A \ A < v : . - ' N JjLd . N n • E? o ricAL ;o av , . , f > -■. J \ V/. ■ - Columbia (HmbersitP intbetfttpofJlftoPiJit 4|^va'io2. THE SELIGMAN LIBRARY OF ECONOMICS PURCHASED BY THE UNIVERSITY * AA I $7$ NOTICE TO READERS OF THIS VOLUME. * Being sensible of the many shortcomings in the following pages, the author intends, as he may have leisure, to pursue this subject with the object of further bringing to light the hidden economic changes which time and modern necessities and inventions are introducing into * trade and commercial operations. He will, therefore, be glad to receive, under cover to Messrs. Longmans, Green, and Co., the publishers of this volume, any facts or statistics coming within the range of this subject which his readers may feel disposed to send him. The source whence such information is derived will be acknowledged in Part II of‘A New Departure in the Domain of Political Economy/ unless it is otherwise expressly desired. A NEW DEPARTURE IN THE DOMAIN OF POLITICAL ECONOMY. BY ARTHUR CRUMP. PART I. LONDON: LONGMANS, GREEN, & CO. 1878. (ALL RIGHTS RESERVED.) Price 12s. CONTENTS. PAGE INTRODUCTION . . . i x _ xx CHAPTER I. A New Departure in International Trade . . 1 Diagrammatic illustration of the New Departure . 11 CHAPTER II. The effect of Modern Influences upon the conduct of International Trade in the great staples . 24 Cotton . . . . .26 Corn . . . . .33 Colonial Produce . . . .37 Wool . . . . .40 CHAPTER III (Part i). To what extent have New Elements and known Influ¬ ences, which have lain comparatively dormant, affected priees in more Modern Times . . 45 b VI CONTENTS. CHAPTER III (Part ii). PAGE Gain as regards Price to the Consumer by the destruc¬ tion of that class of Middlemen whose Agency is becoming unnecessary by the Extension of the Tele¬ graph and other Modern Facilities . • 50 List of Failures of Middlemen from 1865 to 1878 . 52-3 CHAPTER III (Part iii). The Counteracting Effect of more Consumers . 58 CHAPTER IV (Part i). The Fluctuations in Prices . . .61 Course of the Liverpool Cotton Market from May, 1877, to May, 1878 .... 66-9 CHAPTER IV (Part ii). The Rise of Prices to the Maximum . . 69 CHAPTER V. Articles for which there is a small demand . . 87 CHAPTER VI. Capital the Principal, and Labour the Agent 92 CONTENTS. Vll CHAPTER VII. PAGE The Distribution of Labour . . . 105. CHAPTER VIII. The Action and Reaction of Demand and Supply in the Interchange of Commodities . . . 108 The Three-Strata Diagram, supposed Increasing Yield of the Earth . . . .108 Diagram showing Increased Consumption, and the Order in which Prices Rise through Increased Plebeian (. Labourers) Demand . .116 Diagram of Primary Necessaries . . . 120 Wholesale Failures in the United Kingdom from 1873 to 18 77 inclusive .... 127 Retail Failures in the Five Years from 1873 to 1877 inclusive . . . .131 CHAPTER IX. The Influence of Joint-Stock Limited Liability Com¬ panies upon Production . . .135 (1) Increased Production of Commodities . .136 (2) Inferiority of the Produce . . . 155 (3) Demoralisation of the Producers . .160 (4) Undue Extension of Purchasing Power . .162 (5) Loss of Manufacturing Credit Abroad . . 167 (6) Injury to Trade by Undue Competition . .171 (7) The Inflation of Credit . . .173 (8) Abnormal Rise in Prices . . . 180 (9) Crisis and Reaction . . .181 CONTENTS. viii CHAPTER X. PAGE The Effect upon Prices of the Erection of Manufac¬ turing Machinery in Foreign Countries under the Protection of a Prohibitive Tariff . . 185 CHAPTER XI. Fluctuations in the Price of Public Securities . 194 Classification of Influences . • .201 Condition of Foreign Money Markets . • 214 More particularly referring to Consols . .221 English Railway Stocks . . • 229 Preference and Debenture Stocks . . • 230 Ordinary Stocks ...» 235 Foreign Government Stocks . . • 239 Diagram ..... 240 CHAPTER XII. The Private Credit System the curse of England . 