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 ON THE 
 
 COMMERCIAL DEPRESSION: 
 
 ITS CAUSES AND ITS LESSONS. 
 
 BY 
 
 SAMUEL SMITH, 
 
 EX-PRESIDENT OF THE LIVERPOOL CHAMBER OF COMMERCE. 
 
 LIVERPOOL: 
 
 D. MA.RPLES & GO., LIMITED, 50b, LORD STREET. 
 
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PREFACE. 
 
 The following Lecture was delivered, from Notes, on the 14th 
 of January, and a desire having been expressed, by several 
 persons, that it should be published, the writer has 
 reprinted the report which appeared in the Mercury the 
 following day, as being the best reproduction available. 
 
 It is in parts considerably condensed, but it does not 
 seem worth while re-writing these portions, as pamphlets 
 of this kind possess only a passing interest. 
 

 
 
ON THE COMMERCIAL DEPRESSION; 
 
 ITS CAUSES AND ITS LESSONS. 
 
 By SAMUEL SMITH. 
 
 I intend to consider the causes of the present commercial 
 depression under two heads—first, the economical, and 
 secondly, the moral. 
 
 The first question that presents itself is whether the 
 depression is really so great as people say — is it a 
 matter of first-rate magnitude, such as requires a special 
 diagnosis, or an ephemeral influence that will soon pass 
 away? The general opinion of employers of labour is 
 that the present crisis is the most protracted, the most acute, 
 and the most painful, that has occurred in this country since 
 the repeal of the Corn Laws. We have had since then several 
 sharp commercial paroxysms, which were all pretty severe at 
 the time, but the general impression of those best able to 
 judge is that we have had no such long, wearing out, 
 wearying crisis as the one we have been passing through for 
 the last three or four years, at least within the experience 
 of the present generation. Prior to 1825, the country 
 passed through a longer period of stagnation and severe 
 suffering, as the result of the long-continued war waged with 
 Napoleon, the huge national debt, and the return to cash 
 payments. There is little doubt that the suffering was greater 
 at that time, but so far as capitalists are concerned the pre¬ 
 sent is worse than any experienced in our lifetime. With 
 regard to the manual labour class, the case is rather different. 
 I think that their sufferings were quite as great during the 
 crisis of 1866-7 as at present. Many circumstances have 
 
6 
 
 occurred to place operatives in a better position than during 
 former commercial reverses. They have had much higher 
 wages; they have saved money ; and they have had powerful 
 trades unions, which have fought against reductions, and kept 
 up the high rate of wages for a long period after the profits 
 of trade had died out. It is only within the past twelve 
 months that the commercial crisis has begun to tell severely 
 upon the operative class. It has been telling severely upon 
 the employing class, in some trades for four years, but in all 
 trades, with little exception, for three years. We shall not 
 be very far wrong in saying that the great bulk of the 
 commercial capital employed in the manufacturing and distri¬ 
 buting trades has yielded scarcely any interest at all for three 
 years, and during the last year there have been severe losses. 
 These are the facts with which we have to deal. 
 
 Reviewing briefly the commercial history of the country 
 since the repeal of the Corn Laws, we may say 
 that from the introduction of free trade in 1845 the 
 commerce of this country was marked by great prosperity, 
 with little interruption, until 1873. In examining the 
 figures, one is amazed with the progress made in that 
 period. The amount of income chargeable to income-tax 
 doubled in that period, say from about £250,000,000 
 to £500,000,000. The national revenue increased from 
 £47,000,000 in 1840 to £81,000,000 last year, notwithstand¬ 
 ing the repeal of taxes to the extent of £26,000,000, showing 
 apparently a paying power on the part of the country nearly 
 treble what it was forty years ago. The completion of our 
 railway system, which took place mostly in that period, 
 involved an expenditure of nearly £700,000,000. 
 
 What were the causes of that great stream of national 
 prosperity ? 
 
