The Bill on the Compulsory Loan and its Motivation

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The government Bill on the compulsory loan was submitted to the Prussian National Assembly on July 12, 1848.

Neue Rheinische Zeitung No. 56, July 26, 1848

Cologne, July 25. A notorious rogue of London’s blessed district of St. Giles appeared before the Assizes. He was accused of having relieved the chest of a notorious City miser of £2,000.

“Gentlemen of the jury,” began the accused, “I will not lay claim to your patience for very long. Since my defence will be of an economical nature, I shall use words economically. I have taken £2,000 from Mr. Cripps. Nothing is more certain than that. I have, however, only taken from a private person in order to give to the public. What happened to the £2,000? Did I perhaps keep them egoistically? Search my pockets. I will sell you my soul for a farthing if you are able to find one penny. You will find the £2,000 at the tailor’s, the shopkeeper’s,’ the restaurateur’s etc. Thus what have I done? I have taken ‘idle sums of money which’ could be retrieved from the gravel in which avarice kept them, ‘only by a compulsory loan’ and ‘put them into circulation’. I was an agent of circulation and circulation is the foremost requirement for national wealth. Gentlemen, you are Englishmen! You are economists! You will surely not condemn a benefactor of the nation!”

The economist of St. Giles resides in Van Diemen’s Land [now Tasmania, from 1803 to 1854 a British penal colony] and has the opportunity to think about the blind ingratitude of his fellow countrymen.

He did not live in vain, however. His principles form the basis of Hansemann’s compulsory loan.

Explaining the motives for this measure, Herr Hansemann states that “the admissibility of the compulsory loan rests upon the well-founded supposition that a major portion of the available. cash lies idle in the possession of private individuals in small and large sums and can be put into circulation only by a compulsory loan”.

When you consume a capital, you bring it into circulation. If you do not bring it into circulation, the state will consume it in order to bring it into circulation.

A cotton manufacturer employs 100 workers, for example. He pays to each of them 9 silver groschen daily. Thus every day 900 silver groschen, i.e. 30 talers, migrate from his pocket into the pockets of the workers and from there into the pockets of the épiciers, landlords, shoemakers, tailors etc. This migration of the 30 talers is known as their circulation. From the moment when the manufacturer can sell his cotton material only at a loss or not at all, he ceases to produce and to employ his workers, and with the cessation of production the migration of the 30 talers, i.e. their circulation, ceases. We shall create circulation by force! exclaims Hansemann. Why does the manufacturer let his money lie idle? Why does he not let it circulate? When the weather is fine, many people circulate in the open air. Hansemann drives the people outside and forces them to circulate so as to create fine weather. What a great weather-maker!

The ministerial and commercial crisis robs the capital of bourgeois society of its interest. The state helps society to its legs by taking away its capital as well.

In his book on Circulation the Jew Pinto, the famous eighteenth-century stock exchange speculator, recommends speculating in stocks. He states that although speculation does not produce circulation, it promotes circulation, that is the migration of wealth from one pocket into another. Hansemann is transforming the exchequer into a wheel of fortune upon which the property of the citizens circulates. Hansemann-Pinto!

In his “preamble” for the “Bill on the Compulsory Loan”, Hansemann is encountering one great difficulty. Why has the voluntary loan not produced the required sums?

The “unreserved confidence” which the present Government enjoys is well known. Also well known is the rapturous patriotism of the big bourgeoisie whose main complaint is that a few agitators have the insolence not to share its confidence. The loyalty declarations from all the provinces are well known. But “for a’ that and a’ that” [from Ferdinand Freiligrath’s translation of Robert Burns’ poem “For a’ that and a’ that"], Hansemann is compelled to transform the poetic voluntary loan into the prosaic compulsory loan!

For example, in the district of Düsseldorf, aristocrats have contributed 4,000 talers and officers 900 talers, and where does more confidence reign than among the aristocrats and officers of the district of Düsseldorf? We will not even mention the contributions of the princes of the Royal House.

But let Hansemann explain this phenomenon to us.

“Up to now voluntary contributions have come in slowly. This is probably to be ascribed less to a lack of confidence in our state of affairs than to the uncertainty about the real needs of the state, since people seem to believe it permissible to wait and see if and to what extent the monetary resources of the nation might be drawn upon. On this circumstance rests the hope that everybody will contribute voluntarily according to his ability once the duty to contribute has been demonstrated to be an imperative necessity.”

