The Online Library of Liberty

A project of Liberty Fund, Inc.

• Titles In the Liberty Fund Library of the Works of Ludwig Von Mises
• Acknowledgments
• Preface
• Introduction
• Monetary and Economic Policy Problems Before, During, and After the Great War
• Part 1: Austro-hungarian Monetary and Fiscal Policy Issues Before the First World War
• Chapter 1: The Political-economic Motives of the Austrian Currency Reform 1
• Chapter 2: The Problem of Legal Resumption of Specie Payments In Austria-hungary 1
• Chapter 3: The Foreign Exchange Policy of the Austro-hungarian Bank 1
• Chapter 4: On the Problem of Legal Resumption of Specie Payments In Austria-hungary
• Chapter 5: The Fourth Issuing Right of the Austro-hungarian Bank 1
• Chapter 6: Financial Reform In Austria 1
• Chapter 7: The General Rise In Prices In the Light of Economic Theory 1
• Chapter 8: On Rising Prices and Purchasing Power Policies 1
• Chapter 9: Disturbances In the Economic Life of the Austro-hungarian Monarchy During the Years 1912-1913 1
• Part 2: Economic Policy Issues In the Midst of the Great War
• Chapter 10: On the Goals of Trade Policy 1
• Chapter 11: Inflation 1
• Chapter 12: On Paying For the Costs of War and War Loans 1
• Chapter 13: Remarks Concerning the Problem of Emigration 1
• Part 3: Austrian Fiscal and Monetary Problems In the Postwar Period
• Chapter 14: Monetary Devaluation and the National Budget 1
• Chapter 15: For the Reintroduction of Normal Stock Market Practices In Foreign Exchange Dealings 1
• Chapter 16: On Carl Menger’s Eightieth Birthday 1
• Chapter 17: How Can Austria Be Saved?
• Chapter 18: The Claims of Note Holders Upon Liquidation of the Bank 1
• Chapter 19: The Austrian Currency Problem Thirty Years Ago and Today 1
• Chapter 20: The Restoration of Austria’s Economic Situation 1
• Chapter 21: The Austrian Problem 1
• Chapter 22: The Gold-exchange Standard 1
• Chapter 23: The Social Democratic Agrarian Program 1
• Chapter 24: America and the Reconstruction of the European Economy 1
• Chapter 25: The Currency and Finances of the Federal State of Austria 1
• Chapter 26: The Economic Crisis and Lessons For Banking Policy 1
• Part 4: Interventionism, Collectivism, and Their Ideological Roots
• Chapter 27: The Economic System of Interventionism 1
• Chapter 28: Economic Order and the Political System 1
• Chapter 29: Remarks Concerning the Ideological Roots of the Monetary Catastrophe of 1923 1
• Appendixes
• Appendix A: Maxims For the Discussion of Methodological Problems In the Social Sciences: Paper Delivered At the Private Seminar 1
• Appendix B: Short Curriculum Vitae of Mayer Rachmiel Mises of Lemberg 1

CHAPTER 6

Financial Reform in Austria1

After more than a century of chronic budget deficits, about twenty years ago Austria succeeded in reestablishing a balance in its public finances. From 1889 to 1909 the national accounts generally showed a surplus. The situation changed again in 1908, and the estimate for 1909 predicted a deficit, which could be converted into an apparent surplus of 60,000 crowns only by the introduction of a fictitious entry of 29 million crowns. The budget for 1910 already openly admits to a deficit.

It cannot be determined exactly how much the deficit amounts to in the ordinary budget, and which has to be covered by new increases in taxes. On this point differences of opinion will always exist, ideas being divided on the question of what should be understood by investment and what must be considered as current expenditures. One fact is certain: this deficit is very large. The minister of finance evaluates at about 17 million crowns the increase of revenue that the state will have to obtain annually from a tax increase or by the creation of new taxes. To this must be added a deficit of about 40 million crowns, which has come about in the budgets of the various Austrian provinces. Since the provinces are not able to cover it with their own resources, it too must be made up for by the state. Thus there is, at this moment, an assured budget deficit of 110 million crowns; and this figure will increase significantly in future years if new resources are not found in time.

