CORNELL UNIVERSITY LIBRARY BOUGHT WITH THE INCOME OF THE SAGE ENDOWMENT FUND GIVEN IN 1891 BY HENRY WILLIAMS SAGE HB3731.C7"h99'""'"'"""-"'™'^ olin 3 1924 030 423 333 DAX&l3tjE ftPR 1 4 ieer^p «"t^€iki Liaas m ^^ — K, rrm~r 1 CAYLORD PRINTEDINU.S A. Cornell University Library The original of tiiis book is in tile Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924030423333 OPINIONS OP THE PRESS ON THE SOCIAL SCIENCE SERIES. ' ' ' The Principles of State Interference ' is another of the Series of Handbooks on Scientific Social Subjects. It would be fitting to close our remarks on this little work with a word of commendation of the publishers of so many useful volumes by eminent writers on questions of pressing interest to a large number of the community. We have now received and read a good number of the handbooks which have been published in this series, and can speak in the highest terms of them. They are written by men of con- siderable knowledge of the subjects they have undertaken to discuss ; they are concise; they give a fair estimate of the progress which recent dis- cussion has added towards the solution of the pressing social questions of to-day, are well up to date, and are published at a price within the resources of the public to which they are likely to be of the most use." — Westminster Review, July, 1891. " The excellent ' Social Science Series,' which is published at as low a price as to place it within everybody's reach." — Beview of Reviews. ' ' A most useful series. . . . This impartial series welcomes both just writers and unjust." — Manchester Guardian. ' ' ' The Social Science Series ' is doubtless doing useful service in calling atten- tion to certain special needs and defects of the body politic, and pointing out the way to improvement and reform." — Bookseller. " Convenient, well-printed, and moderately-priced volumes." — Reynold' s News- paper. ' ' The Social Science Series ' has gained distinction by the impartial welcome it gives to the expression of every shade of opinion." — Anti-.Jacohin. ' There is a certain impartiality about the attractive and well-printed volumes which form the series to which the works noticed in this article belong. There is no editor and no common design beyond a desire to redress those errors and irregularities of society which all the writers, though they may agree in little else, concur in acknowledging and deploring. The system adopted appears to be to select men known to have a claim to speak with more or less authority upon the shortcomings of civilisation, and to allow each to propound the views which commend themselves most strongly to his mind, without reference to tlie possible flat contradiction which may be forthcoming at the hands of the next contributor." — Literary World. ' ' The Social Science Series ' aims at the illustration of aU sides of social and economic truth and error. An example of the spirit of candour and inquiry pervading the collection may be found in Mr. Heaford's translation of M. Nicquet's Collectivism. " — Scotsman. '.This useful series." — Speaker. SWAN SONNENSCHBIN & CO. : LONDON. CHARLES SCEIBNEE'S SONS: NEW YOEK. SOCIAL SCIENCE SERIES. SCARLET CLOTH, EACH $1.00. 1. Work and Wages. Prof. J. B. Thoeold Rogers. " Nothing that Professor Rogers writes can fail to be of interest to thoughtful people." — Atkuna'um. •2. CiYilisation : its Cause and Cure. Bdwaed Cakpenteb. " No passing piece of polemics, but a permanent possession." — Scottish Ii£mew. 3. Quintessence of Socialism. Dr. Sghaeple. " Precisely the manual needed. Brief, lucid, fair and viis&."—Biitish WeeUy. i. Darwinism and Politics. D. G. Ritchie, M.A. (Oxon.). New Edition, with two additional Essays on Human Evolution. " One of the most suggestive boolts we have met -with." — Literary World. 5. Religion of Socialism. E. Belfoet Bax. 6. Ethics of Socialism. E. Belfoet Bax. " Mr. Bax is by far the ablest of the English exponents of Socialism."— JTcs^iiuiisJcr Reviem. 7. The Drink Question. Dr. Kate Mitchell. " Plenty of interesting matter for refiection." — Ch^aphic. 8. Promotion of General Happiness. Prof. M. Machillan. " A reasoned account of the most advanced and most enlightened utilitarian doc- trine in a clear and readable form." — Scotsmo.n. 9. England's Ideal, &o. Bdwaed Cabpentek. " The literary power is unmistakable, their freshness of style, their humour, and their enthusiasm." — PaU Malt Gazette. 10. Socialism in England. Sidney Webb, LL.B. "The best general view of the subject from the modern Socialist side." — Athenceum. 11. Prince Bismarck and State Socialism. W. H. Dawson. " A succinct, well-digested review of German social and economic legislation since 1870. "—Satv.nlay Resit w. 12. Godwin's Political Justice (On Property). Edited by H. S. Salt. " Shows Godwin at liis best ; with an interesting and informing introduction." — Glasgow Herald. 13. The Story of the French Revolution. E. Belfoet Bax. " A trustwortliy outline." — Scots^tian. 14. Essays and Addresses. Beenaed Bos.anquet, M.A. (Oxon.). " Ought to be in the hands of every student of the Nineteenth Century spirit."— Scko. " No one can complain of not being able to understand what Mr. Bosanquet means."— Pa/i Mall Gazette. 15. Charity Organisation. C. S. Loch, Secretary to Charity Organisation Society. " A perfect little manual." — Atkemeuin. " Deserves a wide circulation."— .Sco(s/»ft?i. 16. Self-Help a Hundred Years Ago. G. J. Holyoakb. " Will be studied with much benefit by all who are interested in the amelioration of the condition of the poor."— Jforrttng' Post. 17. The Hew York State Reformatory at Elmlra. Alexanhee Winter. With Preface by Havelock Ellis. " A. valuable contribution to the literature of penology."— .Bioci and White. {Continued). . The Unearned Increment. W. H. Dawson. "A concise but comprehensive volume." — Echo. . The Working-Class Movement in America. Ei>w. AvELiNG, D.Sc, andE. Mabx Ateling. " Will give a good idea of the condition of the working classes in America, and of the various organisations which they have formed." — Scots Zeadei . . Luxury. Prof. EsnLE de Laveleye. " An eloquent plea on moral and economical grounds for simplicity of life." — AccuUmy. . The Land and the Labourers. Eev. C. "W. Stuebs, M.A. (Cantab.). "This admirable book should be circulated in every village in the country." — Manchester Guardian. . The Evolution of Property. Paul Lafabgue. "Will prove interesting and profitable to all students of economic history." — Scotsman. . Crime and its Causes. W. Douglas Mokrison, ofH.M. Gaol, Wandsworth. " Can hardly fail to suggest to all readers several new and pregnant reflections on the s\ibject."^Anti- Jacobin. . Principles of State Interference. D. G. Ritchie, M.A. *' An interesting contribution to the controversy on the functions of the State."— Glasgow Herald, . German Socialism and F. Lassalle. W. H. Dawson. " As a biographical history of German Socialistic movements during this century it may be accepted as complete."— SniisA WeeHy. . The Purse and the Conscience. H. M. Thompson, B. A. (Cantab.). " Shows common sense and fairness in his arguments." — Scotsman. . Origin of Property in Land. Fustel de Coulanges. Edited, with an Introductory Chapter on the English Manor, by Prof. "W. J. Ashley, M.A. " His views are clearly stated, and are worth reading." — Saturday Review. . The English Bepublic. W. J. Linton. Edited by Kineton Pabkes. " Characterised by that vigorous intellectuality which has marked his long life of literary and artistic activity." — Glasgow Herald. . The Co-OperatiYe Movement. Beatrice Pottek. " AVithout doubt the ablest and most philosophical analysis of the Co-Operative Movement which has yet been produced."— Speaker. . Neighbourhood Guilds. Dr. Stanton Coit, "A most suggestive little book to anyone interested in the social question."— Pall Mall Gazette, . Modern Humanists. John M. Robertson. "Mr. Robertson's style is excellent — nay, even brilliant— and his purely literary criticisms bear the mark of much acumen." — Times. . Outlooks ^om the New Standpoint. E. Belfoet Bax, "Mr, Bax is a very accomplished and very acute student of history and econo- mics." — Daily Chronicle. . Distributing Co-Operative Societies. Dr. Luigi Pizzamiglio, Edited by F. J. Snell. "Dr. Pizzamiglio has gathered together and grouped a ^vide array of facts and statistics, and they speak for themselves."— Speaker. . Collectivism and Socialism. By A. Nacquet. Edited by W. Heaford. "An admirable criticism. Nothing could be more lucid and intelligible." — Daily ronicle. , The London Programme. Sidney Webb, LL.B. " Brimful of excellent ideas." — Anti-Jacobin. . The Modern State. Paul Leroy Beaulieu. " Undoubtedly one of the best of the ' Social Science ^qxi&s'. "-Anti- Jacobin SOCIAL SCIENCE SlE^THES—iOontimieff). 37. " General" Booth's Social Scheme. C. S.Loch, B. Bosanquet, Canon Dwyeb 88. The Kevolutionary Spirit. Felix Eocquain. With a Preface bj Professor Huxley. " The student of the French Revolution will find in it an exceUent introduction tc the study of that catastrophe."— Scotsman. 39. The Student's Marx. Edward Avbling, D.Sc. 40. A Short History of Parliament. B. C. Skottowe, " Deals very carefully and completely with this side of constitutional history."— S^Ketator. 41. Poverty : Its Genesis and Exodus. J. G- Godaed. 42. The Trade Policy of Imperial Federation. Maurice H. Hebvev. 43. The Dawn of Radicalism. J. Bowles Daly, LL.D. 44. The Destitute Allen in Great Britain. Abnold White, ; M. Ckackanthoepe, Q.C. ; W. A. M'Aethub, M.P., and others. DOUBLE VOLUMES, 3s. 6d. 1. Life of Robert Owen. Lloyd Jones, " A worthy record of a life of noble activities." — Manchester Exo.iniiui-. 2. The Impossibility of Social Democracy. Dr. Schaffle. Edited by Bebnabd Bosanquet, M. A. VOLUMES IN PREPARATION— Essay on Population. Malthus. Edited by A. K. Donald. Popular Government. Prof. Emile De Laveleye, Progress and Prospects of Political Economy. Prof. J. K. Ingram. UniYersity Extension. Dr. M. E. Sadlee. Communism and Anarchism. R. W. Burxib. Industrial Crises in the 19th Century. H. M. Hyndmax. The Condition of the Working Class in England. F. Ex(;els. SWAN SONNENSCHEIN & CO. : LONDON. CHAELBS SCEIBNBE'S SONS: NEW YOEK. COMMERCIAL CRISES OF THE NINETEENTH CENTURY BY ,A H: MfHYNDM an AUTHOR OF 'the bankruptcy of INDIA," " THE HISTORICAL BASIS OF SOCIALISM IN ENGLAND," "ENGLAND FOR ALL," ETC., ETC. w LONDON : SWAN SONNENSCHEIN & CO. ^EW YORK: CHARLES SCRIBNER'S SONS 1892 P B A . 2J2JL^ UNIVERSIIY'l LI BRA R \/ PREFACE. It suggested itself to me to write this little booi when I read certain letters whioh appeared in tht Times last year in answer to some letters of my owr in that journal on " The Coming Crisis in Trade." Mj opponents, it was manifest, had never carefully con- sidered how it came about that these crises shoulc continually recur during a period when the power oi mankind to produce wealth was increasing witl greater rapidity than ever before in the history ol the world. I have endeavoured in the following pages to give a brief but, I hope, clear sketch of sue! crises during the present century. My indebtedness to Herr Max Wirth's elaborate work, " Geschichte der Handels Krisen," in regard tc the details of the earlier crises, I hereby cordiallj acknowledge. H. M. H. London, February, 1892. CONTENTS. CHAP. PAGE PREFACE iii INTRODUCTION I I. THE CRISIS OF 1815 \^ II. THE CRISIS OF 1825 24 III. THE CRISIS OF 1836-1839 39 IV. THE CRISIS OF 1 847 54. V. THE CRISIS OF 1857 63 VI. THE CRISIS OF 1866 89 VII. THE CRISIS OF 1873 99 VIII. THE CRISIS OF '1882 128 IX. THE CRISIS OF 1890 I42 X. REMEDIES 163 INTRODUCTION. The causes and effects of industrial crises must be reckoned among the most important subjects for consideration in tlie concluding years of the nine- "teenth century. From time to time all civilised t countries are now exposed to a complete upset I of their industrial, commercial, and financial i, machinery, at the very moment when the great 'majority even of those who are directly engaged "iti business imagine that trade is at its best and j'that no danger threatens them. Suddenly, in jtlie midst of the greatest apparent prosperity, when the promoters and contractors have their hands full of work ; when merchants and traders are congratulating themselves on the extent of * their turnover; when manufacturers, mine-owners -'and shipping companies are dividing most satis- ijfactory profits ; and when the workers are being j,paid a somewhat better rate of wages — at that juncture a change for the worse begins. Prices, which have risen all along the line of commodities ";hat enter into our social life, fall with great rapidity, uneasiness and distrust spread through- mt the business community, there is a rush to obtain money either ^by sales of securities and Toods, or by obtaining advances from the banks ; md a nation, or as ^is now commonly the case, a !)■ introduction: whole group of nations, finds itself in the midst of a dangerous crisis, without knowing the whj or the wherefore of the crash. Now if this recurrence of financial and iri' dustrial disasters could be traced to well-define( natural causes, mankind would, in this as in othe cases, be compelled to accept the inevitable, anc make preparations to lessen the mischief whicl may be done. Earthquakes, droughts, tida waves, hurricanes, swarms of locusts, epidemics have all brought about serious disturbances trade at different times ; and some of the dis turbances thus occasioned have had more thai local or temporary effects. As science advance and knowledge spreads, we may succeed ii counteracting some of the injury done to societ; by these convulsions of nature, and in limiting th' ravages due to others which are in a certaii degree open to human control. But nobod; imagines that they Avill ever be finally stoppei or that within a conceivable period our descen dants will have the power to order the wind and waves to be still, even if drought proves t be, like monarchs, amenable to skilfully-used es plosives in the higher air. Many of the trade difficulties of ancient timf and of the middle ages can be directly traced t drought, or to flood, in the same way tb famine due to similar causes has a prejudicii effect upon commerce in China, in India, i Russia, and even to a certain extent in Euroj and America to-day. Such troubles, it is un versally recognised now-a-days, should be m< ,ii c| INTRODUCTION. by freely using the surplus of one country, or one district, to make up the deficiency in another. Formerly, periods of scarcity were prepared for by the establishment of granaries and grain pits, which were not opened until such time as the failure of the crops in the particular region affected had deprived the people of their annual food supply ; and it is more than probable that, in our modern zeal for applying the latest methods of western civilisation to communities in quite a different stage of social and economical development, this method for providing against a rainless day has been foolishly abandoned. It is certain, at any rate, that at no period prior to the growth of what is now known as the capitalist system of production — the system of production, that is to say, of articles of social use for profit, by free labourers who are paid wages — did difficulties arise in the trade or finance of any community from an actual super- fluity of the wealth which the members of that community needed in their daily life. Famine, in former generations, of course attacked the poorer members of society first, and in the ancient slave-supported civilisations, as well as uader the feudal regime, the contrast between the well-being of the few in " hard times," as compared with the want and misery of the many, was in some respects as striking as it is to-day. But still the crucial distinction between our own and any former period in the world's history remains — that the times of greatest distress for the mass of the people now are the INTRODUCTION. times when there is a complete glut of the com- modities which they need and which they make. Local gluts and national crises due to the same cause, which now take so wide a range, have been recorded before the present century. Economists were anxious to account for them, and philanthropists were eager to remedy them, in the seventeenth and eighteenth centuries. As the growing influence of the middle-classes due to the extension of their political power was felt, and as the restrictions imposed by the elaborate balancing of interests in the feudal system slowly gave way before the spread of commerce and the widening of the local into a national market, the tendency to inflation followed by corresponding depression made it- self manifest more clearly. The local difficulty of transmitting goods pro- duced for profit into money appeared then as a national difficulty. At the end of the seven- teenth century such crises were recognised and partially analysed by John Bellers, who, in a passage quoted by me some years ago from his " College of Industr}^," puts the matter thus: — " In the common way of living on trade, men, their wives or children, often lose half what they get either by dear bargains, bad debts or law suits of which there will be neither in the college ; and if the earth gives but forth its fruit, and workmen do but their parts, they will have plenty; whereas now, the husbandmen and mechanics both are ruined, though the first have INTRODUCTION. a great crop and the second industriously maketli much manufacture. Money and not labour being made the standard, the husbandman pay- ing the same rent and wages as when the crop yielded double the price ; it being no better with the mechanics, where it's not who wants his commodity, but who can give hiin money for it (will keep him) , and so often he must take half the value in money another would give him in labour that hath no money." Here the difficulty is to bring the two pro- ducers of wealth together by reason of the necessity for converting commodities into money. Though also in this case a particular set of workers are spoken of as if they were produc- ing for their own profit, the fact, of course, is that, under the system of production in which the capitalist class employs the wage-earners to produce, the profit is realised by the employers and not by the actual producers. Now, so long as the labourer, be he husband- man or mechanic, makes goods for his own use, or to the direct order of his customers, or for the supply of a local and limited market, he is in control of his tools, of his farm or workshop, of his raw material, and owns his product. Thus, though he does produce primarily for his own individual advantage, and not, as was the case under the old communal and gentile 'arrangements, for the advantage of