The state, finding itself in dire need, appeals to patriotism. It politely asks patriotism to deposit 15 million talers on the altar of the fatherland, and moreover not as a gift but only as a voluntary loan. One possesses the greatest confidence in the state but turns a deaf ear towards its cry for help! Unfortunately one finds oneself in such a state of “uncertainty” about the “real needs of the state” that one decides after the greatest spiritual torment not to give the state anything for the time being. One has, indeed, the greatest confidence in the state authority, and the honourable state authority claims that the state needs 15 million talers. It is certainly due to confidence that one does not trust the assertions of the state authority and rather views its clamour for 15 million as a mere frivolity.

There is a famous story about a stout-hearted Pennsylvanian who never lent a dollar to his friends. He had such confidence in their orderly mode of life, and he gave such credit to their business that to the day of his death he never gained the “certainty” that they were in “real need” of a dollar. He regarded their impetuous demands as rather a test of his confidence, and the confidence of this man was unshakeable.

The Prussian state authority found the entire state inhabited by Pennsylvanians.

Herr Hansemann, however, explains this strange economic phenomenon by yet another peculiar “circumstance”.

The people did not contribute voluntarily “because they believed it permissible to wait and see if and to what extent their monetary resources might be drawn upon”. In other words: nobody paid voluntarily because everybody waited to see if and to what extent he would be forced to pay. What circumspect patriotism! What most canny confidence! It is upon this “circumstance”, namely that behind the blue-eyed, sanguine voluntary loan there stands now the sinister, hypochondriacal compulsory loan, that Herr Hansemann “rests his hope that everybody will contribute voluntarily according to his ability”. By now even the most obdurate doubter must have lost his uncertainty and must have gained the conviction that the state authority is really serious about its need for money. The entire misfortune, as we have seen, lay just in this embarrassing uncertainty. If you do not give, it will be taken from you, and the taking will cause both you and us inconvenience. We hope, therefore, that your confidence will lose some of its exaggerated character and will express itself in well-ringing talers instead of hollow-sounding phrases. Est-ce clair? [Is that clear?]

Much as Herr Hansemann is basing his “hopes” upon this “circumstance”, he has nevertheless himself become infected by the brooding temperament of his Pennsylvanians and he feels induced to look around for yet stronger incentives to confidence. The confidence indeed exists but it does not want to reveal itself. It needs incentives to drive it out of its latent state.

“In order to create an even stronger motive” (than the prospect of the compulsory loan) “for voluntary participation, however, Paragraph 1 projects an interest rate of 3 1/3 per cent for the loan, and a date” (October 1) “is left open up to which voluntary loans are to be accepted at 5 per cent.”

Thus Herr Hansemann puts a premium of 1 2/3 per cent upon voluntary loans, and now, to be sure, patriotism will flow freely, coffers will jump open and the golden flood of confidence will stream into the exchequer..

Herr Hansemann naturally finds it “just” to pay the big shots 1 2/3 per cent more than he is paying the little people who will part with their essentials only under duress. In addition they will have to bear the cost of the appeal as punishment for their less comfortable circumstances.

Thus the biblical saying is realised. For whosoever bath, to him shall be given; but whosoever bath not, from him shall be taken away even that he hath. [Matthew 13:12]

Neue Rheinische Zeitung No. 60, July 30, 1848

Cologne, July 29. just as Peel once invented a “sliding scale” for the duty on corn, Hansemann-Pinto has invented one for involuntary patriotism.

“A progressive scale will be employed for the obligatory contributions,” our Hansemann says in his preamble, “since the ability to supply money obviously rises in arithmetical progression with the amount of a person’s wealth.”

The ability to supply money rises with wealth. In other words: the more money one has at one’s disposal the more money one has to dispose of. So far, it is undoubtedly correct. The fact, however, that the ability to supply money rises only in arithmetical progression even if the various amounts of wealth are in geometrical proportion is a discovery by Hansemann which is bound to earn him greater fame with posterity than Malthus gained by the statement that food supply grows only in arithmetical progression whereas population grows in geometrical progression. [Malthus, An Essay on the Principle of Population]

Thus, for example, if different amounts of wealth are to each other as

1, 2, 4, 8, 16, 32, 64, 128, 256, 512,

then, according to Herr Hansemann’s discovery, the ability to supply money grows in the ratio of

1, 2, 3, 4, 5, 6, 7, 8, 9, 10.