In fact, enormous expenses will have to be met soon. The army and the fleet have been completely neglected for many years. Their allocation has not been raised for twenty years, while at the same time all the other European states have considerably increased their defense forces. Moreover, the weaponry of the army leaves much to be desired, and the reduction of service time from three years to two, which cannot be postponed much longer, will entail enormous costs. The navy, too, will be the object of more serious attention in the future. In the presence of the enormous naval armaments of Italy, aimed directly against Austria, our navy too will be forced to construct some “dreadnoughts.”

The obligations of social insurance will likewise impose heavy expenses on the state. According to the calculations in the government’s plan, the contribution of the state to social insurance will in the end amount to 100 million crowns per year. How are the needed resources to be obtained? Neither the government nor Parliament has so far said a word about it. One can already perceive here an essential difference between the causes for the financial embarrassment of Austria and those of the other states (Germany, France, and England) that are presently struggling with financial difficulties. In these latter countries, it is mainly military and social burdens that have swollen the budget; in Austria, on the other hand, the deficit already exists even though the state has up to now only insufficiently fulfilled its military and social obligations.

Nevertheless, for the last ten years governmental expenditures in Austria have gone from 1.5 billion to 2.3 billion crowns. If we investigate the causes of this huge increase, we shall immediately discover that during the same period interest and amortization payments on the national debt rose from 345 million to 411 million crowns (of which 356 million were for the payment of interest and only 55 million for amortization). Direct taxes and the excise on beer together produced just enough to provide this amount.

Excluding the increase of payments related to the national debt and national defense, the increase in expenditures comes mainly from the rise of those relating to domestic administration. These expenditures have increased considerably in the last few years: for the Finance Ministry they have gone from 61.2 million to 105.9 million crowns; for postal employees, from 48.9 million to 92.1 million; for the Ministry of Justice, from 58.4 million to 92.5 million; for pensions, from 48.6 million to 91.6 million crowns. Up to 1908 the state has paid out for the acquisition of the railway network about 4 billion crowns, which it obtained on the basis of credit. The interest on the capital invested in the railroads amounted to 173 million crowns.

By contrast, in 1908 the surplus from the operation of the state railroads was only 95 million crowns. Thus the state had to cope with an operating deficit of 78 million crowns. To remedy this state of affairs the fares of the state railroads were raised after January 1, 1910, by such a proportion that a profit of 47 million crowns can be counted on for annual receipts. In spite of this, the management of the railroads will always be in serious deficit and will constitute a burden for the budget. In Austria the administration of the state’s railroads is excessively expensive; moreover, in the unanimous opinion of all the interested parties it operates exceptionally badly. This deficit must be attributed only secondarily to the fact that the state also operates—for strategic and political-economy reasons in general—certain lines that scarcely yield anything; it is due just as little to the circumstance that the creation of the Austrian state’s railroads is very burdensome, given the difficulties of construction in a mountainous country; the principal cause is, instead, the incompetence of an administration that does not have a commercial and economic character, an administration in which everything depends upon political and personal points of view, while the economic point of view matters least. A reform of the administration of the railroads is desirable not only in the interest of shippers and travelers but also in the interest of the public treasury.

The organization of the Ministry of the Interior is just as irresponsible. If this fact generally attracts less attention, it is only because one cannot be given an account of the results of the Interior Ministry in the same way as the results of a state-run firm like the railroads. Some years ago Minister Koerber,2 who was then in power, had prepared and published a memorandum concerning the reform of the interior ministry, which constituted the most acerbic criticism of his own activity that was ever made by the government of a country; in it the Austrian government is the object of a merciless criticism.

One of the most important measures recommended by Minister Koerber was to intensify the productivity of state agencies. This idea sank along with Minister Koerber himself, as did other impressive plans of that statesman. One of the chief ills, which the Austrian government suffers from and which considerably increases its expenses, is the coexistence and cofunctioning of a dual administrative apparatus. Alongside the national administration and the national authorities there exist, absolutely independent of them, the autonomous authorities of the provinces and of the municipalities. The administrative organs of the state are appointed by the government and depend upon it. On the other hand, the autonomous administrative organs depend solely on the Diets (Landtag)3 and the municipal administrations, both of which are the result of elections. Far from trying to support each other mutually, these two organs often have a tendency to oppose their reciprocal endeavors. This is especially the case in those districts where a powerful and energetic party is in power in the Diet and in the municipalities. In these conditions, and aside from the fact that it entails excessive expenses, this administrative dualism does not in any way appear to be an advantage to the population. Nevertheless, a reform in this area is difficult to carry out since the Diets and the municipalities do not want to give up any of their prerogatives. And yet such a reform would be the first step toward a reduction of the bluntly excessive cost of the administration.

