by Dr. Peter Christen
BONDS & SHARE CERTIFICATES OF THE WORLD Featuring the loans of the German Reich London, 20th November 2015 All revenue will go directly to the Nazi-crimes compensation fund.
Spink is delighted to announce that The Federal Republic of Germany has commissioned us with the sale of a unique collection of German economic history; an historical collection to be sold on the 20th November 2015. The German Ministry of Finance (BADV) has awarded Spink, with the sale of the inventory of historic bonds from the former German Reichsbank. At the beginning of this century, the BADV began selling its inventory of former German Reichsbank certificates. However, until now only the shares and bonds of private companies have been sold. This November, there will be a sale that pertains to the very heart of German Economic History. Long-awaited treasury bills and bonds of Reichsbank and German Länder from 1889 to 1945 will be finally going under the hammer.
The certificates on offer have a remarkable history. Having been stored in the impenetrable safe of the Reichsbank in Berlin, they survived the Second World War unscathed by bombings. Even during the years of the GDR they went largely untouched. Following German reunification, the German Ministry undertook the settlement of all legal claims, and with this process now complete, this historically unique and most valuable collection of financial certificates can finally be auctioned off. Dr. Thomas Dress, the vice-president of the BADV, had this to comment on the subject: “We are happy to make available these important witnesses of German Economic history to the public and interested collectors. With the auction house Spink we also have found an ideal sales partner. Thanks to its profound market knowledge and experience, its excellent reputation and global reach in Europe, USA and Asia, the auction house Spink is the ideal partner for the sale of this unique inventory of financial history of Germany.” Any revenue generated by this auction will go directly to the Nazi Crimes Compensation Fund. We are delighted to provide you with a comprehensive overview of the historic and financial importance of the German Reich loans and the main lots in this auction.
The German Reich was founded following the German victory over France in the FrancoPrussian War (1870/71) under the leadership of Kaiser Wilhelm I. Until 1890, the politics of the Reich was dominated by the so-called “Iron Chancellor”, Otto von Bismarck. His influence also extended to the establishment of the Reich’s fiscal administration. The first fiscal measure was the unification and standardization of the currencies with the introduction of the Mark and the Gold Standard. In building up the financial authorities, the Reich often fell back on existing Prussian institutions and assigned them the new Reich’s function.
Reich‘s Debt Administration (Reichsschuldenverwaltung) The Reich’s Debt Administration was founded in 1871 and has its origins in the Prussian Main Administration of the States Debt. It took over the Administration of the Reich’s Debt and the conversion of the old loans into the new Mark. It was under the control of the Chancellor and under supervision of the Reich’s Debt Commission. The following persons were the directors of the Reich’s Debt Office during the existence of the German Reich: 1874–1879: Botho Heinrich zu Eulenburg, 1879–1892: Friedrich Hermann Sydow, 1892–1905: Otto von Hoffmann, 1905–1907: Rudolf von Bitter der Jüngere und 1907–1918: Alexander von Bischoff- shausen. During the Weimar Republic, the directors were Carl Halle 1918–1928 and Ernst Articus 1929–1944. The later remained in office for the vast majority of Nazi rule. All Reich borrowing was signed off by the director of the Reich’s Debt Office. Their facsimile signature is always the first signature on the left of the signatures of all directors of the Debt Administration on the individual certificates of all loans of the German Reich.
As France was required to pay war reparation to the German Reich, it required virtually no additional finance in its infancy. The Constitution determined that all current expenditures had to be financed by tax, tariff s, post and railway and that any fiscal deficit had to be covered by the Länder. The Loan bill from 27.1.1875 enabled the Reich to obtain external finance and to issue new loans. The purpose of these loans were the development of a Reich’s army, marine, fortifications and coastal defences, a post and telegraph administration, financing the acquisition of the Reichsdruckerei, minting a new coin, the implementation of the customs free zone for Hamburg and Bremen and the construction of the NordOstsee-Canal.
Sales and Distribution of the bonds issued by the Reich’s Debt Administration was taken on by the new German Centralbank, the Reichsbank. It was founded in 1876 and, similarly to the Reichsschuldenverwaltung, originated from an old Prussian Institution, which was founded by Friedrich the Great under the Name “Königliche Giro- und Lehnbank”, laterly called the “Prussian Bank”.
The construction of the Reichsbank building, on Werderschen Markt in Berlin-Mitte was completed in 1940. After WW2 it was used by the Central Committee of the SED and ever since 1999 it has been part of the Foreign Office of the Federal Republic of Germany. The loans of the German Reich were issued from 1877, with an ornate design as can be seen above. On the left of the certificate, the Goddess Germania is depicted with sword and shield. The Reich’s Eagle with its crown can been see above and in the underprint. In the header of the loan is the title “Loan of the German Reich” and its year of issue. The certificates bear the facsimile signature of the Reichs Debt Administration; the director always signs first on the left. They have a watermark with the text “Reichsschuldenverwaltung”. This design remains the same throughout the reign of the German Kaiser until 1918. Colour schemes alone are changed according to the issue.
