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DEPRESSION OF TRADE 
 
THE RECENT 
 
 DEPRESSION OF TRADE 
 
 ITS NATURE. ITS CAUSES, AND THE REMEDIES 
 WHICH HAVE BEEN SUGGESTED FOR IT 
 
 KY 
 
 WALTER E. SMITH 
 
 B.A. NEW COLLEGE 
 
 BEING THE OXFORD COBDEN PRIZE ESSAY FOR 1S79 
 
 ■'Wreck'd on a reef of visionary gold " 
 
 Tennyson 
 
 LONDON : 
 TRUBNER AND CO., LUDGATE HILL. 
 
 JAMES THORNTON, HIGH STREET, OXFORD. 
 
 1880. 
 
 All rights reserved. 
 
din 
 HA IN 
 
 PREFACE. 
 
 This Essay was originally sent in to the Registrar 
 of the University of Oxford on May ^, 1879. 
 It has now been carefully revised^ and brought 
 up to date — in parts entirely rewritten. 
 
 Putney, Feb. 26th, iSSo. 
 
 108 
 
CONTENTS. 
 
 CHAPTER I. 
 
 PAGE 
 
 IXTRODUCTOHY I 
 
 CHAPTER II. 
 
 WHAT IS THE NATURE OF THE DEPRESSION OF 
 
 TRADE ? 15 
 
 CHAPTER III. 
 
 THE CAUSES WHICH GAVE RISE TO THE DEPRES- 
 SION AT HOME 39 
 
 CHAPTER IV. 
 
 THE CAUSES WHICH GAVE RISE TO THE DEPRES- 
 SION ABROAD 68 
 
 CHAPTER V. 
 
 REMEDIES PROPOSED FOR THE DEPRESSION . . 82 
 
THE 
 
 RECENT DEPRESSION OF TRADE. 
 
 CHAPTER I. 
 
 ERRATUM. 
 
 P. 102, line l,for "overvalued," read " undervalued." 
 
 astronomy than to the vastly complicated affairs 
 of social life. We have just passed through 
 a period of depression^ -which;, though it came 
 in perfect agreement with all past experience, 
 was complicated by such an exceptional con- 
 glomeration of untoward circumstances, and pro- 
 tracted to such a weary length, that men seemed to 
 lose faith in the revival which was almost certain 
 to come sooner or later ; and began to ask whether 
 the commercial supremacy of this country was not 
 permanently undermined. So weak was the faith 
 of the public that when the revival seemed to be 
 
 B 
 
THE 
 
 RECENT DEPRESSION OF TRADE. 
 
 CHAPTER I. 
 
 INTRODUCTORY. 
 
 TT has often been remarked tliat periods of de- 
 -L pression and inflation of trade liave for a 
 long time alternated in a decennial cycle, with 
 a regularity which is almost startling, and which 
 seems more appropriate to the phenomena of 
 astronomy than to the vastly complicated affairs 
 of social life. We have just passed through 
 a period of depression, which, though it came 
 in perfect agreement Avith all past experience, 
 was complicated by such an exceptional con- 
 glomeration of untoward circumstances, and pro- 
 tracted to such a weary length, that men seemed to 
 lose faith in the revival which was almost certain 
 to come sooner or later ; and began to ask whether 
 the commercial supremacy of this country was not 
 permanently undermined. So weak was the faith 
 of the public that when the revival seemed to be 
 
 B 
 
The Recent Depression of Trade. 
 
 really beginning the Times took credit to itself for 
 almost superhuman foresight^ because it had always 
 thought the depression would not last for ever ! 
 And now with the new decade the revival is really 
 here. 
 
 We need have no fear of reaction now. "VVe 
 have during five or six years of weary dulness, paid 
 the full penalty of the sins of the past inflation ; 
 and noWj in spite of the miserable harvest of last 
 year^ which must have acted as a powerful drag 
 upon returning prosperity, we are ready for a new 
 period of inflated trade, of wild speculation, of rapid 
 fortune making, and we are ready also to sow the 
 seeds for a harvest of depression, bankruptcy, and 
 misery which will be surely reaped in the later 
 years of this new decade. 
 
 Let it not be supposed that ii^hus venturing 
 upon prophecy I ai^indulgin^n vague conjecture, 
 and a general bejef that because the decennial 
 period has prevailed in the past it will be repeated 
 in the future. I write thus because I see that the 
 same causes which have been so potent in the past 
 will inevitably bring about similar results in the 
 near future. Excessive railway making was among 
 the most powerful of the causes which produced the 
 inflation of 1870 and the following years, and which 
 so impoverished the world that since tlicn it has 
 been sitting in poverty ; and there is abundant 
 
Introductory. 
 
 evidence that we are just entering upon a new 
 period of spasmodic railway speculation in almost 
 every country of the world, whic"^! must produce 
 the same effects that have always attended such a 
 course. 
 