In Austria, the problem of reestablishing equilibrium in the management of public affairs is particularly complicated by the fact that it is a question of reforming not only the management of the state but also that of the provinces, and that in this activity one must take a whole series of difficulties into account. The constitution grants to the provinces the right to collect taxes, in addition to the direct taxes of the state to cover their expenses. If these supplementary taxes do not exceed 10 percent of the national taxes, they do not have to be authorized by the government or by the emperor; however, if they exceed 10 percent, a special approbation by the emperor is needed. Moreover, the provinces are free to introduce their own indirect taxes, with imperial authorization.

Twelve years ago, at the time of the creation of the new income tax, it was feared that the provinces and municipalities might use the right to collect supplements to the new income tax too liberally and might raise the level of taxation to such a point that the temptation to make false declarations would become very great. The Parliament of the empire did not have the right to forbid the municipalities and provinces to collect such supplements to the income tax; that is why it had to act in another way to keep the above-mentioned tax free of supplements. Until the end of 1909 the Reichsrat4 allotted a certain portion of the yield of the income tax to those provinces that committed themselves not to impose supplements to the income tax for purposes related to provincial and municipal administration. That is what happened in all the provinces. Meanwhile, different individual provinces began to create their own indirect taxes, which previously had not been done. Later, when in 1901 the excise tax on alcohol was raised, a part of the yield of the excise was again assigned by the state to the provinces on the condition that they, on their part, would renounce any provincial excise on alcohol. From then on the provinces and municipalities fell back upon the taxation of beers and imposed special taxes on them. Thus three independent excises on beer coexisted in Austria: that of the state, that of the provinces, and that of the municipalities.

In spring 1909 Finance Minister Bilinski5 presented a plan based on the following principles: The state would raise the excise tax on alcohol from 90 crowns or from 110 crowns, respectively, to 140 crowns or 164 crowns per hectoliter6 of pure alcohol and the tax on beer from 34 hellers7 per hectoliter to 70 hellers. The total yield from these two tariff increases was estimated by the government to be 95.5 million crowns. Of this total the government intended to assign 32.2 million crowns to the provinces on the condition that they would renounce their individual taxes on beer, and in addition it allocated to them 40 million crowns on the condition that they should give up the special tax on alcohol and continue to leave the income tax free of supplements. Thus there would have been left to the state a gain in revenue of only 22 million crowns.

Among the public this financial plan was first blamed for focusing on only indirect taxes and for putting the entire burden of expenses required by the new needs of the state on the least fortunate classes. In spite of the government’s promise to introduce a provision that would increase the yield of the inheritance tax by more than 10 million crowns, this fiscal reform could not be justified in the eyes of the parliamentary parties. The government was therefore obliged to have recourse to other means. It presented a plan that would also raise direct taxes.

Meanwhile Parliament was adjourned, and in the autumn the minister of finance presented a new fiscal proposal to Parliament. This time the minister had completely discarded increasing the excise tax on beer, leaving the provinces with the problem of obtaining (by raising of their own taxes on beer) the part that they would otherwise have received as an indemnity for giving up the right to levy an individual tax on beer.

Here are the tax proposals on which the new financial plan is based: increasing inheritance taxes and gift taxes. The present Austrian inheritance tax is graduated only according to the connection linking the successor to the decedent. It amounts to 1.25 percent in the case of the transmission of the estate or of various objects to spouses, ascendants, or descendents [i.e., parents/grandparents or children/grandchildren] and to 5 percent in the case of the transmission to other relatives, including nephews and nieces. In all other cases it is 10 percent; nevertheless, if the heir is employed or salaried by the decedent and if the inheritance or legacy does not exceed either 100 crowns of annual income—for the duration of his life or for a specific number of years—or 1,000 crowns in capital, the tax is only 1.25 percent. If the total assets without the deduction of debts do not exceed 100 crowns, the inheritance is tax-exempt provided that it passes to spouses, ascendants, and descendents.

