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ESSAYS AND ADDRESSES 
 
 ON 
 
 ECONOMIC QUESTIONS 
 
ESSAYS AND ADDRESSES 
 
 ON 
 
 ECONOMIC QUESTIONS 
 
 (1865—1893) 
 
 WITH INTRODUCTORY NOTES 
 
 (1905) 
 
 BY THE RIGHT HONOUllABLE 
 
 VISCOUNT GOSCHEN 
 
 LONDON 
 EDWARD ARNOLD 
 
 41 AXD 43 MADDOX STREET, BOND STREET, W. 
 
 1905 
 
 \All rights reserved] 
 
 tl 
 
''^ll 
 
 10^%^ S' 
 
PREFACE 
 
 The collection of Essays and Addresses contained 
 in this volume may be described with sufficient 
 accuracy as ' On Economic Questions,' for they treat 
 of banking, currency, commercial crises, the distribu- 
 tion of trade-profits, the effects of joint-stock enter- 
 prise, of ' Laissez-faire ' and Government interference, 
 and cognate topics, all of which have interest for 
 the economic student ; but they were not composed 
 from the point of view of a trained and scientific 
 economist. To the latter title I have never been 
 able to lay a claim. Throughout my treatment of this 
 class of subject I have regarded them from the stand- 
 point of a practical man of business, or of a public 
 servant anxious to inquire into financial, economic, 
 and social facts with a view to their bearing on matters 
 of administration or legislation, rather than as an 
 exponent of systems of Political Economy or as the 
 adherent of any special school of thought. I have 
 given more study to the examination and classification 
 of facts than to the investigation of the more abstruse 
 problems of political economy, and it has been on the 
 analysis of complicated phenomena that I have 
 bestowed most attention in my excm-sions into the 
 domain of economics. 
 
 My first excursion in this direction was my treatise 
 
vi PEEFACE 
 
 on The Tlieory of Foreign Exchanges, published in 1863. 
 I was at that time at the head of a large City firm 
 mainly engaged in international banking, and enjoyed 
 the opportunity of studying practically what to many 
 men other than experts are apt to seem extremely 
 intricate problems, too deep for the ordinary under- 
 standing. Gratitude for the training which I received 
 at my old University, whose teaching is too often 
 denounced as unpractical and as not quaHfying men 
 for the business of life, prompts me to place on 
 record that I have always attributed such abihty as 
 I possessed in respect of dissecting complex monetary 
 phenomena into their simple elements, and of pre- 
 senting them in clear and intelligible phraseology, to 
 the various mental processes through which I was 
 put at Oxford. I ' construed ' commercial documents ; 
 I subjected bills of exchange to logical scrutiny; 
 I discerned in them as they daily came under my 
 notice, not simply instruments in the ordinary trans- 
 actions of my firm, but records, well worthy of 
 scientific and systematic study in a survey of the laws 
 of the money-market and of international commerce. 
 To trained men of business, at once experienced and 
 thoughtful, the work contained Httle that was new : 
 indeed a well-disposed but outspoken critic in my 
 own family expressed frank surprise at the success of 
 the book — it dealt with such everyday operations 
 and with such obvious laws. Yet the work passed 
 through many editions, and was translated into many 
 languages. Its success was due to a popular analysis 
 of the seemingly abstruse. The main contents of the 
 
PEEFACE vii 
 
 present volume, so far as they are not historical, are 
 the results of the application of a similar process. 
 
 It will be seen from my frequent allusions to the 
 necessity for the rigorous employment of this method, 
 especially in the case of statistics, what great weight 
 I attach to constant, industrious dissection of figures. 
 If in the perusal of the following pages it should be 
 thought that occasional presentments of somewhat 
 antiquated materials are an anachronism, I trust my 
 plea may be accepted, that, as illustrations of economic 
 analysis, they may retain some little value. 
 
 When I wrote Tlie Theory of Foreign Exchanges, I 
 had read extremely little Political Economy except 
 Aristotle and John Stuart MiU, and I have never been 
 a regular student of the literature of the science. Such 
 views as I have formed, and such work in this depart- 
 ment of knowledge as I have been able to place before 
 the public, have been, in the main, the results of indi- 
 vidual study, observation, and analysis. I feel it 
 incumbent on me, whilst taking the bold course of 
 republishing addresses on economic subjects written 
 and delivered for special occasions, and not as taken 
 from a storehouse of well-thought-out and consistent 
 theory, to make this confession and explanation, so 
 that the reader may not expect such scientific or 
 elaborate treatises as the title might imply. 
 
 The essays and addresses contained in this volume 
 range, as regards the date of their composition, between 
 1865 and 1893. They are not arranged chronologically, 
 but are grouped according to the subject-matter. The 
 
viii PEEFACE 
 
 four first are descriptive of episodes in banking, mone- 
 tary, and currency history. They are followed by two 
 addresses dealing with the conditions and prospects of 
 trade twenty years ago — with some special reference to 
 Colonial markets premonitory of the present phases 
 of the Colonial question — and with the distribution 
 of profits and the proportionate growth of income, 
 attaching to different classes of the community. The 
 last three belong more specifically to that branch of 
 Political Economy which deals with the application 
 of economic laws to the various aspects and require- 
 ments of social life in special relation to the claims 
 and influence of ethical considerations. 
 
 The essays and addresses are republished ^ vrithout 
 any omissions of substance. They contain in an 
 unvarnished, unrevised form opinions to which I have 
 given utterance on various subjects during the last 
 forty years. I have resorted to curtailment in cases of 
 redundancy or of illustrations of temporary interest, 
 superfluous to the reader of to-day. Where it appeared 
 desirable, I have freely corrected obscure passages 
 (mainly in the spoken addresses), but I have absolutely 
 refrained from any correction which would modify 
 the sense of any view expressed. 
 
 I have prefixed in every case an Introductory 
 
 * The addresses on ' The Condition and Prospects of Trade,' on 
 'Laissez-faire and Government Interference,' and on 'Insurance : 
 Voluntary or Compulsory?' were printed in a collection of 
 addresses on educational and economic subjects published by 
 Mr. Andrew Elliot, of Edinburgh, in 1885. 
 
PEEFACE ix 
 
 Note, and in some instances I have added a Supple- 
 mental Note, with the object of bringing the Hght 
 of the present day to bear upon these studies of the 
 past, and of tracing either the continuity or the 
 divergence of influences which were conspicuously 
 operative in earlier days. In one instance, where 
 statistics played an important part, I have brought the 
 statistics up to date ; in others, I have briefly carried 
 forward the history of the movements described, or 
 pointed to the contrasts between prevalent opinions 
 at different dates. This task had to be performed 
 within limits which prevented any great elaboration, 
 but it is hoped that such comparisons may not be 
 without some interest. 
 
 I have not attempted to exclude a certain personal 
 note from the fresh matter which I have included in 
 this volume. If the examination of the successive 
 developments traceable to past phases of commercial 
 and social history of which I have been an eye- 
 witness should appear to have, in some respects, the 
 character of an autobiographic retrospect, I trust I am 
 not wrong in my impression that such retrospects on 
 the part of those who have been its servants are not 
 always unwelcome to an indulgent pubhc. 
 
 Sq>t. 1905. 
 
CONTENTS 
 
 SEVEN PER CENT. 
 
 PAGE 
 
 Inteodtjctoey Note . 1 
 
 Essay eepeinted feom the 'Edinbueqh Eeview' op 
 
 Januaey, 1865 10 
 
 TWO PER CENT. 
 
 Inteoductoey Note . 48 
 
 Essay eepeinted feom t^he ' Edinbuegh Review ' op 
 
 Januaey, 1868 57 
 
 OUR CASH RESERVES AND CENTRAL STOCK 
 OF GOLD, 
 
 Inteoductoey Note 102 
 
 Speech deliveeed at a Banquet op the Leeds Chamber 
 
 op Commeece, Januaey 28, 1891 .... 105 
 
 Supplemental Note 127 
 
 THE DEPRECIATION OF SILVER. 
 
 Inteoductoey Note .131 
 
 Essay eepeinted feom the ' Edinbuegh Review ' or 
 
 OcTOBEE, 1876 133 
 
 Supplemental Note 179 
 
 THE CONDITION AND PROSPECTS OF TRADE. 
 
 Inteoductoey Note 185 
 
 An Addeess delivered befoee the Manchester Chambee 
 
 op Commeece, June, 1885 189 
 
xii CONTENTS 
 
 THE INCEEASE OF MODERATE INCOMES. 
 
 PAGE 
 
 Inteoductoey Note 217 
 
 Inaugural Peesidential Addeess to the Statisticai, 
 
 Society, delivered DECEotBER 6, 1887 . , , 222 
 
 A Supplemental Study ....... 243 
 
 Appendices I and II 263 
 
 LAISSEZ-FAIRE AND GOVERNMENT INTERFERENCE. 
 
 Introductory Note 282 
 
 An Address to the Members op the Philosophical 
 
 Society at Edinburgh in 1883 294 
 
 ETHICS AND ECONOMICS. 
 
 Introdpctoey Note 826 
 
 Presidential Address delivered before the British 
 
 Economic Association, June 14, 1893 . . , 328 
 
 INSURANCE: VOLUNTARY OR COMPULSORY? 
 
 Introductory Note 342 
 
 A Speech delivered at the Dinner of the Annual 
 Movable Committee of the Manchester Unity op 
 Oddfellows at Reading, June 3, 1884 , . . 344 
 
SEVEN PER CENT. 
 
 Intkoductory Note. 
 
 The two first articles in this volume, 'Seven per 
 cent.' and ' Two per cent.,' form two companion pic- 
 tures portraying some notable scenes from the history 
 of City finance in the course of the sixties, a period of 
 violent fluctuation between extreme excitement and 
 deep discouragement for the business world. Tem- 
 pestuous and reckless activity was followed by pro- 
 longed and almost imparalleled reaction. The years 
 1863 and 1864 witnessed an extraordinary expansion 
 of the principle of Limited Liability. The Joint- 
 Stock Companies system invaded every department of 
 banking, commerce, and industrial enterprise ; and this 
 movement, with other circumstances described in the 
 first article, landed the money-market in an average 
 rate of interest of seven per cent, for the year 1864. 
 Before I resumed my pen to review the monetary 
 position during the year 1867, credit had suffered 
 a terrible breakdown, the effects of which were so pro- 
 longed, and paralysed business to such an extent, that, 
 in the absence of all enterprise on the one hand and 
 the prevalence of universal distrust on the other, the 
 rate of interest during 1867 had sunk to two per cent. 
 Forty years separate us from the culminating year 
 of that stormy decade. Experience has thrown light 
 upon the permanent working of some of the forces 
 which were then comparatively in their early growth. 
 The mental attitude of the business world towards 
 
2 ESSAYS ON ECONOMIC QUESTIONS 
 
 some of the conditions which then prevailed has 
 undergone much change. Salutary lessons have been 
 taught, and part of their teaching, though not all, has 
 not been forgotten. But are we so remote from the 
 crises both of recklessness and reaction which were 
 traversed in those days as to deprive contemporary 
 records, which defined their character, of interest to 
 the man of to-day ? I think not. As a mere matter 
 of history, they may possibly deserve attention ; but 
 apart from history, it may possibly be found that these 
 records deal with subjects which have been under 
 continuous discussion ever since, and have scarcely 
 less bearing on the present world of business than 
 they had in the times with which they were con- 
 cerned. 
 
 Conspicuous amongst these questions are the con- 
 stitution of the Bank of England and our currency 
 laws. I was a director of the Bank of England in 
 1865, and a great part of the article which I wrote 
 in that year was a defence of our currency system 
 then in force. The main principles which I defended 
 then I still hold to-day, though, as Chancellor of the 
 Exchequer in 1888, I contemplated some modification 
 in the laws ; and I rejoice to think that amidst all the 
 changes and chances of business life ' the Old Lady of 
 Threadneedle Street,' as the Bank of England used 
 to be caUed, has justified the principles which were 
 committed to her guardianship by the Bank, Charter 
 Act of 1844. The enormous development of joint- 
 stock banks has altered her position as regards 
 actual banking, but as regards what is technically 
 called the Issue Department — the department con- 
 nected with our currency — the Bank of England 
 stands precisely where she stood after the legislation 
 of 1844. 
 
SEVEN PER CENT. 
 
 In order that laymen in such matters may more 
 easily grasp the argument in the following pages, it 
 may be expedient to state briefly here the cardinal 
 conditions under which the Bank of England acts. 
 
 It is authorized to issue a certain amount of bank- 
 notes against Government securities, apart from its 
 store of gold. This is called 'the fiduciary issue.' 
 Beyond that amount every note must be represented 
 by gold. Of course the underlying principle is that 
 the holder of every note can present it at the Bank, 
 and demand gold in exchange. The amount authorized 
 by law to be issued against Government securities, 
 over and above the stock of gold in the vaults of 
 the Bank, is the proportion of the total issue which 
 may be expected always to remain in the hands of 
 the public, and never to be presented for exchange 
 into gold. The sum fixed in 1844 was £14,000,000. 
 The only addition made during the last sixty years to 
 the amount which the Bank issues against securities 
 alone, has been an amount equivalent to two-thirds of 
 the ' lapsed issues ' of country banks \ the principle 
 being that, if these banks ceased from any cause to 
 continue their issue, a portion of the notes thus with- 
 drawn from circulation might safely be replaced by 
 
 * At the passing of the Act of 1844 the currency included, as it 
 does still, a certain amount of notes issued by country banks. 
 Since 1844, £4,450,000 has been added to the 'fiduciary issue' 
 of the Bank of England under this clause, but a larger amount 
 of private issues has lapsed. The figures are as follows : — 
 
 Total of fixed issues under 
 the Act of 184=4. 
 
 Bank of England . 
 207 private banks . 
 72 joint-stock banks 
 
 £ 
 14,000,000 
 5,153,417 
 3,478,230 
 
 Total £22,631,647 
 
 Total of fixed issues and sur- 
 viving Banks in 1905. 
 
 Bank of England . 
 16 private banks . 
 18 joint-stock banks 
 
 £ 
 18,450,000 
 656,512 
 1,099,440 
 
 Total £20,205,952 
 
 B 2 
 
4 ESSAYS ON ECONOMIC QUESTIONS 
 
 Bank of England notes not represented by gold. Other- 
 wise at the present time, with transactions multiplied 
 almost beyond beUef, the laws governing the circula- 
 tion practically remained unchanged. The total of 
 the fiduciary issue of the Bank of England and of the 
 private banks together is about £2,206,000 less than 
 in 1860. 'Is it possible,' it may be asked, 'that 
 the Bank of England can be limited now to almost 
 the same amount as it was in the year 1844 ? Is it 
 possible that more elasticity should not be indis- 
 pensable — an expansion commensurate with the ex- 
 pansion of trade ? ' The answer is simple. We have 
 in effect a gold circulation ; the notes beyond the one 
 fixed amount represent gold in the vaults, and, that 
 being so, the circulation is as large, as unlimited, as 
 the gold which we can command. The attacks on the 
 Bank often allege that it is conducted on a cast-iron 
 system. But the system is not cast-iron. It is as 
 elastic as our power to draw gold to this country, and 
 that power has no limits. When the community 
 requires more circulation, more gold must be drawn 
 to this country by the operation of the foreign ex- 
 changes and by the raising of the rate of interest, as 
 is now weU understood ^ 
 
 Of counter-proposals to increase the fiduciary issue 
 — the notes represented by securities alone — in order 
 to avoid the painfully stringent measures in regard to 
 
 ' The Bank of England notes in circulation at the end of the 
 first half-year of 1905 amounted to ^30, 700,000. (The average for 
 the half-year would be less as the circulation always expands at 
 the end of a quarter.) The average amount of Bank of England 
 notes in circulation during the years 1863-1868 was about 
 X22,200,000. ^ As the public has lost the use of a large amount 
 of notes of private banks, whose issues have lapsed, it will be seen 
 that, looking to the gigantic increase in the total trade of the 
 country, the increase of notes required for its conduct is singularly 
 small. 
 
SEVEN PER CENT. 5 
 
 the rate of discount, which are requisite to attract 
 gold in time of pressure, something will be read in 
 the article itself. It is an old story, currency laws 
 held responsible for over-trading, clamour for changes 
 to extricate the too sanguine speculator who thmks 
 it a scandal that, so long as he has anything on which 
 to borrow, he should not be able to obtain bank-notes 
 from one source or another. AUusions wiU also be 
 found to the suspension of the Bank Charter Act 
 on several occasions of extreme pressure, that is to 
 say, to the authorization by the Chancellor of the 
 Exchequer of an extra issue under very severe con- 
 ditions as regards the rate of interest to be demanded 
 of borrowers — in other words, a temporary increase of 
 the fiduciary issue beyond the legal limit — an extreme 
 measure, taken not to supply the improvident with 
 cheaper money or to produce greater ease, but justifi- 
 able only under extraordinary circumstances to avoid 
 a universal crash. 
 
 It must be understood that these observations only 
 state the laws as regards our note circulation in the 
 briefest and crudest form. They are ofiered simply 
 as a clue to laymen, unversed in the subject, to so 
 much of the following pages as touches the con- 
 troversies which in those stormy times raged round 
 the constitution of the Bank of England. Even to 
 business men, I have been told, the working of the 
 system is not universally famihar. 
 
 The fundamental principles of currency in their 
 international aspect, the flow of the precious metals 
 from one country to another and the laws which 
 govern its tides, are illustrated in the following article 
 from other points of view besides that of the Bank 
 of England. A very celebrated French financier, 
 M. Pereire, had put forward some starthng doctrines 
 
6 ESSAYS ON ECONOMIC QUESTIONS 
 
 in those years with reference to the establishment of 
 a maximum rate of interest and the duties of a national 
 bank. As will appear, M. Pereire was not only the 
 founder of the gigantic Credit MobiHer of France, not 
 only a negotiator of immense foreign loans — he was at 
 the same time a professor of some of the most attrac- 
 tive doctrines of Saint-Simonianism, a champion of the 
 highest, if somewhat Utopian, philanthropy. I probed 
 his proposals as regards bank reforms somewhat ex- 
 haustively, because they afforded an unrivalled example 
 of the cardinal heresy as to currency which I was 
 combating, the heresy that to a business community, 
 indissolubly connected with foreign trade, any artificial 
 laws or arrangements could enable liabilities which, 
 ex hypothesi, included international liabilities, to be 
 faced and discharged without such natural action as 
 would afford the only certain means for their immediate 
 discharge, that is to say, the procuring of a supply of 
 means of payment which are universally accepted, in 
 other words, the precious metals. I devoted much 
 space to this refutation. I have somewhat condensed 
 the exposition in this reprint, but notwithstanding the 
 oblivion into which, in this country at least, M. Pereire 
 may have fallen, I have allowed the substance to stand, 
 as a full and still applicable illustration of the views 
 which I have held from my first initiation into banking 
 business, on some of the fundamental laws on which 
 in my judgement a safe currency must rest. 
 
 Another subject to which I gave prominence was the 
 effect of the expansion of the joint-stock company 
 system on the various conditions of the money-market, 
 and the fresh directions which it gave in many respects 
 to the commercial and industrial enterprise of the 
 country. The development of limited liability made 
 a deep impression on me from the first, as constituting 
 
SEVEN PEE CENT. 7 
 
 an extremely important factor, not only in the nar- 
 rower world of business, but in the distribution of 
 wealth in the community at large. The earlier con- 
 sequences of the system formed the principal burden 
 of my article on ' Seven per cent.' in 1865, and again 
 came under revision in the companion picture ' Two 
 per cent.' in 1868. But the continuous and wider in- 
 fluences exercised by the fundamental change wrought 
 by the transfer of an enormous proportion of our 
 industry and commerce from private individuals and 
 firms to public companies v\dth their myriads of share- 
 holders, will be found to be treated very fully in my 
 address on the ' Condition and Prospects of Trade,' de- 
 livered in 1885, and still more so in that on 'The Increase 
 of Moderate Incomes ' in 1887, both reprinted in this 
 volume. I have always been as greatly struck by the 
 economic consequences of the change as by its banking 
 effects, far-reaching as the latter have been. Its in- 
 fluence on the distribution of profits over an ever- 
 widening area of the population should never be 
 overlooked. With aU its dangers, with some dele- 
 terious influences on commercial character, with its 
 temptations to the foolish, and its opportunities for the 
 dishonest, it has nevertheless enormously increased 
 the number of those who participate in the business 
 profits of the nation, and, pro tanto, has checked 
 accumulations in the hands of a more restricted class. 
 But this is to forestall an argument which will be found 
 later. 
 
 It was in the year 1864 that the movement first 
 reached a sensational point. The reader may possibly 
 consider that I have described it with a somewhat 
 more exuberant pen than I should employ now with 
 my judgement steadied by forty years' observation^ 
 
8 ESSAYS ON ECONOMIC QUESTIONS 
 
 It was difficult for any one surrounded by such swift 
 and gigantic developments at once to gauge the issues 
 to wliich they might lead. I attempted to lay down 
 general principles, and to point out the logical sequences 
 and the disturbing causes which might affect such 
 sequences ; and when in 1868 I had to paint a different 
 picture, when the phenomenal expansion of enterprise 
 in 1865 had been followed by a terrible reaction, I was 
 able, as will be seen, to point out that in my review of 
 the feverish activity and the prevalence of an abnormal 
 rate of interest in the earlier year, I had specified 
 conditions under which a breakdown would inevitably 
 take place and the value of money fall. But I made 
 the error of attributing too much importance to the 
 new development in its bearing on our business with 
 foreign countries, and to the prospect of its keeping 
 the rate of interest at home in closer relation to the 
 rates of interest current abroad. Such a tendency 
 seemed inevitable, as the argument in the following 
 pages wiU show ; but I foresaw and pointed out that 
 a breakdown of credit amongst mnltitudinous com- 
 panies organized to lend capital to foreign borrowers 
 would check the movement ; and when not only 
 a breakdown but a veritable catastrophe occurred, 
 the effect of joint-stock companies in raising the 
 value of capital at home by pouring it out even to safe 
 and solvent borrowers abroad disappeared in 1868. 
 While much British capital has been, and is still, 
 periodically invested abroad, the consequence of such 
 investments has not, so far as I can judge, exercised 
 such an equalizing tendency as regards the value of 
 money as the terms of my argument on that sub- 
 ject, though accompanied by many strongly-expressed 
 qualifications, might seem to have contemplated as 
 possible. 
 
SEVEN PER CENT. 9 
 
 Lastly, I woTild request the reader in his perusal of 
 both the two following articles to bear in mind how 
 greatly the distance of forty years must affect the per- 
 spective of the events recorded, and especially the 
 standards by which the dimensions of transactions 
 should be gauged. The bulk of our trade has increased 
 so enormously that what in 1865 seemed gigantic 
 operations do not appear abnormal by the measure- 
 ments of to-day. It may not be easier when studying 
 chapters in monetary or financial history to discard 
 our own familiar standards, and to weigh the period 
 under review without reference to the conceptions of 
 the present, than it is in other departments of history. 
 Thus the contemporary superlatives or other strong 
 expressions which reflect the impressions made by 
 monetary transactions and the volume of business in 
 the sixties should not excite surprise. They are part 
 of a truthful record, written on the spur of the moment, 
 which, I hope I may say, faithfully depicts the atmo- 
 sphere of the business world at that time ; and, indeed, 
 these articles might in a sense be regarded as part of 
 my personal reminiscences. 
 
SEYEN PEE CENT. 
 
 Eepeinted fkom the 'Edinbuegh Eeview' of 
 January, 1865, 
 
 A YEAR ago a sagacious observer of our financial 
 condition wrote : ' The pecuniary year 1864 opens 
 under remarkable circumstances. The year 1863 has 
 left us a legacy of three powerful mercantile causes. 
 First, we are buying cotton largely in new coun- 
 tries ; secondly, we are promoting companies in vast 
 numbers ; thirdly, we are considerably extending our 
 general export trade, not only with a few countries, 
 but with almost all countries — with the world at large. 
 It is right that we should consider clearly what the 
 combined effect of these three causes is likely to be.' 
 The writer concluded with a prophecy which we are 
 now in a position to review, ' that the year would be 
 a serious, though not an alarming year, that our trade 
 would probably be very large and very profitable, but 
 that against this we should have to set the possible 
 consequences of a long period of dear money.' 
 
 It may be thought that the late year has been not 
 only serious, but even alarming. Probably in no 
 former instance has there been so much agitation 
 without any actual crisis. Not only has money been 
 dear, but, if we except the few weeks in 1857 during 
 which the rate of interest rose to 10 per cent., even 
 dear beyond precedent. The average rate of 1864 
 exceeded seven per cent., a considerably higher average 
 than that of any year within English banking memory. 
 
SEVEN PEE CENT. 11 
 
 Trade has been carried on under a continual sense of 
 pressure and coming danger. We have witnessed all 
 the well-known symptoms of an anticipated panic. 
 During weeks and months a general tone of anxiety 
 and foreboding pervaded City articles and financial 
 journals, and not in financial circles only, but generally 
 throughout society, a vague impression prevailed that 
 there was something wrong in the City. Abroad the 
 same feeling was prevalent, and Paris, Frankfort, and 
 Amsterdam, not only trembled for themselves, but 
 above all things trembled for London. In all quarters, 
 under the belief that some change for better or worse 
 must immediately arise, and that a continuance of the 
 existing state of things was unnatural and impossible, 
 there was a growing tendency to exaggerate and mis- 
 interpret every symptom, till under the lassitude of 
 increasing apprehension, the crisis which seemed for 
 ever impending and never to come, was almost in- 
 voked. Manchester cried that her industry was 
 paralysed. Liverpool, if the Bank Act were not 
 suspended, prophesied the collapse of her trade. The 
 provinces telegraphed anxious inquiries to London 
 about failures which had not occurred, and London 
 retaliated by curtailing her credits to the provinces. 
 Banks were almost ruined by the repeated assertion 
 of their incapacity to meet their engagements, and 
 men made up their minds that it would be impossible 
 to clear off the aggregate liabilities of commerce with- 
 out a catastrophe. The experience of former years 
 was constantly appealed to, in order to prove that the 
 same phenomena portended the same end, and that 
 the sequence of events in 1847 and 1857 would also 
 be the sequence of 1864. 
 
 For this almost universal anxiety there was un- 
 doubtedly some ground. Without question the 
 
12 ESSAYS ON ECONOMIC QUESTIONS 
 
 engagements of the country had been unprecedentedly 
 large, and that at a very critical time. The interrup- 
 tion of the cotton trade, far from contracting the 
 liabilities of the country, as might naturally have been 
 expected, had on the contrary actually increased them 
 by the new forms of foreign commerce to which it 
 gave birth. Egypt and India and other countries 
 comparatively new to the cotton trade, taxed the 
 paying powers of this country far more than America. 
 For America in the general course of trade took 
 payment not in bullion but in manufactured goods ; 
 and a comparative want of organization in the infant 
 trade prevented that economy of circulation, which the 
 old-estabhshed current of commerce between America 
 and this country had carried to so high a perfection. 
 Besides this, the general trade of the country, in spite 
 of high rates of interest, in spite of the constant 
 apprehension of danger, had continued to all appear- 
 ance on an undiminished scale. We need hardly 
 observe, that the transactions of our general commerce 
 cannot be suddenly curtailed. Our engagements under 
 the present system of credit necessarily extend far 
 into the future, so that a time of pressure cannot at 
 once visibly produce the phenomenon of a sudden and 
 general contraction ; and as an immediate contraction 
 was supposed to offer the only escape from a money 
 crisis, the slow progress made in the reduction of our 
 liabilities could not fail to produce anxiety. The 
 effect of these somewhat disquieting circimistances 
 was heightened by the apprehension felt with regard 
 to the working of the new financial companies which 
 in the year 1863 suddenly attained such an extraordi- 
 nary expansion. Would these companies, it was 
 asked, be guided by the same rules of prudence which 
 the experience of former critical years had taught 
 
SEVEN PEE CENT. 13 
 
 older establishments, or would the hopes of enormous 
 dividends, and the consciousness of the limitation of 
 risks under a diffused liability, render them callous to 
 the signs of the times ? Would they, if they could, 
 could they, if they would, escape from the vast under- 
 takings to which they seemed pledged even by their 
 very names? At a time when it was almost looked 
 upon as a disaster that the ordinary scale of ordinary 
 transactions could not be contracted with sufficient 
 rapidity, the gigantic operations of the new companies 
 naturally seemed to justify still deeper distrust. 
 
 But there was one consideration which, inde- 
 pendently of any just appreciation of its causes, 
 oppressed the public mind. Men were not satisfied 
 to know why money was dear, they were alarmed at 
 the fact independently of its causes, and above all 
 they were disturbed by the long continuance of the 
 fact. Of late years, it is true, the antiquated notion 
 that 5 per cent, was to be the limit and criterion of 
 financial respectability has lost much of its force. 
 High rates of interest, such as 6 or 9 per cent., no 
 longer produce the same shock upon the nerves of 
 the trading community. But it was one thing to 
 endure high rates for a few weeks, or at the outside 
 a couple of months, and a very different thing to 
 witness the continuance of rates ranging from 6 to 9 
 per cent, through the course of an entire year. An 
 average rate of 7 per cent seemed indeed intolerable. 
 The instinctive belief that any dearness of loanable 
 capital is in itself, apart from any causes whatever, a 
 commercial calamity, appears almost invincible, and 
 the patience and resignation with which it is endured 
 in City circles properly so called, who Uving close to 
 our banking centre are better able to see, as it were 
 with their own eyes, how the system works, provoke 
 
14 ESSAYS ON ECONOMIC QUESTIONS 
 
 the sneer of the manufacturer and the retail trader, 
 that high rates of interest naturally find favour there. 
 The traditional exasperation always hitherto caused 
 by any long-continued scarcity of capital prevails 
 unabated, and the public, undervaluing the force of 
 other theories, pertinaciously fastens that scarcity on 
 our banking legislation. The Bank Charter Act is 
 the universal scapegoat. That Act is, directly or 
 indirectly, looked upon as the cause of all the evil. 
 The amount of bank-notes must be insuflBcient. Has 
 not every kind of transaction almost indefinitely 
 multiphed and increased, and why then is the cir- 
 culating medium fixed ? Have not other monopolies 
 been abolished, and why should the most odious and 
 searching of all monopohes, a monopoly which pene- 
 trates into every corner of the national commerce, and 
 cripples every energy in the country, be maintained ? 
 Liberty of trade we have, and why not liberty of 
 banking ? 
 
 These familiar phrases, recalling ideas, long ago and 
 over and over again refuted, involve, in whatever form 
 presented, the fallacy, that in a country like ours, 
 whose export and foreign trade is the very fountain- 
 head of its prosperity, and whose liabilities to foreign 
 nations bear so large a propoi-tion to its total 
 engagements, the means of fulfilling those engage- 
 ments could be made, or ought to be made, artificially 
 or legislatively abundant. It is not too much to say 
 that in many quarters it was hoped that the Bank 
 Act of 1844:, which had already been suspended twice, 
 would break down again, a catastrophe which it was 
 believed on all hands would have given the death-blow 
 to the obnoxious system. The day was almost in- 
 voked when another deputation of bankers and money- 
 dealers might wait on the Government with threats 
 
SEVEN PEE CENT. 15 
 
 of a universal suspension of payments, if the magic 
 letter were not conceded to put an end to that in- 
 tolerable system — doubtless the deputation would have 
 called it a cast-iron system — whereby men are pre- 
 vented from fulfilling engagements into which they 
 have knowingly entered beyond their means. 
 
 The sketch we have given, though necessarily brief, 
 forms, we think, no exaggerated picture of the state 
 of feeling during the past financial year. While we 
 write, this public feeling is only just emerging into 
 another phase, and men breathe more freely because 
 the year which began at 7 per cent., and threatened 
 to close at 9, actually closes at 6. Nevertheless, 6 per 
 cent, is still considered a high rate of interest, which 
 it would be pleasant to be able to characterize as an 
 abnormal, an unnatural rate. The prediction of 'a 
 long period of dear money ' has already been 
 abundantly justified, but is it really at an end ? Can 
 it be reasonably hoped that the halcyon days of 3 per 
 cent. — days when the lender humbly sued the 
 borrower to accept a loan, and the borrower actually 
 conferred a favour on the lender by taking his money, 
 — are ever likely to return? We shall best find the 
 answer to these queries, if we attempt to unravel the 
 causes of the scarcity of loanable capital which has so 
 long prevailed, and endeavour to ascertain how far it 
 may be attributable to the prolonged operation of 
 causes essentially temporary nevertheless, or how far 
 the new phenomena may perhaps in reality be due, 
 not so much to temporary causes, as to fundamental 
 and possibly permanent changes in the relation of the 
 aggregate of English capital to foreign demand, and 
 to the daily multipHcation and growth of the channels 
 through which the former is sucked out and absorbed 
 by the latter. 
 
16 ESSAYS ON ECONOMIC QUESTIONS 
 
 Upon the temporary causes we have already touched. 
 No doubt the export of buUion to pay for cotton 
 raised in foreign countries, unaccustomed as yet to 
 take manufactures in pa3Tnent, has exercised a very 
 powerful influence on the money-market, and has 
 possibly more than counterbalanced the large excess 
 in the supplies of the precious metals which under 
 the effect of a depreciated currency has reached us 
 from the United States. No doubt also the general 
 increase in our trade tends to raise the value of 
 loanable capital, and the congratulations on the 
 flourishing returns of the Board of Trade are seldom 
 unmixed with a tinge of misgiving at the accompany- 
 ing possibility of a rise in the rate of interest. In 
 connexion with this view of the subject, it deserves 
 to be noticed, that in the autumn of the late year, when 
 these trade returns showed the first signs of a falhng- 
 off, the first symptoms of a fall in the price of money 
 had also become apparent. 
 
 But although the causes we have briefly reviewed 
 might account for some of the recent financial pheno- 
 mena, it was universally admitted they could not 
 account for them all. And it wa'^ argued that our 
 financial system was at fault, that a system wliich 
 permitted the long-protracted scarcity of a commodity 
 so indispensable as money must be unsound, and that 
 the present condition of things must arise out of 
 artificial and abnormal causes, which, as they had been 
 artificially created, could be artificially removed. 
 
 We think, on the contrary, and we wiU endeavour 
 to show, that the present condition of affairs has arisen, 
 not out of artificial and abnormal, but normal and 
 natural causes — in other words, that the high rates of 
 interest which have lately and so long prevailed, are 
 the result not of any artificial tampering with the 
 
SEVEN PEE CEKT. 17 
 
 natural course of things, but precisely on the contrary, 
 of giving the natural course of things free play. It 
 will be found, we think, by those who patiently study 
 the subject, that the rise in the price of loanable 
 capital is, above all things, due to the growing availa- 
 bility and diffusion of English GSkTpitaliov foreign purposes, 
 and that this growing availability and diffusion are in 
 their turn the consequence of the new organization 
 provided by the comparatively sudden and vast ex- 
 pansion of the joint-stock system, and of the birth of 
 so many financial companies capable of undertaking 
 the largest operations. 
 
 At first sight it may seem that the searching 
 competition of the new companies which sucks into 
 the money-market and condenses into large and 
 available streams countless rills of savings scattered 
 up and down the country, which were not reached 
 before, ought, by bringing more unemployed capital 
 into the market, to lessen its value and lower the rate 
 of interest. And such would be the case. But in 
 truth the distributive and diffusive power of the new 
 companies is even greater than their attractive and 
 condensive power. The centripetal force by which 
 our home capital is made to gravitate towards our 
 home centre is vastly increased, it is true, by the new 
 organization, and this of itself would tend to lower the 
 rate of interest. But then the centrifugal force by 
 which, under the new system, capital, once condensed, 
 is scattered all over the world instead of being allowed 
 to accumulate at home, is greater still, and thus the 
 rate of interest, instead of being lowered, is raised, and 
 the rise in the rate is probably, therefore, not temporary, 
 but permanent, certainly not artificially produced by 
 legislation, but naturally produced by the new forms 
 and the vast scale of competition in financial enterprise. 
 
18 ESSAYS ON ECONOMIC QUESTIONS 
 
 With regard to the attractive or absorbing power of 
 the new companies, it is not necessary to say much, as 
 this branch of the subject has been often exliaustively 
 discussed. The non-commercial classes saw in the 
 new organization the means of securing profits which 
 hitherto were looked upon as the birthright of the 
 mercantile community. They saw the names of men 
 who had made large fortunes for themselves now 
 figuring in companies as directors ready to make large 
 foi-tunes for others. The first results were, in many 
 cases, highly satisfactory. Dividends were secured 
 which outstripped the most sanguine predictions of 
 that class of promoters, as they are technically called, 
 who might be described as the midwives of modern 
 enterprise. It was argued on the one hand that such 
 dividends were hollow, that no sound system could 
 give such results, that they were a proof of sheer 
 rampant speculation, which must end in a speedy 
 collapse. But it was argued on the other side that 
 many a business had given its owner 20 per cent. The 
 rapid accumulation of private fortunes was a matter of 
 constant occurrence. And why should such a business 
 not give the same, or at least similar, returns when the 
 capital was supplied piecemeal instead of as a whole ? 
 Messrs. A. B. and Co. became milUonaires in their trade. 
 Why, then, should their business, now changed into 
 the ' C. B. Warehouse Company,' be considered one of 
 the extravagancies of the day, because its dividends 
 opened at an unprecedented percentage ? Private 
 banking is proverbially a flourishing trade. Why 
 should the high dividends of the joint-stock banks be 
 turned as an argument against them ? Was there not 
 a kind of inconsistency in the pubHc judgment on 
 this point? When men hear that a private firm is 
 highly prosperous, they consider it simply as a prima 
 
SEVEN PER CENT. 19 
 
 facie proof of commercial ability. But should a com- 
 pany make the very same gains, and pubhsh them in 
 the form of a dividend, these gains are, in this case, 
 considered as a prima facie proof of overtrading. 
 Profits expressed in the form of dividends have a 
 different effect on the public mind to what they have 
 when they are shrouded in the mysteries of private 
 accumulation. The individual grew rich by a secret 
 operation unintelligible to the masses, who had strange 
 visions of occult and mysterious processes by which 
 money was coined in the City, but how they hardly tried 
 to guess. Now, on the contrary, trade is carried on 
 before the eyes of the general public. The public itself 
 is admitted to the secrets of the guild. Not only does 
 it witness the process, but it is also invited to share in 
 the profits. 
 
 Against the tempting scale of these profits, the 
 opponents of limited liability and joint-stock enterprise 
 have, it is true, a very strong argument to bring 
 forward. This argument is so well known that we 
 need only state it. It is not certain, they say, that 
 those who manage their own affairs well, will manage 
 the affairs of other men with equal ability. Directors 
 are apt to be careless, and managers are too often 
 reckless. As a despotism is more efficient for action 
 and administration, so a man, who is his own master, 
 and responsible only to himself, will trade with more 
 success than the heterogeneous agglomerate of a joint- 
 stock board. How far this argument will be practically 
 justified must be determined by experience. The 
 dividends must solve the doubts. We certainly beheve 
 that private enterprise wiU hold its own, especially in 
 those spheres of trade where personal character may 
 be brought to bear against the impersonality of a board, 
 or where capacity may outweigh capital. But the 
 
 C 2 
 
20 ESSAYS ON ECONOMIC QUESTIONS 
 
 success of joint-stock enterprise may be great, although 
 the success of private enterprise may be greater. The 
 London and Westminster Bank, and other banks of 
 similar standing, have proved that banking, at all 
 events, can be carried on by a board and by managers 
 with triumphant success. And although, on the other 
 hand, there have been instances of gross mismanage- 
 ment, it must be admitted, we think, that the public 
 shows by its conduct that these instances of failure 
 and immorahty have not as yet counterbalanced the 
 effect of high dividends, and that so far shareholders 
 do not beheve in the impossibility of securing sound 
 and efficient management on the part of boards and 
 salaried officers. 
 
 These reflections naturally arise when we attempt 
 to gauge the force of that influence which is absorbing, 
 we might almost say, the savings of aU classes into 
 the channels of trade. We have not now to deal 
 with the subject in its social aspect, or to pronounce 
 an opinion whether the facts, as they exist, are to be 
 welcomed or deplored. We are here concerned with 
 their influence on the loanable capital of the country, 
 which, as we have attempted to describe, is not only 
 collected together in large streams, under the absorbing 
 force of this new organization, but submitted to such 
 a searching system of drainage, that whereas, in former 
 days on any emergency, some surplus capital was sure 
 to be found somewhere, now, on the contrary, there is 
 absolutely no reserve ; and when the large reservoirs 
 happen to have undergone any unusual depletion, aU 
 minor sources are found to be dried up. And so long 
 as these reservoirs mainly supplied English industry 
 and enterprise, so long, far from any scarcity arising, the 
 machinery of condensation was found to have increased 
 
SEVEN PEE CENT. 21 
 
 the supply, and the improved availability of capital 
 was felt as a benefit by our manufacturing districts, 
 and indeed by all producing classes, who applauded 
 a system which seemed to be placing at their disposal 
 the whole savings of the country. And so far, if no 
 other causes had intervened, the creation of new 
 companies would not have raised the rate of interest, 
 and would not have disturbed the home trade. 
 
 But other causes did intervene. The new companies 
 did not confine themselves to the supply of Enghsh 
 demands. Seeking for the benefit of their share- 
 holders the highest rates of interest, they found the 
 rates higher abroad than at home, and thus were led 
 to place their capital not at home but abroad. In this 
 fact we find the main element of our increased rates 
 of interest. We have explained how capital seeking 
 employment was absorbed into new companies, and if 
 we study the outfaU of these vast drains for the 
 collection of home capital, we shall find that it tends 
 not inwards but outwards. The extent to which the 
 consequent outflow of English capital may proceed 
 thus becomes dependent on the nature of the foreign 
 demand, and it will be found that the new companies 
 have thus thrown themselves open to a demand, of 
 which no school of theorists can pretend that it could 
 be supplied by increased issues of paper money or any 
 jugglery of paper currency. Moreover, the peculiar 
 nature of the present foreign demand deserves special 
 attention, as it seems to differ materially from previous 
 experience. Bubble companies for trading with the 
 antipodes have been the rage before, but there was an 
 essential difference in their aims. In the celebrated 
 mania of 1825, graphically described by the historian 
 of the Thirty Years' Peace, the wildest speculative 
 schemes were entertained. Men's imaginations were 
 
22 ESSAYS ON ECONOMIC QUESTIONS 
 
 fired by the prospect of discovering in foreign countries 
 hidden mines of wealth. ' The precious metals were 
 expected to be found glittering in the clefts of the 
 Cordilleras, pearls were to be sought in Columbia, the 
 Pampas were to be revolutionized into yielding butter 
 instead of hides, and a cargo of Scotch milkmaids were 
 shipped to Buenos Ayres under the auspices of a 
 Churning Company.' 
 
 But although it may be admitted that many features 
 of that remarkable year were strikingly analogous to 
 some of the incidents which we have lately witnessed, 
 — an analogy which has led to the belief that the 
 miserable collapse which then was the result would 
 now be repeated, — there is, we think, a difference, and 
 that difference is palpable and clearly defined. In 
 1825 men strained at new sources of wealth which 
 neither private nor joint-stock enterprise had previously 
 ventured to explore. They rushed headlong on the 
 wildest adventures in regions at the time practically 
 unknown. Now, on the contrary, joint-stock enterprise 
 has been less anxious to invent fancy branches of 
 commerce, or to find mysterious and recondite sources 
 of wealth, than to get the highest rates for their capital 
 by lending it to foreigners. To satisfy the foreign 
 demand for capital in all its forms seems to be the 
 leading idea. To assist landowners by mortgage 
 banks, merchants by discount establishments, govern- 
 ments and cities by loans, and generally to introduce 
 capital into countries where the rate of interest 
 habitually stood at 12 per cent, and often reached 18, 
 — such are the professed objects of the most prominent 
 among the new companies. 
 
 EngHsh and French banking principles are on 
 a crusading tour throughout the world. Turks are to 
 be taught the use of bank-notes. Turkey, indeed, has 
 
SEVEN PEE CENT. 23 
 
 been a favourite field. There we have the Imperial 
 Ottoman Bank to conduct the business of the Govern- 
 ment and to familiarize the Moslems with the modern 
 substitute for gold. We have the Ottoman Financial 
 Association professing to undertake all financial opera- 
 tions from discounting a bill to building a railway. 
 We have the * Societe Generale de I'Empire Ottoman,' 
 whose ambition is to take up that ground in Turkey 
 which the Credit Mobilier occupies in France. And 
 we learn that negotiations are actually in progress for 
 a Turkish Credit Foncier. Banks abound whose 
 familiar names in every variety suggest the one 
 pervading fact of the marriage of English capital with 
 foreign demand. There is the Anglo- Austrian Bank, 
 the Anglo-Italian Bank, the Anglo-Egyptian Bank. 
 There is the English and Swedish Bank ; there is the 
 British and Californian Bank ; there is the London 
 and Hambiu-g Continental Exchange Bank ; there is 
 the London and Brazilian Bank, the London Buenos 
 Ayres and River Plate Bank, and even a London and 
 South American Bank ; and one bank, wishing to 
 outstrip all other banks in the ambition of its title, 
 calls itself the European Bank. 
 
 If from banking companies we turn to trading and 
 finance companies, we find them anxious to avoid even 
 the semblance of a Hmitation to any one country, and 
 anxiously putting the widest possible definition upon 
 their scope and aims. We have, it is true, the more 
 modest Egyptian Trading Company, and the London 
 and African Trading Company. But the names of 
 these companies are quite eclipsed by the cosmo- 
 politan magnificence of other titles. We read of the 
 English and Foreign Credit Company, of the Imperial 
 Mercantile Company, of the International Financial 
 
24 ESSAYS ON ECONOMIC QUESTIONS 
 
 Company, of the General Credit and Finance Company. 
 Nor are land companies much less ambitious. We 
 have the Australian Mortgage Land and Finance 
 Company ; we have the British American Land 
 Company, the Credit Foncier of Mauritius, the 
 Mauritius Land Credit and Agency Company, the 
 Natal Land and Colonization Conlpany, the South 
 African Mortgage Investment Company ; and the 
 cosmopolitan element is represented by the Inter- 
 national Land Credit Company, 
 
 This almost wearisome list of modem companies we 
 have quoted as a striking illustration of the fact, that 
 the main object of the new system of investments is 
 to lend money abroad at a higher rate of interest than 
 can be secured at home. And it is clear that loans of 
 capital affect our money-market in a greater degree 
 than the general operations of trade. Trade can be 
 carried on by the simple interchange of goods. Loans, 
 on the contrary, are almost necessarily for a time one- 
 sided, being a gross export of capital to be replaced 
 only in detail over a space of years. Thus the estab- 
 hshment of companies not for general trading purposes 
 so much as for the location of English loanable capital 
 abroad, must have an influence on our money-market, 
 which, as it has already assisted in raising the annual 
 average rate of interest in this country during the 
 past year to seven, seems only too likely to prevent 
 the recurrence of the sweet simplicity of three per 
 cent. 
 
 It should be remembered, moreover, that until 
 within a late period, a certain number of large firms 
 alone were considered to have the secret of farming 
 the commerce of distant countries with safety and 
 advantage. It was supposed to be their privilege and 
 birthright to carry on the trade of supplying money 
 
SEVEN PER CENT. 25 
 
 to foreign governments, of building foreign railways, 
 creating foreign banks, opening up new industrial 
 operations in foreign countries, — in a word, of supply- 
 ing capital to regions where money was worth 15 to 
 20 per cent., and where commerce being in its 
 infancy, production and importation could scarcely be 
 developed without extraneous aid. Operations of this 
 kind were held to be beyond the reach of ordinary 
 enterprise. The larger profits attending them were 
 thought to be the certain index of greater risk. And 
 unquestionably there is more risk in lending money 
 to Eio or Mexico than to Manchester or Liverpool ; 
 and the former might bid 10 or 12 per cent, in vain, 
 while the latter successfully offered 3 or 4. 
 
 But the effect of this difference under the late 
 system of unlimited hability was very apparent. In 
 the first place, only a few firms of large capital 
 ventured upon the trade at all. In the next place, 
 the amount of capital which they could export for 
 foreign use was hmited by the amount of their own 
 resources, augmented by whatever credit they could 
 command. Moreover, each bore the whole risk without 
 any limitation of his liability, and was naturally, 
 therefore, unwilling to go beyond a certain length in 
 dealing with countries where financial operations are 
 attended with apparently greater insecurity than at 
 home. But when after a few bold experiments it was 
 found that this branch of trade, with all its enormous 
 profits, might be carried on by a company not less 
 than by private firms, an immense change took place. 
 A vast variety of companies rushed into the new 
 Eldorado of financial enterprise with a confidence 
 founded, partly on the success of previous experiments, 
 partly on the attraction of the dividends, and partly 
 on the limited liability and diminished risk of each 
 
26 ESSAYS ON ECONOMIC QUESTIONS 
 
 shareholder. The limited liability of each shareholder 
 became one of the chief elements in the unparalleled 
 suction, the minute and complicated drainage, brought 
 to bear, as we have shown elsewhere, upon the 
 scattered capital of the country. Under the system 
 of unlimited liability few, except a smaU section of 
 bankers and merchants throughout the country, would 
 engage in foreign enterprise, and those who did were 
 prone to keep within certain traditionary grooves 
 marked out by the caution of former generations. 
 But now, owing to the vast number of shareholders,^ 
 and the limitation of their liability, the timidity of 
 each investor is indefinitely diminished, while any 
 remaining coyness is overcome by the golden harvest 
 in prospect. Again, the diffusion of knowledge during 
 the last twenty years has acted as a powerful auxiliary 
 in the movement. The public at large has become 
 almost practically acquainted with countries and places, 
 which half a century ago were only familiar to a very 
 small class of men. When, therefore, new companies 
 of every description began to appeal to the country 
 under the system of limited liability, their appeal was 
 suddenly responded to from a hundred thousand 
 imexpected quarters, each man choosing the specula- 
 tion which touched his own imagination and chimed 
 in with his acquired knowledge. Thousands of men, 
 who, under the old system, would rather have invested 
 their money at 3 per cent, at home than risk it abroad 
 for 50, are now ready to place it abroad for 15, rather 
 than keep it at home for 5. Thus it is that a class 
 of merchants, which, as we have said, had hitherto 
 been comparatively small, has now been increased 
 by an indefinite number of investors, who are not 
 only willing but eager to add to their approved 
 and traditionary investments a few shares of a 
 
SEVEN PER CENT. 27 
 
 more modern, less certain, but more remunerative 
 character. 
 
 We have endeavoured, at some length, to describe 
 the nature and to illustrate the operation of the new 
 movement in the English money-market, and we have 
 found its main features to be increased facilities and 
 an increased disposition for the exportation and loca- 
 tion of English loanable capital abroad, and, on the 
 other hand, a practically unlimited foreign demand 
 for English capital almost at any price. The corollary 
 is self-evident. 
 
 While numerous countries are eagerly competing 
 for our financial assistance, now that a system has 
 arisen on an adequate scale by which that assistance 
 can be rendered without excessive risk to the lender, 
 it is clear that so long as this new system remains 
 sufficiently popular to command, if not to entrap, the 
 confidence of investors, (he rate of interest cannot 
 possibly, ceteris paribus, fall below a point at which 
 companies trading with foreign countries are willing to take 
 it. If money is again to become as cheap as our 
 manufacturers would have it, one of two things must 
 take place. Either the demand of foreign countries 
 for English capital must decrease, or the credit of the 
 companies through whose medium that demand is 
 supplied must break down. The former alternative 
 is very remote. With regard to the latter, it is 
 unquestionably possible that the pubhc which has 
 invested a certain portion of its savings in foreign 
 enterprise may be disappointed with the results, and 
 may withdraw its confidence and withhold its con- 
 tributions from over-speculative financial companies. 
 On the other hand, it is quite conceivable that some, 
 at all events, of the operations of the new companies 
 
28 ESSAYS ON ECONOMIC QUESTIONS 
 
 may prove to be of a nature sufficiently sound and safe 
 to secure a permanent hold on the capital of the 
 country. Establishments, for instance, have been 
 formed with the express object of lending money 
 on mortgage in India, and if the value of land in 
 India is sufficiently defined, and the laws regarding 
 mortgages inspire sufficient confidence, it is clearly 
 possible that practically unlimited sums may be with- 
 drawn from this country, and find their way to India 
 under such an agency. Nor is it necessary that the 
 interest of these and similar investments abroad should 
 be on a par with the interest of investments at home. 
 It is enough that they should bear a certain ratio to 
 one another. To take an imaginary example, it is 
 enough that a man should prefer an investment at 
 home at 5 per cent, to an investment at 8 per cent, in 
 India, yet at the same time prefer 8 per cent, in India 
 to 4 per cent, at home. In this hypothetical case, 
 supposing such a feeling to be prevalent among 
 English investors, it is clear that money would not 
 fall below 5 per cent, in England, so long as India 
 paid 8 per cent. If India began to pay more than 
 8 per cent., corresponding capital would begin to flow 
 out of England, and the rate at home would rise, and 
 vice versa. Of course this is an illustration only. 
 
 This we conceive to be the true key to the financial 
 history of the past year. It is not simply the develop- 
 ment of joint-stock enterprise, the creation of new 
 companies, the numerical increase of such companies, 
 which has raised the value of money. This alone of 
 itself, as we have seen, might have lowered the rate 
 of interest. It is the new field of operations chosen 
 by joint-stock enterprise — that field, the most voracious 
 of aU — which has been the determining element in the 
 rising price of capital, an influence which, if not 
 
SEVEN PER CENT. 29 
 
 checked by a breakdown of credit, must, from the 
 nature of the case, be more or less permanent in its 
 character. 
 
 The events of the past year and the temporary 
 pressure which England has suffered under this new 
 competition for loanable capital suggest the question, 
 whether any measure should be taken to lighten that 
 pressure and to remedy that scarcity of capital which 
 is its cause. Is this a case with which we ought to 
 attempt to deal, or could deal if we would ? We are 
 prepared to answer both questions in the negative. 
 M. Pereire, the acknowledged head of financial en- 
 terprise in France, who, while performing the 
 most novel and dexterous feats of French financial 
 speculation, has not forgotten the doctrines of Saint- 
 Simonianism, in a recent pamphlet written to expose 
 the laches of the Bank of France, has answered both 
 of them in the affirmative. 
 
 A high rate of interest he declares to be not so much 
 a disadvantage as a terrible curse, an evil which had 
 endured too long, the result of abuses which it is 
 incumbent on the State, and possible for the State, 
 forthwith to correct. The monopoly of the Bank of 
 France was at the root of the evil. The Bank having 
 the monopoly of issuing paper, had a consequential 
 monopoly of discount also. It turned this power to 
 its own advantage by charging what interest it pleased. 
 But when it raised the rate of interest at its own 
 arbitrary discretion, it justified its action on the false 
 and fallacious ground of the necessity of protecting 
 its buUion reserve. But this bullion reserve can be 
 otherwise protected, in a manner less injurious to the 
 commonwealth. Let the Bank increase her resources, 
 either by disengaging her real capital now locked up, 
 and transmuting it into gold, or by augmenting her 
 
30 ESSAYS ON ECONOMIC QUESTIONS 
 
 share capital. These means being available, it was 
 false to say that a high rate of interest is essential to 
 the convertibility of the bank-note. Should the Bank 
 of France not adopt the remedies pointed out, or 
 should her resources remain insufficient, a new and 
 rival credit establishment was imperatively called for with 
 a capital of ttventy millions. 
 
 This is the theory, stripped of its ornaments, which 
 M. Pereire has brought forward to account, on the one 
 hand, for the dearness of money in France in late 
 years, and, on the other hand, to justify the methods 
 which he suggests to remedy an evil of such intolerable 
 magnitude. It will be seen at once that M. Pereire is 
 at all events consistent. He sees no difficulty in 
 attributing a phenomenon so vast as the scarcity and 
 dearness of loanable capital throughout France during 
 a period of years to the action of one bank, and he 
 beHeves that it can be removed by another. To 
 account for the high rate of interest on our side of the 
 Channel, we have been obliged to carry our arguments 
 all over Europe, and even beyond that," to the antipodes. 
 M. Pereire wanders neither to Asia, Africa, nor 
 America, not even to Spain or to Italy, to which the 
 operations of his own financial children, the Credits 
 MobUiers of Turin and of Madrid, would, one might 
 think, have called his attention. Distinctly denying 
 the power of foreign nations to exert any influence 
 on the rate of French interest, or in his own words, 
 * the hire of French loanable capital,' he pertinaciously 
 confines his argument to France, as if France could 
 remain unaffected by the influence of surrounding 
 nations. If M. Pereire is willing to admit that 
 loanable capital travels from one country to another — 
 and M. Pereire, of all men, ought to know best if 
 such is the case — we are utterly at a loss to under^ 
 
SEVEN PEE CENT. 31 
 
 stand how for one moment he can maintain that the 
 price of that loanable capital in one country does not 
 affect its price in another. The only attempt M. Pereire 
 has made to escape from this law is an attempt to 
 prove that under certain given circumstances such an 
 effect may be modified or neutralized. 
 
 But it was essential for M. Pereire to get rid of the 
 element of foreign competition and foreign demand, in 
 order to secure his avowed end, permanently to keep 
 down the rate of interest in France, Having built an 
 imaginary wall round France he can, in theory at 
 least, deal with French capital as he pleases, and he 
 appeals in glowing terms to French sentiment, adjuring 
 the Government to impose a maximum rate of interest 
 on the Bank of France — in other words, to supply 
 loanable capital at a fixed rate — in the same way as 
 bakers in France, until lately, were under legal com- 
 pulsion to supply bread at a fixed price. But if a 
 maximum rate were imposed, whence is the supply to 
 come ? In the first instance, as we have seen, by an 
 increase of the capital of the Bank of France, or, 
 failing that, by the establishment of a second bank. 
 And what then ? This M, Pereire fails to show. But 
 so brilUant a picture does he draw of the effects of 
 the second bank, that no one would care to ask. 
 
 'Every part of the social organism would be instinct 
 with a new life ; labour would shed its blessings over 
 all, the funds would rise as well as the shares of all 
 great companies, and the companies, being able to 
 emit their loans on better terms, would impart fresh 
 activity to their works. The State would be able to 
 consecrate large simis to the great national work of 
 building roads and railways without augmenting 
 taxation, thus giving a useful and productive employ- 
 ment to the funds, with which loans on favourable 
 
32 ESSAYS ON ECONOMIC QUESTIONS 
 
 conditions would supply them. The fortune of the 
 poor man, like the fortune of the rich man, would 
 share in this general amelioration. The prosperity and 
 wealth of each individual would find its corresponding 
 increase.' 
 
 Well may M. Pereire exclaim in conclusion : — 
 
 'How does the picture of this prosperity, which soon 
 would become a reality, transcend that of the ruins 
 engendered by the cold and arid theories of the laggard 
 professors of an exploded balance of trade ! ' 
 
 These splendid results — in which the blessings of 
 labour and the poor man's enrichment are so deftly 
 combined with the attractions of the rising share list, 
 in which the State is baited with the hope of cheap 
 loans, and the country by the prospect of railways to 
 be built with superfluous funds — these glorious results 
 are to follow in France from the establishment of one 
 more bank. 
 
 We are ready to admit that the multiplication of 
 banking estabhshments in France might be attended 
 with considerable benefits. The French have nothing 
 to correspond with our gigantic joint-stock banks, 
 which not only compete, but compete successfully, 
 with the Bank of England. The financial power of 
 England consists to a great extent in our ability to 
 supply immense sums on the shortest notice, a power 
 which exists in no proportionate degree in France. 
 And we cannot be surprised that our neighbours should 
 look with something approaching to envy on the great 
 facihties which these estabhshments afford to trade 
 and to enterprise. These banks perform the very 
 functions which M. Pereire desires to see performed 
 in France, with one notable exception however. 
 Interest remains high in England nevertheless, while 
 in France he insists that it is to be made low. We 
 
SEVEN PEE CENT. 33 
 
 say, therefore, let M. Pereire have his bank by all 
 means, especially if he can satisfy his country that his 
 novel expedient of keeping the whole of the new 
 bank's own capital invested in gold would secure that 
 convertibility of the bank-note under any rate of 
 interest, for which, honestly we believe, he professes 
 his reverence. 
 
 "We object, not to the possible results of the founding 
 of another bank in France, but to the certain results of 
 the establishment of M, Pereire's principles in France 
 or anywhere else. He advocates, indeed, the con- 
 vertibility of the bank-note, but the key-stone of his 
 theory is, that to raise the rate of interest is not the true 
 or proper means to retain the necessary amount of bullion. 
 But what are M. Pereire's means ? He would buy gold 
 with a Kmited part of the assets of his bank. He 
 would, he says, buy gold ' as railways buy locomotives,' 
 with real capital, not with paper payable at sight. The 
 expedient may be admirable, but the unanswerable 
 objection to it is, that no bank can employ it without 
 limit. Not only can no bank employ such an expedient 
 without hmit, but the limits within which any bank 
 can employ it are obviously very smaU indeed. How 
 can the limited capital of any one bank meet the drain 
 of an unlimited demand? It is clear that the most 
 effectual plan to retain whatever amount of gold 
 may be necessary is to check the demand, instead of 
 attempting to multiply the supply. The Banks of 
 England and France have followed the former policy ; 
 M. Pereire is the apostle of the latter. 
 
 We may make the case, already we think quite 
 clear, clearer stiU by putting it into figures. Let us 
 suppose the stock of gold of the Bank of France to 
 be eight millions sterUng, and its note circulation 
 thirty millions. Let us then suppose a drain of gold 
 
Si ESSAYS ON ECONOMIC QUESTIONS 
 
 for foreign purposes to set in and carry off two 
 millions a week. M; Pereire immediately proceeds 
 to sell Government securities, and by some process, 
 which is not very clear^ but which we wiU suppose 
 to be possible^ he is fortunate enough to convert them 
 as fast as he requires into gold. The capital of the 
 Bank of France is about eight millions sterling. In 
 four weeks, therefore, he will still have, it is true, 
 eight milli ons in his tiU, but he will have no more 
 securities to convert. From that moment he is evidently 
 powerless, and the drain wiU carry off his gold till his 
 notes cease to be convertible. The Bank of France, on 
 the contrary, like the Bank of England, would attempt 
 to check the demand on the one hand, and invite gold 
 on the other, by raising the rate of interest. A drain of 
 gold to foreign countries must represent a disbursement 
 of gold in settlement of old or in anticipation of new 
 transactions. K the former, the foreigners may be 
 wilhng to give time for the equivalent of a higher rate 
 of interest. If the latter, the anticipated payment 
 to the foreigners will be deferred. A high rate of 
 interest thus prevents an outflow, and induces an 
 infliix of that commodity which is most convenient 
 and most at hand for transmission from one country 
 to another — gold. 
 
 It is quite true that the rate of interest does not de- 
 pend on the scarcity or abundance of circulation ; but it 
 is no less true that gold being the commodity in which 
 reserves of loanable capital are kept, these reserves 
 are reached and attracted by a high rate of interest. 
 M. Pereire asserts, unequivocally, that there is no other 
 means of maintaining the abundance of gold except by 
 the purchase of it, ^produits en main,' ignoring in this 
 statement the fact that gold may be equally, and even 
 more rapidly, procured by loans, and loans by the 
 
SEVEN PER CENT. 35 
 
 attraction of interest. He forgets, as many others 
 have forgotten, who love to assert that gold can always 
 be procured by the sale of commodities, that there are 
 times and places when other commodities are, for the 
 moment at least, not wanted at all. All pending 
 promises to pay, both here and in France, are 
 practically contracts to pay in gold or notes ; and as 
 the notes are convertible into gold, all promises to pay 
 are virtually promises to pay in gold. For the 
 fulfilment of these contracts, which must be kept to 
 the day, a machinery is required by which gold may 
 be immediately, not ultimately, procured, or which, 
 failing this, may cause the payment to be deferred. 
 The raising of the rate of interest constitutes such a 
 machinery, and, as we believe it to be both theoretically 
 demonstrable, and practically demonstrated, the only 
 machinery. 
 
 We see no alternative between this remedy, pain- 
 ful as it is for the moment, and an inconvertible 
 currency, which is not only painful but absolutely 
 miaous. When the notes of a bank get into the 
 hands of foreigners whose object it is to convert 
 them into gold to an amount exceeding the stock 
 of bullion in the bank, the inconvertibility of the 
 note is upon it. How is this to be met? M. Pereire 
 affirms that the Bank should refuse to discount for those 
 who export gold, in other words, should place notes leyond 
 the foreigners' reach. M. Pereire, the champion of free 
 trade, wishes to prohibit the export of gold ! What wUl 
 he do ? Will he admit this, or deny it ? If he admits 
 it, he himself becomes one of the 'laggard professors of 
 the buUion doctriue' (' docteurs attardes de la balance du 
 commerce '). If he denies it, his imaginary wall of separ- 
 ation which protects him from foreign demand falls 
 down, and he is at the mercy of every foreign loan- 
 
 D 2 
 
36 ESSAYS ON ECONOMIC QUESTIONS 
 
 monger who is ready to outbid his stereotyped 4 per 
 cent. 
 
 But let us see how the foreign demand would act, 
 Spain or Italy woidd either of them be willing to bolt at 
 a gulp those magic ' twenty millions,' by which, as the 
 reader may remember, so marvellous a transformation 
 is supposed to have been accomplished. Italy, for many 
 months, offered her exchequer bills at a rate of 11 per 
 cent. Large amounts of this security are held by Paris 
 bankers. But aware that if the amount were increased, 
 and gold exported in payment, the rate of interest in 
 France would rise, the Paris bankers dare not exceed 
 a certain limit. On the other hand vdth a maximum 
 rate of interest at 4 per cent., where would the limit 
 be ? The Paris bankers — indeed every one in France, 
 and M. Pereire at their head — would lend as much 
 money as they could abroad, borrowing it at home 
 at 4, and pocketing the difference. They would borrow 
 it at the Bank of France or at the new competitive 
 bank. These notes would immediately be presented and 
 exchanged for gold. The gold would be exported to 
 Italy or Spain, and the Italian or the Spanish Govern- 
 ment carry off that cheap capital, which, as a financier, 
 M. Pereire is willing to offer to foreigners at eleven per 
 cent., but which, as an author, he yearns to keep for 
 the benefit of the workmen of Paris at four. 
 
 While the principles of free trade are fully estab- 
 lished, and capital is encouraged to migrate, like any 
 other commodity, from the cheapest to the dearest 
 market, it seems to us, we must confess, utterly futile 
 to suppose that any one country which takes its share 
 in international transactions can attempt to keep or 
 succeed in keeping its interest at a lower rate than 
 is warranted by the surrounding demand. Possibly 
 
SEVEN PEK CENT. 37 
 
 another issue may be raised. The extent of the 
 foreign competition might be called into question. 
 It might be admitted that, ceteris paribus, the highest 
 bidder would receive the available capital of all those 
 countries which under perfect free trade have access 
 to the different money-markets, but it might be asked, 
 is the competition really so brisk ? When we consider 
 what demands are being made, we shall be better 
 able to judge whether the artificial increase of the 
 capital of one or two banks would exercise any ap- 
 preciable influence. We will pass over the demands 
 of trade, the payments for cotton, the development of 
 private industrial enterprise throughout Europe. Let 
 us look for a moment to Governments alone. Almost 
 all the Governments, not only in Europe but in 
 America and Africa, are competing and bidding 
 against each other to secure loans, aU eagerly looking 
 for the cheapest market and the best opportunity. 
 The credit of many is doubtful, but they offer com- 
 pensation by exorbitant rates. Turkey wUl take any 
 sums at 12 to 16 per cent. Egypt offers 8 and 9. 
 Spain, at her wits' end even to pay for the outfit of 
 a man-of-war, offered 11 per cent, in vain. Eussia, 
 too proud to pay the rates necessary to attract foreign 
 capital, compromises between her wants and her 
 dignity by a lottery loan at home. Federal America 
 appeals, not in vain, to the savings of Germany, and 
 the Confederate States tempt the more adventurous 
 EngHshman, forbidden to gamble in lotteries at home, 
 by the charms of blockade-running abroad. Austria, 
 the inveterate borrower of Europe, whose borrowing 
 powers a few years ago seemed wellnigh exhausted, 
 has brought her constitutional revival to market, and 
 marks her political progress by a progress in her debt. 
 The minor States eagerly follow the example of the 
 
38 ESSAYS ON ECONOMIC QUESTIONS 
 
 great Powers, and the movement seems to have reached 
 a chmax when we find within the coiirse of a fortnight 
 Moldavia and Montevideo competing for loans in the 
 Enghsh market. If we add that all these Govern- 
 ments are ready not only to borrow for themselves 
 but to guarantee interest on any amount of railway 
 capital, it must surely be felt that the demand is 
 inexhaustible ; and that whoever attempts to stave it 
 off by the estabhshment of a French bank, is hke 
 Mrs. Partington and her mop trying to keep off the 
 waters of the Atlantic. 
 
 We have proved, we think demonstrably, that with 
 a stereotyped rate of interest in France, and that rate 
 lower than abroad, every French bank-note would at 
 once be converted into gold, and that gold taken out 
 of the country. If we have attempted the refutation 
 of propositions which, when nakedly stated, in this 
 country at least carry their own refutation with them, 
 we have been tempted to this examination by the op- 
 portunity afforded of showing more clearly the ultimate 
 drift of doctrines, which if boldly pushed to their 
 extreme conclusions by the unflinching logic of an 
 enthusiastic Frenchman, seem preposterous indeed to 
 the practical English mind, yet, when stated, as they 
 often are stated in this country, in a vague and less 
 transparent form, command a certain amount of vague 
 and floating assent. 
 
 In England no one would pretend that Government 
 should legislate to procure cheap money, or that loan- 
 able capital, like any other commodity, wiU not seek 
 the dearest market. It will be admitted, we believe, 
 that it is not the business of the Government to 
 legislate to procure cheap money, but the assertion 
 often made is that the effect of legislation has been 
 
SEVEN PEE CENT. 39 
 
 to made it dear. It is sometimes supposed that our 
 Bank Acts make money dearer than it would naturally 
 be ; that if the Bank were allowed to issue more bank- 
 notes, or still better, if the privilege of issue were 
 freely accorded to other establishments, or if the 
 capital of the Bank were 'more in proportion with 
 the demands of the times,' that scarcity of money 
 which so often occurs would be remedied and avoided. 
 Men who hold these views will teU you, in support 
 of their contention that legislation has made money 
 artificially dear, that this contention of theirs is not 
 a theory but an estabUshed fact. They feel that an 
 additional issue of bank-notes at the moment would 
 be an indisputable advantage to themselves. If they 
 go to the Bank for a loan and the Bank practically 
 rephes, ' I have no notes to give you,' they not 
 unnaturally curse the system which prevents their 
 being accommodated. ' If,' say they, ' the Bank 
 could issue more notes, we should get them.' If 
 a railway contractor has some splendid scheme to 
 carry out but cannot place his bonds, he argues, 
 'If more bank-notes were created, I should at once 
 get my share of them. That to me is a practical 
 fact, which no theory can overthrow.' But supposing 
 this to be a real relief to particular individuals, 
 we have to inquire what the general effect would 
 be on the community? One of two things would 
 happen. Either by these issues the aggregate currency 
 would be depreciated, and thus the remainder of 
 the community be defrauded, or these issues would 
 expel a corresponding amount of gold, the with- 
 drawal of which would pinch one portion of the 
 community exactly in the same ratio as another 
 had been relieved. With regard to these two alter- 
 natives, the convertibility of a bank-note will secure 
 
40 ESSAYS ON ECONOMIC QUESTIONS 
 
 us against the former, namely, the depreciation, but 
 expose us to the latter. Bank-notes become scarce 
 when gold is being exported, and the exportation of 
 gold is hindered by the scarcity of the notes. If you 
 remove the scarcity by additional issues, what follows? 
 You remove the impediment to the export of gold. 
 If we only remember that bank-notes are convertible 
 into gold, this proposition is self-evident. 
 
 Let us suppose that in answer to the clamours of 
 a part of the community the Bank should be authorized 
 to issue two additional millions of bank-notes unrepre- 
 sented by gold. Two milHons of bullion would then, 
 as we have proved, be exported. The impediments 
 will have been removed not to industry at home, but 
 to the export of hullion. In other words, two millions 
 will have been added to the paper, and two millions sub- 
 tracted from the gold. The aggregate currency at the 
 disposal of the community will be the same as before. 
 Relief will have been afforded to some, at the expense 
 of the screw imposed upon others. ' But,' says the 
 manufacturer, ' I shall have got my notes, my credit 
 will have been saved, and my labourers will have 
 been employed, and what does it matter to me if two 
 millions of gold have been exported?' We answer, 
 those two millions would have been at the disposal 
 of another portion of the community, of other manu- 
 facturers, of other labourers. The aggregate currency, 
 we cannot repeat it too often, would be the same, the 
 only difference being that an arbitrary displacement 
 would have taken place benefiting one man at the 
 expense of another, but leaving the country with more 
 notes and less gold. 
 
