Karl Marx

Austria's Bankruptcy

Written on 3 March 1854.

From the English.

["New-York Daily Tribune" No. 4033 of 22 March 1854, leading article]

Despite the threat of war and pressing necessity, neither the French nor the Austrian government has so far succeeded in strengthening the nervus belli <sinews of war>, namely their financial situation. Although the dinners given by the French Minister of Finance to the chief collectors, the Crédit mobilier and the leading bankers of Paris were of Lucullan sumptuousness, these capitalists are proving recalcitrant and incline to that cautious sort of patriotism which extracts the greatest possible advantages from the state and is accustomed to indemnify itself at the expense of public interests for the sake of its private ones. Thus the conditions on which the intended French loan of two hundred million francs is to be raised remain uncertain.

As regards Austria, there is no doubt that one of the chief motives inducing it to behave in a friendly manner towards the Western powers is the hope of thereby reviving the confidence of the financial world and extricating itself from its financial difficulties. In fact, the government newspaper in Vienna had scarcely spoken a few words about Austria's neutrality and the good understanding with France, when it surprised the public with the announcement that a considerable portion of the Crown lands, covering six million acres, were to be sold, and published a rescript dated 23 February 1854, according to which the entire state paper money with forced currency in circulation to the amount of 150 million gulden is to be transferred to the National Bank and gradually converted by it into banknotes, so

that upon completion of this conversion all paper money issued by the Treasury will be withdrawn and in future no state paper money with forced currency will be issued. With this conversion the imperial government guarantees the Bank for the paper money transferred to it and undertakes to indemnify the Bank for all expenses connected with the conversion operation, to pay off the debt thus created by an annual instalment of at least 10 million gulden, to pledge the customs revenues as security for the regular payment of these instalments to the Bank, and to pay them to it in the same proportion in metal in which the customs duties are collected in metallic money. At the same time the government must co-operate vigorously to enable the Bank to meet its liabilities and resume cash payments. Meanwhile, in order to give the holders of banknotes the opportunity to convert them at will into an interest-bearing debt payable in metal, the Bank undertakes to issue interest-bearing debentures which may be treated in every respect like government securities or bonds. The government also proposes to withdraw and withdraw completely from circulation the so-called redemption and anticipation certificates.

The conversion of state paper money with forced currency into inconvertible banknotes will neither diminish its amount nor improve its quality, but will merely simplify the designations of the paper money issued. Since the state possesses the same means which it grants to the Bank for the redemption of the paper money, it would itself make use of them if it did not know precisely that distrust of it is so great that its credit can only be raised with the help of a bank which is not the property of the state. Thus the dependence of the Emperor on the Jews of the Vienna Bank grows in the same measure as the military character of his rule. In January 1852 he mortgaged to them the salt works of Gmunden, Aussee and Hallein. In February 1854 they obtain a lien on the customs revenues of the whole monarchy. Step by step the Bank becomes the real and the government merely the nominal ruler of the empire. The more Austria has resisted the demands of the bourgeoisie for a share in political power, the more deeply it must bend to the unlimited despotism of one segment of this class — the financiers.

The decree whose contents we have summarised above conceals a new attempt at a loan behind the form of an assistance to holders of banknotes, in that these are converted into an interest-bearing debt, the interest being payable in metal. In 1852 the government likewise undertook to meet various smaller payments and liabilities in metal, but since it received taxes only in state paper money or banknotes, it was forced to raise a loan of 35 million gulden in London and Frankfurt. The new loans naturally increase the old deficit, and the increased deficit leads to renewed issues of paper money, whose superabundance and consequent depreciation they were intended to prevent. The great distinction which the government makes between payment in metallic money and in banknotes is no more apt to free the notes from their bad reputation than the augmentation of the bank's circulating medium by 150 million can enable it to meet its obligations and resume cash payments. The government will pay the Bank in metal in the same proportion as the import duties are paid in metal; but it is well known that not only the Austrian peasants but also the citizens in the larger towns are as fond of hoarding as the Chinese and the Indians; that in 1850 even copper coins were hoarded and that in 1854 all taxes are paid in paper, although this is accepted only at a discount of a full 17 per cent.