the whole J society in which he himself was included as a u.nit, yet he is not producing wholly and solely with a view to exchange on a great general INTRODUCTION. market ; and, above all, his products are owned by liim, and are dealt with under his own con- trol. So soon, however, as in the course of economical development, the workers began to produce no longer as individuals for their own use, or for the direct use of others in their locality, but as wage-earners, . bound together by no tie other than that of turning out commodities or articles of use in the social conditions of the time to the order of an employer who threw the goods on the market ; so soon as they did this a direct antagonism was established between the two parts of the wealth-creating machine. The workers were then working no longer as individuals ; they were working together in social union, and, as division of labour came in, were working together in co-operative union for a social purpose — namely, to produce goods which were articles of no use to them for the use of others at a distance, the limits of whose wants they could not gauge, although these were supplied by the exercise of a social function, to wit, exchange. In these circumstances the actual producers of the goods have no control over the raw material, no ownership of the finished article, no say in the matter of exchange, and, in the complete form of the process as we see it to-day, no proprietorship in the tools oi machinery. They are simply wage-earners, work- ing at wages regulated by the average standard of life or subsistence in their trade; which wages] represent onl}^ a fraction of the value of the commodities produced by their labour. But the INTRODUCTION. icapitalist or employer, he Has still retained the : right of individual appropriation or ownership, and with it the power to exchange, which form- erly belonged to the individual workers. The workers are working socially for social objects : the employer appropriates individually, and exchanges for individual objects — the realisation of his profits namely. Thus we have here a dis- tinct and definite antagonism lying at the very basis of our modern system of wealth-creation, an antagonism between the social form of the actual production and the individual form of the appropriation and exchange. Now, the remarkable point about the position of thought in regard to political economy to-day is that the orthodox political economists, and even some who call themselves socialists, fail to discern this antagonism even when it is pointed out to them. Not a few still maintain, also, that there is no antagonism between the labourers and the capitalists; in this respect proving them- selves less clear-sighted than their master, Adam Smith, who, at least, detected that employers were in a permanent conspiracy to keep down the rate of wages. But it is precisely this original antagonism between social production for social purposes and individual appropriation and exchange for individual profit that gives the key to all the industrial, commercial, and financial difiiculties which arise in our society at the present time. Failing this key, the most absurd explanations are given of those modern crises arising from INTRODUCTION. superfluity and glut, followed by the discharge of work-people and the general distress, which occasion such grave anxiety to every thinking man. Thus the problem of crises has been confi- dently solved by a reference to over-population, and there are still not a few wiseacres left who persist in this explanation ; though it has been conclusively proved time after time that the power of man to produce wealth is increasing in every civilised country in a far more rapid ratio than any increase of population ever recorded among the poorest nations in the world. Though, moreover, it is seen at each successive crisis that a country which, like the United States in 1856 and 1872, had no over-population, and could have no over-population, before the crisis, had hundreds of thousands, not to say millions of people, out of work or employed at half-time when the crisis came. Manifestly, therefore, the over-population theory in nowise touches even the fringe of the problem. Then there are those Avho enlarge upon the dangers of over-production, and consider that here we have the undoubted cause of crises. But this is to restate the problem, not to solve it, seeing that at the time when this '' over- production," thanks to the enormous power of modern machinery, has been pushed to its last point, there are thousands of people who stand in need of the results of the over-production, and would gladly give their labour and its pro- duct in return for some of these very articles INTRODUCTION. including not unfrequently food itself, wMch have been so overproduced. There are, again, the currency quacks who attribute everything to the lack of sufRcient means of circulating commodities; though the same phenomena precisely have been recorded when currency was somewhat restricted, as, prior to the gold-discoveries in America and Aus- tralia, gold coin certainly was ; and when it is if anything too plentiful, as during the crisis of 1857 it may be taken to have been. Similarly, it has been suggested that the system of banking is to blame, though here again it is impossible to show how tinkering with credit based upon pro- duction can remedy the defects of the faulty system of production itself. To such a pitch of despair have economists been driven in their anxiety to avoid the true solution propounded for them already by a greater thinker than themselves, that Mr. Stanley Jevons traced crises to periods of bad harvests, and then, triumphantly connecting bad harvests with spots on the sun, referred the whole of our social troubles in this particular to these strange changes in that great body. This theory was actually accepted for a time, until what was perhaps the worst crisis of the century came in the same year with one of the finest harvests ever known on the planet, and when also the sun's disc was exceptionally afflicted with spots. Then it became apparent to the most credulous that the spots on the sun had as much influence on industrial crises as the spots on the leopard lo INTRODUCTION. in the Zoological Gardens ; and that the genius before whose shrine our Professors of Politi- cal Economy at Oxford and Cambridge still prostrate themselves had only added another to his long list of blunders. The ablest summary of the causes of crises yet formulated outside of the school of Marx is really but a recapitulation of the symptoms which pre- cede a crisis, not in any sense an analysis of the causes which bring it about. A rush into new enterprises and a mania for speculation ; an eager anxiety to get rich without toil ; the credulity of the public in accepting unsound enterprises ; the increase of luxury ; the rise of prices ; the exceptional demand for labour and increase of wages, etc., etc. — all these are pre- cursors of an industrial crisis, but they cannot be considered as more than effects of what is going on below all the time. To return, therefore, to the view already set forth. We have historically on record the origin of the antagonism between that social form of production and individual form of ap- propriation of commodities which replaced the limited individual production of the middle ages, Thus, the workers, though nominally free, lost all control over the products of their labour, and could in no wise direct or influence either the nature or the disposal of the commodities. From this time forward all improvements in machinery, and all the conquests of science as applied to the increase of wealth, have come into the hands of the employing class, who, by decrees, INTRODUCTION. relieved themselves of all trade regulations and State or mianicipal restrictions, and went forward to capture and control new markets for their goods. With the industrial revolution at the end of the eighteenth century and the establishment of the factory system, this monopoly of improve- ments in the hands of the employing class be- came more and more dangerous to the welfare of the community. For now the antagonism to which reference has been made began to show itself on a wider scale than was possible before. Each manu- facturer is, of course, solely anxious to make hay Avhile the sun shines. When, therefore, markets are good, he produces as much of the special commodities he manufactures as he possibly can, he employs more " hands," or works those he has overtime in order to gain greater and greater profits while prices are high. All do the same thing at the same time, no one having the slightest regard in the heat of com- petition for the interests of his neighbour manu- facturer or for the glut of the market which may ensue. This arises from the inherent nature of the competitive system in its first hey-day of youth and prosperity. Every employer and capitalist, in order to live himself, must try his hardest to extend and not merely to maintain his trade. Good employers and bad employers there may be, but no capitalist, so long as com- petition is the rule in his trade, can help proceed- ing in this way. The moment he relaxes his efforts, down he goes in the struggle, his firm INTRODUCTION. appears in the bankruptcy court, and the fury o: competition rages on as before over his business remains. But this cannot go on permanently. Thougl the marlcets are larger than ever they were and the cheapening of goods perpetually goin^ on enables the machine industry to conquer the old forms of production in other countries nevertheless, the crisis is approaching. There is no social control whatever exercised over tlif individual rush for profit. As the labour in the factory, in the works, in the mine, on the farn is more and more completely organised and ordered, so do the anarchy and disorder more and more completely dominate in the exchange, While inside all is conducted with the mosi careful regard to the profit-making efficiency ot ] all the parts, outside eacli contends against his fellow to sell his goods most rapidly and in the greatest quantity. Moreover, the necessities of the capitalist system force the manufacturer, or contractor, or mine-owner, or shipbuilder, contmuously to realise his value embodied in goods, or railways, or coal, or iron, or vessels, in the shape of cash. With- out doing this he cannot recommence his opera- tions by buying raw material, fuel, oil, labour- force and the like. The commodities produced by other manufactures are of no use to him, any more than his commodities are of use to them. Each and all must realise their products in coin or its equivalent. However good a firm's credit may be, to this complexion must they all come INTRODUCTION. 13 a,t last. Consequently, the capitalist system of production involves an antagonism between money and commodities. If the circulation of the capitalist's commodities is checked, or the realisation of his paper repre- senting vfork done is impeded, then the work sannot be carried on at all, but must be stopped altogether. But before this point is reached, doubts arise as to whether matters have not been pushed too far. 'Ihere is a rush to dis- count bills and to obtain advances on securities, 3r to sell out and out for cash at reduced prices. But just as everybody before was anxious to produce more on the rising prices, and buyers were eager to buy — not for use but for profit — 30 all now are looking about to see how they :.an contrive to produce less, and those who were buyers are eager to sell, no longer to obtain enhanced profits, but to avoid actual loss. A crisis has, in fact, set in, and what should be the gain of society becomes its direct injury. That increased power to create wealth on which men are in the habit of congratulating themselves, becomes an actual hindrance to the creation of more wealth. That is to say, the sole object of capitalists in producing commodities is to obtain profits for themselves. Their individual control and anarchical method has resulted in a glut. That glut renders it impossible for them to con- tinue to produce on the same scale. Therefore, many of them go into bankruptcy, and many more close their factories and works, or run them on short time. Hence labourers thrown 14 introduction: out of work, goods unsaleable, and at intervals a commercial and financial crash. What has happened ? The capitalist class has virtually declared its own inability to conduct the business of the community. The form of the production has revolted against the form of the exchange. As a result, prices fall all along the line, economies are resorted to, mostly at the expense of the workers : and in due course, after a period more or less prolonged of stagnation and depression, the heavy accumulations of st(^ks are disposed of, confidence is gradually restored, orders begin to come in afresh, and the whole cycle is repeated, ending in a similar crisis on probably a larger scale than before. Such crises with the liquidations that follow upon them now frequently extend over many years. The power of production hampers its continuous employment So far as the actual producers are concerned, the, destruction of the goods manufactured would be| a direct benefit. They have been employed in producing their worst enemy and bringing about their own discharge. Men, that is, in civihsed communities, are now controlled and overmastered by their own machinery of production, instead of controlling and mastering it themselves for the general advantage. To formulate the diagnosis of the evil is, in fact, to point out the only possible remedy. This remedy society itself is unconsciously be- ginning to supply. In every direction the un- regulated capitalist competitive system is being INTRODUCTION. 15 modified and partially transformed. How the changes which are now being brought about, un- consciously and anarchically, may in the near future be carried on consciously and in an orderly fashion by an educated and organised democracy, will be partially suggested in the concluding chapter of this work. Meanwhile the recognition of the economic and class anta- gonisms in which our civilised society nioves and has its being is slowly making way even among those whose position is threatened by the coming change. COMMERCIAL CRISES OF THE NINETEENTH CENTURY. CHAPTER I. THE CRISIS OF 1815. The first important crisis of the nineteenth century occurred under quite exceptional circumstances, and although not entirely confined to Great Britain, this country was chiefly affected by it. This crisis of 181-5 came immediately upon the conclusion of the peace on the downfall of Napoleon. It was generally believed that immediately after the signature of the treaty of peace at Paris a period of great commercial prosperity would begin, and that England in particu- lar would reap the fruits of her supremacy at sea and of the great development of her internal resources which had taken place during the war. Such exer- tions had never before been made, nor such expendi- ture incurred, by any nation. The weight of taxation was crushing during the war, the drain for men and material was unprece- dented on so small a population, and so great was the i8 COMMERCIAL CRISES OF stringency in the precious metals that the Bank oi England had suspended specie payments since 1797 In ]766 the funded debt of the United Kingdom was little more than £72,000,000, in 1815 it wai £800,000,000. The public expenditure in 1814 waj no less than £100,832,260, in 1816 it was £92,000,000, and two years later only £55,000,000. Tens of thou- sands of men were then set free from the uselesi services of Avar to devote themselves to increasing the wealth of the country ; the markets of the Con- tinent, long nominally, at least, closed to Englisli goods, were thrown open ; and a fine harvest at home helped on, as it was thought, the general im- provement due to the beneficial change in foreign affairs. Precisely the contrary, however, of that which was expected took place. Great Britain had been enabled to hold her own during the long war of twenty-two years, had subsidised half Europe against the Frencli, and had supported a weight of taxation previously unknown, because during these twenty-two years the great machine industry and the extension of com- merce poured into the pockets of her trading and land-owning classes untold wealth. Napoleon's policy of excluding English goods from Europe had forced our manufacturers and merchants to seek outlets for their cotton, iron, wool, and other manufactures far- ther afield. They found their new markets, thanks to the complete supremacy of England at sea, in India, North and South America, the West India Islands, and Asia Minor, pushing their trade over tiie whole known world with the greatest vigour. The THE NINETEENTH CENTURY. 19 cheapness of English goods became the marvel of the universe, and the machine-made stuffs of Lancashire and Yorkshire gave an impulse to English commerce scarcely equalled even during the period of railway construction and the gold discoveries. Hargreaves and Jennings, and Arkwright and Watt, the first fruits of machinery, and the early application of steam, piled up riches for England ; and military and naval victories were made possible by extraordinary commercial success. But now there was peace. The great European markets close at hand were again open to our trade, and every preparation was made to take full ad- vantage of this great opportunity. Scarcely a manu- facturer in business had failed to take time by the forelock and produce more than his usual quantity of goods, with a view to disposing of them on the Con- tinent. The truth was, however, that English com- modities liad never been so completely shut out as was supposed. Cheapness had broken down the Custom-House barriers, and smuggling, winked at by the officials, had developed the proportions of a regular trade. In addition. Continental manufac- turers, though lagging behind their English com- petitors in some branches of business, had not been wholly neglectful of the changes in the form of pro- duction. They, too, were beginning to produce with the new machinery, and with the aid of steam. Thus, in all districts which English goods were obliged to reach by long land transport, the native manufacturers had the advantage. No account of COMMERCIAL CRISES OF these facts was taken at the time, and it was hastily assumed that if, under all the drawbacks of smug- gling and possible confiscation, twelve millions ster- ling worth of English goods could be profitably delivered at foreign ports, certainly not less than double that quantity might safely be disposed of now that peace had been firmly established. All rushed in at once to benefit by this exceptional opportunity, The result was that the foreign markets were speedily glutted. English goods were to be had cheaper at foreign ports than they could be bought for at their place of manufacture. For the foreign buyers had nothing' to ofi'er in exchange for these manufactures except their agricultural products. But these were shut out from the English markets by high duties, Corn, wine, and spirits could not be taken by English merchants owing to the tariffs, and as there was nothing else to offer, piles of English commodities lay unsaleable on the Continent, and either brought their owners nothing at all, or were "slaughtered'' at ridiculous prices. Not only were numberless specu- lators ruined, but the manufacturers sustained terrible losses. The good harvest itself did but seem to make matters worse. Everybody had become accustomed to high prices during the war. The land-owners and farmers had done well during the troubled period, Paper money at a discount of about twenty-five per cent., as compared with gold, was the general currency, and inflated prices ruled to an abnormal extent. All calculations for sale of agricultural produce had been based on the continuance of a similar state of things. 