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. Financial reform. Protection. 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 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.