Anyone versed in the history of Austrian financial administration will find nothing new either in the promises of the new decree or in the financial artifices resorted to. The first issue of Austrian paper money took place under the Empress Maria Theresa towards the end of the Seven Years’ War. It originally consisted of Banco-Zettel, exchangeable for silver at the state authorities. In 1797, owing to the financial difficulties of the government in the wars against France, their convertibility into silver was abolished. While the first issue under the Empress Maria Theresa amounted to 12 million gulden, in 1809 the total sum of Banco-Zettel issued was 1,060,793,653 gulden, their depreciation at the same time reaching its maximum. On 20 February 1811 the government published a patent by which the Banco-Zettel were completely withdrawn from circulation and redeemed at the rate of 20 for 100 in a new paper money, called Vienna Currency (hence the name: Einlösungsscheine [redemption certificates]). The government declared it to be the real money of the country and promised that it should never be increased beyond the amount necessary for the exchange of the Banco-Zettel. By May 1811 the Vienna Currency already stood at a discount of 8 per cent, and anticipation certificates were issued, so called because a part of the tax revenues was anticipated by them for twelve years. Their first issue was in fact only 45 million gulden; for their redemption in twelve years an annual sum of 3,750,000 gulden was fixed, to be taken from the land tax.

But as a consequence of the war, one new issue of anticipation certificates after another appeared unobtrusively, each accompanied by depreciation. In 1815 the premium on silver against Vienna Currency reached the height of 400 per cent. On 1 June 1816 an imperial patent appeared, declaring that in future the state would no longer resort to inconvertible paper currency; the paper money in circulation was to be gradually withdrawn and metallic money reintroduced as the normal circulating medium. To fulfil these promises, the privileged National Bank was definitively established on 18 January 1818, after the state had concluded an agreement with it by which it undertook to redeem the inconvertible paper money. Nevertheless, we hear again in June 1852 the Minister of Finance proclaiming in the government organ that forced loans, extraordinary taxes, and diminutions of the value of money were to be entirely excluded in future; Austrian paper money would be exchanged for metallic money, if not at present, then in the future, without loss, and the loans now intended were to be used for the withdrawal of the state paper money and the payment of the state debts to the Bank. There can be no better proof of the hollowness of such promises than their periodic recurrence.

In the time of Maria Theresa the Austrian government was strong enough to issue its own Banco-Zettel which were exchangeable in coin and even stood at a premium over silver. In 1818 the state, in order to redeem its paper money, had to resort to the establishment of a privileged bank, the property of private capitalists; this bank obtained advantages which weighed very heavily upon the state, but was obliged to issue convertible notes. In 1854 the government calls to its aid a bank whose own notes have become as depreciated and inconvertible as those of the state itself.

Although Austria enjoyed almost uninterrupted peace and internal tranquillity from 1815 to 1846, the first shock after this long period found it completely unprepared. The Cracow uprising and the disturbances in Galicia at the end of February 1846 increased public expenditure by more than 10 million compared with 1845. The main cause of this increase was expenditure on the army. In 1845 these amounted to 50,624,120 gulden, but in 1846 they rose by 7 million, while expenditure on the civil administration in the provinces increased by 2 million. In 1847 the commercial crisis and the bad harvest led to a considerable reduction in tax revenues, while army expenditure, mainly owing to the disturbances in Italy, rose to 64 million. The deficit for that year was 7 million. In 1848/49 the revenues from entire provinces were lost, to which were added the war costs in Italy and Hungary. The deficit in 1848 was 45 million gulden and in 1849 121 million. In 1849 three per cent treasury warrants with forced currency were issued to the amount of 76 million. Long before, the Bank had suspended cash payments; its issues were declared inconvertible by the government. In 1850 there was a deficit of 54 million, and the danger of a war with Prussia caused the rate of the paper money to fall by 60 per cent. The total amount of state paper money issued in the years 1849, 1850 and 1851 came to 219 million. In 1852 the deficit was 8 million greater than in 1848 and 46 million greater than in 1847. In 1851 the army budget was 126 million, almost double that of 1847. In 1852 expenditure on the police was 9 million, four times that of 1848. In 1853 expenditure on the police and the army also increased.

