do.