7 HE NINETEEN! H CENTURY. But suddenly the change came, and with it so plenti- ful a harvest that the barns and storehouses were filled to repletion with grain, in the same way that the warehouses were choked with manufactured goods. There was a conspiracy of superfluity to impoverish all classes. Nobody knew what to do. The state of things transcended all experience. Crises and stag- nation of trade had been known before, but never on so large a scale. For in this case, as in those cases which follow, the cause of all the collapse of trade and general poverty was manifestly a superabundance of wealth. The working people, who suffered most from the crisis, were little inclined to bear their misery silently. Discharged soldiers and sailors came in to compete on an already overstocked labour-market, and the atti- tude of the unemployed and starving labourers be- came threatening in the extreme. Observing that machinery was everywhere supplanting hand-labour, they not unnaturally jumped to the conclusion that these increased powers of producing wealth were really injurious to the workers, seeing that they were, in many instances, the direct cause of their want of employment. Bands of men consequently paraded the country smashing machinery, and demanding work and food. The amount of machinery even then in use in Great Britain very far exceeded in power of produc- tion the total quantity of manual labour employed. But the war, that great and most extravagant cus- tomer to farmers, manufacturers, and othei' producers of wealth, having come to an end, those who were COMMERCIAL CRISES OF most anxious to obtain some of their superabundantj supplies of food and manufactures in return for use- ful work were prevented from doing so by the fact that they could not be employed at a profit. Instead of increasing the number of their hands, and thus aggravating the glut, the one object of the producers was to lessen their output, until the accumulated stocks should be taken off the market, and they might, owing to rising prices, be able again to pro- duce at a profit. If the stock in the farm buildings and warehouses had been burnt then, such was the irony of the situation, prosperity would have imme- diately recommenced on the same scale and for practically the same-reasons as during the war. At this very time, indeed, as during all such periods, the actual impoverishment, except for the working classes, was far more apparent than real. Even the Corn Laws, which were introduced in 1815 to keep up the price of grain, though the enactment occa- sioned a serious revolt in London, did not permanently check the growth of wealth ; and, notwithstanding that exports fell from £51,000,000 in 1815 to £35,000,000 in 1817, the imports of cotton gre\r from 63,000,000 pounds in 1814 to 92,000,000 pounds in 1815, 86,000,000 pounds in 1816, and 116,000,000 pounds and 162,000,000 pounds in 1817 and 1818 respective^, while the population increased rapidly. The check, that is to saj^, on the growth of national wealth bore no proportion to the mischief inflicted on large portions of the population. This crisis of 1815, though it had an effect upon the Continent and the various countries which traded to THE NINETEENTH CENTURY. 23 a considerable extent with the United Kingdom, could scarcely be called an international industrial crisis. In it, nevertheless, could be traced in the germ the peculiar phenomena of all the succeeding crises. Notably, we may observe the glut of com- modities as the pre-eminent cause of lack of employ- ment and misery for the working classes, already instanced by Robert Owen as directly due to the use of machinery by the great capitalists exclusively for their own profit. England, also, the victor in the great war, the country which had gained enormously in territory and influence during the struggle, under- went a far more trying crisis than France, the nation which had been completely overcome. In Great Britain the collapse of credit and the trade distress was very sharp, if short in its duration : in France there was practically no crisis at all. The very economical development which gave the English such resources to draw upon in war became a cause of commercial collapse on the conclusion of peace ; in much the same way that Germany, after the victories of 1870, underwent a moi-e serious shock than France, and the £200,000,000 of indemnity proved for the time, at any rate, rather a curse than a blessing to her people. COMMERCIAL CRISES OF CHAPTER II. THE CRISIS OF 1825. England, as a whole, speedily recovered from the industrial depression following upon the end of the great war. From the time when the Bank of Eng- land resumed specie payments completely in 1819, and indeed from the end of the year 1817, the upward movement of business became more and more rapid, A succession of good harvests helped on the revival of trade as the stocks of manufactured goods moved off; and the outcry of the agriculturists against the low price for grain was drowned by the din of the machinery in the cities working overtime, to great profit for the employers and constant employment for the " hands." The extension of trade seemed some- thing phenomenal ; the rapid accumulation of fortunes impelled the wealthy classes to undertake vast opera- tions in every direction. At the beginning of 1824, therefore, instead of grumbling and discontent, murmurs of satisfaction and gleeful anticipations of enhanced gains were heard from the capitalists on every side. By this time, too, even the agriculturists, who were producing larger and larger crops to the acre, began to share in the general prosperity. Tlie average price of wheat for the year was 62s a quarter, yet no complaints THE NINETEENTH CENTURY. 25 were made, for the majority of the working popula- tion were in full employment. In the iron and coal industries, as well as in the cotton and wool factories, business was exceedingly brisk. Everybody was making haste to get rich. Speculation of the most reckless character far outstripped the limits of the most adventurous trading ; and, so does history in a sense repeat itself, our growing relations with the South American States pushed this speculation to an almost unprecedented height. The mania affected the whole mercantile community, and extended to all the property- holding classes. That such exceptional prosperity could not be alto- gether sound seems scarcely to have been suspected even by many of those who were capable of forming a clear judgment. The improved conditions of life for the middle-class were the theme of universal com- ment. Such changes had been wrought in the ap- pearance of town and country alike as are usually the result of several generations of continuous improve- ment. In the country, fields better tilled, barns and storehouses better built, horses, cattle, and sheep more numerous and of better breeds. In the towns, an im- proved class of dwellings, greater comfort and luxury in every middle-class household. Division of labour pushed to a greater extent alike in production and distribution. An accumulation of money in the banks as well in London as in the provincial centres. A superabundance of capital seeking employment in the riskiest ventures. Projects of every kind for the con- struction of canals, tunnels, bridges, tramways, roads, and so forth, eagerly entertained and accepted. All 26 COMMERCIAL CRISES OF this proved that the savings of the middle-class, in spite of their increased expenditure on comfort, had more than kept pace with the growth of their wealth. A complete change in the habits of this class was taking place. The unremitting and even excessive personal attention to the details of business was giv- ing way to a more leisurely sort of existence for those who could now afford it. Instead of living in their houses of business, and working steadily day and night at their occupations, the well-to-do men of affairs and tradesmen of good standing began that plan of living in the suburbs, and going in during the day to their offices and shops, which has obtained so : great an extension in our own times; while, at the same time, the lounger towns around our coasts began to attain considerable dimensions, owing to the visits and' residence of Londoners. In small matters, as in large, the change was very remarkable. The pinching and saving of the war times had given place to a more easy and generous view of life all round for the fairly well-to-do. It was a period of universal well-being for that class, accompanied, as statistics but too clearly show, by intense and grinding overwork for the masses of the people. Few thought of this at the time. All were content to congratulate the country on the singular prosperity and contentment, the wonderful sagacity and enterprise of that class of manufacturers and mer- chants, capitalists, bankers, shipowners, and trades- men, who were regarded then, and for long afterwards, as the backbone of the nation. All was apparently THE NINETEENTH CENTURY. 27 lased on the soundest foundations ; everyone was eon- ■inced that this good fortune had been honestly arned, and would be solidly maintained. So hopeful vas the tone of the period, so confident the anticipa- ion of a bright future, that the most gloomy pessi- nist could scarcely see a dark cloud in the sky. To- Qorrow shall be as to-day, and much more abundant, vas chanted in chorus by hundreds or thousands of ool, calculating men, who, in the ordinary business of iveryday life, were shrewd and cautious enough. The same nationwhich had gone through the great 7ar against France with a determination and stolid )ersistence that astonished the world, which had tood up stoutly for its freedom at home, and had )assed through the crisis already briefly sketched vith comparatively trifling difiiculty, now to all ap- )earanee lost its head entirely. All the best char- icteristics of the middle-class seemed to be swamped n one overmastering lust for gaming. The bubbles if the previous century were reblown in more glitter- ng and fantastic shapes. The follies of 1824 and .825 surpassed every previous financial folly. Classes if the population which had never before followed he will-o'-the-wisps of speculation tumbled over one mother in their eagerness to put salt on the tails of .hese flitlings of the financial marsh. It was high- lay and holiday for the Dousterswivels and John Laws, for unscrupulous schemers and half-insane inthusiasts. Everybody speculated in something: lot only the world of business, but the entire popu- ation were swept along in the craze of gamblers. Old and young, men and women, rich and poor, noble 28 COMMERCIAL CRISES OF and simple, one and all, were drawn into the throng, Even when all the purely absurd and swindling pro- jects are eliminated, and only those are taken account of which have a reasonable claim to solidity, even then the scale of the commitments entered into by Great Britain are upon an astonishing scale — a scale rather suitable to the end than the beginning of the nine- teenth century, and certainly more fitly representing the investments of twenty years than of two. The amount of loans to foreign States, negociated in London or transferred to the London market dur- ing this period, in addition to a quantity of external loans, which were bought in England, but not bein» paid in London, were not quoted on the Stock Ex"- change, reached no less a total than £86,000,000. Over and above these vast sums invested abroad, the foUowin? companies were established among others in 1824 and 1825 : CAPITAL. £13,500,000 36,260,000 8,000,000 18,200,000 10,580,000 20 Companies to build Railways, 22 Bank and Insurance Companies, 11 Gas Companies, 17 Foreign Mining Companies, 8 English and Irish Mining Companies, 9 Companies for the construction of Canals Docks, Steamers, 10,580,600 27 Different Companies for various industrial businesses, 12,000,000 The total amounting to 114 companies, with a gross capital of upwards of one hundred millions sterling. The shares of most of these companies stood at first at a high premium, and, in particular, the mining companies of Mexico and South America ran their shares up to a preposterous height ; the Eeal del Monte THE NINETEENTH CENTURY. 29 ivith shares of a nominal value of £400, of which )nly £70 were paid up, were sold on the 2nd January, L825, at £1350 a share — that being two and a half imes their quoted price only a month before. The following passage might almost be read as -eferring not to 1824 but to 1889. " In the spring of L824, when heavy payments had to be made on ac- ;ount of the South American loans and mining com- Danies, so large an amount of gold and silver bullion ft'as exported to South America that a sensible de- iciency was caused in the available currency of Great Britain, and during the whole of the year 1824 and ;he first three months of 1825, the Bank of England materially increased its note circulation." At the same time the provincial banks, under a mischievous ict of Parliament passed in 1822, swamped the whole 30untry with paper money, which found a ready out- et in that time of rising prices and universal specula- don. In 1825 there were nearly thrice as many iuch notes out as there were in 1822, while between Tune, 1824, and October, 1825, from £10,000,000 to £12,000,000 of coined money was issued from the Mint. Every step was thus taken to encourage speculation to the point of actual danger to the State, md to inflate the existing inflation beyond all pre- cedent. So long as money could be obtained at a low rate )f interest, and interest was maintained at a low rate Dy the enormous issue of small banknotes, the specu- ation went on ; and, as has been said, all classes and 3oth sexes took an active part in the scramble for flrealth. 30 COMMERCIAL CRISES OF Few took into consideration the fact that the solid loans and enterprises undertaken called for more capital than the country had saved or could dispose of. The tnania for fresh undertakings spread far and wide. In the single session of 1825, 438 applications were made for bills for private companies, and 286 charters were granted, in not a few cases causing grave suspicions to, be aroused as to the upirightness of members of the House of Commons. Canning had called in the New World to redress the balance of the Old, and English loan-mongers, merchants and promoters, as we have seen, put their own interpretation on the epigram. All considera- tions of geography, climate, native character, and dis- position were thrown to the winds. Money was to be lent at good interest, merchandise was to be shipped to large profit, mines were to be opened to pay an unheard-of percentage in countries concerning which little or nothing was known to the majority of the speculators. The most ridiculous blunders were ii)ade by the class which was supposed to be carrying on business for the general benefit. Warming-pans were shipped to cities well within the tropics, and Sheffield carefully provided skaters with the means of enjoy- ing their favourite exercise in regions where ice had never been seen. The best glass and porcelain were thoughtfully provided for naked savages, who had hitherto found horns and cocoa-nut shells quite hollow enough to hold all the drink they wanted. One company was formed to provide the inhabitants of the River Plate with fresh butter, at a time when none but the wildest of wild cattle could be found THE NINETEENTH CENTURY. 31 from the Atlantic Ocean to the Andes; and a tribe of luckless Scotch dairymaids were shipped to Buenos Ayres, in order to milk cattle a trifle more savagje than the Guacho cowboys who herded them. When the inconceivable difficulties of getting milk and cream in such circumstances had been at length overcome, ■and something in the shape of butter was provided, it was suddenly discovered that the misguided inhabi- tants preferred oil. Similar absurd blunders, some- times with very tragic results alike for the un- fortunate small investors as well as for the deluded emigrants, were of everyday occurrence. Such folly and madness would seem incredible did we not our- selves witness their recurrence in some form on each return of a period of prosperous trade. The wealth derived from the labours of the workers and the in- creased power of man over nature was played ducks and drakes with in every quarter of the globe, while at home, in England, this was perhaps the blackest time for the toilers and their children since the dark days of the sixteenth century. Just when everything seemed most prosperous, the crisis — the first important international crisis of the capitalist epoch — was close at hand. Nine-tenths of the foreign ventures, it was soon apparent, would produce no return whatever, at any rate, for many years. Goods which had been thrown upon the market, as the inevitable result of working the new machinery at full power, and goods which had been kept off the market in the hope of prices being screwed up higher and higher yet, were suddenly found by their owners to be unsaleable at the prices 32 COMMERCIAL CRISES OF even then ruling. Further advances were then soughl from the bankers, who, the bank rate of discount being still low, at first stretched their resources to oblige their clients by discounting their paper at long dates. Then the calls upon the unpaid capital of the new issues began to come due, while no profits, of course, were as yet realised or likely to be realised. This led to further demands for accommodation. Men of business began to awaken from fancy to fact. The Bank of England, which had maintained its rate ot discount low during the whole of the period of wild speculation, only raised it from 4 to 5 per cent, on the 17th December, 1825, when one great bank failure followed by others gave unmistakable warning of the coming crash. And then the crash came. The very same people who had aggravated the over-speculation by thefr false and almost fraudulent finance, now rendered the collapse more disastrous by their panic-stricken pre- cautions against the dangers they had themselves helped to evoke. In every direction the note issue was reduced, and credit was restricted to such an extent that even the bills of perfectly sound houses were rejected. Of course, in such circumstances the glut of unrealisable commodities on the market exceeded all limits. Prices fell all round with such alarming rapidity that even the most venturous buyers held aloof. Not only were speculators forced to relinquish their holdings, but the. manufacturers, whose continual production necessitated realisations in cash, were com- pelled, failing further bank accommodation, to try to find the means of meeting their own bills by forced THE NINETEENTH CENTURY. 