244 INTRODUCTION. When we give this book the title of “A New Departure in the Domain of Political Economy,” we do not intend to imply that all the economic changes involved in that new departure are of yesterday, or a year, or even ten years ago. What we desire to direct attention to is the more marked character of the changes of late years in the economic principles upon which the wealth of the world is being ac¬ quired, distributed, and accumulated, and the effects thereof, as compared with that period of the commercial history of the world when none of the more modern forces and facilities which we refer to in our opening chapter, were available. The subject which we propose to investigate is a large one, no doubt, and the design of far-reaching scope. Volumes might be filled if we commenced at the trunk of the subject and worked out each branch twig, and leaf, till all that could be said was exhausted. Such a task being the work of a lifetime, we propose, as far as we are able, to look only into the main influences exercised X INTRODUCTION. by the new agencies, as far as we can see them, wliicb bave replaced the old, with a view, if possible, to ascertain whether the apparent progress we are now making is still of a sound character, whether it is partly sound and partly unsound, or whether there seems to be a larger proportion of the elements of decay in the commercial machinery of this empire than was the case formerly. We are not at all of the pessimist or alarmist school, whose mental vision is blinded to everything but the gorgons of disaster with their snaky hairs, and whose steps seem to be irresistibly fascinated in the direction of “ malorum immensa vorago et gurges .” At the same time it is the duty of every one, as far as he has the opportunity of observing, to point out what seem to him to be defects in the particular department of business, art, science, law, or whatever it may be in which his lot is cast. Fear of being wrong either in premisses or deductions should never deter people from giving their opinion. Nobody can be always right. It would appear that the stocks held of all commodities have permanently diminished. The extension of telegraphic communication renders the holding of large surplus stocks unnecessary and unprofitable. This change having occurred at a time when over-production had been carried on to an unprecedented extent, furnishes some explanation of the prolonged stagnation amono- producers. The supply must consequently be greatly INTRODUCTION. xi diminished below what was formerly kept in stock before there can be a new recovery in wholesale prices. Smaller stocks of everything now held, means less capital required to work with, simul¬ taneously with larger central supplies in the form of bank deposits. Individual savings are thus placed farther out of reach. As civilization advances and individuals become generally better off their sons are less disposed to endure any prolonged period of business apprentice¬ ship—all, in fact, want too soon to be principals, and support a style of living which those only who have really a right to that distinction are entitled to enjoy. There is consequently a chronic tendency to labour less and spend more, an inclination which is fed and encouraged by the invention of machinery for doing so many things previously done by hands and feet. A Paris correspondent of a London newspaper wrote in June, 1878, “ No one can visit the Exhibi¬ tion without remarking that, at all events as regards manufacturers, the various nations of the world are more and more on a level.” The spread of education and the higher standard to which it has been raised has been the means of trans¬ ferring the control of commercial operations more into the hand's of those only interested in a secondary degree in the results. The sons of wealthy mercan¬ tile men of these times go to Eton, Harrow and INTRODUCTION. xii Cambridge, and by tlie time they should be pre¬ paring to take an active share in their father s office they have imbibed tastes and contracted habits which render the routine and monotony of regular attendance to the dry details of business insupport¬ able. The following remarks were written by Dr. Waldstein in an article in the 6 Nineteenth Century* for June, 1878, on ‘ The Social Origin of Nihilism and Pessimism in Germany.