The real problem, however, is not how Austria got into this financial impasse, but how, thus entangled in paper currency and debts, it has avoided open bankruptcy. In 1850 its revenues were 196 million, 74 million more than in 1848 and 42 million more than in 1849. In 1851 revenues were 219 million, 23 million more than in 1850. In 1852 they reached the sum of 226 million, an increase over 1851 of 6 million. State revenues thus rose continuously, although in 1852 not in the same proportion as in 1851 and in 1851 not as in 1850.

Whence this increase in revenue? If one disregards the extraordinary revenues from the Sardinian war indemnity and the Lombardo-Venetian confiscations, then the transformation of the Austrian peasant into a free proprietor of his land has increased the taxable capacity of the country and the receipts from the land-tax. At the same time, the abolition of the seigneurial courts has diverted to the state the income previously enjoyed by the aristocracy by virtue of its judicial power, and this source of revenue has been flowing more and more copiously since 1849. Furthermore, a considerable increase resulted from the income tax introduced by the patent of 29 October 1849. In the Italian provinces of Austria, this tax proved particularly productive. In 1852, for example, the increase in income tax in the German and Slav provinces amounted to 601,000 florins, and in the Italian provinces alone to 639,000 florins. The most important cause, however, which has preserved the Austrian Empire from formal bankruptcy, is the subjugation of Hungary and its assimilation to the other provinces in regard to taxation.

The land-tax is, of course, the basis of the whole Austrian tax system. On 23 December 1817, an imperial patent appeared in which Emperor Francis announced his resolve to standardise the land-tax for all his German, Slav, and Italian provinces. A paragraph of this patent decreed that in future no exemptions from the land-tax “on the grounds of the personal status of the owners of land or houses” should be granted, and on the whole this principle was acted upon. In the Archduchy of Austria, the new cadastre was introduced in 1834, and this was the first hereditary land where the new system came into force. Austrian Lombardy possessed an excellent cadastre dating from the time of Charles VI, the Censimento milanese. Hungary and Transylvania, however, contributed by no means to the same extent as the other provinces of the empire to the land-tax and other taxes. According to the Hungarian constitution, the Hungarian landowners, who possessed by far the greater part of the land, had to pay no direct tax whatsoever, and even several of the indirect taxes imposed on the other provinces did not weigh heavily upon Hungary and Transylvania. The population of Hungary, Transylvania, and the Military Frontier together amounted in 1846 to 14,549,958, that of the other provinces of the monarchy to 24,901,675 persons, so that the former ought to have contributed seven-eighteenths of the entire revenue. But Hungary and Transylvania contributed only 23 million in 1846, which, out of the total revenue for that year of 164 million, made up just under one-seventh of the revenue. The Hungarian provinces cover 5,855 of the 12,123 German square miles which make up the area of the Austrian monarchy, i.e. half of its territory.

Emperor Joseph II, whose great aim was the centralisation and complete Germanisation of the Austrian monarchy, had on his own authority introduced innovations in Hungary designed to place the country on an equal footing with the other provinces. But this produced such an effect on public opinion in that country that Joseph II, towards the end of his life, feared that the Hungarians would rebel like the Netherlanders. The Emperors Leopold II, Francis I, and Ferdinand I did not dare to repeat the dangerous experiment. The cause—the obstacles which the Hungarian constitution presented to fiscal equalisation—ceased to operate after the Hungarian revolution had been crushed with Russian assistance. Emperor Francis Joseph, who had never sworn to the Hungarian constitution and who had therefore been raised to the imperial throne in Ferdinand’s stead, immediately introduced the land-tax as it existed in the other crown lands. In addition, the abolition of the customs border with Hungary on 1 October 1850 made the monarchy a single territory in regard to customs and duties. The excise duty and the tobacco monopoly were likewise introduced here on 1 March 1851. The increase in the direct taxes alone in the Hungarian provinces was 11,500,000 in 1851 and approximately 8 million florins in 1852.

We thus arrive at the irrefutable conclusion that the political, and no less the economic, existence of the Austrian Empire depends on the possession of Hungary and Lombardy, and that with their loss the long-postponed bankruptcy of this state becomes inevitable.