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 Commercial depression in Engiand.Some of 
 
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 COMMERCIAL DEPRESSION 
 IN ENGLAND, , 
 
 SOME OF ITS PROBABLE CAUSES, 
 
 New York I 
 
 Press of the American Bank Note Company. 
 1884. 
 
 -CS "g- 
 
 _ >('•: 
 
The original of tiiis book is in 
 tine Cornell University Library. 
 
 There are no known copyright restrictions in 
 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31924013911999 
 
COMMERCIAL DEPRESSION IN ENGLAND. 
 
 Some of its Peobable Causes. 
 
 Liverpool, October, 1884, 
 Much perplexity exists as to the cause of the depression pre- 
 Tailing in commercial circles at the present time, and also to the 
 absence of such elasticity as in former days would have served to 
 lift trade from the slough of despondency into which it has fallen. 
 The volume of business passing is great ; money is abundant and 
 cheap ; the consumption of every article needful for human exist- 
 ence and (with but a few exceptions) enjoyment increases with the 
 increase of population ; investments are being made with fair free- 
 •dom ; but yet, with all this, prices of nearly everything are un- 
 precedentedly low, and dullness and depression prevail unexampled 
 in character, inasmuch as they are universal, persistent, and not 
 confined to special objects. Any theory as to the cause of such a 
 •state of things may prove interesting, and may lead to the ex- 
 pounding of other theories and the enlightenment of the com- 
 munity on matters so greatly concerning it. 
 
 The opinion which I advance is purely personal. I am not 
 ■aware if it is held by others, or whether it may or may not now 
 find acceptance ; but, well nigh twenty years ago, I find {Bankers' 
 Magazine, 1865,) that an impression prevailed that panic might 
 be the result of "limited liability," and it is to the unrestricted 
 •development of "joint stock limited liability " institutions that I 
 believe the existing depression is due. It is that principle which 
 in the present day — as Shylock complained of Antonio — " lends 
 
out money gratis and brings down the rate of usance here with 
 us in Venice." The old commercial classes of this country may 
 fairly say that they are being ruined by the cheap credit estab- 
 lished by "joint stock limited liability," and with their ruin and 
 elimination from the circle goes that elastic buffer, which formerly 
 helped trade to rebound ; and yet, while holding this conviction, 
 and standing on the mount of old commercial recollections, with 
 its profits and commissions so easy of attainment as to make busi- 
 \ ness appear like a vested interest, I am constrained to bless the 
 
 -^ advent of this new principle, though, in heart, I am disposed to 
 ^y / 7 curse it ; and though, as I state at the outset, I believe it to be 
 y in its present development the cause of the existing depression and 
 ^5^ of much mischief generally. 
 ^ It is fair to allow that the benefits which, as a whole, "limited 
 
 /liability " has conferred on the country are simply jintold. Retro- 
 spect seems to bring to positive proof that by the dispensation of 
 Providence great inventions and the development of great princi- 
 ples of political economj' have been coincident with great national 
 needs, and "joint stock limited liability " institutions, by increas- 
 , / ^ ing the funds at the disposal of national enterprise, have fostered 
 and harried on those developments in rapid communications and 
 otherwise which have cheapened and increased the supply of the 
 necessaries of life concurrently with the enormous increase of the, 
 population of this country. There did not exist thirty years since 
 in the commercial circles of the United Kingdom that amount of 
 capital, and I venture to characterize it recklessness of enterprise, 
 which would have fostered the tremendous expansion of energy 
 that has been witnessed in that period of time. The risks 
 were too novel and too serious for private or unlimited joint stock 
 enterprise. But the " Limited Liability " Act of 1855, with its 
 subsequent alterations and improvements, " skinned the flint 
 of bsggarly hoards," and in a very brief period poured into 
 general use a fund which can be reckoned by thousands of millions. 
 Granted that failures, frauds more or less gross, and many disas- 
 ters have accompanied the development of the new principle ; yet, 
 relative losses have been well spread over the land, while 
 sound and honest enterprise has proceeded unchecked. 
 
 The bulk of the population has enormously benefited in 
 
3 
 
 cheapened food and clothing, better wages and more steady employ- 
 ment, owing to " limited liability," and the owners of " beggarly 
 hoards," the channel for whose investments had previously been 
 restricted, have, in a good many cases, been able to make profit- 
 able use of their " talents " without the perpetual dread of losing 
 all by one adventure. 
 
 But everything has its two sides, and, while giving fair 
 laudation to the principle of " limited liability," and the great 
 good it has done for the mass of our population, where properly and 
 carefully directed, it is proper to consider its capability of work- 
 ing harm ; and I take this side of the question in three aspects, 
 namely : its encouragement of unlimited confidence, of reckless 
 management, and of undue extension of credit. 
 