33 sales on the open market, or otherwise to close their mills and go into liquidation. The Stock Exchange could afford no relief ; for shares which stood at an inconceivable premium yesterday were utterly valueless to-day. Everybody wanted to realise at once, and each was anxious to get out on the shoulders of his neighbour. Panic reigned supreme alike in finance and in business. The first great international crisis of the nineteenth century had begun. In six weeks no fewer than seventy provincial banks failed.- In London and in the country com- mercial houses fell one on the top of the other like a house of cards whose support is removed. Credit was almost at a standstill. It was impossible to say what constituted wealth for the purpose of carrying on business or meeting liabilities. The distrust was as profound as the confidence had but now been over- weening. Whoever had loans out called them in ; whoever had money in hand refused to part with it on any terms. From one end of Great Britain to the other people looked blankly in one another's faces, not knowing whence had arisen this sudden tornado of financial despair. Little else was discussed in the Exchange or on the market-place. While some said that the whole thing was purely imaginary, the result of foolish fears and scandalous rumours, others main- tained with equal vigour that the crisis was but the beginning of the end, and that the downfall of our whole industrial and financial system was close at hand. ^London endeavoured to check the panic by a great meeting of wealthy merchants and bankers, who de- 34 COMMERCIAL CRISES OF dared with the unanimity o£ the citizens of Ephesus that confidence would speedily be restored if people would only be confident. But the losers of the pro- vinces refused to be comforted by the assurances o( metropolitan magnates ; and their practical reply to the blessed words of the greatest organisers of industry was a heavy run upon the great London banks. The anarchy of liquidation was as miserable a spectacle as the anarchy of speculation. The getting out was as disorderly and as disgusting as the getting in, Business got worse and worse, until the \rery pro- ductive power of the country was threatened with serious limitation by the uncertainty which weighed upon the entire community. Unless credit were in some way restored and the ordinary channels of trade accommodation were cleared, the winter of 1825 must prove unprecedentedly disastrous to the working population. Whatever was done had to be done quickly. The Bank of England, whose directors were, as usual in trying times, at their wits' end, applied now to the Chancellor of the Exchequer to help them to remedy a state of things in part brought about by their own incompetence and want of foresight. The directors urged that unless they could give facilities for dis- count, which in existing circumstances they did not see their way to do, the crisis must continue, and ruin would overtake even the most sound and cautious establishments. Then, apparently for the first time in all this turmoil of excitement and hopeless con- fusion, the facts of the situation were faced. It was recognised that there was no reason why, because the THE NINE TEENTH CENTUR Y. 35 greater part of the well-to-do classes and their hangers- on had hopelessly lost their heads, the ordinary busi- ness of the country should not again be placed on a sound basis. Excessive speculation and production, backed up by inflation of the currency and undue facilities for borrowing, had brought about the crisis : excessive restriction of the currency and refusal of reasonable accommodation had aggravated it when it came. The nation had not lost its means of producing wealth, or of providing its members with the means of subsistence. No sooner were the facts faced, so far as they were then understood, than the height of the crisis had passed. The Bank of England was permitted to issue one pound and two pound notes, the Mint was set to work to coin bullion as rapidly as possible, gold was obtained from abroad in considerable quantities, and by the end of the year, which had begun amid universal content and general jubilation, the despairing people had decided that they might yet be able to meet their losses and pull through. Notwithstanding the enormous scale of the undertakings and com- mitments in comparison with the population and realised wealth of the Great Britain of that day, the bankruptcies after all were not numerous. The actual loss was not nearly so great as men in their panic had thought. Savings had been swept away to a large extent, and the bitter cry of the small investor, the subdued wail of the widow and the orphan, was heard in the land. But from the economical point of view, and as regarded the interests of the mass of the people, the greatest mischief was caused by the glut 36 COMMERCIAL CRISES Of of commodities, which Fourier, following the lead of Robert Owen, pointed to as the peculiar feature of this trade crisis in every country affected by it. That glut of commodities was increased by the anxiety of the middle-class and the wealthy to make up by economy for the losses which they had sustained ; and men and women were again thrown out of work as before by the fact that their power to produce wealth was being continually enhanced, while they themselves had as little control over the ownership or the dis- tribution of the wealth which they produced as they had over the raw material, machinery, and tools by which through them it was created. Again, therefore, as a result of causes over which they liad no control, Great Britain was overrun by workless people, and disturbances and riots were the rule rather than the exception ; for Englishmen had not yet accepted the doctrine that it was their duty to starve in silence and contentment because the managers of modern industry had made fools of themselves. They saw that, no matter how success- ful the speculations of the well-to-do might have been, the wage-earners would have in nowise benefited from the profits realised ; and it seemed to them— this was sixty-seven years ago, and before the school- master was fairly abroad — that they should scarcely be called upon to pay in the shape of starvation and misery for themselves, their wives, and their children, because the ruling classes had staked and lost the national wealth at the international gambling table of finance and commerce. They even went so far as to translate their opinions on this subject into action, THE NINETEENTH CENTURY. were duly shot down, hanged, and imprisoned for their ignorant misconception of the truths of middle- class political economy, and were taught a rude lesson as to the advantages of law and order even to a starv- ing people under modern social conditions. In the meantime, the Government was carefully considering what seemed to them the far more im- portant question of the regulation of the Bank of England. One pound and two pound notes were now finally given up in England, though their circu- lation was still permitted in Scotland, and the Bank of England was authorised to establish branches in several of the great provincial cities. It was hoped that these measures would materially lessen the pro- bability of the recurrence of crisis, and would limit its injurious effect if it took place. How far this antici- pation was realised will shortly be seen. The crisis of 1825 had a considerable effect on all the foreign markets which, in some cases, felt the results of it after Great Britain herself had recovered from the shock. English goods, unsaleable at home, were thrown in masses on the foreign markets, de- pressing prices to a great extent, as the previous rise in England had maintained values. The financial crash which followed, however, though it was felt throughout the civilised world, did not have the same influence as similar disturbances produced later. In- ternational financial and commercial relations had not yet become so closely intertwined as they afterwards became, and even the United States, temporarily affected as they were by the outrageous speculation carried on in raw cotton during 1825, experienced 3S COMMERCIAL CRISES OF nothing which could be called a serious crisis, inti- mately connected as the interests of the two countries now were. Those who witnessed the crisis of 1825 and the series of events which led up to it, ought to have been able to prepare for and provide against similar social catastrophes. The early portion of the present cen- tury produced many Englishmen, who saw as clearly as did Owen that the increased power to create wealth had become in the hands of the dominant class a direct means for the manufacture of poverty. But, unfortunately, their warnings passed unheeded, the doctrine of non-interference was at this time raised to the level of an indisputable religious dogma, and, consequently, the economical evolution was left to work itself out at the expense of much loss to the country, and of endless suffering to the victims of the system. The truth, of course, being that, though the evils might have been palliated, the form of the de- velopment was inevitable. THE NINE TEE NTH CENTUR Y. 3 ) CHAPTER III. THE CKISIS OF 1836-1839. Great Britain had thus entered upon that series of trade depressions and trade inflations, of confident adventure and utter hopelessness, of "boom" and crisis, which have continued to our own day. It was during these first thirty years of the centuiy that England fully confirmed and extended the position which she had gained during the great war. The first-fruits of all the great inventions fell to her lot, and the fact that these great inventions were brought to bear practically at almost the same time, in many different branches of industry, had a cumulative effect. A complete transformation was being carried out. An agricultural country, with a proportionate amount of native manufactures and a considerable commerce, was being turned into the workshop of the world, and the sea-carrying trade, owing to geographical position as well as naval victories, fell more and more into English hands. At this period, also, for the first time since the downfall of the monasteries and the neglect to main- tain the public roads which ensued thereupon, the internal communications of the island began to receive the attention which they deserved. This was a matter of pressing necessity. It was impossible to transport 40 COMMERCIAL CRISES OF large quantities of manufactured goods to the seaports at a profit over such roads as those which led from one town in Lancashire and Yorkshire to another at the commencement of the development of the great machine industries. The cotton, wool, silk, and linen manufactures, carried on as they now were by steam- power, required great quantities of coal delivered at the mills at a cheap price; and the iron industry, which had received a tremendous impetus from many quarters, required still more coal and ores delivered at low rates in order to maintain that cheapness which could alone secure the continuance of England's in- dustrial supremacy. Canals, perhaps the cheapest and best means of conveying heavy goods even yet dis- covered, were the first important improvement made in this direction, and some of the greatest of these woi'ks were completed at the end of the eighteenth century, largely contributing to the development of the great cities which they connected with one an- other. Turnpike roads constructed on sound principles soon followed, and the work done by the Romans hundreds of years before in this island was done over again, though far less solidly, to meet the exigencies of the new era. Tramways, also, which sometimes appear to us to be one of the methods of conveyance adopted by the present generation, were in common use in all the mining and industrial districts during the first quarter of the present centurj^. Transport was, in fact, making strenuous efforts to keep pace with the exigencies of manufacture, and the appear- ance of steam vessels on the ocean was evidence to the THE NINETEENTH CENTURY. ^\ more clear-sighted that no long time could elapse before the same great power would be applied to locomotion on land. The crisis of 1825 in nowise arrested this necessary development. If the numbers of the unemployed and the miserable condition of the mass of the people constituted, as at this period they unquestionably did, a serious political and social danger for the dominant classes, the cheap labour provided by the ill-paid toil of themselves, their wives, and their children, offered a premium on capitalist experiment in every direction. All the disturbances and riots, all the political discontent and social con- spiracy, had little effect upon the steady, economical progress which went on below. The people starved; but production was enhanced and transport was im- proved in a manner altogether unprecedented. In 1830 the first railway was established in England between Liverpool and Manchester. In this year, 1830, also, owing to good harvests and the recovery in bu.siness from the dulness which succeeded the collapse of 1825, a thorough revival set in so far as the interests of the profit-making classes were concerned. The rate of discount fell away and another period of speculation began with its inevitable accompaniments of inflation and over- trading. In the ten years, from 1821 to 1831, the population of England and Wales alone increased from 12,000,000 to 14,000,000, though the condition of the working-people presented a sad contrast to the well-being of their forerunners in the first half of the previous century; and the enactment of the New Poor Law of 1834 rendered their prospects more hopeless than ever. In 1835 the COMMERCIAL CRISES OF Chartist movement took shape in an organised body, and from that date onwards for several years turmoil, rioting, and semi-insurrection pervaded the country. But all this, though it might slightly impede, could not greatly check the expansion which had commenced a few years before. The year 1836 provided the second of tvro exceptionally abundant harvests in succession, and, similar causes producing the like effects, 1836 witnessed a recurrence of that mania of speculation and therewith an astounding expansion of confidence and credit whicli had ended in the crash of 1825. It is unnecessary to enlarge upon the folly of speculators and investors at such periods, unless new features of mania present themselves for analysis and consideration. The memory of investors and meft of business is always short, and modern conditions of finance and commerce tend to limit their fores! o-ht. Thus each successive generation of ten years produces its fresh crop of needy adventurers and credulous premium-hunters. There is really no necessity to in- vent new methods : the financial three-card trick and the commercial confidence dodge never fail to attract a new set of victims, and those who perpetrate them successfully, instead of undergoing imprisonnoent, attain to the highest positions in the city, society, and politics. Untaught by the lessons of the previous crash, the banks again did all in their power to push to the extreme the eager desire to embark on new ventures and to carry commercial initiative far beyond the farth- est bounds of prudence. By the Bank Act of 1826, bank- THE NINETEENTH CENTURY. 43 ing companies could be formed with the power to issue notes, under certain conditions, of a denomination not less than £5. In the first seven years after the pro- mulgation of this Act, thirty-four such banks of issue were set on foot, and in the three following years, to the end of 1835,about the same number. " In the year 1836, speculation had again reached such a pitch that forty- two new banks of issue were established which, with their branches, gave a total of fully two hundred, and taking into consideration other credit establishments and their branch banks, there were no fewer than 670 such institutions on foot with about thirty-seven thousand shareholders ; and of these three-fourths issued their own notes.'' During these years, both the Bank of England and the other banks had issued paper largely in excess of the amounts previously in circulation. But now in the spring of 1836, the Bank of England, as in 1825, began to reduce its note issue, and was forced in view of the drain for gold which had set in to America to raise its rate of dis- count. / Thereupon, the banks of issue, instead of following the Bank of England's lead, issued fifty per cent, more notes than before, thus rendering the directors' action to protect their gold reserve from depletion almost nugatory. Hence arose an ex- pansion of credit which speedily gave rise to a glut. A great bank in Ireland suddenly failed, and a run commenced on the provincial banks of the South of England which threatened to end as disastrously as the similar run in 182.5, seeing that the banks of issue held at this time but a sixth part of their note circulation in specie. This time, however, the Bank 44 COMMERCIAL CRISES OF of England came to the rescue of one of the great northern banks, and a crash was staved off. Now, however, became apparent the close connec- tion of the English commercial and financial markets with those of the United States which, tlien and ever since, has rendered it inevitable that an industrial or financial crisis in the one country should more or less seriously affect the other. At this time, 1836-39, the United States were still, economically speaking, a de- pendency of Great Britain, though more than sixty years had passed since the Declaration of Indepen- dence. North America, in fact, stood to England in much the same relation that the Australian Colonies do now. The Great Republic supplied the Lan- cashire mills almost exclusively with cotton, as Australia now supplies Bradford, Huddersfield, and other cities with wool. In like manner, also, the United States, both as a Federal Government and as independent States, looked to this country for loans to develop their imna.easurable resources. The dependence of the English cotton industry upon the United States for its supply of raw material had already in 1824 and 1825 given rise to a vast deal of speculation which rose to such a point as to assume the dimensions of a great modern " corner " in that staple. Then, however, as at a much later date, during the Civil War, it was discovered that when the price exceeded a certain figure, other countries were glad of the opportunity to supplement the deficiency and to benefit by English custom. During the interval between 1825 and 1836, the United States had entered upon a career of false THE NINETEEXTH CENTURY. 