The constitution provided that no member of the House might be brought before a court of justice without the permission of the House, a most necessary safeguard. In this case the permission was almost unanimously refused. Nor did they assent to Bismarck’s proposal that the Reichstag should assume power to exclude from the House members who were guilty of misusing the liberty of speech which they enjoyed there. Bismarck probably expected, and it is often said that he hoped, to drive the Socialists into some flagrant violation of the law, of such a kind that it would be possible for him completely to crush them. This did not happen. There were some members of the party who wished to turn to outrage and assassination. Most, a printer from Leipzig, who had been expelled from Berlin, went to London, where he founded the Freiheit, a weekly paper, in which he advocated a policy of violence. He was thereupon excluded from the party, and after the assassination of the emperor Alexander II. of Russia had to leave England for Chicago. A similar expulsion befell others who advocated union with the Anarchists. As a whole, however, the party remained firm in opposition to any action which would strengthen the hands of their opponents. They carried on the agitation as best they could, chiefly by distributing reports of speeches made in the Reichstag. A weekly paper, the Social-Democrat, was established at Zürich. Its introduction into Germany was of course forbidden, but it was soon found possible regularly to distribute thousands of copies every week in every part of the country, and it continued to exist till 1887 at Zürich, and till 1890 in London. In August of 1880 a congress of Socialists was held at the castle of Wyden, in Switzerland, at which about eighty members of the party met, discussed their policy, and separated before the police knew anything of it. Here it was determined that the members of the Reichstag, who were protected by their position, should henceforward be the managing committee of the party, and arrangements were made for contesting the elections of 1881. A similar meeting was held in 1883 at Copenhagen, and in 1887 at St Gallen, in Switzerland. Notwithstanding all the efforts of the government, though every kind of public agitation was forbidden, they succeeded in winning twelve seats in 1881. The law, which had obviously failed, was renewed in 1881; the state of siege was applied to Hamburg, Leipzig and Stettin, but all to no purpose; and though the law was twice more renewed, in 1886 and in 1888, the feeling began to grow that the Socialists were more dangerous under it than they had been before.
The elections of 1878, by weakening the Liberal parties, enabled Bismarck also to take in hand the great financial reform which he had long contemplated.
At the foundation of the North German Confederation it had been arranged that the imperial exchequer should receive the produce of all customs duties and also of excise. It depended chiefly on the taxes on salt, tobacco, brandy, beer and sugar. So far as the imperial expenses were not covered by these sources of revenue, until imperial taxes Financial reform. were introduced, the deficit had to be covered by “matricular” contributions paid by the individual states in proportion to their population. All attempts to introduce fresh imperial taxes had failed. Direct taxation was opposed by the governments of the states, which did not desire to see the imperial authorities interfering in those sources of revenue over which they had hitherto had sole control; moreover, the whole organization for collecting direct taxes would have had to be created. At the same time, owing to the adoption of free trade, the income from customs was continually diminishing. The result was that the sum to be contributed by the individual states constantly increased, and the amount to be raised by direct taxation, including local rates, threatened to become greater than could conveniently be borne. Bismarck had always regarded this system with disapproval, but during the first four or five years he had left the care of the finances entirely to the special officials, and had always been thwarted in his occasional attempts to introduce a change. His most cherished project was a large increase in the tax on tobacco, which at this time paid, for homegrown tobacco, the nominal duty of four marks per hundred kilo. (about a farthing a pound), and on imported tobacco twenty-four marks. Proposals to increase it had been made in 1869 and in 1878, and on the latter occasion Bismarck for the first time publicly announced his desire for a state monopoly, a project which he never gave up, but for which he never was able to win any support. Now, however, he was able to take up the work. At his invitation a conference of the finance ministers met in July at Heidelberg; they agreed to a great increase in the indirect taxes, but refused to accept the monopoly on tobacco. At the beginning of the autumn session a union of 204 members of the Reichstag was formed for the discussion of economic questions, and they accepted Bismarck’s reforms. In December he was therefore able to issue a memorandum explaining his policy; it included a moderate duty, about 5%, on all imported goods, with the exception of raw material required for German manufactures (this was a return to the old Prussian principle); high finance duties on tobacco, beer, brandy and petroleum; and protective duties on iron, corn, cattle, wood, wine and sugar. The whole of the session of 1879 was occupied with the great struggle between Free Trade and Protection, and it ended with Protection. a decisive victory for the latter. On the one side were the seaports, the chambers of commerce, and the city of Berlin, the town council of which made itself the centre of the opposition. The victory was secured by a coalition between the agricultural interests and the manufacturers; the latter promised to vote for duties on corn if the landlords would support the duties on iron. In the decisive vote the duty on iron was carried by 218 to 88, on corn by 226 to 109. The principle of protection was thus definitely adopted, though considerable alterations have been made from time to time in the tariff. The result was that the income from customs and excise rose from about 230 million marks in 1878–1879 to about 700 millions in 1898–1899, and Bismarck’s object in removing a great burden from the states was attained.
The natural course when the new source of income had been obtained would have been simply to relieve the states of part or all of their contribution. This, however, was not done. The Reichstag raised difficulties on the constitutional question. The Liberals feared that if the government received so large a permanent source of State contributions. revenue it would be independent of parliament; the Centre, that if the contributions of the states to the imperial exchequer ceased, the central government would be completely independent of the states. Bismarck had to come to an agreement with one party or the other; he chose the Centre, probably for the reason that the National Liberals were themselves divided on the policy to be pursued, and therefore their support would be uncertain; and he accepted an amendment, the celebrated Franckenstein Clause, proposed by Georg Arbogast Freiherr von Franckenstein (1825–1890), one of the leaders of the Centre, by which all proceeds of customs and the tax on tobacco above 130 million marks should be paid over to the individual states in proportion to their population. Each year a large sum would be paid to the states from the imperial treasury, and another sum as before paid back to meet the deficit in the form of state contributions. From 1871 to 1879 the contribution of the states had varied from 94 to 67 million marks; under the new system the surplus of the contributions made by the states over the grant by the imperial treasury was soon reduced to a very small sum, and in 1884–1885 payments of the empire to the states exceeded the contributions of the states to the empire by 20 million marks, and this excess continued for many years; so that there was, as it were, an actual grant in relief of direct taxation. In Prussia, by the Lex Huene, from 1885 to 1895, all that sum paid to Prussia, so far as it exceeded 15 million marks, was handed over to the local authorities in relief of rates. The increased expenditure on the navy after 1897 again caused the contributions required from the states to exceed the grants to them from the imperial exchequer. In 1903 Baron von Stengel, who succeeded Baron von Thielmann as finance minister in this year, proposed that the matricular contributions of the several states, instead of varying as heretofore with the exigencies of the annual budget,