 In the four years succeeding the passing of the Act, the 
 public seemed possessed by mania, for in that period 876 schemes 
 of every conceivable nature, comprising a nominal capital of 
 373,000,000 sterling, were launched into existence ; and though 
 a wave of prudence, the offspring of disastrous losses, subsequently 
 checked this rate of progress, the confiding public seems still un- 
 weary of responding to the various allurements presented to it 
 by company mongers, and year by year they have continued to 
 subscribe to undertakings with enormous aggregate capital, sooner 
 or later to be called up. The registrations in twenty-one years 
 under the Companies Act of 1862 reach 19,833 companies, with 
 a nominal share capital of £2,404,000,000 ! (House of Commons 
 Eeturn of 1883.) Of these, upwards of 19,000 were registered 
 with "limited liability." Is it a marvel that, in too many cases, 
 the dispensers of these enormous resources — paid managers, and 
 too often purely perfunctory directors, reckless of consequences in 
 which their individual stake is but small — are led to exceed the 
 bounds of prudence in management, and to enter into engagements 
 that no sane or careful man of private business would consider for 
 a moment ? It is the continuous development of confidence on the 
 one hand, and of recklessness on the other, that has driven out the 
 old order of merchants, who have been unable to compete against 
 such a tide of means and extravagant enterprise — a tide which has 
 absorbed to itself the trade of the country, and, as I hold, has 
 placed that trade in its present state of depression. 
 
4 
 
 To abandon what some may call the region of surmise and' 
 assertion, I will make specific allusion to one phase of the ques- 
 tion. The undue extension of ship-building in the United King- 
 dom is, to my mind, the best available, for it is to that secondary 
 cause that much of the existing depression can be traced. For 
 the past three years the amount of tonnage built in this country 
 has exceeded all reasonable requirements or anticipated require- 
 ments, being something over three millions of tons for home and 
 foreign owners, mainly steam tonnage, which, it is scarcely neces- 
 sary to point out, does three to four times the work of sailing 
 ships within a given time. The bulk of this shipping has found 
 its origin in " limited liability " capital, of one character or an- 
 other. "What has been the result ? Every port in the world has 
 been supplied with tonnage in excess of requirements. Rates of 
 freight have fallen ; shipments of produce to Europe have been 
 unduly stimulated ; and though prices have been steadily declin- 
 ing, production abroad has been steadily increasing, because the- 
 decline in prices has been in part equalized to the producer by 
 the decline in the freight rates. Money has been cheap ; bank 
 deposits have been large, and increasingly large ; employment has 
 had to be found for it all. Credit has been prompt to follow the- 
 requirements of increased production, and the consequence is that 
 to-day there are larger stocks in the United Kingdom of every 
 known article almost than were ever recorded before. The sup- 
 pHes afloat are commensurate (stimulated by cheap freights), while 
 production, over-stimulated by unhealthy causes, has supplies yet 
 as large to send forward. The losses already are stupendous. 
 Trade stagnates with a cheap money market, and there seems no 
 light ahead. 
 
 To know and consider these things is healthful, and is a 
 prelude to the consideration of remedy in the future. 
 
 On this point ingenuity fails, as the Act stands at present,, 
 to provide a better suggestion than that the public should exer- 
 cise common sense in their investments; but experience tells us 
 that that faculty does not abound. Capital, it seems ordained,, 
 should never remain long in one hand— a melancholy reflection 
 which IS strikingly confirmed in the fact that of the 19 833 com- 
 panies registered in the past twenty-one years, only about 8 800. 
 
are now in operation ! As long as the world lasts, so long will 
 the unwary be deluded into false investments. While the Act of 
 " Limited Liability " exists in its present form, so long will com- 
 pany mongers flourish and credulous people suffer. It does seem, 
 however, worthy of consideration whether some modification 
 of the Act could not be introduced which would be a check 
 on the abuse of the facilities for starting "joint stock" enter- 
 prises-. 
 
 For example — on the lines of the " Commandite " system : 
 let it be ordained that no company shall be registered or subscrip- 
 tions be permitted which does not provide that the promoters and 
 directors (the Solidaires or Grerants) shall possess, and, as long as 
 they continue managers of such company shall possess, a certain 
 large qualification — bona fide subscribed — and that their liability 
 shall not be limited by the terms of the Act, but extend to a 
 certain fixed sum, whether twice or three times the amount of 
 the whole subscription. Further, it might be declared illegal for 
 promoters to receive a remuneration on gross or on net profits, 
 whether shareholders receive a dividend or not, and for banks or 
 other institutions to make advances on fixed investments beyond 
 a certain proportion of their capital without the Directors first 
 consulting the shareholders. The necessity for these last recom- 
 mendations will be well understood by those who have subscribed 
 to enterprises where the managers alone are now receiving any 
 benefit, or to those whose adventures have been subjected to 
 competition by the reckless use of deposited funds, contrary to 
 recognized banking principles. 
 