In spite of the apparent growth of the obligatory contribution, the ability to supply money, according to our economist, decreases to the same degree that wealth increases.

In a short story by Cervantes [Cervantes, Novelas ejemplares: Coloquio de los perros] we find the chief Spanish financier in a lunatic asylum. This man had discovered that the Spanish national debt would vanish as soon as

“the Cortes approve a law that all vassals of His Majesty between the ages of 14 and 60 are obliged to fast on bread and water for one day during each month, and that on a day freely to be chosen and decided. The monetary value of the fruits, vegetables, meat dishes, fish, wines, eggs and beans which would otherwise have been consumed on that day would be delivered to His Majesty, without holding back one penny on pain of punishment for perjury”.

Hansemann shortens the procedure. He calls upon all his Spaniards who possess an annual income of 400 talers to find one day in the year on which they can do without 20 talers. According to the sliding scale, he has asked the small fry to refrain from just about all consumption for 40 days. If they cannot find the 20 talers between August and September, a bailiff will look for them in October in accordance with the words: seek and ye shall find. [Matthew 7:7; Luke 11:9]

Let us further examine the “preamble” which the Prussian Necker reveals to us.

“Any income,” he instructs us, “derived from industry in the widest sense of the word, that is irrespective of whether it is subject to a business tax, as is the case with doctors, lawyers etc., can only be taken into consideration after the subtraction of the operating expenditures including any interest to be paid on debts, since the net income can only be found in this way. For the same reason the working capital must be disregarded if the loan contribution which is calculated from income exceeds that calculated from the working capital.”

Nous marchons de surprise en surprise. [we go from one surprise to another] The income can only be taken into consideration after the subtraction of the working capital since the compulsory loan can and ought to be nothing but an extraordinary form of income tax. And the operating costs belong as little to the income of an industrialist as the stem and root of a tree belong to its fruits. Hence for the reason that only the income is to be taxed and not the working capital, it is precisely the working capital that is taxed and not the income if this first method seems more profitable to the exchequer. Thus it is a matter of complete indifference to Herr Hansemann “in which way the net income is found”. He is looking for “the way in which the greatest income is found” for the exchequer.

Herr Hansemann who lays hands on the working capital itself can be compared to a savage who cuts down a tree in order to seize hold of its fruits.

“Thus if?’ (Art. 9 of the Bill) “the loan contribution to be calculated from the working capital is greater than the tenfold amount of the income, the first method of estimation will be employed”, that is one “will resort to” the “working capital” itself.

Hence the exchequer may base its demands upon wealth rather than income whenever it chooses.

The people demands inspection of the mysterious Prussian exchequer. The Government of Action answers this tactless demand by reserving the right to make a thorough inspection of the ledgers of all merchants and an inventory of the wealth of everybody. The constitutional era in Prussia opens not with the control of the finances of the state by the people but rather by letting the state control the wealth of the people so as to open the door to the most brazen intervention of the bureaucracy into civil intercourse and private relationships. In Belgium, too, the state has had recourse to a compulsory loan, but there it modestly limited itself to tax records and mortgage deeds, i.e. to available public documents. The Government of Action on the other hand introduces the Spartanism of the Prussian army into the Prussian national economy.

Hansemann, to be sure, attempts in his “preamble” to appease the citizen by all sorts of mild phrases and friendly persuasion.

“The distribution of the loan,” he whispers to him, “will be based upon self-assessment” All “recrimination” is to be avoided.

“Not even a summary listing of the individual parts of one’s property will be required.... The district commission set up to examine self-assessments will call for appropriate contributions by way of amicable exhortations, and only if this method should be unsuccessful will it estimate the amount. The citizen can appeal against this decision to a regional commission etc.”

Self-assessment! Not even a summary listing of the individual parts of one’s property! Amicable exhortations! Appeal!

Tell me, what more do you want?
[Modified quotation from Heine’s, Du hast Diamanten und Perien]

Let us start at the end, with the appeal.