 This essay was originally written in the spring 
 of 1879, ^^ ^^^ v^^y ^™6 when the depression 
 reached its culminating point — the hour of greatest 
 darkness and cold which precedes the day. 
 
 In America, indeed, there were, as I then pointed 
 out, distinct traces of the approaching revival, 
 but in England there was as yet no appear- 
 ance of change. Now things are very different ; 
 our iron works are in full swing, thanks to a 
 demand in America which the American furnaces 
 are quite insufficient to supply, and no doubt our 
 difficulties wij|«oon have completely passed away. 
 
 But in spit^-^Sr^his change of circumstances, 
 my essay has not become obsHete; nay, if there 
 be any truth in the doctrines which I have main- 
 tained, now is the time when they should be 
 listened to and laid to heart. I have insisted 
 that it is in the sins of the time of the inflation 
 that we must seek for the origin of the depression 
 which follows as surely as the shadow follows the 
 sunlight; whilst it is the forced economy of the 
 depression which supplies material for the wild 
 festivities of the inflation. I cannot expect much 
 
 B 2 
 
TJie Recent Depression of Trade 
 
 attention to ray words from " those tliat eddy 
 round and round ;" but this time, if any, is the 
 most suitable for my sermon, before men have 
 forgotten the grinding lessons of adversity, and 
 before they have once more eommitted the errors 
 which will plunge them into fresh misery. 
 
 I propose to give some account of the nature of 
 the depression from which we have just emerged, 
 and of the causes which led to it. This latter 
 question will have a direct practical bearing, since 
 we can only escape or mitigate the recurrence 
 of like effects, by avoiding to our utmost the 
 mistakes which we then made. Unfortunately 
 this remedy depends more upon the good sense 
 and self-control of individuals, than on any course 
 of action open to either legislature or government ; 
 hence we cannot look with sanguine hopes for any 
 essential reform. 
 
 During the years which followed the Civil War 
 in the United States, there arose in that countrv 
 an extravagant and abnormal expenditure upon 
 railways. This, combined with many other causes, 
 produced a great inflation in the trade of the 
 world, and especially of Jilngland. During the 
 years 1871, 1872, and 1873 we appeared to be 
 in the greatest prosperity. The prices of coal 
 and iron in ])articular rose to an extravagant 
 height. Every manufacturer and every trader 
 
Introductory. 5 
 
 was eager to extend his business to the ut- 
 most, and seemed to be rapidly making Lis 
 fortune. 
 
 In the autumn of 1873 came the American 
 railway panic which brought railway construction 
 there to an abrupt standstill; and ushered in a 
 period of depression and distress in commerce, 
 manufactures, and agriculture, which steadily and 
 continuously increased in intensity and extent from 
 that time till the summer of last year. Trade then 
 reached its lowest ebb, and since that time the 
 tide has been rapidly rising. But, as the current 
 of a river continues to flow down after the 
 level of the water has begun to rise, so, although 
 trade is improving rapidly, the revenue has hardly 
 yet reached its lowest point. 
 
 Our depression largely arose from that in 
 America, and it was the revival in America which 
 gave the first token of returning animation in 
 trade, and it has been mainly the strong American 
 demand for iron which has infused fresh life into 
 our markets. 
 
 In 1873 the exports of British produce reached 
 their culminating point. Since that date they have 
 been steadily shrinking in value from year to year 
 without a single break, and have now fallen off 
 64! millions, or more than 25 per cent. But 
 latterly the shrinkage of our imports has been even 
 
The Recent Depression of Trade. 
 
 more marked than that of our exports, so that the 
 " balance of trade "" against us has become some- 
 what less. This result ought to be highly satis- 
 factory to those practical men who think that the 
 net gain of trade is to be measured by balancing 
 the imports against the exports ; but to others it 
 was not altogether pleasing to find that our spend- 
 ing power was diminishing even more rapidly than 
 our export trade. 
 