Now, it is also desired to apply the principle of progressivity to the inheritance tax. In the future, it will be differentiated in two ways: first, according to the personal situation of the heir with regard to the decedent, then according to the amount of the inheritance. On the one hand, five groups of heirs have been distinguished. The first group includes, as before, spouses, ascendants, and descendents; the second group includes, unlike the provisions in force up till now, collateral relatives up to the third degree, except for nephews and nieces. All the other physical persons except those who were employed or salaried by the decedent are relegated to the third group.

In each one of these three groups the inheritances are treated according to their size. In the first group, inheritances that do not exceed 500 crowns are exempt; those above 500 crowns but not exceeding 10,000 crowns pay 1.25 percent, the rate rising then, little by little and by degrees, up to 4 percent, which is applied to inheritances of the seventh and last category, that is, those above 2 million crowns. Each of the second and third groups has nine steps. For inheritances up to 1,000 crowns the rate is 5 percent in the second group and 10 percent in the third, and it rises then little by little to 13 percent and 18 percent respectively for legacies above 2,000 crowns. The inheritances falling to persons who were employed or salaried by the testator are included in the fourth group. They pay no tax up to 500 crowns; from 500 to 1,000 crowns they pay 1.25 percent. Above that amount the inheritances going to such persons are taxed according to their personal situation with relation to the decedent. Those left to indigenous charitable teaching institutions or humanitarian work are included in the fifth group; they are taxed at the rate of 5 percent no matter what their value.

Besides the inheritance tax, the beneficiaries of the real estate inheritances are presently charged with additional estate taxes according to their gross value. This tax amounts to 1 percent in case of transmission to spouses, ascendants, and descendents if the value of the estate does not exceed 30,000 crowns, and goes up to 1.5 percent for a value above the latter. In case of transmission to other beneficiaries, the tax is 1.5 percent up to a value of 20,000 crowns, and 2 percent for a value above 20,000 crowns. The real estate taxes, which are imposed in virtue of the law of June 18, 1901, are continued for the future along with the inheritance tax.

The yield of the present inheritance and gift taxes annually amounts to an average of 19 million crowns without counting the income from real estate taxes. The government expects an annual gain of 10.3 million crowns from the increase of the inheritance tax. The gain from the increase of the gift tax cannot be estimated at present. In addition to the national inheritance tax, an equivalent tax exists in all provinces of the Crown and in many municipalities. In 1905 the yield of the national inheritance tax amounted to 19.2 million crowns and the provincial and municipal taxes to 8.7 million crowns, which added up to approximately 45 percent of the yield of the national inheritance tax.

Although the taxation on inheritances will therefore reach a very high level in Austria in the future, the proposals to increase inheritance taxes arouse almost no opposition. The attacks are generally directed only against such applications, the adoption of which would create an inequality in the fiscal taxation of different classes of the population.

In the matter of indirect taxes, the minister proposes a series of increases and the introduction of new taxes. The increase of taxes on alcohol should bring the state an increase in receipts of about 35 million crowns. This increase, likewise, has met only weak opposition.

In addition, the creation of a match monopoly has been proposed. The yield from this monopoly has been estimated at 15 million crowns. The idea of the match monopoly is generally supported for both social and financial reasons.

On the other hand, two additional taxes proposed by the minister are encountering a vigorous opposition, namely, the tax on natural mineral waters and the tax on soda. Soda will be subject to a tax of 6 hellers per liter. The profit from this tax is estimated at about 1.8 million crowns. The fierce opposition to the tax is based on the fact that the cost of collecting it will be very high since many small establishments produce soda.

Natural mineral waters will pay 10 hellers per liter. All mineral waters that are not suitable for use as refreshments and table drinks but only for medical use will be tax-exempt. However, it has been pointed out that many natural mineral waters are used both for medical use and as refreshments and table drinks. A peculiar fact is that the government also wants to tax mineral waters intended for export. The yield from the taxation of natural mineral water is evaluated at 2.25 million crowns.

An objection to the taxation of soda as well as of natural mineral water is that in many localities water supplies are of such bad quality that the residents are forced to buy soda or mineral water; it is not desirable to create a tax that would, to a certain extent, contribute to the spread of typhus. It is not very likely that the government will succeed in getting these two taxes passed by the Parliament.