45 banking based to a large extent upon fictitious land sales and backed up by loans incurred in Great Britain. From 1832 onwards, a period of wild specu- lation had commenced, which the banks as usual had helped to extend and intensify by an excessive issue of paper money, amounting in the year 1837 to £90,000,000 for a population of about 18,000,000 ; an inflation which individual capitalists carried yet further by raising loans on their private property and businesses in England. In spite of the warnings of President Jackson, this dangerous system was pushed to the extreme. In vain was the extravagance, corruption, and swindling denounced by those who saw whither all this must lead. Paper money in excess seemed an easy way for all to make fortunes at once, and none would listen to reason so long as the universal prosperity seemed unshaken. In short, the old story of all such periods was retold on the other side of the Atlantic. The price of land and commodities, the rents of houses and the wages of labour, all rose together, and endless new enterprises were undertaken, numberless new houses were built. Any difficulty in high places was met by still further loans at high rates of interest in London and Amsterdam. There seemed literally no limit to the length to which things might be pushed, as there was assuredly no restriction put upon the action of the banks. No one seems to have imagined that the upset of all this extravagance and folly could come from England, which had been helping by her loans to breed this exaggerated confidence. No telegraph then existed to keep the more wary 4G COMMERCIAL CRISES OF on the alert as to the coming change. But the rise in the rate of discount which followed opened their eyes, and the crash which ensued was on a scale of truly New World magnitude. When credit first gave way the whole of the American banks suspended specie payments, and eventually in 1837, 618 banks, and in 1839, no fewer than 959 banks, failed. Notes became worthless, loans remained unpaid, advances were not to be had, bankruptcies seemed to become the rule in trade rather than the exception. The records of the period show that the Americans tliemselves felt for a time almost hopeless of any speedy recovery. The advocates of " soft money " had had for the moment their fill of it. The infiuence of such a crisis as this in America reacted most injuriously upon Great Britain. Those who had made advances on American produce at hip;li prices — and they had been made on a stupendous scale — saw no way of recovering their money. Those who had lent on lands or other estates, or had invested in the shares of American banks, saw their fortunes swept away at a stroke. American credit in England received a blow from which it took a long time to re- vive, and English literature was enriched by some scathing diatribes against American rascality and breach of faith. Not until 1839 was the full extent of the disaster appreciated, when a series of failures occurred far in excess of the average ; the gold reserve in the Bank of England fell to little over two millions and a half ; and unless exceptional measures had been resorted to, another financial crisis of a still worse character than that of 1837 would have followed the THE NINETEENTH CENTURY, 47 raising of the bank rate of discount to 6 per cent. No wonder that this year, 1839, looked black for the working-classes, and that revolutionary propaganda made rapid progress among the ill-paid or workless people. So bad was the lot of the workers that the " Condition of England " question was the topic most seriously discussed in the Cabinet as in the street. Yet throughout all this anarchy and apjjarent im- poverishment, the well-to-do classes, it cannot be too often repeated, were becoming steadily richer, and the wealth of the country, as well as its power to pro- duce more wealth, constantly and continuously grew. Exports and imports mounted upwards, the fluctua- tions bearing but a small proportion to the bulk of the whole. Public buildings, private mansions, great factories, vast warehouses, public works calling for huge capital expenditure, were all being erected at the very time when the state of large portions of the population occasioned grave anxiety to the statesman, the economist, and the philanthropist alike. Within a period of thirty years the annual rental of real property in England and Wales alone increased by £40,000,000 : the tonnage of vessels sailing under the English flag was six-fold greater than it had been at the beginning of the century. In agriculture the advance was not so rapid as in manufacture or in transport ; but even there the in- creased power of production was very marked. The country was still almost entirely dependent on its^ own resources for the supply of wheat, and that supply had increased by 44,000,000 of bushels a year 48 COMMERCIAL CRISES OF in tlie course of forty years, though the agricultural population had increased to a very small extent. But with these unmistakable facts before them and made day by day the subject of vigorous com- ments by able writers and speakers on the question from the point of view of the producers, the Govern- ment and the House of Commons confined themselves to tinkering with the banking system. Now it is quite unnecessary to say that when banks are cave- fully managed on a sound basis the danger of a financial and industrial crisis assuming unmanage- able proportions, owing to undue and absurd inflation of the currency and consequent unreasoning specula- tion, is much lessened. But banking, after all, is only a convenient method of conducting one portion of the machinery of production and exchange under the capitalist system. So long as one class carries on the business of the country, solely for profit, and is pre- vented by the very law of its being from ordering matters in such wise that a proper harmony is estah- lished between expenditure on permanent works and on day-to-day business, it is quite impossible that the soundest methods of banking that can be established should do more than work the credit system with the least obstruction that circumstances will admit of. The experience of the English banks, and more par- ticularly of the Bank of England during the crises up to the year 1839, had shown that the mischiefs, un- fortunately the unrecognised mischiefs, of a method of creating wealth which refused to permit any control to those who actually created it, might be and had been much aggravated by mistakes in banking. THE NINETEEN! II CENTURY. ..g Let the Bank of England, it was said, be placed on such a footing that excessive issues of paper currency would be checked ; let due warning be given of the approach of stringency by the reduction of the neces- sary reserve and all would be well. English trade was at this time becoming more and more a trade of borrowed capital. That is to say, men were look- ing to the banks to provide the bulk of the capital with which they traded at a rate of interest guided by the market rate, of which one and generally the crucial criterion was the bank rate, their own capital providing only a margin for possible loss. Joint Stock Banks were then in their infancy, and the importance of the Bank of England relating to the banking world of England and to the money market at large was much greater in every way than it is to-day. It was natural, therefore, for those who did not look below the surface to imagine that if the Bank of England was ordered aright, the probability of the recurrence of disastrous crises would be materially reduced if not removed altogether. Without going at length into the history of the Bank of England, or discussing fully over again the much-debated Bank Charter Act of 1844, it is inter- esting to observe the steps which were taken by the Government to remedy the evils of excessive note issue and over- confidence. The Bank of England holds quite an exceptional position as a bank. It is not a State bank like the Bank -of France, nor is it altogether a private or Joint Stock Bank, seeing that it has a practical monopoly of Government business, and, which is more important, is regarded by the 50 COMMERCIAL CRISES OF majority even of business people, who ought to knc better, as in some sort a State institution. In theoi and to a large extent in practice, the Bank of Englaj is a bank like other banks, accepting deposits eith with or without interest, and lending out those d posits again to other customers who need them in t' shape of advances on bills or easily saleable securiti at a margin. But this sort of business calls for reserve to be used in case of panic ; otherwise in moment of stringency when everybody wants mon' there would not becash enough to meetcurrentdemam Now, the Bank of England holds not on its own reserve to meet national demands f specie payments, but also the bullion to me foreign payments. Moreover, the other hanl instead of keeping their own reserves, keep them the Bank of England ; and to the Bank of Englai alone can bankers and men of business resort periods of great financial disturbance to obtain a vances on Consols or other first-rate securities, whi( though in ordinary times easily convertible into ca by means of sales or loans upon them, cannot be dei with in the same way when all at the same mome are panic-stricken in their anxiety to obtain le^ tender, and thus provide the means to pay their da to-day liabilities. Of the attempts of the Bank keep a reserve, and to manage a foreign drain aft the resumption of specie payments in 1819, " a mo miserable history can hardly be found." So says great authority, and the brief survey of the fat given in the foregoing pages certainly bears out tl strono; condemnation. TBE NINETEENTH CENTURY. 51 Instead of showing that sagacity, promptitude, and foresight which the public believe the heads of the City must be possessed of, the Directors of the Bank of England were just as silly as anybody else. It was to provide securities against the incapacity of the ablest financiers of the country that Peel's Bank Act was passed into law. ^j this Act the Bank of Eng- land was divided into two parts — the department for the issue of notes and the banking department — which are really quite separate, though they remained, and still remain, under one roof. In the issue department, Bank of England notes, which are legal tender, can only be issued to the extent of £15,000,000 on Govei'n- ment securities, £11,015,100 of this being a Govern- ment debt. Any further issue of notes must be repre- sented by gold coin and bullion in the hands of the Bank to the full amount, no issue against silver being permitted. That is the full extent to which the Bank is by law permitted to go. Now, wonderfully as the amount of gold necessary to do a given amount of business has been reduced by the modern development of cheques and the clearing- house, gold or absolutely sound notes must be obtained in sufficient quantity in times of difficulty to stem the current of panic, and enable trade to go on again as speedily as may be. Bad as the management of the Bank of England was from certain points of view in 1825 and in 1837, it can scarcely be questioned that the issue of notes which were absolute legal tender, but were not fully represented by bullion, did circumscribe the range of the mischief occasioned by those disastrous crises. But under the Act of 1S44! 52 COMMERCIAL CRISES OF such action by the Directors was no longer possible. The two departments were severed, and the one might be denuded of coin and bullion while the other had a superfluity, which it could not by law supply in the only way then possible to restrict the panic, namely, by issuing more notes. Thus a sudden drain produced a twofold_|efFect. In this case, as in many others of a like kind, the theorists saw farther than the practical men. While the bankers and City people approved of the Bank Act, with its division of departments, and rigid restric- tion of the note issue on securities to £15,000,000, such writers as Mill, Tooke, and others predicted that on the first serious crisis the Act, owing to the inelas- ticity which it caused, would be found to be unwork- able, and would have to be suspended. As will be seen by what followed, they proved perfectly right ; and it may be said even to-day that the Bank Act of 1844 is only maintained because, at the critical moment, everybody knows it will be treated as a dead letter. This strange sort of fatalism in business seems to be worthy of the singular arrangement by which a body of men who are not bankers, and whose personal and business interests may any day be opposed to the real interests of the Bank, are placed as Directors in con- trol of that which is the most important banking institution of the greatest commercial country in the world. It is not necessary to know much about the details of banking, or to master the theory on which the Bank Act of 1844 is founded, in order to understand the practical working of stringency in producing panic. THE NINETEENTH CENTUR'i. S3 Nearly all manufacturers and traders carry on their business now, as has been said, on borrowed capital. To meet their own bills for raw material or goods, they must discount other people's bills. So long as the bank rate keeps at a point which enables them to borrow in the open market, that is, to discount their own and other people's paper at say four or five, or even perhaps six per cent., they can make a reason- able profit on their own small capital, which forms the narrow basis of all this great edifice of business. But when, owing to a farther rise in the bank rate, and the stringency following thereupon, bill-brokers and bankers are more anxious to protect themselves than to provide for their customers, even those manufac- turers, merchants, and traders who can still get accommodation by paying for it find that their margin of profit is swept away, and their own capital locked up in the business is actually threatened. A pro- longed squeeze in such conditions would force half the business world into liquidation. For goods and com- modities, however valuable they may be, represent to their owners no available means of meeting their engagements in cash, and cash or its equivalent alone is what is needed to enable the machine to pass its dead points ; nor will the best securities supply the need of the moment, seeingthat cases haveoccurred in which the Bank of England hesitated to advance upon Consols. The crisis of 1836-1839, commonly spoken of as the crisis of 1837, was therefore the last which occurred under the old banking conditions. From 1844 on- wards the system has remained the same in form so far as the Bank of England is concerned. 54 COMMERCIAL CRISES OF CHAPTER IV. THE CEISIS OF 1847. England had now commenced that period of railway construction and Free Trade which raised the com- mercial prosperity of the country to a higher point than ever. There were those who imagined — and they were by no means the most foolish people in the countrj- — that this improvement in communications, followed as it was in 1846 by a cheapening of the main staple of food by the removal of all Protective duties on wheat, would do away once for all with starvation and distress, and bring classes together as they had never yet been combined. As a consequence, crises would in future be unknown, and trade would progress inevitably upwards with increasing benefit to the whole population. But the way in which Englishmen set to work to supply themselves with railroads was in itself a marked instance of the anarchy then prevailing in regard to what constitute public interests. At first when railways were in the experimental stage, and this stage lasted, so far as public opinion was affected, much longer than is com- monly supposed, it was perhaps advisable, in the then condition of development, that no direct steps should be taken by the Government to control or administer the projected lines. When, however, it became ap- THE NINETEENTH CENTOS V. 55 parent that nothing short of a complete revolution in the entire system of internal transport was being brought about, it was certainly the duty of Parliament to adopt such measures as would restrict waste and prevent the reckless gambling which followed so soon as it was found that railway construction was likely to prove profitable. It is always impossible for the capitalists of any country to maintain permanently an equilibrium be- tween the amount expended on works of permanent utility, but of slow return in the shape of profit, and the extent of the funds which should be used to carry on business of more immediate practical usefulness. But when a mania for some new form of undertaking seizes upon the investing public, then the savings of the community are too often utterly thrown away upon hopeless enterprises or squandered in construct- ing works for which there is no real need at the time. This was certainly the case in regard to the era of railway construction. The railway system was " rushed " by speculators and promoters, as the gold-fields were afterwards rushed by the workers. It was a time of furious competition for fresh enter- prises. Incompatible schemes jostled one another for precedence. Concession-hunting, regardless of the real value of the enterprise for which the Act was to be obtained, was everywhere the order of the daj'. People who could ill afford to lose joined in the chase, scraping together every farthing they could rake up, not for the sake of carrying out a useful undertaking, but for the sake of the premium which they hoped to obtain on their shares from someone else. The 56 COMMERCIAL CRISES OF working capital of business was diverted from its natiTral province to hurry on the development more rapidly than ever. Parliament, it is true, stepped in to limit to some extent, by more stringent regulations and detailed requirements, the unreasoning demands for new charters. But this had httle effect. The most tre- mendous efforts were made to hurry forward the completion of reports, and estimates, and plans, and evidence of traffic and public utility. It was indeed a time of stress and strain. All the records of the period prove that the eagerness displayed reached the pitch of positive lunacy. Half-a-dozen or more schemes were proposed for each of the possible routes, and as many more for those which were manifestly hopeless from the first. Each promoter was far more anxious to crush his rivals than to ensure the sound- ness of Iiis own enterprise. All were in the most desperate haste to put in their demands before the appointed time for closing the list of applications. If half the proposed lines had been carried. out. Great Britain would have been gridironed from one end to another with railways, and ordinary traffic would have been rendered impossible. Engineers, drafts- men, lithographers, engravers, and, above all, lawyers, had more work than they could do, paid for at rates far in excess of any that they had previously been able to command. Landowners who opposed and land- owners who favoured railways alike asked prices for their land quite beyond anything which it could have realised in a free market. The cost of construction was thus enormously enhanced in the case of success- THE NINETEENTH CENTURY. 