 The decrease in valueof our exports was mainly — 
 according to some authorities* almost entirely — due 
 to a general fall in prices, caused perhaps by a 
 rise in the value of gold. Now this shrinkage in 
 value has involved great and often ruinous loss to 
 the capitalist, to whom the past six years have been 
 a time of severe and growing difficulty. The 
 following picture of the recent state of affairs, 
 though perhaps an exaggeration, is by no means 
 too gross an exaggeration to be worth quoting : — 
 " We shall not be very far wrong in saying that the 
 great bulk of the commercial capital employed in 
 the manufacturing and distributing trades has 
 yielded scarcely any interest at all for three years, 
 and during the last year there have been severe 
 losses." 
 
 A natural result of this disastrous state of 
 
 * See Mr. Giffcu's ' ' Report on the Prices of Exports of Britisii and 
 Irish Produce in the years 1861-77." 
 
Introductory . 
 
 trade may be traced in the great number of failures 
 which have occurred of late, and especially in the 
 gigantic and disgraceful failure of the City of 
 Glasgow Bank. It is perhaps hardly possible that 
 any degree of reckless and dishonest banking 
 should have piled up so vast a debt as that bank 
 had incurred, unless it had been helped by losses of 
 a more legitimate character. The number of trade 
 failures of minor importance was very large ; some 
 were of a most discreditable kind. For instance, 
 the creditors of one firm agreed to accept a com- 
 position of \\d. in the £ ! Many, however, suc- 
 cumbed who could not be charged with dishonest 
 or even speculative ti'ading. 
 
 It would be easy to accumulate evidence 
 to prove the great losses to which capitalists 
 have of late been subjected. The facts, however, 
 are so notorious that it is unnecessary now to 
 fill up space with illustrations of a state of 
 things which has happily passed, or is passing 
 away. 
 
 The very low rates of interest for the loan of 
 money which prevailed for several years are a 
 strong proof that there was but little profit to be 
 made with it. For a long time two per cent, was 
 the usual bank rate of discount ; a fact which 
 shows that the rate of the open market for good 
 securities was still lower. It is certain that this 
 
8 TJic Recent Depression of Trade. 
 
 arose not from any large supply of capital, but 
 from an extreme weakness of demand, arising 
 from the impossibility of employing it profitably, 
 or of finding adequate security. 
 
 The leading industries of the country, especially 
 those in iron and cotton, were in a miserable state 
 of prostration. In a circular addressed last spring 
 to the owners of Scotch mines bv thirteen leading 
 iron-masters, we find the following statement : — " It 
 is a fact that the selling price of Scotch pig-iron has 
 for some time been considerably under the price of 
 production, and it is no secret that the Scotch iron- 
 masters during the last twelve or eighteen months 
 have been working at a heavy loss." 
 
 It is notorious that the shipping business, which 
 is at once in itself an important factor of our trade, 
 and also a good index of the state of other trades, 
 was in a most languishing condition. The naviga- 
 tion returns do not, indeed, show any falling off in 
 tonnage ; but it was precisely the impossibility of 
 suddenly diminishing the tonnage employed which 
 added so seriously to the difficulties of shipowners. 
 For several years freight was so excessively low 
 that many ships have lain for months in harbour, 
 their owners finding that course less expensive than 
 to send them on voyages. 
 
 The demand for iron steamships has probably 
 
Introductory. 
 
 never been feebler; certaiuly their price was never 
 lower than in the early part of last year. 
 
 This apparent decay in our exports necessarily 
 roused the gravest solicitude^ and the most anxious 
 inquiries whether it were real or apparent, tem- 
 porary or permanent. 
 
 Thanks to Free Trade more than to anv other 
 cause we have placed ourselves in a position occu- 
 pied by no other nation. We have devoted ourselves 
 mainly to the production of iron, cotton, coal, and 
 other goods which we cannot eat. We must exchange 
 them for foreign corn and meat or we die, for we 
 usually draw about a third of our corn supply from 
 abroad, and in years of deficient harvest a still 
 larger part. Our population is so greatly increased 
 through our manufactures and our trade* that it 
 could not be supported on the produce of British 
 fields. " If England were cut off from all foreign 
 trade, a large portion of her people must surely 
 perish, as surely as did more than a million of 
 Irish, when the potato disease left them foodless on 
 
 the land."t 
 
 While industry and trade have suffered thus 
 deeply, the plight of agriculture has been perhaps 
 
 * Between 1801 and 187 1 the population of England and Wales in- 
 creased from 8,892,536 to 2 2, 7 1 2, 266. 
 
 t Professor Bouamy Price, Contemj>orary Reviev), April, 1877. 
 
lO The Recent Depression of Trade. 
 