* “ The financial and commercial whirlpool of our time is the enemy of the former contented, happy fulfilment of duties. Every¬ thing is uncertain ; everybody is excited. The fault chiefly lies in the credit system. Business in general is not so dependent on personal exertion and im¬ mediate ability as it was in former days; but there are numerous general fluctuations, impossible to foresee, which, environing the simple enterprise, press upon it and influence it. It is not so much a struggle with an individual difficulty, or a single group of difficulties, as with universal difficulty, on every side. Hence there springs a state of uncer¬ tainty, unrest, and worry. The deppressing feeling that weighs down a man when he feels that his obstacles may lie beyond the power of his will, is very far from being healthy. Just as those nations who dwell in lands where man is, to a great extent, at the mercy of nature, become timid and fatalistic, so the business man of our day cannot help feeling his INTRODUCTION. Xlll want of controlling power, and comes to look on success as luck.” The prolonged commercial disturbance through which the principal countries of the world have of late years been passing is no doubt due to some extent to the existence of so many depreciated currencies side by side with the great fall in silver. Before the great fall in silver occurred the circulating medium of the world went on two legs. The great operators in arbitrage business now tell us that it goes on one leg. Hence, much of the trouble through which we are passing. Depre¬ ciated currencies, like import duties, increase the cost of the goods imported, but the importer suffers less than the consumer. In such circumstances the retailers often increase prices and maintain them , the increase being out of proportion and more than will compensate for the rise in the rates of exchange. Peru suffers from this evil at the present moment, the bank note being worth only half what it promises to pay. With reference to over production, on which we have made some remarks farther on, we may state the following fact: In 1878, it was shown that the joint-stock cotton mills of Lancashire, in which the working class hold so many shares, had been worked at a loss during the past two years. A feature in the new departure, to which we refer more in detail farther on, is that the extension of the xiv . INTRODUCTION. telegraph has, for a long time past been gradually placing both large and small traders and also con¬ sumers more upon a level as regards a knowledge of the varying circumstances affecting all markets. The extension of the telegraph has tended also to equalise value all over consuming countries, which diminishes the extent of the fluctuations in prices. Distance now is, practically speaking, no object if consumers can pay for what they want. A want made known for the great staples brings a hundred offers by wire from either producers or holders on speculation, and deficiencies are made good as soon as discovered, leaving little room for a rise in price unless the supply generally fails, or circumstances give rise to an unexpected general increase in the demand. It is a feature in the corn trade of England that owing to the development of “ ports of call ” the actual export from this country has sunk to an insignificant quantity as compared with the con¬ sumption. The opening of the Suez canal and the facilities afforded by the telegraph caused a complete revolu¬ tion in the system of conducting business in Mincing Lane. The producer and consumer now stand face to face, and one of the greatest economic revolutions of modern times, the expulsion of the middleman, is being consummated with rapid strides. The tele¬ graph has hardly begun to exercise its full power INTRODUCTION. XY ‘ over international trade when the new-born powers of electricity have rushed to the front, and no doubt before long will make the huge gazometers of modern cities as useless for lighting purposes as the Egypt- tiau pyramids. Yivid imaginations, indeed, picture the future of London freed from its sombre garb and roof-ugliness, as the showers from Heaven clean off the last remnants of coal dust, and the architecture of the houses is improved by dispensing with the chimneys. As an instance of how some persons are benefited by economic revolutions which ruin others, we find that whereas formerly the whole crop of Bengal indigo was sold in Mincing Lane, since the opening of the Suez canal only about one third comes to this market. The same remark applies to silk. We are on the road possibly to further important changes. The merchant in China, India, and the West Indies has yet to enter into direct relations with the grocer in Whitechapel. It is interesting to go back some twenty-four years or so and. compare the indebtedness of the principal states of the world with what it is, so far as can be ascertained at the present time. With this object we will take the summary of the debts of foreign states from ‘ Fenn’s Compendium of the English and Foreign Funds * published in 1854, and compare it with that of the c Financial Register and Stock Exchange Manual ’ of 1878. XVI INTRODUCTION. States. Austria Amount of debt in 1854. £211,000,000 Baden . 