It is also doubtful that another project of the finance minister will be accepted that would do away with the tax-exempt status for automobile gasoline. It is pointed out that automobiles are still not widely used in Austria, and it is more important to remove the obstacles that stand in the way of automobile utilization than to create new ones. Besides, the proposed gasoline tax would bring no more than a million crowns.

Finally, the minister has proposed to increase the tax on wine. The existing tax presently brings in 6 million crowns, but in the future it should yield 12 million crowns. Moreover, a special tax on sparkling wines is to be introduced, which should produce 1.5 million crowns, as well as a separate tax on bottled wines, which will yield another 1.5 million crowns. In this case the total yield from the tax on wines will amount to about 16 million crowns.

The government is also proposing to increase the income tax, which is provoking much greater attention and opposition. First, the plan projects an increase of the rate of income tax for those whose income is above 20,000 crowns. Today the highest income tax rate is just below 5 percent; in the future it will reach 6.5 percent. This increase will yield 6 million crowns annually. Second, the rate of income tax will be increased by 15 percent for the taxpayers who do not live together with at least one other member of the family (spouse or child) and by 10 percent for taxpayers who do not live with at least two other members of the family. The yield from this increase is estimated at 5.2 million crowns.

In Austria, the profits of stock corporations are taxed at the enormous base rate of 10 percent. To this tax the state adds supplements for the benefit of the provinces and municipalities, so that it often reaches the rate of 20 percent to 30 percent. It must be also mentioned that what the law views as the next taxable profit of the corporation by far exceeds the real net profit as the businessman normally determines it.

In addition to the general tax on corporations, companies that distribute dividends above 10 percent of the invested capital are subject to a special supplementary tax on the amount used to pay this excess of dividends. This supplementary tax is presently 2 percent of the amount necessary to distribute the 11th to the 15th percent of the dividend and increases to 4 percent for the amount distributed beyond that figure. According to the government’s proposal, the supplementary tax on dividends will not come into play when the dividends exceed 10 percent with regard to the capital stock invested, but only when they reach this level in proportion to the capital stock invested and the reserve. On the other hand, the rate of the supplementary tax will be considerably raised. The amount necessary to form the 11th and 12th percent will be taxed at the rate of 2 percent, the 13th and 14th percent at the rate of 4 percent, and the 16th percent at the rate of 6 percent. The yield from this tax increase would be about 700,000 to 800,000 crowns.

The tax on directors’ profit shares would constitute an innovation. The Austrian tax on dividends is obviously modeled on that of the German Empire, which was introduced in 1906. But while the German tax affected only the supervisory boards of stock corporations, the Austrian tax also applies to the director, board of directors, management, and members of the corporation. The rate of this tax is progressive and goes from 2 percent to 8 percent. Its yield is estimated at 1 million crowns.

Finally, one last provision of the new plan must be pointed out, which is stirring up vigorous opposition in commercial and industrial circles: in the future, according to the plan, fiscal authorities will have the right to inspect the books of businesses and industries. Austrian entrepreneurs rightly see in this arrangement an intensification of the harassment that the authorities display toward them.

In Austrian governmental circles, people like to compare the Austrian finance minister’s plan with that of Lloyd-George. Just like the English budget, they say, the Austrian plan focuses on the wealthy classes and tends to grant relief to the less well-to-do. The Austrian minister of finance, Mr. Bilinski, attempts to parry the attacks directed against his fiscal plans by businessmen and industrialists by making tirades against them; his assault on business considerably exceeds in harshness and hostility anything that has ever been said by the Austrian government against any other group whatsoever. One is reluctantly tempted to make a comparison between these almost-personal attacks of the Austrian ministers, and the oratorical procedures that English ministers use in the electoral battle against the peers.

In the end, all of that may cause public opinion to lose sight of the essential differences between the Austrian scheme and the British budget. The English fiscal reform as a whole constitutes a surtax on the real estate owner: it is directed above all against the land-owning lords, whether they own property in the city or in the country. The targeted social class is the conservative aristocracy and the circles immediately associated with it. The English project carries no trace of hostility toward big industry and commerce. It is precisely the opposite of what characterizes the Austrian project.