 The first of all was the introduction of free trade, with 
 
7 
 
 cheap food—giving to our manufacturing population the 
 material of cheap subsistence, and consequently of cheap 
 production. 
 
 Then we had a great extension of the means of credit, 
 which in its earlier stages was attended with great national 
 advantages. We had the introduction of joint-stock com¬ 
 panies with limited liability; and though this means of credit 
 was afterwards much abused, yet there is no doubt that, 
 during this period, the introduction of these companies 
 greatly facilitated the employment of capital, gathering it 
 together from multitudes of small sources, and turning it 
 into productive channels. 
 
 During these years an immense system of foreign 
 loans sprang up. This, in its earlier stages, was attended 
 by great apparent advantages. Many hundreds of millions 
 of British capital were employed in making railways, canals, 
 mines, and other productive works abroad. A large portion 
 of these loans was employed in purchasing British goods of 
 various kinds, such as railway iron and machinery, and 
 produced an immense demand for manufactures at home. 
 We were lending money with one hand, and getting it 
 back with the other. That led to the impression that a 
 large and profitable business was being done, though later 
 developments have shown that a great deal of this was hollow 
 at bottom. 
 
 We had, as I have already said, created the great railway 
 system of this country, providing a valuable investment for 
 nearly £700,000,000 of capital. There was also created, 
 during that time, most of the great railway system of Europe 
 and America, a large part of which was done by British 
 capital, and which, in its earlier stages, was very profitable 
 to all concerned. 
 
 An auxiliary cause of prosperity was the discovery of the 
 gold mines of Australia and California, adding ii mensely 
 
8 
 
 to the stock of precious metals in the world. The effect of 
 that was to cause a tendency towards higher money values 
 all over the world, which had an enlivening effect upon 
 trade. 
 
 High-water mark in the prosperity of this country was 
 reached about the year 1873; when various causes came 
 into play which entirely blighted it, and brought about the 
 present aggravated crisis. 
 
 Prior to 1873 silver and gold might be regarded as 
 equally the money of the world. Silver was employed over the 
 larger area, and the balance between the two metals was main¬ 
 tained by the French bi-metallic system. Gold and silver 
 held a ratio of 1 to 15£ everywhere—except in Japan, which 
 was hermetically sealed—because, from every part of the 
 world, silver could be sent to the French mint, coined, and 
 exchanged for gold at that rate. Since 1873 the relationship 
 of the metals has wholly changed. The German Government, 
 imitating England, and making a great mistake, resolved to 
 demonetise silver, which had been its sole legal tender and 
 standard of value. The result has been that Germany has 
 been purchasing immense quantities of gold, and selling off 
 its silver. France got alarmed, and resolved to close its 
 mint, and adopt a watching policy. Silver being shut out 
 from its chief market, its ratio to gold fell ; and from being 
 twin sisters, the metals ceased to have any fixed relationship 
 at all. The effect of this was to raise the purchasing power of 
 gold, and to lower the money value of commodities. A rapid 
 fall in prices has since been going on. At the present time the 
 average scale of values is almost as low as it was at the repeal 
 of the Corn Laws, in 1845. All operations based upon 
 money values have been constantly losing; and the trade of 
 England being largely with silver-using countries—such as 
 India, China, most of the South American states, Austria, 
 
9 
 
 Bussia, and other countries— has been embarassed to a degree 
 which is scarcely credible, except to persons engaged in those 
 trades. Investments, made in good faith, are being practically 
 repudiated, and the bridge which conducted British capital to 
 other countries has been broken, because there is no longer 
 any fixed ratio between the two metals. It is no longer possible 
 to lend a million to China, India, Austria, or other silver¬ 
 using countries, with the knowledge that in thirty or forty 
 years it will be repaid at the same value, unless we make an 
 arrangement that it shall be repaid in gold, which very few 
 of those countries will now accept. This difficulty will continue 
 to operate until this country changes its monetary policy, 
 confesses that it has been wrong in the part it has played, 
 and offers to join France and the United States in re-estab¬ 
 lishing the bi-metallic system. 
 