 It may be asked, would this in itself be an evil ? 
 Would it not, on the contrary, be an advantage if two 
 
SEVEN PER CENT. 41 
 
 millions of gold could be set free and replaced by two 
 millions of notes — on the supposition, at all events, 
 that by such a change the convertibiUty of the note 
 would not be in the least endangered ? It is admitted 
 that the issue of £14,000,000 of bank-notes, as at 
 present permitted, economizes gold to that extent, that 
 is, economizes wealth to that extent, since gold is 
 a valuable commodity, and it may be asked, would not 
 an additional issue of two millions be simply an ex- 
 tension of the same benefit and of the same principle ? 
 We are ready to answer this question in the affirmative, 
 but with this proviso. It would not increase the 
 faculties to trade and industry. It would have no 
 permanent influence whatever on our money-markets. 
 It would have none of those effects which those who 
 most loudly advocate those issues desire. But certainly 
 the advantage would be gained that the supply of gold 
 to the world at large would have been increased by two 
 millions, and that England would have converted 
 a certain small portion of unproductive capital into 
 productive capital. The gain to England would by 
 no means be of an indefinite character. It would 
 simply represent the interest on two miUions, at most 
 a hundred thousand pounds— a valuable saving, no 
 doubt, especially if secured to the State; but we 
 question whether the majority of those who clamour 
 for an increase in the issues of the Bank would be 
 satisfied if the results attained by the adoption of their 
 favourite measure should eventually prove to be 
 limited to this fiscal advantage. 
 
 We have said that the productive capital of the 
 country is increased by setting free an amount of gold ; 
 but it is not the loanable capital— that portion of float- 
 ing and uninvested capital which is at the disposal of 
 borrowers— which could be permanently augmented 
 
42 ESSAYS ON ECONOMIC QUESTIONS 
 
 by such a measure. A fraction of a foreign loan, or a 
 branch of one foreign railway, might immediately carry 
 off the momentary addition to the loanable capital made 
 by the issue of additional bank-notes, and not only 
 might do so, but probably would do so. So long as we 
 have a convertible currency, the facihties to trade in no 
 way depend on the issue of bank-notes. Practically 
 and to all intents and purposes we have a gold 
 currency, but economizing, as far as possible, the use 
 of gold for the benefit of all the world, with certain 
 fiscal advantages to ourselves. And we are by all 
 means disposed to carry the economy to the widest 
 extent compatible with prudence, separating, however, 
 entirely the question of cheap or dear money from the 
 question of economy in the use of gold. We require 
 money for internal and external purposes, and cannot 
 separate the two. To attempt to separate the two, or 
 to attempt a circulation simply adapted for the former, 
 would be to sacrifice our foreign commerce, and, above 
 aU things, to interfere with that free export and import 
 of capital on which our commercial prosperity depends. 
 We beheve we have proved conclusively that our 
 currency laws in no way make money dear. They 
 allow complete hberty to the export and import of 
 capital, leaving them to the laws of supply and 
 demand. Since the passing of the Bank Charter Act, 
 the average rate has indeed been higher, and this fact 
 has been currently laid to the charge of the Act, but 
 with this fact, we contend, the Act has nothing to do. 
 Our readers will not fail to observe that the main 
 point upon which we have insisted throughout this 
 article has been, that money becomes scarce and dear 
 from natural causes and not from legislation, and that 
 the particular cause which we believe to have been in 
 operation of late has been a foreign demand, — a demand 
 
SEVEN PEE CENT. 43 
 
 searching in its nature, and more distinctly apparent 
 than a home demand, but, on the other hand, a de- 
 mand which high rates of interest can effectually check. 
 An internal panic, leading to an internal demand for 
 notes or coin, cannot be checked. You may legislate 
 as you will, but you cannot legislate for panics. They 
 occurred under the elastic system. They occur under 
 the ' cast-iron ' system. In the one case men believed 
 in unlimited resources, undertook unlimited engage- 
 ments, and found in the end, to their cost, that the 
 resources were not unlimited, but limited. In the 
 other case they also undertake unlimited engagements, 
 forget the cast-iron system at the beginning, and only 
 remember it at the end. The catastrophe in the two 
 cases offers a singular contrast. In the first case, 
 beHeving in an infinite multiphcation of bank-notes, 
 men find that they come unexpectedly to an end. In 
 the other case, rushing iato a panic because by law 
 the notes are limited, people claim to be delivered 
 from the panic by the suspension of the limiting law. 
 Thus in the end it is the elastic system which proves 
 to be a * cast-iron ' system, because it is there limited by 
 a fact ; but the ■ cast-iron ' system proves in reaKty to 
 be the more elastic, because it is only limited by a law. 
 If the above reasoning is admitted, it results that 
 a catastrophe is certain in the one case, but in the 
 other not unavoidable. Why has the suspension of the 
 Bank Charter Act, in both the instances when it has 
 happened, had such an extraordinary effect ? Because 
 the panic which it met arose less from men wanting 
 the notes, than from their believing that they could not 
 have them. And the restriction of the Act having 
 kept the circulation of notes within the limits pre- 
 scribed, a slight temporary addition could be made 
 without danger. Under the elastic system, however, 
 
U ESSAYS ON ECONOMIC QUESTIONS 
 
 the panic would not arise until the last note had been 
 issued which could safely be issued, and panic would 
 inevitably end in actual disaster. Thus the very 
 reproach of the Act of 1844 — the circumstance that it 
 has twice been suspended, and that on each occasion 
 its suspension caused panic to cease— becomes evidence 
 in favour of its main provisions. The Act was not 
 suspended from a defect of the Act, but because the 
 public (and not only the general pubKc, but even the 
 dealers of the moneyed world) had traded as if the Act 
 did not exist. Its provisions are forgotten until it is 
 too late, notwithstanding the weekly warning that 
 is given by the published returns of the Bank. And 
 the past year has brought this fact out in the strongest 
 relief. On the one hand, the year 1857 was stiU 
 comparatively fresh in men's recollections. On the 
 other hand, the general belief prevailed that possibly 
 on the third occasion, instead of permitting the Act to 
 fall and money-dealers to stand, the experiment might 
 be tried of allowing the Act to stand, and money- 
 dealers to fall. The storm-signals were earUer raised. 
 The Bank itself took more vigorous action in time. 
 Men remembered the provisions of the Act before it 
 was too late, and the crisis has been triumphantly 
 conquered. 
 
 The most thoughtful opponents of the Bank Charter 
 Act admit its efficacy in most respects, but believe 
 that it is impotent, and even disastrous, in an internal 
 panic, and quote ia confii-mation of their belief the 
 well-known saying of Sir George Cornewall Lewis, 
 that the harm which happened under the Act in a few 
 days made him doubt whether its great advantages 
 during the whole remaining period were not counter- 
 balanced by that harm. This doubt seems to us to 
 involve the idea that the harm arose because of the Act. 
 
SEVEN PEE CENT. 45 
 
 But in what way, we may ask, would the Act create 
 the harm? It would probably be answered, by pro- 
 hibiting an issue of bank-notes which might otherwise 
 be issued. Private banks have been prohibited from 
 issuing, and the Bank refuses to issue itself. Thus the 
 possibility of relief has been cut off. But is it true 
 that the Bank Act has cut off the means of rehef ? If 
 you cannot procure notes, you can procure gold. And 
 if you cannot procure gold you are already on dangerous 
 ground. It is surprising how entirely this fact is 
 overlooked. It is said at a time of panic private 
 bankers must have notes or they must suspend pay- 
 ment, and language is really held as if the circulation 
 consisted exclusively of those notes of which the issue 
 is limited. The circulation is not limited. It is at 
 least as unlimited as the supply of gold in the world. 
 And to say that trade must be brought to a standstill 
 if fresh notes are not issued, is to confess that fresh 
 supplies of gold can no longer be had. But if this is 
 the case, it is the strongest reason for not issuing those 
 notes which profess to represent gold. 
 
 The argument is often put in another form. An 
 internal panic, it is said, results from a breakdown of 
 credit, and a breakdown of credit is equivalent to 
 a decrease in the circulation. To issue bank-notes at 
 such a time is simply to replace that deficit in the 
 circulation. No doubt it may sometimes safely be 
 done when the panic is only internal, and when there- 
 fore the supply of gold is less a matter of importance. 
 We will not pretend to deny that a special occasion 
 might arise when a temporary emission of additional 
 notes might aUay a panic without doing specific harm. 
 But when to meet these special cases it is proposed 
 to give a permanent suspending power either to the 
 Government or to the Bank directors, or in what- 
 
46 ESSAYS ON ECONOMIC QUESTIONS 
 
 ever form it may be, it seems to us that it would 
 be sacrificing the certain and undoubted benefits of 
 the Act, in order to meet a case where its suspension 
 may possibly do no immediate harm. We have, we 
 trust, abundantly shown that countries engaged Uke 
 England in international transactions, can rely only 
 on the rate of interest to determine the supply of 
 loanable capital, and that any measures intended 
 artificially to depress the rate of interest, disturb the 
 free play of supply and demand. Temporary issues of 
 additional bank-notes in such an emergency em- 
 phatically constitute such measures ; and inverting 
 the sentiment of Sir George Cornewall Lewis, we say 
 of them, and not of the Bank Act, that it may be 
 doubted if any good they can do at the moment can 
 compensate the lasting injury they occasion. 
 
 The events of the late financial year could scarcely 
 be discussed without some reference to the Bank 
 Charter Act. It has notoriously been on its trial. 
 The result has been that a panic, universally believed 
 to be unavoidable, has not occurred. Had there been 
 any relaxation, had the trading community not felt 
 the imperious necessity of curtailing engagements, 
 had not the possibility of absolutely exhausting the 
 supphes of loanable capital been constantly before the 
 public view, — instead of beginning the new year with 
 replenished resources, with improved prospects, and 
 unshaken confidence in our system, we might have 
 had to look back on disasters which, in their magni- 
 tude and consequences, might have far exceeded any 
 previous catastrophes. An average rate of interest of 
 seven per cent, has been hard to bear, but the lesson 
 has been learnt, that a scarcity of capital is only to be 
 remedied by outbidding every foreign competitor for 
 
SEVEN PER CENT. 47 
 
 the temporary use of that floatmg available capital 
 which, under the modem organization of international 
 finance, is invariably attracted to that country which 
 offers the highest price. And however painful the 
 process may have been, we have at least the satis- 
 faction of knowing that, without suspension of any 
 law, without recourse to any empirical measure or 
 questionable makeshift, in perfect harmony with 
 science and statesmanship on the one hand and ex- 
 pediency on the other, it has been found possible to 
 save the commerce of the country by seven per cent. 
 
TWO PER CENT. 
 
 Introductory Note. 
 
 The preceding article appeared in the January- 
 number of the Edinburgh Beview for 1865, the present 
 article in the January number of the same Beview for 
 1868 ; exactly three years lay between them. 
 
 The extraordinary contrast disclosed by a review of 
 the condition of the banking and business world at 
 these two dates was foreshadowed in the Introductory 
 Note to the former article which told the story of the 
 year 1864 ; the startling characteristics of the year 
 1867 form the subject of the following pages ; but, as 
 a connecting link between the two, it may be useful 
 very briefly to indicate what had been the trend of 
 affairs in the interval, and especially how the develop- 
 ment of the situation as it was left at the end of 1864, 
 acted on the fortunes of 1865 and 1866. It included 
 a terrible catastrophe. 
 
 The commercial and monetary characteristics of 
 1865 were in many respects analogous to those of 
 1864. The oscillations in the value of loanable 
 capital were nearly as violent. No less than seventeen 
 changes were made in the Bank rate of discount in 
 the course of the year. There was an encouraging 
 drop to 3 per cent, towards the middle of the year, 
 but the surface of the business world was still too 
 agitated for so low a rate to be long maintained. The 
 last days of the year were once more troubled by the 
 advent of 'seven per cent.' The foreign trade of 
 
TWO PEE CENT. 49 
 
 the country showed no decHne, and business, taking 
 a broad view, had not been unsatisfactory in the 
 country generally. But mischief was brewing. The 
 development of the limited Uabihty system was pro- 
 gressing apace. Of new companies, 237 were produced, 
 and if a considerable proportion proved abortive, it 
 only added to the general confusion. Meanwhile the 
 large foreign loans introduced in the course of the 
 year, yielding tempting interest, and the offer of 
 many other forms of investment by the newly-created 
 organizations, exercised that effect on the price of 
 securities which, as expressed in the article 'Seven 
 per Cent.,' was its natural outcome. Consols, which 
 in April stood at 9 If, had sunk to 86f in December. 
 Kailway shares and other stocks fell disastrously. To 
 those who could read them, there were ominous signs 
 of a coming storm. 
 
 It burst with unparalleled violence in the spring 
 of the following year. The rates of discount during 
 the earlier months of 1866 reflected pressure and 
 uneasiness. The position of some railway contractors 
 whose solvency depended largely on the prolongation 
 of the advances on the strength of which they carried 
 on their operations, excited much anxiety. The failure 
 of one or two country banks was announced. But 
 even when very dark clouds gathered on the horizon 
 in April, no one anticipated the awful crash which 
 smote the City on May 10, when the great discount- 
 house of Overend & Gurney closed its doors. Its 
 liabilities amounted to the colossal sum of £19,000,000 ; 
 but not less far-reaching than the immediate losses 
 which such a failure entailed was the withdrawal 
 from countless traders and cKents of the facilities on 
 which they had reckoned at the hands of the famous 
 estabhshment to enable them to meet their own 
 
50 ESSAYS ON ECONOMIC QUESTIONS 
 
 'promises to pay,' The dimensions of further pro- 
 spective catastrophe seemed immeasurable. Panic 
 was uncontrollable, and Government was compelled 
 to intervene without a day's delay. On May 11, the 
 Bank Charter Act was suspended to permit the Bank 
 to issue notes beyond the legal limit. The resources 
 thus placed at the disposal of the Bank enabled it to 
 discount biUs, and to make it possible to help solvent 
 but momentarily embarrassed firms by temporary 
 advances ; but, as part of the arrangement, a minimum 
 charge of 10 per cent, on the advances had to be 
 exacted for the accommodation. The panic quickly 
 ceased. Only a few millions beyond the legal limit 
 were issued. It was enough for men to know that 
 they could borrow on any terms. 
 
 The Bank rate continued at 10 per cent, from 
 May 11 tUl August 17. Subsequently the value of 
 money declined ; but, in the City world, in the money- 
 market, in the investment-market, no real recovery 
 had taken place at the close of the year. The shock 
 had been too great, the area of the catastrophe too 
 wide, its effects too deep. 
 
 Meanwhile in this year 1866 the mighty wave of 
 our foreign trade rolled on little disturbed, and, 
 indeed, our exports showed an increase of £18,000,000 
 over the preceding year. Nor at this time did our 
 national finances show any sign of weakness. 
 
 Of the fortunes of the banking world in 1867 I need 
 say nothing here. They are elaborated in the treatise 
 to which this is the * Introductory Note.' 
 
 I have again asked myself in the case of this article, 
 as I shall be found to do in all I repubhsh in this 
 volume, How far have the practices, the character- 
 istics, the tendencies in the business world of the 
 period under review, changed during the years which 
 
TWO PER CENT. 51 
 
 have since elapsed ? In what respects was it a different 
 business world from that which conducts the banking 
 and the trade of to-day? To one such question an 
 answer has already been given \ Our currency laws 
 have remained unchanged. As they survived the 
 recklessness of 1864 and 1865, so they have survived 
 the crash of 1866, the reaction of 1867, and other 
 periods of storm and stress. Have purely banking 
 principles and practices similarly remained unaltered ? 
 I should like to think that, in respect of the splendid 
 traditions of the old firms, their conduct of business, 
 so cautious, so prudent that they sustained their credit 
 amid the disastrous period of the sixties with almost 
 unquestioned strengt)i, the general attitude of the 
 banking community was quite the same to-day as then. 
 I was able, as wUl presently be seen, to speak of the 
 extremely sobering influence exercised by the transfer 
 of floating capital from more adventurous quarters to 
 the custody of steady-going bankers, and by the scru- 
 pulous acknowledgement at the hands of the great 
 bulk of banking-houses, the representative firms, of the 
 peculiar obligations imposed upon them by the nature 
 of their deposits. Absolute security in the choice of 
 their investments had remained with them the very 
 first consideration ; the next, the possession of available 
 resources for their regular customers. I venture 
 humbly to call particular attention to the terms in 
 which, after a terrible crisis had been surmounted 
 without any serious gap in the ranks of the great 
 banking-firms, I thought it just to speak of the con- 
 fidence which they inspired and the pohcy they pur- 
 sued. I earnestly hope that the transfer of many 
 a fine old-fashioned banking-firm with family traditions 
 of a century behind them, to the more impersonal 
 
 ' Vide p. 2. 
 £ 2 
 
52 ESSAYS ON ECONOMIC QUESTIONS 
 
 management of limited companies, may in no wise 
 have affected the sense of caution as the primary duty 
 of the present administrators of colossal deposits. 
 
 One duty in these modern stirring days must 
 always be steadily kept in view — the imperative duty 
 to resist the temptation created by excessive and 
 ubiquitous competition. Not to lose a customer by 
 too severe an examination of his over-draft, may 
 be insidiously suggested to managers by the siren 
 ' ambition,' It is currently said that the competition 
 among banks has never been so sharp as now. Share- 
 holders, too, may be exacting as to dividends, and 
 watch for purposes of invidious comparison those 
 of rival banks. Under the stress of such pressure 
 from without, and ambition from within, it is imagin- 
 able that less steady business might be entertained 
 than the old-fashioned banks would have regarded 
 with favour. These are possibilities only — I hope 
 temptations only. But, in comparing the present with 
 the past, it may be admissible to point out the possible 
 influence of a new atmosphere as well as the immense 
 progress and the vast improvements which we witness 
 in so many directions to-day. The country has been 
 permeated with banking facilities. Rival banks offer 
 their activities in every country town. Every class of 
 trader, in town and country, has better means for 
 carrying on his business ; and, provided boards of 
 directors insist on curbing too exuberant a competi- 
 tion, the extension of the system, with all its 
 advantages, may doubtless have been effected without 
 any risk of forfeiting that unquestionable stability of 
 which the representative firms gave so splendid an 
 example in the time with which these articles deal. 
 
 I am not aware whether, at the present day, bankers 
 are less insistent on their customers maintaining 
 
TWO PER CENT. 53 
 
 adequate balances than in former times, or whether 
 their customers are less liberal now in the matter of 
 leaving handsome balances in their hands, but I am 
 inchned to think that under the existing competition 
 this might easily be the case. The reduction of private 
 balances affects not only the profits of bankers— that 
 is exclusively their own concern— but these balances 
 are in fact private reserves. Some anxiety as to the 
 general question of adequate reserves in the banking 
 world has often been in my mind. 
 
 As to bankers' reserves, I ventured, in a speech to 
 the Leeds Chamber of Commerce in 1891, here re- 
 published^, to tackle this deHcate subject, and urged the 
 duty of their being amply maintained and increased, as 
 a matter of high national importance. It appeared to 
 me doubtful whether, in view of the vastness of the 
 monetary structure which they had to buttress, their 
 dimensions were quite as large as was wise. But, 
 apart from the action of bankers, it is clear that the 
 general practice of too close an investment of every 
 penny which a merchant or trader possesses, without 
 any reserve for contingencies, is also, however good his 
 credit, distinctly a source of weakness to the monetary 
 world. The catastrophes of 1866 offer a terrible object- 
 lesson of this danger. It will presently be shown that 
 in those days * the world had parted with its reserves.' 
 Working capital had been sacrificed to the craving for 
 speculative investments. Men borrowed money for 
 their own regular business in order to pour their own 
 resources into a joint-stock company or a foreign loan. 
 When credit crumbled, and none could put their 
 hands on any reserve, when none could come to the 
 rescue because too many were in the same pHght, the 
 penalty was paid in universal disaster. Have the con- 
 
 ' Vide p. 105. 
 
54 ESSAYS ON ECONOMIC QUESTIONS 
 
 ditions of the money-market so completely changed 
 as to render the story of the debacle of 1866 so out 
 of date that it conveys no lessons to succeeding 
 generations ? 
 
 One more word as to another monetary question 
 relevant to the narrative which follows. I recall that 
 in the Introductory Note to ' Seven per Cent.,' allusions 
 were made to the unlimited power of attracting gold 
 by raising the rate of interest. The story of 1866 and 
 1867 affords an excellent illustration. When Messrs. 
 Overend & Gurney closed their doors on May 10, 
 1866, the stock of buUion in the vaults of the Bank 
 of England was £13,000,000. The rate of interest was 
 raised to 10 per cent, on the following day. Before the 
 end of the year the stock of gold had been increased 
 by more than 50 per cent, and stood at £28,000,000. 
 The increase in the notes in circulation was far more 
 than covered ; and so effectually had the lessons of 
 prudence been taught, and the reaction from over- 
 speculation been developed, that it had been possible 
 for the Bank to raise the proportion of its reserve to 
 its liabihties, which for the year 1866 had been 29 per 
 cent., to 49 per cent, in 1867. 
 
 It is, however, worthy to be put on record that in 
 one far-reaching direction our position as to gold has 
 materially changed since the sixties. I have stated 
 that our currency laws have been upheld in their 
 integrity ever since. But the position of our money- 
 market is not only affected by our own currency 
 laws. Those of other countries, our competitors in 
 banking and in trade, must necessarily have a great 
 influence on ours ; and they have undergone profound 
 alterations, which modify our monetary position in 
 many respects. In the sixties Germany had a silver 
 standard, France an effective bi-metallic standard. 
 
TWO PER CENT. 55 
 
 Austria, Russia, and the United States a depreciated 
 paper currency. All these countries, except France, 
 have now a single gold standard. These changes un- 
 doubtedly affect our power to attract gold when we 
 want it. Formerly we were the natural outlet for gold. 
 No other European had the same normal use for it, 
 except for the arts and for hoarding in the East. Now 
 all and every one of them are as eager to attract gold as 
 ourselves, and in a time of world-wide crisis we might 
 find our one weapon for attracting gold, — the raising of 
 the rate of discounts, — ^less effective, less immediately 
 effective, than in the past. On the other hand, if 
 other countries were less pressed than ourselves, a 
 portion of their stock of gold might find its way to 
 us. On the whole, however, looking to the greater 
 facilities for extracting gold from the Bank of England 
 on demand, compared with the difficulties of getting 
 at the gold of foreign countries, owing to certain forms 
 of dilatory tactics or moral pressure, it would seem 
 that the changes in the currency laws of our neigh- 
 bours have made watchful caution as to our gold 
 reserve more imperative than ever. 
 
 Towards the end of this article, the reader who has 
 been interested in the fiscal controversy of the last 
 two or three years, may possibly smUe when he finds 
 my then comparatively 'prentice hand engaged on the 
 same task of dissecting the totals of our Foreign Trade 
 statistics, as has lately engaged the industrious eager- 
 ness of so many economic belligerents. Already, 
 then, I occupied myself with the distribution of our 
 exports between continental markets, our colonial 
 possessions, and the various other countries who were 
 our customers. I examined the causes of their growth 
 or decline. Already, then, by a singular analogy with 
 
56 ESSAYS ON ECONOMIC QUESTIONS 
 
 some recent conditions, I was able to point out the 
 degree to which a fall in the price of cotton had 
 produced the impression of a diminution in our 
 exports as well as in our imports, which could noti 
 be charged to receding trade ; and suggested, on the 
 other hand, examples of larger imports which were 
 simply due to calamities — such as short crops and 
 cattle diseases — and could not be regarded as gain. 
 Already, then, it was possible for a careful inquirer 
 to discern symptoms of 'dumping.' The name of this 
 now notorious policy is new, but the practice was not 
 unknown long ago, and prompted me to point out 
 how an increase of exports might sometimes simply 
 be the result of a desperate effort to get rid of stocks 
 which it might be difficult to sell at home. Such 
 merchandise might be consigned as a forlorn hope to 
 some foreign country, even if the only advantage 
 might be to obtain advances upon them. 
 
 The figures quoted in my review of the trade of 1867 
 may be so remote from those of the present day — e. g. 
 wheat stood at seventy shillings — as to suggest that 
 their presence in this volume is an anachronism ; but 
 I republish them and the passage which dealt with 
 them, only shghtly condensed, as an instance of the 
 application thirty-seven years ago of the same methods 
 of dissection and analysis as are indispensable now if 
 rash fallacies and attractive generalities suggested by 
 sensational totals are to be avoided in serious economic 
 controversies. 
 
 If I preach this doctrine, possibly with unnecessary 
 insistence, in this series of articles, at all events I hope 
 I may claim that I have practised what I have 
 preached from the first. 
 
TWO PER CENT. 
 
 Eepkinted feom the ' Edinburgh Keview ' of 
 January, 1868 
 
 The year 1867 will take rank in history as the year 
 of the unforeseen. Every page in its records bears 
 witness to the discomfiture of prophecies and the 
 triumph of paradox. The longest experience and the 
 most accredited theories were found equally at fault. 
 The natural sequence of events seemed to have been 
 inverted, and effects refused to follow causes except 
 in an eccentric orbit. In politics and in trade alike, 
 probabilities were turned topsy-turvy. The oldest 
 axioms were discovered to be fallible, and the most 
 favourite proverbs lost their meaning. The world 
 declined to continue to beheve that there is ' nothing 
 new under the sun,' when the self-same year produced 
 two phenomena so remarkable as the Tory party, 
 flushed with victory, singing an exulting Te Deum over 
 household suffrage, and Commerce, clothed in sack- 
 cloth and ashes, chanting a De Profundis with money 
 at Two per cent. 
 
 Money at Two per cent. ! The long-hoped-for con- 
 summation has arrived. The iinancial Utopia has 
 been reached. What castles in the air had not been 
 imagined by governments, railway directors, engineers, 
 companies, cotton growers, promoters, to be carried 
 into actual execution and constructed when money 
 should once more fall from 7 per cent, to 3 ? As for 
 2 per cent., such a figure had scarcely been dreamt 
 of, even in the boldest flights of fancy of M. Pereire. 
 
58 ESSAYS ON ECONOMIC QUESTIONS 
 
 But the most sanguine expectations have been out- 
 stripped. Money is at Two per cent, ; not in England 
 alone — the situation on the Continent is almost the 
 same ; not for a few months only — the entire year has 
 scarcely witnessed a change. Compared with the 
 general rapidity of past fluctuations, there is an ap- 
 parent permanence about this Two per cent. ; compared 
 with the local character of many changes in the value 
 of money, there is a universality about this present 
 cheapness. The accumulation of gold is something 
 marvellous. £60,000,000 sterling are piled up in the 
 vaults of London and Paris '. The grain harvests have 
 been short in England and France, and every prece- 
 dent required short crops to be followed by dearer 
 money and an emigration of gold. In past years, 
 when the barometer fell in the months of July and 
 August, the faces of borrowers fell in sympathy. 
 Dear corn meant an export of bulhon, and the export 
 of bullion meant a higher rate of interest. But nous 
 avons change tout cela in this famous year of Two per 
 cent. Though the importation of grain has been 
 enormous both here and in France, and though the 
 additional suppHes required have certainly cost the 
 two countries more than £20,000,000, the tide of 
 bullion flowing in was too strong to be rolled back 
 by any disturbing elements. It was reserved for the 
 year 1867 to exhibit, for the first time, the co-existence 
 of wheat at 70s. with money at Two per cent., to the 
 confusion of the Cassandras of poHtical economy, who 
 
 ' Throughout this article I wrote of the bullion in the Bank of 
 France as 'gold' without making any distinction between gold 
 and silver. In those days, silver had not yet been dethroned, 
 and was legal tender in a great part of the world ; thus it was 
 not so necessary to specify the separate stocks of gold and silver 
 as it would be now. Doubtless I used the term ' gold ' for the 
 sake of brevity, assuming that it would be correctly understood. 
 
TWO PEE CENT. 59 
 
 had predicted a rise in the value of money. Nothing 
 surely could have exceeded their perversity. They 
 were not content to explain the long prevalence of 
 rates of interest averaging 7 per cent., by temporary 
 causes. Far from confining themselves to the situa- 
 tion of the day, they had refused to believe that, with 
 an increasing demand for capital all over the world, 
 with new channels opening up, with fresh means of 
 communication and information bridging over distance 
 and ignorance, and bringing insatiable borrowers from 
 all parts into closer relation with capital at its fountain- 
 head, the rate of interest could ever, by any jugglery 
 of legal enactments, or by any devices for increasing 
 the currency, be permanently kept down. Has not 
 their theory been put to shame by the present state 
 of affairs? 
 
 It may not, however, be inopportime to inquire, 
 why, if money is at Two per cent., everybody does 
 not hasten to borrow? Can the rates of interest, so 
 temptingly low, indicate any other feeling on the part 
 of capitalists than an intense desire to lend, and to 
 utihze, almost at any price, their superabundant store ? 
 "Why, then, is there not a rush to secure it? And 
 where, we may ask, is the prosperity, the rise in 
 prices, the activity in trade, the greed for new con- 
 tracts, the competition for public works, the eager 
 race for Government loans, the flood of new companies, 
 the general haste, the enterprise, and buoyancy, and 
 speculation, which cheap money brings in its train ? 
 Alas, here is discomfiture again. If, contrary to 
 theory, money has once more become extraordinarily 
 cheap, contrary to experience, the cheapness of money 
 has not borne its accustomed fruit. A year, exceptional 
 to an unparalleled degree in respect of a low rate 
 of interest, has been no less exceptional in respect 
 
60 ESSAYS ON ECONOMIC QUESTIONS 
 
 of commercial depression, falling prices, and universal 
 distrust. It is true that contraction has always followed 
 expansion, and that low interest has been the in- 
 variable consequence of long-continued commercial 
 inflation after the inevitable crash. But the remark- 
 able feature in the late year is the long continuance 
 of this reaction, and the apparent hopelessness of the 
 situation. If the inflated operations of 1864 and 1865 
 led to the crisis of 1866, it was to be expected that 
 the very extent and intensity of the reaction would 
 have brought about its own cure long ago. Twenty 
 months have elapsed since the great break-down of 
 1866, and the tone of commerce is scarcely improved. 
 Whatever the scale of actual operations may be, men 
 still talk and reason as if the crisis continued to this 
 day. No statistics, no arguments, no imports of gold, 
 no tempting rates of interest for borrowers, have the 
 slightest effect. The bullion returns, usually faithful 
 barometers of financial weather, have pointed all the 
 year to 'set fair,' but trade has enjoyed no respite 
 from ' much rain.' A heavy cloud has covered all 
 departments of commerce and industry with gloom. 
 Prices have remained low for almost every kind of 
 goods, as well as every kind of stocks and shares ; 
 and the eagerness of sellers only served to increase 
 the timidity of buyers. The seller's necessity was no 
 man's opportunity. Gigantic failures occurred with 
 money at Two per cent, no less than when it stood 
 at 10 per cent. Kail way enterprise never languished 
 so much : scarcely ever before have so few private 
 bills been presented to Parhament. To all intents 
 and purposes the year 1867 has been one long 
 financial, commercial, industrial, and railway crisis. 
 
 France has not fared better than ourselves. The 
 French have been sharply checked in that victorious 
 
TWO PER CENT. 61 
 
 advance on the road of commercial and industrial 
 development, by which they were asked, not quite 
 in vain, to console themselves for the many serious 
 reverses in their military and political supremacy. 
 All the heart has been taken out of business in Paris 
 as in London. Rouen and Liverpool have been ex- 
 changing condolences ; and the wreck of Overend, 
 Gurney & Co., in England, found its parallel in the 
 grounding of the Credit Mobilier in France. But 
 while the English company sunk in the hurricane of 
 the crisis, with money rising to 10 per cent., the French 
 company ran aground when the storm was past, and 
 in fuU sight of £40,000,000 of gold. Whether the 
 causes of the universal depression in England and 
 France have been identical, we will not at this 
 moment inquire. The Chamber of Commerce at 
 Rouen exhibited a laudable curiosity on this point ; 
 but the French Government snubbed their curiosity, 
 and brought their cosmopoHtan correspondence with 
 other chambers of commerce to an untimely close. 
 Such public interchanges of opinion were discovered 
 to be a contravention of Imperial legislation. 
 
 France has doubtless had many special difficulties 
 of her own to contend with, but has been spared one 
 calamity which aggravated the crisis in England, and 
 carried its effects into regions generally beyond the 
 reach of financial disturbances. The collapse in our 
 railway finance resulted from causes which were only 
 partially connected with the general upheaving of 
 joint-stock enterprise and the paralysis of trade. Its 
 effects, too, reached a different class. The most 
 prudent families had been taught, partly by the habits 
 and customs of trustees, partly by inferences from Acts 
 of Parliament, to beheve that the debentures of English 
 railways ranked next in security to Consols. A hitch 
 
62 ESSAYS ON ECONOMIC QUESTIONS 
 
 in the debentures of an insignificant company changed 
 the whole face of affairs. Lord Cairns's famous judge- 
 ment was a crisis in itself. Kailway debentures — the 
 favourite investment for ' couples about to marry,' the 
 last resource of trustees distracted on the one hand by 
 their own anxiety to avoid responsibility, and on the 
 other by the importunities of their wards not to be 
 sacrificed to Consols — railway debentures, the cynosure 
 of the old-fashioned school of investors, in whose 
 nostrils every other form of joint-stock credit savoured 
 of abomination, these prized debentures, with the 
 single fault that their lives were too short, and that 
 the mighty companies which issued them would per- 
 chance not condescend to renew them on the same 
 terms — have shared the miserable fate of the grosser 
 forms of pubHc and private securities. A legal flaw 
 brought down the debentures, and with the debentures 
 feU the whole fabric of railway credit. The flaw 
 discovered was, however, not the only weak spot. 
 The difficulty led to inquiry, and inquiry revealed 
 results, which, quite apart from the question of the 
 legal Hen of debentures, dealt a blow at railway 
 securities in public estimation, of which the effect 
 will not be removed for years. 
 
 Nothing is more characteristic of the history of the 
 last two years than the universal nature of the de- 
 pression which prevailed. It has often occurred that 
 a commercial crisis has left whole classes of the 
 community unscathed. Large mercantile houses have 
 come to the ground, dravdng down smaller houses in 
 their fall. Within certain circles the trouble and 
 misery were extreme. But meanwhile the great 
 wave of English commerce at home and abroad rolled 
 on undisturbed by local storms. It appeared that 
 millions on millions might be lost without arresting, 
 
TWO PER CENT. 63 
 
 to any appreciable extent, that even general trade, 
 which, sometimes overlaid by rampant speculation, 
 sometimes almost disappearing behind a curtain of 
 distrust and gloom, nevertheless seemed to be superior 
 to every disturbing cause. But disasters coming from 
 every quarter during the last two years have at last so 
 far prevailed as to have carried the full meaning of 
 a crisis home to every class in the country. How 
 railways have contributed their part, we have just 
 seen. By them the most prudent investors have been 
 drawn into the common fate. As for less prudent 
 investors, they were made parties by joint-stock 
 companies to the ups and downs of commercial and 
 financial adventure ; and during the last two years 
 there have been more ' downs ' than ' ups.' Apart 
 from the immense abuses which have taken place, 
 and from the wide-spread misery caused by the 
 collapse of semi-fraudulent companies, the association 
 of the non-trading public with even the most legitimate 
 commerce naturally carried the disasters of bad times 
 over a greatly extended area. The middle classes 
 throughout the country, both trading and non-trading, 
 have never been more sorely tried. The incomes of 
 countless families must have been most seriously 
 curtailed, and the results of reduced expenditure have 
 everywhere told upon the home trade. The expendi- 
 ture of the bulk of the population on articles of great 
 necessity does not seem to have been affected much, 
 except in the case of beer and spirits. But this 
 situation is quite compatible with considerable pinch- 
 ing on the part of the middle classes. We have heard 
 from leading houses in London and Manchester, whose 
 travellers penetrate into every cranny of the realm, 
 and by their dealings with retail traders have the best 
 opportunities for taking stock of the buying capabilities 
 
64 ESSAYS ON ECONOMIC QUESTIONS 
 
 of the country at a given juncture, that for many years 
 there has never been so little buying, so much stagna^ 
 tion. And how could it be otherwise ? Not only has 
 the accumulation of savings been checked. Incomes 
 have been seriously menaced, and the prospects of 
 future years have been mortgaged to satisfy the in- 
 exorable claims of liquidators and creditors. And if 
 dividends remain unpaid, luxuries must be docked, 
 new dresses cannot be bought, and tradesmen wUl 
 complain. "We are not speaking from the point of 
 view of political economy, but simply measuring the 
 extent of what is called the inactivity of the home 
 trade. We have fewer data to guide us in this respect 
 than when we attempt to gauge the extent of our 
 international transactions. But if a general consensus 
 of complaints can be substituted for statistics, the 
 epidemic has visited our home trade with as severe 
 virulence as any part of our aggregate commerce. 
 
 But indeed no department of business has had any 
 reason to boast. It is difficult to point to any single 
 branch (except, indeed, the importation of wheat) 
 which has been palpably and generally remunerative. 
 The same story will be told in the bankers' parlours 
 as in the Lancashire mills, on the clamorous Stock 
 Exchange as in the quieter though scarcely less keen 
 atmosphere of the produce markets in Mincing Lane. 
 When we speak of the want of enterprise, of the 
 dullness of trade, we have not in our minds the 
 disappearance of the happy promoter, the butterfly 
 of the sunny days of financial activity, nor are we 
 only impressed by the constant flight over the horizon 
 of the stormy petrels of a crisis, the speculators a la 
 laisse. There has been less buying and selling of 
 staple commodities; new transactions have stood in 
 smaller and smaller proportion to the liquidation of 
 
TWO PER CENT. 65 
 
 old operations, and where an article used to be sold 
 three or four times over, it is now sold only once. 
 This is not an evil in itself, but it indicates the dis- 
 position of commercial men. Where purchases are 
 now made, they are made because the purchase is 
 necessary to the buyer at once, because his stock is 
 exhausted, not because he believes that the article 
 is going to rise. In a word, trade is conducted from 
 hand to mouth. There is no speculation, no laying in 
 of stock, and transactions have enoraiously diminished, 
 less because our imports are smaller, than because 
 those imports pass through fewer hands. 
 
 In whatever direction we turn to study the symp- 
 toms which are generally believed to indicate the 
 position of trade and finance, we appear to discover 
 most unfavourable points. It is true that in no kind 
 of inquiry are we more likely to be misled by the first 
 appearance of facts, than in an analysis of commercial 
 affairs — in none, as we shall show when we have to 
 analyse our international trade, must we be more on 
 our guard against misleading totals. But in the situa- 
 tion before us the prima facie evidence of a serious 
 backward movement seemingly accumulates on every 
 side. Look at the returns of the Income Tax, where^ 
 though by the system of averages the illusions of 1865 
 Still soften the disenchantments of 1867, we find an 
 unprecedented decline. Look at the tables of exports. 
 They show a decrease of £6,000,000. Look at the 
 total of our imports. The faUing off is £12,000,000. 
 Look at the prices of our leading railway shares ; at the 
 Great Northern, fallen since 1864 from £135 to £104 ; 
 at the Great Western, fallen from £78 to £43 ; at the 
 London and Brighton, from £103 to £51. Look at 
 the long list of joint-stock companies, marked at 
 prices involving losses by the side of which the 
 
 F 
 
66 ESSAYS ON ECONOMIC QUESTIONS 
 
 depreciation of even railway shares seems moderate 
 and endurable. Look at the state of the Court of 
 Chancery — blocked with the liquidation of companies 
 bankrupt or djdng of atrophy. Look at the failures 
 in Liverpool, and hear the confession of Liverpool 
 men — very frankly made — that the whole place has 
 almost been ' cleaned out.' Then turn and contemplate 
 the idle millions of gold in the Bank, and money at 
 Two per cent. The paradox seems complete. The 
 golden radiance of £60,000,000 sterling in Paris and 
 London is impotent on the hard black frost under 
 which commerce seems to be perishing of cold. Like 
 the polai" sun, they illuminate but do not warm. The 
 cheapness of capital is equally powerless. Speculation 
 remains cold and refuses to be comforted. Two per 
 cent, woos in vain ! 
 
 But is money really at Two per cent. ? And does 
 this accumulation of buUion in England, and notably 
 in France^ really signify what it is supposed to imply ? 
 It is true that the Bank of England and bankers 
 generally are discounting biUs at Two and even at 
 1| per cent., but is there a general fall in the value 
 of loanable capital ? Can governments, contractors, 
 railway companies, borrow at largely reduced terms ? 
 Is capital being rejected by speculation, or is it 
 speculation which is repulsed by capital ? The 
 nominal hire for the use of capital is low ; but 
 suppose that capital in most cases refuses to be hired 
 at all. We greatly suspect that to an enormous 
 majority of wiUing borrowers ' Two per cent.' is little 
 more than an ironical phrase. The narrowness of the 
 hmits within which the fact of cheap money is 
 literally true, furnishes in a great measure the clue 
 to the fact itself. Capital is plentiful and cheap in 
 
TWO PER CENT. 67 
 
 one quarter because in another it refuses to be hired 
 at any price. Capital is cheap, not because it has 
 multiplied, but because it has been concentrated on 
 a given employment. The first impression of infinite 
 abundance and cheapness dies away the nearer we 
 look, and similarly we shall find that a large pro- 
 portion of the bullion excess in Paris and London 
 dwindles very considerably on closer inspection. 
 
 The first impression which the simultaneous excess 
 of bullion in the Banks of England and France might 
 not unreasonably convey, would be that it results 
 from the operation of identical causes in the two 
 countries ; that these causes are inseparably connected 
 with the stagnation of trade ; and that generally the 
 surplus in question may be taken as a fair measure 
 of the extent to which the supply of capital has 
 increased and the demands of trade fallen off. Such 
 a view would, however, involve a most serious mistake. 
 A survey of the weekly accounts published by the 
 Bank of France incontestably proves that a very large 
 portion of the excess which has raised the gold in the 
 Bank to those £40,000,000 sterling— the 'milHard' 
 of francs which form such an extraordinary feature 
 in the financial history of 1867 — is not so much the 
 result of capital lying idle, sulkily protesting against 
 continued political alarms, or timidly waiting for the 
 solution of financial difficulties, as the result of a wide 
 substitution, from one cause or another, of notes for 
 the precious metals in the circulation of France. 
 
 Nothing is in some respects more remarkable than 
 the fixed character of the note-circulation in England, 
 The effect of the gravest perturbations of our com- 
 merce and banking finance on the amount of notes 
 in the hands of the public has generally been moderate 
 and temporary. There is indeed a well-known ebb 
 
 F 2 
 
68 ESSAYS ON ECONOMIC QUESTIONS 
 
 and flow of the notes according to the seasons of the 
 year. The quarterly payments of salaries throughout 
 the country, rent days, harvest time, create certain 
 definite and perfectly calculable fluctuations. But, 
 inclusive of these tidal movements, the total variation 
 in the amount of notes held by the public at one time 
 during the whole period from April, 1861, to April, 
 1866, did not exceed £4,000,000. The lowest point 
 touched was £19,000,000, the highest £23,000,000. 
 Nor is it difficult to understand this extreme regularity. 
 The suggestion that the immense increase in our 
 commerce might be reasonably supposed to necessitate 
 proportionate additions to the machinery by which it 
 is conducted — that is to say, to the circulation — has 
 been almost exploded, and it is well understood that 
 the relation between the amount of transactions 
 concluded and the amount of notes necessary to 
 conduct them, is by no means one of direct proportion. 
 Since the last crisis less business has been done, but 
 more notes have been wanted to do less work. Nor 
 can it be said that the regularity of the circulation has 
 been forced on the country by an iron system which 
 prevents expansion. Practically, we possess a gold 
 circulation with a supplement of £15,000,000 bank- 
 notes \ Eesting on the deposit of bullion, this 
 circiilation permits expansion as indefinite as our 
 powers of obtaining gold, and our powers of ob- 
 taining gold would only be exhausted when the 
 country had nothing left to sell. The limits within 
 which our circulation has moved have certainly 
 not been determined by any currency law, but by 
 the habits of the country at large, by the regularity of 
 our system of payment by bankers' cheques, by the 
 
 ' Vide pp. 3 and 4, notes, as to the present position of the 
 fiduciary issu« of the Bank of England. 
 
TWO PER CENT. 69 
 
 perfect arrangements of the Clearing House — in a 
 word, by the immense economy in the use of 
 notes produced by our highly developed banking 
 organization. 
 
 Contrary, however, to previous experience, the 
 effects of the crisis of 1866 upon the circulation 
 (effects which, according to precedent, ought to have 
 vanished with the subsidence of the panic by which 
 they were caused) have been of long duration, and 
 have indeed continued to this day. The amount of 
 Bank of England notes in the hands of the public rose 
 between £3,000,000 and £4,000,000 in the worst three 
 weeks of 1866, and nearly £3,000,000 of this excess 
 stUl remain. It is true that the average circulation of 
 the country banks has decreased by about £750,000, 
 natm-ally creating a demand for Bank of England 
 notes to supply the deficiency. But this circumstance 
 only accounts for a smaU part of the excess. The 
 remainder, doubtless, is due in part to the collapse 
 of credit, which has not only affixed a stigma to bills, 
 but may to some extent have even affected the good 
 repute of a cheque. When every one suspects his 
 neighbour, recourse may frequently be had to the 
 rude method of payments by bank-notes. And again, 
 notes may even be taking the place of bills in many 
 transactions. Hoarding of notes, as a last reserve, 
 may be another not improbable cause. Such a pro- 
 ceeding would not be very reasonable ; for communica- 
 tion is now so quick that, except in extraordinary 
 times, it would appear to be scarcely less safe to keep 
 money in deposit in the Bank of England than locked 
 up in a box at home. But the additional notes must 
 be somewhere. 
 
 We have alluded to the excess in the currency of 
 the Bank of England notes, not on account of its 
 
70 ESSAYS ON ECONOMIC QUESTIONS 
 
 intrinsic importance, though the fact is curious enough 
 when compared with the extraordinary regularity of 
 previous years, but on account of its bearing on our 
 present stock of gold. The excess of notes afloat 
 absorbs an equal amount of the excess of gold in 
 hand. So long as the country continues to require 
 an additional supply of £3,000,000 or £4,000,000 of 
 bank-notes, so long an equal amount of additional gold 
 must be retained by the Bank. Thus when we con- 
 template the large stock, let us not miscalculate. 
 £3,000,000 of gold, out of the surplus, belong to 
 holders of new notes. They afford no additional 
 strength to the Bank. They have not been left there 
 because there is no employment for them, but because 
 their work is done by the notes. 
 
 The fluctuations in the circulation of the notes of 
 the Bank of France have been on a much vaster scale. 
 That circulation has more than doubled in the space 
 of ten years. Between November, 1864, and Novem- 
 ber, 1867 — that is to say, in three years only — the 
 increase was £17,000,000. But how have the French 
 doubled their circulation ? By the precise means 
 which are at our command for doubling ours — by 
 the deposit of gold. The French Bank directors, 
 unfettered as they are, except by their own discretion 
 and the inexorable laws of convertibihty, have not 
 been so mad as to multiply their promises to pay in 
 gold by nearly 100 per cent., without securing more 
 than a proportionate, nay, almost an equal increase 
 in their stock of gold. If we take their stock of gold 
 in December, 1857, and again in December, 1867, 
 we find an increase of £30,000,000, so that every 
 additional note is fully represented by gold. The 
 accounts of the Bank of France seem to show that 
 the general range of notes unrepresented by gold lay 
 
TWO PER CENT. 71 
 
 between £16,000,000 and £20,000,000. We should 
 tMnk that whatever the minimum or maximum may 
 be, the Bank directors in France would not be very 
 comfortable, if more than £20,000,000 of their notes 
 were uncovered by gold. 
 
 We have stated these figures as to the French note 
 issue because the situation of the unemployed millions 
 in the Bank of France, which play so prominent a part 
 in relation to Two per cent., cannot otherwise be duly 
 appreciated. We beg our readers' especial attention to 
 the point that of the £40,000,000 of bullion at Paris 
 at this moment, at least £27,000,000 belong practically 
 to the note-holders, and are in substance deposited m 
 the Bank for their accoxmt. If the gold is idle, notes 
 are at work instead. The phenomenon of nearly 
 £40,000,000 accumulated in the Bank of France at 
 one time is thus reduced to the spectacle of a goodly 
 reserve of £13,000,000. The rest belongs in fact not 
 to the Bank, nor to capitalists, it belongs to the 
 holders of notes. It could not be removed without 
 placing the currency in jeopardy. It has come in 
 because the notes have gone out. It is idle because 
 the work is being done for it by the notes, more 
 convenient substitutes. It does not contribute to the 
 fact of Two per cent. 
 
 To sum up the position of the Bank of Eng- 
 land and the Bank of France at the beginning of 
 this year, looking to the amount of bank-notes 
 issued, the two banks were much in the same position 
 as regards unemployed capital. £13,000,000 remained 
 in each bank, an ample, an unusually high reserve, 
 but very different in its aspect from the colossal 
 proportions which, so long as it is viewed from a 
 distance and in a vague Hght, the mountain of 
 buUion presents. 
 
72 ESSAYS ON ECONOMIC QUESTIONS 
 
 The extreme abundance of loanable capital anxious 
 for employment at Two per cent,, likewise assumes 
 smaller dimensions the closer we look. At first sight, 
 the general impression is conveyed that vast sums of 
 unemployed capital are in vain seeking for remunera- 
 tive employment, that the supply at the disposal of 
 borrowers of any class is so great, and is pressed upon 
 their coyness with such importunity, that the equiva- 
 lent to be paid for its use has dwindled to a mere 
 fraction. Alas 1 if any ingenuous man, deluded by 
 these fond ideas, should hasten to the market to 
 borrow for some great operation for which he has 
 vainly attempted to find funds in the days of financial 
 dearth, he would find himself grievously disappointed. 
 Two per cent, is indeed the rate of discount for first- 
 class bills, and for loans on short terms, on the very 
 safest kind of stocks ; but for most purposes capital is 
 actually scarce and dear. Capital has been diverted 
 from other channels, and has temporarily flooded the 
 discount-market into which it has been poured. So 
 far as the operations of commerce proper are repre- 
 sented by first-class bUls, so far it is true that capital 
 conmaands a price less by 70 per cent, than its price 
 in 1864. Up to this point it is true that the difference 
 is immense, and to an extraordinary degree in favour 
 of the borrowers. But these borrowers form but a 
 section of the great aggregate who desire to share 
 amongst them whatever capital may be available for 
 loans. 
 
 Borrowers are of various kinds. There are com- 
 mercial borrowers offering biUs of exchange for 
 discount, territorial borrowers offering mortgages. 
 Government borrowers offering stock, railway bor- 
 rowers offering debentures, contractors offering various 
 forms of bonds, municipal corporations at home and 
 
TWO PER CENT. 73 
 
 abroad, joint-stock companies for industrial enterprises, 
 and many others. Nearly all these classes, however, 
 faU conveniently under four heads — commerce, land, 
 Government, and industrial enterprise. Money being 
 at Two per cent., what is the position of each class 
 with reference to the advantages to be reaped from 
 this apparent cheapness ? In the year 1864, when 
 money was extremely dear, the rate of interest 
 advanced almost for every class, though temporary 
 borrowers were naturally most severely affected. While 
 bUls could not be discoimted at less than 7, 8, and 
 10 per cent., the rise in the price for loans on mort- 
 gage, or for railway debentures, was much less rapid 
 or striking, but was nevertheless substantial and 
 decisive. All borrowers were paying more. Mort- 
 gages are avowedly the least variable of investments, 
 but solicitors were put to their wits' end to renew 
 mortgages at the old rates, and higher charges for the 
 loans which had to be raised, afforded to many country 
 gentlemen an excuse for dabbling a little in stocks. 
 The case of railways was worse. The fatal and inex- 
 plicable mistake of sinking the proceeds of temporary 
 loans in permanent works, relying on the tender 
 mercies of the future for the renewal of debentures 
 falling due, has exposed them pre-eminently to the 
 dangers of a rising market. Foreign Governments 
 fared little better. When high rates of interest were 
 to be earned in England, it would have been futile 
 to offer the old terms. In a word, the value of capital 
 was enhanced to all. The scarcity and dearness afflict- 
 ing one class had not turned to the advantage of 
 another. Famine had not been produced in one 
 quarter by the direction of the supplies to another, in 
 which plenty might have been expected to ensue. 
 !fhe rising price of capital was universally, though 
 
74 ESSAYS ON ECONOMIC QUESTIONS 
 
 unequally felt ; least by those who, like borrowers 
 on land, are most removed from the tropical heat 
 of the financial centre, more by those who move 
 within the temperate zones of debentures and funds, 
 and most by those who, in closest contact with the 
 money market, are exposed to the sudden convulsions 
 which sweep over the regions nearest to the financial 
 line ; but no class remained unaffected by the general 
 result. 
 
 Let us reverse the test. Has the fall of the value 
 of money been similarly felt by every class ? The 
 nominal market value of money has fallen from Seven 
 to Two per cent. To what extent has the fall been 
 as universal as the rise ? What signs are apparent of 
 a general retrogression in the value of capital ? Bills 
 of exchange, as we have seen, can be discounted even 
 under Two per cent. What is the position of other 
 classes of borrowers ? We believe that loans on land 
 are rather more easily procured, but we find few 
 symptoms of other classes of borrowers having par- 
 ticipated in the advantages of cheaper money. Most 
 of them have either not improved their position, or 
 encounter greater difficulties than in the days of 
 Seven per cent. The funds of every foreign Govern- 
 ment, without exception, which recurs to the English 
 or French money-market for occasional financial help, 
 stand at a lower figure, in most cases at a much lower 
 figure, than at the end of 1864. In England and 
 France the funds are slightly higher. In December, 
 1864, Consols stood at 91, in December, 1867, at 94|. 
 French Kentes show a similar change. They stood at 
 65, they now stand at 69. The difference in the yield 
 of interest of these funds bought at their present price 
 against the prices of 1864 is to the English investor 
 about i per cent., to the French investor | per cent., 
 
TWO PEE CENT. 75 
 
 a remarkably small difference in view of the immense 
 changes in the money-market. Our colonies and our 
 Indian empire have also gained a certain advantage. 
 But if we look at the case of those Governments — 
 and they comprise almost all Europe — who are habitual 
 borrowers in foreign markets, we find their funds 
 considerably lower now, when Two per cent, exhibits, 
 but does not offer them its charms, than when high 
 interest everywhere gave their stocks an excuse for 
 being low. The rates at which it suited capitahsts, 
 great and small, to lend to foreign Governments in 
 1864 are not sufficient to tempt them now. Higher 
 interest is required, that is to say, the prices of the 
 stocks must be lower. And so we find them to be^ 
 For instance, since 1864 Eussian Five per cents, have 
 fallen 2| per cent. Prussia does not borrow in foreign 
 markets, but her funds are also lower by about 2 per 
 cent. Austrian and ItaHan securities have fallen in 
 much greater proportion. 
 
 An examination of the causes of the depreciation in 
 the value of foreign stock would be out of place. Of 
 course, worse credit lies at the root. But the simple 
 fact is this, that, undeterred by the existence of 
 absurdly low rates of interest elsewhere, the public 
 requires a higher return from investments in foreign 
 funds than when the Bank rate stood at 7 per cent, in 
 1864. There has been much European trouble since, 
 and most States have been obliged to incur enormous 
 expenditure. But the last two years have not changed 
 the solvency of empires, nor have they been particularly 
 conspicuous for large additions to Government debts. 
 What has changed most is the public mind, which 
 has passed from an excess of confidence to exaggerated 
 despondency. The same object now wears an entirely 
 different aspect. Viewed in the new Hght, the brightest 
 
76 ESSAYS ON ECONOMIC QUESTIONS 
 
 colours have become dark spots; and so it comes to 
 pass that foreign stocks, yielding incredible interest, 
 are sold, and the proceeds carried to a bank which 
 allows 1 per cent, on deposits. The competition of 
 one large class of borrowers has ceased. 
 
 The borrowing difficulties of railways during 1867 
 have been so notorious that they require only a 
 passing allusion. Their position throughout the year, 
 thirsting in vain for capital in sight of extraordinary 
 abundance, more than equalled in suffering the tortures 
 of Tantalus. Generally speaking, they have been 
 compelled to forego borrowing altogether, and to pull 
 through, as best they could, without. Money was 
 cheap, but it was not cheap for them. Here and there 
 an isolated company, proudly superior to the troubles of 
 its rivals, has, we beHeve, renewed its debentures on 
 not unfavourable terms ; but practically railways have 
 been obliged to leave the money-market to itself. As 
 for joint-stock companies, and especially those credit 
 companies whose action contributed at least as power- 
 fully as any other single cause to raise the value of 
 money, they too have been driven from the field. 
 If money were really so plentiful, so willing, so eager 
 for employment, as the low hire which it receives 
 would seem to denote, never would the opportunity of 
 such companies have been so great as now. What 
 profits could not be made by borrowing at Two per 
 cent., and by the help of funds thus obtained, supplying 
 the demands and meeting the urgent needs of an 
 immense class, who, if they could only borrow at aU, 
 would willingly pay exorbitant rates ! But many of 
 the companies have been themselves thrown on their 
 backs. Others are imder a cloud. None have the 
 necessary credit which alone, in such a despondent 
 season as the present, would enable them to attract 
 
TWO PEE CENT. 77 
 
 funds. To them, too, Two per cent, is only a phrase. 
 Their competition in the market has ceased to tell. 
 
 That money is at Two per cent, is therefore only 
 true in a very limited sense. We do not simply 
 speak of the literal meaning. The words convey 
 a wrong impression, even if they are intended to 
 denote that the general facihties for borrowing have 
 greatly increased. The facihties in most cases have, 
 on the contrary, been diminished to an extraordinary 
 extent. Never was the public more indisposed to 
 lend. Strange as the statement may sound, it is 
 actually the fact that money is cheap, not because 
 lenders are underbidding each other, but because the 
 greater portion of lenders are unwilling to lend at all. 
 They wish to be quiescent, nay more, they draw in 
 their money from every possible quarter, not with 
 a view to its emplojmient, but with the distinct 
 intention of not employing it. It may be said, ' Surely 
 they must put such funds to some use ? They cannot 
 lock them up in their safes.' No ; but they carry 
 them to the banks and leave them there at merely 
 complimentary interest, or at no interest at all. They 
 prefer waiting a while. Disappointed by past invest- 
 ments, schooled by a sad experience against the 
 allurements of exaggerated dividends, smarting under 
 the actual losses incurred, they wish to see the end. 
 They want to wait till they can be sure that every- 
 thing has touched bottom, that all sores have been 
 discovered, that all the rotten parts of our system have 
 been cut out. The immense deposits in the hands of 
 the Bank of France, the Bank of England, and the 
 strongest of our joint-stock banks, tell their own 
 tale. How these establishments are likely to deal 
 with such funds, and what differences are likely to 
 ensue from this employment of them by bankers 
 
78 ESSAYS ON ECONOMIC QUESTIONS 
 
 instead of by the public itself, or by intermediary 
 establishments, we will endeavour by and by to explain. 
 The important point at this moment is the attitude 
 of those to whom the funds belong, and the displace- 
 ment, if we may so speak, of investments. What 
 has become of the usual accumulation of savings? 
 Is the present abundance the result of profits and 
 economy? Have we been growing so rich and so 
 prudent that we don't know how to employ all our 
 surplus capital ? Not at all. Two per cent, does not 
 result from the abundance, but from the disgust, of 
 capital. Harassed by the misuses to which it has 
 been put, by the disappointments it has suffered, by 
 the impositions of which it has been made the dupe, 
 capital, in high dudgeon, has retired to its tents. The 
 situation of the moment is this : capital is on strike ! 
 
 Capital is on strike, out of employ I In England it 
 has struck against limited liability ; against railways ; 
 against promoters, contractors, and engineers ; against 
 joint-stock companies of every description ; against 
 speculators; partially, against foreign Governments. 
 In France it has struck against the Credit Mobilier 
 and its satelhtes ; against the system which produced 
 the Mexican loan ; against ambiguous utterances in 
 high places ; against political uncertainties ; almost 
 against the Empire itself. In England it complains 
 of deficiencies of the law, and of the shortcomings of 
 those to whom it had entrusted its fortunes ; in 
 France, of the uncertainties inflicted on commerce 
 and finance by the ignorance imposed on the public 
 as to the political event the morrow may bring forth. 
 The causes which have arrested the activity of capital 
 in the two countries are not identical ; but they react 
 upon each other, and have much in common. The 
 uneasiness of French capitalists reacts upon ourselves. 
 
TWO PEE CENT. 79 
 
 The disposition of England to abstain from all enter- 
 prise increases French timidity, and strengthens the 
 poHcy of financial inaction. "When Enghsh business 
 men cease to be sanguine, French capitalists think 
 that times must indeed be bad. For years past, the 
 more prudent portion of the French bankers have 
 habitually acted on the theory that they were living 
 on a volcano. The events of 1848 were never entirely 
 forgotten ; French habihties never assumed the same 
 proportion as ours. But if, in this respect, the 
 difference is considerable, on the other hand the effect 
 produced by enormous losses has been the same on 
 both sides of the Channel. It is long since it has been 
 necessary to pass such heavy losses to the debit of two 
 countries in times of peace as have been realized — 
 we will not say incurred — during the last few years. 
 
 The origin of many of the disasters dates farther 
 back ; but the losses had not been acknowledged, the 
 bad debts had not been written off. Illusions lasted 
 till the crisis of 1866 dispelled the mist. And these 
 losses are important, not only because they have 
 ' demoralized ' capital, in the French sense of the word. 
 They have absorbed national resources, and prevented 
 the natural yearly accumulation of savings. Nothing 
 is more abundantly clear than that the present low 
 value of money cannot be the result of surplus profits. 
 The average amount of the savings of England and 
 Fi'ance can, of course, never be correctly ascertained. 
 Still, rough estimates have acquired a certain amount 
 of authority, and may serve as a basis for a general 
 opinion. In France the estimate of annual profits or 
 savings available for new investments, fixes the figure 
 at £40,000,000 sterling per annum. In England the 
 amount is supposed to be at least twice as great, and 
 
80 ESSAYS ON ECONOMIC QUESTIONS 
 
 £80,000,000 is considered to be far within the mark. 
 What has become of these enormous sums ? The 
 French, after the fashion of their country, compiled 
 elaborate statistics to prove the mode in which their 
 savings have been lost. They prepared tables exhibit- 
 ing the amount of home and foreign loans, the foreign 
 railways, and enterprises of various kinds, into which 
 French capital had been put — of course not treating 
 these investments as a loss, but simply as an absorp- 
 tion of so much capital. In the famous inquiry held 
 in Paris in consequence of the attacks on the Bank 
 of Prance, these statistics were discussed ; and the 
 Governor of the Bank of Prance, M. Kouland, formed 
 — upon the strength of these materials, and on figures 
 prepared in the department of the Minister of Finance 
 — an estimate of some of the absolute losses which 
 Prance had suffered by various investments. 
 
 M. Eouland, engaged in deahng with the ques- 
 tion as to what had become of the available capital, 
 of the savings of France, explained the ' swallowing 
 up ' (devoration) of capital which had taken place on all 
 sides. Between the years 1852-65, the Imperial Trea- 
 sury had devoured no less a sum than £120,000,000 
 sterling. French railways had absorbed £200,000,000, 
 loans to communes and departments had reached 
 £32,000,000, French credit companies and other joint- 
 stock enterprises had consumed £200,000,000. Total, 
 £552,000,000 for twelve years, or £46,000,000 per 
 annum ; a larger sum than the estimated total of the 
 annual savings of Prance. But this was not all. 
 French financiers of the Imperial type were not so 
 narrow-minded as to confine their operations within 
 the limits of their own country. French participation 
 in gigantic foreign loans has caused a further absorp- 
 tion of French capital. 
 
TWO PER CENT. 81 
 
 But these figures did not by any means exhaust the 
 catalogue of the engagements of France. The French 
 have had their experience of railways as we have had 
 ours, but with this notable difference. The French 
 railways themselves have been a very great success, 
 whereas on foreign railways there has been a fabulous 
 loss. Up to a certain time every one who had 
 touched railways in France had made money, and 
 railway enterprise rose high in public favour. By 
 a very natural sequence the idea was suggested that 
 similar profits might be realized abroad, and Spain 
 and Italy were chosen as the favourite fields. But the 
 conditions under which the railways were then con- 
 structed were totally different. In France the chief risks 
 of construction had been shared by the Government. 
 Abroad all the risks of the enterprise were left to the 
 shareholders. Those risks, whether in consequence 
 of unavoidable circumstances, of deplorable miscalcula- 
 tions, or even something worse, proved to be most 
 serious, and the catastrophe of the Spanish railways 
 negotiated in France assumed dimensions beyond the 
 worst disasters of our Enghsh shareholders. M. Eouland 
 estimated the loss to France on foreign industrial enter- 
 prises alone at upwards of £60,000,000, of which by 
 far the greatest proportion accrued on railways built 
 in Italy and Spain. The immensity of these amounts 
 seemed to justify us in quoting them as one of the 
 causes which have powerfully contributed to diminish 
 available savings in France. 
 
 We have not taken into account the operations of 
 the Prefect of the Seine, which in a few years have 
 raised the debt of the city of Paris to something like 
 £35,000,000 borrowed, to a great extent, by an extra- 
 vagant and unsatisfactory machinery. It is whispered 
 that even in these days of Two per cent., the city of 
 
 G 
 
82 ESSAYS ON ECONOMIC QUESTIONS 
 
 Paris has been, indirectly, paying 7 per cent, for loans. 
 We have no need to speak of the commercial and 
 agricultural disasters which have heightened the gloom 
 in France, of short crops of wheat and wine, of the 
 sufferings in the silk and cotton trades, of the losses 
 incurred by France in common with all other countries 
 on the general commerce of the last two years. We 
 have said enough to show why capital is on strike, and 
 why Two per cent, must be regarded not as the result 
 of abundance and of profits, but of the displacement 
 and non-employment of capital. 
 
 We wUl not attempt to measure by figures the 
 losses of England during the last two years. Some 
 misfortunes we have had in common with France — 
 bad crops and unremunerative trade. With us, as in 
 France, no branch of business has been able to boast 
 of its success in the midst of universal calamities, and 
 those have considered themselves singularly fortunate 
 who, though they had not grown any richer, had at 
 least not lost a portion of their wealth. In some 
 disastrous undertakings we have indeed not fared so 
 badly as France, but we have no reason to boast. 
 The aggregate of our losses has probably been as 
 much greater than that of the French, as the aggregate 
 of our capital and its capacities for good and for 
 mischief are greater than theirs. It is needless to 
 specify details, when the general statement unfor- 
 tunately comes home to everybody's experience. The 
 savings of several years may be required to fill up the 
 gaps which have been made. 
 
 The losses incurred have been heightened by our 
 incapacity to deal with the confusion which they 
 produced. It is characteristic of this country that the 
 
TWO PER CENT. 83 
 
 tackle is never in order when we have to take to the 
 boats. We are sanguine and go-ahead, and think 
 more of speed, and of the best means of reaching our 
 goal in spite of obstacles, than of preparing an elaborate 
 organization for the possible event of a break-down. 
 Nothing can be worse than the disorder which follows 
 mercantile shipwrecks. The bankruptcy system, 
 private arrangement deeds, liquidation in Chancery, 
 all are equally unsatisfactory. Men of business as 
 we call ourselves, we seem hopelessly baffled as soon 
 as confusion sets in, and the one task in which we 
 seem to succeed least is the reduction of chaos to 
 order. Chaos in railway matters, chaos in all the 
 relations of hmited liability, has prostrated our 
 energies and prevented our recovery. Mismanage- 
 ment in its time of tribulation has discredited joint- 
 stock enterprise no less than its exuberant indiscretions 
 when all went well. Limited liability has been 
 sharply pulled up. The wide channels which it 
 opened for pouring capital into the dearest markets 
 have been blocked for the nonce. 
 
 In January, 1865, we called attention to the con- 
 nexion between the development of joint-stock enter- 
 prise as a means for supplying capital to foreign 
 countries, and to the high rate of interest subsisting in 
 1864. We wrote : ' If money is again to become as 
 cheap as our manufacturers would have it, one of two 
 things must take place. Either the demand of foreign 
 countries for English capital must decrease, or the 
 credit of the companies through whose medium that 
 demand is supplied must break down. The former 
 alternative is very remote. With regard to the 
 latter, it is unquestionably possible that the public, 
 which has invested a certain portion of its savings 
 in foreign enterprises, may be disappointed with the 
 
 Q 2 
 
84 ESSAYS ON ECONOMIC QUESTIONS 
 
 results, and may withdraw its confidence and with- 
 hold its contributions from over-speculative financial 
 companies. . . . The new field of operation chosen by 
 joint-stock enterprise — that field, the most voracious 
 of all ' — seemed to us to have been ' the determining 
 element in the rising price of capital, an influence 
 which, if not checked hy a break-down of credit, must,' 
 we thought, 'from the very nature of the case, be 
 more or less pei'manent in its character.' The break- 
 down has, however, occurred. One of the two con- 
 tingencies, which could alone, we behoved, permit 
 money to become cheap again, has actually occurred. 
 The demand of foreign countries for English capital 
 has certainly not ceased, but many of the companies 
 through whose medium the demand was suppHed 
 have become discredited. The confidence of the 
 pubHc has been shattered. The conduit-pipes through 
 which the reservoirs of English capital were opened 
 up to foreign borrowers have become blocked by 
 Itfoken promises and disappointed hopes. The chief 
 influence which tended towards a continued enhance- 
 ment of the value of money is in abeyance on account 
 of imperfections in its organization. 
 
 In one respect, indeed, the development of joint- 
 stock enterprise has exceeded the hopes of its most 
 sanguine friends. Its functions were to be double — 
 to coUect drainage and to utilize it. As far as its 
 object was to coUect every drop of available capital 
 into central reservoirs, it has done aU and more than 
 was expected. But many of the reservoirs proved 
 unsafe, and the fields into which the capital, when 
 collected, was poured, turned out, in many instances, 
 most unremunerative. The theory of the system as 
 expounded by the French avowedly contemplated 
 
TWO PER CENT. 85 
 
 an increase of national force by the concentration of 
 fractions of capital, which might otherwise not be 
 utilized at all. The concentration has taken place, 
 and even in an exaggerated form. Not only have 
 savings, real available capital, been sucked in, but 
 capital which was not available at all. The world 
 parted with its reserves. Working capital was sacri- 
 ficed to the craving for speculative investments. 
 Many borrowed money for their permanent regular 
 business, in order to be free to pour their own 
 resources into a joint-stock company or into foreign 
 funds. The concentration was too effectual, the subse- 
 quent diffusion very unsatisfactory. Of the actual 
 losses we have already spoken. But the disasters are 
 not to be measured by them. The country has 
 laboured ever since under the absence of reserves. 
 Too often the possibility of creating fresh reserves 
 has been cut off by the necessity of meeting liabilities 
 incurred upon shares which were not fully paid up. 
 In other cases strenuous efforts are doubtless being 
 made to restore the necessary working capital of 
 a business to a normal amount. The process of course 
 involves a continuous sale of imprudent or excessive 
 investments, and, in the absence of any demand for 
 such securities, the fall in prices has naturally been 
 very great. The operations necessary for reconstructing 
 ' reserves ' seem to us to be by no means one of the 
 least effective causes of the coexistence of panic prices 
 for shares and stocks with money at Two per cent. 
 
 But, it may be said, where are these reserves? 
 Surely the proceeds of the sale of shares and stocks 
 are not locked up at home ? They are carried to the 
 banks, and the banks, who thus receive additional 
 capital, might become the organs of its diffusion. In 
 
86 ESSAYS ON ECONOMIC QUESTIONS 
 
 such a case the position of capital would surely not be 
 changed ? 
 
 But the change is very serious nevertheless. Bankers 
 certainly employ the funds which have thus been 
 placed in their hands, but such employment is tied down 
 and guided by the strictest canons of orthodox banking. 
 
 The transfer of capital from hands which were ready 
 to employ it boldly and speculatively, at high rates of 
 interest, to hands where the most scrupulous caution 
 and anxious forethought prevails, has doubtless contri- 
 buted most materially to cheapen the rate of interest 
 to borrowers of the highest repute. The nature of the 
 deposits entrusted to bankers imposes a peculiar obli- 
 gation which is generally most scrupulously acknow- 
 ledged. Bankers must employ such funds, but in 
 their employment security, not price, must be the first 
 consideration. High premiums ought never to tempt 
 them to run patent risks. Their first object is to be 
 absolutely safe, their next to have available resources 
 for their regular customers. To save a cUent from ruin 
 they are not unfrequently obliged to run risks which 
 they would rather avoid, but the consideration is not 
 the profit derived from a high charge, but the obhga- 
 tions imposed upon them by the habits and interests 
 of their order. "We are speaking of the great bulk of 
 banking-houses, the representative firms. By them, 
 loans on questionable though remunerative securities 
 are absolutely tabooed ; for such loans, though they 
 need not necessarily lead to ultimate loss, lead, in four 
 cases out of five, to a lock-up. We need not dwell on 
 the light in which lock-ups are regarded by bankers. 
 
 The general result is plain. The pubhc, sick of its 
 previous investments, carries deposits in unprece- 
 dented amounts to the strong and careful banks, and 
 the banks only use these deposits by loans to the most 
 
TWO PER CENT. 87 
 
 solvent of customers, or in the discount of the safest 
 bills. But the most solvent customers are precisely 
 those who are least likely to want much money, and 
 the best class of bills do not exist to an unlimited 
 amount. Hence the plethora of that particular kind of 
 capital in one particular quarter, hence Two per cent, 
 in Lombard Street, and in the discount office of the 
 Bank of England. But the counterpart to this result 
 is no less clear. For every other kind of business 
 capital was seldom more difficult of access. 
 