Austria today is a country which by necessity has become a large importer of cereal grains. It imports these grains partly from Hungary (which, though in a customs union with Austria, should be considered as a foreign territory in all respects) and partly from other foreign countries. Austria then must be regarded as an industrial country since its economy is based on industrial production. The political strength and importance of the urban industrial population, however, does not correspond to the existing state of affairs. In the Reichsrat the representatives of the agrarian interests have the majority. Large and small real property owners join together to fight the urban and industrial interests. Moreover, the representatives of the cities and the industrial localities are not in agreement. Only a rare few deputies who represent large industries and the socialist deputies are resolute partisans of modern economic evolution and modern industry. The other elected officials from urban electoral districts represent primarily the interests of the petite bourgeoisie and do not understand anything about the general interest in the development of industry. They are always ready to form alliances with the agrarians against industry. Even in questions of commercial policy they often march in step—though not overtly—with the agrarian deputies.

Thus the agrarian deputies have succeeded in gaining great advantages in the fiscal arena. It can be seen most clearly in the taxation of profits, the income tax, and among indirect taxes where the excise tax on alcohol is concerned.

While all other direct taxes continually increase, real estate tax is the only Austrian tax that has gone down during the last decade, and not only in relation to the other receipts of the state but also in absolute terms. The real estate tax is an assessment tax, and from 1881 to 1896 the yield of this tax for the whole empire was evaluated at 75 million crowns. Since then, it has fallen to 59.5 million crowns. The real yield of the property tax, however, remains well below that figure. Every year, large reductions are granted for damages caused by the weather. Thus, in 1907, the real estate tax actually brought in only 54.5 million crowns.

The privileges of rural real estate owners are no less in the area of income tax. Here, however, the farmers are favored not by the law but by certain provisions concerning the instructions for its execution, and especially by practices which are completely different in the country and in the cities. That is why the yield from the tax in the countryside is so small from the fiscal point of view. In 1908, on a total gross income of 4.268 billion crowns that were subject to tax, only 308 million or 7.2 percent was associated with income from rural property. It is a distressing result considering the importance of agricultural production in Austria.

The advantages that agriculturists draw from the legislation on alcohol excise are much greater. Just as in the German Empire, the excise tax on alcohol is presently set up on a dual basis: 1,017,000 hectoliters of alcohol are taxed at the lower rate of 90 crowns; the rest at the higher rate of 101 crowns. The distilleries among which these 1,017,000 hectoliters are distributed therefore enjoy an expense differential of 20 crowns per hectoliter sold. Thus the system of taxation on alcohol brings them an annual benefit of 20 million crowns.

Of the total of 1,017,000 hectoliters—called the “Alcohol contingent” [or quota]—only 155,000 hectoliters have to do with distilleries belonging to industrialists, all the rest being allotted to distilleries owned by rural proprietors. The new government plan lowers the contingent attributed to the professional distilleries by a further 40,000 hectoliters in order to raise the contingent of the agricultural distilleries. In addition, the difference between the higher rate and the lower rate has grown from 20 to 24 crowns, so that the value of the contingent tax will be even greater. For each hectoliter in the future, the distiller will gain not 20 but 24 crowns, and the profit that the distilleries will obtain at the expense of the community will rise from 20 million to 24 million crowns.

As if that is not enough, the agricultural distilleries will continue to enjoy a production subsidy, which in 1908 totaled 7,000,317 crowns. However, the new law is meant to slightly reduce this subsidy.

Since he is eager to increase the resources of the state, the finance minister should, without any doubt, start with removing the advantages granted to the land-owning distillers by fiscal legislation. A gradual diminution of the difference by raising the rate of tax for contingent alcohol would assure the state’s gain of about 20 million crowns without the slightest surcharge for the population.

This should be the direction of a financial policy that aims at an equable distribution of the tax and not at a differential increase of burdens on the urban population. Political conditions and the party division in the House of Representatives, however, are not favorable to such a policy. Far from following the path indicated above, the government constantly seeks to reduce the taxes of the agrarian population. For years the tax on urban buildings has been considered crushing. The government is moving toward reform very slowly and timidly, but at the same time it is lowering the tax on buildings in the countryside by 6.3 million crowns, where it is already not excessive.

While in full financial distress, the government has just voted in a law opening up an annual credit of 6 million crowns on the funds of the state in favor of Austrian agriculturists in hope of advancing certain particular branches of agricultural production. If we consider how reluctantly the government grants even the most insignificant credit for any other purposes of recognized necessity, we can understand the censure that this financial policy generates in urban areas.

