The Latent Monetary Crisis in Germany, 1900-14.— During the last few years before the war the German monetary system has under gone very considerable changes. Before 1900, the policy of the Federal Bank, under the presidency of Koch, was more that of a cen tral credit than that of a central currency in stitution. The gold holdings of the Federal Bank were dangerously small compared with the enormous foreign trade which was, more over, mostly financed by French short call money and British trading -firms. Since 1900 or thereabouts, the upward tendency inprices especially of raw materials and foodstuffs im ported by Germany, the natural increase of population and the important sur plus of immigration over emigration, and a growing industrialization, demanded a quick increase of money in circulation. Since new money can be created in Germany only by coining new gold or depositing new gold in the Federal Bank (besides the automatically restrictive emergency money of the bank-notes) and gold is not produced in Germany in any considerable quantity but must be imported as needed like merchandise, Germany faced a difficult and almost dangerous situation from 1900 to 1914 in meeting the increased demand for money, which held a large part of the non dutiable note-issue in constant circulation re stricting the amount of reserves or emergency money (in 1913, of the total amount of that note-issue of $155,000,000, $151,000,000 were on the average in circulation). In order to meet this latent crisis, gold was bought and im ported like merchandise, burdening the trade with the task of paying for these gold imports. As late as 1907, the amount of gold in the Fed eral Bank touched the low mark of $149,000,000 (with no other strong gold reserves in private possession available). Gold purchases abroad during the years 1908-13 amounted to $326,000, 000 (in 1913 to $79,000,000), and the amount of gold in the hands of the banks rose to an average of $199,000,000 in 1908-10, and of $267,000,000 in 1913. In order to strengthen the national gold reserve, gold was replaced by paper in the circulation. For that purpose the notes in the small denominations of $12.50 and $5 were created and bank-notes were declared to be legal tender but redeemable against gold on presentation (Law of 1906). In order to adjust the amount of emergency money to the enormous development and to the increased demands of commerce and industry the non dutiable note-issue was almost doubled (Laws of 1901 and 1909) as compared with 1875.
There is no state concession of banking in Germany and no special bank law (besides that regulating the note-issuing banks) since the foundation of the empire. The banks have been able to develop their own methods of busi ness and standards of safety. But there is one bond uniting and regulating all credit re sources of Germany— the elastic emergency and credit currency which is handled in a liberal, strict and cautious manner by the Federal Bank in order to foster industry and commerce. In performing their task of stabiliz ing the established national wealth by creating new wealth the German banks combine the functions and interests which in America are generally divided among banks and bankers, trust companies, promoters, stock dealers and brokers. The large German banks accept de posits on the one hand, carry on a circulation and check business, and give credit for ex change, mercantile and other securities as in the ordinary bank routine, while on the other hand they buy and sell stocks for others and on their own account, engage in all sorts of financial, industrial and mercantile under takings, promote the establishment or develop ment of industrial enterprises and undertake the flotation of public and industrial loans of every kind. As a whole the German system
has proved to be safe and sane, and even the large depreciation of private property in Ger many caused by the heavy increase in taxation of every description during the last few sears preceding the war did not undermine and not even severely injure the prosperity of the banks.
The Modern Development of Concentra tion and Expansion.— Not only the task of distributing the large risks which of course have to be incurred by the great German banks but the very fact of their intimate connection with industrial and commercial enterprises, with production, distribution and consumption all over Germany and in the trade between Ger many and foreign countries, induce the banks to strengthen their means as far as possible and to expand their business connections geographically. The statistics available are restricted to joint-stock banks; there are other large and much older banks in Germany which are owned by individuals representing family estates, like Bleichroder and Rothschild.
Increase of the Home Resources of the The five greatest German joint-stock banks have increased their capital stock from $71,000,000 in 1888, to $152,000,000 in 1898, to $255,000,000 in 1914, or an increase of 225 per cent between 1888 and 1914. That amount has not only been fully paid in (conforming with the requirements of the German laws), but since the emission price of the new shares was much above the nominal value, the actual in crease of capital was much larger, the differ ence between the nominal value and the actual value being assigned to the reserve funds and constituting the larger part of them. The re serve funds of these five Berlin banks amounted to $81,000,000. Besides the open reserves there are very large °silent reserves° which have grown out of the intimate connection of the banks with the industries, simultaneously with the growth of these industries.
Systematic Concentration of Deposit and Savings To provide the industrial and commercial development with the neces sary capital the German banks have to over /come both the shortage of capital in Germany and the German legislation which restricts the capital investments of a productive character by forbidding the issue of industrial and com mercial shares in small denominations (gen erally less than $250). They have succeeded in doing so largely by the development of the deposit business, spreading a system of deposit offices over the large cities of Germany and supplanting partly the savings banks by their compliant methods of business. Thus deposits in the five leading Berlin banks have increased from $166,000,000 in 1896, to $693,000,000 in 1907, to $956,000,000 in 1913, or an increase of 470 per cent from 1896 to 1913, and the relation between capital stock plus reserves and deposit money has become almost 1:3. Provincial banks have followed later in that kind of busi ness and their inability to develop their de posits to a corresponding degree is one of the reasons for the rapid concentration in German banking.