57 ful competitors for any given time ; and the people of England are actually paying to-day, in the shape of excessive fares, for the privilege of that ruinous competition, which has only resulted in a monstrous monopoly. The number of projected railways was, indeed, out- side of the limits of reason, and the mileage to which the royal assent was given, though the distances to be traversed seem small in these days of Atlantic and Pacific, and Siberian Railways, was out of all ..proportion to the capacities of that date, or to the capital available for purposes of construction. On the one day of the 16th July, 1845, no fewer than 65 railway bills received the royal assent, which in- volved the construction of 600 miles of railway, cost- ing at the lowest estimate upwards of £13,000,000. In the same session of Parliament, 678 projects were submitted, and of these 136, with a mileage of 1,142 miles, involving a capital outlay of nearly £26,000,000, were sanctioned by Parliament. In the course of a single month calls were made on shareholders in home and foreign railways to the extent of £5,227,725. During the years 1845-47 no less than £90,000,000 were spent on railway building. For these, it must be remembered, were the days when Hudson was the Railway King, and people of the highest position and culture were grovelling at the feet of the vulgar potentate, in order to share in the vast wealth which he was assumed to be the master of. Such an enormous sinking of capital as this on works of permanent utility but of slow return, such a whirl of speculation in shares as followed, must l)ave 58 COMMERCIAL CRISES OF resulted in a crisis sooner or later. But as Herr Max Wirth truly says, had a good harvest secured the people cheap food, had the raw materials of the chief industries remained at a moderate price, thus enabling the factories to continue the work of production un- checked, and thus to increase the quantity of their output which could find a market, the danger might have passed over without more serious disturbance, and even the worst features of the crisis itself might jjave possibly been avoided. As it was, however, on the top of all this railway development came a suc- cession of failures of the potato crop in Ireland, a short cotton crop in America and bad harvests in England. Raw materials, instead of being cheap, were very dear, and the prices of the necessaries of life rose two and threefold. "Workers were discharged on all hands in England, while millions dependent on one uncertain staple of food were starving in Ireland, and all the improvement in the external trade which had been established could not make amends for the utter collapse in the home markets. Natural causes conspired this time with the arti- ficial mismanagement to intensify the crisis. The necessity for importing grain on a large scale to meet tlie prevailing distress was one of the causes which brought the agitation for the repeal of the Corn Laws to a successful issue in 1846. A great speculation in grain had also begun which tended to complicate matters. Thus, already in 1846, there were all and more than usually marked symptoms of an approach- ing crisis in industry and finance. But the directors of the Bank of England were no more capable of dis- THE NINETEENTH CENTURY. 59 cerning the signs of the times after the enactment of the Bank Charter Act of 1844 than they were before. Once more, by their policy, they helped to fan the speculation, and by maintaining their rate of discount at the low point of 2 per cent, and then 3 per cent., prepared the way for the tremendous drain of gold which set in during the early months of 1847, and scared the whole business community. The heavy fall in the price of wheat which tumbled in four months from 102s. to 48s. the quarter, though very advantageous to the people at large, brought about one failure after another among grain houses which had not anticipated any such sudden change. In October, the bank rate of discount was 8 per cent , and Consols had gone down from 94 in January, 1847, to 79 in that month. Railway shares fell 15 to 25 per cent., bills could scarcely be discounted at any price, respectable houses were closing their doors by the dozen, workmen were being discharged in every direction, 2,500 navvies being left workless by the contractors for the London and North Western Rail- way alone. Tens of thousands of workers were, in fact, out of employment and starving, and the condi- tion of the people during the winter seemed likely to be worse than ever ; while, what was taking place already in Ireland, and what followed in that awful winter of ] 847, has never been forgotten or forgiven by Irishmen in any part of the world. It was at this juncture, October, 1847, that the worthlessness of the Bank Act of 1844 in time of crisis was first made manifest to the world. Utter carelessness was, as usual, followed by unreasoning 6o COMMERCIAL CRISES OF panic. As the gold was drained away to meet foreign demands, the directors were forced by the conditions of their charter to lessen the accommodation which they could give at the very moment when the need for such accommodation was most pressing, and nothing short of the most liberal extension of credit to those who could reasonably demand it could, by any possibility, check the panic. The bank rate stood at 8 per cent, and before the Bank Act was suspended and the directors were permitted to issue notes in excess of the £15,000,000 allowed by law without holding gold against them, the banking department was actually reduced to less than £2,000,000. The bank must have stopped payment so far as the banking depart- ment was concerned, unless what was virtuallj' bank- ruptcy had been declared and the Bank Act had been suspended. This suspension itself, though it improved matters, did not at once end the crisis, which dragged on for fully three months more. Confidence had been immediately shaken, and the lack of coin tended to lengthen the period of inevitable distrust. By degrees, as the memorable year 1848 approached, confidence began to be re-established, and the bank rate gave evidence, by its steady reduction, that the season of panic, was over and that only a sort of rea- sonable mistrust in some quarters survived. Already the record is becoming almost monotonous in its similarity. The circumstances, indeed, change ; but the blunders are repeated and the follies repro- duce themselves with an unvarying regularity. New methods of production are discovered and applied. Straightway, they are pushed to such an extent with- THE NINETEENTH CENTURY. 6i out consideration or foresight, that, though the few become rich, the many are fearfully impoverished and suffer more from social and economical perturbations than from any natural misfortune. An energetic people, with an unbounded territory around them, begin to develope its resources in earnest, and again carry the process to such a pitch as to be incompatible with the system of profit under which they are work- ing, and the methods of banking attendant thereon. Another collapse follows, affecting populations on both sides of the Atlantic. A means of land transportation, more rapid and advantageous than any before known, is adopted in the wealthiest and most civilised country in the world. The first effect of what should be an advantage to all the inhabitants is first to turn the heads of the entire money-manipulating portion of the population, to force on a mania for speculation of a most injurious kind, and, eventually, in conjunction with other causes, to throw once more thousands of people out of work and into misery and starvation. So little do the governing classes and mercantile men appreciate the situation that they themselves set on foot, with a view to lessen the evils arising from these recurring periods of break-down, a banking arrange- ment which can only be saved from landing the whole country in bankruptcy by declaring its own bank- ruptcy just before this actually occurs. But in this crisis of 1847 we can trace more clearly than heretofore the international and almost world- wide nature of these commercial convulsions. Paris, Amsterdam, Frankfort, and New York, all felt the counterstroke of this primarily English crisis of 1847, 62 COMMERCIAL CRISES OF and the great political revolutionary movement of 1848 on the Continent, which in part assumed a socialistic shape, was preceded by the shock of the economic earthquake that had its centre of disturb- ance in London. Bankruptcies, not only of trading firms, but of industrial concerns, followed. The same causes which had occasioned the upset in English business, outside the great railway mania, were now manifestly at work on the Continent. Banks were compelled to raise their rates of interest on advances to protect themselves ; and that mutual interchange of compliments, in the shape of unloading securities by turns on the various international financial exchanges, became henceforward a permanent portion of the general system of finance. The next great crisis will exhibit this solidarity of markets in a yet more strik- ing manner. Meanwhile, a sort of law of periodicity was be- ginning to be traced. Men had not yet begun to talk of ten years as the trade cycle, but that ups and downs of trade were to be looked for as a necessary accompaniment of the great extension of modern industry and finance was a growing opinion. In England, at any rate, 1815, 1825, 1837 and 1847, in- duced all connected with business to regard similar phenomena of inflation as the almost certain fore- runners of a similar crash in due time. THE NINETEENTH CENTURY. 63 CHAPTER V. THE CRISIS OF 1857. The ten year period from 1847 to 1857 is, perhaps, the most noteworthy period in the history of the civiHsed world, since the discovery of America and the rounding of the Cape of Good Hope entirely changed the outlook for European commerce. It is true that no geographical discoveries were made at all comparable in importance to those which astounded mankind at the end of the fifteenth and beginning of the sixteenth century, neither were there any similar conquests to those of Mexico and Peru to record. But the development of railways, the increase of steam vessels, the great gold discoveries of California, Australia, and New Zealand, had practically the effect of bringing new worlds into connection with the old as well as of stimulating the old-settled communities to extraordinary efforts. Close upon the heels of the crisis of 1847, came the revolutionary shake of 1848, which, notwithstanding the Chartist scare in London on April 10th, had less effect on England than on any other country. In this year, 1848, also began that wholesale emigration of the Irish people to America which has done so 64 COMMERCIAL CRISES OF much to build up the wealth of the great republic of the United States. In 18i7, gold was discovered in California, and in 1849 began that remarkable rush of the most active and adventurous spirits among the young men of Europe and America to the new lands of the golden fleece in the Pacific Ocean, which has had ever since such a great influence on the commerce of the globe. New life was given to enterprise in every direction. Gold-mining is of itself necessarily a wasteful and unproductive emplo3'ment of labour and capital. For gold has little real utility as an article of human consumption, and is only useful in quantity as a medium of exchange and standard of value in regard to other products of human labour. Nevertheless, the direct and indirect effect of these great gold discoveries was to give a tremendous im- petus to trade. Before these discoveries a general shrinkage of prices had set in along the whole range of commodi- ties, and as this was partly due to scarcity of gold, speculations were even indulged in as to the necessity for the abandonment of gold and the substitution of silver as the standard of value and most important cur- rency even in the wealthiest country. The shrinkage of prices was and is due to far more complicated causes than the abundance or scarcity of the precious metals ; but in this particular case it is probable that the quantity of gold in circulation or available, say in the year 1848, was insufficient to maintain the old level of prices as measured in gold, and that, but for the new discoveries, some mechanical difficulties would have been encountered in the endeavour to accom- THE NINETEENTH CENTURY. 65 modate business to the lower plane of prices. But, with the opening up of the new gold fields, all fear of change in that direction was at an end. Gold could now be raised for a time at less labour-cost than ever before in the history of human society; a higher in place of a lower level of prices was on the average established ; and, as all the gold was raised in countries which were inhabited by English-speaking people and with which English traders then had most ad- vantageous relations, England was the nation which benefited in the first instance by the extraordinarily rapid development of California and Australia in the period with which we are dealing. Thanks to the influx of gold which now commenced on a scale quite unprecedented, there was no difii- culty in meeting the demands of the Governments of France and England for currency during the Crimean War ; whereas, but for this, it is the opinion of those best able to judge that the Bank of England would have been forced to suspend specie payments as it did from 1797 to 1819. The gold imports from America and Australia removed all fear of any such suspen- sion. Following upon the discoveries and the emigra- tion came, as has been said, an enormous demand for English commodities, so that the crisis of 1847 and the political disturbances of 1848 were soon foro-otten in the unexampled revival of trade which ensued. In 1851, the lookout was already so favourable that, at the first great International Exhibition held in that year, there was a general outburst of mutual congratula- tions, and some actually thought, and many still more foolishly said, that the era of peace and goodwill among 66 COMMERCIAL CRISES OF men had set in, that wars henceforth would be im- possible, and that those present at the Crystal Palace in Hyde Park were unconsciously celebrating the inauguration of the domination of industrialism as against that of militarism all over the world. The mere fact that such a successful International Exhibition should have been held in London in 1851 was, of course, an evidence of the manner in which the various nations were being knit together in one sense by the bonds of trade, as well as a proof that the means of communication and transport were vastly improving, and abridging distance to an un- precedented degree. But the Exhibition itself did but serve to intensify that national and international competition and anxiety to capture new markets which lie at the root of all the industrial anarchy and crisis that produce periodically the terrible results which no pretence of peaceful intentions can alter. But from 1851 onwards, until the Crimean War began, such was the prosperity in trade that there was really some ground for imagining that the sanguine prophecies of the Cobdenite school would be fulfilled. The output of gold, and with it the demand for Eng- lish goods for America and then Australia, continually increased. Continental trade developed in almost equal ratio, and that German emigration to the United States began which was destined to assume even greater proportions than the emigration from Ireland, and to have a yet more beneficial influence on the fortunes of the Great Republic. Now, too, that ex- port of grain from America to Europe, and particularly to England, began to attain a magnitude which sur- THE NINETEENTH CENTURY. 