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up the pretence of solvency by means of an inflated paper currency. In the year 1914, during which the Reichsbank's gold stock rose by 44,387,0001., the note circulation increased by 119,463,0001., and the loans and discounts by a sum of 132,590,0001. ; so that the addition to liabilities proceeded on a much greater scale than that to the gold stock. Sooner or later, the way of inflation is disastrous. No country has ever entered upon that perilous path without being reduced to desperate shifts to put things right. So long as a banknote will purchase exactly the same as its equivalent in gold, all is well; but so soon as it fails to do so, a premium on gold is virtually established, and the paper currency is proportionately depreciated. In this connexion the Swiss Bankverein drew attention last November to the notable depreciation (almost 10 per cent.) in the German exchange, and remarked that it 'seemed to justify the growing misgivings which are gaining ground in respect of Germany's financial position.' In dealing with the same question, Messrs Samuel Montagu & Co., the great bullion merchants, made the following significant remarks in a recent trade circular :

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'The large increase of the gold holding of the German Reichsbank during the past two years acquires grave significance now that its gold reserves may be destined to become the sinews of war. A considerable portion of the gold added to the Reichsbank gold reserves since the commencement of war consisted of the contents of the Spandau War Chest. This accumulation of gold is not being released for ordinary foreign banking purposes, but is being held presumably for war finance alone. As a consequence, Holland for many weeks past has refused to accept German currency except at a discount of between 7 and 8 per cent.'

These rates of exchange show that German paper money is already looked at askance in neutral countries; and before the war is over it will probably be discredited altogether. Nothing short of sweeping and intolerable taxation can save the financial situation and insure Germany's solvency. The Imperial Bank's statement looks very rosy, and no doubt imposes upon the mass of Germans who are unversed in the expedients of

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haute finance'; but American bankers do not appear to think much of it, for they have so far shown a marked reluctance to lend money to Germany in spite of very alluring terms. The soundness' is of a more or less superficial character. When the day of reckoning comes, it will be a stormy one. The whole fabric of economic policy is based upon the view held by the high officials, from the Kaiser downwards, that Germany would enjoy a speedy triumph and exact an enormous indemnity. She is, therefore, in the position of a man who has borrowed heavily in all directions on the expectation of a highly problematical windfall. word, she has gambled on the chance of victory, and her stakes are become forfeit.

It should be an obvious conclusion from these comments that it is quite possible to attach excessive importance to German estimates of Germany's gold

The real point of interest is the German exchange, in which is found emphatic evidence that the self-gratulations of the Cologne Gazette' are not echoed by neutral observers outside Germany.

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Meanwhile, the force of economic pressure is steadily going on, implacable, irresistible, and fatal. With her main fleet bottled up in harbour, and most of her marauding cruisers at the bottom of the sea, Germany's foreign commerce—that commerce which she has been so laboriously building up during the last twenty-five years-has almost ceased to exist. Several of her colonies, on the development of which she has spent, first and last, some 50,000,0007. sterling, have been taken from her. Whether she will ever recover them depends on the course of events in Europe. For the present, however, we may regard the loss of Togoland, German Samoa, German New Guinea, Kiaochau, and some of the Melanesian Islands as definitive, in which case the trade prospects which were to compensate her for such a huge investment are extinguished for ever. Count Bernstoff's bombastic threat that, if one inch of Germany's possessions, in Europe or elsewhere, be taken from her, she will at once begin another era of bloated armaments, need not trouble us very much. Bloated armaments cost money; and Germany will have quite

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enough to do in other directions, without expending her crippled resources on a remote project of revenge. Besides, it is a game two can play at. Anyhow, the threat comes too late to save Germany's possessions, for several 'inches' of territory, formerly German, in the Pacific and Africa have already changed hands.

And these losses will rankle. A craving for colonies is at the root of her frantic policy of expansion. It was her misfortune that these Imperial ambitions were a little belated. She arrived at the hotel after all the best rooms had been taken. Her remedy for this is to try to blow up the hotel, but it seems probable that she will succeed only in blowing up herself. The following comparison is interesting. The British self-governing Dominions with the Crown Colonies and Protectorates have an area of 11,224,000 square miles and a population of 434,000,000; the German Colonies and Protectorates (including, for this purpose, Togoland, German Samoa, and the others which have been seized) have an area of about 1,027,820 square miles and a population of some 14,500,000. In both cases the native races largely predominate, but much more so in the German colonies than in the British. The contrast is greater when we compare the character, progress and intelligence of Germany's largest possessions (those in Africa) with our

overseas Dominions of Canada, Australasia and South Africa. So far, Germany's ambition for a place

, in the sun has yielded miserably poor results, partly because the Germans are bad colonisers, and partly because there is no land available for them unless they take it by sheer force from someone else.

Not all of Germany's quondam possessions were selfsupporting. In German South-West Africa, which includes Damaraland and Namaqualand, the receipts for 1912 were 860,5001. and the expenditure 2,250,0001. ; in the Cameroons the receipts were 316,5001. and the expenditure 882,5001. The receipts for German East Africa were 624,0001. (151,1351. of which was State aid) and the expenditure 1,828,2501. The disproportion comes out more clearly in the budgetary statements for the current financial year:

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The above figures show that an aggregate revenue of over 60,000,000 marks, or roughly about 3,000,0001., is supplemented with Imperial subventions and loans amounting altogether to nearly 90,000,000 marks, say 4,500,0001.

In dealing with the exports and imports of the different possessions, we have to rely for the most part on the returns for 1912, those for 1913 not being available.

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The imports into Germany from German Colonies amounted in 1912 to 2,645,0001., and the exports from Germany to her Colonies to 2,865,0001. The recent fall of Tsingtao (the German headquarters in Kiaochau) will be a heavy loss to Germany. This ambitious enterprise cost an enormous sum. The following table shows revenue and expenditure for the last 12 years :

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The two most salient features of these figures are : (a) the remarkable growth of the ordinary revenue, which has multiplied more than 24 times in the period covered ; and (b) the heavy contributions made by the Imperial Government. If the subventions made before 1901–2 are included, we arrive at a total of more than ten millions sterling which Germany has invested, over and above the revenue receipts, in this China venture, all of which she stands to lose. Part of the expenditure is classified below, so as to show the cost of civil administration, military administration, and extraordinary expenses respectively, though it must be added that there are other items of expenditure common to both civil and military which help to swell the total.

Civil expenditure.

Military expenditure.

Extraordinary ex penses on works, etc.

1902–3
1903–4
1904-5
1905-6
1906–7
1907-8
1908-9
1909-10
1910-11
1911-12*
1912-13*

Marks.
799,547
907,164

984,514
1,106,690
1,181,628
1,246,872
1,370, 265
1,301,105
1,775,066
1,262,795
1,308,788

Marks. 2,368,539 2,434,542 2,403,356 2,771,897 3,206,925 3,339, 241 3,411,176 3,556,449 6,157,740 4,010,323 4,040,615

Marks. 7,375,000 7,470,000 7,697,000 9,257,000 7,375,000 6,230,000 4,037,500 2,661,300 1,775,165 2,075,500 2,032,500

* For these two years we find an expenditure of 2,854,497 marks and 2,934,844 marks respectively under the new head of 'Fiscal Exploitation.'

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