 About the same period we were further afflicted by 
 a series of foreign bankruptcies. Bankruptcy became the 
 fashion amongst impecunious states, and the losses made by 
 the investing public of this country were something enormous; 
 estimated recently by Lord Derby as, perhaps, three hundred 
 millions sterling. Not only was a considerable portion of the 
 property of our richer class thus swept away, but the effect 
 on the industry of Great Britain was this—it stopped the 
 spending power of those bankrupt countries. Their spending 
 power depended on their borrowing power, and having lost 
 the latter, they were unable to send orders to this country for 
 railway iron, ironclads, Armstrong guns, and other luxuries! 
 
 Then came the American crisis, which commenced in 
 1873, and lasted about five years. America is just beginning 
 to recover from this crisis. America was formerly a good cus¬ 
 tomer of this country. Until the civil war she had a moderate 
 tariff on British goods. Though the feeling of the country was 
 protectionist, yet she had very small requirements for revenue, 
 and had no pretence, therefore, on which to levy heavy tariffs 
 
10 
 
 on foreign goods. But the effect of the civil war was to create 
 an immense debt, and the necessity for a large revenue, which 
 the Americans chose to raise, mainly, by a heavy customs tariff. 
 Our country has been the greatest sufferer by this policy. 
 We did not at first feel its effect. America possessed a small 
 manufacturing system, not nearly sufficient to supply the 
 wants of her population, and it took several years of high 
 duties before that system was greatly enlarged. But the 
 effect of the protective duties was to give, for a time, immense 
 profits to her own manufacturers, and to cause capital to flow 
 into manufacturing industries, so that America has become, 
 practically, self-sustaining. Consequently, our trade with 
 America, in iron, and cotton goods, and other important 
 staples, has been almost entirely cut off, with no hope of 
 recovery for a long time to come. Thus the cost of the 
 American civil war has been, in a large part, paid by England. 
 In connection with this, it may be observed that a large part 
 of the cost of all wars, in all parts of the world, ultimately 
 falls upon this country, and therefore this country should 
 always be in favour of international peace. 
 
 The next cause of prostration of trade was, what we 
 may call, the collapse of the joint-stock companies. I 
 do not mean that all joint-stock companies turned out to 
 be bad, but a large proportion of them did ; and for 
 several years the law courts in London have been occu¬ 
 pied in winding up rotten and defunct companies, revealing 
 for the most part a history of fraud and chicanery, from 
 beginning to end, of the most disgraceful kind. There is no 
 doubt that, though the joint-stock system was very conducive to 
 the spread of enterprise in this country, and to the fructifica¬ 
 tion of capital in its earlier stages, it became grossly abused. 
 The success of the earlier joint-stock companies led to imita¬ 
 tions without number, and the practice of cooking accounts, 
 and declaring fraudulent dividends, spread like lightning, till 
 
II 
 
 it has been really demoralising the commercial framework 
 of this country. 
 
 Another cause which, of late years, has very much 
 interfered with the former profits of mercantile capital is 
 the extension of steam, and the telegraph. Though these 
 agencies are of great value to society, yet the first effects have 
 been most injurious to merchants. They have been to 
 merchants very much like what the effect of substituting the 
 power-loom for the hand-loom was to weavers, in so much as 
 they greatly economise the use of capital, and do away with 
 the need of many intermediaries. 
 