 If some of the other classes of borrowers, to whom 
 we have alluded, had been still able to avaU themselves 
 of the resources of the discount-market by the con- 
 tinued manufacture of a certain class of biUs of which 
 the public has lately heard a good deal, the faU in 
 the value of money would probably have remained 
 within narrower limits. But finance bills, a device 
 for opening new channels for securing loans for per- 
 manent purposes by the assumption of a temporary 
 garb, have been practically banished from the discount- 
 market, which they had invaded in great force. 
 For a time those who were in search of capital for 
 permanent purposes poached, and very successfully 
 too, on their neighbours' preserves. When railways 
 could not raise funds on their own distinctive forms 
 of securities, such as shares and debentures, when 
 Governments fovmd themselves unable to issue regular 
 stock, when impoverished shipowners could not find 
 capitalists ready to make them an advance on that 
 very critical kind of security — a mortgage on ships — 
 bills were manufactured to take the place of those 
 unavailable forms of credit. Kecent disclosures have 
 initiated the public more or less into the mode of pro- 
 ceeding. The financing of a great railway company took 
 
88 ESSAYS ON ECONOMIC QUESTIONS 
 
 this form, and supplies a conspicuous illustration of the 
 invasion of the discount-market by permanent bor- 
 rowers. Liverpool has furnished some striking ex- 
 amples of the creation of ' shipping paper,' a class of 
 security viewed with much disfavour by bankers of the 
 old school, — bills different in their very essence from 
 common mercantile paper, as instead of representing 
 property which is intended to be sold, they represent 
 the very opposite, property which by these bills is to 
 be preserved from sale. 
 
 Mercantile bills are short-lived. They represent 
 a transaction which in a few months comes to a 
 natural end. Their most common function is to 
 bridge over the interval between the purchases of 
 goods and their re-sale, either in the same or in an 
 altered shape. Foreign bills come under this defini- 
 tion in so fai- as they are not drawn on demand, but 
 are payable after a lapse of a certain number of days 
 or months. They not only effect a transfer, but they 
 allow a certain amount of time. The theory is that 
 the proceeds of the goods will afford the means to 
 extinguish the bill. Whether new bills represent- 
 ing new transactions will take the place of those 
 which are thus paid off, depends upon the activity 
 of trade. If times become bad, the amount of 
 mercantile paper decreases in proportion. It falls 
 and rises with the ebb and flow of prosperity. 
 Finance bills, on the other hand, are different in both 
 respects. Unlike mercantile bills, they are not in- 
 tended to be paid off and extinguished when they fall 
 due. Contracts exist for their renewal. They repre- 
 sent transactions spread over years instead of months. 
 And, again, unhke mercantile bills, their amount does 
 not naturally contract when times get bad ; nay, the 
 worse the times, the more certain it is that, at any 
 
TWO PEE CENT. 89 
 
 sacrifice, they must be kept alive. The effect of the 
 competition of such a class of bills with commercial 
 bills proper may easily be imagined. They would 
 naturally bear upon the market with a weight dis- 
 proportionate to their actual amount. They are 
 known to be poachers, notwithstanding their mask, 
 and have to pay blackmail. But commissions paid 
 every three months for renewals, besides interest 
 fixed at so and so much above Bank rate, spoils, so 
 long as all goes well, the happy recipients for the 
 more humdrum transactions of discounting regular 
 bills. For the latter, accordingly, higher rates are also 
 exacted, and the briskness of the competition, even 
 more than the actual increase in the amoimt of biUs, 
 raises the rate of interest to all. 
 
 On the other hand, the system of financing by bills, 
 of which the renewal was promised by contract, but 
 depended on the willingness of others who were not 
 parties to the contract, to discount the new bills, was 
 absolutely certain to lead to great financial disasters. 
 The crisis of 1866 struck a blow at credit under which 
 our whole system reeled and staggered. The soundest 
 portion of our trade needed a long time to recover ; 
 other portions have not recovered yet, though they are 
 slowly and laboriously progressing. But as for the 
 class of bills which we have described, they have 
 vanished altogether, in many cases involving drawers, 
 acceptors, and discounters in one common ruin. The 
 transactions on which they were based were broken up ; 
 the nature of the bills was revealed, and those who 
 had been driven to the use of this financial device — 
 because, even in better times, they could not find money 
 in the ordinary way — were utterly unable to pay the 
 bills, when failures on all sides shut off the possibility 
 pf renewals. 
 
90 ESSAYS ON ECONOMIC QUESTIONS 
 
 The disappearance of this class of bills naturally 
 created a remarkable reaction in the money-market, 
 where their presence had been such a source of mis- 
 chief. The amounts were large in themselves. We 
 have heard that the disappearance of the biUs of one 
 large group of contractors alone has relieved the dis- 
 count-market of an incubus of eight millions' worth of 
 paper. But the relief experienced is not to be measured 
 by the amount withdrawn. No class of securities had 
 played so great a part in running up the rate of 
 interest. The stakes for which all concerned were 
 playing were so high that the difference of a few 
 pounds per cent, in the rate of discount scarcely 
 weighed in the scale. Mercantile bills have now been 
 freed from a competition against which they could 
 hardly hold their own. Their turn has come. The 
 borrowers for permanent purposes no longer absorb 
 a large portion of the resources of the temporary 
 market. They have retired, not because their demands 
 are satisfied, but because their demands are no longer 
 entertained. They leave the discount-market to its 
 normal customers, and are shut out themselves just at 
 the time when unwonted supplies, diverted from the 
 field of permanent investment, are pouring into that 
 market for short loans which they are compelled to 
 abandon. That under these circumstances the rate 
 of discount, in its literal sense, should have fallen 
 unprecedently low, is no less natural than that diffi- 
 culties in the way of railways and every kind of 
 permanent enterprise should be exceedingly great. 
 Viewed in connexion with the attitude of capital 
 turning its back on almost every class of borrowers ; 
 with the reconstitution of reserves ; with the collapse 
 of many of the channels by which capital used to be 
 carried into foreign markets ; with the temporary 
 
TWO PER CENT. 91 
 
 deposit of idle money in the hands of the banks ; with 
 the pecuHar employment given in the discount-market 
 to such spare money by the bankers in whose hands 
 it is placed ; and, finally, with the withdrawal from 
 the discount-market of whole classes of bills, which 
 used to weigh upon it with especial heaviness — the 
 co-existence of Two per cent., with much financial 
 embarrassment and the depression of every kind of 
 stocks and shares, ceases to be the glaring anomaly 
 which it appeared at first sight. 
 
 Another difficulty, however, must suggest itself to 
 every mind. Money, we have seen, is flowing into 
 channels over which commerce has almost exclusive 
 command. Why, then, does commerce not make use 
 of its opportunities ? Why does not speculation in 
 goods and produce revive ? Why do not our merchants 
 and manufacturers resume their wonted activity ? 
 
 That there is little or no spmdation in goods is be- 
 yond a doubt ; and that trade has been generally 
 unremunerative is also very certain. But it is not so 
 clear that the amount of our international transactions 
 has been so unsatisfactory as the simple totals of our 
 imports and exports would lead us to suppose. We re- 
 peat, these totals often require to be greatly modified. 
 Large additions to our international transactions need 
 not always be a matter for unmixed congratulation. If 
 we had lost all our cattle and all our corn, an increase 
 in our imports solely due to such a cause would doubt- 
 less be so far satisfactory that we should have procured 
 the means of subsistence and been able to pay for 
 them, but highly unsatisfactory as a register of 
 prosperous circumstances. On the other hand, a fall 
 in the price of the raw materials by which our leading 
 manufactures are fed, might lessen the value of our 
 
92 ESSAYS ON ECONOMIC QUESTIONS 
 
 imports, but be in itself a most gratifying event. 
 The aggregate value must always be most carefully 
 compared with the aggregate quantities. If we con- 
 sume the same quantities of tea and coffee, sugar 
 and tobacco, but pay the producers a lower price, 
 the first appearance of our tables of imports may be 
 unfavourable, but we have not much reason to com- 
 plain. Again, it is interesting to know whether any 
 diminution of our foreign trade is due to causes over 
 which we ourselves have control, or to accidents 
 affecting our customers abroad. It is perfectly con- 
 ceivable that our business might be suffering a 
 temporary check, not in consequence of any crisis 
 at home, of diflBculties in our labour market, indeed 
 of any disqualification on our part to compete suc- 
 cessfully for our lion's share in the commerce of the 
 world, but exclusively on account of embarrassments 
 besetting our foreign customers, or on account of 
 suicidal tariffs abroad. The United States might be 
 more responsible for our diminished exports than 
 trades' unions at home. It is evident that a host of 
 questions may be partially answered, not so much by 
 the totals, as by the component items of the com- 
 mercial statistics at our command. What is the real 
 key to the apparent serious decline in our trade ? 
 Are we eating and drinking less ? are we producing 
 and selling less ? Have our workshops been more 
 idle ? Have strikes had their effect ? Are we 
 ceasing to supply markets where we find our rivals 
 ensconced ? 
 
 At first sight, the figures for 1867 certainly look 
 gloomy enough, and the first separate item which 
 strikes the eye deepens the unfavourable impression. 
 We start with a decline in our exports and imports 
 of £18,000,000 ; but the significance of the amount is 
 
TWO PEE CENT. 93 
 
 greatly enhanced, when we find that, but for an excess 
 of £10,000,000 in the value of grain imported in 1867— 
 that is to say, but for extraordinary purchases abroad 
 to fiU up a gap caused by a disaster at home, purchases 
 which can scarcely be taken into account in any com- 
 parison between the relative movements of trade in 
 two successive years, — our import lists for 1867 would 
 have shown a much larger decline. Accordingly, if 
 we wish to measure the full extent of the alleged 
 diminution in our trade, we must strike out the excess 
 on corn, and look a deficiency not of £18,000,000, but 
 of £28,000,000, fairly in the face. 
 
 But if the item of corn thus heightens our apprehen- 
 sions, the item of cotton changes the whole aspect of 
 affairs. The price of cotton fell 30 per cent, during 
 1867, causing by its fall a double effect. Not only was 
 the aggregate value of our imports reduced by the 
 cheapness of the most important raw material with 
 which foreign countries supply us ; the cheaper raw 
 material lessened the cost of the manufactured article. 
 IS the price of cotton had been the same in 1867 as 
 in 1866, our importations would have been worth 
 £14,000,000 more, our exports £8,000,000 more, 
 than we now find them. The lower value of cotton 
 alone, irrespective of quantities, has reduced the total 
 of our imports and exports by the large sum of 
 £22,000,000. 
 
 The price of cotton stands now almost where it 
 stood before the great convulsion. Huge fortunes 
 melted away as it feU. Whoever held stocks felt the 
 ground giving way beneath his feet. No branch of trade 
 connected with the article has been exempt, and we have 
 heard the saying in Liverpool, that 1866 ruined the 
 speculators, 1866 the merchants, 1867 the producers. 
 But be that as it may, apart from individual suffering and 
 
94 ESSAYS ON ECONOMIC QUESTIONS 
 
 local catastrophes, the cheapening of the raw material 
 of our chief branch of industry is, in itself, not a draw- 
 back, but a great pubHc benefit. Not only is the 
 cheaper price of the commodity an advantage in itself; 
 the greater security which low prices inspire, imparts 
 animation to trade. Manufacturers are reheved of 
 their chronic fright of remaining saddled with goods 
 made of dear cotton when their neighbours may be 
 able a few weeks later to buy their raw material at 
 two-thirds of the cost. 
 
 The reduction in the quantity of cotton imported 
 amounts to a sum of £6,000,000, which, together with 
 the £22,000,000 due to the cheaper price, accounts for 
 the whole of the apparent decline in our international 
 transactions, even when that dechne is increased by 
 subtracting the excess on wheat. It is not true, there- 
 fore, to say that we have been going back. We have 
 simply stood still. 
 
 The decline in the quantities of other raw materials 
 than cotton is probably more due to our home trade 
 than to our international relations ; for our exports do 
 not show a corresponding reduction in several cases, 
 where, from the smaller import of i-aw material, we 
 might at first sight have expected a falHng off; 
 indeed, there is nowhere any decline which could for 
 one moment be considered important by the side of 
 the large excess in the cotton goods which we have 
 sent abroad. Why the Australian ladies have taken 
 a million's worth less of ' millinery ' and apparel, 
 gallantry forbids us to inquire. Otherwise on no 
 single article of export do we find any reduction as 
 large as £200,000 ; in some there is a slight, in others 
 a decided augmentation. In the metal trade we have 
 continued our advance ; and we rejoice to find that 
 under the head of machinery, notwithstanding con- 
 
TWO PEE CENT. 95 
 
 tinued rumours of irresistible competition, we have 
 not only held our own, but gained considerable ground. 
 Trade is undoubtedly miserably depressed, and there 
 are evidences of stagnation which no one can gainsay ; 
 but nevertheless a closer review of our exports seems 
 to exclude many of the disheartening inferences, and 
 to forbid many of the gloomy prophecies, which the 
 first aspect of the figures in the tables of the Board 
 of Trade seemed peremptorily to enforce. 
 
 The changes of direction which our exports have 
 undergone confirm the more hopeful view. They will 
 be found to be highly suggestive. It might have 
 been supposed that the ceaseless anxiety as to European 
 war would have frightened both our continental 
 customers and ourselves ; and that their fears of heavy 
 commitments just before a period of trouble, and our 
 fears of unpunctual payments if war should break out, 
 might have restricted our continental trade ; while, 
 on the other hand, we might have consoled ourselves 
 by extending our operations to countries as far 
 removed as possible from the reach of European 
 calamities. Nothing, however, would be farther from 
 the truth ; for we have greatly increased our trade 
 with our nearest neighbours, and curtailed it with 
 America and the antipodes. In Europe, barring in- 
 significant fractions, we have either stood still or 
 advanced, and we have advanced most with our very 
 best and most punctual customers. Holland, France, 
 and Russia together have increased their purchases by 
 £2,000,000, and Germany by the large sum of 
 £5,000,000 ! Clearly, if there is a hitch in our trade, 
 we cannot hold Europe responsible. Here at least we 
 have not yielded an inch to the presence of rivals, nor 
 withdrawn on account of troubles at home. Our 
 exports to European countries, notwithstanding the 
 
96 ESSAYS ON ECONOMIC QUESTIONS 
 
 lower value of the goods, show a net excess of 
 £5,000,000. Africa raises our surplus from £5,000,000 
 to £6,000,000, and though in Asia a reduction is 
 threatened in China and Japan, India sweeps in mag- 
 nificently with £1,000,000 increase, and we conclude 
 our transactions with three-quarters of the globe still 
 with a rising surplus. In South America, the first 
 serious blow is dealt. The Brazilian Empire is a heavy 
 defaulter, and leaves us in the lurch for £1,500,000 ; 
 but Peru and Chili, plucky little Kepublics, come to 
 the rescue, and we pass northwards still with our 
 excess of £6,000,000. We come, however, to a 
 dismal region. The whole group of countries sur- 
 rounding the bay of Mexico are under a cloud. New 
 Granada, stUl quivex'ing under the last of her perpetual 
 revolutions, Venezuela, publicly and privately as 
 impracticable a debtor as any in the world, Mexico, 
 utterly demoralized and impoverished, have, together, 
 purchased less goods by £1,500,000. No countries 
 take longer credits ; from none is the recovery of the 
 value of goods sold a more hopeless task ; and that 
 they reduce our surplus to £4,500,000 is neither a 
 great calamity nor, in times like these, an unfavourable 
 sign. But at our next step we encounter a great 
 disaster. The United States at one blow sweep the 
 whole of that surplus away, and leave us with an 
 actual deficiency. Their commercial disorganization 
 is bearing its natural fruit ; their tariff does its intended 
 work. The expansion of our trade in so many 
 quarters has been neutralized by its contraction in 
 America. Our exports have declined, not from any 
 disaster for which we ourselves are responsible, but 
 on account of the terrible ordeal through which the 
 United States have passed, and the suicidal policy by 
 which they attempt to repair its ravages. 
 
TWO PEE CENT. 97 
 
 Our own North American colonies follow up the 
 blow; they raise our deficiency to £1,600,000, and 
 Australia completes the work. No country has 
 suffered a more severe commercial collapse. Next to 
 the United States, it is most accountable for any 
 decline in our trade ; but while we deplore the gap 
 thus made, it is essential to remember that here, as 
 in the case of the Americans, it is our customers and 
 not we who are at fault. The States, the North 
 American Provinces, and Australia change an excess 
 of £4,000,000 mto a deficiency of £6,000,000. 
 
 In several respects, then, the result of a bird's-eye 
 view of our export trade appears to us to be not 
 unsatisfactory. Where a decrease has occurred, it 
 seems to have been due to extraordinary and tem- 
 porary causes, but where we have advanced, we have 
 found no extraordinary circumstances, and may hope 
 that the expansion is normal and regular. That 
 Europe, where our clients are most solvent and most 
 prompt in payment, and where, if anywhere, we 
 might expect to suffer from the successful competition 
 of dangerous rivals, should have bought more from us 
 than ever before, is peculiarly significant. An in- 
 crease of exports may sometimes be the result simply 
 of a desperate effort. Unable to get rid of their 
 stocks, manufacturers sometimes consign them as a 
 forlorn hope to the Far East, in order, if they cannot 
 sell, at least to procure an advance of money on their 
 goods from the firms to whom they entrust the sale. 
 But there is no great increase in our trade with the 
 East. Germany, of aU countries, has improved our 
 commercial statistics most, and generally we have 
 traded less with countries at a distance and more 
 with those near home. Nothing, indeed, can be 
 more natural, in the prevaiHng state of distrust and 
 
 H 
 
98 ESSAYS ON ECONOMIC QUESTIONS 
 
 uncertainty, than that men of business, thoroughly- 
 discouraged as they are, and unable to shake off 
 the despondent impressions left by an unprecedented 
 crisis, and continuously threatened by the probability 
 of poHtical troubles, should avoid transactions into 
 which credit largely enters, and which will absorb 
 their resources for a long time in advance, preferring 
 to trade, even at much diminished profits, with custo- 
 mers who are within redch of a railway or a telegraph, 
 and from whom punctual payment may confidently be 
 expected. 
 
 The story of the Board of Trade, fairly precise, as 
 we may presume it to be, as far as regards the volume 
 and the direction of our international trade, is, 
 naturally, silent as to the results of the stupendous 
 transactions which it records. If the bulk has been 
 great, our manufacturers cannot have been idle, and 
 wages must have been earned ; but as to the profits 
 realized, no inferences can be drawn* Neither mer- 
 chants nor manufacturers at once arrest their trade 
 because their last venture involved a loss. The 
 momentum of commerce is too great to admit of 
 a sudden or even a rapid check. Wars, revolutions, 
 financial panics, catastrophes of every kind, may 
 occur, but many months wUl elapse before the break 
 begins to tell upon the headlong speed of our com- 
 mercial course. The system of credit, coupled with 
 the vast business transacted with countries beyond 
 the reach of sudden action, binds the free will of 
 capitalists and merchants always for many months, 
 sometimes for a year, in advance. Come what may, 
 contracts must be fulfilled, credits be honoured, goods 
 be paid for, and the loss endured. It might indeed 
 be said that the time which has elapsed since the 
 crisis of 1866 has been so long that ample oppor- 
 
TWO PER CENT. 99 
 
 tunities have been given for winding up pending 
 engagements, and that the effects of precautions taken 
 w^hen the crisis was most violent, must have made 
 themselves felt long ago. The contraction of business 
 would surely, it might be said, have been infinitely 
 greater if new operations had not followed on the 
 liquidation of the old. But even as regards new 
 business, merchants and manufacturers are not entirely 
 free agents. The desire for curtailment cannot be 
 pushed too far. A staff cannot be discharged, works 
 cannot be allowed to stand stUl and become disorgan- 
 ized, nay more, clients and customers cannot be 
 suddenly abandoned, the goodwill of a long-established 
 connexion cannot be sacrificed, because personal con- 
 venience and the interests of the moment make all 
 business undesirable. 
 
 Nor can our foreign commerce be considered entirely 
 apart from our home trade. They have too much in 
 common for one to be prostrated without some 
 sympathetic suffering on the part of the other; and 
 we certainly believe that all the financial misfortunes 
 of 1866, the terrible disasters of bankrupt companies, 
 the collapse of railway credit, the disappearance of 
 dividends, the discharge of a vast array of middle- 
 class employes, the diminished resources of countless 
 families, the excessive dearness of bread, have pro- 
 duced a cessation of buying which justifies the assertion 
 of many engaged in the home trade that for forty and 
 fifty years, tim.es have not been so bad. Such stagna- 
 tion may drive them to divert goods intended for sale 
 at home into the foreign market, and those habitually 
 engaged in the foreign trade may find themselves 
 undersold. Meanwhile everybody is disheartened. 
 Prices have universally fallen, and in a falling market 
 no one will lay in stocks. Besides, nothing is more 
 
 H 2 
 
100 ESSAYS ON ECONOMIC QUESTIONS 
 
 infectious than despondency. The stimulus of cheap 
 money is of little avaU in comparison with the dismal 
 influences under which our home trade seems hope- 
 lessly cast down. 
 
 Clearly, the present position of the home trade 
 must react upon all other branches, and greatly 
 diminish the chances of profit. At the same time 
 wheat at 70s. is in itself enough to enforce most 
 stringent mercantile caution. But other reasons 
 remain for the reign of Two per Cent. The financial 
 needs of commerce have been reduced to a minimum. 
 When prices are exceedingly low, when, consequently, 
 not only the cost of goods on their homeward or out- 
 ward journey is greatly reduced, but the stocks of 
 merchandise absorb less capital, and when the stocks 
 themselves of these cheaper goods dwindle to a mini- 
 mum, it is clear that for an equal amount of business 
 less money, much fewer loans, wiU be required. 
 Add the circumstance of shorter credits being granted 
 to foreign customers. The financial world has drawn 
 in its forces from outljdng regions and concentrated 
 them at home. Money is in vain offered to com- 
 merce on cheaper terms ; for low interest can do no 
 more than increase profits, it does not remove the 
 danger of placing borrowed money beyond reach of 
 recall. Merchants are at present like beaten troops. 
 They have lost confidence in their star. Their reverses 
 have been so serious, so continuous, that they despair 
 of success, and we beHeve it difiicult to exaggerate the 
 half-heartedness and gloomy feeling with which trade 
 is now carried on. Business cannot be stopped, but it 
 is pursued without confidence or satisfaction. We need 
 hardly say that continental poUtics largely contribute 
 to prevent the slightest favourable reaction. So long 
 as European affairs are simply settled by arrangements 
 
TWO PEE CENT. 101 
 
 from hand to mouth, commerce will follow suit and 
 only provide for the barest necessities of the day. If 
 the aspect of politics abroad were materially to change 
 for the better, British trade might, by degrees, over- 
 come its despondent tone, forget its reverses, and begin 
 on a sounder footing with every hope of success. It 
 will have a long start over other kinds of enterprise 
 for which the machinery of Hmited liability is pre- 
 ferred, as the requisite repairs in the latter system 
 cannot be made without a lengthened delay. For 
 some time to come, commerce will clearly be able to 
 obtain loans on its own terms. But it would be a fatal 
 error to mistake concentration for abundance. Our 
 forces have not been increased, but we have them more 
 in hand. The demands upon us will not be diminished, 
 they are only kept in suspense ; and when confidence 
 once revives, when the impressions of 1866 fade 
 away, when the state of Europe once more appears 
 to offer a fair chance of tranquillity; when, if such 
 an assumption at the present moment is even hypo- 
 thetically admissible, the machinery for supplying 
 foreign countries with English capital is again at work, 
 — then it will be found that those untold millions, 
 which culminated in Two per cent., were little more 
 than the limited reserves of a limited class, important 
 not from their amount, but from their concentration 
 on a given spot, where, entrusted to agency most 
 scrupulously cautious, they were offered for the use of 
 commerce, but offered ineffectually, on account of the 
 memory of losses, which a year had been insufficient 
 to efface, and of the apprehension of European troubles 
 of which the most confident prophet would not dare to 
 forecast the end. 
 
OUR CASH RESERVES 
 AI^D CENTRAL STOCK OF GOLD 
 
 Introductory Note 
 
 The following address is separated by twenty-three 
 years from the preceding article ; but it finds its place 
 fitly here, as it deals with a period of similar monetary 
 disturbance. It was delivered about two months after 
 the disastrous Baring crisis which occurred in the 
 year 1890. The circumstances which convulsed the 
 City at that time are still too recent to render it 
 necessary for me to give any further account of the 
 nature of the catastrophe in tliis Introductory Note 
 than will be found in the address itself. Suffice it to 
 say that a day came in November, 1890, when, owing 
 to causes which it is vmnecessary to recall, the great 
 house of Barings realized that, unaided, they could not 
 meet their engagements. The scale of their liabilities 
 was such that their actual failure would have meant 
 ruin to the monetary world. The situation was of 
 world-wide import. 
 
 Under these circumstances the Barings laid their 
 books before the authorities of the Bank of England. 
 There was a large deficit between their assets realisable 
 for immediate purposes, and their liabilities which had 
 to be punctually met. On the invitation of the Bank 
 of England the great banking and discoimt houses 
 came together and guaranteed the deficit on the Bank 
 of England undertaking the hquidation. So ready 
 
OUE CASH EESEEVES 103 
 
 were the great magnates of the City to save the credit 
 of London, and to avoid the impending disaster, that 
 the offers of guarantee, it is said, amounted to much 
 more than the necessary sum. 
 
 The liquidation was successfully concluded. With 
 the time afforded by the guarantee, and with the 
 prudent realization of the assets of the firm and of 
 the private fortunes of its members, all liabilities were 
 met, and no creditor incurred any loss. 
 
 It was long before the agitation in the City, and 
 indeed in all trading centres, subsided. I was Chan- 
 cellor of the Exchequer at the time. It was clear 
 to me that one of the main causes of the crisis was 
 the insufficiency of banking reserves in the widest 
 sense. It was borne in upon me, too, that our central 
 stock of gold was small in comparison with the weight 
 which it had to bear in critical times. Accordingly, I 
 set to work to see whether any scheme could be devised 
 which would strengthen our currency structure for 
 times of emergency. 
 
 In one direction I seemed to discern a possible 
 means of securing my object if cautiously handled. 
 Suggestions for the issue of £1 notes were in the air. 
 A portion of the pubHc — to a greater degree in the 
 provinces than in London — were, for various reasons, 
 not only prepared for, but anxious for the introduction 
 of this new form of currency. The £1 note had high 
 financial authorities in its favour. A prominent 
 member of the House of Commons, Mr. William 
 Fowler, had introduced a BUI on the subject. I planned 
 an attempt to give the public, of course entirely at 
 their option, the opportunity of using £1 notes instead 
 of the sovereign as part of the active circulation. Two- 
 thirds of the gold thus set free were to be retained as 
 security for the notes, but were to be kept as a separate 
 
104 ADDEESSES ON ECONOMIC QUESTIONS 
 
 reserve, augmenting the stock of gold in the vaults of 
 the Bank of England, This separate reserve was to 
 be utilized, in case of emergency, under the most 
 stringent conditions as to rates of interest, in lieu of 
 the very unsatisfactory expedient offered by the 
 suspension of the Bank Charter Act. 
 
 I have thought it useful to supply this bare outline 
 of my train of thought here, as it will enable the reader 
 to follow more easily the explanation of my plan 
 which I gave in a speech at Leeds. The speech itself 
 was delivered extempore and in a more rhetorical form 
 than the articles which I wrote for the Edinburgh 
 Beview ; but it could not be converted into a more 
 careful or scientific exposition without being entirely 
 rewritten. Thus I have confined my revision to the 
 removal of obvious blemishes and to some condensa- 
 tion and rearrangement in the interest of lucidity. 
 
OUR CASH RESERVES 
 AND CENTRAL STOCK OF GOLD 
 
 Speech deliveeed at a Banquet of the Leeds 
 Chamber of Commerce, January 28, 1891 
 
 Gentlemen, you will forgive me if I avail myself 
 of this not very appropriate occasion to put before 
 you some considerations which I think may not be 
 unworthy of your attention, and which are concerned 
 with some very serious aspects of our national, com- 
 mercial, and manufacturing life. I am anxious to 
 speak to you upon matters which cannot fail to be 
 interesting to every man who is engaged in commerce 
 and trade. I wish to address you upon banking 
 reserves, upon currency, upon the question of the 
 attitude of this country with regard to its enormous 
 liabilities and its means to discharge them in a manner 
 worthy of our great reputation, and calculated to 
 maintain that splendid fabric of credit which has 
 done so much to promote the prosperity of the people 
 and to command the admiration of the world. 
 You will admit these are not topics which interest 
 a section only of the community. They touch ques- 
 tions on the satisfactory solution of which the sound 
 condition of our commercial existence depends. 
 
 Your President has alluded to the times through 
 which we have passed ; to the state of things which 
 in the months of November and December alarmed 
 the country and created a feeling of tension such as has 
 rarely been witnessed. No fertile imagination could 
 
106 ADDRESSES ON ECONOMIC QUESTIONS 
 
 exaggerate the gravity of the crisis ; and if I attempt 
 to bring home to those who are listening to me now 
 its serious nature, I do so in order to accentuate the 
 extreme importance of their keeping their attention 
 rigidly fixed on the necessity for soundness in our 
 banking system and soundness in our currency trans- 
 actions, I doubt whether the public has thoroughly 
 realized the extent of the danger to which what is 
 called the ' Baring crisis ' exposed us all. It was not 
 a question of a narrow circle of financiers or traders. 
 The liabilities were so gigantic, the position of the 
 house was so unique, that interests were at stake far 
 beyond individual fortunes, far beyond the fortunes of 
 any class. We were on the brink of a crisis through 
 which it might have been difficult for the soundest or 
 the wealthiest to pass unscathed. It was a time when 
 none who had liabilities or engagements to meet could 
 say how they could meet them, if a condition of things 
 were to arise under which securities could not be 
 realized, produce could not be sold, bUls could not be 
 discounted — a condition under which there appeared 
 an absence of sufficient cash to discharge the liabilities 
 of the general public. That was the position at home, 
 and I tell you what was at stake — You ran the risk of 
 the deposition of London as the banking centre of the 
 universe. You ran the risk of a fatal blow to English 
 credit, and of the transfer of much of our business 
 to other European centres, if such a far-reaching 
 catastrophe had occurred as you were on the eve of 
 witnessing. I cannot exaggerate the danger, the 
 immediate danger, to which this country was exposed 
 at that time ; and we are under a deep debt of gratitude 
 to the Bank of England for the action it took, action 
 which enabled lis to tide over the crisis. 
 
 We were not only faced by a banking danger. 
 
OUE CASH EESERVES 107 
 
 The mercantile and producing classes were threatened 
 as well. The situation would have been brought 
 home to you clearly enough if banks who held 
 your deposits, banks on whom you depended for 
 your discounts, who supplied you with the means 
 of carrying on that active trade for which this town 
 is renowned — if these banks had been crippled ; 
 and crippled they would have been if the crisis 
 had not been warded off. But beyond this, the 
 public should understand that it is through credit 
 that all the raw materials on which the life of the 
 people depends, are moved. How do you move the 
 cotton from America which is to employ the men of 
 Lancashire? How do you move those crops upon 
 which the people depend for their sustenance ? How 
 do you bring to these shores the various products of 
 the soil of America, of Africa, and of Asia, without 
 which we should scarcely be able to exist ? You 
 manage all this through a gigantic system of credit 
 the ramifications of which extend to eveiy clime, to 
 every country ; and if that credit once broke down 
 I do not know how crops would be moved or how 
 produce would be brought from other countries to this. 
 Let me insist upon this point. Supposing that gigantic 
 failures had taken place, men in New York would 
 nevertheless wish to continue to send cotton to this 
 country as usual. They must be paid for the cotton, 
 or they must trust to be paid for the cotton. What 
 is the ordinary means of sending the cotton to this 
 country? By bills on London firms. But to sell 
 those bills you must have buyers, and for buyers you 
 must have men who would have confidence in the 
 credit and solvency of London firms ; and if that credit 
 had gone, how would it have been possible to secure 
 the normal movements of produce from various coun- 
 
108 ADDRESSES ON ECONOMIC QUESTIONS 
 
 tries to this? Simply by shipments of gold, and 
 by no other means. Yes, you had securities, but 
 who would buy them at that time ? Yes, you 
 had assets, but men stood in the centre of their 
 assets unable to realize them, eager to sell, but 
 unable to utiHze this wealth for the payment of 
 their liabihties ; and so men trembled for their 
 honour, for the structure which they had built up 
 through scores of years, wondering how through the 
 dangers which were surrounding them they would 
 be able to maintain their own fair fame, and how the 
 greatest of the great houses would be able to survive 
 the storm. 
 
 I tell you you have escaped from a catastrophe to 
 which the famous catastrophe of Overend & Gurney 
 would have been child's play. You have escaped 
 from a catastrophe which would have affected every 
 town, every industry ; to use a common phrase, you 
 have escaped * by the skin of your teeth,' Pray 
 understand that, if I place before you the dangers 
 to which the nation was exposed, I do so in order that 
 we may see what was wrong, and consider whether 
 by prudent courses such dangers may be averted. 
 Well, I ask you, what were the measures taken, what 
 saved the situation? In one sense I have told you 
 already. It was saved in part by the capacity of those 
 who were governing the Bank of England at the time. 
 But what measures were taken in view of the probable 
 situation when the public should hear of the danger 
 in which the great house of Barings was involved? 
 Knowing the panic that might ensue, knowing the 
 rush that there would be on the reserve of the Bank 
 of England, the directors took a preliminary precaution 
 by extraordinary means — for ordinary means would not 
 have sufficed — they obtained £3,000,000 of gold from 
 
OUK CASH EESERVES 109 
 
 the Bank of France and £1,500,000 from Eussia. For 
 this course we depended in part on the goodwill of 
 the authorities of the Bank of France. Paris was 
 interested in saving the situation. Let there be no 
 mistake about that. A crisis such as might have 
 occm-red in London could not have failed to have 
 its counterpart in Paris and Berlin, and Paris would 
 have suffered grievously if the catastrophe had not been 
 avoided. But, nevertheless, we can frankly acknow- 
 ledge the prompt friendliness of the Bank of France. 
 The £3,000,000 of gold were at once dispatched 
 to the Bank of England, and brought an element of 
 strength at an important moment. Then the Governor 
 of the Bank called together representatives of the 
 great banking institutions and of other leading firms, 
 and secured a guarantee which enabled them to take 
 action to save that credit which it was so essential to 
 save at that moment, not the credit of the Baring 
 firm, but the credit of London, the credit of England ; 
 and I rejoice to think that the credit was saved by 
 the spontaneous efforts of the banking class itself. 
 
 Voices were not wanting which gave utterance to 
 the view that it was the duty of the Government to 
 intervene, but I should have been sorry to have had 
 to come forward in the House of Commons and to say 
 that two or three years ago, when there was a panic 
 in Paris through the breakdown of a big establish- 
 ment, the great banks of Paris came together and 
 saved the situation, but that here in London it had 
 been necessary to invoke the action of the Government. 
 I should have been ashamed if there had not been 
 sufficient patriotism, sufficient public spirit, and suffi- 
 cient go in the great financial institutions of London 
 to meet such a crisis under a wise lead. That wise lead 
 was given by the Governor of the Bank. What you 
 
110 ADDKESSES ON ECONOMIC QUESTIONS 
 
 want on these occasions is a lead — you want a man. 
 You want a man to come forward and say, ' You all 
 must do your duty.' There was a possible temptation 
 to the banks, each one to look to itself and to aggra- 
 vate the crisis by calling in all its money, by refusing 
 accommodation to customers, steps which would have 
 intensified the existing anxiety. But the tempta- 
 tion vanished in a day ; it vanished when it was 
 powerfully put to the various banks and financial 
 institutions — ' Here is an occasion when, putting aside 
 any timid counsels and isolated action, you must 
 come forward to endeavour to rescue the credit of 
 London, not only to save a firm, but to save the 
 supremacy of British credit.' 
 
 Well, it was done, and the situation was saved. 
 I have shown you how we got out of the difficulty. 
 Two things were necessary — you had to find cash, that 
 is to say, gold, and you had to restore general credit. 
 The gold was found ; the reserve was increased by the 
 efforts of the Bank of England, and credit was saved 
 by the action, the joint action, of a number of great 
 firms. But now, when the crisis was over, men began 
 to ask themselves, ' Why should we ever have got into 
 this difficulty ? ' Some said, ' It is the fault of the Bank 
 Charter Act.' Others said, ' The capital of the Bank of 
 England is insufficient ' ; and others said, ' There is not 
 sufficient elasticity in our currency system,' which 
 means to say that the printing-office for printing bank- 
 notes is not put into sufficient activity in dangerous 
 times. Now, clearly what is necessary to get men out 
 of a difficulty when they have undertaken more liabili- 
 ties than they can meet, is to have cash. It is cash 
 that is wanted. In the case of foreign liabilities — and 
 on this occasion our foreign liabihties were enormous, 
 not only the foreign liabilities of one firm, but the 
 
OUR CASH EESEEVES 111 
 
 foreign liabilities of the nation— on these occasions 
 bank-notes are of no suflBcient avail. What you want 
 is gold which will pay your liabilities in foreign coun- 
 tries ; and the printing-press at a moment of this kind 
 is a danger, and not a resource. The public generally 
 should understand that they wiU lean upon a reed 
 which will break in their grasp, that they wiU be 
 encouraging the most dangerous of ideas, if they think 
 that any elasticity or increase in the currency would 
 have saved them from such a danger as that to which 
 they were lately exposed. Why, what is Wanted at 
 such a moment? You want men who have ready 
 cash with which to step into the breach, not institu- 
 tions which have at the moment simply to realize 
 everything they have got in order to meet their own 
 enormous liabihties ; you want banks and firms with 
 some reserves who may come to the assistance of the 
 community at large, and prevent a general breakdown 
 by purchasing a portion of the securities and taking over 
 a portion of the assets of those who, by over-trading, 
 are helplessly and hopelessly involved. But such help 
 was not forthcoming on the late occasion. What was 
 apparent, to my mind, was this — there were not suffi- 
 cient banking reserves in the country. 
 
 I must give utterance to a strong conviction that the 
 present scale of the cash reserves of private banks and 
 of other financial institutions is inadequate to the 
 necessities of the country, too small as compared with 
 the gigantic habilities which are incurred. The 
 figures are stupendous. Ordinary mortals are unable 
 to imderstand astronomers when they tell us the 
 distance in miles which we are from the sun, and 
 ordinary mortals can scarcely grasp the hundreds of 
 millions which enter into the transactions of our great 
 joint-stock banks. I wish to insist on the point that, 
 
112 ADDEESSES ON ECONOMIC QUESTIONS 
 
 in times of crises, reserves are essential, and that it is 
 of supreme importance that all the great banks of the 
 country, at the moment when a crisis comes, should be 
 able to afford rehef to their customers rather than that 
 they should feel at that very moment bound to curtail 
 the facilities which they ordinarily give. It is all very 
 well for banks to give facilities to their customers in 
 good times, but a customer looks to his banker for 
 facilities when the pinch comes, and if, when the pinch 
 comes, the bank itself is obliged to draw in its re- 
 sources, to call in money from those to whom usually 
 they are glad to lend it, it disturbs all mercantile 
 arrangements. Such a bank is really not assisting the 
 country, it is thwarting the interests of the banking 
 and trading communities. Listen to the figures. The 
 Economist estimates the total deposits on current 
 account held by all the banks in the United Kingdom, 
 excluding the Bank of England, in July, 1880, at from 
 £470,000,000 to £480,000,000 ; and in July, 1890, at 
 from £600,000,000 to £620,000,000, an increase in 
 those ten years of £130,000,000. I cannot tell you to 
 what extent the banks in the aggregate increased their 
 reserve in cash in proportion to the enormous increase 
 in their liabilities ; but I can give you some indication 
 by the pubHshed accounts of some of the largest banks. 
 According to the Economist, the liabilities of eleven 
 large banks were, in 1879, £126,000,000, while their 
 cash in hand, or at the Bank of England, amounted to 
 £16,200,000. In 1889 the liabilities had risen to 
 nearly £170,000,000, an increase during those eleven 
 years of £44,000,000 ; but the cash balances had risen 
 in the same time only to £17,500,000, an increase of 
 £1,300,000. Observe the operation— £44,000,000 
 increase in liabihties to depositors ; increase in cash 
 reserve to meet them, £1,300,000. I hope I shall not 
 
OUE CASH KESERVES 113 
 
 give offence, but I say I do not consider that a per- 
 fectly satisfactory position. On further examination, 
 I find the proportion of cash to liabiUties had fallen 
 during the ten years from 12 9 to 10-3, a decrease of 
 2-6 on 12-9, which is about one-fifth of the whole 
 reserve. In the case of one bank the percentage of 
 cash to liabilities had sunk from nearly 22 per cent, to 
 12 per cent., and in another case, where the percentages 
 had fallen from 10 per cent, to a little over 6 per cent., 
 the cash balance against the total habilities of 
 £9,000,000 was less than £600,000. A good deal of 
 public attention has been called to these facts. Ee- 
 member, the term ' reserves ' means cash in the till or 
 cash at the Bank of England. Some banks include 
 * cash on call,' but cash on call is no reserve in the 
 general sense so far as the community is concerned, 
 because when you call in your money on call, you may 
 be embarrassing another person, while relieving your- 
 self. Let the public understand this — there is only 
 a Umited amount of money unemployed. If everybody 
 employs money up to the hilt, there will be no unem- 
 ployed money to come to the rescue in time of crisis. 
 Money on call is a valuable asset, but it is not an asset 
 which constitutes a reserve useful to the general 
 interests of the community at large. 
 
 Now the banks, I am told, have taken up this posi- 
 tion — viz. that it is no use to hold large reserves, as 
 they would simply be putting their money into the 
 hands of the Bank of England, with the result that the 
 Bank of England would then earn interest upon that 
 money. But look at the late crisis. What was the 
 establishment upon which the whole community relied 
 when the time of crisis came ? It was the Bank of 
 England, and the bankers themselves had to strengthen 
 their reserves at the Bank of England, and were not 
 
 I 
 
114 ADDEESSES ON ECONOMIC QUESTIONS 
 
 able to contribute to that general alleviation of the 
 situation which was brought about by the Bank of 
 England. I am most anxious to avoid saying anything 
 which may reflect upon our great banking institutions. 
 They have done immense service to the country. They 
 have brought together in their deposits capital which, 
 being lent out again, has had fertihzing influences, and 
 has assisted the commerce and the industry of the 
 nation. But it is a false and dangerous system, to 
 rely simply upon the aid which the Bank of England 
 can give in a crisis, and to take no thought how to 
 meet the difficulties which might arise, except by such 
 action as the Bank of England may possibly take, with 
 the Government, as they think, behind it. 
 
 I should be glad to be able to devise some system — 
 and I am engaged, with the assistance of the authorities 
 of the Bank of England, in devising some actual 
 scheme-^by which we may strengthen the permanent 
 reserves of the country, by which we may secure the 
 possibUity of giving greater help in emergencies, 
 and may prevent some of those panics which have 
 too often threatened our commerce. But we shall 
 only aggravate, we shall not alleviate, the position, if 
 any relief given in the shape of a second reserve — 
 for it is of a second reserve to be managed by the Bank 
 of England I am thinking — should have the effect of 
 inducing the joint-stock bankers to trade even further 
 up to the hilt than they have done hitherto ; if we should 
 encoiu-age the behef that there is safety at the centre, 
 and that therefore everybody may invest his deposits 
 to any extent, and, instead of holding his own re- 
 serves, may quietly rely on the action of the Bank of 
 England and the Government. Unless I saw some 
 disposition on the part of the bankers to take their 
 share in any reforms that may be necessary, unless 
 
OUE CASH RESERVES 115 
 
 I saw a disposition to assure us that we are not again 
 to be at the mercy of foreign countries — ^that we are 
 not again to be obhged suddenly to import gold from 
 abroad by special appeals for aid, that we shall not 
 again be at the mercy of such circumstances as have 
 lately occurred — I should hesitate to act, for I hold 
 that the great banking institutions are bound to take 
 their share in endeavouring to bring about such 
 a result. 
 
 The public has some locus standi in this matter. In 
 former times the Bank of England was an institution 
 so vastly greater than all the others that it was able to 
 command the money-market and impose its terms. 
 Those times are changed. There are two banks who 
 hold between them nearly £80,000,000 of deposits 
 against the £34,000,000 deposits of the Bank of 
 England. The position of the Bank of England is 
 changed in that respect. It has still the duty of 
 endeavouring to meet all the necessities of a crisis ; it 
 still fills such a position that the whole of the country 
 looks to it to extricate it from a difficulty, but it does 
 not command any longer the same proportionate re- 
 sources which it commanded in the old times. It is 
 unable at this moment, in the face of the £600,000,000 
 of deposits entrusted to other banks, to take up the 
 same position as in times past. 
 
 Several suggestions for deahng with an acknow- 
 ledged evil have been made — for instance, that, in 
 cases of an excess of deposits and habihties beyond 
 a certain line, the banks should have to pay a certain 
 tax upon that excess, as is done in some foreign lands. 
 I wiU not say what view I hold upon such a sugges- 
 tion, but in the most friendly spirit I would indicate 
 to the banks that the public have an enormous interest 
 
 12 
 
116 ADDEESSES ON ECONOMIC QUESTIONS 
 
 in the proportion of the reserves which they hold. 
 Eemember how closely banks are bound together. 
 Eemember, too, the fact that the soundest and strongest 
 banks may be making the smallest dividends because 
 they do not over-trade, whilst the more imprudent 
 banks who invest their deposits so deeply that they 
 leave but a small reserve, are able to show much 
 larger dividends to their shareholders. Why do the 
 latter think they may take this course ? Because they 
 may have the conviction that the failure of any one of 
 these big banks would be such a disaster to the whole 
 community that the other banks would be compelled 
 to come to their assistance, and to rescue the offending 
 bank from the consequence of its offences by them- 
 selves undertaking a part of its liabilities. I say 
 this situation gives the public a locus standi, and in 
 the same way as the Government has had a locus 
 standi with regard to shipping, and has declared that 
 excessive cargoes shall not be carried because they 
 are dangerous to the safety of the public, so the 
 question might arise whether the public might have 
 the right to declare that no excessive cargo shall be 
 carried by banks receiving deposits — that such busi- 
 ness shall be conducted in a manner which shall be 
 considered safe by the community at large. 
 
 One measure I think may fairly be taken, which 
 the public would have a right to demand, the more 
 frequent pubHcation of accounts. At present Parlia- 
 ment has exacted either yearly or half-yearly accounts. 
 Parliament would have a perfect right to demand 
 that accounts should be pubhshed at more frequent 
 dates. The public have the advantage of the publica- 
 tion of the Bank of England's Eeturn. It is a barometer 
 — an important barometer — to all men of business. 
 But the barometer is imperfect. It would be more 
 
OUR CASH EESERVES 117 
 
 perfect, if at the same time you were able to check 
 and control the results which you draw from those 
 barometrical readings, by also studying the position 
 of these great institutions, as mighty in their way 
 as the Bank of England, holding great deposits, the 
 condition of which is of such vast importance to every 
 trader, to every manufacturer, to every commercial 
 centre. I say some effort ought to be made in this 
 direction. The banks ought to co-operate for such 
 a purpose ; and if I saw the prospect of such a reform, 
 carried out loyally in the spirit I have indicated, I 
 should be strengthened in the hope that measures 
 might be taken to establish that second reserve of 
 gold in the hands of the Bank of England at wliich 
 I have hinted. 
 
 I return to the question of gold. Let it be thoroughly 
 understood that our liabilities are payable in gold. 
 That is the engagement which we have taken to 
 foreign countries ; that is an engagement which the 
 Bank of England takes towards all who hold its notes. 
 To say so is a truism, but it is one of those truisms 
 which, like other truisms, are sometimes buried in 
 the memory of men who do not like them. Now 
 I wish you to consider the position of this country as 
 the banking centre of the world. This position gives 
 us great advantages which arise in great measure 
 from the knowledge that any obhgations held payable 
 in England mean absolutely and safely so much gold. 
 Do not let us forego that advantage. What does it 
 mean ? It means that we have to a great extent the 
 command of capital from abroad. The safety of our 
 institutions, the soundness of our currency, have pro- 
 duced the result — that foreigners largely hold their 
 reserves in bills on London payable in gold. We are 
 able to tap the Continent for cheap money. That 
 
118 ADDEESSES ON ECONOMIC QUESTIONS 
 
 cheap money flows over the whole length and breadth 
 of the land, and without your knowing it, here 
 in Leeds, in Bradford, in Liverpool, everywhere, the 
 value of capital is cheapened because the soundness 
 of our currency system attracts gold from abroad, and 
 induces the foreigner to hold bills payable in London, 
 thus lending us money at a cheap rate. We have 
 a great advantage in that respect. 
 
 But I do not deny th^t, on the other hand, it places 
 us at some disadvantage. We are the great gold 
 market of the world, and at the same time our 
 available stock for use, for sale, for immediate pur- 
 poses, is extraordinarily small as compared with the 
 stock of gold held by other countries. We being the 
 country on whom all can rush for the immediate 
 pm-pose of getting gold, our stock — our available 
 stock I mean — is nevertheless smaller to an extra- 
 ordinary extent than that of any of the great con- 
 tinental countries. When gold is wanted, to what 
 quarters do people go ? We have not so large a stock 
 as other countries. Why do they not go to France ? 
 Why do they not go to Germany ? There is always 
 a large amount of bills on Berlin which might be 
 discounted there and turned into gold. Why can we 
 not drain Berlin in the same way as the Germans are 
 able, if they wish, to drain London? Because cir- 
 cumstances are interposed of a character which it 
 is difficult for me accurately to describe, but which 
 I will call moral difficulties. Supposing that any 
 firm had in its hands bills on Germany for £2,000,000 
 which it wished to discount or cash, and for which it 
 was anxious and deteraiined to get gold. It would 
 naturally apply to Berlin to discount those biUs, or 
 present them for payment and ask for the gold. 
 The probability is that the bank to whom the order 
 
OUK CASH EESERVES 119 
 
 was given, would decline the commission, fearing 
 to be placed in an invidious position. In banking 
 circles at Berlin a kind of moral pressure, a pressure 
 from above, is put on, and every effort used to pre- 
 vent the depletion of the stock of gold, pressure of 
 a kind which no one in this country would approve, 
 pressure, too, which would be absolutely unavailable 
 here. 
 
 Why do not those who want gold go to Paris ? 
 If they go to Paris, well, on presenting their biUs, if 
 it is inconvenient to the Bank of France to pay in 
 gold, they may be offered silver and not gold. There- 
 fore, again, from France the gold which is wanted 
 cannot be got. Thus in London only is there a 
 certainty of obtaining gold on demand. 
 
 The position, then, is this : London is the market 
 for gold, it is one of the conditions of its banking 
 supremacy that it must be the market for gold ; this 
 supremacy is attended with immense advantages, 
 with great profit to the community at large ; on the 
 other hand, as a natural result, it exposes us, in a 
 high degree, to vicissitudes in the money-market, 
 according as the stock of gold in the Bank of 
 England and the Bank reserve of notes which 
 depends upon it, rise or faU. 
 
 It appears very noteworthy that, though London is 
 thus the special market for gold to all the world, the 
 stock of the precious metal held by the Bank of 
 England is, and for years has been, far below that held 
 in other banking centres. The Bank of France holds 
 in gold and silver £95,000,000, the Bank of Germany 
 £40,000,000, the United States Treasury and the 
 National Banks of the United States £142,000,000. 
 The Bank of England holds, in ordinary times, about 
 
120 ADDEESSES ON ECONOMIC QUESTIONS 
 
 £24,000,000. Here, then, is the position— the Bank 
 of England, the very centre on which the puU comes 
 with peculiar force, has an infinitely smaller stock of 
 that metal than any of the other banking centres. 
 This is a fact which, capable of explanation as it is, 
 ought to sink deep into the minds of all business men. 
 Mind, our system is built up on gold. For good or 
 evil, the immense liabilities of this country would have 
 to be discharged, if need there were, in gold ; and this 
 country is the one on which, if £3,000,000 or 
 £4,000,000 are wanted, the immediate rush comes in 
 the first instance. Our available stock ready for the 
 moment is very small ; hence arise sudden changes in 
 the value of money. If we have so small a stock of 
 bullion and a small reserve of notes, it follows that any 
 large amount, or even a moderate amount, withdrawn 
 from such a comparatively narrow base for the weight 
 of so enormous a pyramid, will have an effect quite 
 disproportionate to the extent to which gold is with- 
 drawn or the reserve diminished. 
 
 I tell you, not only as viewing the matter from the 
 point of view of currency, not only from the point of 
 view of one who has had some acquaintance with 
 banking matters, but as one who is responsible with 
 others for the safety of the country, I consider that, 
 looking to the very grave national emergencies which 
 might come — but which, please God, will not come, 
 but which every statesman is bound to consider as 
 possible — the amount of central gold in the possession 
 of this country, compared to the enormous amounts 
 at the disposal of other countries, is a matter which 
 requires attention, one to which we ought to look with 
 some anxiety, not exaggerated anxiety, but with an 
 anxiety to see whether we cannot contrive some 
 
OUE CASH EESEEVES 121 
 
 methods by which we can alleviate special moments of 
 difficulty, and hold a large stock of bullion in reserve, 
 not only for the banker, but for every possible national 
 emergency. 
 
 I have spoken so far only of the central, visible, 
 available stock of gold at the Bank of England, Though 
 we have — and this is essential to the point which 
 I shall put before you presently — comparatively a small 
 amount of bullion at the centre, we have a very large 
 amount of gold circulating amongst the people. 
 
 Opinions differ as to the amount. The estimates 
 vary from £65,000,000 or £70,000,000 up to the point 
 of £110,000,000 ; but, however that may be, we have 
 little gold at the centre, and a very large amount in 
 the pockets of the people, and I want to ask — it is 
 a question which has been interesting me deeply — 
 How far is the gold which is thus circulating in the 
 pockets of the people available when a crisis comes ? 
 Would it not be better to have a portion of this gold 
 replaced by other forms of currency, if at the same 
 time we could secure more gold under central control 
 than we have in the Bank of England at present ? 
 
 You cannot ' tap ' this immense mass of sovereigns 
 when you most want gold, except so far as there might 
 be a slight flow towards the centre in times of very 
 dear money. Even if the rate of interest were 8 per 
 cent, the bulk of the people would not carry less 
 gold about them than they did before. Accordingly, 
 I would much prefer for national and monetary pur- 
 poses to have £20,000,000 of gold under our command 
 at the Bank of England than 30,000,000 sovereigns 
 in the hands of the public ; and this object I would 
 propose to effect by the issue of £1 notes to take the 
 place of a portion of the sovereigns in circulation. 
 Iwould issue £20,000,000 against gold, and£10,000,000 
 
122 ADDKESSES ON ECONOMIC QUESTIONS 
 
 against Government stock. If the issue took place, 
 and were taken up \ we should have £20,000,000 
 more central gold — an immeasurably stronger reserve 
 than 30,000,000 sovereigns on which we could not 
 place our hands. 
 
 The gold thus collected would be security for the 
 £1 notes ; but it would also serve another purpose, 
 which I will presently explain. My general idea 
 is to utUize a possible issue of £1 notes, not as a 
 simple increase of the fiduciary issue, but for the 
 object of making it subservient to what I consider to 
 be the primary point — of strengthening us both for 
 banking and for national purposes. For that object, 
 and for that object alone, would I embark in any 
 scheme such as that of the £1 note. 
 
 Now I want to ask, Why has the suggestion of an 
 issue of £1 notes lately come into some favour? I 
 know that it is favoured here in Leeds and in other 
 parts of the country. I gather that there are various 
 reasons for such favour. By some it is thought that 
 such an issue would increase the available amount of 
 money. But this would not be the case. Paper, 
 unless represented by gold, expels gold. Nor, if that 
 were the object, would I attempt to promote it. 
 
 ' It should be distinctly understood that neither the Govern- 
 ment nor the Bank of England compel, or can compel, the public 
 to use any form of currency which it dislikes. It is the public 
 and its bankers who determine the relative use of sovereigns 
 or J 5 notes. The tradesman or employer or private individual 
 applies to his banker for gold or notes according to his wants, 
 and puts them into circulation ; and the bankers in turn supply 
 themselves according to their wants from the Bank of England. 
 Thus if an Act of Parliament had been passed authorizing the 
 issue of XI notes, the success or failure of the scheme would have 
 rested entirely with the public and its bankers, according as they 
 determined to favour the use of the £1 note or not. 
 
OUE CASH EESERVES 123 
 
 I do not believe in any artificial increase of the 
 currency. I believe the soundness of business rest^ 
 on men trading within their own means, within their 
 own capacity for paying their acceptances, and that 
 any man who leans on an increased issue of paper, 
 who believes in the efficacy of the printing press 
 simply for the avoiding of a crisis, is a hopeless 
 heretic. I reject, therefore, the theory that the £1 
 note ought to be issued in order to increase the 
 currency. 
 
 Or do people wish for the £1 note because it is 
 more convenient than the sovereign? Of course we 
 know that the Scotch and the Irish love the £1 note 
 better than the sovereign. For my own part I plead 
 guilty to an opposite feeling. I prefer a sovereign in 
 my pocket to a £1 note, but I am not sure whether 
 that is the common feeling. I should like to know 
 whether to employers of labour, for instance, the 
 power of conveying £1 notes conveniently and easUy 
 would not be a considerable advantage as compared 
 with the difficulty of conveying the same quantity of 
 gold. I can conceive that paper money in that 
 respect would be more convenient for the payment of 
 wages, and would have greater mobility. It could be 
 transmitted far more easily from one town to another. 
 But personally I require more persuasion upon this 
 point of convenience. We have the indication that in 
 most other countries paper money is preferred to 
 buUion ; but I am doubtful as to the feeling in England, 
 and it might take some education before £1 notes 
 became popular here. 
 
 There is a third reason why the £1 note is put 
 forward, and that is from the point of view of 
 economy to the Exchequer. If we were to have 
 20,000,000 sovereigns displaced by £20,000,000 of 
 
124 ADDEESSES ON ECONOMIC QUESTIONS 
 
 paper issued against securities, the public Exchequer 
 might make a profit if it claimed the interest on those 
 securities or an equivalent profit from the issuing 
 bank. We might make a few hundred thousands 
 of pounds, but even this gain would only be possible 
 if the £1 note should be a cheap instrument. But 
 would it be a cheap instrument ? Can we, with 
 adequate precautions against forgery, with an adequate 
 quality of paper, and with adequate securities in every 
 direction, ensure a class of paper money which will 
 realize the profit and the economy which has been 
 prophesied ? However that might be, speaking as a 
 Chancellor of the Exchequer — though I should dearly 
 like to get a substantial accession to my revenue 
 — I say it would be dearly bought if it involved in 
 the slightest degree the weakening of our system of 
 currency. 
 
 I sum up, then, as follows : If £1 notes were 
 issued entirely against securities, we should make 
 money, we might produce some convenience, we 
 might please a certain portion of the public ; but we 
 should be expelling a certain portion of gold — gold 
 which is now circulating in the pockets of the people. 
 Now that gold, I admit — and I have insisted on it — 
 is not so important to us as gold at the centre. 
 Indeed, I have said I would sooner have 20,000,000 
 sovereigns at the centre than 30,000,000 in active 
 circulation. But any movement to which I would 
 be a party in the direction of any further issue of 
 notes must have this result — that the gold which 
 would be brought by the public in exchange for the 
 £1 notes should be so dealt with as to ensure its 
 remaining in the country. My plan would be to use 
 it, as already foreshadowed, for the purpose of a 
 second reserve in the hands of the Bank of England, 
 
OUR CASH EESERVES 125 
 
 not on the terms of the ordinary issue, but as a 
 separate emergency stock on which some additional 
 amount of paper money might be issued only when 
 emergencies should arise. 
 
 What I have in my mind is this : When, under the 
 existing system, a suspension of the Bank Charter 
 Act takes place it authorizes a simple issue of notes 
 unsupported by gold, a course which may add to the 
 dangers of the situation by increasing paper money 
 at a time when gold is leaving the country. It 
 seems to me that it would be infinitely better to 
 have command over a reserve of gold, a separate 
 stock of gold, with which, in time of acute emergency, 
 the Bank of England would be able to come to 
 the rescue of the mercantile community generally. 
 Against such a stock of gold under severe conditions 
 to be defined, it might be authorized to make a further 
 issue of notes — thus preventing the necessity for the 
 cruder and more objectionable form of relief by the 
 suspension of the Bank Charter Act. Further, if 
 such a stock had existed, it would have been unneces- 
 sary to have applied to the Bank of France or to the 
 Government of Russia, or to have negotiated with 
 the authorities of any other country to increase our 
 stock of gold at a given moment. 
 
 I return now for one second to the point which 
 I laid down earlier in my speech. I drew attention 
 to the small amount of bullion which we held, and 
 showed that, in my judgment, it ought to be in- 
 creased. I have now indicated a method by which 
 I think it might be increased, and that without the 
 imposition of any tax on any portion of the community. 
 But such a solution would only be proper, such 
 a solution could only be defended, if conditions were 
 imposed which did not make the situation worse; 
 
126 ADDRESSES ON ECONOMIC QUESTIONS 
 
 It would be improper to touch such a store of 
 gold if the exchanges were against this country. 
 It would be improper to touch such a reserve if the 
 rate of interest were not at such a point as to be 
 likely to attract gold from other countries. Do not 
 let us look to anything which would simply paUiate 
 the difficulties for a moment, but which would after- 
 wards aggravate the catastrophes which we are en- 
 deavouring to avoid. 
 
 I have sought in these matters to see how, under 
 the most orthodox system, and leaving the Bank 
 Charter Act practically intact, we might secure a 
 second reserve. I have been in communication 
 with the authorities of the Bank of England on the 
 subject. I am not authorized to say we are agreed 
 upon any plan. We are working at a plan. We are 
 endeavouring to see whether some plan cannot be 
 devised by which these violent fluctuations, these 
 internal panics, can be mitigated. It is difficult to 
 deal with an external panic ; but an internal panic 
 might sometimes be saved by a further issue of notes, 
 not as at present against securities only, but against 
 a reserve of gold which has been accumulated by 
 such measures as I have endeavoured to describe. 
 These measures I am thinking out, and, if the public 
 should approve of any action being taken, and the 
 time of Parliament should permit, it would, I assure 
 you, be a satisfaction to me to devise some cautious 
 measure which would redound to the advantage not 
 only of the banking, but of the whole mercantile 
 community. I feel, I painfully feel, that it is impos- 
 sible within the limits imposed upon me on this 
 occasion to do justice to a large currency plan, or 
 even to such modified suggestions as I have made. 
 
OUE CASH EESEEVES 127 
 
 They cannot be understood simply from the utterances 
 to which I have given expression to-night. But 
 I have endeavoured to indicate this at least— that I am 
 determined to labour for the strengthening of our 
 reserves in every quarter as a great national object. 
 And, in conclusion— let me ask you once more to 
 remember that these are not questions which concern 
 only the banking community, or only belong to 
 high abstract theory, but that they are immediate 
 matters of practical and vital interest. If we can 
 secure that there shall not be such violent fluctuations 
 as have too often beset us, if we can avoid an occa- 
 sional panic, or mitigate such panics as cannot be 
 avoided, we shall have done something which may 
 not, I hope, be regarded by our fellow countrymen 
 as unworthy of their support and commendation. 
 
 SUPPLEMENTAL NOTE. 
 
 The plan adumbrated in the foregoing address 
 remained under public discussion during the year 
 1891. The view that the central stock of gold was 
 too small, and ought to be increased, received very 
 general approval ; but various counter-proposals for 
 accomphshing this object were put forward, and 
 many competent critics were busy with various parts 
 of the scheme. Towards the close of the year, I 
 placed modified conclusions, which the further study 
 of the subject had suggested to me, before a meeting 
 of the London Chamber of Commerce, which was 
 largely attended by members of the banking com- 
 munity ^ On two of the topics on which I had 
 
 * I do not reproduce in this volume the address which I 
 delivered, partly because, as regards argument, it was to a great 
 
128 ADDKESSES ON ECONOMIC QUESTIONS 
 
 insisted at Leeds, I was able to make what seemed 
 to me a satisfactory statement. Public interest, I was 
 able to say, had been aroused to the necessity and 
 expediency of larger cash reserves. And as to a more 
 frequent publication of accounts, my words had not 
 been without effect. Indeed, after my speech, a 
 meeting of bankers had taken place, at which it was 
 resolved to issue monthly statements showing the pro- 
 portion of cash to liabilities. This seemed a great 
 step in the right direction. But it is now considered 
 as not having been a reform without a serious draw- 
 back. I am informed that it has led to the so-called 
 practice of 'window-dressing' — that is to say, in order 
 to make a goodly show, some banks call in part of 
 their outstanding loans as the day of publication 
 approaches, so as to exhibit a larger amount of cash 
 in proportion to their liabilities than they habitually 
 hold. As the result the money-market is unneces- 
 sarily disturbed, and some doubt thrown on the value 
 of the information given. But, however that may be, 
 since 1891 a most distinct improvement has taken 
 place in the policy of the great majority of banks as 
 regards their cash reserves. The somewhat startling 
 figures in my Leeds address as to the then proportion 
 of cash to deposits and other liabilities shown by the 
 accounts of some of the largest banks, have scarcely 
 a counterpart in the published statements of the 
 situation even of the same banks to-day. In this 
 
 degi-ee a repetition and amplification of my speech at Leeds ; 
 partly because it entered very fully on some technical details 
 which, especially as the scheme was not carried out, would not 
 interest the general reader. To any currency students who might 
 care to read the address, and some correspondence by which it 
 was followed, I may point out that it was published by 
 Mr. Effingham Wilson in 1891, under the title The Metallia 
 Reserve. 
 
OUE CASH EESEEVES 129 
 
 respect the improvement in the banking situation has 
 been very marked. 
 
 As to the larger subject which I had raised, the 
 issue of £1 notes and the formation of a special 
 second reserve of gold in the hands of the Bank 
 of England, I had simplified my scheme in some 
 respects during the course of the year 1891. I gave 
 up the idea of a second gold reserve, as I found that 
 the same object might be accomplished by simply 
 allowing the gold which was to be held agaiust 
 the £1 notes to be added to the general stock of 
 bullion held by the Bank of England, and enacting 
 conditions under which, in time of emergency, an 
 additional issue of notes might be made. A second 
 change was then proposed — that the £1 notes should 
 be issued in the proportion of four against gold, and 
 one against securities, instead of two against gold, and 
 one against securities as suggested at Leeds, I was 
 moved to propose this alternative by discovering to 
 my great satisfaction that — while I anticipated objec- 
 tion to my scheme from a large school, including 
 high financial authorities, on the ground of its being 
 wasteful, as a much larger fiduciary issue might 
 safely and profitably be made — a weighty mass of 
 orthodox opinion had been developed which objected 
 to my displacing any gold at all. 
 
 I summed up the scheme itself thus modified in 
 the following words : ' My plan is really simplicity 
 itself. After the point of £22,000,000 of buUion has 
 been reached in the Bank of England, I would autho- 
 rize an issue of additional notes in the proportion of 
 four against gold to one against securities, and after, 
 by that means, an additional amount of gold had been 
 accumulated in the Bank of England, I would allow 
 them in time of internal crises, at a given and rising 
 
 K 
 
130 ADDEESSES ON ECONOMIC QUESTIONS 
 
 rates of interest, to issue notes irrespective of the 
 buUion obligation.' 
 
 The whole plan, as has been abundantly apparent, 
 was based on the adoption of £1 notes as part of our 
 currency. I was compelled to admit that I was not 
 an enthusiast for such notes, and had never been so ; 
 but for the sake of the all-important object of a larger 
 stock of gold I was prepared to introduce them, and 
 to give the banks and the public the option of using 
 them, for the Government could not, of course, force 
 them into circulation. But the banking world hung 
 back. Though I was able to say that there was a 
 vast consensus of opinion that we ought to hold 
 a large accessible stock of gold, there was too little 
 disposition to pay the price in the shape of an issue 
 of £1 notes, to encourage me in proceeding with a 
 scheme which, from the first, I had announced I 
 should only attempt to carry out if I had the cordial 
 support of the bankers at my back. Thus without 
 any very great regret I felt I must abandon the plan, 
 having at aU events reaped the satisfaction that in the 
 course of the various issues which had been raised, 
 I had not called attention to the necessity of larger 
 banking reserves in vain. Happily, since 1891 there 
 has been no occasion for that suspension of the Bank 
 Charter Act, for which my plan was intended to be 
 a safe substitute, and the central stock of gold at the 
 Bank of England has largely increased. 
 
THE DEPRECIATION OF SILVER 
 
 Introductory Note 
 
 The following article, treating of the heavy fall 
 which had taken place in the price of silver as 
 measured by gold between the years 1873 and 
 1876, was written in October of the latter year, at 
 which time the fall had reached 20 per cent. The 
 price of silver per ounce had shrunk from 5s. to 4s., 
 the price of the rupee from 2s. to about Is. Id. 
 The article describes the universal confusion and the 
 widespread dismay which so portentous a change in 
 a form of currency which affected millions all over 
 the globe, had necessarily produced. A fall of 20 per 
 cent. — it seemed a veritable catastrophe ! What were 
 the prospects for the futm-e? Had bottom been 
 touched ? Was there a prospect of recovery ? Would 
 light be thrown on an ultimate solution of the many 
 problems involved, by an examination of the causes 
 which had brought about the crisis ? 
 
 Not unnaturally the British Government recognized 
 the necessity for an exhaustive inquiry. A Committee 
 of the House of Commons was appointed, in the course 
 of 1876, to investigate the depreciation of silver ia all its 
 bearings. I was nominated Chairman of the Committee, 
 and had thus the opportunity of a thorough study of 
 almost every branch of this most complicated subject. 
 Later on, after the conclusion of the labours of the 
 Conmaittee, I took the opportunity of writing on the 
 silver question in a freer and fuller, perhaps in a more 
 forcible manner than was possible or admissible in an 
 official report. 
 
 K 2 
 
132 ESSAYS ON ECONOMIC QUESTIONS 
 
 Looking back upon the situation which it fell to 
 my lot to describe, upon the impressions made upon 
 my mind by what then appeared to me a revolution in 
 the value and uses of silver — a revolution based on the 
 fall of 20 per cent. — I must admit that though I asked 
 myself whether any limits could be discerned to a 
 further declrne, I did not realize that the price of an 
 ounce of silver, which for so many decades had seemed 
 to be firmly established at about 5s., would ever sink 
 to so low as 2s. 2d., and that the value of the rupee 
 might drop so low as for a time to hover round Is. 2d. 
 I cite these startling figures here to prepare the 
 reader who peruses the story of the silver question in 
 1876 for a different standard, a different estimate of 
 the effects of the depreciation at that date from what 
 he might expect to find with his present knowledge 
 that the decline in 1876 was scarcely a half-way 
 house on the road to the subsequent fall. 
 
 It would be beyond the scope of this volume to trace 
 the fortunes of silver, its progressive deposition from 
 its old functions and position since 1876, the changes 
 in the scale of its production, in its uses as currency 
 in different countries, in its value in Europe and in the 
 East. Legislation became very busy with the expulsion 
 of sUver as legal tender ; and the unwearied efforts of 
 a most active propaganda failed to restore it to any 
 place of trust in currency. A review of the position 
 of silver from stage to stage would be quite beyond 
 my competence. Some very brief references to its 
 subsequent history and to the measures taken by the 
 Government of India to adjust its currency to the 
 changed state of things, I relegate to a supplemental 
 note, as an epilogue to some of the reflections and 
 forecasts presented in the article itself. 
 
THE DEPRECIATION OF SILVER 
 
 Reprinted from the 'Edinburgh Eeview' 
 OF October, 1876 
 
 Silver has fallen 20 per cent. Silver, one of the 
 reigning metals, elected to be a standard of value on 
 account of its stability from the oldest times, has 
 xmdergone the fate of plebeian ores. It has fallen 
 and risen and fallen again, with violent and sudden 
 fluctuations, as if it were no better than common 
 iron or lead. Anglo-Indians are aghast. The financial 
 world is in tribulation. Political economists are at 
 their wits' end. Economical heretics are at the height 
 of enjoyment. The event is heralded with the usual 
 accompaniments of extraordinary phenomena in the 
 present day — a deluge of pamphlets, an impatient cry 
 for Government action, a convenient reference to a 
 Select Committee, a Report without the indication of 
 a policy, and, finally, the determination of the Govern- 
 ment to * wait and see.' In the meantime, the imperious 
 orthodoxy of the Secretary of State for India finds 
 congenial employment in the suppression of currency 
 heresies, while the youthful smartness of the pohtical 
 Under-Secretary is awed into sobriety by the prolonged 
 contemplation of an insoluble financial problem. Sir 
 Louis Mallet is carried by the actual duties of the 
 permanent Under-Secretaryship into those regions of 
 speculative political economy for which he is equally 
 qualified by his talents and his tastes, while the 
 members of the India Council revel in a legitimate 
 opportimity for an oflficial discussion, in a practical, 
 
134 ESSAYS ON ECONOMIC QUESTIONS 
 
 shape, of aU the financial crotchets which have 
 exercised the ingenuity of Indian administrators for 
 the last twenty years. In France, bi-metallists and 
 mono-metallists are profiting by the occasion to 
 pummel each other with truly theological fury. 
 M. Cernuschi dashes off pamphlet after pamphlet, 
 carrying a briUiant and imaginative fanaticism into 
 the driest regions of currency controversy ; while 
 M. Chevalier, a weighty antagonist, joins a crusade for 
 the dethronement of silver, with a not less determined 
 onslaught than that he made at another time for the 
 humiliation of gold. 
 