 To many minds these suggestions may appear chimerical, but 
 it must be remembered that " limited liability," as we have it, is 
 still a new principle and is capable of improvement. My argu- 
 ment is based on the conviction that it has brought trade within 
 measurable distance of dire disaster, and that the process must be 
 repeated again and again if some correction is not soon under- 
 taken. The weight of the present commercial depression has 
 passed the individual merchant, and now centres on limited lia- 
 bility institutions. Whether they have the strength to meet the 
 pressure of the next twelve months is beyond knowledge ; but 
 all that time of depression, more or less severe, seems before us, 
 
6 
 
 with superabundant stocks, superabundant production, superabun- 
 dant tonnage, and scarce a single industry or commercial enter- 
 prise showing a fair return. Money is cheap and superabundant 
 too, in some quarters as yet untrammelled, and the temptation to 
 force its employment does not appear likely to help that whole- 
 some restriction which alone can speedily relieve the depression. 
 Gleams of improvement there may be, but with superabundant 
 supply on hand and in prospect such rallies can only, be tran- 
 sient. 
 
 All enterprise is now mainly dependent on the support of 
 the " limited liability " principle, and the cheap credit every- 
 where at command. 
 
 There are few capitalist merchants left ; had there been more 
 of them and less " limited liability " money in reckless use, I 
 believe the present state of universal dullness, with its prolonged 
 outlook, would not exist. 
 
 The old trading customs of the country have almost com- 
 pletely changed during the last ten or fifteen years, owing to the 
 enormous increase of financial facilities, the development of rapid 
 communications and the extension of telegraphs. The old order 
 of " middlemen " has necessarily gone — many doubtless from sheer 
 mental inability. Private capital is no longer a necessity. The 
 man who prospers is the keen, active dealer who turns over large 
 transactions at bare remunerations, such as the old " middleman " 
 of the past could not live upon, and the operations are such as 
 neither he nor his bankers would have attempted. Personal 
 capital is not needed. Given fair character and a reasonable 
 programme, then all the credit required is at command. 
 
 By extending this somewhat lengthy illustration to every 
 other branch of trade during the past few years— of ship-build- 
 mg, of house-building, of manufacturing, of every enterprise under 
 the sun— and you have first activity, spurious prosperity, unwhole- 
 some expansion of trade, and finally the condition of things now 
 existent— a condition apparently hopeless at the moment, and 
 from which no relief can follow until the principle (joint stock 
 limited liability) which has encouraged it fails in its weakest 
 pomts, and remedy is applied to prevent the recurrence of reck- 
 lessness in management, and to give more caution to the general 
 
operations in trade, which not the "individual" as in former days, 
 but " joint stock " now controls. 
 
 When commercial and financial resources were private' and 
 comparatively restricted, the " decennial agues " were sharp and 
 quick in their action, for credit was limited, means were not 
 abundant, and the mischief was promptly choked. In due 
 course, more or less speedy, business revived ; but now the pros- 
 pect of reaction is remote, for, as I have said, " beggarly hoards 
 have been skinned," more capital exists than is needed, and is 
 continually seeking for employment. " Lueri bonus odor ex re 
 qualibet," and managers of a certain order will not think twice as 
 to credit given, when their existence depends on the amount of 
 use that can be shown of the talents confided to them. 
 
 In conclusion, I repeat that the benefits conferred upon the 
 masses of this country by joint stock institutions with limitation 
 of liability, by co-operation, and all efforts of a like character, 
 cannot be summed up, nor can too great praise be given to those 
 institutions whose prudent and successful management are matter 
 for commercial pride and general praise; but the insufiiciently 
 restricted character of the Limited Liability Act as it now stands 
 does, I believe, encourage great abuses, leads to violent transfer of 
 property, and, as I hold, is the cause of the present state of 
 depression. 
 
 Over- trading and excess of enterprise are surely exemplified 
 by the crowded state of warehouses ; by the hundreds of steamers 
 and sailing vessels laid up in all our ports, simply because to sail 
 them now would be to sail them to a loss, and by the gloom and 
 despondency pervading every channel of trade. With all this, the 
 Bank of England rate of discount is only 2 per cent ! 
 
 This over-trading, however much the " individual " has had 
 his part in it, has been carried on with "joint stock " moneys. 
 The private means to do it never existed. 
 
 W. B. HALHED. 
 
Pholomouni 
 
 Pamphlet 
 
 Binder 
 
 CJaylord Bros., Inc. 
 
 Makers 
 Syracuse, N. Y. 
 
 FAT, JAN 21, 190t 
 
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