7,000,000 Bavaria 14,117,000 Belgium 26,000,000 Bolivia. 521,000 Brazil . 12,392,000 Buenos Ayres 2,500,000 Canada 1,500,000 Chili . 1,784,900 Columbia 6,625,950 Cuba . 311,200 Denmark 13,069,000 Ecuador 3,817,000 England 773,923,000 France 233,000,000 Granada, New 7,500,000 Greece 8,250,000 Guatemala . 594,520 Hamburg 4,000,000 Hanover 5,174,000 Holland 102,451,000 India . 48,000,000 Mexico. 10,500,000 Peru 9,953,833 Portugal 19,121,800 Prussia 33,500,000 Boman States 17,152,000 Bussia . 68,000,000 Sardinia 23,000,000 Saxony 6,223,000 Spain . 70,000,000 Sweden 450,000 Switzerland . 160,000 Turkey 5,000,000 United States # 10,000,000 Venezuela . 3,789,000 West Indies 630,963 Wiirtemberg 4,850,000 States. Argentine Confed. Austrian Hungar; Baden Bavaria Belgium Bolivia Brazil Canada, Dominion Cape of Good Hop Ceylon Chili Colombia Costa Bica Cuba Denmark Ecuador Egyptf France Great Britain Greece Guatemala Honduras India Italy J amaica Japan Liberia Mauritius Mexico Morocco Natal Netherlands New South Wales New Zealand Paraguay . Peru Portugal . Prussia . Queensland Boumania Bussia f . San Domingo Saxony South Australu Spain Sweden (without Nor way) Tasmania. Turkey * The Federal debt only, was £43,233,550. t Now largely in excess of The total debt of all the States, this total. Amount of debt in 1878. . £16,802,626 380,000,000 14,714,520 35,446,296 36,960,960 1,666,000 72,000,000 32,240,937 4.497.108 700,000 10,323,720 4,300,000 3,400,000 1,788,000 12,747,000 3,274.000 87,099,250 900,000,000 775.873.713 8,000,000 1,200,000 5.990.108 140,000,000 390,024,528 665,644 28,457,916 300,000 1,000.000 79,100,000 1,200.000 1,030,000 80,642,409 12,417,871 16,788,737 3,000,000 38,220,000 79,061,780 51,427,523 7,700.000 12,910,173 375,000,000 757,700 14,2S9,609 3,768,630 456,733,195 10,300,000 1,685,700 160,000,000 1 Jan., 1852 INTRODUCTION. XVII United States— (£38,558,371 free) . 425,000,000 . 10,000,000 . 16,700,000 . 16,992,582 . 34,399,917 Uruguay . Venezuela Victoria . Wiirtemberg . Total . £1,765,550,966 Total £4,878,598,152 The public debts of the principal nations of the world are thus seen to have trebled in about twenty- four years, if we put down to Russia the increase of her public debt as a result of the late war. We have therefore the fact before us, that the nations of the earth with one or two exceptions, have run heavily into debt during the period referred to. Many critics jump at once to the conclusion, that the same thing must happen to a state which thus involves itself, as is ordinarily experienced by the individual. Some people hold the opinion, that in lending her surplus capital to foreign states, England has fur¬ nished them with a weapon for destroying her com¬ mercial supremacy. Some of our best thinkers do not entertain this view. Mr. Robert Lowe said the other day in the ‘ Fortnightly Review “ The way to grow rich is not to plunder and ruin other people, but to assist them in becoming rich themselves.” What England has to avoid is the danger of forsaking the paths which have hitherto enabled us to take the lead. One way in which we can materially injure ourselves by affording poor nations the means of competing with us in certain branches of XYiii INTRODUCTION. industry is by trying to undersell them with inferior fabrics i.e. 9 with fabrics which are not what they used to be in quality and are very dear at the price. This is what we have been doing in some important departments with evil results to our own people. The losses which this country is believed to have sustained through the foreign loans launched during the past twenty-five years are greatly exaggerated. People make a great deal of fuss about losing a little money. The commercial instinct of Britishers of con¬ siderable means is too strong for them to be trapped to any grievous extent in such matters. One great evil of lending much money to ill-managed Foreign States is, that in proportion as their subjects are crushed by taxation to pay the interest, so does their power to purchase our manufactures