 yet worse. A succession of five bad harvests, the 
 aggregate loss upon which we must reckon at 
 considerably over i oo millions sterling, in con- 
 junction with the low prices at which agricul- 
 tural produce has been selling, has reduced the 
 most prosperous farmers to distress. A new 
 feature in their difficulty is that the large supplies 
 of food imported from abroad have deprived them 
 of what Lord Beaconsfield justly called " the 
 somewhat dismal compensation of high prices.^' The 
 loss primarily falls upon the the farmers, but is now 
 passing over to the land-owners, who have much 
 difficulty in finding tenants for their farms, even at 
 reduced rents. The quantity of land under cereal 
 cultivation has shown a diminution of more than 
 lo per cent, since 1869."^ 
 
 Nor has the depression been confined to Eng- 
 land. It has aftected almost the whole of the 
 civilized world. The United States in particular 
 have sufi'ered far more than we. Mr. John 
 Bright writes of America,t " The distress during 
 the last five years has been far more prolonged, 
 more widely spread, and far more intense than in 
 this country." It is true that our imports from 
 the United States have more than doubled in the 
 
 * The acreage of corn crops in the United Kingdom reached its 
 maximum, i.e., 12,000,111 in 1869. In i879it»as 10,777,000. 
 t III a Letter, dated April 1, 1879. 
 
Introductory. 1 1 
 
 last nine years.'" We shall, however, see presently 
 that the rapid growth of exports from America, as 
 iu the parallel case of Germany, is, with respect to 
 manufactures, a morbid growth, which does not 
 indicate true prospeinty. 
 
 Perhaps (in spite of the doctrines of " practical 
 men,-" and of the newspapers) we shall find a truer 
 index to the real prosperity of America in her im- 
 ports than in her exports. Her total imports for 
 home consumption have sunk since 1873 from 
 130 millions to 88 millions, which was their value 
 in 1878. This is a decrease of 3 2^ per cent. No 
 doubt this falling off is in a great measure 
 due to the direct effect of protection, but it also 
 implies an immense diminution of spending power. 
 In America, the commercial distress has been 
 greatly aggravated by the exorbitant prices pro- 
 duced by a " barbarous" protective tariff. This 
 tariff is one of the legacies of the American Civil 
 War. The American manufacturers finding their 
 country burdened with debt, and in need of a 
 large revenue, were delighted at the opportunity 
 afforded them of introducing a monstrous tariff. 
 
 Hence, it is not the capitalist only who has 
 suffered there. The distress has affected all 
 
 * In 1S69 they were valued at 42^ millioDs, and iu 1878 at 89 
 millions. 
 
1 2 TJie Recent Depression of Tirade. 
 
 classes, including even the farmers, whose com- 
 petition is so much dreaded by their English 
 rivals. They are in the unfortunate position of 
 losing everything and gaining nothing, not even 
 seeming to gain anything by protection. The 
 manufacturers, who in spite of their extrava- 
 gant tariff, ranging up to 275 per cent, on the 
 value,* are unable entirely to monopolise the market 
 at home, and utterly unable to compete profitably 
 abroad, are constantly crying out for more and 
 more protection, and generally get it. We may 
 find, a striking proof of American distress in the 
 emigration returns. The stream of emigrants to 
 America was greatlv checked for awhile. The net 
 total of immigrants thither, that is, the excess of 
 immigrants over emigrants reached a maximum of 
 more than 400 thousand in 1872, and in 1877 had 
 sunk to 70 thousand. The number of emigrants of 
 British origin to the United States in 1876 was 
 143 less than the number of those who returned 
 thence. However, the tide has turned once more, 
 and the excess of emigrants over immigrants of 
 British origin was 603 in 1877 and 20,654 in 
 1878. Americans sometimes speak of the " pauper's'^ 
 wages to be earned in Europe, but the working 
 
 * See the valuable Table of Foreign Tariffs prepared by a Committee 
 of the Wolverhampton Chamber of Commerce. 
 
Introductory. 1 3 
 
 classes were finding out that for the present they 
 were worse off there than here. 
 
 Nor are the nations of Europe in better jjlight. 
 Turn where we will, we find nothing but stagnation 
 and distress. France, perhaps, " the hei'oine of 
 Political Economy/'' has suffered less seriously 
 than any other country in spite of the heavy burden 
 which was laid upon her by the war. 
 