 Another influence very injurious to the trade of England 
 has been the tendency to protection in foreign countries. 
 There is no doubt that, more or less, the tendency of the 
 world, of late years, has been backwards towards protection. 
 The rest of the world has not followed our example. We 
 thought that, after 1845, free trade would gradually come to 
 be the rule all over the world; but, partly from commercial 
 ignorance, partly from wars which brought the necessity for 
 heavy customs tariffs, most of the new countries of the world— 
 and we are sorry to have to include our colonies—have become 
 more or less protectionist, and are going further in that direc¬ 
 tion. The question is whether there is any means of remedying 
 this, and we hear a great deal about reciprocity. I suspect 
 that this word is used by many persons with peculiar ideas as to 
 its true meaning. I imagine that the meaning usually attached 
 to it is protection in the guise of retaliation. But we must face 
 the fact that we have not, in this country, any industry which 
 we can protect, or which would be the better for protection. The 
 only industry which it is possible to protect, in this country, 
 is the agricultural interest, and, I think, we have all made up 
 our minds that we do not intend to make food dearer, simply 
 to benefit the landed aristocracy. For the greater part 
 of our manufacturing industries we require to find foreign 
 
 ' 
 
outlets; therefore, protection could not possibly benefit us in 
 regard to them, because we must be the cheapest producers 
 in the world in order to find these outlets. It is very 
 humiliating to this country to see the large amount of foreign 
 manufactured goods which now come in. The only remedy 
 is to produce our goods cheaper. Our working men must 
 work longer hours, or take lower wages, and give more honest 
 work; and our employers must show greater skill. We must, 
 somehow or other, beat the foreign goods out, for it is only on 
 that condition that we can live. But, I think, there is just 
 this degree of reasonableness in the cry for reciprocity—that 
 it is an unjust thing that our own colonies, not to speak of 
 foreign countries, should do their best to shut our goods from 
 their markets, for we open our ports to almost everything 
 they produce, free of duty. The hardship is very great to 
 our manufacturers, and if we do possess any lawful, or any 
 effectual, means whereby we can compel, or persuade, our 
 colonies, as well as other countries, to give us fairer treatment, 
 it will be most legitimate to use them. The real difficulty is 
 to know how to do it. We have repealed nearly all the 
 duties in our fiscal system, unconditionally. If we had made 
 conditions, years ago, it might perhaps have been different. 
 We might have said to our colonies, “As you are part of the 
 empire, we insist on absolute free trade.” But we have lost 
 that power, and it appears to me so difficult to find a remedy 
 now as to be almost impossible. 
 
 One striking feature which has accompanied the decline of 
 British prosperity, during the last few years, has been the 
 enormous increase of the value of our imports over our 
 exports; proving, to all intelligent minds, that this country 
 has been buying goods beyond its power to pay for them. It 
 has been very evident, to all thoughtful minds, that we had a 
 crisis to encounter. This country has become wasteful, and 
 extravagant, to a dangerous degree. 
 
IB 
 
 The unreasonable action of trades unions is another cause 
 which has been very injurious to the productive power of this 
 country. There is no doubt that the first effect of trades 
 unionism was very beneficial to the working class. It bound 
 them together by ties of brotherhood, made them look after 
 one another, prevented them being mere cyphers, protected 
 them against rapacity and arbitrary treatment on the part of 
 their employers, and tended to establish a better rate of wages, 
 or, at all events, to render their income less precarious. But, 
 feeling their power, the working men very much abused it. 
 During the years of prosperity they took full advantage of it 
 by raising wages immensely, and by shortening the hours of 
 labour very much indeed, till, at last, England was paying a 
 rate of wages much greater than that of any other country, 
 whilst the hours of labour were very much shorter. It is quite 
 possible to exact these terms from employers when trade is 
 good, but when the tide turned and trade was bad, the trades 
 unionists had not the sense to see it, and they have been 
 fighting a losing battle against the inevitable course of events. 
 It seems to me that the working men of England have shown 
 lamentable folly during the last few years. Their leaders 
 have shown themselves singularly incompetent to judge of 
 the great laws which govern commerce. No amount of 
 experience seems to have taught them any more sense. 
 Every year the quarrels became more numerous, and the 
 strikes more insane; and the consequence has been that some 
 of our large trades have been almost ruined. The loss of this 
 country through these industrial civil wars, during the last 
 few years, must have been perfectly fabulous—as much, I 
 believe, as would have been spent in a great foreign war; and 
 one can only hope that the misery which has been brought 
 about by these strikes will ultimately lead to some new, and 
 better, method being adopted for settling such questions. 
 