Article 16 lays down:

“The collection will be carried out at the fixed dates irrespective of any appeals made with the proviso of repayment if the appeal is found justified.”

Thus first comes the execution, the appeal notwithstanding, and afterwards the justification, the execution notwithstanding!

There is more to come!

“The costs” which are caused by the appeal “shall be borne by the appellant if his appeal is totally or partially rejected and if need be will be collected by executive action” (Art. 19).

Anybody who is familiar with the economic impossibility of an exact estimate of wealth will realise at first sight that an appeal can always be partially rejected and that the appellant will always be the loser. No matter what the nature of the appeal, a fine is its inseparable shadow. Let us have every respect for the appeal!

Let us return from the appeal, the end, to the beginning, the self-assessment.

Herr Hansemann does not appear to be afraid that his Spartans will assess themselves too heavily.

Under Art. 13

“Voluntary declarations of the persons obliged to contribute are the foundation of the distribution of the loan”.

Herr Hansemann’s architecture is such that one cannot deduce the further outline of his structure from its foundation.

Or rather the “voluntary declaration” which, in the form of a statement”, is “to be filed with officials appointed by the Finance Minister or by the regional administration on his behalf”, this foundation is now substantiated more thoroughly. Under Art. 14

“one or more commissions will be formed to examine the filed declarations; their presidents and other members to the number of not less than five are to be appointed by the Finance Minister or an authority acting on his behalf’.

Thus the appointment made by the Finance Minister or the authority acting on his behalf forms the foundation proper of the examination.

If the self-assessment varies from the “estimate” made by the district or town commission appointed by the Finance Minister, the “self-assessor” is called upon to give an explanation (Art. 15). He may give an explanation or not, it all depends whether it “suffices” for the commission appointed by the Finance Minister. If it does not suffice,

“it is the duty of the commission to determine the contribution by its own assessment and to inform the contributories thereof”.

First the contributory assesses himself and informs the official thereof. Then the official makes an assessment and informs the contributory thereof. What has become of the “self-assessment"? The foundation has foundered. Whereas the self-assessment only gives rise to a serious “examination” of the contributory, the assessment by a stranger turns at once into execution. For Art. 16 decrees:

“The transactions of the district (town) commissions are to be filed with the regional administration which will forthwith compile the lists of the bond amounts and pass them on to the respective collectors for collection — if necessary by way of execution — under the regulations governing the collection of taxes.”

We have already seen that all is not “roses” with the appeals. The appeals path hides still other thorns.

Firstly: The regional commission which examines the appeals consists of deputies who are elected by the delegates etc. elected under the law of April 8, 1848.

But the compulsory loan divides the entire state into two hostile camps, the camp of the obstructionists and the camp of the men of good will against whose rendered or proffered contributions no objections have been raised by the district commission. The deputies may only be elected from the camp of the men of good will (Art. 17).

Secondly: “A commissioner appointed by the Finance Minister will preside; an official may be attached to him for his assistance” (Art. 18).

Thirdly: “The regional commission is authorised to order special appraisal of property or incomes and for this purpose is entitled to draw up inventories or order the inspection of commercial ledgers. If these measures do not suffice, the appellant may be required to swear an affidavit” [Art. 19].

Thus, whoever refuses to accept without reservation the “assessment” of the officials appointed by the Finance Minister, may, as a penalty, have to reveal all his financial affairs to two bureaucrats and 15 competitors. Thorny path of appeal! Thus Hansemann only mocks his public when he says in his preamble:

“The distribution of the loan is based upon self-assessment. In order to make sure that this is in no way offensive, not even a summary listing of the individual parts of one’s property will be required.”

Not even the penalty for “perjury” of Cervantes’ project designer is lacking in the project of the Minister of action.

Instead of tormenting himself with his sham arguments, our Hansemann would have done better to join the character in the comedy who says:

“How can you expect me to pay old debts and enter upon new ones unless you lend me money?” [Cervantes]

At this moment, however, when Prussia, attending to her particularise interests, is seeking to commit a treachery against Germany and to rebel against the Central Authority, it is the duty of every patriot to refuse to contribute a single penny voluntarily to the compulsory loan. Only by persistent deprivation of nourishment can Prussia be forced to surrender to Germany.