 But what does it aU mean ? Is the subject beyond 
 the plain intelligence of people unversed in currency 
 jargon? Must we perforce sound the depths of the 
 argument between bi-metalHsts and mono-metallists 
 before we can understand it ? Alas ! the meaning of 
 the * depreciation of sUver ' is but too clear. It is 
 written in ruinous mercantile transactions, in the 
 deficit of the Indian Budget, in the diminished 
 resources of many households. Whilst pamphleteers 
 and economists are hammering out their difficult 
 theories, and half the Governments of Europe are 
 producing blue-books crammed with scientific and 
 statistical information, a popular version of ' the fall of 
 silver ' can be procured from many a man whose views 
 of currency and foreign exchanges are limited to an 
 opinion as to the number of pence to which he thinks 
 himself entitled in exchange for a rupee, or to the 
 average amount of sterling money which experience 
 has taught him to believe an ounce of silver ought to 
 fetch. Ask the Indian civil servant what in his eyes 
 the fall in silver means ? He will teU you that when 
 he sends home a portion of his pay, one-fifth is lost 
 before his family can spend it. The same rupees are 
 
THE DEPEECIATION OF SILVER 135 
 
 set aside for friends at home, but the £100 they used 
 to yield, alas ! have dwindled to £80. True, the rate 
 of exchange has always been to Anglo-Indians an 
 object of significant interest. The rise and faU of a 
 penny per rupee has always meant an appreciable 
 difference of money to spend, but a fall of fourpence to 
 fivepence on every rupee had never entered the most 
 despondent imagination. Such a loss means no less, 
 to families dependent on Indian remittances, than a 
 revision of the entire scale of their domestic budgets. 
 
 Ask the Manchester exporter of manufactured goods 
 for his version of the situation. His account will be 
 clear enough. He has exported goods to India. The 
 goods have been sold for a certain number of silver 
 rupees. These rupees have to be brought home ; but 
 the value of claims on India payable in rupees fluctuates 
 with the value of the silver those rupees contain. The 
 same claims on Indian purchasers, which at the old 
 average exchange, based on the then value of sUver, 
 could have been turned into £10,000 of English 
 money, wUl only yield £8,000 when sUver has fallen 
 20 per cent. A loss of £2,000 stares the manufacturer 
 in the face as an illustration of the depreciation of 
 silver. So, again, London banking establishments, 
 with branches in India, have found a regular and 
 lucrative business in collecting deposits at home, at 
 low European interest, and transmitting them, trans- 
 formed into rupees, to India, to be lent out at the 
 higher Indian rates. Debts in gold were thus incurred 
 to EngHsh and Scotch depositors, and claims payable 
 in silver established on India. When the English 
 money deposited was transformed into sUver for Indian 
 use, the average price of silver was 5s. per ounce. But, 
 suppose the exigencies of the banks or their depositors 
 compel the recall of such outstanding funds, and their 
 
136 ESSAYS ON ECONOMIC QUESTIONS 
 
 retransfer into English gold, at a time when the worth 
 of an ounce of silver has fallen from 5s. to 4s. One- 
 fifth of the capital is lost at a blow! Not through 
 default of debtors; not through imprudent speculations; 
 not through any lack of business foresight; but because 
 silver, the legal tender of India, has played false. No 
 wonder if, in these days, when every public incon- 
 venience is laid at the door of Government or law, and 
 every accident is expected to be followed forthwith by 
 an Act of Parliament, we hear an impatient cry for 
 measures of redress! How is English capital out- 
 standing in India to be brought home without enormous 
 loss ? Is it not the currency which is at fault ? And 
 are not the freaks of the precious metals pre-eminently 
 a Government affair ? 
 
 Take the case of Government stocks or railway 
 debentures, of which the dividends are payable in 
 silver, but which are held in countries where a gold 
 currency prevails. Many Austrian securities are in 
 this position. The unfortunate holders bought their 
 stocks when silver was assumed to have a steady 
 value, and to offer a scarcely less regular income than 
 dividends payable in gold. But silver falls with start- 
 ling rapidity, its price oscillates to and fro, and the 
 holders of silver dividends find themselves, not in 
 receipt of a fixed income, but speculating against their 
 will in a metal of which the price may fluctuate 20 per 
 cent. The same loss, the same miscalculation, occurs 
 where Governments are so placed that under previous 
 and irrevocable engagements they have to receive in 
 silver and to pay in gold. The German Government, 
 carrying out its stupendous operation of substituting 
 a gold for a silver currency, is under contract to its 
 subjects to withdraw the old silver coins, and to give 
 new gold coins for them at a fixed rate of exchange. 
 
THE DEPEECIATION OF SILVER 137 
 
 The relative values of gold and silver were taken when 
 this rate was fixed, on the basis of the proportion 
 which had been the law in France from the beginning 
 of the century, namely, at 15i to 1. For all silver 
 coin presented for exchange the German Government 
 must give gold at this rate. The fall in silver has 
 changed the relative value ; but the operation must 
 be continued all the same. A pound of gold must 
 still be given for fifteen pounds and a half of silver ; 
 but the fifteen pounds and a half of silver, when sold 
 by the German Government, will no longer buy a 
 pound of gold. The Indian Government receives the 
 whole of its revenue in silver rupees, but of its pay- 
 ments no less a sum than £15,000,000 sterling has 
 to be made in gold. The disbursements in England 
 and the interest on loans raised at home must be 
 discharged in English coin. The conversion of the 
 silver received into the gold to be paid out, stripped 
 of all the technicalities of exchange, leaves a loss, on 
 the basis of a fall of 20 per cent., of no less than 
 £3,000,000 sterling per annum. 
 
 The foregoing illustrations of the consequences 
 flowing from the depreciation of sUver aU disclose 
 a clear and tangible loss. Indeed, the result is so 
 self-evident that we should have hesitated to fill a 
 page with such elementary instances, if we had not 
 wished to be enabled, by setting them out in some 
 detail, to point to one condition which is common 
 to all these cases of loss incurred. It wUl be observed 
 that they all distinctly involve a transfer from silver 
 to gold. The loss is incurred in the process of an 
 actual simple exchange from one metal to another. 
 Silver and gold are in all these cases brought face to 
 face. Silver, it is clear, has fallen when measured by 
 gold, or to speak stiU more plainly, when sold for 
 
138 ESSAYS ON ECONOMIC QUESTIONS 
 
 L 
 
 gold. But is this enough to establish and explain an 
 absolute fall in the value of silver ? Is it not possible 
 that gold has become dearer ? Is silver not a standard 
 of value in one part of the world, as gold is in an- 
 other? Is it sufficient, then, to illustrate the fall of 
 silver simply by measuring its value against gold? 
 Should we be satisfied to prove a rise in the value 
 of gold by showing that it would exchange, as indeed 
 it does now exchange, for more silver than before ? 
 Surely a fall in silver, as a rise or fall in gold, must 
 be measured by its relation not only to another metal, 
 but to the prices of commodities in those countries 
 where it reigns supreme. How much of its purchas- 
 ing power has silver lost within its own domains? 
 
 Unfortunately, we must travel very far before we 
 find regions where silver is still the sole standard of 
 value and rules with undivided sway. In Europe, it 
 scarcely retains a single important kingdom. In 
 Germany, Denmark, Sweden, and Norway, it has 
 lately been formally dethroned, and gold installed in 
 its place. In Holland, its rule has been suspended, 
 and temporarily handed over to gold. In Kussia and 
 Austria, it has a mere titular sovereignty, under the 
 anarchical regime of unlimited paper issues. Within 
 the boundaries of the 'Latin Monetary Union,' that 
 is to say, in France, Belgium, Italy, and Switzerland, 
 the area of the double standard, it scarcely enjoys 
 a precarious moiety of authority, having been stripped 
 of the chief privilege of monetary supremacy — the 
 right to be coined without limitation. No wonder 
 that, under such circumstances, silver scarcely still 
 receives the homage due to a reigning metal, and is 
 treated as a subject, not as a rival, of gold. But 
 discarded in Europe, silver is stiU at this moment 
 sole mistress of the East. In India, and indeed over 
 
THE DEPRECIATION OF SILVER 139 
 
 a vast portion of Asia, silver, and silver alone, is the 
 standard of value. There we may accordingly attempt 
 to test changes in the value of silver by examining 
 its purchasing powers in relation not simply to gold, 
 but to the prices of all commodities ; and there a fall 
 in the price of silver means the same as the deprecia- 
 tion of gold elsewhere — a general rise in prices. Can 
 such a rise be traced ? 
 
 Very little evidence is to be found in the Report 
 of the Select Committee^ on the Depreciation of SUver 
 on this important branch of the subject. The fall 
 in the value of silver was assumed. The Committee 
 was instructed to investigate its causes. Were not 
 the tables of the fluctuations in the price of silver per 
 ounce in the London market and of the extraordinary 
 fall in the Indian Exchanges plain and eloquent 
 enough? But no review of the whole situation, no 
 examination of the poUcy which ought to be pursued, 
 can be at all complete unless evidence is adduced and 
 carefully sifted, as to the degree in which general 
 prices have been affected in countries like India, 
 where silver is stiU the legal tender. And, let it be 
 remembered that in the collection and review of such 
 evidence, the principal points to be considered are 
 not the prices of the commodities in which Europeans 
 are most interested, articles of international commerce 
 which are certain to be first affected by movements 
 in foreign exchanges. Laying aside as much as we 
 can our European spectacles, we ought to bear in 
 mind that what we want mainly to know is the 
 position of the great articles of general consumption, 
 in fact of the food of the people — grain and rice. 
 Will a rupee still buy as much grain as before ? Will 
 
 ^ This Committee reported in 1876. 
 
140 ESSAYS ON ECONOMIC QUESTIONS 
 
 a man's wages go as far to support him as before? 
 Does the ryot who produces grain or rice find himself, 
 measured by his receipts in rupees, a richer man than 
 before ? When a plethora of gold spread over Europe 
 it was soon followed by tangible results. Are similar 
 results being produced in India by a plethora of 
 silver? Or, to ask an antecedent question, is there 
 in India a plethora of silver at all ? Before that action 
 is taken with reference to India, which is so loudly 
 demanded from an English point of view, let us at 
 least know the facts. The Government appears to 
 us to be bound to make most careful inquiry in India 
 as to the effect produced on general prices by the fall 
 in the value of silver at home, and to present ex- 
 haustive evidence to the public on the subject. Till 
 that is done false impressions will be current, and 
 false inferences drawn, on a most incomplete basis of 
 facts. 
 
 We have reason to believe that, at all events till 
 very lately, no general rise in prices had occurred in 
 India. Indeed, it is exceedingly remarkable, though 
 at the same time perfectly intelligible, that whereas 
 a distinct and most decided rise occurred some years 
 ago while silver still stood at five shillings an ounce, 
 the average prices for grain and rice are, at this 
 moment, very much lower than they were then. The 
 reason is obvious. The range of internal prices in 
 India is not determined by the fluctuations in the 
 London price of silver buUion, but by the amount of 
 silver which actually reaches India and becomes part 
 of the circulation. During the years of the cotton 
 famine, enormous amounts of silver flowed into Bom- 
 bay, and the consequence of this influx was in entire 
 accord with the laws of political economy. Prices 
 rose to a marvellous degree. Grain and rice in many 
 
THE DEPEECIATION OF SILVEE 141 
 
 quarters seemed indeed at almost famine prices. But, 
 by degrees, the extraordinary addition to the circu- 
 lation was absorbed, the accumulation was distributed 
 over a vast area, and the redundancy apparently 
 relieved. Prices fell, and, at this moment, with silver 
 so cheap as to carry dismay into every quarter, they 
 have scarcely felt the shock. The fact is, silver is 
 cheap in London, but the effect of the cheapness has 
 not yet resulted in surplus exports to the East ; and 
 till a fresh flood of sUver is poured into India, the 
 effect of the fall in the price is, and will be, little felt 
 over the vast area of its internal transactions. 
 
 The extent of that area is a point of which we 
 should never lose sight. In Europe, the late changes 
 in monetary laws have so Hmited the uses, and con- 
 sequently the demand for silver, that any excess in 
 the supply produces at once a marked effect. But in 
 India, with a silver circulation, which has been fed 
 by an importation of £200,000,000 sterling in the 
 course of forty years, the addition of a few millions, 
 when they have once been distributed, can exercise 
 but an imperceptible influence, and during the last 
 few years the additions have been even much below 
 the nominal annual rate. The plethora of silver in 
 Europe is therefore, as yet, not reproduced in India. 
 All who require to buy gold for the purpose of paying 
 debts abroad, all who desire to send money home, all 
 in fact who have to make payments in gold, are mulcted 
 in a most serious loss ; they feel to the full the 
 depreciation of silver as compared with gold. The 
 Indian Government, as we have seen, is at its wits' 
 end, as it receives its taxes in silver in India, and has 
 to pay interest in gold at home. But to the mass of 
 the Indian population, notwithstanding the existence 
 of a silver currency, the great event does not yet 
 
142 ESSAYS ON ECONOMIC QUESTIONS 
 
 signify that the means of existence have become 
 dearer, that prices are visibly rising before their eyes, 
 or that the rupee which circulates amongst them is 
 a coin vrhich has lost value in the eyes of the world. 
 
 The practical bearing of these facts is not far to 
 seek. The position of general prices in India must 
 be one of the very first elements to be considered in 
 any remedial measures proposed for meeting the 
 present crisis ; and we insist the more on this point, 
 as the voices likely to make themselves heard are 
 rather those of Englishmen who find themselves in 
 the awkward position of having to exchange silver 
 into gold at a loss, or of Indian officials who have 
 the tremendous task before them of meeting a gaping 
 deficit, than of the Indian population at large. We have 
 pointed out that no evidence has yet been afforded that 
 prices have risen. The laws of political economy teach 
 us to expect such a result, and we know the process by 
 which it will probably be brought about. It will be 
 brought about by the actual conveyance of the surplus 
 supplies of America and Germany to Indian ports, not 
 by the quotation of prices current in another quarter 
 of the globe, nor simply by the alterations in the rates 
 of exchange. A deluge of silver must be actually felt 
 — a deluge caused by the overflow from the European 
 reservoirs. We know also that when that overflow 
 takes place, the European markets, relieved from 
 pressure, may exhibit a reaction ; and that the very 
 operations which will raise present prices in India, 
 and perhaps bring about some depreciation of silver 
 throughout the continent of Asia, may tend, on the 
 other hand, to raise to a certain extent the value of 
 silver elsewhere. We know the nature of the causes 
 which will assuredly come into play, but not the time 
 within which they will be developed or the degree to 
 
THE DEPKECIATION OF SILVEK 143 
 
 which they wist! be felt. But till we know more we 
 are surely forbidden both by equity and prudence to 
 interfere with private or public contracts, or to base 
 action on a rise in prices, of which we can foresee 
 neither the date nor the extent. 
 
 The operation of the law which must force silver to 
 the East is very apparent, but still it may be worth 
 whUe to present it in a practical form. The cheapness 
 of silver stimulates the purchase of Indian produce 
 which that sUver will buy, and discourages imports 
 into India, for which silver would be received in pay- 
 ment. India, accordingly, sells more and buys less, 
 and estabHshes a larger balance due to herself, which 
 has to be settled in that metal which in India is legal 
 tender. Or, to take an extreme instance, which, 
 however, illustrates the working of the law in its 
 simplest form. Let us suppose the case of an importer 
 of silver from American mines who finds that his 
 silver bullion is unsaleable in Europe. What can he 
 do ? One resource is always open to him so long as 
 no legislative change takes place. He can carry his 
 bulHon to Bombay; there he can claim to have it 
 coined into rupees ; with his rupees he can buy what 
 Indian produce he likes, and that produce he can ship 
 to Europe and turn into gold. It wiU be observed 
 that one condition is throughout presupposed — the 
 unrestricted right of claiming the conversion of sUver 
 bullion into rupees. So long as this right exists, so 
 long as the mints of India remain open to all who 
 bring silver to be coined, a bar of silver in London 
 is the equivalent of the rupees into which it can be 
 coined, less the cost of its transport and its trans- 
 formation. The operations of banks, the nomenclature 
 of the Exchange, the numerous technicalities which 
 
lU ESSAYS ON ECONOMIC QUESTIONS 
 
 surround the subject, must not be pdl^ -tted to obscure 
 the issue. So long as a precious metJal is legal tender 
 in any part of the world, that metal has the exact 
 purchasing power of the coin of the country in which 
 it remains a legal tender, subject only to the expenses 
 to be incurred. When silver or gold are, in ordinary- 
 language, the legal tender in any country, it is not 
 only meant that the actual coins manufactured out of 
 that metal are to be imiversally received in payment, 
 but also that the possessors of bullion may present it 
 at the Government mints and claim to have it turned 
 into coin. The rule of gold in the United Kingdom 
 does not simply mean that a sovereign is legal tender, 
 but that bars of gold can be presented at the Bank 
 without limit, and sovereigns be obtained in exchange. 
 This practical identity between bullion and coin is one 
 of the main attributes belonging to what we have 
 called a reigning metal. Silver has been shorn of this 
 attribute in France and elsewhere by recent decrees ; 
 but in India silver still retains its privileges unimpaired. 
 No regulations close the doors of the mints upon any 
 amounts which may be poured in, and no check is 
 interposed to interfere with the certain action of 
 regular laws. The ordinary channels may be blocked 
 with difficulties ; the tide may have to force its way 
 through unaccustomed outlets ; it may not flow freely 
 for a time. Not everybody desires to speculate in cotton 
 or jute, disaster may have disheartened Indian trade, 
 and speculators themselves may for a time recoil from 
 buying ' potential rupees.' But so long as rupees are 
 valuable, and there is produce purchaseable in India 
 and saleable in Europe which those rupees will buy, 
 surplus supplies of silver must in the long run find 
 their way to the East. 
 
 The rectifying process, which this ultimate flow of 
 
THE DEPEECIATION OF SILVER 145 
 
 silver to the East involves, deserves particular attention. 
 It constitutes a further source of uncertainty which 
 enjoins caution in the adoption of remedial measures. 
 The absorption of silver by the currencies of the East, 
 which we have indicated as an almost certain eventu- 
 ality, unless artificial hindrances are interposed, and 
 which will raise general prices where those currencies 
 are in force, will, by carrying off the silver from 
 Europe, tend to arrest the fall, and mitigate the effects 
 of the surplus supplies. It does not follow as a neces- 
 sary consequence, because silver has touched a point 
 20 per cent, below its former average value when 
 measured by gold, that when the effects of the causes 
 which produced that sudden fall are distributed over 
 the vast regions of the East, a rise of 20 per cent, may 
 be expected in the prices of general commodities when 
 measured by a silver standard. It is possible that 
 sUver may have fallen below its ultimate value in 
 Europe, and that in the interior of India it is stUl 
 above that point. In such a case the level may, in 
 the end, be found between the two. 
 
 It results that on two cardinal points we have still 
 to await the current of events. When and to what 
 degree will general prices in India rise ? And to what 
 degree will the very causes which will lead to that 
 rise react upon the value of the silver m the world at 
 large ? Let it be well considered how the uncertainty 
 on these two points bears on such propositions as the 
 permanent dethronement of silver. We are not con- 
 cei-ned at this moment to discuss elaborately the policy 
 to be pursued : we merely take advantage of the 
 various points raised by an examination of the facts 
 attending the fall of sUver, to suggest considerations 
 which cannot be overlooked. Any readjustment of 
 the Indian currency would have to be based on some 
 
 L 
 
146 ESSAYS ON ECONOMIC QUESTIONS 
 
 assumed relation of value between gold and silver. 
 But no one is at present able to gauge, in the most 
 approximate manner, the final results. We know, we 
 are plainly told by all that occurs, that we so far only 
 see the first half of the chain of events. It is true 
 that many months have elapsed since the crisis began ; 
 and it may be said that we are patient indeed, if we 
 are content to wait stUl longer before we admit a com- 
 plete set of facts. In reply, it is sufficient to urge, as 
 we have already argued at length, that the connexion 
 is as yet most incomplete between Western causes and 
 Eastern results. The influence of the fall has not yet 
 spanned the world. The decline in the Indian ex- 
 changes must not mislead us into the belief that we 
 know all that can be known ; and tUl we feel surer 
 ground under our feet, however much we may specu- 
 late and theorize, it would be unbusinesslike and 
 unstatesmanlike to take an irrevocable decision. 
 
 Two results of the late movements in the silver 
 market are often confused which should be most 
 carefully distinguished : the fluctuation in the value, 
 and the fall in the value ; the sense of uncertainty 
 produced, and the actual depreciation. M, Leon Say, 
 the French Minister of Finance, drew special attention 
 to this distinction in defending the maintenance, for 
 the present, of the double standard in France. Silver 
 would not be disqualified, he argued, from doing duty 
 as heretofore in conjunction with gold simply by the 
 fact of its depreciation. Ee-adjustment would be 
 necessary, but in other respects the battle between 
 the mono-metallists and the bi-metallists would have 
 to be fought out on the old lines. On the other hand, 
 if when the German supplies are disposed of, and the 
 production of Nevada is fully gauged, silver, instead 
 
THE DEPEECIATION OF SILVER 147 
 
 of settling dovra at some new level, should continue 
 to exhibit the constant fluctuations in value of common 
 ores, not simply within such a range of limits as the 
 past fluctuations covered during the first seventy years 
 of this century, but with such violent ups and downs 
 as have marked the last two years, then a change of 
 policy might be rendered indispensable. The question 
 of the deposition of silver might in such a contingency 
 clearly have to be faced. But the fluctuations and 
 agitation which we have lately witnessed cannot be 
 accepted as conclusive evidence that the silver market 
 has permanently lost its character. The immense 
 operations of Germany keep up a state of prolonged 
 suspense, but they cannot last for ever. It would be 
 contrary to the experience of ages if a fairly steady 
 level should not ultimately be found. 
 
 The evUs and inconveniences of the moment are 
 partly due to the state of uncertainty, partly to the 
 actual fall. When a new level has been reached, trade 
 wiU, of course, adapt itself to the new situation. What 
 has caused grievous loss to Governments and indi- 
 viduals, has been the commencement of transactions 
 in one state of things, and their continuance or 
 conclusion under another. The illustrations of losses 
 incurred, noted by us at the beginning of this article, 
 all fall under this condition. The settlement of the 
 salary of the Indian civil servant, the sales of British 
 goods in India, the remittance of English and Scotch 
 deposits to the East for profitable employment at high 
 Indian rates, the purchase of stock with silver dividends, 
 the passage from a silver to a gold coinage, the levy of 
 taxes in silver abroad for the payment of charges in 
 gold at home, are all instances of transactions com- 
 menced on the assumption of a certain general relation 
 between the values of silver and gold which has been 
 
 L 2 
 
148 ESSAYS ON ECONOMIC QUESTIONS 
 
 falsified by events ; or, if no such actual assumption 
 was made, the loss at least has been due to silver 
 having been at one price when the bargain was struck, 
 and at another while its effects were still in operation. 
 So long as extreme uncertainty prevails, or so long as 
 such violent changes in price are apprehended as have 
 inflicted great losses during the past year, it would be 
 extraordinary if bankers, merchants, and manufacturers 
 were not to show extreme reluctance to embark in any 
 transaction in which the price of silver formed an 
 element of calculation. It is, therefore, not merely 
 the fall, it is the impossibility of reckoning on any 
 certaia price, which paralyses the movements of trade, 
 and even prevents those rectifying causes from be- 
 ginning their work, to which we may look with some 
 confidence in the end. 
 
 It would be most unwise to underestimate the great 
 damage and sufferiag incurred in all branches of the 
 Indian trade through the present condition of the 
 sUver market. On the other hand, it is well to 
 observe that, apart from this most serious temporary 
 derangement of trade, caused both by the suddenness 
 and the magnitude of the late fluctuations, and apart 
 from the specific losses suffered by those who have to 
 change sUver into gold, the public at large does not 
 lose by the fall in silver so far as it is caused by the 
 discovery of larger supplies. The addition thus made 
 to the store of the world is an addition to its wealth, 
 not a source of poverty. Nor is it necessarily or even 
 probably a source of injury to English interests. If 
 additional millions worth of silver are produced, those 
 who produce them become purchasers of goods. The 
 trade of the world is increased, and English banking 
 and commercial supremacy always succeeds in causing 
 a large share of such an increase to be entered in 
 
THE DEPRECIATION OF SILVER 149 
 
 English ledgers. Manchester manufacturers may 
 exclaim, 'Why, part of your argument is, that a 
 diminution of exports to India is to be a certain result. 
 It is even pointed out to us as a " rectifying cause." 
 How, then, shall we not be sufferers?' But the 
 diminished exports in one direction will probably be 
 compensated by increased business in another. We 
 again quote the evidence of Mr. Bagehot : — 
 
 ' Of course it will be evident that if this country has 
 to export sUver to the East, it must buy that silver 
 somewhere. That sUver it will have to buy in America, 
 and therefore a consequence of the new state of things 
 will be that the English exporters of goods to some 
 parts of the world will be benefited. I do not say the 
 English exporters of goods to America, for probably we 
 shall not pay America directly. The nature of the 
 trade between America and this country is — that 
 America sends us directly a great deal more than we 
 send her ; and America buys, in various parts of the 
 world, coffee, and rice, and tea, and a variety of articles, 
 and that the sellers of those articles draw upon England, 
 and so the balance is struck ; we shall have to pay 
 America in some way for the silver, and we shall pay 
 her by exporting to the countries from whom she buys 
 some of those articles, and, therefore, though it is 
 perfectly true to say that the effect of the depreciation 
 of sUver may be unfavourable to the English exporter 
 of goods to the East, yet it will be favourable to another 
 class of English exporters, that is to say, those who pay 
 America. . . . We are the great settHng-house of the 
 world.' 
 
 So far, therefore, as general trade is concerned, this 
 country need be under no apprehension that the new 
 source of wealth discovered in America means, to us, a 
 feai-ful calamity. It has created problems diflficult of 
 
150 ESSAYS ON ECONOMIC QUESTIONS 
 
 solution, much financial inconvenience, much individual 
 loss. It taxes to the utmost the ability of our Indian 
 administrators ; it opens, alas ! a wide field for mis- 
 takes ; but when all is said, it would be an offence 
 against economic laws, and an ungrateful return for 
 the precious gifts of the earth, if the shining stream, 
 of sUver, which is pouring forth in such rich volume 
 from the mountain-sides on the Pacific coast, should be 
 denounced by the world at large as a disastrous flood ! 
 
 In the preceding pages we have discussed the popular 
 and practical meaning of the depreciation of silver, we 
 have examined the methods in which it affects indi- 
 viduals and governments, and have called attention to 
 some of the incidents by which it is accompanied. We 
 proceed to deal with the causes which have led to the 
 present situation ; and, as the final result of the crisis, 
 and the expediency of meeting it by any actual admini- 
 strative or legislative measures, must depend entirely 
 on the character of those causes, we shall make no 
 apology for passing them under review, though little 
 difference of opinion exists as to what these causes 
 have been. They are described as follows in the 
 Keport of the Select Committee : — 
 
 ' 1. The discovery of new sUver mines of great 
 richness in the State of Nevada. 
 
 ' 2. The introduction of a gold currency into Germany 
 in place of the previous sUver currency. This operation 
 commenced at the end of 1871. 
 
 ' 3. The decreased demand for silver for export to 
 India.' 
 ' To these causes it must be added : — 
 
 *4. That the Scandinavian Governments have also 
 substituted gold for sUver in their currency. 
 
 '5. That the Latin Union, comprising France, 
 
THE DEPEECIATION OF SILVEE 151 
 
 Belgium, Switzerland, Italy, and Greece, have since 
 1874 limited the amount of silver to be coined yearly 
 in the mints of each member of the Union, suspending 
 the privileges formerly accorded to all holders of silver 
 bulHon of claiming to have that buUion turned into 
 coin vpithout restriction. 
 
 * 6. That Holland has also passed a temporary Act 
 prohibiting, except on account of the Government, the 
 coining of silver, and authorizing the coining of gold.' 
 
 A further cause has been assigned. . It has been said 
 that the Committee failed to comment, as they should 
 have done, on the suspension of specie payments in 
 many States. If inconvertible paper money had not 
 been declared legal tender in Kussia, Austria, and 
 Italy, those countries would have absorbed a vast 
 amount of sUver. Italy and Austria figure on the list 
 of sellers of silver instead of appearing among the 
 purchasers, and the great empire of Kussia is set down 
 in the Keport of the Committee as having bought only 
 four milhons sterling during the last four years. No 
 symptoms of attempts to work up to a resumption of 
 specie payments are visible either in Eussia, Austria, 
 or Italy, Indeed the two latter countries have con- 
 tributed to that over-stocking of the silver market, 
 under which the price has broken down. But these 
 countries, like the United States, had suspended specie 
 payments long before the price of sUver fell. By far 
 the greater value of the silver coin which retreated 
 before the advancing wave of paper issues was absorbed 
 long before the possibility of a fall of many pence per 
 ounce had been even so much as thought of. This 
 transition from silver to paper can, therefore, scarcely 
 be cited among the immediate causes of the late fall, 
 though it is abundantly clear that the monetary situa- 
 
152 ESSAYS ON ECONOMIC QUESTIONS 
 
 tion of these countries has a most important bearing 
 on the question. The present situation would be very- 
 different if an actual silver currency were in force in 
 other countries of Europe besides the members of the 
 Latin Union. The diminution of the area in Europe 
 over which silver exercises sway, through the substitu- 
 tion of paper money, is clearly an element well entitled 
 to much consideration. 
 
 We return to the causes of the depreciation of silver 
 enumerated by the Select Committee. 
 
 The effect of the discovery of the new mines in 
 Nevada is narrated with much detail in the Report. 
 The richness of the mines appears so extraordinary, 
 that we are not surprised that the Committee cautiously 
 confined themselves to quotations from official docu- 
 ments. Yet the wondrous yield of the new 'Bonanzas' 
 could not fail to inspire even official writers with 
 poetical fire, and their reports contain passages which 
 would be rhapsodies if they were not sustained by 
 figures and facts. The following is an eloquent burst 
 from the Report of Mr. Whitehill, ' the State Mineral- 
 ogist' of Nevada, in which he lights up his mining 
 statistics with poetry and politics : — 
 
 ' The past two years have been a period of un- 
 exampled prosperity in the history of the State, and 
 at no time have the prospects for future success been 
 so encouraging. Dependent, for the most part, upon 
 the products of the mines, the fortunes of Nevada are 
 at all times liable to the fluctuations incident to 
 mining ; bodies of ore are exhausted, and some time 
 must necessarily elapse before other bodies are dis- 
 covered ; but at present, such a wealth of the precious 
 metals has been disclosed in the mines upon the 
 Comstock Lode, that many years will have passed 
 before it can be exhausted. Competent persons have 
 
THE DEPRECIATION OP SILVEE 153 
 
 estimated the value of the ore now in sight in the 
 Consolidated Virginia and California mines at more 
 than 100,000,000 dollars, and yet these two mines 
 occupy only about 1,300 of the 22,000 feet located and 
 worked on the same lode. It has also been estimated 
 that the product of all the mines in the State for 1875 
 win reach 50,000,000 doUars, and this is but the com- 
 mencement of a new era in the mining interests of 
 this State. From the present indications our mining 
 resources are practically without limit, and, with one 
 of the most industrious and bravest populations to be 
 found in any country, no uneasiness need be felt in 
 the decay of mining enterprises in Nevada. No safer 
 investment for capital can be made where such speedy 
 and remunerative results are obtained. The fruits of 
 our mines have made thousands of men wealthy, and 
 have built a hundred palaces more gorgeous than 
 those of ancient story, and still our army of courageous 
 prospectors are searching on every mountain slope 
 and in every deep ravine for the stores of wealth 
 which nature has so lavishly bestowed upon this 
 section of our fair land. Many old districts are being 
 reorganized, and abandoned claims re-located, while 
 those at work, with rare exceptions, are greatly cheered 
 with anticipations of a brighter future.' 
 
 We are not minded to astonish our readers with 
 the more fabulous accounts of the mines belonging 
 to the ' Consolidated Virginia ' and ' the California ' 
 Companies, which ' are beginning to open up and lay 
 bare some of the secrets of the northern end of the 
 Great Comstock Lode.' Reporters to American papers 
 write under the heading of the ' Heart of the Com- 
 stock' of a 'perfect mountain of silver ore, and of 
 the uselessness of attempting a fair description of the 
 rich character of the ore, the sides and face of the 
 
154 ESSAYS ON ECONOMIC QUESTIONS 
 
 drift being one glittering mass of sulphurets mixed 
 with the richest character of chlorides,' of ' every shaft 
 run, in fact almost every stroke of the pick made, 
 adding to the already immense wealth of the mines.' 
 The reality, however, is sensational enough. The 
 annual production of silver in the world has been 
 doubled since the United States commenced their 
 gigantic contribution. In the years previous to any 
 supplies from the United States, the total annual 
 production was £8,000,000 sterling. The total pro- 
 duction for 1876 is estimated at £16,000,000. Of 
 this sum £9,000,000 is set down to the account of 
 the United States. The progress is indeed astonishing. 
 Till about the year 1860 the production of silver had 
 for a series of years been apparently very steady. In 
 that year the United States are credited with the 
 modest sum of £30,000. Two years afterwards it 
 nearly reached £1,000,000. In ten more years it nearly 
 reached £6,000,000, and now £9,000,000 is considered 
 a moderate estimate ! The total production of silver 
 elsewhere than in the United States is not supposed 
 to have increased. Indeed the statistics given show 
 a slight diminution. To arrive at the present time 
 at the total production of silver, the yield of all other 
 countries should be taken at about £7,000,000, and 
 the yield of the United States £9,000,000, of which 
 almost the whole is a distinct annual addition to the 
 total supply. Can any surprise be felt at the pertin-ba- 
 tion this change has called forth ? 
 
 The figures we have quoted are exclusive of the 
 large proportion of gold which is found in the ores 
 of the silver mines of the United States. In the 
 Comstock Lode the value of the gold contained in 
 the bullion is stated, on all hands, to amount to nearly 
 45 per cent. When the incalculable wealth of the 
 
THE DEPKECIATION OF SILVER 155 
 
 new mines is described, the value of the gold is of 
 course included. In the earlier days, when accounts 
 first reached Europe of the Nevada discoveries, no 
 distinction was drawn, and the total value of the 
 bullion reported to be found was supposed to be 
 silver. Hence arose exaggerated estimates and fears 
 of a much greater production than what has actually- 
 taken place. Nevertheless, this rich admixture of gold 
 has a most important bearing on possible supplies of 
 sUver, not in the direction of counteracting the addition 
 to the silver market, but, on the contrary, in the direc- 
 tion of heightening its effect. We have heard the 
 opiuion put forth, that as fresh supplies of gold and 
 sUver appeared to .flow in almost equal proportion 
 from this new source, there was the less apprehension 
 of a disturbance in the value of sUver. If an increased 
 production of the two metals took place on the same 
 scale, surely their relative value might be expected 
 to be fairly maintained. This view is clearly quite 
 fallacious ; not only because the addition to the supply 
 of gold is infinitely less in proportion than the addition 
 to the supply of sUver, but because sUver and gold are 
 not required for the same purposes, and, above all, 
 not over the same area. 
 
 A scarcity of gold may exist, causing the eager 
 absorption of a few additional miUions of gold, while 
 the identical amount of sUver, coming on a market 
 already overstocked, might cause an actual panic and 
 a heavy fall in the price. If silver and gold had 
 continued to relieve each other as partners in the 
 duties of a circulating medium over the same area, 
 the argument would have considerable force ; but if 
 gold is wanted for some countries and silver for others ; 
 if the gold countries are scantily supplied, and the 
 silver countries over-stocked; no parity in the scale 
 
156 ESSAYS ON ECONOMIC QUESTIONS 
 
 of increased production will prevent the possibility of 
 decline in the value of one market, while the other 
 may remain undisturbed. The admixture of gold in 
 the silver ore has a very different effect. The quantity 
 of gold may be so large that its value will alone pay 
 the expenses of the mine, so that the silver may be 
 said to be produced gratis. If of the total value of the 
 bullion only one-third was gold — and the proportion 
 is in fact nearer one-half — the gold alone would have 
 paid the whole expense of the mine, and the whole 
 silver produced would have represented net profits. 
 What does this mean ? It means that so long as this 
 state of things exists, so long as expenses do not 
 increase and gold is found in the same proportion, no 
 fall in the silver market will arrest production in these 
 mines. The proprietors would gain less, but still they 
 would gain. They escape from the risks of working 
 at a loss if silver declines. They may contemplate 
 with comparative equanimity, though not with indif- 
 ference, fluctuations in price which to mine-owners in 
 Chih or Mexico would bring ruin and despair. How 
 long the Nevada mines may fulfil the hopes of their 
 owners by continuing to yield on their present or even 
 on an increasing scale, we profess ourselves, after the 
 most careful perusal of the evidence, quite unable to 
 judge ; but it seems proved that, irrespective of 
 quantity, the peculiar quality of their ore is such as 
 to render their working more independent of the price 
 their silver will fetch than is commonly the case with 
 mining industry. 
 
 On the other hand, the question may well be put. 
 Will the proprietors of other silver mines be able to 
 compete with the explorers of Nevada? What per- 
 centage of profits has been made on silver mines in 
 Mexico and South America, while silver was worth 5s. 
 
THE DEPRECIATION OF SILVEE 157 
 
 an ounce ? If that percentage of profits was not more 
 than 15 per cent, on an average, the profits are now- 
 swept away. The present price of silver must of 
 necessity, one would think, compel the closing of some 
 mines. The poorer class can clearly not contend 
 against such a decline. If 'a perfect mountain of 
 silver ' enriches the courageous prospectors of Nevada, 
 the production will be curtailed elsewhere, where the 
 proportion of gold is insignificant, and every ton of 
 silver ore must yield its own proportion of profits. 
 
 The Government, if it desires to form an opinion, 
 and to assist the public in forming theirs, on the 
 probable future production of silver, should instruct 
 its representatives in the United States to furnish 
 continuous information on the progress of the new 
 discovery, and the fulfilment of the expectations raised ; 
 but they should at the same time not neglect to ascer- 
 tain, so far as they have the means, the effects of the 
 faU in price on the production elsewhere, and to collect 
 evidence as to the percentage of profits and the prices 
 of silver which would enable silver mines still to be 
 worked in those countries to which twenty years ago 
 the world looked exclusively for its supplies. 
 
 The second great cause of the depreciation of silver 
 is stated by the Committee to be ' the fall in the surplus 
 supplies which have been thrown, or may still be 
 expected to be thrown, on the silver market by the 
 measures taken in Germany with reference to the 
 silver coinage.' We shall not attempt to follow 
 the Committee through their description of the various 
 stages of this gigantic operation. The series of laws 
 passed, and the several steps taken, are set out in the 
 Eeport in considerable detail. The Committee had 
 received from the German Government a complete set 
 
158 ESSAYS ON ECONOMIC QUESTIONS 
 
 of aU the official printed documents bearing on the 
 late monetary changes. The previous accumulation 
 of a vast store of the metal to be substituted ; the 
 equitable adjustment of the rate at which the ex- 
 change is to be effected ; the consideration of existing 
 contracts and vested interests ; the predilections of 
 the public for various coins ; the length of the various 
 periods of transition ; the temporary concurrent cir- 
 culation of old silver and new gold; the relations of 
 the new coins to the foreign exchanges ; the probable 
 requirements in subsidiary or token coinage ; the 
 estimates of the quantity of coin to be withdrawn ; 
 the ultimate falsification of expectations ; and the 
 miscalculation as to amounts ; in fact, every possible 
 incident or consideration which can arise in connexion 
 with a change of currency, will be found to be treated 
 in these documents with all the elaborate and scientific 
 treatment which Germans bring to such work. We 
 must not linger on these topics, interesting as they 
 are ; nor can we stop to probe the suggestive ques- 
 tion as to the success which has attended the 
 ambitious operation which, flushed with an indemnity 
 of £200,000,000, the German Empire undertook as 
 an appropriate financial commemoration of their 
 stupendous victory. The unification of the currency 
 was doubtless a necessary and admirable sequel to the 
 unification of Germany into one Empire, and it was 
 a fitting symbol of the union achieved that new coins 
 with the common effigy of the Imperial power should 
 replace the multitudinous coins which, stamped with 
 the motley devices of many separate kingdoms and 
 principahties, bore significant witness to the divisions 
 and subdivisions of German nationality. 
 
 As to the wisdom of the change from silver to gold, 
 the views taken in Germany, even amongst the highest 
 
THE DEPRECIATION OF SILVEE 159 
 
 authorities, are far frora unanimous. English opinion 
 would indeed be ungrateful, if it did not give an 
 enthusiastic approval to the change. For English 
 example, and the writings of English economists, 
 inspired the idea, though it might be cynically added 
 that occasional Enghsh raids on the German silver 
 market, which perturbed the circulation at inconvenient 
 moments, no doubt gave a decided stimulus to the 
 plan. But the universal loyalty to a gold standard in 
 this country, based as it is on the suitability of gold 
 both to our vast international transactions and to our 
 domestic habits and circumstances, is not conclusive 
 evidence that gold must in all countries, even though 
 they be quite differently situated from our own, be 
 necessarily more convenient and desirable than silver 
 for currency. On this point we pronounce no opinion ; 
 we only place a protest on record against any argument 
 in favour of a silver currency, in other countries than 
 our own, being treated with contemptuous indignation. 
 We gather on the whole that the surplus silver 
 to be expected from Germany is far less than was 
 originally anticipated. The first figures were appalling. 
 The first fact to be ascertained was clearly the total 
 amount of silver coins known to have been struck and 
 issued in Germany, looking back over a long series of 
 years. This element would form the basis of every cal- 
 culation, and it was possible to ascertain it with entire 
 accuracy. Since 1760 the value of silver coins manu- 
 factured and issued in Germany was £89,000,000. 
 The question then arises, if silver coins to this amount 
 have been issued since 1760, what amount was probably 
 in circulation when the recent coinage change com- 
 menced? Here was a splendid statistical problem, 
 and full justice has been done to it by the German 
 pubUc. Statisticians and bankers, ministers and 
 
160 ESSAYS ON ECONOMIC QUESTIONS 
 
 deputies, threw themselves into a spirited controversy 
 with the greatest ardour, and have continued it up 
 to this moment with unabated vigour. 
 
 The field for speculative statics offered by the wide 
 range of contributing causes and circumstantial evi- 
 dence was vast. The statisticians maximized, the 
 ministers minimized, the deputies criticized the 
 ministerial estimates ; the bankers disbelieved every 
 estimate aUke. Under the circumstances we cannot 
 be surprised that the Committee have not made them- 
 selves responsible for any particular figure. 
 
 From the total amount in circulation when the laws 
 were passed, two amounts had to be deducted before 
 arriving at the stock of silver remaining to be sold — 
 the aggregate of the sales already made, and the 
 quantity which would be required for the new sub- 
 sidiary coinage. The total value represented by the 
 sales already made was stated to be officially about 
 £6,000,000 on April 26, 1876. The quantity of silver 
 required for new subsidiary coinage could not be known 
 with equal accuracy. We find a provisional amount 
 fixed by law, but still it is only an estimate. The 
 calculation has been that silver token coins should be 
 struck at the rate of about ten shillings per head of 
 the population of the Empire. The population being 
 upwards of 40,000,000, a sum of upwards of £20,000,000 
 will be absorbed for this purpose. And on this basis, 
 and taking into account only the amounts already 
 sold, what surplus stock are we to expect? About 
 £89,000,000 had been coined. Not more than 
 £30,000,000 are accounted for by the estimated needs 
 of the subsidiary currency and the quantity already 
 disposed of. How much, then, remains to be sold ? 
 
 That very large sums have disappeared owing to the 
 various causes — such as the export of silver for various 
 
THE DEPKECIATION OF SILVER 161 
 
 purposes, the ordinary wear and tear of coins, the 
 amount used in manufacture of plate and ornaments, 
 and the like — which operate to diminish any metallic 
 currency, is universally admitted; but, as might be 
 expected, the divergence in the estimates of what 
 remains to be sold is immense. They appear to range 
 from £8,000,000 to £30,000,000, the latter sum being 
 about equal to the total production of the world for 
 two whole years. Still it is important to distinguish 
 between the maximum amount based on actual calcula- 
 tion and the vague views in which the total amount 
 of the silver coins issued in Germany figured as the 
 most prominent element. Till a comparatively late 
 date, estimates varying between £50,000,000 and 
 £60,000,000 of surplus silver were very currently 
 entertained. Now that exhaustive controversies and 
 some experience in the retirement of the smaller series 
 of coin, and an examination of the stocks of silver held 
 in the tills and vaults of banks, or in Government 
 receiving offices, and local treasuries, have supplied 
 better means for forming an opinion, it is possible to 
 come to closer quarters. The minimum estimate of 
 £8,000,000 is doubtless too low, but it is certainly not 
 probable that a surplus of as much as £30,000,000 will 
 be reached. The German ministers base their argument 
 mainly on the absence of evidence as to the whereabouts 
 of so large a surplus, if such a surplus is ultimately to 
 appear. It is not to be traced in those places through 
 which a circulating medium generally circulates. If it 
 exists it must be hidden away. Or, if neither hidden 
 away nor circulating through pay-offices, banks, and 
 treasuries, through those channels and receptacles 
 which belong to the larger transactions in which coin is 
 used, it must be performing the identical duties for 
 which the employment of silver, though in the humbler 
 
 u 
 
162 ESSAYS ON ECONOMIC QUESTIONS 
 
 guise of subsidiary coinage, is stiU reserved. It must be 
 engaged in making the little domestic payments, which, 
 in a country where not one lady in a thousand has 
 a cheque-bookj where cooks pay ready-money in the 
 market for the wants of each day, and the weekly or 
 monthly bills of English households are almost unkown, 
 reach in the aggregate a gigantic amount. It is very 
 doubtful whether, in view of such circumstances, the 
 estimate of a total subsidiary coinage of £20,000,000 
 will suffice. If large quantities of silver coin are 
 thus actively engaged they will continue to be wanted. 
 The silver may exist, but it will have to be recoined, 
 not to be sold. 
 
 Such are the arguments which may be cited in 
 support of the notion that the surplus silver in Ger- 
 many, though still very considerable, will not reach 
 such alarming proportions as those to which the 
 quantity of sUver, which certainly once circulated in 
 Germany, seemed originally to point. The withdrawal 
 of a vast quantity of small bank-notes has materially 
 contributed to this result. On the whole, even if we 
 do not share the view of Herr Camphausen, the 
 Prussian Minister of Finance, who assured the German 
 Parliament that the transaction had been a matter of 
 child's play, it certainly appears that the proportions 
 of the immense operation have dwindled in the course 
 of its execution. Yet the Germans have been deeply 
 disappointed. They are burdened with less silver to 
 exchange for gold than they had feared ; but in their 
 forecast of the possible troubles before them, they 
 seem never to have dreamt of the violent fall which 
 has occurred, or of a bottomless market. 
 
 Of the secrets of Nevada they could, of course, have 
 no inkling. They could not foresee the rivalry of the 
 Comstock Lode. But they have been deceived in 
 
THE DEPEECIATION OF SILVER 163 
 
 another respect. They courted purchasers and the 
 purchasers have kept aloof. They are said to have 
 fondly thought that the tempting opportunity of 
 buying silver would be obligingly utilized by the 
 neighbouring Powers, possibly even that Eussia and 
 Austria would profit by the occasion to build up once 
 more a metallic currency. At the worst they knew, 
 or thought they knew, that France and Belgium with 
 their double standard would be convenient receptacles 
 into which silver might be poured as legal tender, 
 spreading the effect of any fall in price over an area 
 as vast as the aggregate currencies of the Latin Union. 
 Alas! most European Powers were painfuUy incon- 
 siderate. Events took quite a different turn. Eussia 
 and Austria with their paper currencies let the ' silver 
 opportunity' slip. Several countries followed suit 
 with Germany, and instead of buying silver sold it 
 themselves. The Scandinavian kingdoms demonetized 
 silver and introduced gold. Holland made gold a legal 
 tender, and the whole of the Latin Union suddenly 
 barred the doors of their mints, refusing public admit- 
 tance to the metal they had been expected to absorb, 
 and only passing in a limited quantity by ticket. 
 Germany was deeply disappointed, and silver fell 
 twenty per cent. 
 
 But there was to be another unfortunate coincidence. 
 A third cause, entirely disconnected with the coinage 
 operation in Germany or the discovery of the Nevada 
 mines, strangely enough also came into operation at 
 the same time, and heightening the effect which has 
 already created so much sensation, gave the cowp de 
 grace to the market. India has for a long series of 
 years absorbed an annual amount of silver which was 
 counted by millions. In most countries there is an 
 
 H 2 
 
164 ESSAYS ON ECONOMIC QUESTIONS 
 
 ebb and flow of the precious metals. According to 
 the varying balance of trade, and indeed according to 
 a thousand other circumstances, peace or war, pros- 
 perity or panic, Government loans or private specula- 
 tion, the waves of buUion advance and retreat, requiring, 
 like the waves of the ocean, most scientific watchfulness 
 if we wish to study their periods or to measure their 
 length and height. But the set of the stream of silver 
 to the East seemed as steady and certain as the Gulf 
 Stream. No hmit as to quantity seemed to exist. 
 Sixty-three milhons sterling were poured in during 
 the five years between 1861 and 1866, the period of 
 the cotton famine, but still the stream flowed on. 
 During the next four years nearly £30,000,000 more 
 were added to the stock. Upwards of £90,000,000 of 
 silver were retained in -India in the course of nine 
 years ! In 1870-1 came the first check. Little more 
 than £3,000,000 were absorbed, but the check seemed 
 simply to be temporary, for in 1871-2 the quantity 
 rose once more to £6,600,000. But in the next year, 
 when Nevada and Germany were preparing to flood 
 the world with rival supplies in undreamed-of propor- 
 tions, the demand for India suddenly fell, and the 
 surplus of the imports of silver over the exports 
 dwindled for that year to £700,000 I Larger sums 
 were dispatched in the two following years, but still 
 infinitely less than in any year since 1853, and in 
 1875-6 the quantity dropped to little more than 
 £1,500,000 ! No wonder that silver fell, no wonder 
 that the fall seemed bottomless. Fresh sources of 
 supply of mysterious and incalculable magnitude and 
 an unprecedented decHne in the requirements for the 
 East! 
 
 The Committee present voluminous tables showing 
 the movements in the exports and imports of general 
 
THE DEPEECIATION OF SILVER 165 
 
 merchandise as well as of treasure into India. They 
 prove the remarkable fact that, as far as general 
 trade is concerned, no sufficient changes have occurred 
 to explain the diminished demand for silver. It is 
 true that the amount required to be remitted to India 
 to settle balances was lower than in former years, but 
 only lower to a very small extent. The cause of the 
 diminished import of silver into India had accordingly 
 to be sought elsewhere. It was clearly found ia 
 another fact : ' in a change of the mode of remittance.' 
 The increased sale of Government biUs on India has 
 suppHed means for making payments in India which 
 have displaced an equal amount of bullion remittances. 
 The aggregate amount sent to India in bills and treasure 
 together during the last four years was £67,000,000. 
 During the previous four years it had been £69,000,000, 
 scarcely an appreciable difference when distributed 
 over four years. But the change in the mode of 
 remittance was most significant. In the former period, 
 forty millions were dispatched in gold and silver, and 
 a little less than thirty millions in Government bills. 
 In the last four years the dispatch of bullion did not 
 reach seventeen millions, while upwards of fifty millions 
 were sent in Government bills. It will be seen how 
 completely the proportions were reversed, and how 
 fully the decline in the demand for silver is explained. 
 The diminution in specie remittances was divided 
 between gold and silver, but was greatest by far in the 
 case of the latter metal. The Committee, speaking of 
 the diminished imports of silver to the East, accordingly 
 
 state : — 
 
 * Whatever these effects may be, they are simply to 
 be accounted for by the large amount of bills on India 
 which the Indian Government have now annually to 
 sell. It may be said that their requirements are in 
 
166 ESSAYS ON ECONOMIC QUESTIONS 
 
 round numbers about £1,250,000 per month, or 
 £15,000,000 per annum. This is the sum which has 
 to be paid annually by India to England, and this sum, 
 pro tanto, displaces the dispatch of bullion. It appears 
 that previous to 1862-3, the bills drawn in England 
 never reached the sum of £4,000,000. The excess of 
 the present requirements is, therefore, £11,000,000.' 
 
 We need not dwell on the significance of these 
 figures. They speak very plainly for themselves. If 
 the treasures of Nevada had remained buried in the 
 earth, and Germany had never troubled the waters by 
 the great change she has made, the portentous increase 
 in the bills drawn by England on India for Government 
 account could not have failed to have exercised a 
 marked effect. It is for the pubhc good that serious 
 attention has been excited with regard to this remark- 
 able fact. It has important bearings, far beyond its 
 immediate effects on the price of silver. It is a very- 
 grave financial and political fact. Unfortunately, it does 
 not appear that any abnormal causes are contributing 
 to increase the amount. Fifteen millions sterling per 
 annum seem to represent, to use the words of the 
 Committee, 'the present normal expenditure of the 
 Home Government,' and, 'unless by some marked 
 change of policy, no diminution of that amount can be 
 looked for.' The full effect of these increased require- 
 ments has only recently been felt. For a time the 
 growing bulk of this tribute was hidden, and its effect 
 on the silver market retarded, by the temporary 
 resources which the particxilar financial mode in which 
 the expenditure for the construction of railways in 
 India was met afforded to the Government. The 
 Committee say : — 
 
 ' So long as railways were in course of construction 
 in India on an extended scale, and money was being 
 
THE DEPEECIATION OF SILVEK 167 
 
 raised in this country for their construction, funds 
 which were to be spent in India on wages or other 
 expenses came into the hands of the Government here, 
 and were paid out by the Government in India. . . . 
 The Government were thus furnished with funds to 
 that extent without the necessity of drawing biUs ; or, 
 to put the matter in a different form, so much more 
 money had to be remitted to India in one form or 
 another ; the proceeds of the railway loans (so far as 
 they were not spent on materials purchased in England) 
 passed over to India. The Govermnent did not them- 
 selves remit silver, having silver at their disposal in 
 India, but they had so much less silver to pass over to 
 merchants in India, and accordingly the merchants 
 had to buy and remit so much more silver themselves.' 
 
 This resource is now not only exhausted, but it has 
 left behind it effects operating in the reverse direction. 
 Whereas the Government used to receive money in 
 England by encashing the proceeds of the railway 
 loans, it has now to pay in England the interest on 
 these loans. Its receipts have diminished, its disburse- 
 ments increased. The advantage was temporary, the 
 burden is unfortunately permanent. 
 
 We will not dilate on the interesting question which 
 we have already touched on, as to the power of India 
 to absorb more silver in the future. As surely as 
 water finds its level, so surely will sUver find its way 
 to regions where it is legal tender. Nor are we prepared 
 to say, irrespective of this economical law, that even the 
 heavy charge which we have described exhausts the 
 capacity of our Indian Empire. The demand for silver 
 in India appears to be absolutely inexhaustible, and 
 possibly her population will rather forego the purchase 
 of a certain portion of European goods, and devote a 
 portion of the proceeds of their exports, after the fifteen 
 
168 ESSAYS ON ECONOMIC QUESTIONS 
 
 millions are paid, to the importation of sUver, than 
 leave unsatisfied that craving for the possession of 
 the precious metal which is so characteristic of an 
 Oriental race. 
 
 The action taken by the 'Latin Monetary Union' 
 brings us to a different branch of the subject. The 
 members of the Union took measures, in 1874, for 
 hmiting the conversion of sUver bullion into coin. 
 These measures are, no doubt, correctly described as 
 having contributed to the fall in the price. They 
 closed large outlets. They cut short a natural de- 
 mand. But unhke the causes which we have ana- 
 lysed hitherto, they were themselves the consequences 
 of the alarm which those others called forth. They 
 were not steps taken voluntarily, like the change of 
 currency in Germany, nor were they forced on by 
 exigencies extraneous to the silver question, like the 
 necessity for drawing bills on India. They were the 
 direct but unwelcome consequences of the action 
 taken by Germany, and of the threatening aspect of 
 the silver market. We have already stated with 
 emphasis that sUver must flow to those countries 
 where it is a legal tender. Silver was legal tender 
 in the Latin Monetary Union. Silver therefore would, 
 in the natural course of events, if not in demand 
 elsewhere, flood those countries. The members of 
 the Union became alarmed. They were peculiarly 
 situated. Silver was falling in value as compared 
 with gold, and debtors under the reign of the double 
 standard could choose whichever metal they liked in 
 which to discharge their debts. Silver would there- 
 fore be introduced in unlimited quantities, and expel 
 gold to those countries where its falling rival could 
 no longer command its average price. How could 
 
THE DEPEECIATION OF SILVEE 169 
 
 the risk be prevented? The danger has been met 
 by a common agreement among the members of the 
 Union to suspend the privilege of presenting silver 
 bullion to the mints for exchange into coin. Silver 
 coins within those countries retain their character 
 of legal tender. The metal has been demonetized, 
 but not the coin. A five-franc piece has the same 
 position as before. We have not learnt that it has 
 lost any of its purchasing power nor that it is in any 
 way discredited. On the contrary, there is evidence 
 that no discredit attaches thus far to silver coins. 
 But only limited sums can be turned into new coin. 
 
 We have heard the proposal made to apply this 
 remedy to India. It has answered its purpose, it is 
 alleged, in Em-ope ; why not imitate the example ? 
 We can at once adduce conclusive proof of the absence 
 of analogy between the two cases. In the Latin 
 Union such decrees left gold, the second legal tender, 
 untouched. No limitation was placed on gold. The 
 circulation could be increased ad infinitum, or rather 
 according to the self-acting process which the identity 
 between buUion in bars and bullion in coins creates, 
 so long as the mints are open without restriction. 
 But in India silver is the sole legal tender. If, 
 therefore, the self-acting process is destroyed and the 
 mints are closed, a limit is at once placed on the 
 circulation. Coins become a monopoly, and while the 
 law declares that rupees are the sole form of legal 
 tender, debtors or payers, if we may use the word, 
 would be deprived of the power of importing the 
 means of payment from abroad, if the supply at home 
 ran short. So long as anybody can procure silver and 
 claim to have it changed into rupees, so long he can 
 add to the circulation. In the Latin Union, the 
 circulation could be increased at will by the holders 
 
170 ESSAYS ON ECONOMIC QUESTIONS 
 
 both of silver and gold. Through the exclusion of 
 silver, the power to create circulation is reduced by 
 one-half, but stiU no limit is created. Gold remains 
 an unhmited resource. But if silver bulUon in India 
 ceased to be practically on the same footing as silver 
 coin, that is to say if excluded from the mints, the 
 invaluable self-acting and expansive process, which lies 
 at the root of a currency based on bullion, would be lost. 
 The measure is impracticable and most inequitable, 
 unless gold be made a legal tender at the same time. 
 
 We have briefly described the several causes which, 
 during the last four years, have shaken confidence in 
 the stability of the value of silver to such an extent 
 that its summary rejection as a standard of exchange 
 has been very generally discussed ; and we must fully 
 admit that the situation has amply justified any degree 
 of apprehension. We are loth to stigmatize that 
 apprehension as panic. We should call it natural 
 and legitimate alarm. Time may modify the effects 
 produced. Compensating influences will probably set 
 in. The law of compensation in the movements of 
 trade works with extraordinary certainty ; but the 
 almost simultaneous appearance of three entirely dis- 
 tinct influences, each of most uncertain magnitude, 
 except that each was undoubtedly great and all likely 
 to depress the silver market for a period which defied 
 calculation, naturally created an impression that the 
 fall might be bottomless. 
 
 How remarkably the facts come out if chronologically 
 arranged ! 
 
 1871. Germany resolves on the demonetization of 
 silver. The gross amount of silver which 
 had been coined and issued in Germany was 
 said to amount to nearly £90,000,000. 
 
THE DEPEECIATION OF SILVER 171 
 
 1872. The yield of the United States silver mines 
 approaches £6,000,000, In 1870 it scarcely- 
 exceeded half that amount. 
 1872-3. The imports of silver to India fall from 
 £6,500,000 to £750,000. The Indian Govern- 
 ment sells bills for £14,000,000, precisely 
 double what they had sold three years before. 
 1874. Astonishing accounts reach Europe of fresh 
 discoveries in the Comstock Lode. The 
 members of the Latin Union close their mints 
 against silver. 
 1876. The yield of the United States silver mines is 
 estimated at from £9,000,000 to £10,000,000. 
 But if these strides are gigantic when chronologically 
 arranged, they appear no less so when stated in pro- 
 portions. The production in 1876 is expected to be 
 double the amount produced in years previous to 1682. 
 The German operations may result in throwing a supply 
 on the market equal to the production of four years 
 on the old scale. The addition to the drafts of the 
 Indian Council is equal to almost one year's production 
 on the old scale. If Germany, spreading the sale of 
 her surplus silver over a series of years, should find 
 herself able to sell £4,000,000 annuaUy, the old scale 
 and the new scale would compare as follows — 
 
 Old Scale 
 
 Total annual produc- 
 tion, £8,000,000. 
 
 Present Scale 
 
 Total annual production 
 Supplies from Germany 
 Additional Council drafts 
 
 (which take the place of 
 
 silver) 
 
 £ 
 
 . 16,000,000 
 . 4,000,000 
 
 . 8,000,000 
 
 
 28,000,000 
 
 The new scale is three times and a half as large as 
 the old ! Who is to purchase the additional supplies ? 
 
172 ESSAYS ON ECONOMIC QUESTIONS 
 
 What has become of the surplus hitherto ; what will 
 become of it hereafter ? 
 
 As to the ' hereafter,' the Eeport of the Committee 
 is very cautious, but as to the mode in which the 
 increasing suppHes have been hitherto absorbed, full 
 and significant details are furnished. Under the head- 
 ing ' General Movements of Silver,' the Committee 
 trace, country by country, the disposal of all the silver 
 produced or thrown on the market as a surplus stock 
 diu-ing the four years 1872 to 1876, and strike, as it 
 were, a balance-sheet of the result. The amount to be 
 accounted for was £54,000,000 after the requirements 
 of India had been satisfied, compared with £18,000,000, 
 the corresponding sum for the previous four years! 
 And this was not all, Austria and Italy added to the 
 surplus stock, and the grand total to be accounted for 
 was nearly £75,000,000, 
 
 Within a single million the Committee account for 
 the whole of this sum in their review of the purchasing 
 countries. A very short table shows the result. 
 
 Taken by India 9,100,000 
 
 „ France 33,500,000 
 
 „ Eussia 4,000,000 
 
 „ Spain and Portugal . , , 4,000,000 
 
 „ England 5,000,000 
 
 „ United States . , , , 7,600,000 
 
 „ Japan and China , . . . 7,500,000 
 ,, The East (other than India, China, 
 
 and Japan) . , . , 3,000,000 
 
 Total 1872 to 1875 73,700,000 
 
 Here there is a list of the past customers of silver. 
 Are they regular customers on whom the market can 
 rely ? or speculative customers who have taken advan- 
 tage of the fall ? or chance customers whom a temporary 
 
THE DEPKECIATION OF SILVER 173 
 
 need had brought to the rescue ? Almost each of the 
 lines of this short table contains a little history of its 
 own, and represents a not uneventful chronicle. The 
 stability of English institutions is reproduced in the 
 line allotted to her. Her imports and exports are 
 large, but they are not for herself. For her own use 
 she has taken, with remarkable regularity, £1,250,000 
 each year. She is a regular customer on a small scale. 
 No surplus stocks of any moment can be absorbed by 
 England. 
 
 Spain and Russia have also bought, but as spasmodic 
 customers. We do not know whether it is true that 
 the silver taken by Spain was bought for the use of 
 the armies in the field during her protracted civil wars. 
 But, in any case, Spain could certainly not be counted 
 as a permanent buyer. As for Russia, who can say 
 what we ought to expect ? Germany hoped that her 
 Imperial neighbour might be allured to buy for the 
 purpose of currency reform ; but the hope has been 
 in vain. 
 
 The great reUef to the market came from a quarter 
 least expected. The figure which starts into promi- 
 nence amongst the recorded purchases of silver is that 
 which chronicles the doings of France. No line in the 
 table is equally interesting or eloquent. The financial 
 history of France during the last four years is indeed 
 full of the most instructive lessons. Her immense 
 recuperative power has risen superior to every disaster, 
 and her budgets have been as creditable to her states- 
 men and to her patriotism as they have been conspicu- 
 ous by the elasticity and growth of her resources. The 
 nation which has paid an indemnity of £200,000,000 
 has, since the payment, been financially and com- 
 mercially more successful than the nation that received 
 it ; a problem which deserves to be probed to the 
 
174: ESSAYS ON ECONOMIC QUESTIONS 
 
 bottom by statesmen and economists. But what we 
 are now concerned to know is simply that, drained of 
 the precious metals by the strain of the war and its 
 penalties, she has, since then, replenished her stock 
 to a marvellous extent. The dwindled contents of the 
 coffers of the Bank of France have now once more 
 reached an almost fabulous sum, and, though bank- 
 notes are legal tender, France has absorbed more than 
 £38,000,000 of silver during the last four years. She 
 has replenished her stock at the most critical moment. 
 She has bought five times as much as Germany has 
 hitherto sold. But all seemed due to natural causes. 
 The work seemed to do itself. No attention has ever 
 been paid to the operation. No public notice was 
 excited, and to such an extent does the recovery of 
 the silver stock in France seem to have been self-acting 
 and a simple matter of course, that, tiU lately, it was 
 almost unknown. Indeed, the fact itself was discredited 
 tin indisputable proofs were adduced. Clearly, the 
 large absorption of silver by France long delayed the 
 fall in the silver market, and must have averted a much 
 severer dechne. But France must be considered to 
 have been an extraordinary customer. The replenish- 
 ment of her stock can scarcely be regarded as other 
 than a temporary circumstance. It is impossible to 
 assume that it could be continued on the same scale. 
 The natural inference to be drawn would be in the 
 opposite direction. With the mints of the Latin 
 Union, including those of France herself, closed against 
 silver bullion, her large imports must be brought 
 abruptly to a close. TiU the horizon clears, no hopes 
 can be built on the action of France, nor can the eyes 
 of producers of silver be turned with any confidence 
 to Belgium or Holland. Where, then, can silver find 
 a refuge ? 
 
THE DEPEECIATION OF SILVEK 175 
 
 Some consolation is to be found on the other side 
 of the Atlantic. The United States appear on the 
 scene as a country prepared to profit by the opportunity, 
 as a speculative customer who has an eye to a good 
 bargain. The temptation is double. They have become 
 the largest producers of silver, and silver is so cheap 
 that they can introduce it once more into their currency 
 on extraordinarily advantageous terms. They are not 
 prepared to refuse help to native industry. They have 
 compassion on home producers. A 'silver interest' 
 has sprung up ; indeed we are not sure whether it may 
 not already be termed a silver 'ring.' Politicians 
 cannot ignore it. A market for silver must be found. 
 Already laws have been passed for redeeming the 
 paper ' fractional ' currency by sUver coins. For this 
 purpose £8,000,000 will be wanted. The ' Director of 
 the Mint' speaks of an amount of 75,000,000 silver 
 dollars (£15,000,000) as likely to be coined ' for limited 
 legal tender.' He hints at special coinages of sUver, 
 and at other measures in the same direction. Private 
 members at Washington are introducing bill after bill 
 to give sUver a lift. The success and extent of the 
 movement cannot well be foreseen, but much of the 
 silver produced has already been bought up at home. 
 Thus far, indeed, no surplus supplies seem to be reach- 
 ing Europe from the United States. Increased pro- 
 duction has not led to increased export, and the 
 patriotic ardour of the silver ' ring ' has had its effect 
 on the naarket at large. The abnormal demand in 
 America for currency purposes can be set against the 
 abnormal supply produced by the coinage operations 
 in Germany. 
 
 But if the policy pursued at Washington offers 
 some consolation, it can scarcely be said to inspire 
 hope ; and though we may pair off the United States 
 
176 ESSAYS ON ECONOMIC QUESTIONS 
 
 with Germany, the surplus production still remains. 
 The Hst of European countries contained, as we have 
 seen, no promising purchaser. The East, then, alone 
 remains. It is from the East that relief must come. 
 The regions where silver is stiU legal tender must 
 determine its ultimate price. They alone are likely 
 to absorb unhmited quantities, but the absorption must 
 be a matter of time, and no one can at present foresee 
 the effect of that process on prices. 
 
 In the meantime what should be done ? ' Dethrone 
 sUver at once,' cries Monsieur Chevalier. ' It will go 
 from bad to worse.' ' Eescue silver at once from its 
 perU,' cries Monsieur Cernuschi. ' Let all nations, 
 by a common act, draw up permanent articles of 
 partnership between sUver and gold ! ' Other plans 
 do not reach such cosmopoHtan proportions, but the 
 proposal to demonetize silver in India is itself sweep- 
 ing enough. We have expressed our own behef that 
 we are witnessing at this moment a very incomplete 
 phenomenon, and that no irrevocable steps should be 
 taken tiU we know more. We do not wish to be 
 understood to mean that the Indian Government 
 should, in no case, have recourse to temporary ad- 
 ministrative remedies. If it should be proved that 
 though prices in India have not risen, the faU in the 
 exchanges bears so heavily on the salaries of Indian 
 officials that they no longer fulfil the conditions which 
 were intended when they were fixed, let temporary 
 measures be taken accordingly. Very possibly the 
 Indian Government may be called upon to act in 
 many other instances, but the essential condition of 
 such action should be that the future ratio of value 
 between gold and silver should be considered as an 
 entirely open question, and that the poHcy of deahng 
 ■with the currency should, for the present, be reserved. 
 
THE DEPEECIATION OF SILVEK 177 
 
 Meanwhile great progress might be made towards 
 arriving at a correct conclusion on matters of fact. It 
 would be indeed a signal service rendered to those 
 vast interests which are touched by the depreciation 
 of silver, if the German Government could be induced 
 to remove as far as possible the mystery which still 
 surrounds the question of their disposable stocks. No 
 doubt they are puzzled themselves. To our own 
 Government we ought to be able to look for further 
 authoritative information on many important points. 
 The India Office will doubtless furnish elaborate data 
 in regard to the action of the depreciation of silver 
 in the East ; but the Foreign Office, too, must be 
 kept up to the mark. We trust that our diplomatists 
 will be instructed to continue to report exhaustively 
 and intelligently. The very interesting materials re- 
 lating to most foreign countries, suppHed through the 
 Foreign Office, should be completed and brought down 
 to the latest date. At home, it would be weU if an 
 official of high rank, combining, if possible, enthusiasm 
 in research with accuracy of judgment (and we could 
 point out several such men), were told off, to whom 
 every occurrence in Europe should be interesting jn 
 proportion to its bearing on the silver question ; to 
 whom poHtics should mean monetary legislation, war 
 a possible displacement of bullion, and revolution 
 paper issues. The materials supplied by the Foreign 
 Office, the India Office, and the Board of Trade would 
 be doubly valuable if concentrated in the hands of one 
 responsible person, to be sifted and arranged and con- 
 sidered as a whole, with official impartiality, yet with 
 scientific inteUigence and care. A knowledge of facts 
 thus obtained and presented, would be a most useful 
 corrective of opinions expressed in pamphlets, com- 
 piled with fanatical bias by currency specialists, and 
 
 N 
 
178 ESSAYS ON ECONOMIC QUESTIONS 
 
 of one-sided views, locally formed, without reference 
 to broader considerations or experience dearly bought 
 elsewhere. The utilization of such knowledge for 
 legislative purposes, if legislation should eventually 
 prove to be necessary or expedient, is a subsequent 
 and graver question. 
 
THE DEPKECIATION OF SILVER 
 
 Supplemental Note 
 
 The chief interest to the British reader in the 
 subsequent story of the depreciation of silver must 
 centre round the fate of the Indian currency. Seven- 
 teen years elapsed before the British Government saw 
 their way to grapple with it. Much had happened ia 
 the interval. The production of silver, which in 1876 
 amounted to about £16,000,000, equivalent to about 
 80,000,000 ounces, reached about 148,000,000 ounces 
 in 1891, 153,000,000 ounces in 1892, and 160,000,000 
 ounces in 1893 ^. 
 
 The silver market naturally passed through corre- 
 sponding extraordinary fluctuations. No estimate 
 could be formed of the poiat at which it might 
 ultimately settle down, if, indeed, it ever settled down 
 at all. The only hope seemed to lie in an inter- 
 national agreement as to currency, and aU efforts to 
 arrive at such an agreement were to prove abortive. 
 The powerful sUver party in the United States, as 
 anticipated in the preceding article, left no stone 
 unturned to force their views on their own Govern- 
 ment, and constant pressure was applied in the hope 
 of bringing round Europe to the conviction that the 
 general interest required united action. The free 
 coinage of silver everywhere and the establishment 
 of a fixed ratio between its value and that of gold, 
 
 * In 1903 the estimated amount of the production of silver was 
 173,000,000 ounces. 
 
 H 2 
 
180 ESSAYS ON ECONOMIC QUESTIONS 
 
 were the key-stone to the maintenance of its price. 
 Yet what nation could be expected to be wilHng to 
 agree to such free coinage when all its neighbours 
 might use the opportunity for the purpose of relieving 
 themselves of their own depreciated stock ! The only 
 chance lay in bringing in a great majority of the 
 silver-using countries into a Union more powerful and 
 far wider than what had been known as the Latin 
 Union. 
 
 Early in 1878 the fierce struggle between the silver 
 magnates and the Executive Government of the United 
 States, which aimed at a sounder currency pohcy, 
 ended in the famous ' Bland Bill,' a Bill ' to authorize 
 the coinage of the standard silver dollar and to restore 
 its legal tender character.' A singular clause in the 
 BiU imposed the duty on the President to initiate an 
 International Conference. The Conference was held 
 in Paris. I was one of the British Delegates on the 
 Occasion, and witnessed the hopeless efforts of the 
 gathering to arrive at any conclusion. We ended 
 simply with pious aspirations and a firm conviction 
 that the failure of the Conference threatened the 
 silver interests with a yet more disastrous future. 
 