 Then, again, there is no doubt this country has suffered 
 
14 
 
 very considerably from the dark and threatening aspect of 
 foreign politics, during the last few years; but I do not look 
 upon that, as some do, as the main cause of the present 
 commercial depression. This country is suffering more from 
 the consequences of past wars, than from the state of foreign 
 affairs during the last few years. The civil war in America, 
 though fourteen years old, is telling more upon England now 
 than the Ilusso- Turkish war. It is when war debts have to 
 be paid, when heavy taxation is imposed, and an excuse 
 given for levying hostile tariffs, that England suffers. 
 
 The position we have reached, at the present time, is some¬ 
 what as follows:—We have a declining trade; exports have 
 fallen off in value by about £60,000,000 from the highest 
 point, though not in quantity to any great extent;—we have 
 a rapidly growing population;—a third of that population have 
 to be supplied with food from abroad;—we have to import the 
 raw material of most of our manufactures;—and the only 
 means we have of paying for this necessary food, and raw 
 material, is our manufactured goods—such portion of them 
 as we can induce the foreigner to take. The ability of this 
 country to maintain its increased population depends, entirely, 
 upon pushing its foreign trade. If the foreign trade were to 
 come to a standstill the surplus population must starve, 
 become paupers, or emigrate. The effect of improved land 
 laws upon the home production of food would, I think, be 
 more social and moral than economical. I do not think 
 we can grow any large amount of additional food in this 
 country except at too great a cost; we can buy it cheaper 
 abroad. 
 
 Lastly, I wish to refer to the moral, and social, causes of 
 the commercial depression through which we are passing. 
 During the period of great prosperity, between 1870 and 1873, 
 
15 
 
 a reckless spirit spread over the country. The whole community 
 became tainted with a spirit of violent speculation, one of the 
 results of which was great extravagance. The quiet, sober, 
 habits which used to prevail in the middle classes gave 
 place to a flashy imitation of the aristocracy. At the 
 same time the “ company mania ” was at its height, and the 
 country became deluged with unhealthy artificial company 
 speculation. People seemed to think that they no longer 
 needed to work hard for their money, but that by a little 
 juggling—by the meeting of a few men round a board, once 
 a week, to drink sherry—they could make all the profits they 
 required. Large dividends were paid for a short time. Within 
 my own knowledge companies which paid 20 and 30 per cent, 
 were not earning more than 10 per cent., if correctly calcu¬ 
 lated. If this had gone on for a few years longer the country 
 would have become corrupted, and lying and cheating would 
 have become the rule through all classes. Fortunately, it could 
 not go on, because the world is ruled by a moral Governor. 
 These rotten companies came down one after another, and 
 the failures culminated in the huge collapse of the City of 
 Glasgow Bank. 
 
 The baneful effect of this speculative spirit is seen mainly 
 in the middle classes, but the deterioration which has taken 
 place in the working classes has been, if possible, even more 
 deplorable. The rise of wages, coming upon a class of 
 men ill prepared for it, was, to many of them, a positive 
 evil of the highest degree. It led to disgraceful intem¬ 
 perance. The amount spent in alcoholic drinks increased 
 by £30,000,000 sterling in a few years, and this increase 
 has been nearly maintained since then, notwithstanding 
 the falling off in trade. It is an appalling fact that, at the 
 present time, this country is spending nearly £150,000,000 
 annually in drink, at least two-thirds of which expenditure is 
 simply utter waste of money. As a consequence of this great 
 
16 
 
 intemperance, the British'mechanic compares most unfavour¬ 
 ably with the French and American artisan. 
 