The loans were perpetual loans. The Reich however had the right to pay back the loan after a certain time. This right was exercised regularly for a conversion, when market interest had fallen. In these cases, the Reich cancelled the loan and offered the owner the newly issued certificate, or quite often just stamped the old with the new interest rate. If the owner did not agree with the new interest rate, the loan was paid back.
From the introduction of the Germania loans until 1885 the interest rate was 4 percent. It then fell to 3½% until 1890, and again to 3%, before rising to 4%. interest payments were half yearly.
Before WWI, the total debt of the German Reich was 7 billion Marks.
Protectorates Loan The first German colony, German South-West Africa, dates back to 1884. However, it took 24 years and the Supplementary Act of 1908, until the German Colony was able to issue its own debt independently, with a Reich guarantee. The Act only defined redemption. The first six years were free of redemption, afterwards 0.6 percent was repaid. All other conditions of the loan, such as amount, interest, and price of issue were determined by the German Chancellor.
These loans were used primarily to finance larger railway projects in the various colonies, such as the Usambara Railway in German East-Africa, the acquisition of shares of the East Africa Railway, and the financing of the railway from Duala to the Nyong River in Cameroon.
Futhermore, the railway from Lome to Atakpame in Togo, the Otavi-Railway, the North-South Railway in South-West Africa the Refurbishment of the line from Karibib to Windhuk were acquired, financed or refurbished via these loans.
The German Reich issued special war bonds to finance the gigantic expenses of the army and navy. Many citizens bought these in support of their solders at the frontline. With the first war loan alone the German Reich was able to collect as much as 4.5 billion Reichsmarks: An enormous amount that corresponded to a tenth of the German GDP at that time.
During WWI, Germany issued a total of nine loans. The largest loan was the eighth loan in Spring of 1918 at 15 billion Marks. In total the German Reich borrowed 98 billion Marks from the public. This covered approximately 85 percent of all the war expenditures.
For the Reich these loans were the most apt instrument for war financing, given the paucity of alternatives. Increasing taxes was not an option, as it would have created unrest in the already heavily burdened public. From international capital markets, Germany was largely isolated and unable to get new funds, unlike its wartime enemies England and France, who were able to borrow money from their future ally, the United States.
From the outset, advertising of the war loans was widespread. Poster had particular exposure like the one above with a German solder with glowing eyes and patriotic slogans like “Help us win! Subscribe to War Loans.” These posters were very popular and could be seen on most street corners. It was clear that war would not be won without full mobilisation of the whole of German society. Actually, with this publicity campaign the Reich succeed in securing additional finance not only from the middle class, but also, for the first time, from the working class, some of whom had very little savings.
It was the ordinary German who financed the state: employees, farmers, artisans and even manual workers. They all subscribed to these War loans which were issued two times per year and received a standard return of five percent. The loans were sold through banks and – at that time a novelty – by savings bank. They were available from 100 Mark, which corresponded to one month’s salary for a skilled factory worker.
As is common in war time there was a lot of money in circulation but a scarcity of goods and services for households to buy. Hence, people saw in these war loans a good and secure investment, in which they would put their money voluntarily. Additionally, there was high moral pressure on the subscribers of the loans. They did not want to abandon their own troops and saw it as their patriotic duty to finance the war. The public’s moral support for the army was steadfast throughout the war, as was it financial support. The German people were convinced that the war would be won and the Reich would not default on its debt. In the year 1919, the Reich’s total debt, including short-term liabilities, reached 156 billion Reichsmarks – a gigantic sum indeed.
The issuing of the loans by the Reich had to be approved by the Deutsche Reichstag. The decision by the German Social Democrat Party to approve the first war loan in 1914, was controversial and of
particular historical consequence: it led subsequently to the division of the German labour movement.
With the outbreak of war, the stock exchanges in Germany, as in most European countries, were closed. Share trading resumed after a year, but issuing and trading of loans was forbidden during the entire war up until 1919. The only investment opportunity for investors in bonds was buying War loans.
The issuance of the single issue of the war loans was usually accompanied by a prior issuance of seven-year treasury bills, which were financed immediately and directly by the Reichsbank.
The certificates of the war loan were completely in the tradition of the previous bonds of the German Reich. They had the identical design. Indeed, the term “War Loan” only appeared for the first time in autumn 1917, which is testament to the continuity of issuance up until that point. On the last three War Loans (VII, VIII and IX) a print on the top edge of the bond can be seen. The interest of the loan was 5 percent. After the war, the loans continued to be served by the Reich.
The Weimar Republic 1918-1933 The Weimar Republic emerged following Germany’s defeat and the collapse of its Empire which culminated in the exiling of its Emperor to Dutch territory. The German economy was in a parlous state, and thousands of soldiers sought new employment. Fear of revolution was widespread. At the same time, Germany faced gigantic claims for war reparation by the Allies. The London Ultimatum in May 1921 ordered Germany to pay reparations of 132 billion Goldmarks. A large part of state spending had to be financed by credit: as finance could not be raised by taxation, the state’s printing presses were set in motion. What followed was the most radical hyperinflation of an industrial nation in history.