 In consequence of this state of general im- 
 poverishment there has been much discussion 
 as to the causes which have led to our trouble, 
 coupled with proposals for measures of relief, 
 which are too often either impracticable or 
 positively hurtful. In particular, the faith in 
 free trade, which till lately seemed so firmly 
 rooted in the mind of every Englishman, has 
 been shaken, and a cry for protection, concealed 
 under the specious name of reciprocity, was raised 
 so loudly as to excite some alarm, not that we 
 should be false to our free trade principles — 
 for such apostasy is rendered almost impos- 
 sible by our circumstances — but that the question 
 which had seemed for ever settled in this country 
 would be re-opened, and once more seriously 
 debated. 
 
 " Reciprocity''' was the most dangerous nostrum 
 which was proposed for the depression of trade ; 
 however, we shall have to consider one or two 
 
14 The Recent Depression of Trade. 
 
 others, and especially to examine the view of those 
 who believe that by some alteration in the currency, 
 which measures and distributes goods, they can cure 
 the most deep-seated evils in the economy of the 
 world. 
 
CHAPTER II. 
 
 WHAT IS THE NATURE OF THE DEPRESSION OF TRADE ? 
 
 T)ErORE we consider the causes which have led 
 -^-^ to the depression under which we have been 
 Labouring, it will be well to try to arrive at a clear 
 understanding of the nature of the phenomenon in 
 question. 
 
 There is an abuse of language which we 
 sometimes meet with, for the most part in news- 
 papers ; we hear of a " crisis^^ which has been going 
 on for the last six years. This seems to betray 
 some confusion of idea between depression of 
 trade and an entirely different phenomenon, a 
 " crisis^' or a " panic" in the city when merchants 
 are in agony for the loan of money and cannot get 
 it. It does not require any profound analysis to 
 see the utter unlikeness of this to a period of 
 commercial depression, such as we have passed 
 through, in which the greatest difficulty is expe- 
 rienced in lending money at all. 
 
 There is, however, another distinction to be drawn, 
 less obvious, and therefore more important. We 
 shall endeavour to show that under the name " com- 
 
1 6 TJic Recent Depression of Trade. 
 
 mercial depression^' are confused together two 
 phenomena closely connected in their causes^ but 
 distinct in their efiects. 
 
 And first we must draw a wide distinction 
 between the processes of production and consump- 
 tion of wealth on the one hand, and its distri- 
 bution on the other. The two first, opposite as 
 they are in their nature and their effects, may 
 naturally be grouped together on account of their 
 marked opposition to the process of distribution. 
 They have this in common that they alter the sum 
 total of wealth in the world, and that any failure 
 in production, or excess in consumption, im- 
 poverishes the whole world by so much. With 
 distribution it is difierent. In considering ques- 
 tions of distribution, we assume that the goods are 
 already in existence, and merely have to decide 
 how they are to be shared. 
 
 Now, it is obvious that the total wealth and the 
 general well-being of the world depend indirectly 
 on the processes of disiribution no less than on 
 those of production and consumption. It is hardly 
 necessary to illustrate the fact that one method 
 of distribution is more favourable to productioii 
 than another, or that one is more likely to 
 encourage over-expenditure than another, but the 
 i'act on which I would now lav stress is, that dis- 
 tribution is a great department of human activity 
 
IV/iat is the Depression of Trade? 17 
 
 which does not immediately" affect the sum total of 
 human wealth at all. No kind of gambling, no 
 rise or fall in prices, no panic in the city can 
 directly make the world either richer or poorer. 
 In all these things, what one man loses another 
 gains. It is only by producing that the world isl 
 made richer, and by consuming that it is made 
 poorer. 
 
 Gold has often been imagined to be wealth in a 
 very peculiar sense. In truth it is in a very 
 peculiar sense not wealth ; for though in itself it is 
 a costly and valuable article, it is not generally used 
 as such, but simply as a guarantee, and with no 
 direct reference to its physical properties. In this 
 case it merely forms part of the machinery of dis- 
 tribution, of the counters by which wealth is 
 measured and exchanged. That this is so may be 
 seen from the fact that a piece of paper will often 
 answer precisely the same purposes as a piece of 
 gold. 
 