diminish. The evil of the lending has been the want of discrimina¬ tion which has characterised it. If England trans¬ fers so much purchasing power to Russia and the Czar spends it in war, the probabilities are that that application of a portion of the realised wealth of the world will be to wasteful purposes. If Russia becomes a defaulter England must obviously lose a part if not the whole of that capital. But if that wealth is applied to the peaceful development of her resources the lender benefits as well as the borrower. It is, of course, certain that a very large proportion of the money which Foreign States have borrowed has been reproductively employed. No one who INTRODUCTION. XIX has travelled abroad can fail to see what marvellous strides continental nations have made, in spite of the wars, during the last twenty-five years. Riches are, however, apt to demoralize those who possess them. States which are always adding to their taxation, while their revenue does not increase, have before them what befell the Roman empire under similar circumstances. Danger from that quarter does not, however, threaten the British empire at present; but a nation is made up of individuals, and if those individuals live and trade beyond their means there is a hidden taxation which is felt to a very crushing degree. We have to guard against this insidious canker, which, like certain diseases of the body, works its way up until the seat of govern¬ ment, the brain, is reached, when death ensues. The great evil of the borrowing of the present day, both public and private, is that the loans are so sel¬ dom paid off. We are creating too many banks everywhere, the result of which is that borrowers ring the changes on them with an ever increasing crescendo in the peal until, as in the case of the Western Bank of Scotland, Royal British Bank, Bank of London, and the City of Glasgow Bank as the greatest feat of all, the ringers, bells, and belfry all tumble down together. We are largely suffering through the illegitimate efforts to keep going enor¬ mously augmented machinery for lending money and giving credit, when there is not real work in XX INTRODUCTION. the existing condition of the trade and enterprise of the world for half of it to do. A NEW DEPARTURE IN THE DOMAIN OF POLITICAL ECONOMY. CHAPTER I. A NEW DEPARTURE IN INTERNATIONAL TRADE. The idea which has given rise to what is contained in the following pages is embodied in the heading of this chapter—“ A New Departure.” Our ex¬ perience, such as it has been, of the ways of modern business, showed us on reflection that a very great change must have come over the commercial world since the more modern influences, such as the employment of steam for driving machinery both stationary and locomotive, the telegraph, limited liability companies, the increase and spread of wealth and manufacturing power, the advancement of economic science, &c. &c., had revolutionized the commercial notions whose foundations com¬ menced to loosen with the disappearance of stage coaches as the principal means of locomotion. What 1 2 A NEW DEPARTURE IN THE we shall attempt to unfold is, as regard* the facts upon which we base our deductions, known to many persons as a matter of course. There are, however, among those who know, many who scarcely realise how extensive have been the changes going on around them, and to what an important degree the system of carrying on international trade has been transformed by the introduction of the new influences, among others, which we have m ntioned. In order that we might get an accurate and not a fanciful picture of the way in which business was conducted, for instance, between England and India forty years ago, so as to com¬ pare it with to-day, we asked a friend who had long since retired, but who showed considerable interest in our little scheme, to put in black and white briefly his experiences. He was kind enough to do so, and the following are his remarks. “ In 1837, when I entered upon my mercantile career, business was at its zenith of prosperity, so much so that to obtain an entrance into a mer¬ chant’s counting-house was equivalent to an appoint¬ ment in the Government service. The youths so introduced were of eminent respectability, high honour, and never got any pay. My introduction was to a cotton broker, from whose office my ser¬ vices were transferred to an East In