 But the United States would not regard the game 
 as lost. Encouraged by the suspension of the sales 
 of silver in Germany in 1879, and relying on the 
 redoubled energies of the bi-metallists in other coun- 
 tries, they invited the Powers to another International 
 Conference in 1881. Paris was again the meeting 
 place. After lengthened sittings the Americans were 
 once more courteously bowed out. 
 
 And the price of silver continued to decline ! By 
 the year 1886 it stood at 3s. Qd. per ounce — a terrible 
 fall since the Conference of 1881, when it stood at 
 about 4s. B^d. The British Government could no 
 
THE DEPRECIATION OF SILVER 181 
 
 longer remain passive in face of the situation in India. 
 The Indian Government was clamorous. The situation 
 seemed unendurable. So the Home Government 
 appointed a Royal Commission under the Presidency 
 of Lord Herschell ' to inquire into the changes in the 
 relative value of the precious metals.' The Commis- 
 sion was a strong one, so strong that unanimity was 
 out of the question. Two conflicting reports, each 
 backed by high financial authorities, offered no 
 guidance to the Government. India had to struggle 
 on as best she could. 
 
 Meanwhile the United States were keeping up a 
 desperate struggle, purchasing millions of ounces of 
 silver under the Bland Act every year, and coining 
 them into standard silver dollars. The silver interest 
 refused to be beaten, but gradually was forced to 
 retreat. In 1890 the Bland Act was superseded by 
 the Sherman Act, under which the coinage of silver 
 doUars was to cease by a given date, but the Treasury 
 was directed to purchase a specified amount of silver 
 at the market-price, against which silver Treasury 
 legal-tender-notes were to be issued. The American 
 legislation maintained and fitfully varied the price of 
 silver, but unless Europe came to the rescue the policy 
 was doomed to collapse. 
 
 Undeterred by previous disappointment, the United 
 States made a last effort to persuade Europe, if not to 
 adopt bi-metaUism, at least to come to some arrange- 
 ment which would increase the uses of silver as 
 currency. Europe was complaisant though obdurate, 
 and agreed to a Conference to be held at Brussels. 
 
 The Indian Government meanwhile had become 
 absolutely convinced that no international agreement 
 was possible, that the new Conference must fail, that 
 the States would be compelled to renounce the hope 
 
182 ESSAYS ON ECONOMIC QUESTIONS 
 
 of keeping up the price of silver ; that the closing of 
 the Indian mints against the free coinage of silver had 
 become the only possible pohcy; and accordingly they 
 urged the Home Government, in the event of the 
 failure of the Conference, to sanction such a policy 
 with a view to the introduction of a gold standard. 
 
 The detailed proposals of the Indian Government 
 were referred to a Committee of which Lord Herschell 
 was again chairman. WhUe the Committee were 
 deliberating the Brussels Conference broke up without 
 having arrived at any definite conclusion ; and no 
 further attempt has since been made at international 
 agreement. 
 
 The Herschell Committee reported in May, 1893, 
 and in accordance with its recommendations : 
 
 1. The Indian mints were closed to the coinage of 
 silver to the pubKc. 
 
 2. The Government imdertook to issue to the 
 pubhc currency-notes and sUver rupees in exchange 
 for gold coin and bullion, at the rate of Is. 4:d. the rupee, 
 or fifteen rupees to the £ sterling. 
 
 3. The Government undertook to accept, in pay- 
 ment of sums due by the pubhc, sovereigns and half- 
 sovereigns at the same ratio. 
 
 Gold was thus summoned to the rescue, but it was 
 not yet made legal tender. The rupee was dissociated 
 entirely from the value of the silver it contained. It 
 acquired an artificial value. The downward tendency 
 was partially checked ; the existing rupee acquired a 
 monopoly value through being the only legal tender, 
 but the situation was saved by the enactment that, at 
 a certain price, rupees could be bought for gold. 
 
 It will be remembered that in 1876 I declared that 
 if silver bullion in India ceased to be practically on 
 the same footing as silver coin, that is to say if it was 
 
THE DEPRECIATION OF SILVEE 183 
 
 excluded from the mint, the measure would be 
 impracticable and inequitable unless gold were made 
 a legal tender at the same time. The arrangements just 
 described, introducing gold on the scene to give help 
 in case of need towards a greater supply of rupees, no 
 doubt met the objection to a very considerable extent ; 
 but, as was certainly anticipated by the authors of the 
 measure, it could only be a stage towards the estab- 
 lishment of gold in the recognized position of legal 
 tender. 
 
 But for four years, for reasons which it would be 
 an interesting but too long a task to examine here, 
 the closing of the mints to silver bullion did not make 
 itself felt ; and the rupee, though considerably higher 
 than its intrinsic value, remained below the figure of 
 Is. 4d at which the public could demand rupees for 
 gold; and no gold was brought to the Government 
 under the law of 1893. But it was not surprising that 
 when, in 1898, owing to various causes, there was great 
 stringency in the Indian money-market, it was found 
 that the time had arrived for expediting the effective 
 establishment of a complete gold standard. The 
 existing arrangements were too artificial, the uncer- 
 tainty as to the future value of the rupee too great ; 
 and, after consultation with the Home Government, 
 the final step was taken, the revolution was accom- 
 pUshed, and by an Act of the Indian legislature, 
 passed in September, 1899, Enghsh gold coin was 
 declared legal tender in India at the rate of one 
 sovereign for fifteen rupees. This is of course equiva- 
 lent to a value of Is. 4i. per rupee, and since then the 
 exchange value of the rupee has been maintained 
 practically at that rate. The policy finally adopted 
 has given that stability to Indian currency which was 
 indispensable to the prosperity of the country under 
 
184 ESSAYS ON ECONOMIC QUESTIONS 
 
 the changed conditions of the precious metals ; but the 
 silver in the rupees in circulation is not worth Is, 4d, 
 and the hoards of silver bullion and the silver 
 jewellery in the possession of the natives have 
 remained exposed to the full force of the metal's 
 phenomenal dechne. 
 
THE CONDITION AND PROSPECTS 
 OF TRADE 
 
 Inteoductoey Note 
 
 The following address, delivered to the Manchester 
 Chamber of Commerce early in 1885, requires Httle 
 introduction or explanation. Though written twenty 
 years ago, the reader may possibly almost fancy as he 
 peruses it, that he has a chapter of the present Fiscal 
 controversy before him. The country was anxious 
 about its trade and uneasy about the comparatively 
 greater advance in commercial transactions achieved 
 by its foreign competitors, which was comparatively 
 greater than its own. A period of depression — a de- 
 pression, as in 1867 not exorcised by the fact that 
 money was at 2 per cent. — had called the champions 
 of many heretical remedies into prominent activity. 
 Protectionists and Fairtraders, Bi-metalhsts and In- 
 flationists, were all to the fore with their panaceas. 
 The causes assigned for the gloomy position were 
 very various ; so-called ' over-production,' the ' de- 
 preciation of gold,' the 'demonetization of silver,' 
 the * Bank Charter Act,' all were charged in turn 
 with contributing to the fall in prices, a fall which, 
 beneficent in many ways, was deplored in other 
 quarters as a national disaster. Under these cir- 
 cumstances, I appHed to the situation in some 
 detail the different tests of national prosperity (aU of 
 which are now in constant use), the Income-Tax 
 returns, the tables of exports and imports, the 
 
186 ADDEESSES ON ECONOMIC QUESTIONS 
 
 statistics of consumption, of pauperism and the Kke ; 
 but to me the main point of interest in my review 
 was the examination of our position as regards the 
 growing competition of foreign countries. I shall be 
 found to have looked the extent and scope of that 
 competition straight in the face, to have enumerated 
 the advantages which in the past had secured us our 
 commercial supremacy, and to have stated my view 
 as to which of such advantages we should stiU be able 
 to command, and which, in the changed situation of 
 Europe, we could not reasonably expect to retain. 
 I may fairly say that I fearlessly probed the condition 
 of things and forestalled, in more senses than one, the 
 inquiries which are being conducted to-day. As the 
 result of my investigations the extreme importance 
 to us of the Colonies forced itself upon me at every 
 point. The analysis of our exports showed that while 
 our trade with the great European countries was 
 hanging fire, our transactions with our fellow subjects 
 beyond the seas were undergoing marvellous develop- 
 ments, and both as statesman and economist I en- 
 deavoured to impress the British public with the facts. 
 K I did not recommend the same measures for push- 
 ing our advantages as the present Tariff Eeformers, 
 I was not less urgent than they in proclaiming on 
 every possible occasion the value of our colonial 
 possessions. Looking to the extension of the colonial 
 markets, I pointed out that most certainly our best 
 hope lay in the prospect that the teeming milHons 
 of the old country might find customers in the 
 increasing milHons of Greater Britain beyond the 
 Seas. It was a question, I urged, not only for states- 
 men and politicians, but one for the working-classes, 
 for every trader, for every manufacturer, for every 
 merchant. 
 
ON THE PEOSPECTS OF TEADE 187 
 
 It was in this spirit I summed up my address on 
 the condition and prospects of trade at Manchester. 
 But not only there, but in various parts of the country 
 I dwelt on the same theme. During the electoral 
 campaign of 1885 it formed a serious part of my 
 utterances wherever I went. Finding myself at that 
 time in a kind of detached position, I was able to 
 devote more time than others to the treatment of 
 international and colonial questions outside 'the 
 unauthorized programme' which, promulgated by 
 Mr. Chamberlain, was then absorbing the greater 
 part of public attention. In a modest way, I was 
 'a missionary of Empire.' A new electorate had 
 been called iato power, and to show the working- 
 classes how great was their interest in Imperial 
 questions seemed to me a paramount duty. I venture 
 to quote the following passage from a speech I deli- 
 vered at Edinburgh as an instance of my endeavours 
 to impress its duty to our Colonies on the new 
 Democracy : — 
 
 ' The question of the United Empire, the question 
 of our Colonies, is to a great extent a working-men's 
 question. It is they who supply the chief number 
 of the emigrants who go forth to seek their fortunes 
 beyond the seas. It is they who work on the manu- 
 factures that are sold to our Australian fellow subjects. 
 It is they who would feel the effects if, in the course 
 of the destiny of this country, any calamity should 
 break up the Colonial Empire : and so I say this is 
 a question which cannot be ignored. It is one which 
 the working-classes must take up. They must hold 
 their statesmen and their public men responsible for 
 attention being paid to our Colonial Empire.' 
 
 I added that I should be doing injustice to the 
 subject of our connexion with our Colonies if I were 
 
188 ADDEESSES ON ECONOMIC QUESTIONS 
 
 to speak only of the material advantages which the 
 working-classes would gain and retain by the main- 
 tenance of our Colonial Empire. ' We have duties to 
 our Colonies,' I concluded, ' as weU as duties to expect 
 from them. I hope that you have gone with me to 
 this point — that our Colonies are to us a matter of 
 Imperial urgency and of Imperial duty, and that this 
 is a duty from which we cannot shrink, a duty 
 which we cannot shirk.' 
 
 I trust I may be forgiven this fragment of personal 
 biography : it seemed to me not unconnected with 
 the re-publication of the conclusions at which I arrived 
 when, in 1885, I presented my view of the prospects 
 of British trade to my Manchester audience. 
 
THE CONDITIOIS^ AND PROSPECTS 
 OF TRADE 
 
 An Address delivered before the Manchester 
 Chamber of Commerce, June, 1885 
 
 If I were to follow my own inclinations, I should 
 like to begin my address to-day with a hundred 
 reservations, explanations, and apologies ; but the 
 prospect of having to survey, in however brief a form, 
 the vast field of British commerce and industry, warns 
 me that I must lose no time in such preliminaries. 
 Let me simply say by way of preface that I am 
 anxious not to overload my address with figures. In- 
 deed I may sometimes have to take you from point to 
 point, if I may say so, under a covered way, lest an 
 avalanche of statistics should fall upon our path. I shall 
 ask you to take some things for granted. I shall have 
 to advance without protecting my flanks. I may say 
 some things as to which I may not be able to submit 
 my proofs. For I want, above all, to take a broad 
 view of the general situation, and not only of the 
 actual situation in June, 1885 ; a review of the 
 fluctuations from month to month, or from quarter to 
 quarter, would obscure the larger issues. I should be 
 led away from the broader survey, if I were to dwell 
 too long upon the precise circumstances of a particular 
 moment or of a particular trade. 
 
 I call attention in the first instance to the fact 
 that in the present depression we find some features 
 which have seldom been seen before during a similar 
 
190 ADDRESSES ON ECONOMIC QUESTIONS 
 
 state of things. We find the contrast between 
 cheap capital on the one hand, and low prices 
 and no speculation on the other i, and the contrast 
 between low prices for the raw material, yet with 
 little advantage apparently derived therefrom by 
 commerce and manufactures generally. To another 
 contrast I would ask your particular attention — to the 
 uniform acknowledgement of this depression in trade, 
 side by side with the astounding statistics which are 
 published by the Inland Eevenue Office as to the 
 Income-Tax returns. How is it, the country may ask 
 itself, that these show a continual increase, while every 
 manufacturer and every merchant is complaining of 
 absence of profits ? For that is what the present 
 depression is generally taken to mean. What has 
 been mainly complained of, what is instilled into the 
 public mind, is not so much the absence of employ- 
 ment or want of work — though these may exist in 
 many trades — it is the absence of profits, and yet you 
 have these puzzhng statistics of the Income-Tax 
 returns ! These returns must be examined and 
 analysed lest they should mislead the public, and 
 should create a general feeling that the situation is 
 different from what it actually is, I accordingly pro- 
 ceed in the first instance to such an analysis, 
 
 A high authority has lately said that as the gross 
 profits assessed to the Income-Tax had risen in fifteen 
 years from £430,000,000 to £600,000,000, and as no 
 proportion of the increased wealth had gone into the 
 pockets of the landowners, it was fair to assume that 
 this increase was due almost without exception to the 
 growth of British commerce, British manufactures, 
 and British trade. It was added that the volume of 
 
 ' The situation, however, in this respect was similar to that in 
 1867 ; vide p. 66. 
 
ON THE PKOSPECTS OF TEADE 191 
 
 trade had not diminislied, but had actually increased, 
 and that we had lost none of the qualities or condi- 
 tions which made our success in the past — industry, 
 enterprise, capital — and in our Colonies, at least, we had 
 boundless markets which were expanding every year. 
 I will defer to a later part of my address what I 
 may have to say as to the changed conditions under 
 which our foreign trade is carried on, and as to the 
 directions in which we may discern expanding markets ; 
 but I wish in the first place to examine the statement, 
 that no proportion of the increased wealth has gone 
 into the pockets of the landowners, and that con- 
 sequently it must be due to the growth of English 
 commerce, English manufactures, and English foreign 
 trade. The difference between £600,000,000 and 
 £430,000,000 is £170,000,000. Is it true that this 
 increase has arisen simply from the increased profits 
 of trade ? It is not true, not in the slightest degree 
 true. Why, under Schedule A there is an increase, 
 not in landowners' profits, but in the income derived 
 from houses, of no less a sum than £42,000,000 
 out of the £170,000,000, of which not a shUling is 
 due to expanding commerce or manufactures. Under 
 Schedule A we find a further increase of £5,000,000 
 in ' lands.' In Schedule B there is a nominal increase 
 amounting to £11,000,000. Under Schedule C, which 
 represents interest from securities, there is an increase 
 of £6,000,000, and under Schedule E, representing 
 salaries, pensions, &c., an increase of £10,000,000. 
 All these figures together reduce the increase assumed 
 to have taken place simply on the profits of trade 
 and manufactures, from £170,000,000 to £96,000,000. 
 Still this appears a very large and satisfactory sum. 
 But again I have to point out that large deductions 
 must be made from these £96,000,000. There has 
 
192 ADDEESSES ON ECONOMIC QUESTIONS 
 
 been a considerable increase in the income from water- 
 works and gas-works ; and a large increase in English 
 railways, in investments in railways outside the United 
 Kingdom, in the profits of canals and docks, &c. 
 I calculate that these, and other profits of a similar 
 nature, reduce the £96,000,000 to a sum of between 
 £60,000,000 and £70,000,000. 
 
 But even the heading 'trades and professions' under 
 Schedule D includes far more than the profits of 
 traders and merchants. It includes in addition the 
 profits of a number of classes in the community ; the 
 professional classes, the learned classes, clergjTnen, 
 barristers, actors, newspaper editors, clerks, pubhcans, 
 the whole variety of professions, all are included under 
 Schedule D. When we bear all this in mind, we 
 shall find that, instead of the increase in the annual 
 profits due to trade and manufacturing industries 
 assumed to have taken place in the last fifteen years 
 being £170,000,000, we come to a very much smaller 
 sum. I have, as you have seen, reduced it specifi- 
 cally to between £60,000,000 and £70,000,000, but 
 I ask, after making the necessary allowances for pro- 
 fessions and all employments other than commercial 
 and industrial. How much of what remains may not be 
 due to that trade which is undoubtedly flourishing, 
 namely the retail trade ? The retail trade ought to be 
 doing well, because I shall have to put the inquiry 
 by and by. Into whose pockets do the profits flow 
 which must accrue from the reduced cost of the raw 
 material unaccompanied by a proportionate fall in the 
 price paid by the consumer. These profits cannot 
 vanish, they must be found somewhere. Let us con- 
 gratulate ourselves, at all events, if the retail trade is 
 generally in a satisfactory condition ^. 
 
 ' I have not scrupled to retain this analysis of the Income-Tax 
 
ON THE PEOSPECTS OF TKADE 193 
 
 If the facts here enumerated have been correctly- 
 stated, it would appear to follow that, on a further 
 analysis of the Income-Tax returns, we ought to find 
 a greater increase in the smaller than in the larger 
 incomes. Tables which have been published, and 
 other materials which I have had at my command, 
 enable me to test this inference. I take the years 
 1876-7 and 1882-3. I find that between these years 
 the increase in the assessments of incomes under 
 £500 has been 6 per cent. ; in those at £600 and over 
 it has been only 4 per cent., the increase in the 
 assessments of the small men under £500 having 
 thus been larger in proportion than in the case of the 
 others. That is precisely what we should expect. 
 The Income-Tax returns show not only the profits of 
 the large merchants and manufacturers, but also those 
 of the retail dealers, and in the small incomes we 
 find greater increase than in the large incomes. Here 
 are some figures which, I think, may be of interest. 
 I have looked at the progress in the number of 
 persons annually assessed under Schedule D, between 
 1876-7 and 1881-2. In the number of persons 
 assessed with incomes between £200 and £300 the 
 increase is 16 per cent. ; between £300 and £400, 
 13 per cent. ; between £400 and under £1,000, 2-6 
 per cent. ; and in the incomes of £1,000 and upwards 
 the increase is little more than a half per cent. 
 
 The contrast is striking, and must put us on our 
 guard against drawing inferences from misleading 
 totals which, at first sight, might give an entirely 
 
 returns, though the figures are quite out of date, because it is just 
 as important to-day as it was twenty years ago, that the many 
 separate sources from which profits are derived should be care- 
 fully distinguished, when inferences are drawn from the rise or 
 fall of Income-Tax returns as a whole. 
 
 O 
 
194 ADDEESSES ON ECONOMIC QUESTIONS 
 
 false impression as to the progress of trade and in- 
 dustry at the present day. 
 
 If we pass from the region of satisfactory totals, and 
 glance at some of the industries of the country, the 
 profits on which are separately stated, we find very 
 unsatisfactory items. In the iron-ore industry the 
 profits have fallen from £7,000,000 to £3,000,000, and 
 the profits of the mining industry from £14,000,000 
 to £7,000,000. These are startling figures, showing 
 under what conditions some of the great trades of 
 this country are being carried on. I rejoice to tliink 
 that many other departments of activity tell a different 
 tale, and that the industry of this country is made up 
 of such a vast variety of separate enterprises and 
 separate interests, that, notwithstanding some may 
 languish and suffer, the great whole, upon which our 
 prosperity and power depend, is still fairly maintained. 
 
 I have thus far spoken of profits, but profits and 
 savings are not identical, and though there have been 
 comparatively smaller profits amongst merchants and 
 manufacturers, the savings of the people seem still 
 to be accumulating. The increase in the Savings 
 Banks is certainly a most satisfactory feature. There 
 appears to be a decided increase in the amounts de- 
 posited by the working-classes, both in their Savings 
 Banks and in their Friendly Societies. 
 
 What other tests can we apply as indicative of 
 general prosperity ? Here is one which it is impossible 
 to pass by — the test of our consuming powers. With re- 
 gard to these the statistics are entirely satisfactory. We 
 have drunk more tea than in any year before, we have 
 consumed more sugar, we have travelled more miles. 
 We have employed as many servants, we have taken 
 out as many licences to shoot, we have used as many 
 
ON THE PEOSPECTS OF TEADE 195 
 
 carriages. In scarcely any departments of expenditure, 
 whether touching the working-classes or the well-to-do 
 classes, is there any sign of falling off of consumption, 
 except indeed in one or, I may say, in two. In the 
 consumption of spirits the decline is notable. We 
 drink now only ten glasses of spirits for every thirteen 
 that we drank in the largest drinking year, which was 
 the year 1875, and we have cut off one glass out of 
 ten even during the last four or five years. Well, 
 also in tobacco there is a decrease, but it is very 
 slight. We have cut off one pipe or one cigar out 
 of every thirty-five, and that is supposed to be due 
 in part to the higher duty. Let me then sum up to 
 the effect, that almost in every direction, except where 
 you have special explanations, such as the greater 
 temperance of the people and the exertions made in 
 that cause, we find a positive increase in the con- 
 suming powers of the people. 
 
 The evidence as regards pauperism is simUar. I do 
 not wish to attach too much importance to the Eeturns 
 of Pauperism. Administration has been improved, 
 and I believe in many parts of the country pauperism 
 does not always reflect precisely the want of employ- 
 ment ; but, at the same time, the statistics are 
 exceedingly interesting and important, and I must 
 not pass them over. Pauperism has fallen during 
 the last fifteen years from 5 per cent, to 3 per cent, 
 of the population. The population of England and 
 Wales has increased in this period from 22,000,000 to 
 27,000,000, but the number of paupers has fallen from 
 1,086,000 to 789,000 ; and what is very important, the 
 able-bodied paupers, male and female, have faUen from 
 194,000 to 98,000. It would not be right to ignore 
 these figures. 
 
 Well, then, in what condition is employment ? The 
 
 o 2 
 
196 ADDKESSES ON ECONOMIC QUESTIONS 
 
 volume of trade is satisfactory. I am not thinking of 
 what it is at this precise moment in June, 1885, but, 
 looking back over the last two or three years, certainly 
 the volume has been very great. 
 
 Look at the total of British and foreign shipping 
 entered and cleared. We talk about our trade declin- 
 ing, and yet we see that in four years there has 
 been an increase of nearly 5,500,000 tons in the 
 entries of ships, British and foreign, clearing in our 
 ports. Eemember, these are not statistics of idle 
 ships. They enter our ports, and leave our ports, 
 carrying cargoes to and fro. If there were less trade, 
 less ships would be employed, instead of more. 
 
 What is the evidence as to some particular in- 
 dustries ? In the woollen industry there has been 
 a satisfactory volume, and I beheve also a more 
 profitable trade. In 1869, in round numbers, there 
 were 300,000,000 pounds weight used up ; in 1884, 
 381,000,000 pounds. And mark this. Last year was 
 not simply a good average year. In 1884 a larger 
 amount of wool was used by us than in any previous 
 year with reference to which we have statistics at all. 
 
 As to the cotton industry, in 1874-5 the weekly 
 average of bales of cotton consumed was 59,000 ; in 
 1883-4, 70,500, an increase of 19^ per cent., certainly 
 a most notable growth. Again, the exports of the years 
 1883 and 1884 of cotton yarn were far larger than in 
 any of the previous years, and in 1884 they were 
 larger than in 1883. The export of thread for sewing, 
 and of cotton piece goods, shows a slight falling off 
 in the last two years against the two previous years, 
 but in both cases the exports of 1884 were larger than 
 in any year previous to 1880 \ The average of the 
 
 ^ In value the exports of cotton piece goods have in many years 
 been larger, but the volume was neyer so great before 1880. 
 
ON THE PEOSPECTS OF TRADE 197 
 
 quantity of cotton piece goods (entered by the yard) 
 exported annually during the last five years has been 
 4,516,000,000 yards. The highest quantity in any 
 previous year w^as 3,815,000,000 yards. 
 
 I pass from special industries to the country as a 
 whole : let us glance at the totals of imports and 
 exports. The proportion of these totals per head of 
 the population of the United Kingdom was, in 1873, 
 £21 4s. 9d; in 1883, £20 lis. 3d, a decrease of 
 13s. 6d., or of nearly 4 per cent. But this decrease 
 is due entirely to price, because the fall of prices 
 in 1883 as compared with 1873 is far more than this 
 decrease of 4 per cent. It is certainly more than 
 10 per cent. Similarly, if you take the proportion 
 per head of the population of the United Kingdom 
 of the exports only of British produce and average them ; 
 for instance, if you take the average of the high 
 years between 1871 and 1875, you will find it to be 
 £7 9s. 2d. ; in 1883, £6 14s. 8d., that is, a decrease 
 of 14s. Qd., or something like 10 per cent. But again, 
 there is no greater decrease, indeed not so great a 
 decrease as there is in prices. I will not labour 
 the point further, but in respect of the volume of 
 trade— and it is that to which I have been specially 
 addressing myself — I say it cannot be called unsatis- 
 factory. 
 
 Let me point to another feature in the present situa- 
 tion. The remarkable increase in the number of 
 factories in the cotton trade shows that, at all events, 
 capital is flowing into a trade which is still declared 
 to be extremely bad, and that competition is increasing, 
 while profits are very low. I have read much with 
 regard to joint-stock enterprise, a topic which is play- 
 ing a considerable part, I believe, in the discussion 
 which you are carrying on with regard to the causes 
 
198 ADDRESSES ON ECONOMIC QUESTIONS 
 
 of the present depression ; and I know it is said that 
 capital flows into these joint-stock and co-operative 
 mills — that they borrow extremely cheaply, and are 
 able thus to carry on a very serious and increasing 
 competition. If that be so, I feel pretty sure that it 
 is experience alone, the sagacity of the people engaged 
 in those trades alone, that can put the matter right, 
 but that no attempt to force down any industry, 
 however it may be competing with existing industries 
 or with existing organizations of those industries, 
 will succeed. I should like to add, that supposing 
 a portion of your English competition could be 
 crushed out, it would be for the benefit, not of 
 English manufacturers alone, but of your foreign 
 rivals. No point seems to me more deserving of 
 being considered. Suppose you curtail English pro- 
 duction, and, by curtailing it, raise prices, are you not 
 possibly putting yourselves even into a worse position 
 as a nation to compete with manufacturers abroad ? 
 
 The mention of your foreign rivals suggests a further 
 characteristic of the present depression. This depres- 
 sion is common almost to all the world. It is not 
 confined to the United Kingdom, and when we look for 
 causes, we must not look for them only in those which 
 are special to ourselves. We must not think that by 
 altering this law or that, we shall be able to bring 
 back a prosperity that we may fear to be passing 
 from us. Look at all the other trading countries, you 
 win see that depression is universal. And here is 
 a curious fact. This depression is coincident with 
 cheap capital. I have lived long enough to remember 
 how in times of former depression the inflationists 
 were at work and exclaimed, ' There is not enough 
 capital ; the production of the country is suffering, 
 commerce is suffering ! change your currency laws ; 
 
ON THE PKOSPECTS OF TEADE 199 
 
 abolish the Bank Charter Act ; issue notes ad libitum, 
 in order to encourage commerce and manufactures/ 
 Those gentlemen have their wish now in a certain 
 sense. They have capital at 2 per cent. There seems 
 to be no dearth of capital. Some people think there 
 is too much capital, too much at least flowing into 
 some industries. Observe, then, this remarkable 
 phenomenon of cheap money coincident with depres- 
 sion in trade. 
 
 With regard to cheap money, I hope I may say one 
 word, which may not be without its interest. It 
 appears to me it is not only the traders and the 
 manufacturers who are complaining, but that other 
 capitaHsts find it exceedingly and increasingly difficult 
 to find a good return for their capital. The colonies 
 are borrowing at 4 per cent, and less, whereas they 
 used to be borrowing at 6 per cent. Corporations are 
 borrowing more cheaply than they were ever able to 
 borrow before. The borrowers, steady borrowers, 
 solvent borrowers, have had an extremely good time 
 of it, and what is the meaning of this cheapness of 
 capital ? I think it means that the savings of the 
 country have gone on increasing, while there has 
 been more prudence in selecting the securities into 
 which they should be put. Foreign loans used to 
 carry off a large portion of our savings, but the Income- 
 Tax returns show that the profits derived from foreign 
 securities have scarcely increased during the last few 
 years. Savings are being utilized in another way. 
 Never before has there been so keen a desire on the 
 part of the whole community to invest every reserve 
 shilling they may have, in some remunerative manner. 
 There is a competition between men who have a few 
 tens of pounds and a few hundreds of pounds to put 
 them into business, and into business they are put. 
 
200 ADDEESSES ON ECONOMIC QUESTIONS 
 
 Joint-stock enterprise has swept up all these available 
 resources. Like a gigantic system of irrigation it first 
 collects together aU the reserved savings of the com- 
 munity and then pours them through innumerable 
 conduit pipes right over the face of the country, 
 making capital accessible in every form at every point. 
 And so complete has been the machinery for collecting 
 the capital together that the great reservoirs have been 
 sufficient, and more than sufficient, to supply all those 
 conduit pipes which are carried into every corner. 
 Do not let us regret this too much. I see before my 
 mind's eye some effects of this system which may not 
 be so patent until they are carefully looked at. One 
 effect is this — there is a greater diffusion of capital. 
 Many more of the population are interested in manu- 
 facturing enterprises, and, as through Friendly Societies 
 millions of the working-classes have become capitalists 
 in a sense, so through many of these co-operative 
 organizations they have become master manufacturers. 
 You may deplore the competition for the moment, but, 
 depend upon it, there is no more promising element 
 to which we may look for the maintenance of our 
 prosperity in the future than to the working-classes and 
 the capitalists, masters and artisans, feeling that their 
 interests are all bound up together, and that it is only 
 by the union of all that they can carry forward the 
 great enterprises and industries of the nation. 
 
 Let me speak of one other characteristic of the 
 present state of trade, which possibly has also con- 
 tributed in some measure to the appearance, if not to 
 the actual fact of depression — viz. the extent to Avhich 
 England has suffered by losing much of a branch of busi- 
 ness, which was transacted here owing to her position 
 as a middleman's centre for various foreign countries. 
 
ON THE PROSPECTS OF TEADE 201 
 
 British middleinen have been pushed aside in many 
 departments of commerce and industry. It is London 
 which has mainly been affected by the emancipation 
 of the foreigner from much tribute for work done for 
 him, with which he now dispenses. Let me tell you 
 how the cotton trade, for instance, used to be conducted 
 between New Orleans and the interior of Germany, 
 The New Orleans man consigned his cotton to 
 a New York house, the New York house consigned 
 it to Liverpool, Liverpool to London, London to 
 Hamburg, and Hamburg to spinners in the interior of 
 Germany. But now the German spinner goes direct 
 to New Orleans, the German agent visits him in 
 his home, and a number of intermediate profits and 
 commissions are swept away. England has lost a 
 great portion, I will not only say of its transit trade, 
 but of that immense department of its business which 
 consisted in mediating between different countries. 
 This loss has had a considerable effect, not only in 
 a direct diminution of profit, but also in affecting the 
 tone and temper of trade. The middlemen and agents 
 in London often contributed largely to the activity 
 and excitement of the markets. In Mincing Lane, 
 when cargoes of sugar were sold, one cargo would 
 change hands four or five times. Then the brokers 
 would all be cheerful ; business was brisk and buoyant. 
 There appeared to be great vivacity in trade. I hear 
 that similarly in Manchester, there were firms which 
 gave a certain stimulus and impetus to trade at certain 
 times by gigantic speculative operations. If to-day 
 business is quieter, it is also sounder ; and let me ask 
 which is the preferable state — to do business quietly 
 for five years with small profits, or to have a large 
 turnover for four years with large profits, but with 
 a crash at the end which sweeps away nearly aU the 
 
202 ADDKESSES ON ECONOMIC QUESTIONS 
 
 profits of the four rich years ? I have a shrewd 
 suspicion of what most people prefer, though they 
 would perhaps not admit it. They prefer four merry 
 years and a bad one at the end, rather than five dull 
 years — four years in which they enjoy the briskness 
 of trade, and only one in which trade is bad. But 
 now a succession of years in which comparatively 
 small profits have been made, has created a sense of 
 dullness, of disheartened monotony, and possibly it is 
 only a partial consolation that, if I am rightly in- 
 formed — I know it is true of a great portion of the 
 country, and I hope and believe it is true of Man- 
 chester — trades in which profits have been smaU have 
 been sound, with less loss incurred by bad debts. 
 
 Hitherto I have dealt with some of the characteristics 
 of the present depression in trade. I now proceed to 
 questions of deeper interest — What are the more far- 
 reaching causes of this depression, and what are the 
 prospects as regards the future ? It is important to 
 distinguish between causes local and temporary, and 
 those which may have a more lasting and wider effect. 
 One cause I hope we may class as temporary — the 
 bad harvests which agriculturists have unfortunately 
 experienced, and which have followed each other 
 in succession through several years. "What do bad 
 harvests mean? Over what area do they extend? 
 The annual value assessed on land under Schedule A 
 — on land alone — and under Schedule B on farming 
 incomes, even now amounts to nearly £100,000,000. 
 Compare the vastness of that industry, for instance, 
 with the iron-ore works, where the profits were as- 
 sessed at £3,000,000 ! Any blow that faUs upon the 
 agricultural industry must have its effect throughout 
 the whole country. Eemember the vast number of 
 
ON THE PEOSPECTS OF TEADE 203 
 
 subsidiary trades — implement makers, manure im- 
 porters, seedsmen, wagon-makers — retail trades which 
 supply the farmers, and you will realize how innu- 
 merable interests suffer when harvests fail. 
 
 Let me give another instance of what I hope is 
 a temporary difficulty. The statistics of the iron 
 trade are extremely unsatisfactory ; but there is no 
 doubt that its fate is due, in great part, to that extra- 
 ordinary development of railway enterprise in the 
 United States which raised the iron industry here 
 and elsewhere to almost abnormal proportions, with 
 a desperate and terrible reaction afterwards. Let us 
 hope that this has been a temporary cause. 
 
 I do not know whether at this stage you would 
 expect me to raise the question of protective tariffs, 
 and to embark on the argument whether they are 
 a temporary or a permanent cause, or whether they 
 are a cause at all. Once embarked on the fair-trade 
 controversy, I do not know when or where one would 
 be likely to stop. With regard to the more permanent 
 causes, they would be alleged to be the demonetization 
 of silver, the appreciation of gold, and over-production. 
 Let me touch the silver question in a very few sen- 
 tences. It is impossible for me to enter on the 
 discussion either of this topic or of the appreciation 
 of gold in a satisfactory manner, because either would 
 require a whole speech to itself ; but there is one point 
 connected with the silver question to which I will 
 allude, the insecurity which the present situation 
 imparts to your trade with the silver-using countries. 
 This insecurity must most seriously affect your dealings 
 with India and with many other of your customers, 
 and I am sorry to think that in this respect there is 
 little hope of improvement till more Kght is shed on 
 the currency pohcy of the United States. Indeed, 
 
204 ADDEESSES ON ECONOMIC QUESTIONS 
 
 I fear that the uncertainty in the trade with the 
 silver-using countries will become even more acute. 
 Thus I earnestly trust that this silver question will be 
 steadily kept in view, at all events by those who are 
 responsible for the interests of our Indian Empire. 
 It is a question of the deepest moment. It is impos- 
 sible for me on this occasion to expatiate upon it, but 
 it is a factor — and a very important factor too — in 
 the condition and prospects of trade. 
 
 I come to the question of the appreciation of gold. 
 On this I have spoken fully before, and I am bound 
 to say that I have nothing to take back from what 
 I have said. The case seems to me to lie in a nut- 
 shell. We are confronted with an immense diminution 
 in the production of gold. There is a greater strain 
 upon gold through the dethronement of silver in very 
 important countries, and therefore, if prices are at all 
 determined by the relative quantities of gold on the 
 one side, and of commodities on the other, the dis- 
 turbance of that proportion must have had its effect 
 upon prices. You have the decreased production in 
 gold ; you have the increased production of com- 
 modities ; and you have the faU in prices which 
 economic science tells us those two factors ought to 
 produce. But, unfortunately, no one will ever be able 
 to prove whether the cause has produced the effect 
 or not, or to what extent it has operated. It is clear 
 that the effect has been greatly reduced by the 
 development of the credit system, which has been 
 carried to the utmost limit, and I do not contend for 
 one moment that the fall in prices is exclusively due 
 to the appreciation of gold. But I do maintain that 
 it is a factor in the case, and it is, above all, important 
 from this point of view, that, if there is any force 
 
ON THE PEOSPECTS OF TEADE 205 
 
 in this contention, it indicates the hkehhood of the 
 standard of prices generally being lower in the future, 
 with the consequence that it would be wise to discard 
 the idea of a return to the old level. It appears to 
 me that if there is one thing that men engaged in 
 business would like to know, or upon which they 
 would like to be able to form an opinion, it is — Are 
 we to accept low prices and cut our cloth accordingly ? 
 Is business to be carried on at these low prices, or 
 are we to return to the higher standards which 
 existed ten or fifteen years ago? 
 
 The opponents of the contention that gold has 
 appreciated in value urge that the low prices are 
 due to what they caU over-production. Now, what 
 is meant by over-production ? Does the phrase mean 
 that the world produces more than it produced several 
 years ago ? Does it raean that more is produced 
 than can be sold, or does it mean that more is pro- 
 duced than can be sold at a profit? All these are 
 important distinctions. Again, let us distinguish 
 between over-production which is the result of the 
 bounty of nature, of splendid crops, and over-pro- 
 duction which is the result of the hand of man, of 
 enterprise purposely applied to certain manufactures. 
 I fancy I see a distinction between over-production 
 from mines and over-production from crops which 
 are grown upon the earth. If the production of sugar 
 appears excessive, other crops will be grown in the 
 place of beet ; but in the case of mines you sink your 
 capital, and any stoppage of production causes most 
 disastrous effects to all who are engaged in that 
 particular industry. 
 
 But is very large and increasing production, gene- 
 rally, an evil ? Those who speak continually of over- 
 
206 ADDEESSES ON ECONOMIC QUESTIONS 
 
 production apply the phrase to tea, to sugar, to cotton, 
 to wool. 'Look at these enormous crops,' they say, 
 ' and look at the low prices. It is these confoundedly 
 large crops which have done the mischief ; they have 
 sent prices down. What a misfortune, what a curse ! ' 
 But I wish to ask, has this over-produced sugar rotted 
 in the docks or passed into the stomachs of the people ? 
 I ask as to this over-produced cotton, is it lying unem- 
 ployed or has it been worked up ? For that I look to 
 the position of the stocks of such articles. I know 
 that it has been argued that increased stocks of various 
 articles prove the fact of over-production. I have 
 looked at those same stocks, and draw a different con- 
 clusion. Considering the immense increase in pro- 
 duction, the relative increase in stocks strikes me as 
 very small. I will not trouble you with many figures. 
 Suffice it to say that, after ten years' imports of raw 
 and refined sugar, amounting to 10,000,000 tons, the 
 stock at the end was only 127,000 tons greater than 
 ten years ago. In cotton the total supply of the world 
 for the ten seasons was 75,000,000 bales ; total de- 
 liveries for consumption during that time 75,227,000 
 bales ! No argument, I tell you confidently, can be 
 based on the amount of stocks of produce in hand to 
 justify any allegation of continuous over-production. 
 I will not pursue the subject further, but I point 
 out how the increased j^roduction has been distinctly 
 advantageous to the community, if disadvantageous 
 to some engaged in trade ; clearly, if these quantities 
 had not been produced, some one would have drunk 
 less tea, or used less sugar, or suffered in some 
 other way as compared with the prosperity enjoyed 
 through the bountifulness of the crops. Traders 
 may object to this large production, but we are 
 not justified as citizens in pointing to it as a 
 
ON THE PROSPECTS OF TEADE 207 
 
 curse, unless i<idundant stocks were rotting in the 
 docks. 
 
 But is there not a great defect somewhere? Has 
 the advantage of these low prices accrued to the degree 
 to which we might have expected it to have accrued, 
 to the pocket of the consumer ? I think not. While 
 the organization for production has been simplified in 
 many ways, I question whether the organization for 
 distribution has kept pace in the same degree. The 
 consumer has not been enjoying a proportionate 
 advantage compared with the loss to the importer and 
 producer. Some one, as I said before, must have had 
 the profits. I believe that the working-classes have 
 had a greater command of cheaper commodities 
 through the fall in prices, but I doubt whether the 
 fall has been as great as it might have been, owing to 
 defective distribution. I doubt whether in articles of 
 vital importance to the working man, the retail prices 
 follow the downward course of the wholesale prices 
 with anything like the rapidity or completeness which 
 might theoretically be expected. It is impossible for 
 me to do justice to this aspect of the subject now, but 
 it is one of the most important parts of the case. For, 
 consider, if profits are diminished to the producer, 
 what must take place ? When profits are diminished 
 to the point that business cannot be profitably carried 
 on, of course wages must fall unless trade is to stop. 
 But side by side with that fall of wages let the con- 
 suming, wage-earning classes enjoy to the full the great 
 advantages which the increased production of almost 
 all the commodities of life is offering in every possible 
 direction. In this respect a margin is clearly to be 
 found. 
 
 Increased production has certainly contributed to 
 
208 ADDEESSES ON ECONOMIC QUESTIONS 
 
 low prices. That cannot be denied ; s^,,Qd now, let me 
 ask, under these low prices, how ofo you stand as 
 regards competition with the Continent ? I have said 
 that while we have depression here, there is depression 
 elsewhere — most serious depression. Still I wiU not 
 say but what an examination of the present state of 
 things points to the conclusion that a part of the 
 advantages on which the supremacy in trade and 
 manufactures of this country depends, are, to a certain 
 degree, imperilled by some of the changed conditions 
 of the general situation ; and, just as I hold that, in 
 the political world, it would be wrong for this country 
 to rely upon its past invulnerability and prestige, and 
 so to lose sight of the present changed situation, so I 
 hold that in the economical world, in the industrial and 
 trading world, it would be wrong to rely simply upon 
 our past prestige, and to persuade ourselves that 
 because we have always been able, under certain con- 
 ditions, to compete successfully, and without strained 
 efforts, with our continental neighbours, it must, there- 
 fore, always be so. Let us look into the conditions 
 which in the past have mainly contributed to the 
 supremacy of this country in the trading world. We 
 had our start in trade, an immense advantage, but 
 which naturally dwindles as other countries progress. 
 Then we had our extremely favourable geographical 
 situation. We had our coal supply ; we had the 
 ingenuity of our merchants ; we had the intelli- 
 gence of our working men. We owe much, too, in 
 my opinion, to our greater freedom, to less interference 
 by legislation. Let me add, that notwithstanding 
 the strikes and difficulties with which we have had 
 to contend, on the whole those strikes have been 
 settled with more temper and with less strained 
 relations between employers and their workmen 
 
ON THE PKOSPECTS OF TEADE 209 
 
 than in most countries on the Continent. We have 
 had order, we have had peace, we have had our 
 Empire, we have had our foreign dependencies, we 
 have had our Colonies. These are the advantages 
 by which we have for so many years held high the 
 flag of Enghsh commerce. Look them in the face and 
 see which we can stiU command, and which we cannot 
 expect to continue to command — which we ought to 
 continue to command, and can resolve still to command- 
 In some cases we have no power to retain our 
 advantage. Take om- coal supply. I asked myself,^ 
 How is the supply in foreign countries proceeding? 
 I knew of a considerable increase in coal-mining in 
 Germany. I examined the figures, and what did 
 I find ? In 1861 the production of coal in Germany 
 was 18,000,000 tons ; in this country it was 
 83,000,000 tons. Germany has now increased from 
 18,000,000 tons to 72,000,000 tons, while the produce 
 tion in England has increased to 160,000,000 tons. 
 We have, therefore, about doubled our output of coal, 
 but Germany has quadrupled hers. These are serious 
 figures which it is right to put before the public. 
 Why, indeed, should they be concealed? But they 
 show that we have thus lost something of the supre- 
 macy, something of the advantage we owed to coal; 
 We find the consequences, too, in the iron trade. 
 Continental competition abroad is shown by the fact 
 that between 1880 and 1888 the total exports of iron 
 from Germany have increased from 992,000 tons to 
 1,230,000 tons, or 25 per cent. ; and the exports of 
 steel from 62,000 tons to 203,000 tons. Both in coal 
 and iron the Continent has been gaining on us. ' 
 
 I believe you are aware that, as regards your own 
 industry, while you have been largely increasing the 
 
210 ADDEESSES ON ECONOMIC QUESTIONS 
 
 consumption of cotton, that increase has been relatively 
 much larger both on the Continent and in the United 
 States. Supposing you are doing well, other countries 
 have been making more progress. And why should 
 they not? That is a point which the public ought 
 to understand. You can beat the foreigner to a certain 
 extent, but you will not have the same advantages if 
 he increases in intelligence and in his command over 
 coal ; and, as complexity of trade decreases, so you 
 will find that it tells against this country. The greater 
 simpHfication in trade has been to the advantage of 
 foreign countries, because, when trade was carried on 
 on a different system, when things were more compli- 
 cated, we held the threads much more in our own 
 hands. Now that a much larger direct trade is carried 
 on between nation and nation, and consumer and pro- 
 ducer, we have lost a position which told greatly in 
 our favour* 
 
 Again, how do we stand as to the advantages result- 
 ing from our geographical position? Sea carriage is 
 now so cheap, that we are annihilating distance, 
 and the annihilation of distance seems to me some- 
 what disadvantageous to this country with its splen- 
 did geographical position. People not in business 
 would scarcely believe that a ton of coal can be carried 
 from Cardiff to New York for 7s. 6d., and that a ton of 
 coal can be carried back for 5s., — 12s. Qd. for a return 
 journey of a ton of goods between Cardiff and New 
 York ! You know, too, that from Manchester, includ- 
 ing the railway fare from here to Liverpool, and 
 including the Suez Canal dues, the freight from Man- 
 chester to Bombay is not much more than a second- 
 class ticket from London to Manchester. When all 
 nations are brought much nearer together, the superior 
 command over the commerce of the world is, to a 
 
ON THE PEOSPECTS OF TKADE 211 
 
 certain extent, lost to the country which knew best 
 how to utilize the advantage of its position. All these 
 are facts which influence cheapness of production and 
 the prices of commodities. They seem to me to have 
 enabled the foreigner to compete on more favourable 
 terms by neutralizing some of our advantages. The 
 foreigners are making distinct progress, and must con- 
 sequently be watched, but not in a jealous spirit. 
 "Why, for instance, should we expect to be able to 
 supply Germany with certain goods? Why should we 
 be able, if the United States have cotton on the spot, to 
 manufacture cotton goods more cheaply than they do ? 
 Why should we expect to be always able to undersell 
 foreign nations in their own markets ? I trust it may 
 often be in our power, and under some circumstances 
 it will. For instance, I beheve we shall compete more 
 successfully under our system of free trade than they 
 under their system of protection. They may protect 
 their own markets, and they do protect them against our 
 goods, but they make it more difficult for themselves 
 to compete with us in distant markets, with our 
 cheaper production and the progress that we have 
 made under the stimulus of invention and enterprise 
 which flourish best under free trade. 
 
 I have one point still to deal with, and perhaps it 
 is the most important point of all. I want to know, if 
 there is some falling off in trade — if there is no aggre- 
 gate expansion — where, at least, if we dissect the 
 totals, is there partial expansion ? In what direction 
 is there most hope ? When I look into the figures 
 I find the following instructive result. While our 
 trade with the great manufacturing countries of 
 Europe has progressed very little, in proportion as 
 we pass from the centre to the extremities we find 
 a greater growth. We have increased our exports 
 
 P 2 
 
212 ADDEESSES ON ECONOMIC QUESTIONS 
 
 least to the great European nations, but we have 
 increased them very largely to the colonies of European 
 nations. We have increased them more to the 
 smaller than to the great nations of Europe. We 
 have increased them very considerably indeed to 
 the small transatlantic Kepublics ; and lastly, if we 
 take our export trade with foreign nations as a whole, 
 and contrast it with that to our own Colonies and 
 dependencies as a whole, we find that the latter has 
 increased in an infinitely greater proportion than the 
 former. Taking the value of the exports of yarns and 
 British cotton goods from the Urdted Kingdom to British 
 possessions from 1871 to 1877 and from 1878 to 1884, 
 the average per annum during the first seven years 
 was £24,750,000, and in the second £28,300,000, an 
 increase of 14 per cent. The exports to foreign 
 countries during the same periods were, in the first, 
 £48,550,000, and in the second £44,500,000, a decrease 
 of £4,000,000, or 8-4 per cent. ; an increase of 14 
 per cent, to our own possessions, and a decrease of 8| 
 per cent, to the Continent ! These are surely striking 
 and significant figures, but we must bear in mind 
 that they are not absolutely conclusive, because the 
 question of values and of quantities is involved. And 
 do not misunderstand me as to what I am going to 
 say : I am not saying that you should neglect your 
 trade with foreign countries. I do not wish to set 
 your trade with one part of the world against your 
 trade with another. Stick to both, if you can. En- 
 deavour to compete with foreign countries thoroughly 
 and successfully, but keep your eye, at all events, 
 steadily upon those countries where you see there has 
 been most increase. 
 
 Now, the expansion of our exports during the last 
 fifteen years to the large European countries, between 
 
ON THE PROSPECTS OF TRADE 213 
 
 1869 and 1883, has been from £107,000,000 to 
 £116,000,000, or 8^ per cent. In the case of the 
 small European countries it has been from £11,000,000 
 to £18,000,000, or nearly 60 per cent. ! I ought to 
 mention that I put Belgium and Holland with the 
 large countries, which are Austria, France, Germany, 
 Russia, Italy, and Turkey, because Belgium and Hol- 
 land are transit countries in whose case you cannot 
 separate their direct trade with us from that which 
 simply passes through them to or from their larger 
 neighbours. By small European countries I mean 
 Spain, Portugal, Norway, Sweden, Roumania, Den- 
 mark, and Greece. To Mexico and to the Central and 
 South American RepubHcs we exported £7,500,000 
 in 1883, against £3,450,000 in 1867 ; to the West 
 Coast of Africa £1,800,000, against £1,000,000 ; and 
 to unenumerated countries, which must clearly mean 
 smaU countries, £2,450,000, against £700,000 \ 
 
 These statistics seem to me to show that it is mainly 
 in the smaller markets where we have been able to 
 be successful, and, to a great extent also, in distant 
 markets. The greater countries have competed suc- 
 cessfully with us at home, but we have still generally 
 beaten them beyond the seas. But, now, what is the 
 case as regards our comparative trade with foreign coun- 
 tries and with our own colonies ? We have increased 
 our exports to foreign countries during fifteen years 
 from £185,000,000 to £215,000,000, that is about 
 
 ' The time at my disposal did not allow me to deal as I could 
 have wished with the increase and decrease of our exports to 
 various countries, and I was compelled to refrain from alluding to 
 several countries where exceptional circumstances prevailed, as, 
 for instance, in Egypt, and also to others, such as the United 
 States, Cliina, and Brazil, which could not be included in any of 
 the groups to which I alluded in the text. 
 
214 ADDEESSES ON ECONOMIC QUESTIONS 
 
 £30,000,000 ; the exports to British possessions from 
 £52,000,000 to £90,000,000, an increase of £40,000,000. 
 In the one case the growth has been about 74 per 
 cent. ; in the other 16 per cent. The increase in 
 Australia has been from £14,000,000 to £26,800,000, 
 or an increase of 86 per cent. ; from the Canadian 
 Dominions from £5,900,000 to £10,100,000, or about 
 70 per cent. ; from the Cape from £1,600,000 to 
 £5,000,000, or about 200 per cent. It is perfectly 
 true that these are exports only, and that the case 
 of our imports is not so striking ; but looking to these 
 markets for British and Irish products — looking to 
 the expansion in these markets, and mainly in those 
 in our own Colonies where the population is growing 
 rapidly — looking to the picture of industry and com- 
 merce which is spread out before us now, surely our 
 chief hope lies in the prospect that the teeming 
 millions of the old country may find customers in the 
 teeming and increasing millions of Greater Britain 
 beyond the seas. Sorry, then, should I be to be 
 a statesman who would in any degree attempt to 
 minimize the value of our colonial possessions or of 
 our foreign dependencies. But this is not only a 
 question for statesmen and politicians, it is a question 
 for the working-classes ; it is a question for every 
 trader, for every manufacturer, for every merchant. 
 It is there in our Colonies and dependencies that we 
 may see the greatest hopes ; there where populations 
 are increasing ; there where we will trust that we 
 shall still maintain our supremacy. 
 
 Time would not permit me further to discuss our 
 prospects of retaining or losing the other advantages 
 which we have hitherto enjoyed. We may lose some 
 of the pre-eminence which our geographical position 
 
ON THE PROSPECTS OF TEADE 215 
 
 has given us. Our cheap capital is being rivalled by- 
 cheap capital on the Continent. The intelligence of 
 our working-classes is being equalled — I trust it will 
 not be surpassed — by the intelligence of the working- 
 classes on the Continent; but we must stand by those 
 advantages which we have, and which we cannot have 
 taken from us. What have we not owed to order 
 and peace at home, and power and influence abroad ! 
 Sometimes I hear men speak as if there were less 
 sympathy felt for the British trader who is carrying 
 British commerce into distant regions than was felt 
 in former days. British trade sometimes means 
 increased responsibilities to political men. I am not 
 sure whether the old phrase of the Civis Romanus is 
 not sometimes translated now at the Foreign Office 
 into ' Troublesome trader.' That may or may not be, 
 but it is the troublesome traders who in past times 
 have extended the limits of the commerce of the 
 country. Let us not be disheartened by the increasing 
 difficulties of the situation, but look facts fuUy in 
 the face. Let our working-classes, with their great 
 industry and dihgence, and that sobriety of judg- 
 ment which you see distinguishes even their Trades 
 Union Councils, as compared with the meetings of 
 any operatives abroad, let them realize that before 
 they listen to any Sociahst ideas with regard to 
 sharing of profits, they must be confident that there 
 are profits to share. It may be that at this moment, 
 through the greater command of the necessaries of 
 life, the working-class, with their rate of wages still 
 so high, is comparatively better able to bear the 
 burden of the existing depression than the manufac- 
 turers, who are scarcely making any profits at all. 
 Be that as it may, with sobriety of judgment and a 
 spirit of unity at home, I trust we shall continue to 
 
216 ADDRESSES ON ECONOMIC QUESTIONS 
 
 maintain that vast dominion abroad which, I firmly 
 believe, has added to the power of the nation to 
 support its population in comfort, and to preserve 
 that well-being upon which the future of our Empire 
 depends. 
 
THE IXCEEASE OF MODEEATE 
 IXCOMES 
 
 I>"TBODrCTCiEY ISOTE 
 
 Ix the preceding address on 'The Condition and 
 Prospects of Trade,' delivered in 1SS5. the reader may 
 remember how I drew the conclusion from the Income 
 Tax retm^is and other tests that the percentage of 
 growth in the numbers of Income Tax-payers at the 
 lower levels of assessment — 'middle-class incomes" as 
 I called them — had been rising more rapidly than in 
 the case of the rich ; for instance, that the percentage 
 of increase in the £500-a-year-men was much larger than 
 the percentage of increase in the £5,000-a-year-men, 
 and so right through the scale. Such a development, 
 I pointed out. seemed to have important bearings 
 in every direction, and, if it could be substantiated, 
 it estabhshed, in my opinion, a most noteworthy 
 economic fact. 
 
 This preliminary result of my statistical studies 
 evoked my lively interest, and I determined to follow 
 up the inquiry of which I had so far only touched the 
 fringe. 
 
 Accordingly, in 1887, when I was Chancellor of the 
 Exchequer and had many opportunities for statistical 
 research at my command, I made as exhaustive an 
 examination of the subject as lay in my power. In 
 my first Budget speech I dealt with the question 
 briefly, and. ia October of the same year, as President 
 
218 ADDRESSES ON ECONOMIC QUESTIONS 
 
 of the Statistical Society, I placed my thesis before an 
 audience of experts. I was no doubt partly moved 
 to take the matter up from the degree to which 
 experience had shown me that entirely incorrect 
 notions were conveyed by the totals of the Income 
 Tax returns. An almost ineradicable impression 
 continually prevailed — it flourishes apparently to-day 
 with no less vigour than twenty years ago, and 
 attempts to check it are equally fruitless — that the 
 millions on millions of income which the figures dis- 
 close, in the main represent ricJies : that the con- 
 gratulations annually expressed at the increased 
 yield mean simply that wealth is accumulating : that 
 the rich are becoming richer, and that the boasted 
 growth of the revenue from Income Tax is compatible 
 with a decline of national prosperity in a truer sense. 
 This impression ignores what the great bulk of Income- 
 Tax-payers themselves certainly do not forget, that 
 the tax is a tax not on property but on income, and 
 that vast sums are poured into the Exchequer by the 
 tax on ' moderate incomes,' incomes not derived from 
 interest on accumulations, not even from the employ- 
 ment of fructifying capital, but from personal exertion, 
 from labour — as truly labour as the toil of working 
 men, — from the exhausting of vital forces in the 
 struggle for life. And even when the profits or 
 income on which the tax is demanded are derived 
 from trade, we must not picture to ourselves simply 
 the wealthy manufacturer, the tranquil banker. The 
 immense distributive class, the middlemen, the small 
 tradesmen, must never be forgotten as figuring in the 
 aggregate for an immense sum in the total yield of the 
 tax. When changes are made in the rate of the tax, 
 when classes have to be concihated by abatements, 
 or to be called upon to show patriotic acquiescence in 
 
INCREASE OF MODERATE INCOMES 219 
 
 unavoidable extra pence, then their existence and 
 their vast financial as well as social and economic 
 importance come to the front ; but their position as 
 contributors, the part they play in assisting national 
 finance, their steadying influence when crises in the 
 higher departments of commerce and banking threaten 
 to lessen what the Chancellor of the Exchequer hopes 
 to extract from the tills of the great, are too often 
 overlooked when politicians or amateur economists or 
 pamphleteers take their superficial surveys of our 
 economic condition. It has happened that in periods 
 presenting all the features of a considerable depression 
 in trade, the contributions from the category of 
 ' moderate incomes ' have shown no decline. As will 
 appear presently, the system under which the Income 
 Tax is collected, renders it impossible to draw precise 
 conclusions, but as careful an analysis of them as their 
 nature admits is indispensable to the most elementary 
 arguments to be derived from the tax as a whole. 
 The modest shop must be kept in view as weU as the 
 palatial bank, the regular professional man as well as 
 the spasmodic speculator. 
 
 In my Budget speech of 1887 I strongly empha- 
 sized this necessity for studying the distribution of 
 the resources taxed, as also the distributive effects 
 and extraordinary development of the joint-stock 
 company system. This feature, as the readers of 
 the preceding pages may have noted, had pressed 
 itself on my attention in my several surveys of the 
 economic conditions of the country, as one of very 
 special significance. It has operated in the long run 
 in moderating the accumulations of the few, and in 
 increasing the share of the many in the profits of the 
 nation's business. 
 
 What I had only briefly touched in my Budget 
 
220 ADDEESSES ON ECONOMIC QUESTIONS 
 
 speech I elaborated in an address to the Statistical 
 Society, This address was necessarily very statistical, 
 and I can conceive that some students of economics 
 might prefer to be spared a large proportion of the 
 figures, and to be informed of the results on my 
 authority without troubling themselves too much 
 about the processes by which they are reached. 
 Headers such as these may content themselves with 
 skimming very rapidly over those parts of the address 
 which represent the evidence on which the conclu- 
 sions are founded. But the conclusions if correct 
 are, in my humble opinion, not undeserving of 
 attention, not only at the hands of theoretical sta- 
 tisticians but of social inquirers and financial students 
 —of financial students as being intimately connected 
 with the basis of taxation, and of social inquirers 
 because any light shed on the distribution and growth 
 of wealth bears very closely on many of the questions 
 in which they are most concerned. I can only wish 
 that the hght were clearer and stronger. I fear some- 
 times it is rather wrapt in mist. 
 
 Eighteen years have passed since my investigations 
 of 1887, and I have asked myself in this case, as I have 
 done in others with which I have been dealing in this 
 volume, whether the same economic forces which I 
 seemed to have discerned in the earHer period, are 
 still at work — whether the same tendencies are still 
 in the course of development and woxild be visible on 
 the application of similar tests — or whether, on the 
 other hand, in the progress of time and under different 
 circumstances important changes might be discovered 
 to have taken place. Accordingly I have endeavoured 
 to bring the figures I used in 1887 up to date, and 
 have examined the attractive problem as to whether 
 
INCEEASE OF MODEKATE INCOMES 221 
 
 the numbers of ' middle-class incomes ' still continue 
 to increase in a greater ratio than those of the higher 
 grades. The result of this inquiry, and, generally 
 speaking, the comparison of the later period with the 
 former in some economic respects, can most con- 
 veniently be shown after the facts adduced in the 
 earher years, and the method of calculations then 
 followed, have been gathered from the following 
 address. I have accordingly added a statement of 
 the results of my present inquiry, so far as they 
 seemed to be interesting, in the shape of a separate 
 supplemental study. 
 
THE INCREASE OF MODERATE 
 INCOMES 
 
 iNAuauKAL Presidential Address to the Statistical 
 Society. Delivered December 6, 1887 
 
 Gentlemen, — I must preface the observations which 
 I am about to place before you by a sincere apology. 
 My official duties, and the pressure of other work, have 
 left me scant leisure to prepare an address worthy of 
 the occasion and of those whom I meet in this hall 
 to-night. There is no study which requires more 
 continuous and undisturbed attention than the study 
 of complicated statistical problems. There is no field 
 of knowledge on which hasty excursions are so likely 
 to lead into bogs where one may stick fast, or into 
 tangled jungles from which one will find no escape. 
 No man feels more deeply than myself how important 
 it is that figures should be put forward only after 
 profound inquiry, and with the minutest care as to 
 their arrangement and disposition. The science of 
 statistics, of which I see so many able professors here 
 to-night, is an exact science. The facts with which it 
 deals only degenerate into misleading confusion when 
 carelessly or too astutely handled. The expression, 
 derogatory to statisticians, that ' figures will prove 
 anything,' as every one of you knows better than I do, 
 simply means that figures, which never tell untruths, 
 may be so handled as to present untruths. Figures 
 themselves never lie, but every one must admit that 
 
INCEEASE OF MODEEATE INCOMES 223 
 
 no sound and accurate material can be so easily 
 handled for the special purposes of the compiler as 
 statistics. 
 
 I had at one time thought of presenting to your 
 notice this evening some of the canons and rules by 
 which statistical statements might be dissected and 
 examined — a kind of guide to the detection of 
 statistical error. I can fancy that an interesting 
 address might be delivered on statistical fallacies, 
 illustrated by copious examples from contemporary 
 politicians and social philosophers. Given a great 
 number of figures partially unknown, given unlimited 
 power and discretion of selection, and given an 
 enthusiast determined to prove his case, and I wiU 
 not answer for the consequences. But we are all 
 statisticians here to-night, and I am not sure whether, 
 as President of the Statistical Society, I should not by 
 such a course have trodden on the toes of many of 
 the professors of the craft. I wiU therefore confine 
 myself to a single illustration. The statistician, or 
 more properly speaking the administrator of statistics, 
 is hke a showman who is exhibiting certain figures. 
 According as he throws light and shade upon the 
 pictures which he exhibits, he can produce true or 
 false impressions. Whole rows of figures he may 
 throw into impenetrable shade, while others are at the 
 same time brought into excessive prominence, and 
 thus, to the eye of the spectator, much may be 
 rendered invisible, and much may be distorted by 
 exaggerated lights which turn facts into caricatures. 
 
 But I will leave this topic, and simply add, with 
 reference to my own position, that your present 
 President is not a producer or manufacturer of 
 statistics ; he is in most instances simply a consumer. 
 Or, if you prefer it, I will not speak of myself as 
 
224 ADDEESSES ON ECONOMIC QUESTIONS 
 
 a consumer on this occasion, but rather as a middleman 
 between consumer and producer. And, maybe, it 
 is as weU that the President in his annual address, 
 instead of directing his observations exclusively to 
 statisticians, should play the part of such a middleman, 
 and serve as a medium between statisticians and the 
 general public. 
 
 Having abandoned the idea of examining the canons 
 of statistical criticism, I am about to engage in a more 
 dangerous task, namely, to enunciate a statistical 
 thesis myself. 
 
 I propose to speak on the increase in this country 
 during recent years of the number of moderate fortunes 
 and of small investors, coupled with syrnptoms of a 
 decrease in the tendency to the accumulation of large 
 fortunes in a few hands. I wish to point out th6 
 growing importance in our economic and social system 
 of the smaller middle class. I will not be tempted by 
 the significance of that class into any digressions con- 
 cerning the political aspects of the case ; but I think 
 I may say, without giving offence to any party, that it 
 must be to the advantage of every State that what I may 
 call the great central body of the community should be 
 reinforced in numbers, and I propose by your leave to 
 examine to-night to what extent that reinforcement 
 is taking place in our own country at the present time. 
 
 The subject of this address is one on which I have^ 
 already dwelt, both in a speech before the Manchester 
 Chamber of Commerce two years ago, and in my 
 Budget speech this year : but I am anxious to treat- 
 it somewhat more fully to-day. What I am about 
 to say may have little novelty for experts, but it may 
 not be without its use if it serves to bring home to 
 the public some important considerations with which 
 experts are already to a great extent familiar. 
 
INCREASE OF MODERATE INCOMES 225 
 
 Since I originally put forward my theory in June, 
 1885, my general drift has been confirmed by a high 
 authority. On p. 16 of the final Report of the Com- 
 mission appointed to inquire into the Depression of 
 Trade — a body whose conclusions, I may parenthetically 
 remark, seem to me to have been unduly neglected 
 because they contain nothing sensational — a table will 
 be found, drawn from the returns under Schedule 
 D of the Income Tax, on which the Commission 
 base the following statement: 'From this table it 
 would appear that the number of persons with in- 
 comes of less than £2,000 a year has increased at 
 a more rapid rate than the population (which in the 
 period in question increased about 10 per cent.), while 
 the number of persons with incomes above £2,000 has 
 increased at a less rapid rate, and the number with 
 incomes above £5,000 has actually diminished ; and 
 further, that the lower the income, the more rapid the 
 rate of increase. We think, therefore, that whether 
 the aggregate amount of profits is increasing or not, 
 there is distinct evidence that profits are becoming 
 more widely distributed among the classes engaged in 
 trade and industry ; and that while the larger capitahsts 
 may be receiving a lower return than that to which 
 they have been accustomed, the number of those who 
 are making a profit, though possibly a small one, has 
 largely increased.' 
 
 With regard to the table on which these remarks 
 are based, several qualifying considerations must of 
 course be taken into account. The figures under 
 Schedule D of the Income Tax show the incomes of 
 certain tax-pajring entities, but those tax-pa3dng entities 
 do not always correspond to actual individuals. Under 
 the head of ' Trades and Professions ' in Schedule D, 
 men are arranged in certain classes according to their 
 
 Q 
 
226 ADDKESSES ON ECONOMIC QUESTIONS 
 
 incomes ; but those are only the incomes •which they 
 declaxe under that head, and they may at the same 
 time be deriving other incomes which fall, and are 
 declared under, other schedules. For instance, they 
 may be receivers of dividends under Schedule C, or 
 they may be landed proprietors under Schedule A, or 
 they may be shareholders in any of the companies 
 which are separately assessed under Schedule D itself. 
 Therefore all the allegations which are made upon the 
 strength of the returns under this head of ' Trades and 
 Professions' require to be qualified, and it must be 
 remembered that the incomes of small amounts under 
 Schedule D may often be lifted into a higher grade by 
 additional resources appearing under other schedules. 
 
 But again, there is a consideration on the other side. 
 Under Schedule D the returns made are in many cases 
 those of firms and not those of individuals ; so that 
 while in some cases the figures under Schedule D may 
 not indicate the full amount of the incomes of the 
 persons assessed, in other cases those figures are far 
 larger than such incomes, because they represent the 
 profits of firms which are returned in the aggregate, 
 and not separately for the several partners. 
 
 I do not wish therefore to rely too exclusively upon 
 the evidence of Schedule D. But the Commission 
 considered it to be valuable evidence, and I consider 
 that it is very valuable if it can be corroborated from 
 other sources. I propose to point to such corroborating 
 evidence. I have looked for other tests of the proposi- 
 tion which the Eoyal Commission laid down. I have 
 looked for them in the direction of expenditure, and 
 in the direction of investment. I shall presently refer 
 to the resiilt of these investigations. 
 
 But before passing to these tests, let me submit 
 the latest lessons which are to be derived from the 
 
INCEEASE OF MODERATE INCOMES 227 
 
 Income Tax itself. I have here a table ^ which gives 
 the number of Income Tax assessments, under Schedule 
 D, of individuals and private firms. It shows that in 
 the year 1877 ^ there were 317,889 assessments of 
 between £150 and £1,000, and, in 1886, 379,064, 
 an increase of 19-26 per cent. On the other hand, of 
 incomes of £1,000 and upwards there were assessed, in 
 1877, 22,848, and in 1886, 22,298, a decrease of 24 
 per cent. The contrast is remarkable. These figures 
 distinctly confirm my position that a higher propor- 
 tional rate of increase in the aggregate wealth of the 
 community is to be found in the middle classes rather 
 than in the highest stratum of wealth. 
 
 To go more into particulars, a second table ^ shows 
 more in detail how wealth is distributed between the 
 different classes of Income Tax-payers under Schedule 
 D. In incomes between £150 and £500, the increase 
 per cent, between the years 1877 and 1886 was 214 ; 
 in those between £500 and £1,000, there was no 
 increase at all, the numbers in 1877 and in 1886 
 being almost identical. When we come to incomes 
 between £1,000 and £5,000, there is a shght increase 
 of 24 ; but in those over £5,000, there is a decrease of 
 2-3. It results from these figures that during ordinary 
 times, and during times of depression, times such as 
 those which we have recently gone through, a satis- 
 factory and steady increase in the number of incomes 
 below £1,000 may nevertheless take place. 
 
 I must recall what I indicated before, that these 
 assessments of 'Trades and Professions' under Schedule 
 D do not by any means represent the total number of 
 
 » Vide Appendix I, Table A, p. 264. 
 
 ^ In this address ' year ' stands for ' financial year.' ' The year 
 1887 ' means the year from April 1, 1886, to March 31, 1887. 
 = Vide Appendix I, Table B, p. 264. 
 
 Q 2 
 
228 ADDEESSES ON ECONOMIC QUESTIONS 
 
 existing incomes of any particular amount, but only 
 those which can be more or less counted. These 
 figures do not include the great number of incomes 
 which go to make up the totals of Schedules A and C. 
 They do not even include all the incomes assessed 
 under Schedule D. There have to be added in that 
 same schedule the incomes of the shareholders of 
 companies whose profits are assessed in the lump. 
 I must further caU attention to Schedule E. This 
 schedule is not, as has sometimes been erroneously 
 thought, confined to the salaries of officials — public 
 servants. The number of officials is rather less than 
 half of the total number of persons assessed under 
 Schedule E : the remainder consist of employes of 
 public companies, of private firms, or individuals. Now 
 in the last ten years which I am passing under review, 
 the assessments under Schedule E have increased from 
 78,224 to 115,964, so that there again you have a large 
 proportion of persons added to the Income Tax-paying 
 class, of whom very few can be described as rich. 
 
 As to the number of persons assessed under 
 Schedule E who may be considered as wealthy 
 employes, and of those, on the other hand, who belong 
 distinctly to the middle class — to the class enjoying 
 smaller incomes — I found on investigation that a very 
 large proportion of the total have a smaller income 
 than £400 a year. The figures for 1886 are these : 
 under £400 a year, 104,108; at £400 and over, 11,856. 
 So that Schedule E again represents a large class of 
 persons with moderate incomes, a class who are in 
 receipt of no more than £400 a year from their regular 
 employment. In order to get some conception of the 
 extent of the middle class with small incomes, we 
 have to add the great bulk of these assessments to the 
 assessments of less than £500 a year under Schedule D. 
 
mCEEASE OF MODERATE INCOMES 229 
 
 I was anxious to test the growth of these small 
 middle-class incomes in another way, namely, through 
 the Probate Duty; but owing to the changes in the law 
 I have not been able to procure tables going any dis- 
 tance back, nor, if they did go back, could we expect to 
 find as yet the result upon them of the increase of small 
 fortunes. This is a recent movement, and the recruits 
 to whom I have referred have not yet had time either 
 to accumulate money or to die. 
 
 But still the figures of the Probate Duty offer some 
 interest. Let me turn aside for a moment from the 
 general line of my argument, to what appears to me to 
 be a real statistical curiosity, namely, the extraordinary 
 regularity in the number of estates of each grade falling 
 in each year. The aggregate figures of the Probate Duty 
 for the years 1885, 1886, and 1887, are as follows : — 
 
 In 1885 . . 
 