 Now, when trade is in a state of depression, we 
 may mean either that the machinery of production 
 and consumption is out of order, or we may mean 
 merely that there is some fault in distribution, and 
 that it is in such a state as to benefit one class of 
 the community at the expense of another ; and of 
 this we may be tolerably sure, that the class 
 which is sufi'eriug will have a far clearer idea of its 
 
 c 
 
i8 TJie Recent Depression of Trade, 
 
 own conditiouj and will make itself heard far more 
 loudly than the class which is prospering. Adam 
 Smith tells us that " When profits are diminished, 
 merchants are very apt to complain that trade 
 decays; though the diminution of the profits is the 
 natural effect of prosperity, or of a greater stock 
 being employed in it than before/^ 
 
 There are many indications which suggest the con- 
 clusion that during the earlier years of the depression 
 there was no material diminution in the quantities pro- 
 duced, and consequently no general suffering among 
 the working classes. Prices were depressed and so the 
 capitalists got a smaller, and the workman a larger 
 share of the things produced than before. In 1877 
 and 1878 the nature of the depression seems to 
 have undergone a gradual change. The quantities pro- 
 duced, as well as the prices, fell off, and the working 
 classes as well as the capitalists have suffered deeply. 
 The capitalist naturally imagines that when he is 
 makiug little or no profits the whole nation is iu 
 a wretched state of poverty, but to those who think 
 most of the happiness of the great mass of the 
 people, it will be far from an unmixed sorrow to see 
 the capitalist losing, if only his loss prove to be the 
 workman's gain. About 24,ooO;COo out of our 
 population of 34,000,000 are included among the 
 labouring classes.* It is to these we should 
 
 * See Professor Leone Levi's letter to Mr. Bass, Jan. 2, 1879. 
 
W/ial IS the Depression of Trade? 19 
 
 mainly look in estimating the happiness and 
 prosperity of the country at large, not only because 
 of their numbers, but also because to them a little 
 gain or loss generally means much more in the way 
 of personal comfort or misery than to those who 
 have more luxuries to give up.* Professor Fawcett 
 points out that during the inflation in the prices of 
 coal and iron in 1872, an enormous tax was laid on 
 the people of England, not only on their consump- 
 tion of coal and iron, but also on that of all goods 
 made with coal and iron, for the benefit of the 
 fortunate owners and lessees of coal mines. Now 
 we can afford to see this tax reduced with great 
 equanimity, even though coal-owners seemed not to 
 be the only persons who shared in the general 
 prosperity. 
 
 Prices fell greatly, and this, since values are 
 always measured by money, makes the wages of 
 workmen appear to have fallen, even where they 
 have really risen (in money^s worth), and makes the 
 profits of capitalists appear to have shrunk even 
 more than they really have. 
 
 The main causes of this fall in prices seem to 
 have been a general diminution in the demand for 
 goods, owing to universal impoverishment, and a 
 rise in the price of gold caused by a diminishing 
 
 * " Free Trade and Protection," p. 138. 
 C 3 
 
20 The Recent Depression of Trade. 
 
 supply^ as well as an increased demand abroad for 
 purposes of coinage. 
 
 The chief effect of the weak demand for our 
 goods seems for a long time to have been only to 
 lower the prices we received for them, not to 
 diminish the quantity which we produced. It is 
 certain, at any rate, that the volume of our foreign 
 exports did not fall off in the same degree as 
 their value. Indeed, according to Mr. Gifi'en,* 
 the exports of 1877 were very nearly equal in 
 volume to those of 1873, ^'^^ would come within a 
 million pounds of their value if they were reckoned 
 at the prices of 1873. According to other calcula- 
 tions, however, aj^parently most careful and trust- 
 worthy,! out of a difference in value of £54,960,000 
 between the exports j of 1872 and 1877, ■5^I3'550jOC>o 
 or 24*6 per cent, is due to a decrease in quantity, and 
 £41,410,000 only to the fall in prices. This is a 
 serious discrepancy which calls for remark and 
 explanation, and warns us not to trust too 
 implicitly to the results arrived at by statisticians. 
 I shall not attempt to check these calculations, but 
 may perhaps venture to remark that the results 
 
 * Report to tlie Secretary of the Board of Trade on tlie prices of ex- 
 ports of Brilish and Irish produce in the years 1S61-1875. 
 
 f Economist, July 27, 1878. 
 
 X The exports taken into calculation both by Mr. Giffen and by the 
 Economist are those exports only of Brilish and Irish ])roduce, whose 
 Talue and quantity are both given in the Board Trade returns. 
 
W/ia^ is the Depression of Trade ? 21 
 
 of the Economist appear priind facie the most 
 probable. 
 
 We may remark parenthetically that the returns 
 of exports and imports collected by the Board of 
 Trade, especially with regard to the values, are 
 estimated by the merchants, or the merchants' 
 clerks, who supply them in such a perfunctory 
 manner that it is impossible to found trustworthy 
 and accurate conclusions upon them. Many stories 
 are told in illustration of this. A certain chemical 
 manufacturer, for instance, was in the habit for years 
 of returning all dry chemicals which he exported, 
 however valuable, under the heading of " ashes.'' 
 Another merchant found it convenient to class 
 all kinds of goods together indiscriminately under 
 the title of " umbrellas." These were not dis- 
 honest falsifications of returns, they were merely 
 a conventional method of saving trouble ; but 
 they may cause some perplexity to the unwary 
 student of statistics. 
 