67 passed even the old export of cotton. The compara- tively cheap food thus provided, even with a rapidly increasino; population, enabled the capitalists to realise enormous pjrofits, and such was the demand for Eng- lish products that the nation was able to bear the bad harvest of 1853, and to pasd through the Crimean War, with its vast expendituie and fearful mismanagement, almost uninjured. There were short lulls in the for- ward rush, but, on tlie whole, there was no check in this long sweep of wealth-creation for the civilised peoples, or rather for the upper and middle classes of those peoples. England, as the chief capitalist coun- try, benefited most by the impetus given to produc- tion and commerce, but other nations had now entered upon the same stage of development, and on the Con- tinent and in the United States riches were piled up to an extent previously undreamed of. For, while gold was pouring into England at the average rate for a series of years of upwards of £25,000,000 a-year, and the total supply of gold in the world was increased by fully one-third in the course of nine years, the demand for capital was also growing in every direction. Improved methods of production, the provision of larger and more rapid steam-vessels for the transport of the masses of raw material and commodities to and fro, the continuous construction of railways, not only in England and the United States, but all over the continent of Europe, gave English capitalists most profitable outlets for their accumulations ; while every new district opened up, and every fresh market conquered, tended to swell the volume of external trade. Home trade also re- 68 COMMERCIAL CRISES OF ceived a progressive impulse from the completion and extension of the main lines of railway, which was an- other feature of this time of amazing development. It is stated that in the five years from 1846 to 1850, not less than £160,000,000 were spent on English railways, and in an astonishingly short space of time the island was covered with the new roads. For the slack time in this branch of the new de- velopment lasted for little more than a few months after the crisis of 1847, and by the year 1855 there were 8,300 miles of railway, nearly all of them with double lines of rails, opened in Great Britain. We are even now, perhaps, too near to these years of sud- den expansion, and also too much accustomed our- selves to the methods which brought it about, fully to appreciate the contrast between what had been and what was. But it is safe to say that a still greater transformation was wrought in the general condition and commercial power of England at this date than had been effected even between the end of the eigh- teenth century and 1837. All the effects of the far- reaching revolution in the methods of production and transportation seemed to be realised at once, and the shrinkage of the planet, as represented by the com- parative accessibilitj' of its parts, became strikingly apparent. Moreover, the influence of the gold discoveries by no means stopped short at the multiplication of the precious metals, and the consequent temporary ease in the money market and inflation in various directions. Those who went forth as gold-diggers soon turned many of them to the production of other wealth. THE NINETEENTH CENTURY. California and the West of America generally, as well as Australia and New Zealand, found that labour ex- pended on the growing of wool and cereals, meat and fruits, represented in the long run a far more certain return than its precarious and economically wasteful employment on mining. It was not so much the gold production itself as the development of new territories to which this gold production led that really increased the wealth of tlie world. It is indeed more than doubtful whether the quantity of labour expended directly and indirectly in the search for gold would not have been better repaid, even to the miners them- selves, by work in other directions. The waste of labour in mere shaft-sinking, which brings no greater benefit to the unlucky prospector than digging a hole and filling it up again, can only be fully appreciated by those who have observed the process going on under their eyes; while the cost of conveying material and food to some of the distant diggings, before rail- ways or even roads were made, rendered the ordinary standard of life of a digger on the gold-fields as dear as the most luxurious cookery in a city in Europe could possibly have been. Thus no sooner were the richer and more accessible alluvial deposits exhausted, the precious metal having then to be sought farther up country or extracted from the quartz by the expenditure of much capital and labour in sinking to considerable depths and the provision of elaborate machinery for crushing and amalgamation, than it was found that in many cases even gold itself can be bought too dear. The exces- sive outlay on these gambling ventures, therefore, 76. COMMERCIAL CRISES 01 tended to help on the crisis which other events were preparing. A careful survey of the countries which now formed a portion of the great world-market shows that the United States, more even than Great Britain, was likely to benefit by this rising cycle of trade and the construction of railways. Improved communications were above all needed to develop the marvellous re- sources of the vast territory which, though it had become more densely populated since the crash of 1837, was still, at the beginning of the upward move- ment of 1849, in great need of further immigration from Europe. This immigration, as has been said, was supplied at first from Ireland, and then more slowly, but more surely, from Germany, England, and Scandinavia. Apart from the savings which these invaluable labourers brought with them, they also, by the outlet which their industry provided, and the vast wealth which it was at once recognised that their settlement in so rich an agricultural and mineral region must create, induced European capitalists, in spite of their earlier experience, to embark in American ventures on a larger scale than ever. As England ceased to produce sufiicient wheat for her needs, America came forward to supply the want; and during the Crimean War, the people of the United States derived great profit from the quantities of food which they were able to furnish without difficulty. The enormous production and export of food stuffs, in the shape of wheat, maize, etc., added to the old staples of rice and cotton, grown by the slave- owners of the South, turned North America into a - THE NINETEENTH CENTURY. 71 huge factory farm, to supply Europe with grain and raw material. In return she took great quantities o£ manufactured articles of all kinds. An increase of wealth per head of population was thus established, unequalled even in Great Britain, and at this time the wealth was far more evenly distributed than it is to- day throughout the Northern States, whose political and industrial preponderance in the Union was becom- ing more marked every year. Republican America, notwithstanding the institution of slavery, was re- garded throughout Europe as the land of promise, and the tidings of her prosperity and rapid expansion encouraged the continuous immigration which still further extended her wealth and prosperity. Here, as elsewhere, the apparent wealth represented by the output of gold tended to increase the activity of the production of real wealth ; and, here as elsewhere, ex- cessive speculation, fraud, luxury, and outrageous extravagance followed ; while too great a proportion of the savings of the well-to-do were again expended on works of permanent utility but slow return, such as railways, for the gain even of the capitalist class. Up to the spring of 1857, with the blindness which is peculiar to such eases, no one saw any sign of the approaching crash. The Americans took good care to let all the world know of their wonderful pro- gress. " A report, published at the commencement of 1857, stated that the year 1856 had given results of which the past had afforded no example. Enormous advance had been made ; the cultivation of new terri- tories, the produce of harvests, the extension of 72 COMMERCIAL CRISES OF factories, the exploitation of mines, the exports and imports, the carrying trade, shipbuilding, the railway returns, the spread and improvement of cities— in a word, anything which can tend to the enrichment of a great country, has received such a vigorous im- pulse that, since the Declaration of Independence, not even the most far-seeing men had ventured to predict the attainment of such a high degree of prosperity. " And, as a matter of fact, statistics seemed to justify this opinion. In the clearing-house affairs of New York there was an increase of 1,300,000,000 dollars or 30 per cent. The imports and exports of New York had risen in 1856 to the extent of 33 per cent., and the railway traffic from 20 to 30 per cent. Not less than 17,600,000 acres of State territories had been sold, an extent equal to that of Belgium and Holland put together. In addition, the Railway Congress had ceded to such States as later wished to build lines 21,700,000 acres of land, which makes up in all 39,700,000 acres, or about a third of entire France. Agricultural and industrial production had kept pace with the progress noted above : it had risen in 1856 to 2,600,000,000 dollars, that is, had increased three- fold in fifteen years. Immovable property was esti- mated at over 11,000,000,000 dollars, and the popula- tion at 27,000,000. The public debt had been re- duced in this year by 25 per cent., that is, to 30,000,000 dollars. The length of telegraph lines exceeded 50,000 English miles. The railways, of which there were upwards of 21,000 miles in 1855, were extended to 24,000 miles in 1856, and the follow- THE NINETEENTH CENTURY. 73 ing table shows their cost to have been the cheapest in the world : English Miles. Cost in Dollars. Cost per Mile. United States (1856) 24,195 846,825,000 $35,000 Great Britain (1855) 8,297 1,487,916,420 179,000 France (1856) 4,038 616,118,995 152,000 Germany (1855) 3,213 228,000,000 71,000 Prussia (1855) 1,290 145,000,000 63,000 Belgium (1855) 1,005 98,500,000 30,000" Such a balance sheet had never before been drawn for any people, and it is not surprising that many heads were turned by it, or that the majority even of cool-beaded men of business thought that, based as it was upon agricultural production, and accompanied by a great increase of population and a simultaneous reduction of the State debt, there was no reason to fear any sudden overthrow. Nevertheless, the collapse was all ready. The very increase of prosperity, not only in agriculture, but in manufacture, the develop- ment of the iron and coal of Pennsylvania, as well as the manufactures of New England; the astounding railway construction, on which the whole nation prided itself, all prepared the way for the crisis which was close at hand. Some of the causes which rendered that crisis so disastrous were common to other coun- tries with the United States ; but the banking system of America tended to make it worse when it came than elsewhere, as its great agricultural resources rendered the revival more rapid. At this time American banks were lending in excess of all reason, and on the 22nd of August, 1857, the 74 COMMERCIAL CRISES OF total loans of the New York banks actually exceeded by 12,000,000 dollars the total amount of specie, notes, and deposits in their coffers. At the same time, how- ever, the note issue was fairly sound in relation to the specie held against them. " The suspension of the banks which soon followed arose, not from the incon- vertibility of notes, but from the wholesale withdrawal of deposits." Bat in America also was seen the bad .side of the gold discoveries. Men forgot that gold will no more feed or clothe or house labourers than an issue of assignats. Gold is in America, as every- where else, only a representation of value and a means of exchange. But the superfluity of gold misled men of business into imagining that an increase of currency, or an accumulation of the precious metals in reserve, meant that the country was really wealthier to that extent and yet more. Thus, on the one hand, the rash policy of the banks of deposit in discounting beyond reason, and, on the other, the abundance of the precious metals, deceived the world of business as to what was in store for it. This state of things was accompanied by the usual chicane and rascality, on which it is not necessary to dwell. But the main causes of the collapse were the same as ever : the incapacity of the heads of the capitalist system to regulate the amount of capital expended on the development of different branches of industry. Over-speculation in every direction was accompanied also by a tremendous accumulation of goods in the warehouses, in anticipation of the higher prices which seemed certain from the success hitherto attained in disposing of commodities. Much of the goods thus The NINETEENTH CENTURY. 7S stored had been obtained upon credit from Europe. At the first serious shake, therefore, down must come the entire edifice on both sides of the Atlantic. At the beginning of August, a time of year when the city of New York is out of season, and men of business are as far as possible away on their holidays, the cri.'iis commenced with a iew small failures. A week later money was so tight, owing to withdrawals of deposits, and the hoarding of gold and silver, that business was carried on with difficulty. On the 24th of August a great bank of high repute suspended payment. Then the panic began in grim earnest. Bankers, merchants, financiers, and stock-jobbers all lost their heads together. The banks restricted their advances and called in their loans ; the rate of discount ran up to 25 per cent. ; bank shares, railway shares, and bonds were unsaleable ; and bank failures, mercantile failures, and traders' bankruptcies were rather the rule than the exception. By the month of October business was at a stand- still, and the most necessary trade could scarcely be carried on, though the warehouses, as usual at such periods, were glutted with goods that nobody could buy.- The rate of interest ran ui) to 60, to 100, per cent. Nobody could melt his bills. Utter consternation set in, aggravated by the great excitability which Americans evince at such times. A run on the soundest banks began such as had never before been experienced. The run began on the 9th. By the evening of the 13th, eighteen banks had come down with an indebtedness to depositors of about 21,000,000 dollars. Remittances could no longer be made to the ?6 COMMERCIAL CRISES OF West, and a fall in prices of commodities from 10 to 35 per cent, had taken place all along the line. Fourteen great railway companies, whose names are well known in London, such as the Illinois Central, the Philadelphia, and Reading, the New York and Lake Eric, and many more also suspended payment. The influence of the crisis upon industry was as bad as it was upon trade, finance, and speculation. Mill after mill had to close or work short time, seeing that after having worked double tides in order to take advantage of high prices and a good market, the manufacturers now found themselves face to face with a shrinkage in the prices of manufactured goods of 15 to 20 per cent, below what it had cost them to pro- duce the goods. Nor was there any prospect of im- mediate improvement, inasmuch that, owing to the falling ofi' of the demand for cotton for the English mills, the price of the raw material seemed likely to fall farther rather than to rise. Miners of all sorts were likewise hard put to it to live ; and, most monstrous irony of all, the finest harvest ever known in the United States, unfortunately, fell in with one of the best harvests ever garnered in Europe. Wheat was consequently unsaleable, and hundreds of millions of bushels were wasted ; while men who badly wanted them were discharged from work. In every branch of industry similar phenomena wei-e to be observed. America had the honour of commencing the worst crisis of the century. It was no long time before England felt the effects of the American crisis, though in this country, as on the other side of the Atlantic, men of business, who THE NINETEENTH CENTURY. 77 ought to have been specially capable of forecasting the course of events, imagined that the difficulties would be trifling, that only American business would be seriously influenced, and this only for a time. While everyone prophesied smooth things, the conditions which rendered a storm inevitable had been prepared. The tremendous fall in American securities, and the shrinkage in the price of commodities all round, seem nowadays quite suflScient to have warned the whole mercantile and financial community that the abnormal extension of industrial eaterprise had been carried far beyond the point of safety, and that, in particular, tlio export trade had been pushed far in excess of what could be immediately absorbed. Similar causes had been at work in England, also, to those which occasioned the collapse in America. Though the mileage of English railways constructed had been small in comparison with those built in the United States, the amount of capital sunk had been much greater, and, unlike that invested in America, had not been borrowed from abroad. In addition, the great gold supply from California and Australia had engen- dered a feeling of over-confidence, based on the gold itself as capital. Further, though the English banks were sound in ;omparison with the American, the conclusion of peace after the Crimean War had brought about, on a smaller scale, similar results to those which were noted ifter the peace of 1815. The war had been a good mstomer for trade. The money borrowed, and the axes levied, had been spent unproductively, it is true, 3ut not more so than if they had been thrown away 7S COMMERCIAL CRISES OF in commanding the production of luxuries for tlie rich. On the other hand, the war had given a great deal of employment to the working-classes in various departments, and had created a demand for commodi- ties which now ceased. At the same time, also, the war with China, and the mutiny in India, upset the Eastern trade. Looking back, therefore, at all the circumstances as they are baldly set forth in the chronicles of the time, the wonder seems to be not that the crisis of 1857 proved so disastrous, by reason of the blunders which were made and the want of foresight displayed, but that it did not result in a still more widespread calamity. The record of the imports ■nto New York alone show the lengths to which over- trading from Europe had been carried. The crisis began in America in August. A little more than two months later, the Liverpool City Bank closed its doors, and then the crash began in earnest in England. Houses connected with the American trade began to fall one after the other in the early days of November. On the 9th of November, 1857 — the date is even still too well remembered in Scot- land — the Western Bank of Scotland, with a paid-up share capital of £1,500,000, and deposits to the extent of £5,000,000, suspended payment, and with it fell its ninety-eight branch banks. Then ensued a panic of the same nature as had been seen in New York, hut affecting the whole population. The savings not only of the well-to-do of the trading and shopkeeping classes, but of the small farmers and workers in all parts of Scotland, had been placed on deposit in these branch banks. Such deposits were transmitted in THE NINETEENTH CENTURY. 