 . . £3,793,000. 
 
 1886 . . 
 
 . . £3,900,000. 
 
 1887 . . 
 
 . . £3,834,000, 
 
 What a striking regularity of yield, considering the 
 changes and chances of this mortal Hfe ! It is generally 
 thought that it is the large estates on which the revenue 
 may rely, but the fact is that here, as in many other 
 parts of our revenue system, we rely not so much upon 
 the extremely rich as upon the general distribution of 
 wealth. Of the total number of estates in 1885, for 
 instance, which amounted to 59,000, there were 45,950 
 under £1,000, being 77-86 per cent, of the total, and 
 57,887 under £20,000, being 9808 per cent. 
 
 And here is what I call the statistical curiosity. 
 I have caused a table to be drawn up showing the 
 number of estates at different Hmits of value proved in 
 the years 1885-1887. The following are the interesting 
 results : — 
 
230 ADDKESSES ON ECONOMIC QUESTIONS 
 
 Estates not exceeding £1,000 
 „ between £1,000 and £5,000 
 „ £5,000 and £10,000 
 „ „ £10,000 and £20,000 
 
 It is amazing that on a total of 1,217 estates between 
 £10,000 and £20,000 there should only have been 
 a difference of 23. Or continuing : 
 
 1885 1887 
 
 Estates between £20,000 and £50,000 . 742 812 
 
 £50,000 and £100,000 . 246 255 
 
 1885 
 
 1887 
 
 5,950 
 
 46,903 
 
 8,782 
 
 9,094 
 
 1,938 
 
 2,032 
 
 1,217 
 
 1,240 
 
 Qd finally : 
 
 
 
 states between £100,000 and £150,000 . 
 
 61 
 
 64 
 
 £150,000 and £200,000 . 
 
 32 
 
 33 
 
 £200,000 and £250,000 . 
 
 16 
 
 17 
 
 It appears a most remarkable statistical phenomenon, 
 that men should choose to present to the Exchequer, 
 with such extraordinary regularity, about the same 
 number of great windfalls in every succeeding year. 
 One would have thought that if there was anything in 
 the world that was variable, it would be the number 
 of deaths of men of a certain degree of fortune in any 
 particular year ; but nature appears to be determined 
 that the Exchequer shall not be defrauded of its full 
 share of large estates in any single year. I have often 
 marvelled at the exactness with which the able men 
 who frame our estimates are in the habit of forecasting 
 the revenue, but I did not know till I made the 
 investigation, to what extent they were assisted by the 
 steady average of mortality in every grade of fortune. 
 
 I turn from the analysis of taxation to tests furnished 
 by investments and expenditure. The number of 
 
INCREASE OF MODERATE INCOMES 231 
 
 small investors has materially increased. I have no 
 doubt that the wider distribution of wealth is largely due 
 to the extension of limited Hability. Formerly, great 
 businesses gave profits to a small number of individuals, 
 whose fortunes accumulated ; but now, when so many 
 of these great businesses are turned into Hmited 
 companies, a much larger proportion of the community 
 is introduced to a share in the profits of industry and 
 trade. The goodwill of those concerns passes out of the 
 hands of the former proprietors, who receive the price 
 paid for them by the new shareholders; but in the 
 future the profits will accrue not to half a dozen or 
 a score of men, but to hvmdreds or even thousands. 
 In every department of business we see this tendency. 
 We find an ever-increasing portion of the community 
 becoming practically traders, and sharing in the profits 
 of business ; and the effect of this change is a greater 
 diffusion of wealth. 
 
 The following figures are probably familiar to a 
 good many experts, but they are nevertheless so 
 striking that they wiU bear repetition. The total paid- 
 up capital of all companies registered in April, 1877, 
 was £307,000,000 ; in AprU, 1887, the corresponding 
 figure was £591,500,000, an increase in ten years of 
 92 per cent. These are gigantic figures, and show the 
 enormous growth of the system of limited liability ; but 
 the question naturally arises, to what extent the number 
 of shareholders interested in this aggregate capital 
 has increased, whether in proportion, or even more, 
 I commend this point to the attention of statisticians. 
 It would be interesting to learn what are the 
 exact facts as to the total present number of share- 
 holders as compared with the number some ten or 
 fifteen years ago. Meanwhile, I have examined the 
 figures of twelve companies, taken entirely at random — 
 
232 ADDEESSES ON ECONOMIC QUESTIONS 
 
 an insurance company, a batik, a waterworks company, 
 an industrial company, and so forth — and I have 
 compared their capital and the number of shareholders 
 ten years ago, with the capital and the number of 
 shareholders at present. Here is the result : The 
 total paid-up capital of the twelve companies in 1876 
 was £5,171,649. By 1886 it had become £6,601,582, 
 an increase of 25 per cent. But the shareholders in 
 them had increased during the same ten years from 
 11,667 to 20,083, an increase of 72 per cent. I need 
 not dwell upon the lesson which those statistics, if 
 they should be shown by further examination to be fair 
 samples, are calculated to teach. Year by year, it would 
 seem, a larger number of persons are becoming share- 
 holders in companies, and thus participating in the 
 wealth which arises from the vast industrial and 
 commercial activity of the country, but participating 
 in a moderate degree. You must add this increase to 
 that which we have already discovered in the assess- 
 ments of individuals and private firms under Schedule 
 D, in order to form a just estimate of the extent of the 
 wider diffusion of the profits of trade. 
 
 But I have not yet exhausted all the tests which I 
 wish to apply to my thesis. There is one form of 
 investment or expenditure (for I hardly know in which 
 category to place it) which ought to throw considerable 
 light upon middle-class fortunes. I mean hfe in- 
 surance. We all know that there is an increase in 
 the business of insurance companies. The annual 
 premiums have increased between 1880 and 1885 from 
 £11,685,000 to £12,846,000. But the question which 
 concerns us now is, whether that increase of business 
 has been caused by persons insuring their lives for 
 larger sums, or from an accession of numbers, beyond 
 what may be due to the growth of population, insuring 
 
INCEEASE OF MODEEATE INCOMES 233 
 
 their lives for smaller sums. Is there a new class of 
 people insuring for smaller sums? The number of 
 policies supplies the answer. At the valuation before 
 last it was 779,000, and at the last valuation 901,000. 
 The amount insured has increased from £383,000,000 
 to £420,000,000. But here is the interesting point : 
 While the number of insurers has so greatly increased, 
 the average amount per policy has been reduced from 
 £492 to £466. Do we not find additional evidence 
 of my proposition as to the growing distribution of 
 wealth in this accession to the body of insurers of a 
 large number of persons insuring themselves on the 
 scale of very moderate fortunes ? 
 
 Here is another test, a test not of investment 
 but of expenditure : the number of dwelKng-houses of 
 different degrees of value, as given in the returns 
 made by the Inland Eevenue of tenements assessed to 
 Inhabited-house Duty, In this case it will be instructive 
 to make the comparison in two separate periods, the 
 period from 1875 to 1880, and the period from 1880 
 to 1886. A glance at the two tables in the Appendix 
 wall at once show the difference in the character of the 
 two periods. During the former we still find the effects 
 of the years of prosperity between 1870 and 1875, and 
 in the latter we find the full result of the depression 
 which subsequently set in. Turning to the tables 
 we find an increase in the number of dwelling- 
 houses (not shops) of £20 and upwards during both 
 the two periods. In the earlier period there was 
 a considerable and, roughly speaking, a fairly equal 
 increase in the number of houses of every grade. But 
 in the second period, that between 1880 and 1886, 
 this tendency is completely altered. An increase 
 still appears, though not to such an extent as formerly; 
 but while the check to prosperity is clearly seen in 
 
234 ADDKESSES ON ECONOMIC QUESTIONS 
 
 houses of the higher grades, it has not affected in 
 anything like the same degree the less valuable 
 dwellings. Thus, in houses of £20 to £50 annual 
 value, there is an increase of 19 per cent. ; but at this 
 point there is a check. Between £50 and £60 the 
 increase is only 16 per cent. ; between £60 and 
 £80, 15 per cent. ; between £80 and £100, 12 per 
 cent. ; in the steps between £100 and £500 the in- 
 crease varies between 11 and 12 per cent. So far the 
 increase is smaller with each ascending step in the 
 scale of wealth. Between £500 and £1,000 the increase 
 actually falls to 2 per cent. ; while above £1,000 there 
 is a decrease of 8 per cent. It results that, as far 
 as we can judge from the returns of the Inhabited- 
 house Duty, the smaller incomes have been growing 
 at a considerably more rapid rate than the larger; 
 and, especially, that this growth has been less re- 
 tarded by bad times. The number of houses of the 
 lower middle class in particular has continued to 
 increase with remarkable steadiness, and, aU through, 
 the degree of the increase has been in proportion to 
 the smaller value of the house ; — in other words, accord- 
 ing to these tables, the smaller houses, inhabited by 
 the class whom I have described as gradually acquiring 
 a greater share in the general wealth, have steadily 
 multiphed ; whereas, in a richer stratum of society, 
 where the growth of wealth seems to me to have been 
 checked, we find a much smaller increase in the number 
 of highly-rented houses ; indeed, at the highest point 
 there is a positive decrease. It may be said, of course, 
 that this residt is due to a fall in the rents of the larger 
 houses ; but why has that rent fallen ? Because there 
 are a smaller number of competitors for that class of 
 house, which is simply to express the same fact in 
 a different form. But as regards humbler dwellings, 
 
INCEEASE OF MODERATE INCOMES 235 
 
 I would urge that here again we have fresh evidence 
 of greater power of expenditure, which I trust means 
 also a greater enjoyment of the comforts of life and a 
 greater share in the general wealth amongst the bulk 
 of the middle classes. 
 
 The lessons which are taught by the other branch 
 of the House Duty, namely that which taxes shops, 
 are less striking, but possibly somewhat interesting 
 in view of the development of limited Hability and 
 of the co-operative system. In the case of shops, the 
 tendency is exactly the opposite to what we have 
 found in dwelling-houses. While in the case of 
 the latter there is a smaller increase in the valuable 
 houses and a larger increase in the less valuable, in 
 the case of shops the less valuable hardly increase at 
 all, while it is in the number of the lai-ger shops that 
 the most marked development has taken place. In 
 the period between 1880 and 1886 there is an increase 
 of only 3 per cent, in shops of the value of £20 to 
 £30. There is an increase of 8 per cent, in shops of 
 from £30 to £40 ; of about 11 per cent, from £40 
 to £60; and so it goes on in an ascending scale. 
 Even in the highest grade, when we come to shops 
 assessed at £1,000 and upwards, we have an increase 
 of 9 per cent., as compared with an increase of 3 per 
 cent, in those from £20 to £30. Thus it appears 
 that the large shops — shops conducted upon the basis 
 of a large capital, and frequently on the principle of 
 limited liability — are to a certaui extent ousting their 
 smaller competitors. In shop-keeping, as in other 
 classes of business, we appear to find an extraordinary 
 development of the Umited-liability system, with a 
 tendency to an increase in the amount of capital em- 
 ployed, together with the distribution of that capital 
 among a larger number of people. Under the old 
 
236 ADDEESSES ON ECONOMIC QUESTIONS 
 
 system, there were not such large amounts of capital, 
 but, on the other hand, such capital as there was, was 
 held in fewer hands. 
 
 To sum up this part of the case, I submit that it has 
 been shown that those schedules of the Income Tax, 
 which do to a certain extent, though not entirely, 
 serve the purposes of a census, point unmistakably to 
 a growth in the number of moderate incomes, side by 
 side with a tendency in the number of large incomes to 
 remain stationary, and even to decrease. Eecognizing 
 that this evidence, though most important so far as it 
 goes, is not conclusive, I have tested it by examining 
 the change in the number of investors resulting from 
 the growth of joint-stock companies ; I have tested it 
 by an analysis of the returns of the insurance com- 
 panies ; I have tested it by the statistics of dwelling- 
 houses at various degrees of assessment (a most crucial 
 test, since house room is the chief item in almost 
 every man's expenditure, and that which in the 
 majority of cases most accurately indicates the degree 
 of his resources). And in all these inquiries I have 
 found much to confirm and nothing to invalidate the 
 thesis — That the feature of the last decade, and especially 
 of the period of depression, is the tendency of wealth 
 among the Income Tax-paying classes to distribute itself 
 in smaller amounts over a larger number of persons. 
 
 And here I might have left the matter, but the 
 interest of the investigation has led me a step further. 
 I have asked myself whether the greater diffusion 
 of wealth, of which we have seen evidence among the 
 Income Tax-payers, affects the classes below the Income 
 Tax line ; that is, roughly speaking, below £150 a year. 
 I think there is proof that it does so affect at least 
 
INCEEASE OF MODEEATE INCOMES 237 
 
 the upper stratum of this portion of the community. 
 Here, again, I would have wished to apply tests similar 
 to those which I have employed in dealing with the 
 classes above them. 
 
 Unfortunately, however, these tests cannot in this 
 case be brought into play in an equally thorough 
 manner ; but still there are some facts which are well 
 worthy of attention, and which point in the direction 
 indicated. For instance, thei-e is the number of dwell- 
 ing-houses of less than £20 annual value. I have dealt 
 so far only with houses of above £20. I now turn to 
 those below that hne. Of houses valued at less than 
 £10 there were, in 1875, 3,000,370 ; and in 1886, 
 3,174,800, an increase of only 5-8 per cent. In houses 
 between £10 and £15, on the other hand, the increase 
 was enormous, namely 58 per cent. ; and in houses be- 
 tween £15 and £20 it was 56 per cent. We thus find 
 entirely opposite tendencies in the houses below £20 
 and in those above £20. In the latter the in- 
 crease was largest at the lowest point, and smallest 
 at the highest ; in the former the increase is much 
 larger at the higher point, and smaller or almost 
 non-existent at the lower. We see, therefore, that 
 a greatly increased number of the working-classes 
 must now be living in houses valued between 
 £10 and £15, or between £15 and £20 ; while 
 those living in houses under £10 are, absolutely, 
 scarcely more, and, relatively, fewer, than they were 
 ten years ago. Of course one most important modi- 
 fying consideration must be borne in mind in con- 
 nexion with this change. It may be due to a rise 
 in rents ; it may be due to the fact that the working- 
 class are compelled to pay more than they did 
 before for no better accommodation. I have little 
 doubt that in most cases accommodation is better; 
 
238 ADDRESSES ON ECONOMIC QUESTIONS 
 
 but whatever theory may be held on this point, there 
 stands the fact that at least the higher class of artisans 
 are paying higher rents than they used to pay ten 
 years ago, and that their wages enable them to pay 
 them. 
 
 Now if we saw that side by side with the increased 
 rent which the working men pay, — I trust for im- 
 proved houses, — they were obliged to diminish their 
 investments, or their expenditure in other directions, 
 then different conclusions would have to be drawn 
 from this fact of the increase in the number of houses 
 valued between £10 and £20. But when we look to the 
 statistics of what I may call the investments of the 
 working-classes, to see whether, in consequence of 
 having to pay more house-rent, these investments have 
 fallen off, we see, I rejoice to say, that this has not been 
 the case. The statistics with regard to Savings Banks, 
 to co-operative societies, to building societies, are well 
 known, and I would not cite them once more were 
 it not for their significance in relation to the large 
 increase in the number of houses between £10 
 and £20 just explained. Side by side with that in- 
 crease the working-classes have been able to make 
 enormous additions to their investments, certainly 
 one of the most satisfactory signs of the day. I 
 look upon it that the working-classes through the 
 Savings Banks and through their Friendly Societies 
 are beginning to appear in the character of capi- 
 talists, just as by means of building societies they 
 are becoming land and house owners, and by means 
 of co-operative societies traders and men of busi- 
 ness. No doubt it is said that the returns of the 
 Savings Banks are no complete evidence of the 
 welfare of the working-class, because the lower 
 middle class contribute largely to these deposits. But 
 
INCREASE OF MODERATE INCOMES 239 
 
 whoever may be the depositors in them, they are at 
 all events not the wealthy. So in whatever propor- 
 tion the working-class and the class immediately 
 above them may contribute to these deposits, they 
 are at any rate evidence of increased prosperity and 
 racreased power of saving and investment in the 
 middle, as opposed to the upper strata of society. 
 Besides, the number of depositors shows that the 
 savings must be derived for the greater part from the 
 artisan and the labouring population. And so regarded, 
 they are a most satisfactory sjrmptom. The amounts 
 invested in the Savings Banks have this year for the 
 first time topped £100,000,000. Looking at their pro- 
 gress for the past decade, we find that both in the total 
 amount deposited and in the amount per head of popula- 
 tion they show a remarkable advance. In 1875 the 
 total amount of deposits was £67,600,000, or 40s. 9d. 
 per head of population ; and in 1886 it was £97,700,000, 
 or 52s. 9d. per head. But the Savings Banks are not the 
 only investments of the working-class : there are also 
 the important industrial and provident societies ; and 
 here again we find a most satisfactory increase. The 
 number of members, in round numbers, increased 
 from 480,000 m 1875 to 810,000 in 1885. The share 
 and loan capital grew from £5,600,000 to £10,700,000. 
 The amount of capital per member was £11 16s. in 
 1875, and £13 6s. in 1885. It is evident, therefore, 
 that in these societies, which are essentially working- 
 class enterprises, a constant increase of investment 
 has been going on. Then again the building societies 
 tell the same tale. Their ' liabihties,' which include 
 both share capital and loans (but loans which in many 
 cases are taken from their own members), have in- 
 creased from £20,900,000 to £53,100,000. 
 
 I should be glad if I had been able to add to the 
 
240 ADDKESSES ON ECONOMIC QUESTIONS 
 
 above statistics figures, as regards Friendly Societies, 
 which form an important element in the savings 
 made by a large section of the community. There 
 is, however, one table which I am able to submit 
 — not a very satisfactory table — showing the pro- 
 gress of the industrial companies, which are the 
 insurance companies of the poor. This table shows 
 that the annual premiums have increased from 
 £1,942,000 in 1880, to £3,550,000 in 1885, the 
 number of policies from 5,440,000 to 9,132,000, 
 and the amount insured from £49,000,000 to 
 £83,000,000. I do not quote these figures as any 
 evidence on the point with which I have just been 
 dealing, or as greatly affecting the position of what 
 I have called the aristocracy of the working-classes. 
 The great number of the policies — 9,000,000 — and the 
 small proportion which the life and annuity funds — 
 £4,392,000 — bear to this high figure, lead to the 
 conclusion that most of these pohcies are of very 
 small amount. Neither do I wish to commit myself 
 to any approbation of these companies as a form of 
 investment. Still, if they prove nothing else, the 
 figures point at least to an effort, and an increasing 
 effort, in the direction of thrift on the part of even 
 the poorest section of the community, and as such 
 may be included with other encouraging facts which 
 I have been able to record. 
 
 I do not know whether the statistics which I have 
 brought before you will to any extent have created 
 the same impression in your minds as they have 
 made on mine. To me it seems that, while some 
 people are crying out for the artificial reconstruction 
 of society on a Socialistic basis, a sort of silent 
 Socialism is actually in progress. There is a silent 
 
INCREASE OF MODERATE INCOMES 241 
 
 movement towards the further distribution of wealth 
 over a larger area, which, from whatever point of 
 view it is regarded, seems to me to be a matter for 
 national congratulation. No violent specifics have 
 been applied to produce it. The steady working of 
 economic laws, under a system of commercial and 
 industrial freedom, is bringing about the result I have 
 described. We see it most clearly in the case of the 
 middle class. We see it clearly, though not quite 
 so clearly, in the aristocracy of the working-class. 
 The influence is permeating society downwards. May 
 we not hope — nay, confidently reckon — that that 
 progress will continue, and will ultimately affect even 
 that vast mass of the labouring population whom, it 
 may be admitted, it has not yet reached, and who, if 
 their position has somewhat improved, as it certainly 
 has, have been benefited not by obtaining a share in 
 accumulated v/ealth, but by the greater cheapness 
 of what they buy with their wages. And the best 
 of this automatic Socialism is that it appears to operate 
 even in a time of depression. Despite the complaint 
 of absence of profit and of bad times generally, 
 despite want of work and the irregularity in the 
 employment even of those who have work, the great 
 central body of society is strengthening its economic 
 position. 
 
 I feel I have done scant justice to the important 
 proposition which I have laid before you to-night, 
 but my object will have been attained if I have 
 inspired others to examine it more fully. It is 
 a theme worthy of the study not only of statisticians, 
 but of every one interested in social and even in 
 political problems, because I believe and trust that 
 that greater diffusion of wealth, which I hope is no 
 
 K 
 
242 ADDRESSES ON ECONOMIC QUESTIONS 
 
 chimera, but a real fact of these times in which we 
 live, will be a source of increasing comfort to increas- 
 ing numbers in the community, and will also add 
 power and stability to our institutions at large. 
 
THE INCREASE OF MODERATE 
 INCOMES 
 
 A Supplemental Study 
 
 In the course of the foregoing address I took 
 occasion to point out to statisticians that the question 
 of the comparative growth in the number of moderate 
 incomes, and of the tests by the light of which it 
 might be examined, offered a most interesting field 
 for research. So far as I myself have been able to 
 ascertain, the challenge has not been taken up, at 
 least as a whole. Much excellent work has been done 
 in various branches of the subject. The rise in the 
 incomes of the higher strata of the working class 
 has often been dealt with, — statistics abound in that 
 direction, — but on the special point to which I directed 
 attention in 1885 and 1887, not much evidence appears 
 to have been collected. The reason is probably to be 
 found in the difficulty of disengaging the various and 
 complicated factors which have to be examined before 
 any conclusions can be reached, and in the difficulty 
 of attaining any certainty. As I admitted in my 
 address, scarcely any of the calculations could pro- 
 fess to be scientifically accurate, a most discouraging 
 condition to the scientific student. All that I could 
 claim was to show the existence of tendencies, and, by 
 comparing like with like over a course of years, to 
 endeavour to counterbalance the distiirbing causes 
 which prevented real accuracy. 
 
 B 2 
 
244 ADDRESSES ON ECONOMIC QUESTIONS 
 
 In the absence of any examination similar to my 
 studies of 1887, I have tried myself, so far as it lay 
 in my power, to bring the figures given in that year 
 up to date, following precisely the same methods as 
 I adopted before. 
 
 Unfortunately for the inquirer the methods by 
 which the Income Tax is levied, and the grouping of the 
 figures by the Inland Eevenue in their tables, have 
 naturally been devised from the point of view of ad- 
 ministrative efSciency, not for the purpose of scientific 
 inquiry ; and, as previously explained, all deductions 
 to be drawn from the published accounts and reports 
 have to be accompanied by harassing quahfications. 
 I found myself confronted at the very commencement 
 of my present investigation by the discovery that 
 changes in the arrangement of the returns make it 
 impossible to construct consecutive tables for the last 
 eighteen years corresponding to those published in 
 1887, Small but heart-rending differences confuse the 
 statistician. For instance, latterly, the lower Umit of 
 assessment has been taken at £160 instead of £150^ 
 apparently a trifling change, but in consequence all 
 the £8-a-week-men, a very large class, are excluded 
 from the statistics. Thus, the number of Income 
 Tax-payers between £160 and £500, the lowest 
 class now given in the tables, cannot be compared 
 with the class between £150 and £500, formerly the 
 lowest. 
 
 Above the £500 class variations are not so serious, 
 but stUl they hamper comparisons ; in one set of 
 figures, for instance, the limit is taken at £500 and 
 under £1,000 ; in the other at ' exceeding £500 and not 
 exceeding £1,000.' Thus the comparisons can only be 
 made for the period during which the statistics are 
 given on the same system. I proceed to state them 
 
INCREASE OF MODEEATE INCOMES 245 
 
 in the best form in which they can be presented for 
 that end \ 
 
 Beginning with 1888, the same form was kept up 
 tiU 1893 ; in this period the increase in the number 
 of assessments imder Schedule D of Trades and Pro- 
 fessions was as follows ^ : — 
 
 At and under £500 increase 4 18 per cent. 
 „ £500 „ £1,000 „ 5-32 
 
 „ £1,000 „ £5,000 „ 9-46 
 „ £5,000 and over „ 6-21 „ 
 
 I now recall, for purposes of comparison, the per- 
 centages of increase similarly classified during the ten 
 years previous to 1887. 
 
 The assessments 
 
 Between £150 and £500 increased by 19-26 p. c. 
 
 Between £500 and £1,000 were stationary. 
 
 Above £1,000 decreased. 
 The contrast seems great. It will be seen how the 
 ratio of increase has changed. Fortunately there is 
 no set-back in any class. There is growth of the 
 numbers in every class, but the moderate incomes, 
 so far as they are revealed by the assessments under 
 Schedule D, no longer increase in number in the same 
 proportion as those above them. 
 
 Passing to the next period, 1894-5 to 1897-8, the 
 lowest assessment under Schedule T> in the tables 
 constructed by the Inland Revenue is £160 instead 
 of £150, and the hmits are otherwise changed. Com- 
 parisons with the previous period would therefore be 
 fallacious. But, within the period itself, the changes 
 in the number of assessments were as follows : — 
 
 1 The figures for 1886-7 and 1887-8 are not available. 
 ^ The numbers in each category are given in Appendix II, 
 Table AA, p. 265. 
 
246 ADDEESSES ON ECONOMIC QUESTIONS 
 
 Between £160 and £500 increase 10 per cent. 
 
 £500 „ £1,000 „ 3-69 
 
 £1,000 „ £5,000 „ 5-64 
 
 „ £5,000 and over „ 12-78 „ 
 
 The table of the last period for which figures have 
 been published, 1898-9 to 1902-3, includes some 
 assessments of incomes from certain 'particular con- 
 cerns,' and other interests not in the tables of pre- 
 ceding years, which prevents their amalgamation in a 
 provoking manner ; but during the years it deals with, 
 the increase ia the numbers of each category was as 
 
 follows : — 
 
 per cent. 
 
 Exceeding £160 and not exceeding £500 increase 303 
 
 £500 „ „ £1,000 „ 6-51 
 
 £1,000 „ „ £5,000 „ 5-24: 
 
 „ £6,000 and over „ 6 84 
 
 Here, again, as in the preceding tables, the highest 
 percentage is in the increases of incomes of £5,000 
 and upwards, and the general effect presented by the 
 assessments imder Schedule D suggests that the smaller 
 middle-class incomes no longer multiply with a faster 
 proportionate growth than those of the higher grades. 
 
 Hitherto I have, as far as possible, proceeded in my 
 examination of middle-class incomes on the same lines 
 as I followed in 1887, But the Income Tax statistics 
 since the wide introduction of abatements offer fresh 
 and in some respects more trustworthy materials for 
 information — a mine of information which, so far as 
 I know, has hitherto been very little explored. As 
 has already been pointed out, the system of collecting 
 the tax at the source, and the assessment of the same 
 individual incomes under different schedules, make it 
 
INCKEASE OF MODERATE INCOMES 247 
 
 impossible to obtain more than very general results, 
 valuable for the purpose of comparison, but not 
 accurate as regards the actual number of tax-payers 
 belonging to a particular class. But when tax-payers 
 claim abatements the searching machinery of the 
 Inland Eevenue Department is at once set in motion ; 
 and we may rely, I am sure, on no abatement being 
 given unless the limit of income of the claimant is 
 indisputably proved. The area of abatements now 
 covers all incomes from £160, the lowest point at 
 which the State demands the tax, up to £700, the 
 highest to which what is called ' generosity ' has 
 now extended a substantial privilege. The statistics 
 published by the Inland Eevenue now afford the means 
 of ascertaining with certainty at least the minimum 
 number of individuals who pay Income Tax on 
 incomes between £160 and £700 ; that number is 
 officially certified to have been either admitted at once 
 to be entitled to abatements or to have been proved 
 to be so after a minute inquisition. This, then, is the 
 minimum number. We know for certain that, though 
 there may be more, there is certainly this minimum 
 number of middle-class incomes within the limits speci- 
 fied. But it is not the maximum, because doubtless 
 many persons from some reason or other fail to claim. 
 If all claimed the abatement to which they are entitled, 
 under all conditions of knowledge and of willingness 
 to undergo the necessary formahties, the number of 
 tax-payers below £700 would certainly be shown to 
 be considerably larger than the Income Tax returns 
 exhibit. 
 
 The number who have actually obtained abatements 
 are as foUows. I take the first years in which abate- 
 ments were allowed, and the last years for which 
 statistics were pubHshed, 1902-3 : — 
 
248 ADDRESSES ON ECONOMIC QUESTIONS 
 
 Incomes exceeding £160 but not exceeding £400. 
 Number on which abatements were granted : 
 
 in 1894-5 . . 436,325. 
 
 „ 1897-8 . . 481,306. 
 
 „ 1898-9 . . 495,791. 
 
 „ 1902-3 . . 575,474. 
 
 Incomes between £400 and £500. 
 
 Number on which abatements were granted : 
 
 in 1894-5 . . 13,015. 
 
 „ 1897-8 . . 26,056. 
 
 „ 1898-9 . . 31,669. 
 
 „ 1902-3 . . 49,680. 
 
 Incomes exceeding £500 but not exceeding £700. 
 Number on which abatements were granted : 
 
 in 1898-9 . . 15,050. 
 
 „ 1902-3 . . 38,119. 
 
 If the above figures could be taken as the true 
 figures of the incomes between the respective Hmits, it 
 would appear that there has been an immense increase 
 in every category. In the two highest the number 
 has more than doubled. But a proportion of this 
 progress is certainly the result of the greater urgency 
 in claiming abatements due to two causes, the growing 
 rate of the impost, which stood at Id. in 1893-4 and 
 at Is. Bd. in 1902-3, and the activity of the agencies 
 who advertise their expert assistance in guiding the 
 tax-payer, unaware of his privileges, through the 
 technical formalities necessary to enforce his claim. 
 That the recipient of a moderate income should take 
 more trouble to extract an abatement from the 
 Exchequer when the impost is high than when it is 
 low, stands to reason. But, making ample allowance 
 for these causes, it seems clear that the increase in the 
 nimiber of persons in receipt of incomes between £160 
 
INCEEASE OF MODEEATE INCOMES 249 
 
 and £700 has, as is shown by these statistics of abate- 
 ments, been very large indeed. The figures appear 
 to me very significant. They distinctly modify the 
 evidence as to an apparent slower increase in these 
 incomes, which the assessments alone, before the 
 deduction of abatements, would seem to convey. 
 
 But this apparently slower advance in the number 
 of moderate incomes under Schedule D is to be ex- 
 plained by a further cause. Another very important 
 factor must be taken into consideration. The con- 
 tinuous expansion of the joint -stock companies' 
 system, and the tendency to the amalgamation of 
 a number of smaller concerns into larger organiza- 
 tions, which has become more and more pronounced, 
 check the increase of numbers in the class of smaller 
 tradesmen and their employes assessed under Schedule 
 D, while, on the other hand, they increase the number 
 of employes under public companies. These, together 
 with the employes of raunicipalities and the members 
 of the Civil Service, the Army and the Navy, are 
 assessed under Schedule E. 
 
 Turning to this schedule, and omitting public 
 servants for the moment, we find an extraordinary 
 grovd;h in the numbers of those assessed. The almost 
 feverish development of municipal enterprise must 
 account for a considerable proportion, but the main 
 increase is in the employes of companies. Taking 
 the two classes (municipal and company officials) 
 together, the number has risen from 116,000 to 
 272,000 during the last twenty years ! No wonder 
 that the number of assessments of moderate incomes 
 under Schedule D does not expand in the same 
 proportion as in the earHer period. Not only has 
 there been a transfer of salaried men from private 
 firms to public companies, but a certain number of 
 
250 ADDRESSES ON ECONOMIC QUESTIONS 
 
 the smaller tradesmen have probably themselves been 
 transferred from the column of independent concerns 
 under Schedule D to the vast corps of salaried employes 
 under Schedule E. 
 
 Taking Schedule E as a whole, if we add to the 
 272,000 employes of companies and municipalities, — 
 (the number in the year 1902-3),— the 82,000 public 
 servants who were assessed under this same schedule 
 in the same year, the total reached is 354,000. The 
 great bulk of these were in receipt of salaries which 
 may be classified as moderate, mostly very moderate, 
 middle-class incomes. The immense growth of this 
 class is clearly a contributing factor to the slower 
 growth of moderate incomes under Schedule D. 
 
 It is possible by taking Schedules D and E together 
 to arrive at the total of persons assessed as employes. 
 In the year 1902-3 those assessed under the former 
 were 81,000 ; under the latter, as we have seen, they 
 were 354,000. Thus the total is 435,000. Almost 
 the whole of this multitude must be included in the 
 575,000 who were granted abatements in the same 
 year. The figures confirm each other reciprocally. 
 Both show the great growth in middle-class incomes, 
 and neutralize the first effect of an examination of 
 the assessments under Schedule D, which, unexplained, 
 would convey the impression that the rate of that 
 growth had been checked. The tables show that not 
 more than 30,000 enjoy salaries above £500 a year \ 
 
 Notwithstanding all the difficulties which the arrange- 
 ments of the statistics of the Income Tax present, 
 some not unimportant results have, it is hoped, been 
 
 ' Of course the reader will not fail to remember that in neither 
 schedule are employes earning less than about £3 a week included. 
 
INCEEASE OF MODEEATE INCOMES 251 
 
 obtained from their study. The main obstacles, 
 however, to their accuracy he, as has been re- 
 peatedly said, in the assessments not representing tax- 
 paying units. Death-duties, barring other disturbing 
 causes, ought to furnish more trustworthy results 
 because here at all events 'estates' spring from 
 persons, not from firms or companies. The dead 
 man's property is isolated and is a unit for taxing 
 purposes. But it is much to be regretted that here 
 agaia the statistical inquirer encounters formidable 
 obstacles. The changes in the death-duties render it 
 almost impossible to extract any definite and trust- 
 worthy inferences from the figures which chronicle 
 their yield. No comparison whatever can be made 
 between the present statistics of these duties with 
 those of the period with which I dealt in 1887, as 
 the whole system is altered by the substitution of 
 one ' Estate Duty ' for the various death-duties, the 
 Probate Duty, the Succession Duty, the Legacy Duty, 
 which existed before the famous legislation of 1893. 
 And, even as regards the last nine years, it is not pos- 
 sible to compare the latest figures very profitably with 
 the first. I print in the Appendix a table ^ giving the 
 number of ' estates ' of different value from 1895-6 
 to 1903-4 2. As single years in respect of receipts 
 from death-duties may be subject to abnormal fluctua- 
 tions, it is safest to make comparison over longer 
 periods. In attaching percentages of increase to the 
 table classifying fortunes of different values, I have 
 accordingly divided the last nine years into two 
 periods, the one including the four years 1895-6 to 
 
 1 Extracted from the Torty-seventh Eeport of the Commissioners 
 of Inland Eevenue. Vide Appendix II, Table DD, p. 269. 
 
 ^ As the new duties were in force during a part only of 1894-5, 
 it must be excluded from any comparison. 
 
252 ADDRESSES ON ECONOMIC QUESTIONS 
 
 1898-9, the other the five years from 1899-1900 to 
 1903-4. 
 
 The result has turned out to be entirely unsatis- 
 factory from the statistical point of view, beyond 
 eliciting the undoubtedly interesting fact that, from 
 the estates not exceeding £300 gross value to estates 
 of £1,000,000 and upwards, there is some increase in 
 the number of each class, that is to say, some increase 
 in the number of fortunes at every level of value. In 
 the lowest there is an increase of 18-7 per cent., in 
 the highest of 14-3, but in the intermediate amounts 
 we are staggered by quite unintelligible differences. 
 For instance, in the class between £75,000 and 
 £100,000 the increase was only 007 per cent., while 
 in the class between £100,000 and £150,000 the 
 increase was 14-3 per cent. Why should there be this 
 halt in the one class, this sudden leap in the other, 
 both belonging to the well-to-do ? The extraordinary 
 law of close averages in the death rate, on which I 
 commented in 1887, has ignominiously broken down. 
 
 The class of estates which increased most in num- 
 bers was that between £500 and £1,000, the percentage 
 being 21:-6, an encouraging economical and social fact. 
 The untrained reader must not forget that an estate 
 of £1,000 will not give the legatee more than £40 or 
 £50 a year. It certainly does not convey riches. 
 
 I have indicated some isolated features, but the 
 fact is that the period is too short, and the numbers 
 in each class of estates, especially in those over 
 £25,000, too small, for percentages to be very in- 
 structive. An outbreak of influenza in 1899-1900, 
 with a high rate of mortahty, brought up the per- 
 centage growth, particularly at the higher range, e.g. 
 in the class from £100,000 to £150,000, and in that 
 over £1,000,000, to an abnormal height. Of million- 
 
INCREASE OF MODEEATE INCOMES 263 
 
 aire estates twelve paid their heavy toll of 8 per cent. 
 In the following years the numbers were respectively 
 9, 8, 4, 7. It may be interesting to note that in the 
 nine years under review, sixty-nine of such fortunes — 
 on an average 7^ annually — had to endure the stroke 
 of the heaviest axe wielded by the Inland Revenue. 
 
 I fear I must admit that no real light is shed by 
 the table as a whole on the problem as to how the 
 development of middle-class fortunes compares with 
 that of larger accumulations. The startling variations 
 between successive grades in the scale admit of no 
 generalization, and if we have not found institiction 
 in the progressive numbers of estates of different 
 value, not much help is to be found by examining 
 their capital value classified in a similar way over 
 the same period. The varying rate of mortality 
 amongst millionaires operates here in an even more 
 disturbing fashion. For instance, in the influenza 
 year, 1899-1900, the total value of their estates was 
 in round figures £28,173,000; in the preceding year 
 it was £11,665,000 ; in the succeeding year, 1900-1, 
 £13,603,000. But in 1901-2 the aggregate of such 
 fortune presented itself to the tax-gatherer to the 
 colossal amount of £38,530,000 ; while in the last 
 year for which I have figures, 1903-4, the Chancellor 
 of the Exchequer had to deplore the fall of this most 
 lucrative subject of extortion to £14,605,000 ^ 
 
 Other qualifying circumstances, besides the uncer- 
 tainty of human life, make it useless to apply per- 
 centages for the purposes of marking the growth in 
 numbers of estates of different values. In many cases 
 the payment of duty is long delayed owing to the 
 complication of accounts ; in others, the faculty to 
 pay the duty on real property by instalments, intro- 
 ^ See Appendix II, Table DDD, pp. 270-271. 
 
254 ADDRESSES ON ECONOMIC QUESTIONS 
 
 duces an obviously disturbing factor. Again, I have 
 ascertained that in 1901-2 special efforts to sweep in 
 arrears caused the swollen figures of that year to out- 
 strip all previous amounts before or since. Lastly, 
 the rise or fall in securities may abnormally affect the 
 value of different estates in some years. 
 
 Of a possible leakage owing to the occasional freaks 
 of rich men who part with portions of their property 
 before their decease, I will say nothing. 
 
 All the above considerations make it unsafe, as 
 I have explained above, to judge from percentages 
 of the relative increase of capital left at death in the 
 various classes. 
 
 Is the table, then, useless? I think not, because 
 though no analysis of percentages, by way of com- 
 parison of different years, would be profitable, yet the 
 aggregate throws some interesting light on the pro- 
 portion of capital furnished by different classes of 
 fortunes left at death for taxing purposes. 
 
 It may be noted, for instance, that of the total net 
 capital taxed for death-duties in 1903-4, viz. in round 
 figures £264,000,000, £77,000,000 or 29 per cent, 
 consisted of estates not exceeding £10,000, and 
 £150,000,000, or nearly 57 per cent., of estates not 
 exceeding £50,000 in value. 
 
 Such figures and conclusions, coupled with those 
 which I have presented from the Income Tax returns, 
 are not immaterial when opinions are formulated as 
 to the distribution of wealth in the community. As 
 I suggested, in the introductory note to this address, 
 they may help to correct the loose impressions to which 
 too often currency is given, that the splendid yield of 
 these forms of taxation mainly point to the prosperity 
 of the so-called 'millionaire.' Amongst those who 
 have given little attention to the subject it may excite 
 
INCEEASE OF MODEKATE INCOMES 265 
 
 some surprise that the estates below £50,000 capital 
 value count for considerably more in the vast total 
 of property left at death than those above that com- 
 paratively moderate line. 
 
 If I have to admit that the many figures with which 
 I have troubled, but, I hope, not confused the reader, 
 throw little light on the special subject of the pre- 
 ceding address, I venture to submit, in the first place, 
 that I was bound to examine them in the hope of 
 a more successful quest, and in the next, that, though 
 I have found Httle light where I desired it most, 
 interesting side-lights have been thrown on some im- 
 portant points, if not directly germane to the inquiry, 
 yet illustrative of economic progress, and not uncon- 
 nected with the distribution of wealth. 
 
 It may be worth while to recall some of the other 
 economic tendencies examined in the address, with 
 a view to ascertaining whether in their case any 
 serious changes can be discerned, or, if not, to what 
 extent they have continued to develop in the same 
 direction. 
 
 The most striking phenomenon, after those exhibited 
 by the examination of taxation, was undoubtedly the 
 revolution in the diffusion of profits effected by the 
 enormous strides in the a doption of the joint-stock 
 company system. I called attention to the matter 
 from two points of view — the evidence afforded of 
 the powers of investment by the community at large, 
 and the greater diffusion of wealth due to the multi- 
 tude of those who under this system shared in the 
 profits of business. Where have the savings come 
 from which have enabled this multitude to become 
 shareholders in these companies ? To a great extent 
 
256 ADDRESSES ON ECONOMIC QUESTIONS 
 
 they belong to the distributive class. Their numbers 
 show that they do not represent the wealthy alone, 
 and they continually increase. In this instance the 
 trend of affairs which existed in the period 1877-87, 
 shows no change whatever. In this respect both the 
 powers of investment inherent in the middle class, 
 and their increasing participation in the results of 
 trade and business generally, are not less marked than 
 before. The process is in fuU, and even intenser, 
 operation. 
 
 Here are some of the figures. 
 
 The paid-up capital of all registered companies was 
 in round numbers : — 
 
 In April, 1877, £307,000,000. 
 1887, £591,000,000. 
 1903, £1850,000,000. 
 
 Surely stupendous amounts, and instructive as showing 
 by their magnitude how large a proportion of the 
 business of the country is concentrated in the hands 
 of joint-stock companies. But can it be shown that 
 the number of shareholders increases in the same 
 ratio as the capital? 
 
 I have no figures to show the aggregate number of 
 shareholders in the 37,287 companies given as the 
 total registered on April 1, 1904, but, following the 
 same method which I adopted in 1887 when I 
 examined the changes in the number of shareholders 
 in a group of companies of various categories taken at 
 random, I have come on analogous results in a compari- 
 son of the present situation with that of eighteen years 
 ago, and I have again taken at random, and examined 
 the cases of a certain number of companies of different 
 kinds. In one great bank the number of shareholders 
 has risen from 7,407 in 1885 to 15,701 in 1904. An 
 
INCEEASE OF MODEEATE INCOMES 257 
 
 addition of 36 per cent, to its capital has been made 
 during the same period, but the number of share- 
 holders increased meanwhUe by more than 100 per 
 cent. In another bank I found that the average 
 holdings per shareholder had fallen from £210 to 
 £160. A Life Insm-ance Company, showing a largely 
 increased number of shareholders, told the same tale ; 
 the holding of each shareholder had fallen from 211 to 
 112 \ The capital was distributed over a larger number 
 of shareholders. A constantly expanding distribution 
 has been in progress. Instances need not be multi- 
 plied. Alterations in the constitution or capital of 
 companies often compHcate the calculation. But the 
 general result may be taken as xmquestionable. The 
 number of shareholders has grown, even in a much 
 larger ratio than the colossal growth of the aggregate 
 capital ; the profits and risks of nearly every kind of 
 business have been spread from year to year over fresh 
 thousands of individuals, and the middle class with 
 moderate incomes are more and more participating in 
 that accumulation of wealth from business of every 
 description which formerly buUt up the fortunes of 
 individual traders, or of bankers, or of single families. 
 Individuals, of course, still amass vast riches ; capital 
 still breeds capital ; the successful speculator still 
 rakes in his immense gains, but private firms, families 
 and individuals no longer enjoy their former monopoly: 
 the humble shareholder claims his part. 
 
 As in 1887 I tuj^u to a form of investment or 
 
 ^ It has been pointed out to me that frequently partners in 
 firms, or employers, place a number of shares belonging to them 
 in the names of their employes from various motives, but in view 
 of the immense number of shareholders and their constant 
 increase, I doubt whether this practice can be considered as 
 a seriously disturbing factor. 
 
 S 
 
258 ADDEESSES ON ECONOMIC QUESTIONS 
 
 expenditure — for in some respects it is both — which 
 throws some further hght on the means of the middle 
 class — I mean Life Insurance. The increase in the 
 business of Life Insurance generally is notorious. The 
 question is, does this growth of business spring from 
 insuring for higher sums, or from an accession of 
 numbers insuring their lives for smaller sums ? The 
 answer in 1887 was not doubtful, it is not doubtful now. 
 In the period 1877-86, the total amount insured had 
 risen by £37,000^000 1, but the average policy per 
 head had faUen from £492 to £465. What has 
 happened since is still more striking. The reduction 
 in the average amount of policy has been extraordinary 
 and continuous. It is found in every quinquennium. 
 The total amount insured between 1886 and 1903 has 
 risen from £421,000,000 to £686,000,000, but the 
 average policy fell as follows : — 
 
 In 1886 the average amount of the poHcies 
 
 taken out was £465 
 
 In 1891 it was £401 
 
 In 1896 it was £365 
 
 In 1901 it was £323 
 
 In 1908 it was £307 
 
 The amount insured was distributed over a vastly 
 increased area. 
 
 The policies had increased in number from 905,000 
 to 2,234,000. Notwithstanding bad trade and high 
 taxation, the class of men who insure their lives for 
 moderate sums have in ever-increasing numbers flocked 
 to the insuring companies, surely a satisfactory sign in 
 every respect. 
 
 Finally, in my review of the economic movements 
 
 ' I am informed that the extraordinary ' touting ' by agents of 
 the Insurance Companies may account for part of the increase. 
 
INCEEASE OF MODEKATE INCOMES 259 
 
 affecting moderate incomes, I examined the different 
 levels of value of the houses in which their possessors 
 dwelt, and, so far as they belonged to the distributive 
 class, the shops in which they traded. I recall that 
 there was a constant increase in the number of houses 
 inhabited by the less weU-to-do, whereas, during the 
 last five years prior to 1887 — owing, as I believed, to 
 the depression of trade — the number of inhabited 
 houses of higher value had actually declined. With 
 the general impression that house -rent is always 
 rising, it seemed surprising that in any period there 
 should have been an actual decline in the number of 
 houses valued at over £1,000 a year, and only the 
 slightest increase in the case of those between £500 
 and £1,000. Such a surprise is no longer in store for 
 those who look at the corresponding statistics of later 
 years. A notable increase, as one would expect, has 
 taken place in the number of highly-rented houses, 
 also a very large increase in houses under £100 in 
 value. The percentage of increase is smallest and not 
 even equal to the increase in population in the 
 number of houses at £100 and under £400. This 
 mysterious drop, whUe both below and above the 
 limits of this class there is a large increase, presents 
 a problem which I am unable to solve, and I will not 
 embark in the dangerous diversion of fantastic specula- 
 tion. What is a tangible and satisfactory fact, irre- 
 spective of its bearing on the position of different 
 classes, is that the total number of dwelling-houses 
 during the last twelve years for which I have had 
 figures supplied me, has increased by 44 per cent., 
 while the population has probably not increased by 
 more than 12 per cent. The baffling figures will be 
 found in the Appendix i. 
 
 1 Vide Appendix II, Table HH, p. 275. 
 S 2 
 
260 ADDEESSES ON ECONOMIC QUESTIONS 
 
 In the case of shops, in which that large proportion 
 of the possessors of moderate incomes, who belong to 
 the distributive class, is specially interested, no very- 
 striking change has taken place ; but the general effect 
 of the statistics of the Inland Eevenue is to indicate 
 that there is, as in the case of dwelling-houses, a larger 
 percentage of increase than in the population, and that 
 the percentage in the case of the shops of highest 
 rentals is the greatest. The drift discerned in the 
 former period towards the increase of great establish- 
 ments is once more very notable, but, while it may 
 have affected the profits, it does not seem to have 
 affected the continuous growth in the numbers of the 
 smaller shops. The happy fact that in every class, 
 except in shops at £20 and under £25, the increase is 
 greater than the increase in the population, may be 
 regarded as a not unsatisfactory symptom of a growing 
 purchasing power on the part of the community and 
 the development of increased business on the part of 
 the sellers. 
 
 To sum up the results of this supplemental study of 
 'moderate incomes' as compared vsdth the results 
 of my former examination, I submit that the evidence 
 from the assessments under Schedule D alone no longer 
 points, as in the earlier period, to a growth in the 
 number of those incomes greater in proportion than 
 that of the larger incomes ; that any inference drawn 
 from this test alone must be qualified by the fact of 
 the transfer from Schedule D of many holders of 
 moderate incomes — employes for the most part — to 
 Schedule E ; that this schedule shows a very large 
 increase of men in receipt of moderate incomes, and 
 that a review of the number of successful claimants 
 of abatements under all the schedules gives con- 
 
INCEEASE OF MODERATE INCOMES 261 
 
 firmatory testimony in this respect ; that the ' Death 
 Duties' statistics do not yet cover sufficient ground 
 to offer sufficiently strong evidence on which to form 
 a judgment ; and that the remaining tendencies to 
 which I called attention, the distribution of the capital 
 of joint-stock companies over a largely increased 
 number of shareholders, the immense increase in Life 
 policies of moderate amounts, the satisfactory growth 
 in the number of dweUing-houses and shops at various 
 degrees of assessments — aU largely in excess of the 
 grovviih in population — are revealed by the statistics 
 of the last eighteen years to be even more pronounced 
 than in the period of my earHer review. 
 
 In 1887 I added to my survey of 'middle-class 
 incomes ' some examination of the progress of that 
 portion of the working-classes which approached most 
 nearly to the Income-Tax line, applying some similar 
 tests to those which I applied to the classes at and 
 above that line. I have not thought it necessary to 
 bring that part of the address up to date, except in so 
 far as I provide tabular statistics which may be use- 
 fully set side by side with those attached to my 
 original investigation. The whole subject of the 
 progress and condition of the working-classes has 
 been so exhaustively treated during late years, in such 
 numerous volumes, such series of blue books, such a 
 deluge of pamphlets, that no short comparison, such as 
 alone would be appropriate to these pages, between 
 the two periods to which I have drawn attention, 
 would convey much information beyond that with 
 which the public has been so abundantly supplied. 
 
 I have accordingly confined myself in this supple- 
 mental study to the question which forms the real 
 subject of the address itself — the growth of middle- 
 
262 ADDEESSES ON ECONOMIC QUESTIONS 
 
 class incomes, a field to which, in my humble judg- 
 ment, sufficient attention has hardly been paid. As 
 I have remarked before, the methods of the Inland 
 Eevenue department do not contribute sufficiently 
 to this class of research. Nor does there appear to be 
 enough co-ordination between the various official 
 centres which distribute statistical information. The 
 Statistical Abstract issued by the Board of Trade is 
 a mine of wealth and supplies some materials from 
 the Customs and the Inland Eevenue, but the labours 
 of the latter department have not been sufficiently 
 utilized for statistical purposes. It has often occurred 
 to me that our national statistics should be con- 
 centrated under one head, whose business it would be 
 to take a wider survey than the mere tabulation of 
 figures suppHed by others, who should not only 
 publish what was brought to him, but consider scien- 
 tifically what further materials, useful as throwing 
 light on the economic condition of the country, might 
 be extracted from official records and be made avail- 
 able by systematized arrangement for public use. 
 The tedious examination undertaken in these pages 
 of tables constructed on different principles, defying 
 comparison which, if practicable, would be of great 
 economic as well as of financial importance, would 
 not have been made in vain if it should call effective 
 attention in the proper quarters to the need of reforms 
 in this respect. 
 
INCEEASE OF MODEEATE INCOMES 263 
 
 APPENDICES I AND II 
 
 Note. 
 
 Appendix I was printed with the original address in 
 the Journal of the Statistical Society. I have con- 
 structed Appendix II to bring the figures in the former 
 pubhcation, as far as possible, up to date. The tables 
 in Appendix I are printed on the left-hand page, and 
 those in Appendix II on the right, so that the new 
 tables may face the old in the same order. The old 
 tables are marked with single letters A, B, &c., the 
 corresponding later tables with the double letters AA, 
 BB, the object being to enable comparisons between 
 the two to be made at a glance. 
 
 DDD is a new table in Appendix II, to which there 
 is no corresponding table in Appendix I. 
 
264 
 
 APPENDIX I 
 
 Table A. — Number of Income Tax Assessments under Schedule D. 
 {Individuals and Private Firms.) 
 
 Between £150 and £1,000 
 £1,000 and upwards . 
 
 1877. 
 
 317,939 
 
 22,848 
 
 1886. 
 
 379,064 
 22,298 
 
 Per cent. 
 
 Increase. 
 
 19-26 
 
 Decrease. 
 240 
 
 Table B. — Income Tax Assessments under Schedule D. 
 
 {Individuals and Private Firms) 
 
 Further analysis. 
 
 Between £150 and £500 . 
 „ £500 and £1,000 
 
 „ £1,000 and £5,000 
 Over £6,000 . 
 
 1877. 
 
 285,754 
 32,085 
 
 19,726 
 3,122 
 
 1886. 
 
 347,021 
 32,033 
 
 19,250 
 3,048 
 
 Per cent. 
 
 Increase. 
 
 21-4 
 nH 
 
 Decrease. 
 Per cent. 
 
 2-5 
 2-3 
 
APPENDIX II 
 
 265 
 
 Table Ak.— Number of Income Tax Assessments under Schedule B. 
 
 (Trades and Professions only.) 
 
 Period 1888-9 to 1893-4. 
 
 £150 and under £500 
 £500 „ £1,000 
 
 £1,000 „ £5,000 
 
 £5,000 and over . 
 
 1888-9. 
 
 347,520 
 
 31,084 
 
 18,665 
 
 2,965 
 
 1893-4. 
 
 362,048 
 
 32,737 
 
 20,431 
 
 3,149 
 
 Increase per cent. 
 
 4-18 
 5-32 
 946 
 6-21 
 
 This table is confined to trades and professions and employments exercised 
 by persons and firms. 
 
 Table AAA. — Trades and Professions only (Schedule B). 
 Period 1894-5 to 1897-8. 
 
 Exceeding 
 
 £160 and not exceeding £500 
 
 £500 „ „ £1,000 
 
 £1,000 „ „ £5,000 
 
 £5,000 
 
 1894-5. 
 
 278,370 
 26,790 
 17,146 
 
 2,785 
 
 1897-8. 
 
 306,200 
 
 27,779 
 
 18,113 
 
 3,141 
 
 Increase 
 per cent. 
 
 1000 
 3-69 
 5-64 
 2-78 
 
 The difference between this table and the preceding one consists in the 
 limits of income in each class. For instance, in the preceding table, line 2 
 shows assessments of exactly £500 and under £1,000, whilst in this table the 
 same line shows assessments exceeding £500 and not exceeding £1,000. 
 
 Table BB. — Persons, Firms, and Employes (Schedule D). 
 Period 1898-9 to 1902-3. 
 
 
 1898-9. 
 
 1902-3. 
 
 il 
 
 Exceed- and not 
 ing exceed- 
 ing 
 
 Per- 
 sons. 
 
 Firms. 
 
 Em- 
 ployees. 
 
 Total. 
 
 Per- 
 sons. 
 
 Firms. 
 
 Em- 
 ployes. 
 
 Total. 
 
 H 0, 
 
 £160 £500 
 £500 £1,000 
 
 £1,000 £5,000 
 
 £5,000 
 
 212,971 
 
 17,922 
 
 7,035 
 
 568 
 
 24,888 
 
 10,975 
 
 12,403 
 
 2,891 
 
 75,424 
 
 2,519 
 
 443 
 
 4 
 
 313,283 
 
 31,416 
 
 19,881 
 
 3,463 
 
 219,462 
 
 19,726 
 
 7,850 
 
 659 
 
 25,498 
 
 11,145 
 
 12,638 
 
 3,039 
 
 77,807 
 
 2,590 
 
 435 
 
 2 
 
 322,767 
 
 33,461 
 
 20,923 
 
 3,700 
 
 3.03 
 6-51 
 5-24 
 6.84 
 
 This table includes a certain number of Assessments upon Firms and Persons 
 owning particular concerns, such as mines, waterworks, &c., and some other interests, 
 which, prior to 1898-9, were not classified according to amounts. 
 
 The figures in the column headed ' Employes ' should be read in conjunction with 
 the assessments in the following table CC, which shows the numbers of assessments 
 upon employes of Public Companies. The growth of companies involves the transfer 
 of assessments from Schedule D to Schedule E. 
 
266 
 
 APPENDIX I 
 
 Table C— Number of Assessments under Schedule E {exclusive of 
 Persons Employed in the Public Service). 
 
 1877 . 
 
 . 78,224 
 
 1880 . 
 
 . 87,724 
 
 1883 . 
 
 . 101,101 
 
 1885 . 
 
 . 112,008 
 
 1886 . 
 
 . 115,964 
 
APPENDIX II 
 
 267 
 
 Table CC. — Number of all Income Tax Assessments under Scliedule E. 
 
 Year. 
 
 Employes of Corporate Bodies 
 
 Army, Navy, and 
 
 Total. 
 
 
 and Public Companies. 
 
 Civil Service. 
 
 
 1888-9 
 
 130,862 
 
 79,821 
 
 210,683 
 
 1893-4 
 
 166,161 
 
 84,342 
 
 250,503 
 
 1894-5 
 
 155,752* 
 
 79,822* 
 
 235,574* 
 
 1897-8 
 
 187,240 
 
 85,262 
 
 272,502 
 
 1898-9 
 
 223,391 
 
 73,571 
 
 296,962 
 
 1902-3 
 
 272,500 
 
 82,100 
 
 354,600 
 
 * The decrease compared with 1898-4 was consequent on the 
 raising of the limit of exemption to £160. 
 
 Table CCC. — Number of Income Tax Assessments exceeding .£160 
 
 [Schedule E). 
 
 Exceeding £160 and not exceeding £500 . 
 
 £500 „ „ £1,000 . 
 
 £1,000 „ „ £5,000. 
 
 £5,000 
 
 1898-9. 
 
 148,048 
 
 16,740 
 
 4,151 
 
 53 
 
 1902-3. 
 
 191,327 
 
 20,978 
 
 5,099 
 
 89 
 
 A similar classification is not possible for years prior to 1898-9. 
 
268 
 
 APPENDIX I 
 
 Table D. — Probate Duty. 
 
 In 1885 
 „ 1886 
 „ 1887 
 
 Gross Amount. 
 
 £ 
 . 3,792,772 
 . 3,899,960 
 . 3,838,678 
 
 1885 
 1887 
 
 Total 
 Number 
 
 of 
 Estates. 
 
 59,016 
 60,480 
 
 Estates 
 Under 
 £1,000. 
 
 45,950 
 46,903 
 
 Percentage 
 of Total 
 Number. 
 
 77-86 
 77-55 
 
 Estates 
 
 Under 
 
 £20,000. 
 
 57,887 
 59,269 
 
 Percentage 
 of Total 
 Number. 
 
 98-08 
 97-99 
 
 
 In 1885. 
 
 In 1886. 
 
 In 1887. 
 
 Estates not exceeding £1,000 
 
 45,950 
 
 — 
 
 46,903 
 
 Between £1,000 and £5,000 
 
 8,782 
 
 — 
 
 9,094 
 
 £5,000 „ £10,000 
 
 1,938 
 
 — 
 
 2,032 
 
 „ £10,000 „ £20,000 
 
 1,217 
 
 
 
 1,240 
 
 „ £20,000 „ £30,000 
 
 389 
 
 — 
 
 444 
 
 „ £30,000 „ £40,000 
 
 208 
 
 — 
 
 228 
 
 „ £40,000 „ £50,000 
 
 145 
 
 — 
 
 140 
 
 „ £50,000 „ £100,000 
 
 246 
 
 — 
 
 255 
 
 „ £100,000 „ £150,000 
 
 61 
 
 — 
 
 64 
 
 „ £150,000 „ £200,000 
 
 32 
 
 32 
 
 33 
 
 „ £200,000 „ £250,000 
 
 16 
 
 16 
 
 17 
 
APPENDIX II 
 
 269 
 
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270 
 
 APPENDIX II 
 
 Table DDD. — Estates liable to 
 
 
 1895-6. 
 
 1896-7. 
 
 1897-8. 
 
 
 £ 
 
 £ 
 
 £ 
 
 1 Not exceeding £300 gross 
 
 2,830,000 
 
 2,839,000 
 
 2,964,037 
 
 Q 11 \ value. 
 EsTates Exceeding £300 but not 
 
 2,918,000 
 
 2,798,000 
 
 3,037,166 
 
 jibwies. 1 exceeding £500 gross 
 
 
 
 
 V value. 
 
 
 
 
 Net. 
 
 
 
 
 Exceeding £100, but not exceed- 
 
 
 
 
 ing £500 
 
 1,909,000 
 
 3,110,000 
 
 4,295,592 
 
 „ £500 „ £1,000 
 
 6,848,000 
 
 6,680,000 
 
 7,314,127 
 
 „ £1,000 „ £10,000 
 
 51,400,000 
 
 48,722,000 
 
 53,703,340 
 
 „ £10,000 „ £25,000 
 
 36,850,000 
 
 35,094,000 
 
 38,081,818 
 
 „ £25,000 „ £50,000 
 
 28,234,000 
 
 27,854,000 
 
 31,628,167 
 
 „ £50,000 „ £75,000 
 
 14,964,000 
 
 17,754,000 
 
 17,444,984 
 
 „ £75,000 „ £100,000 
 
 10,752,000 
 
 11,009,000 
 
 11,796,855 
 
 „ £100,000 „ £150,000 
 
 12,140,000 
 
 13,711,000 
 
 16,217,593 
 
 „ £150,000 „ £250,000 
 
 14,419,000 
 
 13,989,000 
 
 15,617,139 
 
 „ £250,000 „ £500,000 
 
 12,435,000 
 
 13,491,000 
 
 17,883,637 
 
 „ £500,000 „ £1,000,000 
 
 8,809,000 
 
 13,360,000 
 
 12,621,866 
 
 „ £1,000,000 
 
 8,725,000 
 
 5,441,000 
 
 14,735,614 
 
 Total Net Capital liable to Estate 
 Duty. 
 
 £213,233,000* 
 
 215,852,000* 
 
 247,341,935 
 
 In these years the capital was that actually paying duty. 
 
APPENDIX II 
 
 271 
 
 Estate Duty. Net Capital Values. 
 
 1898-9. 
 
 1890-1900. 
 
 1900-1. 
 
 1901-2. 
 
 1902-3. 
 
 1903-4. 
 
 £ 
 
 £ 
 
 £ 
 
 £ 
 
 £ 
 
 £ 
 
 3,092,833 
 
 3,579,330 
 
 3,557,186 
 
 3,466,901 
 
 3,463,242 
 
 3,458,197 
 
 3,250,975 
 
 3,570,022 
 
 3,498,839 
 
 3,483,674 
 
 3,484,641 
 
 3,509,882 
 
 4,434,105 
 
 4,902,808 
 
 3,568,214 
 
 2,703,489 
 
 2,771,755 
 
 2,550,912 
 
 7,290,852 
 
 8,369,635 
 
 8,462,896 
 
 8,013,472 
 
 8,269,351 
 
 8,357,341 
 
 55,750,005 
 
 61,652,109 
 
 60,640,918 
 
 58,081,470 
 
 61,769,224 
 
 59,351,362 
 
 39,641,686 
 
 43,248,459 
 
 40,768,086 
 
 40,706,650 
 
 41,230,963 
 
 39,826,033 
 
 33,319,461 
 
 36,614,723 
 
 33,596,932 
 
 35,237,077 
 
 35,630,670 
 
 33,297,014 
 
 16,593,421 
 
 18,789,182 
 
 18,167,012 
 
 18,198,376 
 
 19,752,449 
 
 19,527,038 
 
 13,835,264 
 
 12,965,977 
 
 13,000,106 
 
 12,599,324 
 
 13,474,242 
 
 11,903,313 
 
 18,260,487 
 
 19,868,031 
 
 18,140,877 
 
 18,189,287 
 
 18,158,970 
 
 17,321,372 
 
 19,261,556 
 
 20,118,944 
 
 17,754,925 
 
 15,905,882 
 
 17,123,947 
 
 18,863,669 
 
 13,709,399 
 
 20,965,429 
 
 16,666,671 
 
 19,265,846 
 
 17,710,955 
 
 14,600,847 
 
 10.523,938 
 
 9,997,217 
 
 13,088,130 
 
 14,488,569 
 
 15,651,113 
 
 16,945,648 
 
 11,654,846 
 
 28,172,899 
 
 13,603,453 
 
 38,529,868 
 
 11,981,785 
 
 14,605,488 
 
 250,618,828 
 
 292,814,765 
 
 264,514,245 
 
 288,869,885 
 
 270,473,307 
 
 264,118,116 
 
272 
 
 APPENDIX I 
 
 Table E. — Public Companies. 
 
 Total paid up capital of all companies registered ) ^307 ins 446 
 in April, 1877 / ' ' 
 
 Total paid up capital of all companies registered ) ^501 gog goo 
 in April, 1887 j- - i > 
 
 Increase in ten years = 92 per cent. 
 
 Number of companies other than waterworks, ironworks, mines, 
 quarries, and railways, assessed to Income Tax : — 
 
 In 1877 .... 2,695 
 
 „ 1886 . . . .5,135 
 
 An increase of 90 per cent. 
 
 Table F. — Besults in the case of Twelve Companies tested. 
 
 Total Paid up Capital. 
 
 Total ITumber of Shareholders. 
 
 1876. 
 
 1886. 
 
 1876. 
 
 1886. 
 
 £5,171,649 
 
 £6,501,582 
 
 11,667 
 
 20,083 
 
 Increase per cent, in capital in ten years . . 25 
 
 „ „ in shareholders in ten years . 72 
 
 Average capital per shareholder, 1876 . . £443 
 
 1886 . . £323 
 
 Table G. — Insurance Companies {Ordinary Life). 
 
 
 Annual Premium. 
 
 Life and Annuity 
 Funds. 
 
 1880 . 
 1885 . 
 
 £ 
 11,658,319 
 12,846,925 
 
 £ 
 123,675,355 
 142,751,707 
 
 
 
 Valuation before last*. 
 
 Last Valuation *. 
 
 Number of polic 
 Amount insured 
 Average amoun 
 policy . 
 
 les 
 t 
 
 per 
 
 779,004 
 £383,617,212 
 
 £492 
 
 901,877 
 £420,650,319 
 
 £466 
 
 The usual intervals between two valuations are five or seven 
 
 years. 
 
APPENDIX II 
 
 Table EE. — Public Companies. 
 
 273 
 
 Total paid up capital of all companies registered ) „t.„i _„„ />r>ci 
 in April, 1887 . . . . . _ | £591,508,692 
 
 Total paid up capital of all companies registered 1 „, qki^ ru^r^ nnr, 
 in April, 1903 / ±1,850,000,000 
 
 Increase in sixteen years = 310 per cent. 
 
 Total number of registered companies in 1903 was 35,985. 
 
 Table GG. — Insurance Companies {Ordinary Life). 
 
 "Vflnv 
 
 Ordinary Assurances. 
 
 Average 
 per Policy. 
 
 "PTATTrinTriFj 
 
 
 Number of Policies. 
 
 Amount. 
 
 
 1886 
 1891 
 1896 
 1901 
 1903 
 
 905,068 
 1,196,945 
 1,543,026 
 2,046,664 
 2,234,565 
 
 £ 
 421,061,768 
 480,196,330 
 562,344,968 
 661,361,442 
 686,328,174 
 
 £ 
 465 
 401 
 365 
 323 
 307 
 
 £ 
 13,033,945 
 14,565,861 
 19,604,748 
 
 22,458,422 
 23,903,788 
 
274 
 
 APPENDIX I 
 
 Table H. — Increase in the Number of Dwelling-houses, 
 Shops, of J 20 and upwards. 
 
 not 
 
 Value of Houses. 
 
 1875 to 1880. 
 
 1880 to 1886. 
 
 £ 
 
 
 
 20— 30 
 
 28 per cent. 
 
 19 per cent. 
 
 30— 40 
 
 25 
 
 19 
 
 
 40— 50 
 
 23 
 
 21 
 
 
 50— 60 
 
 22 
 
 16 
 
 
 60— 80 
 
 23 
 
 15 
 
 
 80— 100 
 
 18 
 
 12 
 
 
 100— 150 
 
 26 
 
 11 
 
 
 150— 300 
 
 27 
 
 13 
 
 
 300— 500 
 
 35 
 
 11 
 
 
 500—1,000 
 
 22 
 
 2 
 
 
 Over 1,000 
 
 9 
 
 -8* , 
 
 
 Decrease. 
 
 Total of Dwelling-houses of £20 and upwards. 
 
 569,326 
 713,168 
 838,692 
 
 1876 . 
 1880 . 
 1886 . 
 
 Increase of 1880 over 1875 
 1886 ,, 1880 
 
 25 per cent. 
 18 
 
APPENDIX II 
 
 275 
 
 Table HH. — Increase in the Number of Private Dwelling-houses, 
 not Shops, of £20 and upwards. 
 
 Ols/Ss 
 
 
 Numbers. 
 
 Increase 
 
 
 1890-1. 
 
 1902-3. 
 
 per cent. 
 
 Artisans' Dwellings 
 £20 and under £25 
 £25 „ £30 
 £30 ,, £41* 
 £41* „ £50 
 £50 „ £61* 
 £61* „ £80 
 £80 „ £100 
 £100 „ £150 
 £150 „ £200 
 £200 „ £300 
 £300 „ £400 
 £400 „ £500 
 £500 „ £600 
 £600 „ £700 
 £700 „ £1,000 
 £1,000 and upwards 
 
 
 183,148 
 
 142,431 
 
 246,927 
 
 61,174 
 
 88,919 
 
 46,362 
 
 31,768 
 
 40,844 
 
 14,931 
 
 12,202 
 
 4,566 
 
 1,968 
 
 918 
 
 572 
 
 732 
 
 707 
 
 3,365 
 
 316,820 
 
 218,777 
 
 353,918 
 
 86,096 
 
 111,098 
 
 54,628 
 
 36,074 
 
 43,693 
 
 15,877 
 
 13,148 
 
 5,109 
 
 2,366 
 
 1,110 
 
 734 
 
 888 
 
 901 
 
 730 
 53-6 
 43-3 
 40-7 
 24-9 
 17-8 
 13.6 
 7-0 
 6-3 
 7-8 
 11-9 
 20-2 
 20-9 
 28-3 
 21-3 
 27-4 
 
 Total numbers . 
 
 878,169 
 
 1,264,602 
 
 44-0 
 
 * These classes were introduced by the Customs and Inland 
 Eevenue Act, 1890, which imposed lower rates of duty for houses 
 not exceeding £40 and not exceeding £60 respectively. 
 
 T 2 
 
276 
 
 APPENDIX I 
 
 Table I. — Increase in the Number of Shops of .£20 and 
 •upwards. 
 
 Decrease. 
 
 Increase of 1880 over 1875 
 1886 „ 1880 
 
 
 Between 
 
 Between 
 
 
 1875 and 1880. 
 
 1880 and 1886. 
 
 £ 
 
 
 
 20— 30 
 
 8 per cent. 
 
 3 per cent. 
 
 30— 40 
 
 20 
 
 
 8 
 
 
 40— 50 
 
 20 
 
 
 12 
 
 
 50— 60 
 
 20 
 
 
 10 
 
 
 60— 80 
 
 22 
 
 
 9 
 
 
 80— 100 
 
 21 
 
 
 14 
 
 
 100— 150 
 
 26 
 
 
 5 , 
 
 
 150— 300 
 
 31 
 
 
 13 
 
 
 300— 500 
 
 36 
 
 
 6 
 
 
 500—1,000 
 
 31 
 
 
 -2* , 
 
 
 1,000 and upwards 
 
 58 
 
 
 9 
 
 
 16 per cent. 
 
 7 „ 
 
 Increase in Annual Value of Shops hetween 1875 and 1886. 
 
 Of all shops 
 „ shops of £20— £30 
 „ shops above £1,000 
 
 32 per cent. 
 12 „ 
 48 
 
 Table J. — Increase in Dwelling-houses of less than £20. 
 
 Under £10 . 
 
 £10 and under £15 
 
 £15 „ £20 
 
 1875. 
 
 3,000,370 
 590,383 
 331,326 
 
 1886. 
 
 3,174,806 
 932,845 
 517,936 
 
 Increase. 
 
 Per cent. 
 
 5-8 
 
 580 
 
 56-3 
 
APPENDIX II 
 
 277 
 
 Table 1 1. — Increase in the Number of Shops of £20 and upwards. 
 
 
 Numbers. 
 
 Increase 
 
 
 
 
 
 
 1890-1. 
 
 1902-3. 
 
 per cent. 
 