 So long as the diminution of demand is met by 
 a fall of price and the quantity sold does not de- 
 crease, or does not materially decrease, the working 
 classes will on the whole gain and the capitalist 
 lose by a fall in prices and dull trade. The reason 
 of this is simple enough. Workmen receive wages 
 fixed in money for the time being, which wages, to- 
 gether with the other fixed charges, must come out 
 
22 The Recent Depression of Trade. 
 
 of the price obtained for the goods made, before the 
 entreprenem- (if we may borrow a convenient ex- 
 pression from Professor Walker) gets his profit, 
 which is the surplus that is then left over. 
 
 Now, if the workman and the entrepreneur Avere 
 always to receive the same share of the produce, 
 the money wages of the former would have to 
 fall in proportion to the price of the goods which 
 he makes. If it were so arranged, and if all goods 
 rose and fell in value equally, and if the retail price 
 fell in proportion to the wholesale price (or, in other 
 words, if we could eliminate all friction from our 
 social machinery), the workman, though his money 
 wages might fall, would not in reality be affected 
 by the change. He might get ten shillings 
 instead of twenty shillings, but he could buy as 
 much in goods as formerly. Whilst if he had any 
 savings in the bank they would be worth twice as 
 much to him. But in truth there is far more 
 " friction," and consequently more complexity, in 
 the matter than we have supposed. If prices fall 
 it is impossible for employers to reduce the money 
 wages of their men in the same proportion. The 
 skilled artisan may have to put up with a con- 
 siderable reduction, but the commoner kinds of 
 labour will certainly not suffer proportionate loss. 
 The employer is not likely to recoup himself 
 for a fall in prices out of the wages of his labourers. 
 
what is the Depression of Trade ? 2^ 
 
 unless he is compelled to do so by seeing his 
 profits sink so low that he has little choice ; 
 the weight of vis inerlice, the dread of the 
 Trades' Union and of strikes, the natural hu- 
 manity of the master all combiue to forbid it. 
 Hence, we may be pretty sure that as long as the 
 workman is kept in full employment he will re- 
 ceive as wages a larger share of the price of the 
 articles he produces when that price is low than 
 when it is high ; though it may well happen that 
 the money value of his share has shrunk. 
 
 Let us suppose for the sake of simplicity that 
 the prices of all goods have fallen to half their 
 former value, aud that the labourer formerly got 
 half the price of what he produced, and now gets 
 three quarters. Thus, a man who formerly pro- 
 duced goods to the value of £2, and received £ i in 
 wages, will now make goods to the value of €1 
 and get 15s. in wages. His money wages have 
 sunk 5s., but he will be none the worse off, since 
 the prices of all goods are at half their former 
 rates ; so he will be able to buy with his 155. half 
 as much again as he formerly would with his £\. 
 
 Of course, as a matter of fact, prices do not all 
 fall equally. The coal miner, though his wages 
 have not fallen nearly in proportion to the price of 
 coal (because they did not rise in proportion to it 
 during the years of inflation), is much worse ofl' 
 
24 The Recent Depression of Trade. 
 
 now than he was, because his wages have fallen 
 more than the prices of the things he buys. 
 
 Still our illustration shows how on an average, 
 and in general, the workman gains by low prices. 
 It is conceivable, indeed, that where a nation is de- 
 pendent as we are on foreign countries for its food, 
 a fall in the price of home manufactures, not ac- 
 companied by a corresponding fall in the price of 
 foreign food, might bring distress on the whole 
 nation without any diminution of the quantity of 
 the home produce. But it is clear that this was 
 not the case with us, though it probably was with 
 several foreign nations, the rise in value of whose 
 exports we envy so much. The distressed farmer 
 will bear witness that there has been no scarcity of 
 cheap food in England. 
 
 The retail dealers are another class who gain by 
 a fall in prices. Friction is always powerfully on 
 their side, and enables them to filch from the con- 
 sumer much of the advantage which he ought to 
 derive from low prices. Every one knows how 
 quickly the retailer discovers any rise in the price 
 of the articles he sells, and how soon he recoups him- 
 self from his customers. We also know how slow 
 he is (unless his perceptions are quickened by keen 
 competition, especially by that of the hated Co- 
 operative Stores) to discover any fall in the price 
 of his goods. 
 