 Another'^of the causes which has [deteriorated^the 
 working]'population is foundj in the principles adopted 
 by many of the trades unions, principles subversive of the 
 great laws the Creator has laid down to stimulate human 
 industry. Arbitrary rules are made which put all men—the 
 industrious and the idle, the clever and the stupid—upon 
 the [same level. Conscientious work in some trades is 
 impossible, and the cost of production is greatly raised. 
 This immensely handicaps England in competition with 
 other countries. The unions do not see that in this they 
 are killing the goose that lays the golden eggs. These 
 evils will, however, cure themselves in time, but extreme 
 poverty, and extreme suffering, seem to be the only means 
 of doing so. 
 
 As to the remedies for the present state of things, I believe, 
 in the first place, that emigration is an absolute necessity. 
 Under no possible system of improved land laws can we provide 
 for an annual increase of 400,000 people in the British Isles. 
 We must have a large and copious emigration, or else pauper¬ 
 ism, and starvation, on an enormous scale. The class most 
 affected in this crisis is not the working men, but the lower 
 middle class, that which supplies our clerks. A large portion 
 of this class must emigrate, or live lives of poverty, and 
 dependence upon others. But are they fitted for emigration ? 
 They know nothing of any handicraft, and when sent to a 
 country like America are of no use whatever. 
 
 I believe, therefore, that one of the lessons which this 
 country must learn is to educate the young in a more 
 practical manner. We must educate them with more 
 reference to the great law that man must earn his bread 
 by the sweat of his brow. It is impossible that a whole 
 
17 
 
 nation can live by brain-work, or by the little niceties 
 and refinements of life. The great bulk of mankind must, 
 ultimately, earn their living by handicraft of some kind 
 or another, by tilling the soil, or engaging in some useful 
 trade. The rage runs through society to train up our children 
 to what are called genteel professions, which mean, in many 
 cases, genteel starvation. To all public schools there ought 
 to be a workshop attached, where every boy should spend 
 a certain time daily, and learn a handicraft. Looking at 
 the tyrannical restrictions of many of the trades unions—at 
 the small number of apprentices allowed to be employed 
 —and the great number of labourers who have not had an 
 opportunity of learning a trade owing to these arbitrary 
 restrictions, it is worthy of consideration whether it would 
 not be a wise thing to have, in all elementary schools, a work¬ 
 shop, in which all the boys should be taught to use their, 
 hands. Such a step would break down many of the senseless 
 and arbitrary, restrictions that greatly hamper the productive 
 power of this country. 
 
 Finally, the world is administered upon moral laws. 
 National sins bring national punishments. When nations 
 obey the great laws of industry, rectitude, and uprightness 
 which God has laid down for the government of His 
 intelligent creatures, they will be prosperous. When 
 they depart from the paths of moral rectitude, by extra¬ 
 vagance, idleness, or any kind of unprincipled conduct, there 
 follows an avenging Nemesis in the shape of poverty and 
 destitution. This country has been passing through a time 
 in which it has been exhibiting grave national delinquencies, 
 in the forefront of which I would place the extreme intemper¬ 
 ance of the people. God is pointing His finger to us, and 
 requiring us to examine our ways. The nation in its corporate 
 capacity, acting through the Government which it chooses, has 
 
18 
 
 winked at the evil of excessive drinking, has given the publican 
 most undue facility for corrupting the people, and has per¬ 
 mitted intemperance to grow almost unchecked. If we had a 
 Government that would deal with this question with the fear 
 of God before its eyes, with an earnest desire to encourage 
 virtue and suppress vice, which would legislate with that 
 end, it might, in a moderate space of time, immensely reduce 
 the intemperance of this country. I have no doubt that the 
 seeds of many national reforms are now being sown which 
 will afterwards produce an abundant harvest. At least, that 
 is our hope and prayer.