All attempts by the government of the Reich to finance its gigantic need for capital by raising of credit from voluntary creditors was doomed to fail, given the turmoil in capital markets amidst the collapse of the German currency. The bonds were creatively structured: they were set up to play on investor irrationality by offering a chance at a large win from a lottery. By signing the first German loan after the war, the Deutsche Sparprämien-Anleihe 1919 at 1000 Mark, investors had the possibility to become millionaires. While the loan did not bear any interest, the owner however, participated in a half-yearly drawing with 2500 winners, with amount between 1000 Marks (1000 winners) and 1 Million Marks (5 winners). The issue was discontinued however, due to a lack of demand.
In 1922 the government under Reich President Ebert found itself obliged to finance itself via a forced loan from its citizens. All individuals with a wealth higher than 100,000 Marks were obligated to provide finance of up to 10% of the value of their assets. The loan did not bear any interest until 1925, between 1925 and 1930 it bore 4 Percent and from 1930, 5 Percent.
The hyperinflation had a devastating effect on the value of the forced loan, but also on all earlier Mark denominated loans. The massive depreciation of the currency meant that these loans lost practically all their value. This was may be a good thing for the German Reich Finances, as the total debt of the German Reich evaporated into thin air. The German savers on the other hand were practically expropriated; their certificates had lost all their value. A large part of the population became impoverished. This trauma of the great inflation is still today imprinted into the collective memory of the Germans.
After the successful stabilisation of the currency and the introduction of the Rentenmark which replaced the Reichsmark in September 1924, the owner of loan of the German Reich was compensated for their loss with new certificates of the ‘Replacement Loan’ of 1925. The conversion rate was between 2½ and 15 Percent. The total value of this new loan was 1.7 Billion. Reichsmarks. The new bonds were not interest bearing until the termination of all German war reparations obligations to the allies. The bonds however were directly connected to a drawing certificate with the same nominal value. These drawing certificates participated in a yearly drawing of the redemption of five times their nominal value.
Nationalsozialism 1933 -1945 After the seizure of power by the National Socialists, the Ermächtigungsgesetz transferred the right to approve new state loans from the Reichstag to the government of the Reich. The economic crisis of 1929 had destroyed the stability of German financial markets, which had been built up over the past 5 years. The president of the Reichsbank and minister of finance Hjalmar Schacht provided Hitler with the instrument to overcome the crisis, but also to finance the accelerated German armament. The system used by “Schacht” was at root a Keynesian approach: that the state increases its debt and, that would be reduced by increasing taxes after an economic recovery.
The Nazi-loans of the German Reich The loans of the German Reich played a central role in the financing of the policy of the National Socialists. The German capital market had to serve extensively the demands for credit of the Reich. Private enterprise however had to rely on self-financing by retaining profits. All profit that went beyond 6 Percent, was skimmed off for an investment in loans of the Reich. They however renounced the use of “Volksanleihen” as in WW1, as these still were extremely unpopular.
The position of the state in the capital market was so dominant, that the German Reich was even able to influence the condition of the loan in its favour. In 1934 nominal interest was 4%, between 1935 and 1937 4½% in, 1938 4% in 1941 even as low as 3½%. The Deutsche Reich was able to finance itself without difficulty throughout the war.
After 1935, the German Reich issued two main interest baring debt securities: Loans of the German Reich in the form of Bonds and callable Treasury Bills.
The difference between these two securities lay mainly in the repayment conditions. The bond had a maximum maturity of 10 years. Every year 10 Percent was repaid. Additional to the nominal, half-yearly interest, they had an additional interest payment: If the Reich made a profit in the repayment of the bond, i.e. the difference between the nominal value of 100% and the repayment value, then this profit was distributed to the remaining bonds holders.
The callable Treasury Bills had a 10-year maturity and an identical nominal interest. There was, however, no repayment during the first five years. Every year in its last five years, two numbers between 0 and 9 were drawn and all the Treasury bill whose last digit corresponded to the number drawn from the lot were repaid.
Until mid-1936 the new loans kept the stamp of the Reichsschuldenverwaltung with the Reich’s eagle from the Weimar Republic. Only afterwards did the stamp change to the Nazi-Eagle with the Swastika.
After the dismissal of its president, H. Schacht, in January 1939, the Reichsbank underwent fundamental reorganisation. It came under the direct authority of “Führer und Reichskanzler” Adolf Hitler, who in this role was able to give credit to the Reich. He was now creditor and debtor at the same time. The Reichsbank and Reich’s Debt Administration were entirely subsumed into the Nazi war economy.
A real declaration of bankruptcy of the Third Reich. A non-interestbearing treasury bill of 85 billion Reichsmark, guaranteed be the “Railway Special Assets” in the occupied eastern territories from 25th April 1945, when these territories had long since fallen under Soviet authority.
This is a summary of the history of German State debt and the most important lots of the loan certificates offered for sale in this auction. In the auction, you will find many additional and no less interesting loans of the German Reich and from several Länder, such as Bavaria, Mecklenburg, and Thuringia amongst others.