Marx and Engels in Neue Rheinische Zeitung July 1848

Herr Forstmann On the State Credit

Source: MECW Volume 7, p. 223;
Written: on July 13, 1848;
First published: in the Neue Rheinische Zeitung No. 44, July 14, 1848.

Cologne, July 13. During the agreement session of the 7th [of this month], Herr Forstmann knocked down all doubts of the unprincipled Left concerning the imperturbability of the Prussian state credit by the following irrefutable argument:

“Please decide whether the confidence in Prussia’s finances sank to zero when yesterday on the Stock Exchange a 3 1/2 per cent government security stood at 72 per cent while the rate of discount was 5 1/2 per cent.”

One can see that Herr Forstmann is no more a speculator on the Stock Exchange than he is an economist. If Herr Forstmann’s hypothesis that the price of government securities stands always in an inverse relationship to the price of money were correct, then the quotations of the Prussian 3 1/2 per cent securities would indeed be unusually favourable. In that case, with a discount rate of 5 1/2 per cent, they should be listed not at 72 per cent but only at 63 7/11. But who has told Herr Forstmann that this inverse relationship exists at every particular moment of a business slump and not as an average over 5 to 10 years.

On what does the price of money depend? It depends on the relationship of supply and demand at a given time and upon the currently existing scarcity or abundance of money. On what does the scarcity or abundance of money depend? It depends on the state of industry at the particular time and on the stagnation or prosperity of commerce in general.

On what does the price of government securities depend? It depends likewise on the relationship of supply and demand at the ‘time. But on what does this relationship depend? It depends on many circumstances, which in Germany, in particular, are extremely complicated.

State credit is of decisive importance in France, England, Spain and in general in those countries whose government securities are. traded on the world market. State credit plays a secondary role in Prussia and the smaller German states whose securities are quoted only on the small local exchanges. Here most government securities are not used for speculation but for the safe investment of capital and to secure a fixed rent. Only a disproportionately small part reaches the stock exchanges and is traded. Almost the entire national debt is in the hands of small pensioners, widows and orphans, boards of guardians, etc. A fall of the exchange quotations due to the decrease of the state credit is an additional reason for this type of state creditors not to sell their stocks. The interest is just enough for them to get by. If they sell these stocks at a heavy loss, they are ruined. The small number of securities which circulates on the few small local exchanges cannot, of course, be subject to the enormous and rapid fluctuations of supply and demand, of rise and fall like the enormous mass of French, Spanish etc. securities which are mainly designed for speculation and are traded on all the world’s great stock exchanges in large quantities.

Hence it happens only rarely in Prussia that capitalists, through lack of money, are forced to sell their bonds at any price and thereby push down the exchange prices, while in Paris, Amsterdam etc. that is an everyday occurrence, which particularly after the February revolution affected the incredibly rapid fall of the French government securities much more than the diminished state credit.

In addition, fictitious purchases (marchés à terme),[157] which make up the bulk of the stock exchange transactions in Paris, Amsterdam etc., are prohibited in Prussia.

This entirely different commercial position of the Prussian securities based on local exchanges and the French, English, Spanish etc. securities which are traded on the world market, explains the fact that the prices of the Prussian securities do not reflect the most minute political complications of their state in anything like the measure in which this is the case with French etc. securities, that the state credit has not by a long shot the decisive and rapid influence on the market price of the Prussian stocks that it has upon the securities of other states.

In the measure in which Prussia and the small German states are pulled into the maelstrom of European politics and in which the domination of the bourgeoisie is developing, in the same measure government securities, just like landed property, will lose this patriarchal, inalienable character, will be drawn into circulation, become an ordinary, frequently exchanged article of commerce, and perhaps even be allowed to lay claim to a modest existence on the world market.

Let us draw from these facts the following conclusions:

Firstly: It is not contested that the market price of government securities will on average over a lengthy period rise everywhere in the same ratio as the rate of interest falls and vice versa, given that the state credit remains unchanged.

Secondly: In France, England etc. this ratio prevails even during shorter periods because there the speculators own the largest part of the government securities and because, due to shortage of money, people are frequently compelled to sell and this governs the daily ratio between the exchange price and the rate of interest. Hence, this ratio often really prevails even at a particular moment.

Thirdly: In Prussia, on the other hand, this ratio exists only on average over relatively long periods because the amount of disposable government securities is small and the stock exchange business is limited; because sales due to shortage of money, which actually govern this relation, occur only rarely; because the prices of securities at these local stock exchanges are primarily determined by local influences whereas the price of money is determined by the influence of the world market.

Fourthly: If thus Herr Forstmann wants to draw conclusions for the Prussian state credit from, the ratio of the price of money to the market price of the government securities, he only proves his total ignorance of these relations. The quotation of 72 for the 3 1/2 per cent stocks, with a discount rate of 5 1/2 per cent, demonstrates nothing in favour of the Prussian state credit, and the compulsory loan speaks entirely against it.