79 reat part to Glasgow, to be lent on bills and seen ri- les. No sooner did the alarm commence than the 3cal depositors in the Western Bank and other banks egan to demand the immediate repayment of their eposits. It was out of the power of the bank, though 3S shareholders were among the richest people in Scot- ind and the liability was unlimited, to meet this sud- en rush ; the directors could not get the assistance they sked for, and down came the bank, to the utter ruin f many at the moment, and to the serious injury of he whole country for a long time. On the occurrence of a succession of bankruptcies, he Bank of England found itself exposed to a drain if its gold to Scotland, Ireland, and America, which ushed its rate of discount up in hot haste from 6 per ent. on the 8th of October to 8 per cent, on the 19th, 9 per cent, on the 5th of November, 10 per cent, on he 10th, and 12 per cent, on the 18th. On the 11th if November the banking department was reduced to il,462,153, and its securities held against advances .mounted to £26,113,453. On the 18th its reserve und stood at £1,552,68G, and the securities at over ^30,000,000. The universal panic which set in at this uncture it is needless to describe. All the now amiliar features were reproduced on a larger scale than ver. Money seemed likely to become unattainable ,t any price, and ruin stared even wealthy firms in he face. It is said that the great firm of Overend, Jurney, & Co., of whom more will be heard later on, hreatened failui'e on their own part unless some steps ?ere at once taken to give them immediate accom- aodation. Such a failure at such a time would have So COMMERCIAL CRISES OF involved ruin to so many, and would have brought about such widespread terror, that the Governor and Directors prayed the Government to suspend the Bank Act of 1844, and permit the issue of bank-notes in excess of the amount of bullion to support them. This was permitted on the evening of November 12th on condition that the bank rate was maintained at 10 per cent. An over-issue of £1,000,000 followed, and in spite of all gloomy forecasts, the financial situation at once began to improve. Thus, for the second time since its enactment thirteen years before, had the Bank Act of 1844 to be suspended, and Government securities to be transferred from the banking to the issue department of the Bank of England, in order to forestall a total collapse of credit. But the great crisis of 1857 still lingers in the memory of those who lived through it. The numerous houses which failed just before the suspension of the Bank Act, felt that in some way they had been very hardly treated ; while those which survived had, like the greatest of all, undergone a shake that seriously impeiilled and in some cases eventually wrecked them. Such is the insecurity of this system of pro- duction based upon the constant antagonism between gold and commodities, this system of credit based upon anticipation of profits, this system of banking based on lending deposits made at a low rate of in- terest at a higher rate of interest. And such is the futility of attempting to reconcile the antagonism which lies still deeper in this our modern society, and of which all the rest is but an excrescence, by tinker- ing with a Bank Act. Palliatives of such a system THE NINETEENTH CENTURY. Si lere may bo, but remedy without complete trans- irmation there is none. So long as companies carry out :eat public works for private profit, and the necessary 3ods for societyare produced solelyfor individual gain> ) long will such ups and downs periodically recur. Again for the fourth time in the century was the icapacity of the capitalist class to handle the grow- ig powers of man over Nature to the advantage of iciety clearly exhibited. For the failure of banks id mercantile houses involved the discharge and arvation of workpeople, who for the fourth time in Dout forty years witnessed the very wealth which ley created rise up before them as a monster, dooming lem to wretchedness for a time at any rate. In iaffordshire the failure of a bank stopped work in le potteries, and threw 30,000 workers out. In orthumberland the failure of another bank brought illieries and iron-works to a standstill. " The mis- lief by no means stopped short at the handful of leculators and merchants at the great trading and ipping ports, but extended to the manufacturers hose establishments were brought to a standstill for ck of orders, while the value of their warehoused lods constantly diminished — extended to the carry- g trade, since the foreign trade was in utter stag- ition — extended to thousands of workers who were rown out of work — extended even to the shop- sepers whose business was curtailed owing to the eater thriftiness of their customers." In short archy had full swing in our industrial order, and e organisers of industry threw the whole business ichine out of gear. 82 COMMERCIAL CRISES OF " In the cotton factories the depreciation could not be put at less than £500,000, and in the woollen and silk manufactures, on account of the costly nature of their machines, it can be reckoned at no smaller amount. The last factory reports of April, 1850, gave the total of persons employed in the cotton mills at 870,000, and in October, 1857, in consequence of the increased production, the number may be taken at 390,000, who received an average weekly wage of 10s. 6d. per head. During the last three months of the year 1857, the working-hours throughout this entire district did not exceed 36 hours a week, which involved a loss of £1,064,000 in wages, to which must be added close on £500,000 lost through the decrease in the iron trade, in the consumption of coal, oil, and other materials, as well as what was lost by the stag- nation in the retail trade. The loss to the woollen and silk workers was probably still greater, since, although this industry employed fewer hands, far more hands employed were deprived of the means of earning their bread. The condition of the iron dis- tricts was no better. The Staffordshire Advertiser published a list of 69 blast furnaces which ordinarily gave employment to 28,000 persons in these districts. On the 31st of December they were all out of work. On the same day there were 41 blast furnaces blown out in Scotland, and 16,000 workmen discharged. In South Wales, where the mining industry was carried on as actively as in the above-named districts, a third of the blast furnaces were sliut door, wages were re- duced 20 per cent., and numerous strikes of the miners took place ; while the closing of works in THE NINETEENTH CENTURY. 83 Yorkshire and Durham diminished the wages paid in these counties by £5000 a week. Local newspapers in every part of the country present the same picture. In Birmingham orders were so scarce that the work- men were not employed more than two or three days in the week. In one region the employers discharged part of their workers, in another short time, that is a few days a week, was worked. Public meetings of workers were held to devise means for alleviating the distress, soup kitchens were set on foot, the people were set to work on the public roads, and a vast mass of folk were relieved outside the work-houses. The Poor Law Reports show a significant increase of the poor relieved." (Max Wirth.) It was the same story everywhere. Even the heavy fall in prices could not tempt buyers, though between the beginning of September and the beginning of December Scotch pig-iron fell from Sis. to 48s. a ton, tin from £140 to £114 a ton, cotton twist 18 to 24 per cent., silk 31 per cent., cotton 33 per cent., hides 30 to 37 per cent., wool 16 per cent., sugar 20 to 28 per cent., coffee 1 6 to 23 per cent., tea 16 per cent. The exports fell off in the months of November and December £5,000,000. At the same time the fall in nearly all sorts of securities was phenomenal. Yet gold was still coming from California and Australia in constantly increasing quantities ; the import of gold into England alone from these two countries being upwards of £22,500,000 in this very year 1857. Needless to add that the power of production and distribution, owing to the great and continuous improvement in machinery and means of transport, was even greater than it had been during 8t COMMERCIAL CRISES OF the years of the highest prosperity. The liquidation of course showed that credit had been carried to a monstrous excess, and tliat firms with a capital of £10,000 failed with actual liabilities of ten and twenty times that amount. But the question remains to this day unanswered by the orthodox economists and their successors : Why this inflation yesterday ? Why this stagnation to-day ? Why this excess of exports last year ? Why this diminution this ? Why are the workers in full employment this week? Why are they workless and hopeless the next ? That the answers should never have been correctly given by them is the more surprising, since the crisis of 1857 afiected far more seriously and obviously than either of the preceding crises every country in the civilised world. Thus France, which by the revolution of 1848 had given an impulse to political agitation and social discontent throughout Europe, in the intervening nine years, entered into the whirlpool of international capitalism and credit to an extent which she never had before. Marx's predictions in his masterly pamphlet entitled "XVIII Brumaire" were fulfilled to the letter. The French bourgeoisie had triumphed, first in the establishment by wholesale blood- shed of the middle-class republic, and then in the estab- lishment of the empire by the cold-blooded massacre of December 2nd, 1851. The stagnation and distrust which had set in with the 3'ear 1848 and had since continued now gave place to complete restoration of confidence and credit among the classes in possession. The rate of discount fell, the interest on State loans was reduced, and everythiug was made ready for that THE NINETEENTH CENTUR V. 85 great development of industries, railways, banks, credit establishments and general speculation which completely changed the general character of French business. Hitherto the French people, tlie great majority of whom were hard-working, stingy, frugal agriculturists, had conducted their affairs with the greatest caution and prudence. Speculation had been restricted within the narrowest bounds. The object of the Imperial coterie, as well as of the men of business immediately interested, was to change this. To give the workers plenty of work, and the middle-class plenty of business and profit, was the best way to bring about forgetful- ness of the past and to establish confidence for the future. The Bank of France, an institution of the 50undest character, managed under State control on the most cautious and conservative lines, was soon surrounded by institutions of a very different char- acter, and that influence of the corrupt and greedy German Jews, whom M. Drumont and others have of late so bitterly, but not unjustly, denounced, was Srmly established in Paris under the special patronage Df the Emperor's most intimate associates, Morny and Persigny. In view of what has occurred since 1870, :he rascalities of the Emperor's entourage seem less ibominable, comparatively, than they did at the time ; md, at any rate, they were, like other financial rogueries, a mere embroidery upon the main sub- stance of capitalistic chicane. Such institutions as ;he Credit Mobilier and the Credit Foncier had powers 'ar exceeding those of any ordinary bank or credit jstablishment. They necessarily were the outcome of 86 COMMERCIAL CRISES OF an expansion of the system of loans and credit, and themselves pushed to an extreme the tendency of which they were the result. The idea at the time was that they were in nowise subject to the influence of political or financial crises as even the Bank of France necessarily was, and they started off" on their career of fostering the industries and increasing the development of France with an amount of success which justified their foundation. Their means for carrying out their operations of found- ing industrial undertakings, of selling and buying all sorts of enterprises and their shares by the issue of their own shares, and for conducting banking busi- ness of every description, were the paid-up capital of £2,400,000, the issue of bonds, and their deposits and current accounts. This Credit Mobilier paid 10 per cent, the first year, 1853 ; 13 per cent, in 1854 ; 47 per cent, in 1855 ; 24 per cent, in 1856 — and then came the crash. During the interval vast sums were in- vested in France in railways, and numbers of great industrial companies were formed to carry out every sort of business, and that rebuilding of Paris was begun which entirely changed the appearance of the city at the cost of millions sterling. On French rail- ways £20,000,000 were spent in 1855 and £21,000,000 in 1856. For France, like England, suffered com- paratively little from the Crimean War, to all appear- ance, while it lasted. Over 1,100 miles of railroad had been built, and in addition to the war loans and expenditure on the development of home industry, millions sterling had been lent to foreigners. When, therefore, the crash came in England, France followed THE NINETEENTH CENTURY. 87 nthe same line, and Paris and the other great French ities felt that stagnation of trade, that discharge of irorkmen, that general glut of commodities which had Iready manifested themselves in England and the Jnited States. But precisely the same phenomena were exhibited Q Germany, in Prussia, in Austria, in Belgium, in taly, and even in Scandinavia. No country escaped rom this new form of epidemic. For in each and all, .ceording to their degrees, the development of industry lad favoured the growth of banks and credit estab- ishments, and again the foundation and growth of hese credit establishments had unduly enhanced pro- luction viewed from the standpoint of profit-making. ?he shrinkage of prices which now occurred in one aarket was felt in all. Manufacturers who had been urning out goods on one level of values had suddenly accommodate themselves to another and lower scale, 'he crisis was only more noteworthy in Hamburg han in other German cities, because Hamburg, like jiverpool, was more closely connected with the American trade. The silver mining countries were .0 more exempt from the consequences of the uni- ersal overtrading and undue development of credit han were those which had a gold standard. From lurope the effects of the crisis spread even to Asia, ndia, and China, as well as the Australian colonies, nd South America, underwent a period of bad trade y reason of the disturbance at the centre of the com- lercial system of the world. In all the European countries and in America the ime results were observable. Republic, constitutional COMMERCIAL CRISES OF monarchy, or despotism, all suffered alike. Forms of government, banking systems, silver or gold standard were equally of no avail against the industrial crisis. Lack of currency could not be urged as a reason for dull times, when millions of gold a month were com- ing forward to be minted. Insufficient facilities of credit could not be claimed as the cause of the mis- chief, when banks and discount houses were wildly competing for mercantile bills. Deficient transport and means of communication could no longer be pointed to as the manifest occasion of a local glut. The civilised world could produce more wealth with less labour than ever before, and still society in 1857, as in the three previous decades, had been over- mastered by its own productive forces and compelled to go into liquidation for a time. It is this which lends special significance to the crisis of 1857, that even a superficial analysis of the circum- stances leads to tlie elimination of currency, of bank- ing, of credit merely as credit, of political forms, of lack of agricultural land, of protection or free trade, as the primary cause of crisis. An examination of these various points and their bearing upon industrial crises, their extension, their restriction, their palliation, cannot but be interesting ; but the real solution of the difficulty lies none the less in the theories set forth in the introduction to this volume. THE NINETEENTH CENTURA. S9 CHAPTER VI. THE CRISIS OF 1866. T is no easy matter for a society accustomed to cer- ain definite arrangements, especially when those ar- angements deal with such apparently complicated natters as currency, banking, bills of exchange, and he like, to understand how the present system has Town up or upon what it is really based. So natural o-day is it for all the well-to-do classes of this country deposit their savings in a bank and to have an ecount there, that they can scarcely believe that in I'rance, with all its civilisation, such a proceeding is ven now the exception rather than the rule. Banks, Q fact, were not originally established to take de- losits, and if they had been they would not have got hem. The Italian banks of the Middle Ages were stablished in order to make loans to the various fovernments of the cities ; the banks of Northern lurope were all set on foot to maintain an uniform arrency with which to pay bills of exchange in good loney; receiving the bad and debased coin at its itrinsic value, and, after making certain charges, [■editing the merchant who thus transmuted his ad coin into good with the balance in the books of le bank. In the same way banks acted as the ransmitters of payments for goods to long distances. 90 COMMERCIAL CRISES OF Out of these necessities and the conveniences which they engendered, the banking system arose and was maintained. And, so soon as this banking system grew and extended, international trade began to assume its modern aspect ; for the goods which were exchanged were estimated for the purpose of such exchange in gold or silver, and thus slowly the wider international price was substituted for the fluctuating price of the local markets. By degrees, therefore, these banks, whether origin- ating in the ways above-named or as goldsmiths and pawnbrokers, developed into the huge joint-stock shareholders' banks of to-day. Private banks having been entrusted with remittances and bank money, or the money necessary to meet bills of exchange, were next entrusted with plate and funds deposited at call. To lend this would, at first, have been regarded as to the full as dishonest and dangerous as it would be to-day for a banker to borrow on his client's securities. But gradually this, too, came to be a portion of the banker's business in addition to his other businesses : to receive deposits of money for safe custody from his clients, and to lend out, what was learnt by experience to be a safe proportion of such deposits on the open market by discounting mercantile bills for other clients, or by lending upon securities realisable upon the market on arranged terms. But the extension of the banker's business in this direction tended rapidly to diminish the relative im- portance of his other business. Receiving money on deposit and lending it out again at a profit became so large a part of the banker's daily business that a THE NINETEENTH CENTURY.