 £20 and under £25 
 
 79,198 
 
 86,609 
 
 8-9 
 
 £25 „ £30 
 
 
 57,263 
 
 64,814 
 
 13-2 
 
 £30 „ £41 
 
 
 104,213 
 
 121,003 
 
 161 
 
 £41 „ £50 
 
 
 24,657 
 
 31,135 
 
 27-6 
 
 £50 „ £61 
 
 
 41,301 
 
 49,186 
 
 191 
 
 £61 „ £80 
 
 
 22,099 
 
 28,649 
 
 29-6 
 
 £80 „ £100 
 
 
 16,102 
 
 20,393 
 
 26-6 
 
 £100 „ £150 
 
 
 18,236 
 
 22,881 
 
 25-5 
 
 £150 „ £200 
 
 
 6,911 
 
 8,923 
 
 291 
 
 £200 „ £300 
 
 
 5,189 
 
 7,135 
 
 375 
 
 £300 „ £400 
 
 
 1,902 
 
 3,139 
 
 65-0 
 
 £400 „ £500 
 
 
 877 
 
 1,577 
 
 79-8 
 
 £500 „ £600 
 
 
 413 
 
 981 
 
 137-5 
 
 £600 „ £700 
 
 
 278 
 
 645 
 
 132-0 
 
 £700 „ £1,000 
 
 
 344 
 
 806 
 
 134-3 
 
 £1,000 and upwards 
 
 
 423 
 
 813 
 
 92-2 
 
 Total numbers . 
 
 379,306 
 
 447,689 
 
 18-2 
 
 Table 33.— Increase of Dwelling-Jwuses of less than £20. 
 
 Under £10 . 
 
 £10 and under £15 
 
 £15 „ £20 
 
 1893-4. 
 
 3,221,094 
 
 1,219,151 
 
 607,439 
 
 1902-3. 
 
 3,247,116 
 
 1,672,920 
 
 836,467 
 
 Increase. 
 
 Per cent. 
 0-8 
 37-2 
 32-3 
 
278 
 
 APPENDIX I 
 
 Table K. — Savings Banks. Statement shcming the Number of 
 Depositors and Amount of Deposits in Trustee and Post Office 
 Savings Banks at the close of the Years 1875-86. 
 
 
 JTumber 
 
 of 
 
 Depositors. 
 
 Amount of Deposits. 
 
 Years. 
 
 Total. 
 
 Per Head 
 of Depositors. 
 
 Per Head 
 of Population. 
 
 1875 . 
 
 1880 . 
 
 1885 . 
 
 1886 . 
 
 3,256,295 
 
 3,704,777* 
 5,128,647* 
 5,322,225 
 
 Mln.£'s. 
 67-6 
 
 77-7 
 94-1 
 97-7 
 
 £ s. 
 
 20 15 
 
 21 — * 
 
 18 7* 
 18 7 
 
 s. d. 
 40 9 
 44 6 
 
 51 4 
 
 52 9 
 
 * The large increase in numbers between these two dates and 
 the decrease per head of depositors are no doubt largely due to the 
 introduction of the method of receiving deposits in postage stamps, 
 which was introduced in 1881. 
 
 Table L. — Industrial and Provident Societies. Statement 
 showing the Number of Industrial and Provident [Co-operative) 
 Societies Begistered under the Industrial and Provident Societies Act 
 o/1876. Number of Members, Capital, and Cash received for Goods 
 Sold by such Societies. 
 
 
 1875. 
 
 1880. 
 
 1885. 
 
 Number of societies making returns 
 ,, members 
 
 Amount of share capital . 
 
 loan „ . . . 
 
 1,168 
 479,714 
 Mln. £'a 
 
 4-8 
 
 08 
 
 1,182 
 603,852 
 Jlln. £'s 
 
 6-2 
 
 1-4 
 
 1,346 
 810,228 
 Mln. £'s 
 
 8-6 
 
 1-8 
 
 Total amount of capital . 
 
 5-6 
 
 7-6 
 
 10-7 
 
 Capital per member * . . . 
 Cash received for goods sold . 
 
 £ s. 
 11 16 
 
 Mln. £'s 
 18-5 
 
 £ s. 
 12 11 
 
 Mln. £'a 
 232 
 
 £ s. 
 
 13 6 
 
 Mln. £'s 
 
 29-9 
 
 * Including loan capital. 
 
APPENDIX II 
 
 279 
 
 Table KK. — Statement showing the number of Depositors and amount 
 of Deposits in Trustee and Post Office Savings BanJcs at the close of 
 the years 1890, 1895, 1900, 1901, 1902, and 1903. 
 
 
 Number 
 
 of 
 
 Depositors. 
 
 Amount of Deposits. 
 
 Years. 
 
 Total. 
 
 Per Head of 
 Depositors. 
 
 Per Head of 
 Population. 
 
 1890 . 
 1895 . 
 
 1900 . 
 
 1901 . 
 
 1902 . 
 
 1903 . 
 
 6,363,096 
 7,969,826 
 10,065,006 
 10,434,877 
 10,803,555 
 11,091,513 
 
 Mln. £'s 
 111-2 
 143-1* 
 187-0* 
 192-3 
 197-1 
 198-6 
 
 £ s. 
 17 9 
 
 17 19 
 
 18 11 
 18 8 
 18 4 
 17 18 
 
 s. d. 
 
 58 
 72 10 
 90 2 
 
 92 8 
 
 93 7 
 93 5 
 
 * The large increase at this period is no doubt largely due to 
 the extension of the annual limit of deposits from £30 to £50 
 under the Savings Bank Act, 1893. 
 
 Table LL. — Industrial and Provident Societies. 
 
 
 1895. 
 
 1900. 
 
 Number of returns 
 
 ,, „ members 
 
 Amount of share capital .... 
 ,, „ loan „ . . . . 
 
 1,921 
 
 1,401,872 
 
 Mln. £'3 
 
 16-6 
 
 4-4 
 
 2,220 
 
 1,835,988 
 
 Mln. £'3 
 
 23-9 
 
 *ll-9 
 
 Together ...... 
 
 21-0 
 
 35-8 
 
 Capital per member 
 
 Sales of goods 
 
 £15 
 52-1 
 
 £19 9s. 
 
 77 5s. 
 
 * In 1900, loan capital includes other creditors. 
 
280 
 
 APPENDIX I 
 
 Table M. — Building Societies. Statement showing the Number 
 and Amount of Liabilities of Building Societies of the United 
 Kingdom, Incorporated under the Building Societies Acts in tlie 
 undermentioned Years. 
 
 Years. 
 
 Number of Societies 
 making Hetiirns. 
 
 Liabilities. 
 
 1876 . 
 1880 . 
 1886 . 
 
 489 
 1,187 
 2,079 
 
 Mln. £'s 
 20-9 
 39-4 
 531 
 
 Table N. — Industrial Companies (the Insurance Companies of 
 the Poor). 
 
 
 Annual Premiums. 
 
 Life and Annuity Funds. 
 
 1880 . 
 1885 . 
 
 £ 
 1,941,994 
 3,550,035 
 
 £ 
 1,476,933 
 4,392,683 
 
 
 
 Last Valuation but one. 
 
 Last Valuation. 
 
 Number of policies 
 Amount insured . 
 Average a.mount 
 policy 
 
 per 
 
 5,440,493 
 £48,986,237 
 
 £9 Os. Id. 
 
 9,132,271 
 £83,291,885 
 
 £9 25. 5d. 
 
APPENDIX II 
 
 281 
 
 Table MM. — Building Societies. 
 
 Years. 
 
 Number of returns. 
 
 Liabilities. 
 
 1891 
 
 1895 
 
 1900 
 
 2,382 
 2,625 
 2,307 
 
 Mln. £'a 
 49-6 
 52-9 
 *57-6 
 
 Including unincorporated societies. 
 
 Table NN. — Industrial Companies [the Insurance Companies 
 of the Poor). 
 
 
 Annual Premiums. 
 
 Life and Annuity Funds. 
 
 1885 . 
 1902 . 
 
 £ 
 
 3,550,035 
 
 10,266,000 
 
 £ 
 
 4,392,683 
 
 24,150,000 
 
 
 
 
 Valuation in 1904. 
 
 Number of policies 
 Amount insured 
 Average amount o: 
 
 ' policy- 
 
 , 
 
 22,518,046 
 
 £221,140,309 
 
 £9 16s. 5d. 
 
LAISSEZ-FAIRE AND GOYEENMENT 
 INTERFERENCE 
 
 Intkoductoky Note 
 
 Two-AND-TWENTY years have elapsed since I wrote 
 the following address on 'Laissez-faire and Government 
 Interference.' While looking through it with a view 
 to republication I have asked myself to what degree 
 my prognostications have been verified, my hopes ful- 
 filled, or my warnings justified, and how far, if I wrote 
 again on the same subject, I should express myself in 
 the same vein of opinion and sentiment. The last 
 question I am inchned to answer generally in the 
 afiirmative. In some respects the movement in favour 
 of more Government interference has been less rapid 
 than I anticipated, but it has been continuous ; and it 
 has developed in many of the directions, and been 
 accompanied by many of the circumstances, which I 
 foresaw. To some of these it may not be uninteresting 
 to call attention. 
 
 I attributed the growing disfavour into which the 
 principle of ' Laissez-faire ' had fallen, in the main, to 
 four causes : to the greater sensitiveness of the national 
 conscience, calling for State remedies for moral evils, and 
 for more securities for the enforcement of the claims of 
 humanity ; to growing discontent with the distribution 
 of wealth and profits ; to the increasing demands for 
 regulations due to the difficulties of our complex and 
 overcrowded social system ; and lastly to the necessity 
 for the Executive to interfere more and more in the 
 
LAISSEZ-FAIRE 283 
 
 performance of functions, for the discharge of which 
 the ubiquity of its agents gave it special facilities, and 
 the convenience of the pubhc a special caU. 
 
 The two latter of these influences have throughout the 
 period under review been powerfully, and, on the whole, 
 legitimately at work. The reader will readily recall 
 some conspicuous instances. The acquisition of the 
 Telephone System and of Marconi's wireless telegraphy 
 furnishes cases of that inevitable widening of the sphere 
 of Government action in the field where, on the one 
 hand, the necessity of protecting a previous monopoly 
 compels the State to undertake fresh work, and when, 
 on the other, the overlapping of different systems and 
 areas contributes to the same result. Some of the 
 drawbacks to which I called attention as attaching to 
 such monopolies have indeed not been absent. ' Such 
 monopoHes,'I said, 'are hostile to invention and improve' 
 ments and substitutes.' The character of the relations 
 which for a long time existed between the State and 
 the Telephone companies was not of a nature to 
 further the rapid development of this new form of 
 social convenience or luxury, and the enthusiastic re- 
 ception of wireless telegraphy was noticeable rather 
 on the side of the public, than of official authorities. 
 But with aU its attendant disadvantages, conspicuous 
 amongst which is the alarming growth of the number 
 of Government servants, these functions seem to 
 me to be forced on the public by the nature of the 
 areas which have to be covered, — areas far too large in 
 their aggregate for private enterprise, yet not such 
 as could be divided, and distributed to separate com- 
 panies, without complication which would destroy 
 half the convenience required. 
 
 The zealous ambitions of the Post Office authorities, 
 not without the assistance of some external stimulus, 
 
284 ADDEESSES ON ECONOMIC QUESTIONS 
 
 have pushed partial reconnaissances into banking terri- 
 tory, but have not effected any substantial conquests in 
 that direction, and I do not regret it. Public convenience 
 can in my judgment only be advantageously pleaded 
 when that convenience is so great, that the drawbacks 
 attendant on the encroachments of State action on the 
 domain of private enterprise cannot be pleaded in bar 
 with convincing force. Otherwise any tendency of the 
 central authorities to occupy new fields of labour ought 
 to be checked. 
 
 In 1883 I explained the constant wish even of 
 overworked officials to see fresh duties assigned to 
 them, and I had some apprehension of the possible 
 results of their zeal. I do not consider that this 
 tendency has undergone any striking development. 
 But my impressions as to the danger of an ever- 
 expanding central activity led me to the opinion that 
 ' the more work in the way of pubhc interference the 
 country demanded to be performed, the greater was 
 the necessity of transferring to local authorities as 
 large a proportion as possible of public functions.' 
 I considered that 'strong local bodies were an in- 
 valuable bulwark against the dangers, arising either 
 from the caprice or the impatience or the imperious- 
 ness or the jobbery of a central authority.' I hoped 
 that if the extended demand for pubhc interference 
 were to be progressively satisfied, we might proceed 
 pari passu on the lines of decentralization. The latter 
 hope has been realized. Strong local bodies have been 
 formed. Immense powers have been granted them, 
 but I fear that the very dangers against which I thought 
 they would be a bulwark, have beset themselves. The 
 risks have been transferred to another quarter, but 
 they have not been removed. Municipal trading is 
 being attempted on a vast scale, civic oflficials have 
 
LAISSEZ-FAIRE 285 
 
 proved themselves even more ambitious in their 
 administrative efforts, more aggressive in their en- 
 croachments upon private enterprise, than I antici- 
 pated when prophesying such an attitude as a besetting 
 temptation to the servants of the central authority. 
 Vast undertakings, carried out without much regard for 
 financial considerations, frequent charges of jobbery, 
 risky experiments, an increasing army of dependents 
 upon municipal generosity — such are the constant 
 concomitants of the extension of the over-energetic 
 efforts of civic authorities. The London County 
 Council has done much admirable work, and its 
 members who urge municipal action with the greatest 
 enthusiasm, are free from the taint of personal jobbery 
 or self-seeking, but the spirit of State Socialism is 
 active within their ranks. There are symptoms of 
 impatience and imperiousness. Extravagant expen- 
 diture, accumulation of debt, the invasion of field 
 after field of private enterprise, consequences which 
 I feared for the Executive Government, have dogged 
 the footsteps of municipal administration. In no 
 directions have blows more serious been struck at 
 the very foundations of private enterprise. More than 
 this, the question of wages paid out of the public 
 revenue has come to the front in a formidable shape. 
 The attitude of the London County Council towards this 
 question of wages has constituted an entirely new 
 departure, and, as was inevitable, the precedent and 
 example of the great London administration carried 
 the same impetus into the relations of the central 
 Executive with its employes. Supply and demand 
 were dethroned as factors in the relations between 
 public employers and the workmen in their service, 
 and the House of Commons passed a resolution imder 
 which the Government was called upon to adopt 
 
286 ADDEESSES ON ECONOMIC QUESTIONS 
 
 a standard of wages from examples and influences 
 outside its own sphere. Most undesirable political 
 pressure, and a weaker resistance on the part of the 
 authorities, have been the natural result. Certainly 
 ' Laissez-faire ' has received no heavier blow. 
 
 If I failed to foresee in 1883 that the substitution of 
 local action for the expanding activity of central authori- 
 ties would by no means protect the community against 
 the costliness and the drawbacks involved in pubhc 
 interference with matters better left to individual 
 management, my fears as to the effect of the growing 
 demand for State interference in expenditure and 
 extravagance have unhappily been more than realized. 
 The immense increase in the Civil Service estimates, 
 denounced in its totals, is, in the composition of its 
 items, the direct and inevitable result of the demand 
 by the public for more govermnent, more administra- 
 tion, more inspection, more regulation. What a 
 keener impulse of conscience, humaner inspirations, 
 a stricter sense of national duty have required, cannot 
 be supplied without largely increased taxation. The 
 additional pecuniary burden must be borne patiently 
 as the price of a more satisfied national conscience in 
 respect of social reforms and the securities for their 
 execution. 
 
 I mentioned as one of the causes to wliich in my 
 address I attributed some restlessness in regard to the 
 doctrines of 'Laissez-faire,' dissatisfaction with the 
 distribution of wealth and profits. This must be 
 taken in its widest sense, as embracing the relations 
 between masters and men as well as between land- 
 lords and tenants, freedom of disposition as regards 
 property, questions of land-tenure, mining rights, — ■ 
 indeed all the cases where for one object or another 
 individual liberty of contract is circumscribed for 
 
LAISSEZ-FAIEE 287 
 
 the purpose of modifying pecuniary results which 
 would otherwise ensue. 
 
 As regards contracts between masters and men, 
 a very striking instance of legislative interference 
 since 1883 is the Workmen's Compensation Act. 
 Numerous other cases will undoubtedly occur to 
 the reader familiar with the legislation of the last 
 twenty years, but while the radius of Government 
 interference has been widened in striking fashion in 
 many directions, I do not hold that in the sphere of 
 the distribution of property SociaUstic tendencies have 
 made as much progress as might at one time have 
 been expected. In 1883 the axe had been laid at the 
 root of Hberty of contract in the Irish Land Acts 
 passed at that time. The movement developed in 
 Ireland with startHng rapidity, and the precedent has 
 induced legislation elsewhere, notably in the case of 
 the Crofters in Scotland. The pubHc mind and 
 conscience are less impressed by the sanctity of 
 property ; unearned increment, long threatened, may 
 at any time be called up for sentence, and symptoms 
 of restlessness as to the legitimacy of other rights and 
 privileges are not wanting. Certainly the maxim that 
 ' a man may do as he Ukes with his own ' has been 
 expunged from the orthodox creed. Still, viewing the 
 situation broadly and impartially, I do not discover 
 any great increase, any impatient pressure for legisla- 
 tion affecting property, as compared with the atmosphere 
 in certain quarters twenty years ago, when Mr. George's 
 fascinating and brOliant book, Progress and Poverty, 
 made much stir on both sides of the Atlantic. 
 
 But if, on the one hand, the dreams of certain 
 classes as to the forfeiture to the State of unearned 
 increment, the curtailment of mining rights, and 
 more direct forms of assailing property, have but 
 
288 ADDEESSES ON ECONOMIC QUESTIONS 
 
 slowly advanced as issues in practical politics, the 
 more indirect form of forwarding the dispersal of 
 accumulated wealth by the sapping operations of 
 taxation has been vigorously applied. A graduated 
 Income Tax to affect the growth of fortunes during 
 life has not been enacted, though the process of 
 graduation in the lower scale of incomes has made 
 considerable progress ; but the death-duties have 
 achieved the end of lessening accumulations amongst 
 heirs to an extent which appeared far beyond the 
 range of probability in 1883. 
 
 To turn to the most evident and most accepted 
 causes of the humiliation of the Laissez-faire position : 
 the sentiment of the inadequacy of individual liberty 
 to secure the reform of social abuses, the apprehensions 
 that self-interest will assert entirely inadmissible claims, 
 incompatible with the public good unless severely re- 
 strained by official authorities — I see nothing to change 
 in my former views. The same currents of feeling have 
 been flowing with even stronger force, and in an ex- 
 panding stream. They have accomplished much, very 
 much. It is unnecessary to enumerate the immense 
 results. No reaction has set in in what I have called 
 the working of the public conscience. But as the 
 reader peruses the pages which I wrote two-and-twenty 
 years ago, he may possibly be struck by the fact 
 that notwithstanding the strength of pubhc opinion, 
 apparently insuperable difficulties have in some cases 
 blocked the way. I devoted a considerable space to 
 what even then was a burning question, the housing of 
 the poor. It has not yet biu-nt itself out. It stUl 
 faces us in its giim proportions. I noted that in this 
 instance nearly all the causes which direct the 
 demand for Government interference were at work, 
 a public sense of moral responsibility, dissatisfaction 
 
LAISSEZ-FAIRE 289 
 
 with the present distribution of wealth, complications 
 arising from the crowded state of society, and the 
 behef that the Government was the only possible 
 dezis ex machina to solve an almost insoluble problem. 
 Of all these influences I expressed my belief that 
 a wave of deep and strong feeling passing over the 
 pubHc mind would be the most potent. What my 
 own views on the subject were is stated fully in the 
 address, and they are still the same. Some Acts have 
 been passed, many reforms have been attempted and 
 some accomplished. ' Laissez-faire ' has been peremp- 
 torily bidden to stand aside. But still, it would 
 appear the task is far from complete. The complica- 
 tions of an overcrowded society stUl baffle the efforts 
 of the Legislature and the philanthropist alike. 
 
 The temperance movement has been another of the 
 subjects which has remained with us since 1883, 
 evoking the same enthusiasm in undiminished force, 
 surrounded by much the same difficulties, and en- 
 covmtering much the same opposition, though some 
 breaches have been made in the defences of vested 
 interests. The rights or claims of the latter stiU 
 secure considerable support, but in the licensing 
 trade the advocates of free contract have no longer 
 a single word to say. Against them the champions of 
 social reform have absolutely prevailed, but defenders 
 of the rights of property have not yet been ejected 
 from the narrower positions to which they have been 
 driven by the aggressive forces of popular sentiment. 
 
 On other topics raised in my address I must leave 
 the reader to judge to what extent I have been a true 
 or a false prophet, either of tendencies of which I 
 expected further developments, or of risks which 
 would undoubtedly be run. On the whole I am 
 inclined to think that work undertaken by the State 
 
 D 
 
290 ADDEESSES ON ECONOMIC QUESTIONS 
 
 has been better done, and with less friction than I 
 anticipated ; while on the other hand I fear that the 
 spirit of self-rehance has suffered in the process, and 
 the sense of individual responsibility, as was foreseen, 
 been sensibly injured. 
 
 One further point, however, suggests interesting 
 consideration. In 1883 I had to ask myself how it 
 was, that while the increasing democracy at home was 
 insisting with growing eagerness on more control by 
 the State, we saw so small a corresponding development 
 of the same principle in the United States or in 
 Anglo-Saxon Colonies. I attributed the contrast in 
 the main to the sensitive, philanthropic element being 
 stronger in the old country, and to its civilization 
 being more complex, more crowded, more honey- 
 combed with anomalies. In the Colonies individual 
 energy could expand with less encroachment on the 
 interests of neighbours, and the first instincts of man 
 for untrammelled liberty and confidence in himself 
 and in his power to hold his own, were still undisturbed, 
 I doubt whether this attribution to our Anglo-Saxon 
 Colonies of a spirit of personal independence, of 
 attachment to the principles of individual Hberty, stiU 
 holds good of our Australian kinsmen. Administrative 
 control may stiU be invoked with less frequency than 
 here, but the organization of individuals into corporate 
 bodies seems equally to have dethroned the principle 
 of 'Laissez-faire,' and to be leading up to further 
 encroachments on freedom of contract and the exercise 
 of private rights. 
 
 In the United States a different movement is making 
 its way ; there, the central Executive, alarmed at the 
 unbridled efforts of gigantic trusts to exploit the 
 community for their own profits, seems resolved to 
 refuse to allow them the advantage of the full principle 
 
LAISSEZ-FAIEE 291 
 
 of ' Laissez-faire.' The development of fresh forces of 
 economic organization compels the adoption of fresh 
 forms of Government interposition. President Eoose- 
 velt's new departure opens up a wide vista of State 
 action in the direction of the control, and possibly of 
 the serious infringement, of private rights. In the New 
 World as in the Old we can trace a growing disbehef 
 in the efficacy of natural Uberty, though the change of 
 opinion is in many respects to be traced to different 
 causes. Possibly it is still true that economic neces- 
 sities and the need for regulating josthng forces and 
 antagonistic influences have contributed more to the 
 increasing invocation of Government interference in 
 the New World than the sensitive, humanitarian 
 emotions to which, even in this material age, I shall 
 be found ascribing the chief moving forces in uprooting 
 among ourselves the old principle of individual freedom 
 and responsibility. 
 
 In conclusion, I will raise, but not attempt to 
 answer, the deeply interesting question. How have the 
 reforms, due to the irresistible cry for regulating 
 certain conditions in the conduct of our many indus- 
 tries, affected our industrial resources, our power of 
 output, our possibilities in the direction of cost of 
 production, our qualifications for competing in the 
 world's market? Technical knowledge, which I do not 
 possess, could alone furnish a reply to this inqmry. 
 
 In 1883 I wrote that ' Laissez-faire ' had lost caste 
 chiefly owing to moral considerations, to the assertion 
 of the claims of other than material interests, with the 
 deliberate risk of the loss of commercial and industrial 
 force for the sake of social reforms ; at the same time, 
 I quoted from a high authority that, in the main, the 
 interference with freedom of action and contract had 
 
 u 2 
 
292 ADDEESSES OIT ECONOMIC QUESTIONS 
 
 husbanded industrial resources by restraining the 
 waste of them. The result of the Factory Acts was 
 cited as a case in point. Has the experience of the 
 last twenty years proved the soundness of this aspect 
 of the results? Over and over again, it was asserted 
 by the champions of the better and more humane 
 regulation of labour that closer inspection, shortening 
 of hours, improved sanitation and the enactment of 
 many similar reforms, had strengthened the physique 
 of the wage-earning class and improved their status 
 generally, thus making them fitter and stronger for 
 international competition, more capable of successfully 
 meeting in the industrial race the foreigners who were 
 less protected in these respects. Who can gauge the 
 truth? Whether or no improved material conditions 
 flow from national insistence on higher standards of life, 
 the policy was the outcome of the awakening of the 
 national conscience, and no pleas of the attendant 
 risks would have gained or, in fact, did obtain a 
 favourable hearing. The risk was faced, and public 
 opinion was prepared to accept the material results, 
 whatever they might be. 
 
 Lately, in the development of the Fiscal controversy, 
 the conviction that the foreigner was overtaking us 
 and that our industries were on the decHne, apparently 
 suggested to Mr. Chamberlain that the action of the 
 State having placed restrictions on individual liberty, 
 which hampered our manufacturers and handicapped 
 them in the race, a claim for tariff protection might be 
 fairly put forward by the manufacturing industry 
 which suffered in output or in cost, — in fact in pros-* 
 perity — as a consequence of the regulations imposed. 
 This is not a place in which to examine whether the 
 indemnity offered, in the shape of counter fiscal pro- 
 tection, would effectually improve the position. The 
 
LAISSEZ-FAIRE 293 
 
 point of interest is the assumption implied in the 
 argument that British industry has suffered and not 
 gained from Government interference, and that after 
 all the men who prophesied that some material loss 
 Would be the price paid for social improvement, were 
 in the right. Nothing but exhaustive inquiry by a 
 tribunal of almost impossible impartiality would be 
 able to arrive at any conclusions which would be 
 generally accepted. But, the issue having been raised 
 in a practical form in the shape of an argument for a 
 new Fiscal system owing to industrial damage inflicted 
 by the action of the State, some weight appears to be 
 given to the view that in further legislation affecting 
 the freedom of vast industries, the plea that the 
 producing powers of the nation would not be pre- 
 judiced, should not be too readily accepted in a 
 moment of deaf enthusiasm. Let us pay the cost 
 when national duty or national sentiment requires it, 
 but let us know that we pay it, and accept the fact with 
 a full and conscious knowledge of the consequences. 
 There is no reason why philanthropy should be blind. 
 
LAISSEZ-FAIRE AND GOVERNMENT 
 INTERFERENCE 
 
 An Addeess to the Members of the Philosophical 
 Society at Edinbukgh in 1883. 
 
 I HAVE chosen 'Laissez-faire and Government 
 Interference' as the subject of my address to-night 
 because, among all the complicated social and econo- 
 mical phenomena of the present day, none appears 
 more interesting or of deeper importance for philo- 
 sophers, economists, poHticians, and, indeed, for all 
 students of the varying aspects of our national life, 
 than the changes which have occurred and are daily 
 occurring in the relations between the State and 
 individual Hberty. None of us can be blind to what 
 is passing around us in this respect. Whether we 
 look to the events of successive years, to the acts 
 of successive Parliaments, or to the publication of 
 successive books, we see narrower and narrower 
 limits assigned to the application of the principle of 
 'Laissez-faire,' while the sphere of Government con- 
 trol and interference is expanding in ever widening 
 circles. 
 
 The extension of State action to new and vast fields 
 of business, such as telegraphy, insurance, annuities, 
 postal orders, and parcels post, is not the most striking 
 feature. What is of far deeper import is its growing 
 interference with the relations between classes, its 
 increased control over vast categories of transactions 
 between individuals, and the substitution in many 
 
LAISSEZ-FAIRE 295 
 
 of the dealings of trade and manufacture, of the 
 aggregate conscience and moral sense of the nation, 
 for the conscience and moral sense of men as units. 
 The parent in dealing with his child, the employer in 
 dealing with his workmen, the shipbuilder in the 
 construction of his ships, the ship-owner in the treat- 
 ment of his sailors, the house-owner in the management 
 of his house property, the land-owner in his contracts 
 with his tenants, have been notified by public opinion 
 or by actual law that the time has gone by when the 
 cry of ' Laissez-nous faire ' would be answered in 
 the affirmative. The State has determined what is 
 right and wrong, what is expedient and inexpedient, 
 and has appointed its agents to enforce its conclusions. 
 Some of the highest obligations of humanity, some of 
 the smallest businesses of everyday hfe, some of the 
 most compHcated transactions of our industrial and 
 agricultural organizations have been taken in hand by 
 the State. Individual responsibility has been lessened. 
 National responsibility has been heightened. Reliance 
 is being placed on the efficiency of new forces, and 
 on the application of new principles. The attitude of 
 the public towards * Laissez-faire ' on the one hand 
 and State action on the other has entirely changed. 
 
 I wish it were in my power to present you with 
 a history of the ups and downs of the principle of 
 ' Laissez-faire ' in popularity and prestige. I wish 
 I could place before you how it has fared at the hands 
 of successive generations since the time when first, 
 in protest against the unbearable interference of 
 Government in all and every department of industry, 
 and against a tyrannical control over the majority of 
 the transactions of life, the cry was raised in France, 
 more than a hundred and thirty years ago, by 
 champions of freedom of trade and freedom of labour, 
 
296 ADDRESSES ON ECONOMIC QUESTIONS 
 
 ' Laissez-nous faire, laissez-nous passer ' — ' Give us 
 freedom of action and freedom of movement.' In the 
 present day of its declining popularity, let it not be 
 forgotten that this principle owes its origin not 
 to hard and impassive theorists and cold-blooded 
 economists, but to a school of ardent and almost 
 revolutionary social and philosophical reformers, the 
 Physiocrats, as they were caUed, of the eighteenth 
 century. 
 
 I wish I could say more on this head. ' Laissez- 
 faire ' deserves some gratitude. The names of men 
 who have rendered untold services to Liberty in all its 
 branches are associated with the story of its develop- 
 ment, but I have neither the leisure nor the knowledge 
 for such a historical review. I commend it to the 
 attention of more learned economists. I have read 
 most instructive separate chapters, in books on political 
 economy, on the various stages of the controversy 
 between the advocates of the principles of natural 
 liberty and those of State control. But the subject is 
 so vast as to deserve not only incidental treatment, 
 however able and lucid, in a general work — it is well 
 worthy of a book to itself. 
 
 Most writers on ' Laissez-faire ' have occupied them- 
 selves mainly with discussing the proper limits of the 
 functions of Government. In so doing they have 
 been compelled to analyse the various possible forms 
 of State interference, to classify them in groups under 
 certain heads, and to examine what were indispensable 
 functions and what optional. Such analyses and 
 classifications have great attractions, especially if they 
 lead to generalizations which can be clearly stated 
 and easily grasped (a result, however, which I fear has 
 never been accomphshed in the case,of ' Laissez-faire '). 
 But if I were to attempt such a task to-night, I should 
 
LAISSEZ-FAIEE 297 
 
 most surely fail to compress within an address such 
 as this even a bare catalogue of the different groups of 
 legitimate or illegitimate functions of Government 
 accompanied by the shortest summary of the argu- 
 ments on either side. I propose, therefore, turning 
 aside from the abstract and theoretical speculation, to 
 confine myself in the main to an examination of the 
 causes of that wider actual application of control, and 
 that growing disbelief in the efficacy of the action of 
 natural liberty, which are giving a fresh character 
 to so many features of our economical, social, and 
 even national life. I should further wish to pass in 
 short review some of the possible consequences of the 
 course on which we are travelling so fast. 
 
 I need scarcely remind you that the causes of this 
 revolution in pubhc sentiment have been complicated 
 and various in the extreme ; but, amongst the many 
 contributing influences, some stand out clear and 
 prominent. 
 
 Foremost amongst them I discern an awakening of 
 the pubhc conscience as to the moral aspects of many 
 sides of our industrial arrangements — rising doubts, 
 less as to the efficiency of existing organizations for 
 producing wealth (though this, too, has been called in 
 question) than as to their compatibiUty with the 
 humane requirements of improving civilization. The 
 existence of facts previously unknown or ignored has 
 been revealed in striking colours, the pubhc sense has 
 been stirred, and emotions aroused which demanded 
 the apphcation of immediate and direct remedies. 
 I hold the principle of ' Laissez'faire ' to have lost 
 favour, chiefly owing to moral considerations, to the 
 assertion of the claims of other than material interests, 
 and to a growing feeling that it is right deliberately 
 to risk commercial and industrial advantages for the 
 
298 ADDEESSES ON ECONOMIC QUESTIONS 
 
 sake of reforming social abuses, and securing social 
 benefits. Professor Rogers, in his late able address 
 on ' Some Sides of Laissez-faire,' makes the very 
 striking suggestion that all interferences with freedom 
 of action or contract, which have stood the test of 
 experience, have had, more or less distinctly, the aim 
 of husbanding industrial resources, by restraining the 
 waste of them, and have achieved that result. He 
 cites the Factory Acts in illustration of his point. 
 The Education Acts might similarly, and with much 
 reason, be quoted as due to the desire to augment our 
 industrial power. 
 
 But I believe that, certainly in the case of the 
 Factory Acts, and to a great extent in the Education 
 Acts, it was a moral rather than an economical in- 
 fluence, the conscientious feeling of what was right 
 rather than the intellectual conviction of ultimate 
 material gain, — the public imagination touched by 
 appeals to our higher nature, — which supplied the 
 tremendous motive power necessary for passing laws, 
 and put the State and its inspectors in the place of 
 father and mother as guardians of a child's education, 
 labour, and health. 
 
 I trust I shall not be misunderstood. Arguments 
 based on the deficiencies of our national education, 
 which prevented us from competing with other 
 countries, have been urged over and over again, and 
 they have prevailed, apart from any moral influences, 
 in causing the foundation of many Government educa- 
 tional establishments, besides the primary schools. 
 But although these establishments offer teaching, they 
 do not compel it ; they give inducements and certifi- 
 cates, and they belong less to the category of control 
 or interference than to the category of services per- 
 formed by the State, which would not otherwise be 
 
LAISSEZ-FAIEE 299 
 
 performed at all. What I wish first to insist on is 
 that the victory of the principle of compulsion over 
 the principle of natural liberty could never have been 
 gained except by a moral force. 
 
 Numerous other instances will at once occur to you 
 of the result of the awakening of the pubhc con- 
 science. You see its effects in the legislation respecting 
 ships and sailors, the prevention of accidents in mines 
 and manufactories, the curtailment of hours of labour, 
 the employment of women and children underground, 
 the state of canal boats, unsanitary dwellings. All the 
 Acts of Parliament relating to these subjects have 
 been based mainly on moral grounds. In the case of 
 many of them, arguments from expediency have not 
 been wanting, but the stimulus has been given by the 
 sense of moral right. 
 
 Take the case of legislation which followed on 
 Mr. PlimsoU's crusade. The public and Parliament 
 were moved by the starthng numbers of sailors who 
 perished, apparently from remediable causes, in the 
 course of a single year. Such a wholesale loss of 
 human life must be stopped at any cost. No argu- 
 ments as to the possible effect of stringent legislation 
 on the fate of British shipping would have been 
 listened to. They would have been brushed aside. 
 An incredulous and impatient attention was given 
 to pleas contending that the proposed legislation 
 might not be effectual for its purpose, or that 
 the facts were exaggerated, but no arguments 
 could have stemmed the tide. The State must act ; 
 the State alone could be trusted. Its agents must 
 assume the responsibility. ' Laissez-faire ' had been 
 tried and found wanting. The ship-owners must 
 henceforward conduct their business under Govern- 
 ment control. 
 
300 ADDEESSES ON ECONOMIC QUESTIONS 
 
 Events in this instance marched rapidly and in 
 a striking form. But the history of the laws relat- 
 ing to merchant shipping is but a duplicate of other 
 similar legislation. The doctrine of 'Laissez-faire' 
 meant that a man's own interest is one of the surest 
 factors in the production of wealth ; but if, in the 
 pursuit of individual interest, it was proved that the 
 safeguards for the security of the interests of others in 
 life or limb were insufficient, the public demanded 
 that restraint should take place. The plea has not 
 failed to be put in, that the power to inflict injury or 
 risk on the employed did not lie in the hands of the 
 employers alone ; that the employed might refuse to 
 serve masters whom they could not trust ; that self- 
 interest, however selfish, would ultimately have to 
 yield to the influences which would be brought to bear 
 upon it ; that to relieve the employers of responsibility 
 would lessen some securities, though others might be 
 oflfered. But, in my judgment, it has become, wisely 
 or unwisely, a matter of conscience with the pubUc, 
 that it canrrot stand aside v/hen calamities occur ; that 
 the indirect action of other influences is too slow, or 
 too uncertain ; that in its own action alone it can find 
 the satisfaction of its conscientious scruples. In view 
 of this attitude of the public mind, I have spoken of 
 the substitution of the conscience of society and 
 national responsibihty for the conscience of indi- 
 vidual men. 
 
 The striking advance of the temperance movement 
 is, of course, another instance of the influence of moral 
 feehng — moral feeling so strong and deep as to be- 
 come almost deaf to arguments as to the rights of 
 individuals. Champions of this cause are, again, 
 perfectly entitled to plead from their point of view 
 that true expediency is on their side, and that even 
 
LAISSEZ-FAIEE 801 
 
 the wealth of the nation suffers from the wide pre- 
 valence of drunkenness. No analysis of motive is 
 ever exhaustive, and few are accepted as just ; but 
 I contend that the evils excited by the degrading 
 effects of drunkenness, the sympathies awakened by 
 the innocent sufferers from the vice of others, the 
 disgust at the existence of a national scandal, have 
 had infinitely more power than any other motive 
 in bringing the country up to its present point in 
 respect of preparedness for legislation which would 
 have been absolutely impossible a few years ago. 
 Liberty is made to yield to the claims of morality, 
 but, in this country at least, it is seldom, if ever, 
 sacrificed to grounds of expediency alone. 
 
 I need scarcely say more as to the extent to which 
 the principle of natural liberty has been attacked on 
 the ground that, sound as it may be as a system for 
 ^producing wealth, it stood condemned as permitting 
 certain abuses, and leaving certain deficiencies un- 
 supplied, for which the pubUc must have an immediate 
 and direct remedy. 
 
 Another not dissimilar cause has been undermining 
 * Laissez-faire ' on parallel Hnes. The charge is laid 
 against it that whether or not it succeeds in producing 
 wealth, it fails in bringing about a sound and just 
 distribution of wealth. Freedom of action on the part 
 of individuals and classes is accused of leading to 
 abuses and dangers in this respect to which it is 
 alleged in some quarters the State ought to and could 
 apply a remedy. The prosperity of the country is 
 examined and analysed. Certain classes are said to 
 be prosperous and to have become richer and richer, 
 others have not prospered equally, some have not 
 prospered at all. This inequality of progress has 
 happened under ' Laissez-faire.' Post Iwc, fro]^ter 
 
302 ADDEESSES ON ECONOMIC QUESTIONS 
 
 hoc. The State should try its hand at what natural 
 liberty had failed to do. Under this process of 
 reasoning it is argued that ' Laissez-faire ' is a perfectly 
 natural motto for capitalists, manufacturers, landlords, 
 and tradesmen, and the cry is raised, ' They have had 
 their way, and see what has come of it ! ' 
 
 I need not dilate on the searching inquiry which at 
 once suggests itself as to many of the facts alleged in 
 these arguments, and as to the connexion between the 
 alleged cause and the alleged effects. It may be asked 
 whether there are not other causes at work which 
 account for the alleged effects, whether any system is 
 feasible by which the distribution of wealth can so be 
 regulated as to satisfy an abstract standard of justice, 
 and whether, if the State goes very far in regulating 
 the distribution of wealth, the amount of wealth to be 
 distributed may not be reduced to such an extent as 
 to cause almost universal loss. I simply allude to 
 such questions lest my silence with regard to them 
 should be misconstrued, and I would very earnestly 
 entreat all who hear me to remember that the limits 
 into which I must compress my remarks prevent me 
 from introducing countless qualifications and explana- 
 tions which the complicated nature of my subject 
 really demands. I must appeal to the candour and 
 indulgence of my critics in this respect, and beg them 
 to beheve that if I omit many considerations of great 
 importance it does not follow that I have ignored 
 them. Time prevents me from entrenching my posi- 
 tion as I go along. 
 
 The profits derived from land are the form of 
 wealth, the distribution of which has thus far excited 
 the most attention. The land agitation (to use the 
 popular phrase) in England and Scotland (I will touch 
 on the Irish Land Act separately) I take to be an 
 
LAISSEZ-FAIRE 303 
 
 insurrection against the principle of * Laissez-faire,' as 
 failing to secure justice to the tenant in the distribution 
 of the aggregate profits derived from the partnership 
 between land, capital, and labour. You will observe 
 how the word 'justice' is constantly used. It is 
 assumed that, apart from what men agree to, there is 
 an abstract standard of distribution, within the limits 
 of which, but only within the limits of which, free 
 contract is to be allowed. 
 
 But the question between landlord and tenant as to 
 agricultural improvements sinks into insignificance by 
 the side of a point of vast importance which is now 
 being raised as to the relations between landowners 
 and the community at large. The wealth which has 
 accrued to the owners of land, including the owners 
 of the sites on which towns are built, is being de- 
 nounced as one of the gravest social and economical 
 misfortunes which befaU societies. It is important to 
 recollect that this view, advanced with much abihty 
 and enthusiasm, is not raised simply as regards land 
 in the United Kingdom. The question has been 
 started in a much broader form. * Is it right that in 
 Cahfornia or in any new country individuals should 
 buy up the sites of towns, or secure vast estates by 
 purchase, and speculate with them till the community 
 is driven to take them off their hands at incalculable 
 profits ? ' That is the position taken up by the ad- 
 vocates of the nationalization of land. Not only is 
 freedom of contract in respect of land-ownership to 
 be Hmited, but land is to be withdrawn altogether and 
 absolutely from the domain of purchase and sale. 
 Such is the extreme proposal, but principles are in- 
 volved likely to give rise to far more practical discus- 
 sion than the plan as a whole. It would be incredible 
 that even a very advanced democracy would accept 
 
804 ADDEESSES ON ECONOMIC QUESTIONS 
 
 Mr. George's scheme as it is put forth ^ but the right 
 and duty of the State to control and limit the profits 
 arising from the monopoly of land is insisted on in 
 influential quarters as part of a practical programme. 
 And it is argued that this object can be partially 
 attained without recourse being had to more startling 
 methods, by a system of special taxation. The im- 
 position of taxes has often been used for other than 
 revenue purposes. Where protection to native in- 
 dustry is demanded, the machinery of the tax-gatherer 
 furnishes a convenient instrument ready to hand ; and 
 similarly the hand of the State is to be invoked to 
 secure a distribution of v^ealth on new hues and 
 principles. Nor are these ideas to be applied only to 
 the owners of land. Liberty in making testamentary 
 dispositions is charged with producing such accumula- 
 tions of wealth as are contrary to the general interests. 
 Here, again, it is suggested that taxation will do the 
 necessary work. A judiciously revised system of 
 death-duties is to be the answer of the community to 
 any deathbed desire of ' Laissez-moi faire.' 
 
 Special demands by some classes of the community 
 for curtailment of the limits within which they may 
 make bargains, special demands by the State on the 
 increment of value accruing to land by the progress of 
 the community, a graduated Income Tax to prevent the 
 accumulations of fortunes during lifetime, death-duties 
 so arranged as to prevent accumulations amongst heirs 
 — such are some of the vast views which are being 
 brought to the front, in all of which Government 
 interference is to take the place of ' Laissez-faire ' in 
 the distribution of wealth. 
 
 Let us turn to a third cause. As society becomes 
 more complex, more crowded, as conflicting interests 
 ' Progress and Poverty, by Henry George (1883). 
 
LAISSEZ-FAIRE 305 
 
 jostle each other more and more, so will the cry for 
 more regulation become louder from day to day. TUl 
 some years ago the street traflBc in the metropolis 
 regulated itself. The rules of the road were held to 
 suflfice. The stream of vehicles passed to and fro 
 under a very wide application of ' Laissez-faire ' and 
 * Laissez-passer.' But when blocks became more fre- 
 quent, collisions more numerous, street accidents more 
 and more a common occurrence, the cry arose for 
 the police. Society in the shape of two policemen 
 stationed itself in all the important thoroughfares. 
 Coachmen were stopped, drivers directed, foot-passen- 
 gers assisted, refuges constructed. Freedom of passage 
 ceased. The principle of individual liberty yielded to 
 organized control. Similarly on the highways of our 
 industrial traffic, and in the movements of society 
 along its various tracks, it would appear that collisions 
 became so frequent, and accidents so numerous, com- 
 phcations, crowding, and disputes so intolerable, that 
 the poUce of the State were summoned at every turn. 
 Regulations unnecessary and odious in a simpler state 
 of civilization not only became acceptable, but were 
 loudly demanded. 
 
 If this be in truth a contributory cause, it may 
 furnish an explanation of a phenomenon which has 
 often struck me as remarkable, and requiring explana- 
 tion. How is it, I have often asked myself, that 
 while the increasing democracy at home is insisting 
 with such growing eagerness on more control by the 
 State, we see so small a corresponding development 
 of the same principle in the United States or in 
 Anglo-Saxon Colonies? It is clearly not simply the 
 democratic spirit which demands so much central 
 regulation. Otherwise we should find the same con- 
 ditions in the Anglo-Saxon democracies across the 
 
 X 
 
306 ADDEESSES ON ECONOMIC QUESTIONS 
 
 seas. Other causes must be at work in the United 
 Kingdom. On the one hand, the philanthropic and 
 sensitive element is always infinitely stronger in the 
 old country ; and, on the other hand, its civilization is 
 more complex, more crowded, more honeycombed 
 with anomahes, more running into extremes. The 
 Colonies have more breathing-space. There, indivi- 
 dual energy can expand with less encroachments on 
 neighbours' interests. There, movement is freer, and 
 the first instinct of man for untrammelled liberty, 
 confidence in himself, and in his power to shift for 
 himself, and hold his own, have not yet yielded to the 
 acquired taste for that regulation, control, interference, 
 and inspection with which the most independent- 
 minded nation in the world is rapidly being inoculated 
 as an outcome of the latest form of its civilization. 
 
 While society in the old country, as I have shown, 
 thus demands the aid of the State to expedite and 
 further its transactions by regulating and organizing 
 them, the movement is stimulated by a further cause. 
 The successful performance of a certain set of duties 
 by a pubHc department inspires its administrators 
 with the natural desire to extend their sphere of 
 acknowledged usefulness. Ambition for more work 
 is a sentiment not confined to those whose pecuniary 
 self-interest prompts them to enlarge an industry 
 which is a source of personal profit. Nor, when it is 
 exhibited by public servants, need it be cynically 
 attributed to a thirst for more power, patronage, or 
 importance. I have had some experience of the 
 qualities of civil servants of the Crown. It is a 
 mistake to credit them with any tendency to scamp 
 their work. On the contrary, the leading men amongst 
 them, the flower of an honourable profession, who 
 rarely reap sufficient acknowledgement at the hands 
 
LAISSEZ-FAIEE 307 
 
 of the public, who are often debited with the failures, 
 but less often credited with the successes of their 
 department, show the keenest desire for adding field 
 after field to the region in which they labour. No 
 country gentleman covets more earnestly bits of land 
 lying outside of, but adjoining, his estate, than the 
 energetic heads of departments, whose work has 
 succeeded, covet an extension of the limits of their 
 activity. You may remember how the desire of the 
 Post Office authorities for the acquisition of the tele- 
 graphs almost developed into a passion. 
 
 Again, the Post Ofiice succeeded in Savings Banks ; 
 why not try their hand at banking? Their distribu- 
 tion of letters gave widespread satisfaction ; why not 
 distribute parcels also ? And if banking and annuities, 
 and savings in every form, why not insurance also ? 
 As to the public, it gladly accepts any immediate and 
 palpable boon from a department which has served it 
 well. I do not contend that the demand of the public 
 for that regularity, security, and, above all, universahty, 
 that carrying the conveniences enjoyed in populous 
 centres into remote nooks and corners of the country, 
 which it is believed central agencies alone can secure, 
 has not contributed largely to this acquisition by the 
 central authorities of many businesses hitherto left to 
 local and private enterprise. Indeed, it may be cited 
 as a separate and very notable cause. But, believe 
 me, the stimulus comes also from the departments. 
 Nor is it unimportant to bear this tendency in mind. 
 The more the public puts upon civil servants, the 
 more will civil servants offer to do for the public. 
 
 Perhaps I have dismissed the wish of the public for 
 the performance of such duties as telegraphing and 
 carrying parcels in too few words, considering the 
 important bearing it has had on the extension of 
 
 X 2 
 
308 ADDKESSES ON ECONOMIC QUESTIONS 
 
 Government activity. But it lies nearer the surface 
 than the other influences which I have described. 
 And I was about to say that it concerns that branch 
 of Government functions on which there has been 
 some degree of agreement, namely, those which the 
 Government, from the fact that it has agencies of its 
 own throughout the country, can clearly perform with 
 the greatest advantage ; but this suggestion would not 
 command universal assent. For instance, the propriety 
 of the degree to which it has attempted to extend 
 its insurance and banking business has often been 
 called into question. 
 
 One cause of a more exceptional character than 
 those broad causes with which I have hitherto been 
 dealing, ought scarcely to be omitted in the enumera- 
 tion I have made. Government interference may 
 sometimes appear the only deus ex machina for the 
 immediate solution of some political or other difficulty, 
 of which the instant termination is demanded by high 
 reasons of State. Of all recent legislation, the Irish 
 Land Act is probably the most gigantic invasion of 
 the principle of * Laissez-faire ' in recent times. The 
 call for the substance of that Act was clearly due in 
 great measure to one of the causes which I have 
 already discussed — dissatisfaction on the part of the 
 Irish with the distribution of the joint product of land 
 and labour; but the Act was avowedly not based 
 simply on the intrinsic merits of the case. Heroic 
 remedies were required for an exceptional and almost 
 revolutionary state of things ; and the knot which for 
 centuries had become more and more inextricably 
 tangled could, in the judgment of those who were 
 responsible, be only cut by the State. But here, 
 again, as in other cases when the ball has been set 
 roUing, the new departure is in the strictest sense 
 
LAISSEZ-FAIRE 309 
 
 of the term a departure only. It is not an arrival, not 
 a terminus. An isolated act of heroic legislation 
 cannot be limited by the declarations of its authors. 
 It has its effect on the public mind, on the beliefs 
 entertained as to the general functions of the State. 
 I am speaking simply as an economist, and a student 
 of contemporary history, to members of a philosophical 
 institute. Within these walls we are not concerned 
 with political parties. We know no party questions. 
 But an account of the present situation of the principle 
 of ' Laissez-faire ' would not be complete if all allusion 
 to legislation, which so materially affects it, were 
 omitted. For better or worse the Irish Land Act 
 is a landmark in the history of the accelerating rate 
 of Government interference ; and the force of the 
 precedent, and of its effect on various classes, cannot 
 be ignored. 
 
 I have endeavoured to put before you several 
 powerful causes of the change in the public mind, 
 which I am attempting to explain. But I venture to 
 think that the degree to which, in these last years, 
 these influences have been operative, is due to a 
 further cause of a very important and significant 
 character. Trust in the action of the State would 
 never have developed to the extent to which recent 
 legislation, and still more the actual demands for 
 much more drastic legislation, prove it to have grown, 
 if the organization of the State had not undergone 
 very material modifications. Changes in the distribu- 
 tion of political power have produced changes in the 
 manner in which the action of the State is regarded. 
 Control by an oligarchical Government would have 
 been repugnant to the feeling of the commercial 
 classes. Control by a Parliament mainly influenced 
 by the commercial and capitalist classes would have 
 
310 ADDKESSES ON ECONOMIC QUESTIONS 
 
 inspired little confidence in the mass of the people. 
 Pari passu with the development of more democratic 
 conditions, a demand by the awaking democracy for 
 action on its behalf was a not unnatural result. So 
 long as legislation involving minute Government 
 interference could be regarded simply as paternal 
 legislation, it excited, not confidence, but distrust. 
 The people of this country have never wanted the 
 State to be parental. Now, when the State is invoked, 
 it is not invoked as a parent, or as a beneficent master; 
 it is invoked as the agent, aye, as the servant, of the 
 people's wUl. From this point of view the movement 
 is essentially democratic. Society wants its repre- 
 sentatives to act on its behalf. Society demands to 
 control the individual. The movement is distinctly 
 Socialistic. 
 
 I cannot conclude this review of the causes of the 
 present intense demand for Government interference 
 without alluding to the burning question of the housing 
 of the poor. In this case nearly all the causes which 
 I have noted, combine to create the demand — a public 
 sense of moral responsibility, dissatisfaction with the 
 present distribution of wealth, comphcations arising 
 from the crowded state of society, and the behef that 
 Government is the only deus ex machina to solve an 
 almost insoluble problem. I include dissatisfaction 
 with the existing distribution of wealth, for no candid 
 observer can ignore that the high profits realized by 
 the landlords and the extreme poverty of many of the 
 tenants are strong elements in the present agitation. 
 But what wUl carry this movement forward to an 
 actual experiment, as it has carried others, will not 
 be expediency, though arguments based on expediency 
 Will be most powerfully urged, nor the agitation of 
 those who have to pay exorbitant rents, but a wave 
 
LAISSEZ-FAIEE 311 
 
 of deep and strong feeling passing over the public 
 mind. 
 
 I agree with Lord SaHsbury that the principle of 
 'Laissez-faire' cannot be pleaded in bar of all action in 
 the matter. A most complicated situation has been 
 created, partly by acts of the Legislature itself, in 
 which ' natural liberty ' is scarcely recognized ; and it 
 is clear that there are many parts of the subject with 
 which, under any theory of ' Laissez-faire,' the State is 
 competent to deal. But the first question to be de- 
 cided will be, whether the State is simply to appear 
 on the stage in a benevolent character, placing national 
 resources, ia loans or otherwise, at the disposal of 
 persons prepared to build houses for the poor; or 
 whether the true beginning is not to insist on a 
 sterner and more thorough enforcement of individual 
 responsibility. To my mind the argmnent is almost 
 irresistible, that it is as just to prevent, and if neces- 
 sary to punish, house-owners who let out rooms unfit 
 for human occupation, as tradesmen who offer putrid 
 food for sale. Tenants may knowingly, in their in- 
 ability to procure other accommodation, take such 
 rooms and pay famine prices for them, just as the 
 extremely poor might knowingly buy bad food. But 
 this does not relieve the owner of his responsibility, 
 nor can the State permit the evils of a virtual mono- 
 poly to be intensified by that monopoly being used in 
 a manner destructive of health and morality. Two 
 evUs have to be met : the existence of vast tracts of 
 buildings, partly themselves dangerous to health, 
 partly so occupied and crowded as to be dangerous to 
 health, and, secondly, the absence of sufficient suitable 
 dweUings. The State is more capable of dealing with 
 the former than with the latter, and here is the key 
 to the situation. No element in the whole matter is 
 
312 ADDRESSES ON ECONOMIC QUESTIONS 
 
 more important than how, and at what price, sites can 
 be obtained. The readiness to embark capital will 
 depend on the cost of sites. It is possible that when 
 purchasers, armed with loans from the State, enter 
 the market, the value of building-sites will rise still 
 further if the owners of the filthiest dens commanding 
 monopoly rents are to be allowed under a compulsory 
 sale to value the profits of their own wrong. The 
 principle of 'Laissez-faire ' has never been extended to 
 prevent us from prohibiting the sale of noxious food. 
 It cannot be invoked to forbid the valuation of house- 
 property according to its value for legal use, and for 
 legal use alone. It remains for the State to define 
 what, looking to the requirements of health and 
 the prevention of crime and immorality, such legal 
 use shall be. Whatever action the State may ulti- 
 mately take, it is to be hoped that whUe the duties of 
 the community are enlarged on and pressed, the duties 
 of individuals, and the propriety of enforcing them, 
 may not be neglected. 
 
 The general question is obviously too large for 
 treatment on my part to-night, and there is a certain 
 inconvenience in dealing with a topic of such grave 
 importance in an incidental manner ; but looking to 
 the interest it excites, and the degree to which the 
 principle of Government interference is sure to be dis- 
 cussed in connexion with it, some allusion to it was 
 indispensable. 
 
 Let me resume the thread of my argument. I have 
 placed before you the principal causes which I hold to 
 have influenced the judgment of the public in its 
 attitude towards 'Laissez-faire.' I shall not attempt 
 in the short time still at my disposal to examine, as 
 to each class of the new demands for interference, to 
 what extent they may be based on illusions, or to what 
 
LAISSEZ-FAIRE 318 
 
 ultimate risk compliance with them may expose the 
 community, or in what cases paramount reasons may 
 justify such compliance. But I cannot conclude with- 
 out asking you to consider some of the general diffi- 
 culties and dangers which beset the course on which 
 the public is electing to travel, apparently with a light 
 heart, certainly with a confidence which, if justified at 
 aU, must be justified by the existence of totally new 
 conditions, and of a much purer and more perfect 
 atmosphere of national life than other ages and other 
 countries have ever enjoyed. For aU historic ex- 
 perience tends to show that the very gravest mis- 
 givings may reasonably be felt as to the success likely 
 to attend our new departure. 
 
 I have spoken of difficulties and dangers. By diffi- 
 culties I mean impediments likely to prevent the 
 methods proposed from meeting the objects towards 
 which they are directed; by dangers I wish to in- 
 dicate the risks of evil consequences, even on the 
 assumption that the new methods do effect what 
 they propose. 
 
 To what extent can Government be expected to 
 carry out efficiently the constantly increasing work 
 put upon it ? To what ultimate powers and influences 
 do you look for the performance of the work ? Of 
 what character are the instruments to be employed? 
 Such are some of the first questions which suggest 
 themselves. Is there no fear that the Government 
 may be overworked? Is there experience of any 
 Government having succeeded in giving satisfaction 
 under such conditions? A very robust faith in the 
 working machinery of the Government departments 
 is required to believe in the possibility of such success. 
 And see what happens ! As I have explained before, 
 ihe democratic spirit does not object on principle to 
 
314 ADDEESSES ON ECONOMIC QUESTIONS 
 
 the performance of vastly increased duties by the 
 State. On the contrary, it demands it, and it has 
 confidence in the idtimate controlling power, which is 
 the Legislature — that is to say, itself; but when we 
 come to the execution of the work decided on by the 
 Legislature, the democratic spirit does not feel con- 
 fidence — on the contrary, it is exceedingly critical of 
 all acts of the Executive, and we are confronted by the 
 difficulty of an Executive summoned to all-pervading 
 duties, but with agents who receive little popular 
 support. The public demands inspection, but too 
 often denounces the inspectors ; the public demands 
 regulations, but chafes at the red tape employed in 
 carrying them out ; it legislates for watchfulness on 
 the part of the State over the shortcomings of local 
 authorities, but nothing is more unpopular than the 
 activity of central agents ; it demands organizations 
 which require the appointment of vast numbers of 
 clerks, yet the deficiencies of Government clerks, and 
 the expense of their salaries and pensions, furnish 
 endless food for popular declamation. Theoretically, 
 the Executive Government is the all-wise and bene- 
 volent agent of the community, with an eye which is 
 everywhere, and an untiring arm. Practically, in its 
 working capacity, it is a body of over-worked, much- 
 criticized gentlemen who are not trusted half as much 
 as they ought to be. 
 
 But let us look a little further and consider the 
 Government, not only in its working capacity, but in 
 the widest meaning of the term, as the body which 
 wields the supreme powers of the State. 
 
 Consider what conditions are demanded. A central 
 Government free from jobbery, nay, even free from 
 the suspicion of jobbery, absolutely just between class 
 and class, free from bias or leaning, dependent on the 
 
LAISSEZ-FAIRE Sl5 
 
 ■will of the people — for that is the first condition of it^ 
 being trusted with such extraordinary powers — yet 
 steady and regular in the impartial performance of 
 duties deeply affecting the interests of those on whom 
 their continuance in power depends. Let us probe 
 this matter to the bottom. "Who is the State ? What 
 is the Government? What is the central authority 
 to whose hands such vast interference with natural 
 Hberty is to be confided ? It is Parliament and its 
 creature, the Grovernment of the day. What is Parlia- 
 ment? The representative of the majority of a certain 
 year ; the expression of the pubHc will at a certain 
 date. And this is the body which, stripped of con- 
 ventional expressions, is to fix new relations between 
 classes, and give a fresh direction to and control the 
 currents of our Hves. See what we are doing ! We 
 are distrusting classes separately. We are acting on 
 the assumption that their self-interest imperils social 
 aims which we have at heart, that they are not to be 
 trusted even when notified of the demands of the age ; 
 but that inspection and regulation and positive enact- 
 ments are to clog them at every step, to be present at 
 every contract, and to watch over the fulfilment of 
 every duty. But whUe we thus proceed on the policy 
 of distrust, we are to have unbounded confidence in 
 successive decisions of Parliamentary majorities. 
 
 The State is a noble expression. The idea of the 
 social body politic suggests even higher thoughts. 
 But the homely reminder that the active force of 
 society in its ultimate action is nothing more than the 
 result of a heated electoral contest drags us down 
 again to earth. We may doubt whether society as an 
 active force vdll be so infinitely superior to its compo- 
 nent parts ; and if a grave mistake should be made, if, 
 when the era of State Socialism is further developed, 
 
316 ADDEESSES ON ECONOMIC QUESTIONS 
 
 we should find that the legislative and executive 
 bodies are not infinitely freer from the imperfections 
 and shortcomings of our common nature than history 
 gives us any right to anticipate, the nation may regret 
 having exacted almost superhuman duties and super- 
 human virtues from bodies essentially human. 
 
 Again, even if we grant an admirable central 
 Government, do we not run a serious risk, in a vast 
 number of cases, of weakening individual responsibility 
 to such a degree that what we gain on the one side 
 we lose on the other ? I have spoken of the Merchant 
 Shipping legislation, where an immense effort was 
 made to diminish the loss of sailors' lives by Govern- 
 ment control. I regret to say that there is no evidence 
 of success. All concerned have worked heartily to 
 secure it; but I am informed that, so far as the 
 returns furnish evidence, the result is nil, or worse 
 than nil. The returns as to ships laden with coal, 
 grain, and timber, as to which Legislative Committees 
 and Commissions and the Board of Trade have made 
 special rules and provisions after elaborate inquiry, 
 are disheartening in the extreme. We have cut down 
 individual responsibUity, and the State has failed to 
 do better. I submit that one of the lessons to be 
 learned from a case such as this is, that we should 
 exhaust every means of enforcing personal responsi- 
 bility before we substitute pubHc responsibility. 
 Remember, they cannot coexist in equal force. If 
 a ship is passed by an inspector, and goes to the 
 bottom, the ship-owner, if brought to book, pleads that 
 he has satisfied the inspector. 
 
 Such are some of the difficulties besetting the 
 accomplishment by the State of the purposes for 
 which its aid is invoked. But even if Government 
 action is partially successful, it is absolutely necessary 
 
LAISSEZ-FAIEE 317 
 
 to consider the drawbacks and dangers to which it 
 may lead. Eemember, for instance, the question of 
 cost. As MUl says, ' There is in almost all forms 
 of Government agency one thing which is compulsory, 
 the provision of pecuniary means. These are derived 
 from taxation, and the objection necessarily attaching 
 to compulsory contributions is almost always aggra- 
 vated by the expensive precautions and onerous 
 restrictions which are indispensable to prevent an 
 evasion of a compulsory tax.' 
 
 It is incredible to what extent this fact is lost sight 
 of. Increased work means increased cost, and the 
 consequent imposition of new taxes or the retention 
 of old ones, which would otherwise be repealed. 
 It is clear as day that, as a set-off to the advantages 
 secured, we must weigh the disadvantages which 
 increased expense involves. No sensible man can 
 ignore the fact that an immense proportion of the 
 augmentation in the Civil Service Estimates is simply 
 due to the new duties imposed on the State. Every 
 succeeding Administration is accused of increasing 
 our national expenditure during its term of office. 
 Heavy indictments are launched to and fro, and as 
 a matter of fact it is perfectly true that, notwithstanding 
 the sternest resolution to keep the estimates down, 
 every period of five years witnesses a larger demand 
 on the public purse. How can it be otherwise ? 
 Eegulation and inspection cannot be conducted gratis. 
 New departments of control are organized at con- 
 siderable cost, and new branches of business are 
 undertaken which may involve loss for a lengthened 
 period. Yet little notice is taken of such items. The 
 gross cost of Government is held up ad invidiam what- 
 ever party may be in power. Amongst pohticians 
 it is the custom of the trade to denounce the aggregate 
 
318 ADDEESSES ON ECONOMIC QUESTIONS 
 
 expenditure. Yet the growth of this expenditure 
 does not arrest for one single moment that demand 
 for State action which costs so much. The increase 
 in the burden of the tax-payers does indeed demand 
 most earnest watchfulness, but it should be considered 
 when the Government is asked to perform fresh work. 
 The intervention of the State for the purpose of 
 control does not end in the organization of the 
 necessary staff. Further intervention is required to 
 raise the funds. If the taxes collected are a dis- 
 couragement to trade and an incubus on capital, if 
 they hamper industry, diminish comfort, handicap the 
 EngHsh workman in his competition with foreigners, 
 and compel interference with absolute freedom of 
 trade, let us be rational and just and candid. We pay 
 in such discomfort and disadvantage the price of that 
 Government action which in so many different ways 
 public opinion demands. It is a very expensive 
 luxury when such action is not indispensable. It is 
 a very costly necessary when such action is absolutely 
 unavoidable. Extensive ramifications of State inter- 
 ference mean heavy taxation, with all its attendant 
 evils and abuses. Light financial burdens are incom- 
 patible with heavy public work. The good must be 
 weighed against the evil. The good may weigh much 
 heavier than the evil, but the evil is there. 
 
 Consider, again, the effect of the conduct by the 
 Government of large industrial undertakings, not only 
 from a purely financial point of view, but from that 
 of consequential additional interference. Monopolies 
 are hostile to inventions and improvements and 
 substitutes. Their success is imperilled when new 
 forces of nature are pressed into the service of man to 
 perform rival functions ; but a monopoly is frequently 
 indispensable to protect a Government business against 
 
LAISSEZ-FAIEE 319 
 
 loss. Consequently the dilemma arises, either that 
 a particular business must be protected by monopoly, 
 which is injurious to the development of other 
 promising agencies, or the general tax-payer must be 
 miilcted as a set-off to the benefit derived from that 
 Government monopoly. 
 
 Sometimes the pubHc is ready knowingly to risk 
 financial loss for the sake of a cheap and convenient 
 service. I eaU to mind a late striking instance where 
 it demanded such a service in spite of the protest of 
 the responsible department. Personally I should 
 consider such a course as being questionable as a 
 precedent, but arguments based on the creation of 
 bad precedents are almost as unpopular and out of 
 date as arguments based on the neglect of previous 
 warnings. Such general considerations count for 
 nothing nowadays. Stni, the question as to the 
 bearing of State interference generally on our national 
 finance is, I hope, sufficiently practical, present, and 
 pressing to secure grave and constant attention. 
 
 Another objection to the extension of Government 
 interference is of a more iusidious but not less real 
 character. Every additional transfer of duties to the 
 State saps the behef of the community in the value of 
 natural liberty. For instance, if the protection of one 
 class of individuals is entrusted to a public depart- 
 ment, no sooner do difficulties beset another class 
 than similar protection is invoked. Every calamity 
 which occurs, every shortcoming discovered, consti- 
 tutes a case for fresh interference. The conviction 
 that self-reHance and the conflict of interests are 
 elements of power and success, is weakened at every 
 turn, and pubHc opinion discharges individual responsi- 
 bility from its duties in one department after another 
 of our social life and industrial business. Then, 
 
320 ADDRESSES ON ECONOMIC QUESTIONS 
 
 further, new claims are established. If Government 
 have interfered in favour of one set of interests, other 
 interests will clamour for similar favour at the hands 
 of the State. The reality of such dangers can scarcely 
 be denied, and the risk is heightened by the obvious 
 difficulty of retracing steps taken under such condi- 
 tions. It is one thing to place a trade or a class 
 under State protection. It is a very different thing 
 to withdraw it, especially if moral considerations have 
 prompted the original act. Trade might long be 
 paralysed, capital expelled, wages lowered, and the 
 national interests generally prejudiced, before it would 
 be possible to repeal a system of Government control, 
 even if condemned as a failure, in favour of the 
 restoration of natural Uberty. Once pass a moral 
 condemnation on 'Laissez-faire' in any particular 
 case, and its rehabihtation becomes an almost hopeless 
 task. 
 
 Consider a further element of risk. Much of the 
 new business imposed on the State relates to what 
 may be called a kind of arbitration between classes. 
 The State is to hold the balance, and to fix a standard 
 for bargains, to provide rules for the conduct of 
 business. It is to check self-interest by the curb of 
 Government control. But, as I have said before, the 
 State resolves itself ultimately into a Parliamentary 
 majority, and it is from this majority that we are to 
 look for that judicial impartiality undisturbed by 
 passion, that superiority to selfish interests, that purer 
 standard, which are to cure the wicked ways of 
 natural Hberty. 
 
 Once more, permit me to invoke the authority of 
 John Stuart Mill :— 
 
 ' Experience proves that the depositaries of power, 
 who are mere delegates of the people, that is of 
 
LAISSEZ-FAIRE 321 
 
 a majority, are quite as ready, when they think they 
 can count on popular support, as any organs of 
 ohgarchy, to assume arbitrary power and encroach 
 unduly on the liberty of private life. The public 
 collectively is abundantly ready to impose not only 
 its generally narrow views of its interests, but its 
 abstract opinions, and even its tastes, as laws binding 
 upon individuals. And the present civilization tends 
 so strongly to make the power of persons acting in 
 masses the only substantial power in society, that 
 there never was more necessity for surrounding indi- 
 vidual independence of thought, speech, and conduct 
 with the most powerful defences, in order to maintain 
 that originality of mind and individuality of character 
 which are the only source of any real progress, and 
 of most of the qualities which make the human race 
 much superior to any herd of animals. Hence it is 
 no less important in a democratic than in any other 
 Government that all tendency on the part of public 
 authorities to stretch their interference and assume 
 a power of any sort which can easily be dispensed 
 with, should be regarded with unremitting jealousy.' 
 
 I know what is thought at the present day of such 
 generalizations. They have lost much of their au- 
 thority. Indirect benefits are seldom allowed to 
 weigh in the scale against immediate profit. Abstract 
 principles are more and more being abandoned in 
 favour of whatever may at a given moment seem 
 to answer a given purpose, and eternal truths have 
 ceased to command any practical faith. Believe me, 
 there is danger in the excess to which this scepticism 
 is carried ; there is danger and folly in neglecting or 
 denying 'tendencies.' It is aU very well to scoff 
 at laws of nature, and to degrade the term * common 
 sense ' by placing it in opposition to the assertion 
 
 Y 
 
S22 ADDRESSES ON ECONOMIC QUESTIONS 
 
 of principles which, if rightly appreciated, cover the 
 teachings of common sense as well as of scientific 
 law. It is aU very well to invoke the aid of common 
 sense to justify men in framing their opinions simply 
 on the temporary circumstances of the moment, to 
 the exclusion of far-sighted considerations of future 
 results. But this habit of mind appears more than 
 ever dangerous at a time when the nation is embarking 
 on new social questions, and when, if ever, we have 
 need of the steady aid of principles and of the know- 
 ledge gained in the world's history as to the bearing 
 of certain tendencies on the ultimate shape of events. 
 One last general remark I should wish to be allowed 
 to make. I have spoken throughout of the central 
 Government or the State, but the central Govern- 
 ment is not the only agency, nor always the best 
 agency, by which the community can give effect to 
 its wish of exercising control. The original powers 
 of control can only be derived from the central 
 Legislature, but a large proportion of public work 
 is performed by local bodies. So far as the objection 
 to the substitution of public for individual responsi- 
 bility is held to be valid, it holds good against the 
 action of the community, operating through a local 
 body, as much as against the action of a central 
 authority ; but the more work in the way of pubhc 
 interference the country demands to be performed, 
 the greater in my opinion is the necessity of trans- 
 ferring to local authorities as large a proportion as 
 possible of pubHc functions. Such a transfer promises 
 incalculable advantages. It diminishes pro tanto that 
 extension of central power and patronage of which 
 I have said little, but which is a most undesirable 
 accompaniment of increased Government action. It 
 reduces the number of the army of men whom the 
 
LAISSEZ-FAIEE 823 
 
 central authority is compelled to employ. Secondly, 
 it eases the work of the Government — a great gain in. 
 view of the certainty that if, as is but too probable, 
 the Government is overworked, many of its duties 
 wiU be ill-discharged. Thirdly, it distributes weight. 
 It imposes public functions on a different class of 
 citizens. It interests an additional stratum of society 
 in public business. And lastly, it provides to some 
 extent a safety-valve against possible overbearing 
 tyranny on the part of an aU-powerful class. If the 
 community is in many cases to encroach on the hmits 
 of individual independence, it is, at all events, an 
 advantage to spHt up the community into many 
 fractions in the discharge of its self-imposed obhga- 
 tions. Strong local bodies, firmly rooted in public 
 esteem, are an invaluable bulwark against the dangers 
 arising either from the caprice, or the impatience, 
 or the imperiousness, or the jobbery of a central 
 authority. K the extended demand for Government 
 interference is to be progressively satisfied, it is 
 earnestly to be hoped that we may proceed j?an passu 
 on the lines of decentralization. 
 