None of the new taxes proposed by the finance minister move in the direction of leveling the fiscal inequalities that exist between the city and the country.

The increases in income tax affect the urban and industrial population most severely, for it is they who, in the main, pay the income tax. The rate of income tax in the country is unchanged; the increase proposed by the government targets exclusively commercial and industrial urban populations. Likewise, the introduction of the tax on mineral water and soda as well as the elimination of the tax exemption for automobile gasoline will affect the rural population only minimally. As far as the new proposal for an excise tax on wine is concerned, the wine consumed by wine producers, members of their families, and their employees will remain tax-exempt, as it is at present: the increase of the tax on wine will then affect only the wine consumers, who almost exclusively reside in the cities and industrial areas.

The essential feature of the current Austrian economic policy is the fight against the capitalist mode of production. In the matter of industrial policy there is an attempt to support the artisan class and to save it from its inevitable demise. In the matter of tariff policy, the raising of import taxes on grains and meat raises the cost of living for the working classes, thus diminishing their ability to consume industrial products, and thereby exerts an unfavorable influence on the development of large industry.

In Austria, public opinion is hostile to the capitalist system of production, in contrast to the dominant opinion of all the Western countries. This tendency in Austria should not be compared to what is called anticapitalism in England, the United States, and other Western countries. The large profits of capitalist enterprises are not, of course, looked upon favorably in Western Europe and America, but nobody there would like to bring about a reversal of industrial evolution. In Austria, the most influential political parties are firm adversaries of the entire modern economic system. The agrarian parties dislike industry because it raises wages. Big industry and big commerce irritate the petite-bourgeoisie parties (to which the small artisans and small businessmen belong) because they have the upper hand in commerce. But these two parties, the petite bourgeoisie and the agrarians, have a huge majority in the Austrian Parliament: on the one side, hundreds of representatives of agriculture and small business, and on the other side, some twenty representatives of big industry. This state of affairs is aggravated by the fact that the bureaucracy exercises an excessive influence in the administration, and that the free initiative of the individual is constantly frustrated. The same tendencies dominate financial policy. Large industry and big business, the prospering of which is hampered in all possible ways by legislation and by the administration, must bear the greater part of public expenses.

In the long run, such policy cannot be continued. Even in Austria we will have to resolve to remove the obstacles that stand in the way of industrial evolution and thus favor the flourishing of industry, for which all the required natural conditions exist. Fiscal policy, too, must be modified: the agricultural producers, who today are practically free of tax burdens, will have to be taxed more heavily, and the privileges of large property will have to disappear. A radical reform of the Ministry of the Interior is also absolutely necessary.

[1. ][This article originally appeared in French in the Revue Économique Internationale, vol. 7, no. 4 (October 1910).—Ed.]

[2. ][Ernest von Koerber (1850-1919), a liberal Austrian statesman and prime minister of Austria in 1900-1904. A popular figure, he engaged in an ambitious economic expansion program for the Habsburg Monarchy, encouraged industry and commerce, and introduced laws guaranteeing individual rights. Nationality crises in Bohemia and Hungary caused his fall in 1904. During World War I he served as the joint Austro-Hungarian minister of finance.—Ed.]

[3. ][A Landtag (Diet) is a representative assembly or parliament in German-speaking countries with some legislative authority.—Ed.]

[4. ][The Austrian Parliament.—Ed.]

[5. ][Leon Ritter von Bilinski (1846-1923), a conservative Polish-Austrian statesman, who was highly favored by Emperor Francis Joseph. In 1912-15, he occupied dual posts of imperial finance minister and Bosnian governor.—Ed.]

[6. ][1 hectoliter (hl) = 100 liters = 26.42 gallons.—Ed.]

[7. ][The Heller or Häller was a German coin valued at half a pfennig (a penny) named after the city of Hall (today Schwäbisch Hall). The coin was produced beginning in the 13th century as a silver pfennig (Häller pfennig). Heller was also the term used in the Austrian half of the empire for 1/100 of the Austro-Hungarian crown (the other being fillér in the Hungarian half), the currency of Austria-Hungary from 1892 until after the demise of the empire.—Ed.]