 I have endeavoured, as far as lay in my power, 
 to observe an impartial tone in the examination 
 which I have made. I do not wish to be under^ 
 stood to be a bhnd and unreasonable champion of 
 'Laissez-faire' under all circumstances. 'Laissez-faire' 
 has suffered in reputation, because its advocates have 
 often pushed its claims on pubhc favour to extremes. 
 I have wished to avoid that error, and I have not 
 failed to recognize the honest, weU-intentioned, and 
 often noble aims which have inspired the accelerated 
 pace of legislation and of opinion towards extended 
 Goveriunent interference. The awakening of the 
 
 y 2 
 
824 ADDRESSES ON ECONOMIC QUESTIONS 
 
 public conscience ia respect of many deep-rooted evils 
 in trade and society, in the relations between classes 
 and the treatment of individuals, has rendered most 
 signal service in raising the standard of morality, and 
 in showing sounder and safer paths of duty. Whole 
 classes have been roused to the knowledge that their 
 conduct of affairs in certain respects was below what 
 the age demanded of them. Sometimes the paths of 
 duty become overgrown with weeds, and he who 
 passes daUy along them does not perceive their 
 gradual growth. But when the outer public are let 
 in, and complain that the paths are not properly kept, 
 the owner himself is as keen as the pubhc to uproot 
 the noxious growth. The discovery of evils and 
 abuses demanding a remedy is not always a justifica- 
 tion for substituting an entirely new organization, and 
 for withdrawing responsibility in favour of regulation. 
 When we contemplate with satisfaction the greater 
 care for the security of the employed, the greater 
 solicitude for the mental and moral welfare of 
 children, the anxiety for sanitary improvements, the 
 desire for better house-accommodation for the poorest 
 classes, the efforts in the cause of temperance, the 
 sympathy for the suffering of dumb animals, and 
 generally the struggles of the philanthropist and the 
 social reformer for the elevation of the masses in 
 comfort and refinement, we shall not be reheved of 
 the necessity of considering the efficiency of their 
 methods, because their aims are high and pure. We 
 shall ill serve the common cause of increasing the 
 sum of human happiness by ignoring dangers which 
 surround the execution of even lofty purposes. Nor 
 for the sake of quick and palpable reform is it always 
 right to compromise the future. The flattering aspect 
 of an immediate improvement must not blind us to 
 
LAISSEZ-FAIEE 325 
 
 sowing the seeds of future danger. We might sap for 
 ever the self-reHance of a class in order to remove 
 some present abuse which other methods might even 
 more effectually remedy. 
 
 The dangers in the road of social reconstruction 
 under Government control are so grave that they 
 can scarcely be exaggerated ; dangers arising, not 
 only from the serious chance of inefficiency in the 
 methods chosen, but from the transfer of responsi- 
 bilities, from the establishment of national law in the 
 place of individual duty, from the withdrawal of 
 confidence in the qualities of men in order to bestow 
 it on the merits of administrations, from the growing 
 tendency to invoke the aid of the State, and the 
 decliniag behef in individual power, I press these 
 risks on you as citizens as well as economists. We 
 cannot see universal State action enthroned as a new 
 principle of government without grave misgivings. 
 Your ideal will not be that of a time when the whole 
 duty of man would be edited in bulky blue-books, and 
 when due preparation for an inspector's visit would 
 represent the discharge of all obligations and the 
 fulfilment of all claims. 
 
 Let us hope that in the State Socialism of the 
 future, to which some thinkers suggest we are drifting 
 at no slow pace, room will still be left for that self- 
 reliance and independence and natural liberty which, 
 if history has taught us anything, are the main con- 
 ditions on which depend the strength of the State, 
 the prosperity of the community, and the greatness 
 of nations. 
 
ETHICS AND ECONOMICS 
 
 Inteoductory Note. 
 
 Though the following address was delivered before 
 the British Economic Association, it was not intended 
 to be a contribution towards the elucidation of abstruse 
 problems, or a scientific statement of economic prin- 
 ciples. It was submitted as a popular argument for 
 the less-instructed, in whose minds the idea that 
 between ethics and economics there is something 
 fundamentally antagonistic was, and is, almost in- 
 eradicable. Notwithstanding the disclaimers and 
 explanations of its professors. Political Economy has 
 remained under a kind of moral ban. In 1893 (the 
 date of the address) — just as now when special causes 
 aggravate the general attack on the science — it 
 appeared to be a duty which could not be performed 
 too often, to emphasize what cuts at the root of 
 much misunderstanding — the distinction between the 
 theoretical hypotheses and abstract formulae on which 
 it was originally founded and built up and its applied 
 and practical side. As stated in the Preface, I had 
 turned my attention, while engaged on the discussion 
 of economic subjects, rather to the analysis of actual 
 phenomena than to the examination of purely scientific 
 doctrines. Hence illustrations and expositions which 
 might appear trite to those who were familiar with 
 the true character and history of the science seemed, 
 in my judgment, not to be without their use. In the 
 preceding essay I had dealt with this question as 
 
ETHICS AND ECONOMICS 327 
 
 illustrated by various phases in the perennial con- 
 troversy between 'Laissez-faire' and Government 
 Interference. In the following address I covered 
 a somewhat wider field. Starting from the deeper 
 contrasts between the hypothetical 'economic man,' 
 created for the purpose of scientific study, and the 
 hypothetically perfect altruist, I attempted by some 
 simple illustrations to contribute to the exposure of 
 the too popular fallacy that in the affairs of actual 
 social life, social emotionalism is altruistic and Political 
 Economy the reverse. 
 
 I venture to think that if in an earlier period the 
 sterner doctrine of the uncompromising economist 
 required to be modified by the invocation of influ- 
 ences flowing from ethical considerations, the sugges- 
 tion is permissible that in the present day the risk is 
 in the opposite direction, and that it is the duty of 
 those who direct public opinion to be constantly on 
 their guard lest immutable principles should be for- 
 gotten under the short-sighted, if creditable, pressure 
 of a too impulsive philanthropy. 
 
ETHICS AND ECONOMICS 
 
 Presidential Address delivered before the British 
 Economic Association, June 14, 1893. 
 
 It was a rash step on my part to accept the presi- 
 dency of this Association, embracing as it does so 
 many eminent economic writers and thinkers of the 
 day. Looking at the Uttle time which of late years 
 has been at my disposal, and the little opportunity 
 afforded me of keeping up with the progress of 
 economic inquiry, I can hardy claim to appear in any 
 other character than that of an amateur. But if my 
 acceptance of the presidency was rash, it was still 
 rasher to undertake to deliver an address on Economics 
 in the presence of so many distinguished professors of 
 that science. How can I steer clear of pitfalls when 
 I have not had time to master the successive stages of 
 economic controversy, or to saturate myself with the 
 manifold hterature of the subject ? You must, there- 
 fore, take me as one of the oi noWoi as one of the 
 general public, deeply interested indeed in all these 
 subjects, but acquainted with them rather from the 
 practical, political, and social point of view than from 
 that of the scientific student and philosophical investi- 
 gator. Thus I may perhaps be permitted to take 
 some hberties. I may, for example, hold myself 
 absolved from deahng with definitions ; I shall try 
 to avoid the use of terms of art, and I must ask 
 professors to forgive me if I put the upshot of their 
 elaborate investigations into simple and, possibly, un- 
 
ETHICS AND ECONOMICS 329 
 
 scientific language. What I am anxious to do is to 
 contribute to the popular understanding of some of 
 your doctrines, and if I can say nothing to economists 
 but what is obvious, perhaps I may make some 
 practical suggestions in opposition to the many false 
 conceptions which in the popular mind still to a 
 perilous extent surroimd the teachings of our great 
 science. 
 
 A large section of the untutored community rejoiced 
 some years ago when they were told by a very high 
 authority that pohtical economy had been exiled to 
 another planet. It was a fancied collision between 
 economics and ethics which played a conspicuous part 
 in the deposition of the teachings of the sterner 
 science from their place of sovereign principles. Not 
 that this was the only cause ; the failure of the older 
 system to secure what the working population con- 
 sidered should be their fair share in the distribution 
 of wealth no doubt hastened the catastrophe, if cata- 
 strophe it was. I wish I had the knowledge or 
 capacity, as well as the time, to give my own impres- 
 sions from the popular point of view, of the gradual 
 rebellion of public opinion against those doctrines 
 which at the beginning of the second half of the 
 present century seemed absolutely unassailable. Eco- 
 nomic writers have treated the development of this 
 movement historically and scientifically. But the 
 subject is so vast, and enters so deeply into all 
 relations of the social organism, that something still 
 perhaps remains to be said of the gradual changes 
 which, socially and politically, have often been ob- 
 servable in the application and non-application of 
 economic theories to the demands of public opinion, 
 and their translation into legislative enactments. 
 
 I made my first plunge into economic questions, 
 
330 ADDEESSES ON ECONOMIC QUESTIONS 
 
 I think, in the year 1852, and I still retain vivid 
 recollections of the first revolt against the doctrines of 
 MUl, whose influence in this department of human 
 thought it would be impossible to exaggerate. Mill 
 was then in the plenitude of his unquestioned authority. 
 Youthful audacity was then, as now, sceptical in many 
 directions ; but to doubt or assail the doctrines of 
 Mill was the anathema maranatha, the unpardonable 
 heresy of those my student days. One exception, 
 however, there was to this submission to authority. 
 There was one amongst us who attacked Mill's cardinal 
 position. We mocked at our friend. We used to 
 declare that this bold assailant dealt only in verbal 
 puzzles, but he was very persistent when he could get 
 us to Hsten. StiU he made no way. This iconoclast 
 was F. D. Longe, who may be reckoned as ultimately 
 the first successful assailant of Mill's wage-fund theory. 
 Undeterred by his want of success in persuading his 
 friends, Mr. Longe tried the pubhc, and launched 
 a pamphlet. But it was not until Thornton took up 
 the cudgels that the position was carried. I mention 
 this incident as an illustration of the difficulties in the 
 fifties of making any impression on Mill's creed. 
 Every attack seemed a forlorn hope. Since then 
 what a change have we seen, what havoc amongst 
 doctrines of the orthodox school ! But when I say 
 ' havoc,' I do not necessarily mean an exposure of 
 fallacies. On the contrary, there has, I am convinced, 
 been much rejection of valuable and inexorable truths. 
 But authority has been lost, and we now find ourselves 
 in the midst of economic anarchy, and engaged, not 
 in a duel, nor even triangular duel, but in the midst 
 of conflicts waged by upholders of many sets of 
 doctrine, none of which has succeeded in attaining 
 a position of absolute recognized supremacy. 
 
ETHICS AND ECONOMICS 331 
 
 Amongst the various phases of this many-sided con- 
 flict none have been of more interest to the general 
 public than the alternately advancing and retreating 
 tides of ethical and economical forces. To me this 
 appears to be the most important of all these conflicts 
 in its practical bearings. If poHtical economy has 
 suffered exile, it was in the main an ethical school 
 which pronounced the sentence. Of course when it is 
 said, and apparently with some truth, that pohtical 
 economy has been banished, what is meant is that the 
 set of principles which have hitherto been accepted as 
 absolutely authoritative, was banished. The science 
 itself is always amongst us, and cannot be banished. 
 It is the science of wealth — the science of the pro- 
 duction, the distribution, the consumption of wealth. 
 It may be discredited or neglected ; it may pass from 
 the hands of eminent economists, and degenerate in 
 the hands of quacks, heretics, economic infidels, and 
 impostors ; but concerned as it is with matters of 
 universal interest to mankind, it cannot permanently 
 disappear. 
 
 Thus it is not as regards the science itself, but as 
 regards the principles which were held by the econo- 
 mists in the middle of the century — I have not time 
 to define them— that we have to ask whether sentence 
 of banishment was justly pronounced. And again, is 
 the banishment permanent, or may the time not come 
 when the exiles, purged of the sins, if any, which they 
 countenanced, and missed as useful allies in promoting 
 human progress, may fitly be recalled to render service 
 once more, and to be utilized in modifying that 
 younger, that more ethical, teaching which, if allowed 
 to run riot without the sober, unimpassioned influence 
 of the older school, might in its turn be discredited 
 and be refused even that influence which it deserves ? 
 
332 ADDEESSES ON ECONOMIC QUESTIONS 
 
 First, then, were the older principles justly relegated 
 to a distant planet ? I think they suffered to a great 
 extent from misunderstandings and misapprehensions, 
 partly brought about by the fault of the economists 
 themselves, and partly by the incapacity of the public 
 to understand analysis and hypothesis. The poHtical 
 economist was supposed to have presented man as 
 influenced by self-interest alone — self-interest as the 
 safest guide to the wellbeing of the community — com- 
 petition as the most praiseworthy form of human 
 activity, and the best stimulus to human motive. Few 
 economists would have accepted this description as 
 correct, though in the case of some it does not diverge 
 far from the truth. But the positions taken up were 
 partly the result of a process of subtle analysis, and 
 still more the result of hypotheses scientifically and 
 most legitimately employed. Need I recall how 
 human motive was analysed by the earliest econo- 
 mists, beginning with Bentham, from step to step, 
 and was found by a chain of reasoning ultimately to 
 eventuate in every case in an effort at self-satisfaction ? 
 Hypothesis, on the other hand, played its part in 
 eliminating a vast number of subsidiary influences. 
 The result was ' economic man ' — not a human 
 creature, but a hypothetical monster, created for the 
 purpose of scientific study, and intended in some 
 respects to be put to the same uses in the inquiry into 
 economic problems as the use to which a skeleton 
 is put by a physiologist. The picture of this hypo- 
 thetical economic man jarred on the senses of the 
 unlearned multitude — they mistook the study for the 
 ideal. Whilst many sciences dealing with inorganic 
 nature or with lower organizations have by their 
 splendidly accurate processes of analysis procured 
 results which are accepted without question, similar 
 
ETHICS AND ECONOMICS 333 
 
 processes followed by economists frequently prejudiced 
 rather than promoted the acceptance of their results. 
 Not only is the analysis itself frequently open to 
 question, but every one is apt to test it by his own 
 experience, and that experience is often calculated to 
 damage the science in popular opinion. The analysis 
 of human motive does not come home to the individual 
 student, it does not convince him, like analysis in the 
 domain of physical science. 
 
 Secondly, the economist does not fare much better 
 when he uses the method of hypothesis, but here he 
 only shares the common fate. How many public men 
 have not suffered from the use of hypothesis and illus- 
 tration? They argue hypotheticaUy, they strengthen 
 their argument by illustrations ; but the public is exr 
 tremely Hteral, and the hypothesis is fastened on the 
 speaker as a statement of his own view, and his illus- 
 tration is treated as if it were simply a statement of 
 fact. Those who wish to convey their meanings to the 
 multitude should beware of arguments founded on 
 hypothesis. The scientific assumptions of economists, 
 necessary and most useful as they were for learned 
 investigations, have without doubt seriously prejudiced 
 the reputation of some of the most valuable economic 
 truths. 
 
 But let me return to economic man, the creature of 
 hj^othesis and analysis. Supposed to be the ideal of 
 economists, he has hindered the acceptance of some 
 of their most far-reaching teachings. The alleged 
 presentation of the influence and operations of uni- 
 versal self-interest, repudiated and modified as they 
 have been, nevertheless has caused immense damage 
 to the whole science, damage which aU of us interested 
 in the science must endeavour to repair— damage not 
 with the learned, but with the multitude, on whose 
 
834 ADDRESSES ON ECONOMIC QUESTIONS 
 
 instincts the principles jarred, and who were only too 
 ready to denounce motives which in themselves did 
 not appear noble, and which in their own case did not 
 appear to have produced that wealth, the furtherance 
 of which was, even in the mouths of their champions, 
 their main raison d'etre. Thus sentimental and material 
 considerations combined to make war on political 
 economy. Its assumed neglect of ethical motives 
 jarred on the conscience ; its assumed success in the 
 production of wealth did not satisfy the workers. The 
 teachings of political economy, they said, may have 
 been eminently successful in producing wealth. Your 
 much-praised system of cruel competition may have 
 triumphed in that direction, but it has failed to 
 estabhsh an equitable system of distribution. Under 
 influences such as these, political economy was said to 
 be the science not only of wealth but of the wealthy, 
 and this prejudice soon prevailed against economists 
 in general. But it was most unjust as regards Mill, 
 for we all know how he treated the question of the 
 distribution of wealth, and with what tender soUcitude 
 he looked at the influence which his teaching in that 
 direction might have on the working-classes. How- 
 ever, I wUl not enter into the general question of the 
 distribution of wealth. My point is not the success of 
 economics in producing or distributing wealth, but 
 of keeping on terms with ethics. The difficulty is not 
 inconsiderable, for the very definition of the science 
 has damaged pohtical economy — namely, its definition 
 as the science of which wealth is the subject-matter. 
 Wealth in the mind of the masses was one thing ; 
 wealth in the mind of economists was a widely different 
 matter. 
 
 The terms on which ethics and economics may meet, 
 and must act and react on each other in intimate rela- 
 
ETHICS AND ECONOMICS 335 
 
 tions, appear at once if we recall the true definition of 
 wealth, which includes non-material as well as material 
 wealth : — ' Human energies, faculties, and habits, 
 physical, mental, and moral, which directly contribute 
 to make men industrially efficient, and therefore in- 
 crease their power of producing wealth. Manual skill 
 and intelligence are included in the personal wealth of 
 the nation.' Here, then, is the ground on which ethics 
 and economics meet and aim at the same result. Here 
 lies the duty of economists to work in with other 
 ethical influences. The science of wealth cannot dis- 
 regard the moral habits of a people, nor neglect the 
 development of its intelligence. Thus economics in 
 one sense are strictly ethical. Let the beginner as he 
 approaches political economy thoroughly understand 
 that he is entering on a science which does not ignore 
 ethics. Let the working-classes understand that the 
 science includes the moral, physical, and intellectual 
 development of the people. The field of economic 
 study is thus indefinitely extended, and economics wUl 
 have to be classed amongst the moral and social 
 sciences. It will thus be understood how ethics on 
 their side, pressed into the service of economics, have 
 promoted the increased productiveness even of material 
 wealth. Thus, from a broad point of view, economics 
 are not to be cried down as a non-moral science moving 
 on a lower plane and with lower motives. They work 
 towards civilization and morahty, even if it be for 
 their own ends. Enhghtened self-interest may be so 
 utilized as to be found to go hand in hand with motives 
 from which it is beHeved to be entirely absent. I fear, 
 however, that the popular prejudice against political 
 economy will not be removed by such an account of 
 the possible co-operation between ethics and economics. 
 It holds them to be in frequent collision and contra-> 
 
336 ADDEESSES ON ECONOMIC QUESTIONS 
 
 diction, and believes economics to favour, inculcate, 
 and iu"ge the furtherance of production and material 
 wealth against what are called higher motives and 
 considerations. 
 
 It is not difficult to discover the influences which 
 produced and fostered the feeling which I have just 
 described. The conscience of various sections of the 
 community had been roused by the sight of many 
 abuses. The shortcomings of the present system of 
 society began to be more fully realized, and a strong 
 development of genuine altruism set in. The reaction 
 was against selfishness, and that not so much against 
 selfishness as taught by political economists, but as it 
 actually existed in the world. In an address which 
 I delivered at Edinburgh in 1883 ^ I alluded to an 
 awakening of the public conscience as to the moral 
 aspects of many sides of our industrial arrangements — 
 rising doubts, less as to the efficiency of existing 
 organizations for producing wealth than as to their 
 compatibiHty with the humane requirements of im- 
 proving civilization. The existence of facts previously 
 unknown or ignored had been revealed in striking 
 colours, and emotions roused wh'i^h demanded the 
 application of immediate and direct remedies. I stated 
 my belief that the principle of ' Laissez-faire ' had lost 
 favour, chiefly owing to moral considerations, to the 
 assertion of the claims of other than material interests, 
 and to a growing feeling that it is right deliberately to 
 risk commercial and industrial advantages for the 
 sake of reforming social abuses and securing social 
 benefits. It is this development of the ethical side 
 of pubhc opinion — this awakening of conscience — 
 which, in itself so highly satisfactory from the social 
 
 ^ On ' Laissez-faire and Government Interference,' reprinted in 
 this volume. 
 
ETHICS AND ECONOMICS 337 
 
 point of view, has contributed very unfortunately and 
 unjustly to discredit political economy because of its 
 supposed collision with moral considerations. 
 
 Let me examine the cause of this supposed con- 
 tradiction. It is of the essence of the case ; it suggests 
 the most valuable practical points. To a great extent 
 the apparent contradiction arises from the different 
 modes of considering phenomena practised respectively 
 by the man swayed directly and strongly by ethical 
 considerations, and by the economist. 
 
 I must find a shorter name for the former class. 
 Neither sentimentalist nor philanthropist altogether 
 answers the purpose ; let me therefore use the term 
 * emotionalist.' The emotionalist is influenced by the 
 impression made on him by what he sees and feels — 
 the visible, the palpable, the direct. The economist 
 looks beyond — not at the present only, but at the 
 future — and is swayed not only by the visible and 
 the direct, but by the invisible, the more remote. 
 The one is mainly impressed by the fact, the other 
 by the consequence of the fact. The economist is not 
 less philanthropic, not less altruistic, not less con- 
 cerned with the greatest good of the greatest number ; 
 nay, rather, the emotionalist may be said to be more 
 individualistic, whilst the economist ranges over a 
 wider field. There is no field of sympathy, no depart- 
 ment of human feeUng or social obhgation, which does 
 not come within the range of the economist. The 
 emotionalist is moved by an immediate impulse at 
 the sight of poverty to indulge in charitable relief, 
 and that charity is often exercised without discrimina- 
 tion. No one wUl blame him. But it is the duty of 
 the economist to point out the indirect and invisible 
 effects of such action ; and this information is needed 
 in the interests of a wider community than that to 
 
 z 
 
338 ADDRESSES ON ECONOMIC QUESTIONS 
 
 which the charity is extended. And yet, on no field 
 of sentiment, in no department of human feeling or 
 social obligation, has the economist been more attacked 
 as non-ethical than in respect of charity and the 
 Poor Law; and yet his labour has been fruitful of 
 the best results in arresting demoralization and the 
 weakening of self-dependence* The ultimate result of 
 the uncalculated generosity of the emotionaHst may 
 be infinitely more disastrous than the evil which in 
 his generosity he tries to cure. Moved by immediate 
 impulses and tender compassion in the interest of 
 individual suffering, the emotionalist is stirred to 
 charitable action which is often called indiscriminate. 
 I say again, who will blame him ? Who wiU not feel 
 sympathy ? But it is the stern duty of the economist 
 to point out the indirect, invisible effects of the 
 generous charitable impulse. If tender treatment of 
 an individual pauper, and if an administration of the 
 Poor-Law, founded on ethical considerations alone, 
 should diminish the efforts of self-help, a whole class 
 may suffer ultimately from action taken towards indi- 
 viduals. The many — the community at large — may 
 be hurt and damaged by faults in the treatment of the 
 few. This trite instance must not detain us ; but 
 I have recalled it to your memory because the organi- 
 zation of charity and the restricted character of poor- 
 rehef recommended by economic science have largely 
 contributed to prejudice it in the eyes of public opinion. 
 Mark that the attitude of the economist is no less 
 ethical than that of the emotionalist — it is more far- 
 seeing, more social. It looks to the good of the com- 
 munity. It is called hard, but it is wise, and it serves 
 the general interest. 
 
 But the difficulty increases as we approach the ques- 
 tion of wages. Fair wages, just wages — who shaU 
 
ETHICS AND ECONOMICS 339 
 
 settle the standard? Learned economists have ana- 
 lysed the word * justice,' but the result is complicated 
 and agreement diflBcult. Analysis in this respect is 
 a task beyond the Hmit of the time at my command ; 
 but here, if anywhere, ethical considerations are daily 
 playing a more important part. The standard of 
 higghng in the market is given up. The manufacturer 
 is told that he must no longer bargain for the cheapest 
 labour — not even, as the more enlightened side of 
 political economy would teach, by giving such wages 
 as will secure good workmen and good work. The 
 standard is to be fixed by ethical considerations. 
 The duty of the economist may here be a duty diffi- 
 cult to perform, but one which may yet be of national 
 importance. This matter must be carefully examined ; 
 men must not be shouted down. They may consider 
 how difficult it is on this matter to meet the ethical 
 forces — I will not say the ethical arguments — that are 
 brought against them, but they are entitled to issue 
 a warning against what I may call contemporary and 
 immediate egoism. There may be an egoism of the 
 present generation which may ruin the next genera- 
 tion. There may be an egoism which may com- 
 promise the prosperity of the succeeding years of our 
 general social system. We must, therefore, be careful 
 not to think merely of present progress whether of 
 capitalist or labourer. The transition is very easy. 
 Let me take one instance. Competition was egoistic : 
 the labourer was not to outbid his fellow. The advice 
 given was dictated by altruism. But the result was 
 apt to develop into what I may call the corporate 
 egoism of a trade-union, I am not using the term 
 in a derogatory sense. There are trade-unions not 
 only among working men, but among all sections 
 of society. These great associations in the end 
 
 Z 2 
 
340 ADDKESSES ON ECONOMIC QUESTIONS 
 
 jealously shut the door against an increase of their 
 members. 
 
 Is the system of trade-unionism altruistic or egoistic ? 
 The movement may be said to have been an ethical 
 revolt against unrestricted competition. Economic 
 doctrine does not necessarily condemn, and has not 
 condemned, this movement. But it may be pushed to 
 excess, as what movement may not be pushed to 
 excess ? How long does it remain ethical ? It is 
 certain that trade-unionism may gradually develop 
 into corporate egoism. Altruism may thus take up 
 an antagonistic position to the too exclusive association 
 of skilled labour, and protest against the labourers out- 
 side its charmed circle being neglected. Sympathy 
 and sentiment may then gather round the excluded 
 tUl in course of time they, too, are organized and regu- 
 lated, and formed into a wider association than those 
 which went before. But economic forces again assert 
 themselves. The dockers, for example, are organized 
 into an association, but soon further unskilled labour 
 presses on their heels. Altruism commands their ad- 
 mission, but corporate egoism requires their exclusion. 
 Does not all this teach us how the philanthropist, the 
 emotionalist, must take counsel with economic forces, 
 under pain of aggravating suffering by his very attempt 
 to remove it ? The Socialist ' ethical ' man is an hypo- 
 thesis just as the older economic man was an hypo- 
 thesis. I am afraid that the one hypothesis will find 
 as little its counterpart in this world of ours as the 
 other hypothesis, and if the economic man is a mon- 
 ster, the ethical man, as pictured by the Socialists, is an 
 angel who wiU not walk upon this terrestrial globe. 
 
 To no practical political economist, and certainly to 
 no statesman, can a proper understanding between 
 
ETHICS AND ECONOMICS 341 
 
 economics and ethics be a matter of indifference. It 
 would be a national disaster if the sober, but surely 
 not ' dismal ' science, should be permanently dis- 
 credited. If it has been banished, as has been said, to 
 a distant planet, let it now be recalled, if not to take 
 up its old position of unquestioned sovereignty — its 
 monopoly of authority — ^yet, at aU events, let it be 
 recalled to be a wise counsellor of the ethical school. 
 A high duty rests upon you, the members of this 
 association ; you are performing it in the many works 
 which you from time to time issue to the pubHc. 
 Yours is the task to continue to assert for economics 
 their true position in the world, yours to show that 
 economics are not non-ethical but ethical, yours to 
 curb the rush of the impatient and the gush of the 
 emotionahst, yours to expose the quackeries of 
 impostors, and you will assuredly be performing an 
 ethical service while you continue to be engaged in 
 your noble, scientific, economic work. 
 
INSURANCE: VOLUNTARY OR 
 COMPULSORY ? 
 
 Intkoductoby Note 
 
 I HAVE ventured to include in this collection of 
 articles and addresses the following brief speech which 
 I delivered in 1884 before an audience composed 
 chiefly of working men on the subject of Voluntary as 
 compared with Compulsory Insurance. I have always 
 felt much interest in the organization and work of the 
 large Friendly Societies. In the second year after my 
 entrance into Parliament, that is in 1864, I was asked 
 by Mr. Gladstone, then Chancellor of the Exchequer, 
 to support him in an exciting campaign in which he 
 was at the time engaged against certain societies for 
 the insurance of the poor, whose methods and financial 
 arrangements he had good cause to suspect and 
 denounce. The subject aroused my keenest sympathy, 
 and for some time I gave it much attention. Accord- 
 ingly, when invited by one of the two greatest and best 
 managed of the Friendly Societies in 1884 to attend the 
 dinner of the 'Annual Movable Committee of the 
 Manchester Unity of Oddfellows,' I gladly comphed 
 with their wish. I sincerely appreciated the fine work 
 which had been accomplished by these self-governed 
 organizations of working men. My very hesitation in 
 the County Franchise question to increase the working- 
 class vote in the constituencies lest further strength 
 should be added to the forces with whom doctrines 
 as to the duties of the State and tentatives in the 
 
INSUKANCE 343 
 
 direction of Socialism were likely to become in- 
 creasingly popular — disposed me all the more to 
 acclaim the splendid services rendered to the com- 
 mvmity by the fine example and pervading influences 
 of these self-reliant and successful organizations. 
 
 Another feature in the great development of these 
 societies which specially attracted my attention as most 
 wholesome and beneficial to the State, was the fact of 
 their holding vast sums invested in the public funds, 
 thus creating amongst the masses a direct interest in 
 the credit of the nation. As will have been seen by 
 the tenor of other addresses here re-printed, my mind 
 was much fixed during the eighties on the welding 
 together of the interests of various classes by the 
 diffusion of the profits of trade and industry over a 
 wider area, and I saw a further common tie established 
 by the investments of an increasing body of citizens 
 in the public funds. 
 
 In some of these respects this short speech may 
 present considerations not unworthy of attention ; but 
 I have in this case not attempted to bring incidental 
 points, such as the then position of compulsory State 
 insurance in France and Germany, up to date, partly 
 because it would require more research than I am now 
 able to bestow on such an inquiry, and partly because 
 the intention of my utterances was to affirm and illus- 
 trate certain principles rather than to cover historical 
 ground. A succinct and clear account of the progress of 
 legislation abroad, dealing with State insurance during 
 the last twenty years, and with the experience thus 
 gained, would be most useful and interesting; but 
 I must leave it to others to undertake the task. 
 
INSURANCE: VOLUNTARY OR 
 COMPULSORY? 
 
 A Speech deliveked at the Dinner of the Annual 
 Movable Committee of the Manchester Unity 
 OP Oddfellows at Eeading, June 3, 1884. 
 
 I rise to propose the toast of the evening, ' Success 
 to the Manchester Unity of Oddfellows.' I think 
 I may fairly greet you as a body of associated capitalists, 
 for when I open your Eeport I see that you who are 
 present to-night, represent a sum of £5,000,000 sterling, 
 while you count some 500,000 members in your 
 Association. I say, then, you are capitalists in every 
 sense of the word. I rejoice to see this union of labour 
 and capital. It is one of the sheet anchors of the 
 prosperity and strength of this country. I understand 
 that 90 per cent., perhaps, of the members of the 
 Manchester Unity come from the industrial classes, 
 and it is to those who represent them here, that is to 
 working men, that Mr. Shaw-Lefevre ^ has been speak- 
 ing of the rising and falling interest of money, and of 
 the value of the funds. As possessors of capital, such 
 questions now come home to you. In France there 
 are numerous holders of French Consols. In England 
 it is said that the public debt is held by much smaller 
 numbers, but I claim that we may add to those who 
 are interested in our pubhc funds the members of this 
 great Society, who are capitalists by virtue of their 
 
 ' Mr, Shaw-Lefevre had addressed the meeting just before me. 
 
INSUEANCE 345 
 
 investments, and who are deeply interested in the 
 credit of the State. Watch over that credit of the 
 State. To you, representatives of the working-classes, 
 that credit is no light affair. You hold largely in the 
 public funds, and I would ask aU those who are in- 
 terested in the credit of the State to beware of a new 
 kind of extravagance which will run the older forms of 
 extravagance hard — the extravagance of lending the 
 credit of the State right and left for any and every 
 purpose whatever. As tax-payers you will naturally 
 be careful in respect of extravagance of expenditure, 
 but, as fund-holders, you must watch extravagance in 
 wasting the credit of the State. 
 
 I have called you an association of capitalists ; but 
 for what purpose are you associated ? You are asso- 
 ciated for the purpose of promoting self-help and 
 mutual help in time of sickness, and in times of 
 accident and pressure. That is, as I understand it, 
 the chief object of your Association. Differing in 
 many points from the ancient guilds, yet in many 
 senses you are their modern but truly English repre- 
 sentatives and successors. You are not their direct 
 successors, for there was an interval in time between 
 the dissolution of the guilds and the establishment of 
 Friendly Societies ; but you have succeeded to many 
 of their functions, you have succeeded to many of their 
 rights, and to many of their duties. The guilds had 
 two functions. They, as you do, protected their 
 members in sickness and old age, and helped the 
 orphans when the bread-winner had died ; but they 
 also had a further function. They protected the 
 members of the fraternity who in their old age fell 
 into trouble, and one of their most important functions 
 was the regulation of their work and their craft. Well, 
 the guilds were dissolved, and for a certain time in our 
 
346 ADDRESSES ON ECONOMIC QUESTIONS 
 
 industrial history the workmen practically stood alone. 
 Nor was it by the dissolution of the guilds alone that 
 the poorer classes were deprived of help on which they 
 relied in bad times. The rehgious houses, from which 
 a stream of charity had been wont to flow, were closed ; 
 and though the organization of the Poor Law was 
 estabhshed, it cannot be said ever to have taken the 
 place, or to have been intended to take the place, of 
 the organization, which, in the Middle Ages, had been 
 specially constructed for the protection of the industrial 
 classes. And so, as I say, the workmen stood alone. 
 But a mighty movement was in progress nevertheless ; 
 it was the emancipation of industry from the fetters 
 which had tied it down to the parish and to particular 
 crafts, and which prevented that free development of 
 labour which is one of the boasts of the present cen- 
 tury, and of England in particular. New diflSculties 
 surrounded the workman ; he had to hold his own ; 
 he was alone, but he was free ; the shackles were struck 
 off from labour, and industries were carried on without 
 the fetters which had been for ages imposed. 
 
 But the instinct of association, if latent, was not 
 extinct. The need of association was felt in a thou- 
 sand ways, and the need for association, after a time, 
 again led to the formation of two great groups of 
 associated workmen. It led to the formation of 
 Trades-Unions, and it led to the formation of Friendly 
 Societies. The work was divided between these two 
 great groups. The Trades-Unions took up that part 
 of the work of the guilds which was a kind of protec- 
 tion to labour, and the Friendly Societies took up that 
 part of the work of the guilds which afforded assist- 
 ance, mutual assistance, self-help grounded upon 
 mutual help — for that is the corner-stone of Friendly 
 Societies. 
 
INSUEANCE 347 
 
 Fortunately, in this country, legislative attempts to 
 prevent the free association of workmen failed of their 
 object, and the laws in which those attempts were 
 embodied were ultimately repealed. On the Continent 
 the suspicion as regards workmen's associations was 
 more successful in restricting their action, and the 
 restraints which checked them may be said to continue 
 to this day. In England that spirit of association 
 which belongs to the Anglo-Saxon race, has triumphed 
 in them, and continues its work unchecked by law, 
 and unchecked by public opinion. 
 
 You know what is going on at home, but you may 
 not know what is going on abroad in this respect. If 
 it interests you, I would like to say a word presently 
 with regard to the immense issues which, in Germany, 
 cluster round the question of voluntary and compulsory 
 insurance; but I would like first to mark the differ- 
 ence between the present system and the guilds whose 
 place you have taken. The guUds were local. They 
 were tied down to a particular locality and to particular 
 crafts ; and they represented not the union, but the 
 separation of interests. That is not the plan of the 
 Friendly Societies of the present day. You are not 
 local, but you are national. You do not belong to one 
 craft, but to all crafts. You do not belong to England 
 alone, but to the United Kingdom ; and not to the 
 United Kingdom alone, but to the British Empire; 
 for you have here among you to-night members of your 
 order from the Colonies — men to whom you will offer 
 a most cordial welcome — men whom the representatives 
 of the artisan and of the industrial classes of England 
 generally, are proud to remember spring from this race, 
 and who are, I trust, lending strength to our empire 
 across the sea. You are national, you are optional, you 
 are free. But there are opinions in the air which 
 
348 ADDRESSES ON ECONOMIC QUESTIONS 
 
 are not antagonistic to the forging anew of some of 
 the fetters which have been struck off our national 
 industries. The State is now called upon again to 
 regulate at every turn. The State again is bidden to 
 encroach upon the liberty of action of various indus- 
 tries, and the State is sometimes invoked even to take 
 upon its hands the gigantic system of the insurance of 
 the industrial classes. I trust that you will not permit 
 that to be done. I trust that in the hands of the 
 representatives of the working-classes the standard of 
 free labour, and free exchange, and free insurance will 
 always be held high. 
 
 Bear in mind that on the Continent your brothers 
 have experienced, and are experiencing, a very great 
 difficulty. In France the proceedings of associations 
 simUar to your own have been built up on principles 
 very much akin to yours, differing in that respect 
 essentially from what is going on in Germany. In 
 France, as in England, the French societies, called the 
 Societies of Mutual Help, take the place of the guilds, 
 and they grow up without much interference from the 
 State, except so far as French opinion and French 
 legislation are always more timid as to permitting 
 workmen to combine than has been the case in this 
 country. In 1850 the State in France began to regu- 
 late their Friendly Societies, but on lines very similar 
 to those which the State has followed here — that is to 
 say, it laid down certain rules which, if followed by 
 these societies, entitled them to certain privileges, such 
 as a right of inheritance, a right to hold land, and so 
 forth. Then came a curious event. The Emperor 
 Napoleon III, who was the representative of demo- 
 cratic despotism, or of despotic democracy, whichever 
 you choose, could not keep his hands off this principle 
 of insurance, which has so much attraction for State 
 
INSUEANCE 349 
 
 Socialists of every kind, and he spent large sums of 
 money in maintaining working-men's pension clubs, in 
 which they or their employers might insure. He 
 authorized the Prefects and Communal Councils to 
 combine together to establish Friendly Societies when 
 needed, thus acting contrary to the principle of free 
 association for purposes of this kind, which, until then, 
 had been acknowledged in France. But, with this 
 single exception, I cannot find that State insurance 
 has, in practice, made much progress in France. It is 
 true that there is considerable talk of it in these later 
 days, and the late M. Gambetta, in one of his election 
 speeches in 1881, spoke of the expediency, or at all 
 events discussed the possibility, of insurance against 
 the vicissitudes of old age as a compulsory and univer- 
 sal measure ; but so far in France this principle has 
 not taken root. 
 
 Across the Ehine, on the contrary, in Germany, it 
 has taken serious hold of public opinion. There State 
 Socialism, using compulsory insurance as one of its 
 chief agencies, is becoming one of the burning ques- 
 tions of the day, and the various parties in the State 
 are all at work endeavouring to find a solution for those 
 insoluble problems which are connected with this 
 matter. You would find, if you were to read the litera- 
 ture on this subject, that some very suspicious agencies 
 have put themselves on the side of this State Socialism 
 and compulsory insurance. There is the great Chan- 
 cellor Bismarck himself. He has become anxious for 
 a general system of insurance. Three laws are now 
 before the German Parliament, One is a law for 
 insurance against sickness, another for insurance 
 against accidents, and a third for the insurance for 
 men who are out of work in their old age. Now, 
 ■Prince Bismarck is considered to rank among State 
 
850 ADDEESSES ON ECONOMIC QUESTIONS 
 
 Socialists, and I want to point out one of the cardinal 
 dangers of this system of compulsory insurance in its 
 bearing on socialistic projects. It means regulation, 
 and regulation of labour as a whole. You cannot have 
 a system of compulsory State-aided insurance without 
 depriving working men of liberty and of many of the 
 privileges which they enjoy ; and I am not surprised 
 to find that a party which is stUl powerful in Germany 
 — the Eoman Catholic party — is associated with the 
 Chancellor, Prince Bismarck, in order to pass measures 
 of compulsory insurance. They scarcely make a secret 
 of one of the objects they have in so doing ; they wish 
 to bring back as far as possible the regulation of labour 
 and the system prevailing in the ancient guUds. 
 
 You will pardon me if, in an after-dinner speech, 
 I have embarked upon questions of this kind ; but, to 
 tell you the truth, they are questions which appear to 
 be deeply interesting to all who are concerned with 
 insurance as practised by the industrial classes, and 
 I should hke to put this one more fact before you. 
 During the fifties and sixties of this century — from 
 1850 to 1872 — there was a great emancipating influ- 
 ence at work in Germany. Germany was becoming 
 a united country, and the industrial classes were 
 struggling to become free from aU those checks and 
 fetters which prevented them from carrying their 
 labour to the dearest markets throughout the country. 
 They used to be stopped by the innumerable frontiers 
 of the different German States, just as we are stopped 
 by our custom-houses. And it is interesting to observe 
 that the struggle for national unity and for pohtical 
 freedom was carried on together with the struggle for 
 the industrial emancipation of the working-classes. 
 The leaders of that national movement were deeply 
 impregnated with the doctrines of Cobden and with 
 
INSUEANCE 351 
 
 the political economy of the Manchester school ; and 
 when they were working for the unity of Germany and 
 political objects, they were fighting, at the same time, 
 for economical doctrines, for liberty of work and of 
 trade. 
 
 But then came a tremendous industrial crisis, and, 
 curiously enough, it was most seriously aggravated and 
 stimulated by the fact that victorious Germany had 
 imported £200,000,000 sterling from defeated France. 
 These enormous sums taken from the vanquished did 
 not, however, assist the prosperity of the victor, but, 
 showered over Germany, produced such changes in 
 industry that it culminated in a terrible crisis through- 
 out the various parts of the empire. That was one of 
 the causes of the crisis, but the operations of the 
 Socialists tended to aggravate it. When the emanci- 
 pation of labour had brought about free competition, 
 the Sociahsts and the Catholics and the State SociaHsts 
 were all against competition; but competition was 
 wrapped up with liberty, and they therefore said, 
 * Down with liberty if liberty and competition must go 
 together; we wiU not have either.' So it became 
 a reproach in Germany to have belonged to the econo- 
 mic school. There is no greater sarcasm levelled at 
 those who have so gallantly fought for the emanci- 
 pation of labour than to say that they belong to the 
 school of Cobden or the Manchester school, and the 
 Socialists, now so numerous in many parts of Germany, 
 think that they can go to work through this principle 
 of compulsory insurance. They know that if they can 
 compel every one to insure, labour must be organized 
 and regulated, and that men must be bound down to 
 particular trades. Then, having got rid of competition, 
 they fancy the world must go back and adopt some- 
 thing like the ancient guilds. They are prepared for 
 
352 ADDEESSES ON ECONOMIC QUESTIONS 
 
 much tyranny, much regulation of labour, in order to 
 obtain these results, but I think that if they proclaimed 
 similar principles in this country, they would not find 
 many among the working-classes who would believe 
 in the doctrine which they preach. 
 
 But let me return to the special objects which bring 
 you together to-night. Insurance is your great motto, 
 I understand. We are here to celebrate the position 
 of the Manchester Unity of Oddfellows, which is 
 a great insurance association, and I feel that if the 
 benefits of insurance are valuable to those who have 
 means, they are vastly greater to men who have none. 
 If sickness is a terrible calamity to those who have 
 wealth or even a moderate income, how much more 
 terrible is it when it means that the bread-winner is 
 disabled and cannot provide for his family ! How 
 terrible, if death occurs, is the bereavement of the 
 household which has no means, when the sorrow which 
 is common to aU classes, is heightened by those intense 
 pecuniary anxieties which the loss of the head of the 
 family must bring with it! And if insurance is so 
 valuable, you, the Friendly Societies, have taught the 
 people to insure, without regulation, without interr 
 ference, without taking the organization of labour out 
 of the workmen's hands. See how tyrannical the 
 system of compulsory insurance would be ! There are 
 many working men who may be receiving sufficient 
 wages to be able to lay by, not only a premium of 
 insurance, but enough to amass a little capital by 
 degrees. A man may say to himself, ' If I maintain 
 my health and strength, I will lay by enough to buy my 
 own house in which I am living as an inheritance for 
 my children, or to sell in the time of need ; or I wiU 
 enter into a small business, and thereby perhaps lay 
 a foundation of a great enterprise, such as has often 
 
INSUEANCE 353 
 
 sprung up from such small beginnings.' Shall the 
 State say to men like these, ' No, you shall not take 
 your own earnings and employ them as you like, but 
 you shall carry a portion of your earnings to some 
 particular fund for the benefit of other classes. Your 
 individual thrift must not take an individual turn. It 
 must be utilized for common purposes in a common 
 fund. You shall not only be thrifty and lay by, but 
 you shall lay by in that particular method which 
 I shall prescribe to you ' ? I say that is a tyranny to 
 which the English working-classes will never submit. 
 Other classes in this country would never stand being 
 told that a certain portion of their income should be 
 saved and invested for them; and why should the 
 industrial classes have a certain proportion taken from 
 them for this pm-pose, however good it may be ? 
 
 Again, supposing workmen are out of employment ; 
 how is the system of compulsory insurance to work ? 
 There are a thousand difficulties of detail. But with- 
 out entering on these let me simply say in conclusion: 
 stand by your own English independence and self- 
 reHance, not only because the other system is tyranni- 
 cal, but because your own system is free, and brings 
 with it all the benefits which accrue to the country 
 from such a self-governing association as yours. Con- 
 tinue upon the lines on which you are embarked. You 
 call yourselves ' An Annual Movable Committee ' ; you 
 move about from town to town, and carry with you 
 traditions in order to inoculate other places with the 
 same principles. You learn how to administer, how 
 to govern, how to take an interest in the State, in 
 capital, in everything that affects the State. For my 
 part, I am not one of those who think that you err in 
 another point — in combining sound financial arrange- 
 ments with a certain amount of good-fellowship as 
 
 A a 
 
354 ADDEESSES ON ECONOMIC QUESTIONS 
 
 weU as odd-feUowship. There, again, you are the 
 successors of the ancient guilds which were not simply 
 economic, simply industrial, or simply like joint- 
 stock companies, combining for gain. There was 
 a moral and a social element in the guilds ; and so 
 among you, I believe, there is a social element and 
 a moral element. You feel bound together in your 
 associations and societies as citizens to citizens, men 
 to men, brothers to brothers. Prosperity, then, to the 
 Manchester Unity of Oddfellows ! May it flourish as 
 a school of thrift. May it flourish long as a rampart 
 against Utopian schemes, binding classes together ; 
 and as the Parliament of England has been the mother 
 of other Parliaments — as, till lately at least, our habits 
 and ways as a Parhamentary country have gone forth 
 as an example to all our colonies, and to all liberty- 
 loving countries, — so may the example of your self- 
 governing Friendly Societies be a beacon-light to other 
 nations, that they may see what can be accomplished 
 by independence, by optional methods, by that self- 
 rehance which I trust, whatever may be said with 
 regard to the socialistic tendencies of the age, will 
 long continue to distinguish the people of Great Britain 
 and Ireland. 
 
 OXFORD : HORACE HABT, PBINTEB TO THE tJNIVEnSlTT 
 
Telegrams : 41 and 43 Maddox Street, 
 
 ' Scholarly, London.' Bond Street, London, W., 
 
 December, 1905. 
 
 Mr. Edward Arnold's 
 
 List of New Books. 
 
 A STAFF OFFICER'S SCRAP-BOOK 
 
 During tbe 1Ru6so=5apanesc THaar. 
 By LIEUT.-GENERAL SIR IAN HAMILTON, K.C.B., 
 
 Principal British Attach^ with the Japanese Forces in Manchuria. 
 
 With numerous Maps in Colour, Sketches, and Illustrations. 
 Demy 8w. i8s. net. 
 
 This work is the best and most authoritative account of the 
 operations of the famous Japanese First Army, under Marshal 
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 ton's position as doyen of the foreign attaches was unique, for he was 
 not only in personal touch with the heads of the army, but was 
 constantly receiving special information and facilities for making 
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 The book is no mere mihtary treatise, but a volume of absorbing 
 interest for the general reader, giving a faithful account of events 
 day by day in one of the most important wars in history, and 
 bristling with shrewd comments and anecdotes. At the same time, 
 for soldiers and anyone interested in military matters the author's 
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 and those of our own army, will no doubt constitute the most 
 important part of the work. 
 
 LONDON : EDWARD ARNOLD, 41 & 43 MADDOX STREET, W. 
 
2 Mr. Edward Arnold's List of New Books 
 
 THE GREAT PLATEAU. 
 
 JSefng an account ot EEplocatfon tn Central mbet, 1903, anO of the 
 
 ©actoft EjpeCftton, 1904=1905. 
 
 By CAPTAIN C. G. RAWLING, 
 
 Somersetshire Light Infantry. 
 
 Demy 8vo. With Illustrations and Maps. 15s. net. 
 
 Captain C. G. Rawling, with one English companion, accom- 
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 penetrating far into the interior and surveying over 38,000 square 
 miles of hitherto unknown country. Great hardships were en- 
 countered and difficulties overcome. When the explorers attempted 
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 IN THE DESERT. 
 
 By L. MARCH PHILLIPPS. 
 
 Author of ' With Rimington.* 
 
 Demy 8vo. With Illustrations. 12s. 6d. net. 
 
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 Great Sahara, in which notes of travel are combined with descriptions 
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Mr. Edward Arnold's List of New Books 3 
 
 ESSAYS AND ADDRESSES ON 
 ECONOMIC QUESTIONS (i 865-1 893). 
 
 WITH INTRODUCTORY NOTES (1905). 
 
 By the RIGHT HON. VISCOUNT GOSCHEN. 
 
 Demy 8vo. 15s. net. 
 
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 TWO YEARS IN THE ANTARCTIC. 
 
 Sedig a IRarratiPc of tbe JSrittsb Battonal Btitarctic Espc&ltton. 
 By LIEUTENANT ALBERT B. ARMITAGE, R.N.R., 
 
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4 Mr. Edward Arnold's List of New Books 
 
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 By FLORENCE MAY. 
 
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 FINAL RECOLLECTIONS OF A 
 DIPLOMATIST. 
 
 By the RIGHT HON. SIR HORACE RUMBOLD, Bart., 
 
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 readers in the volumes already published. He describes his life as 
 Envoy Extraordinary and Minister Plenipotentiary to Greece from 
 1885-1888, and to the Netherlands from 1888-1896. In the latter 
 year he was appointed Ambassador to the Emperor of Austria — an 
 exalted position which he retained until his retirement from the 
 Diplomatic Service in 1900. 
 
 The conclusion of these ' Recollections ' presents a set of Diplo- 
 matic memoirs as comprehensive as they are interesting. Sir Horace 
 Rumbold has known nearly all the famous personages of his time, 
 and the personal touches and pleasant anecdotes with which he 
 illuminates their characters render the volumes excellent reading. 
 
Mr, Edward Arnold's List of New Books 5 
 
 FLOOD, FELL, AND FOREST. 
 
 By SIR HENRY POTTINGER, Bart. 
 Two volumes. Demy 8vo. With Illustrations. 255. net. 
 
 Few men probably know their Norway better than Sir Henry 
 Pottinger, and fewer still have described it, from the point of view of 
 sport, better than he has done in this book, in which the experience 
 of a lifelong sportsman and the graceful literary touch of a skilled 
 writer are combined with the happiest effect. Whether the subject 
 bs elk-shooting, salmon-fishing, or camping, Sir Henry abounds in 
 interesting anecdotes and valuable information, and his book cannot 
 fail to give pleasure to all lovers of the rod and gun. 
 
 The illustrations are from the author's own sketches, or drawn 
 under his immediate supervision. 
 
 A FORGOTTEN JOHN RUSSELL. 
 
 asefng Xettcra to a ^aii ot :®U6inc6S, 1724=1751. 
 
 Arranged by MARY EYRE MATCHAM. 
 
 Demv 8vo. With Portrait. 12s. 6d. net. 
 
 The letters written to an active man of business (those written dy 
 John Russell are few and unimportant) during a long period of time 
 must necessarily be something of a medley. But if they lack the 
 kind of interest which centres in the life-story of an individual, they 
 offer far more varied and ample material to those who care, with 
 Thackeray, ' to people the old world with its everyday figures and 
 inhabitants.' To the majority of readers probably the most inter- 
 esting correspondents will be the numerous sea captains — fathers 
 and grandfathers of those who fought under Hawke and Nelson. 
 But all sorts and conditions of men made calls on John Russell's 
 capacity for business or for friendship, writing for the most part in 
 home and intimate fashion of private and domestic matters, illus- 
 trating in innumerable ways the ordinary life of the time, and 
 incidentally throwing many interesting sidelights on England's 
 position in the world as a State whose future lay upon the ocean. 
 
6 Mr. Edward Arnold's List of New Books 
 
 THEODORE OF STUDIUM : 
 
 HIS LIFE AND TIMES. 
 By ALICE GARDNER, 
 
 Associate and Lecturer of Newnham College, Cambridge. 
 
 Author of 'Julian the Philosopher,' 'Studies in John the Scot,' 'Rome the Middle 
 
 OF THE World,' etc. 
 
 Demy 8vo. With Illustrations. los. 6d. net. 
 
 Theodore of Studium (born 759, died 826), though little known in 
 Western Europe, was a man of remarkable abilities and character, 
 who left a deep impression on Byzantine monasticism, and on the 
 thought and life of the Eastern Empire. This biography, founded 
 on Theodore's own writings and those of his contemporaries, en- 
 deavours to set forth the various sides of his activity. These are prin- 
 cipally (i) his very prominent part in the Iconoclastic Controversy, 
 with his staunch opposition to Csesaropapism ; (2) his monastic 
 reforms ; (3) his great services as calligraphist, and as promoter of 
 the preservation and multiplication of manuscripts ; (4) his wide 
 correspondence, which throws much light on the morals and manners 
 of his time, as well as on some important historical events ; and 
 (5) his poetical activity, shown in works written both in the old 
 classical and the new ecclesiastical metres. The events and conflicts 
 of his life elucidate the tendencies which led to the separation of the 
 Churches and Empires of the East and West. 
 
 THE QUEEN'S POOR. 
 
 Xifc as tbeg KnO it in tlown an& Country. 
 By M. LOANE. 
 Crown 8vo. 6s. 
 Of those who work professionally among the poor, and have a 
 firsthand knowledge of their lives and thoughts, most, if not all, 
 have had experiences worthy of record. But, owing either to the 
 absorbing nature of their duties or to the want of a literary gift, 
 very few of them have put on paper the curious things which they 
 have heard and seen from day to day. Miss Loane has not only 
 contrived to find time, in the midst of a busy life of district nursing, 
 to keep notes of her experiences, but has written them in a singularly 
 attractive style, revealing a keen sense of humour, as well as a 
 plentiful supply of common-sense. Her stories are grouped under 
 such suggestive headings as ' Husband and Wife among the Poor,' 
 ' The Religion of the Respectable Poor,' ' The Art of Polite Con- 
 versation,' and so forth. 
 
Mr. Edward Arnold's List of New Books y 
 
 LORD HOBHOUSE: 
 
 A MEMOIR. 
 By L. T. HOBHOUSE, and J. L. HAMMOND, 
 
 Author of ' Mind in Evolution.' Author op 'C. J. Fox: A Study.' 
 
 Demy Svo. With Portraits. 12s. 6d. net. 
 
 Lord Hobhouse, who died in December, 1904, abandoned in 
 middle life a brilliant career at the Chancery Bar for the service of 
 the State, in which he had a long and varied experience. His ofBcial 
 career began with his appointment as a Charity Commissioner in 
 1866, and ended with his retirement from the Judicial Committee of 
 the Privy Council in 1901. Most of his work was of a kind of which 
 the general public knows little. He was Legal Member of the 
 Viceroy's Council in India for five years, and he was a member of 
 the Judicial Committee for twenty years. But at one time he 
 found himself the centre of a vehement controversy, and the part he 
 played as a member of the Endowed Schools Commission marks a 
 turning-point_ in the history of English education. He had an 
 active share in the movement which won for London its rights of 
 self-government, and he gave many legal judgments which have an 
 historical significance. 
 
 SHORT LIVES OF GREAT MEN. 
 
 By W. F. BURNSIDE and A. S. OWEN, 
 
 Assistant Masters at Cheltenham College. 
 
 Crown 8vo. With Illustrations. 3s. 6d. 
 
 Special Cheltonian Edition, including plan of Reredos and an Introduction 
 
 by the Rev. R. Waterfield, M.A. 4s. 
 
 The Cheltenham College memorial of Old Cheltonians who fell 
 in the South African War takes the form of a reredos in the school 
 chapel, filled with forty-four figures illustrating certain aspects of 
 English history and representative men in different callings of life. 
 It has been felt that an account of these great men would be service- 
 able, not only to those who see these carved figures every day, but 
 to a larger rfumber of readers, who would be glad to have in a com- 
 pendious form biographies of many of the leading men in English 
 history and literature. The list extends from St. Alban to Gordon, 
 and for the sake of convenience chronological order has been 
 adopted. Illustrations are given of eight typical personages. 
 
S Mr. Edward Arnold's List of New Books 
 
 SOME DOGMAS OF RELIGION. 
 
 By JOHN ELLIS McTAGGART, Litt.D., 
 
 Lecturer in Moral Sciences, Trtnitv College, Cambridge. 
 
 Demy 8vo. los. 6d. net. 
 
 This book attempts to prove, in the first place, that beliefs as to 
 certain matters of fact beyond our empirical experience are essen- 
 tial for religion, and of fundamental importance for human life. 
 Secondly, it is maintained that such beliefs cannot legitimately rest 
 on faith, but only on argument. It is suggested that the most 
 reasonable form for the doctrine of immortality to take is one which 
 makes each person to have existed for many years before the exist- 
 ence of his present body, and perhaps for all past time. 
 
 THE iENEID OF VIRGIL. 
 
 With a Translation by CHARLES J. BILLSON, M.A., 
 
 Corpus Christi College, Oxford. 
 
 2 vols. Crown ^to. 30s. net. 
 
 These handsome volumes contain on the left-hand page a text 
 based on Conington's, and on the right a line-for-line translation in 
 blank verse. 
 
 A FISHING CATECHISM 
 
 AND 
 
 A SHOOTING CATECHISM. 
 
 By COLONEL R. F. MEYSEY-THOMPSON, 
 
 Author of ' Reminiscences of the Course, the Cami', and the Chase.' 
 
 Two volumes. Foolscap 8vo. 3s. 6d. net each. 
 
 Lovers of rod and gun will welcome these valuable handbooks 
 from the pen of an admitted expert. The information given is abso- 
 lutely practical, and is conveyed, for the most part, in the form of 
 Question and Answer. As the result of some fifty years' experience, 
 the author seems to have anticipated every possible emergency, and 
 the arrangement is especially calculated to facilitate easy reference. 
 There are special chapters on fishing and shooting etiquette, and at 
 the end of each book is a chapter dealing with the legal side of the 
 subject. 
 
Mr. Edward Arnold's List of New Books 9 
 
 THE WALLET SERIES OF HANDBOOKS. 
 
 The following five volumes are the new additions to this useful 
 series of handbooks, which range, as will be seen, over a wide field, 
 and are intended to be practical guides to beginners in the subjects 
 with which they deal. 
 
 Foolscap 8vo., is. net per volume, paper ; 25. net cloth. 
 
 THE MANAGEMENT OF BABIES. By Mrs. Leonard 
 Hill. 
 
 The author is an expert in this all-important subject, and her book is con- 
 fidently recommended to mothers as thoroughly sound, sensible, and free from 
 fads. The medical information may be relied upon absolutely, and the book 
 abounds in practical and most valuable advice. A whole chapter is devoted to 
 the development of intelligence and the importance of early training— a matter 
 too often ignored by mothers and nurses. 
 
 ON COLLECTING MINIATURES, ENAMELS, AND 
 JEWELLERY. By Robert Elward, Author of ' On Collect- 
 ing Engravings, Pottery, Porcelain, Glass, and Silver.' 
 
 In this volume the author pursues the same thorough method as in his former 
 work. After several hints to collectors, he gives a careful historical and de- 
 scriptive summary of each subject, with a short bibliography. 
 
 MOTORING FOR MODERATE INCOMES. By 
 
 Henry Revell Reynolds. 
 
 The demand for motor-cars at reasonable prices is rapidly increasing. Mr. 
 Reynolds has taken ;f5oo as the largest sum which his readers are likely to pay 
 for a car, with a proportionate amount in addition for up-keep. He lays down 
 the general principles which should guide the would-be purchaser, and gives 
 sufficient information to enable him to examine any car with understanding. 
 The respective capacities, prices, etc., of a number of cars are given in tabular 
 form. Motor bicycles and other small vehicles receive a considerable share of 
 attention, and there are chapters on driving and the amenities of the road. 
 
 ON TAKING A HOUSE. By W. Beach Thomas. 
 
 A thoroughly practical guide to the science and art of house-taking is urgently 
 required by most people sooner or later in their lives. Most people, too, are 
 obliged to pay dearly for the kind of experience which is to be found condensed 
 into this little book. Mr. Thomas, has accumulated an enormous amount of 
 information on the subject, and his words of warning are calculated to save 
 intending purchasers or lessees from innumerable pitfalls. 
 
10 Mr. Edward Arnold's List of New Books 
 
 THE WALLET SERIES {continued). 
 Foolscap Sw., IS. net per volume, paper ; ■zs. net cloth. 
 
 COMMON AILMENTS AND ACCIDENTS AND 
 
 THEIR TREATMENT. By M. H. Naylor, M.B., B.S. 
 
 This is a lucidly written handbook, covering rather different ground from that 
 usually coming under the description of ' First Aid.' It is intended to meet all 
 ordinary emergencies, and to indicate such treatment as may safely be tried 
 before the arrival of a doctor. 
 
 The following volumes have been already published : 
 
 ON COLLECTING ENGRAVINGS, POTTERY, PORCE- 
 LAIN, GLASS, AND SILVER. By Robert Elward. 
 
 ELECTRIC LIGHTING FOR THE INEXPERIENCED. 
 By Hubert Walter. 
 
 HOCKEY AS A GAME FOR WOMEN. With the New Rules. 
 
 By Edith Thompson. 
 
 WATER-COLOUR PAINTING. By Mary L. Breakell 
 (' Penumbra '). 
 
 DRESS OUTFITS FOR ABROAD. By Ardern Holt. 
 
 NEW AND CHEAPER EDITION. 
 
 THE REMINISCENCES OF SIR 
 HENRY HAWKINS 
 
 CBaron ffirampton). 
 Edited by RICHARD HARRIS, K.C., 
 
 Author of ' Illustrations of Advocacy,' ' Auld Acquaintance,' etc. 
 
 Crown 8vo. With Portrait. 6s. 
 
 In this edition a few of the more technically legal passages have 
 been omitted, but all the dramatic episodes and characteristic anec- 
 dotes remain untouched. 
 
Mr. Edward Arnold's List of New Books ii 
 
 NEW FICTION. 
 
 Crown 8vo. 6s. each. 
 
 THE PROFESSOR'S LEGACY. 
 
 By MRS. ALFRED SIDGWICK, 
 
 Author of ' Cvnthia's Way,' 'The Beryl Stones,' etc. 
 
 A FLOOD TIDE. 
 
 By MARY A. DEBENHAM. 
 
 THE BROWN HOUSE and CORDELIA. 
 
 By MARGARET BOOTH. 
 
 A TROMBONE AND A STAR. 
 
 By C. T. PODMORE, 
 
 Author of *A Cynic's Conscience.' 
 
 NEW AND CHEAPER EDITION. 
 
 Crown 8w. 2s. bd. 
 
 RED POTTAGE. 
 
 By MARY CHOLMONDELEY. 
 
 POLITICAL CARICATURES, 1905. 
 
 By F. CARRUTHERS GOULD. 
 Super royal ^to. 6s. net. 
 
12 Mr. Edward Arnold's List of New Books 
 
 THE ROMANCE OF EMPIRE. 
 
 By PHILIP GIBBS, 
 
 Author of '.Facts and Ideas,' * Knowledge is Power,' etc. 
 
 Crown 8vo. 
 
 In this volume Mr. Gibbs tells, in his characteristically interesting 
 style, the story of the expansion of Britain, beginning shortly before 
 the time of Elizabeth, and bringing the account down almost to the 
 present day. Each great division of our Empire beyond the seas is 
 dealt with in turn, and without any sacrifice of historical accuracy 
 or proportion the author gives to his narrative the attractiveness of a 
 well-told romance. 
 
 CHEAPER EDITION. 
 
 PEN AND PENCIL SKETCHES OF SHIPPING AND 
 CRAFT ALL ROUND THE WORLD. 
 
 By R. T. PRITCHETT. 
 
 Demy 8vo. With 50 full-page Illustrations. 3s. 6d. 
 
 ILLUSTRATED EDITION. 
 
 HISTORICAL TALES FROM 
 SHAKESPEARE. 
 
 By A. T. QUILLER-COUCH (' Q.'), 
 
 Author of 'The Ship^of Stars,' etc. 
 
 Crown 8vo. With Illustrations from the Boydell Gallery. 6s. 
 
 The value of this much-appreciated work will, it is believed, be 
 enhanced by the addition of sixteen selected illustrations from the 
 well-known Boydell collection. 
 
Mr. Edward Arnold's List of New Books 13 
 
 RACES OF DOMESTIC POULTRY. 
 
 By EDWARD BROWN, F.L.S., 
 
 Secretary of the National Poultry Organization Society. 
 
 Author of 'Poultry Keeping: An Industry for Farmers and Cottagers,' 'Industrial 
 
 Poultry Keeping,' ' Pleasurable Poultry Keeping,' etc. 
 
 Crown 4*0. With Illustrations. 6s. net. 
 
 This important and comprehensive work, by an admitted master 
 of his subject, will be welcomed by all who are interested in poultry- 
 keeping. Chapters I. and II. deal with the origin, history, and 
 distribution of domestic poultry, and with the evolution and classi- 
 fication of breeds ; the next ten chapters are devoted to the various 
 races of fowls ; Chapters XIII. to XV. treat of ducks, geese, and 
 turkeys. The remaining chapters are on external characters and 
 breeding. There are also Appendices. 
 
 THREE LITTLE COOKS. 
 
 By LUCY CRUMP. 
 
 Square crown 8vo. With Illustrations by Gertrude M. Bradley. 2S. 6d. 
 
 This is a charming little story for children, describing how 
 Ophelia, Thomas, and Heidi learnt cookery with a toy stove. 
 
 NEW EDITION, REVISED AND ENLARGED. 
 
 COMMON-SENSE COOKERY. 
 
 jFor Engll6b IBouscboIOs, wUb Zvoent^ /IRenus wovkcb out in DetalL 
 By COLONEL A KENNEY-HERBERT, 
 
 Author of Fifty Breakfasts,- ' Fifty Lunches,' ' Fifty Dinneks,' etc. 
 
 Large crown 8vo. With Illustrations. 6s. net. 
 
 The author has so largely rewritten this edition that it is prac- 
 tically a new book. Besides being brought up to date with the. 
 very latest ideas on the subject, it is much enlarged, and now 
 contains a number of attractive full-page illustrations. 
 
14 Mr, Edward Arnold's List of New Books 
 
 RECENT ADVANCES IN PHYSIOLOGY 
 AND CHEMICAL PATHOLOGY 
 
 By A. P. BEDDARD, M.A., M.D., 
 
 Assistant Physician, late Demonstrator of Physiology, Guv's Hospital; 
 
 LEONARD HILL, M.B., F.R.S., 
 
 Lecturer on Piivsiologv, the London Hospital ; 
 
 J. J. R. MACLEOD, M.B., 
 
 Professor of Physiology, Western Reserve University, Cleveland, U.S.A. 
 late Demonstrator of Physiology, the London Hospital ; 
 
 BENJAMIN MOORE, M.A., D.Sc, 
 
 Johnston Professor of Bio-Chemistry in the University of Liverpool; 
 
 And M. S. PEMBREY, M.A., M.D., 
 
 Lecturer on Physiology, Guy's Hospital. 
 
 Demy 8vo. i6s. net. 
 
 This book, which is edited by Mr. Leonard Hill, consists of Lec- 
 tures on Physiological Subjects selected for their direct clinical 
 interest, and designed to meet the requirements of advanced students 
 of Physiology. Dr. Beddard deals with Digestion, Absorption, 
 Lymph, Urea, and Secretion of Urine ; Mr. Hill himself with the 
 Atmosphere in its Relation to Life, Metabolism of Water and 
 Inorganic Salts, and Metabolism of Fat ; Professor Macleod with 
 the Metabolism of the Carbohydrates, Haemolysis, Uric Acid, and 
 the Purin Bodies ; Professor Moore with Vital Energy, Ferments, 
 and Glandular Mechanisms ; and Dr. Pembrey with the Exchange 
 of Respiratory Gases, Influence of Temperature, Sources of Mus- 
 cular Energy and Fatigue, and Internal Secretion. 
 
 A MANUAL OF PHARMACOLOGY. 
 
 By WALTER E. DIXON, M.A., M.D., B.Sc. Lond., 
 D.P.H. Camb., 
 
 Assistant to the Downing Professor of Medicine in the University of Cambridge, 
 Examiner in Pharmacology in the Universities of Cambridge, Glasgow, and Dundee. 
 
 Demy 8vo. 15s. net. 
 
 This text-book, which is prepared especially for the use of students, 
 gives a concise account of the physiological action of Pharmacopceial 
 drugs. The subject is treated from the experimental standpoint, 
 and the drugs are classified into pharmacological groups. The text 
 is fully illustrated by original tracings of actual experiments and by 
 diagrams. 
 
Mr. Edward Arnold's List of New Books 15 
 
 NEW EDITION. 
 
 PRACTICAL PHYSIOLOGY. 
 
 By A. P. BEDDARD, M.A., M.D., J. S. EDKINS, M.A., M.B., 
 L. HILL, M.B., F.R.S., J. J. R. MACLEOD, M.B., and M. S. 
 
 PEMBREY, M.A., M.D. 
 
 Demy 8vo. Copiously illustrated with figures of physiological apparatus, 
 
 diagrams, and a large number of interesting tracings. 12s. 6d. net. 
 
 VALVES AND VALVE GEAR 
 MECHANISMS. 
 
 By W. E. DALBY, M.A., B.Sc, M.Inst.C.E., M.I.M.E., 
 
 Professor of Engineering, City and Guilds of London Central Technical College. 
 
 Royal 8vo. With numerous Illustrations. 31s. net. 
 
 Valve gears are considered in this book from two points of view, 
 namely, the analysis of what a given gear can do, and the' design of 
 a gear to effect a stated distribution of steam. The gears analyzed 
 are for the most part those belonging to existing and well-known 
 types of engines, and include, amongst others, a link motion of the 
 Great Eastern Railway, the straight link motion of the London and 
 North- Western Railway, the Walschaert gear of the Northern of 
 France Railway, the Joy gear of the Lancashire and Yorkshire 
 Railway, the Sulzer gear, the Meyer gear, etc. A chapter is added 
 on the inertia stresses in the links of a valve gear, and an actual 
 example of the inertia loading of a Joy gear is fully discussed. 
 
 NEW AND REVISED EDITION. 
 
 FOOD AND THE PRINCIPLES OF 
 DIETETICS. 
 
 By ROBERT HUTCHISON, M.D. Edin., F.R.C.P., 
 
 Assistant Physician to the London Hospital and to the Hospital for Sick Children, 
 Great Ormond Street. 
 
 Demy 8vo. With 3 Plates in colour and numerous Illustrations in 
 the text. 1 6s. net. 
 
 This important work, the first edition of which was described by 
 the Guardian as ' one of the most enthralling books ever published 
 on the subject,' has been thoroughly revised by the author in the 
 light of the experience of recent years, and is now absolutely up to 
 date. 
 
i6 Mr. Edward Arnold's List of New Books 
 
 SURGICAL NURSING 
 
 Bit& tbe iprlncfples ot Surgery tot murees. 
 By RUSSELL HOWARD, M.B., M.S., F.R.C.S., 
 
 Lecturer on Surgical Nursing to the Probationers of the London Hospital ; Surgeon 
 
 TO Out-patients, Royal Waterloo Hospital for Children and Women ; 
 
 Surgical Registrar, London Hospital. 
 
 Crown 8vo. With Illustrations. 6s. 
 
 This is an exceedingly lucid and comprehensive handbook on the 
 subject, and contains all the most approved methods very clearly 
 arranged. 
 
 THE LAWS OF HEALTH. 
 
 By D. NABARRO, M.D., B.Sc, D.P.H., 
 
 Assistant Professor of Pathology and Bacteriology, University College, London. 
 
 Crown 8vo. With Illustrations, is. 6d. 
 
 This volume takes the form of a very simply-written primer of 
 health, in which the direct application of the science of physiology 
 to every-day life is shown, while care is taken to avoid technical 
 terms whenever possible. The author's chief aim is to give such 
 explicit directions as will, if acted upon, help the reader to develop 
 a sound mind in a sound body, and, at the same time, to demonstrate 
 in a simple manner why each rule or warning is given. He also 
 shows in almost every chapter the effect on the tissues and nervous 
 system of a misuse of alcoholic drink and tobacco. 
 
 LINGUA MATERNA. 
 
 By R. WILSON, B.A., 
 
 .■Author of ' A First Course in English Analysis and Grammar,' etc. 
 
 Crown 8vo. 3s. 6d. 
 
 This book is intended for teachers who wish to keep themselves 
 abreast of what has been aptly called ' The New English Move- 
 ment.' The author discusses in turn each of the branches of school- 
 work in English, describes methods adopted in some of the best of 
 our schools, and suggests schemes of work to meet the Government 
 requirements in the native language and literature. The volume 
 aims at being practical and suggestive, a guide to practical work 
 rather than a contribution to airy speculation. 
 
 LONDON : EDWARD ARNOLD, 41 & 43 MADDOX STREET, W. 
 
c^.^;i^mi^