U7iai is the Pcprcssicn of Trade ? 2 
 
 ^3 
 
 Oil the other hand; iu the case of a general 
 rise of prices^ it is the capitalist who makes high 
 profits, and the Avorking man who loses in real 
 reward. It is true that " a brisk trade/"* that 
 is to say, a high rate of profits and plenty of 
 orders, encourages the employers to compete eagerly 
 for labour, and not to be particular as to the wages 
 they pay ; hence it is sure to produce a rise in 
 money wages ; or even when some one trade is 
 enjoying greater prosperity than the rest, it may in 
 that particular trade cause a rise in real wages. 
 But on an average it is certain that, thanks to 
 " friction," the employers will get a larger share 
 than before of the things produced ; in other words, 
 their real remuneration on an average will be 
 greater iu spite of the rise in prices, while that of 
 the workmen w^ill be less. 
 
 It appears, for instance, that during the coal in- 
 flation of 1873, when we read many complaints of 
 miners who only worked three days a week, and in- 
 dulged in champagne and pineapples {vide " Punch" 
 passim), the miners iu reality got a very small share of 
 the enhanced price. It appears, for instance, from 
 evidence collected by a Select Committee of the 
 House of Commons* that, " In the West of York- 
 shire district, between October, 1871, and March, 
 1873, there was an advance in the price of coal at 
 
 * Quoted by Professor Fawcett, " Free Trade and Protection, " p. 138. 
 
26 The Recent Depression of Trade. 
 
 the i^it's moutli of 15s. ^d. a ton, while Avages in 
 this period were advanced only 15. \\d. a ton/' 
 
 But when the depression of trade is so severe 
 that the quantities produced decrease as well as the 
 price obtained,, then it is very different in its 
 nature. It affects production and not distribution 
 only. Less is produced altogether, so that there is 
 likely to be keen distress among the working 
 classes as well as among the capitalists. The 
 dividend is less, so all the quotients will be less ; 
 at any rate there will be great slackness of em- 
 ployment, and many will be thrown altogether 
 out of work. 
 
 It is my belief that till 1878 the depression in 
 trade was of the kind I have endeavoured to 
 describe ; one in which the nation as a whole was 
 not losing, though the traders and manufacturers 
 (who so easily mistake themselves for the whole 
 nation) were suffering keenly. 
 
 There are various indications which strongly sup- 
 port this view. In the first place it is impossible 
 to bring forward a stronger proof than is contained 
 in a fact which has caused utter despair to the 
 " practical" man. In spite of the depression 
 of trade, and the miserable falling off of our ex- 
 ports, our imports rose in value with hardly any 
 break till 1877, as we may see by the following 
 table of our total imports expressed in millions 
 
What is the Depression of Trade f 27 
 
 sterling, also of our imports per head of population. 
 The last colurau is^ of course, of great importance in 
 relation to the question of the general level of 
 
 comfort. 
 
 Total Imports, 
 Millions of 
 
 £ 
 
 303 
 
 33^ 
 
 355 
 
 371 
 
 374 
 375 
 394 
 369 
 362 
 
 Imports per head 
 of population. 
 
 £ s. d. 
 14 
 10 
 
 2 
 II 
 8 
 8 
 6 
 
 9 
 
 10 
 1 1 
 II 
 1 1 
 1 1 
 II 
 II 
 10 
 
 o 
 
 4 
 I 
 
 6 
 
 2 
 
 3 
 
 5 
 8 
 
 15 10 
 18 ,3 
 12 o 
 
 1870 
 
 1871 
 
 1872 
 
 1873 
 
 1874 
 
 1875 
 
 1876 
 
 1877 
 
 1878 
 
 1879* 
 
 The increase in the quantities must have been 
 much greater than that of the values, having to a 
 great extent counterbalanced and concealed the fall 
 of prices. It is probable that the imports for 1877 
 and 1 878 if they were valued at the prices which held 
 in 1872 would be worth about 420 millions. (See the 
 Economist, July 20, 1878, and January 18, 1879.) 
 
 Now, this steady growth of the imports, both in 
 
 * It is perhaps worth while to remark that when this Essay was 
 first written I inserted here a conjectural estimate for the year 1879, 
 founded on the hypothesis that the decrease on the whole year would 
 be in the same proportion as that on the first three months ; the result 
 so obtained was 323,000,000, which number by its contrast with the 
 actual imports for the year, which amounted to 362, 127,741, strikingly 
 exhibits the improvement of trade which has since taken place. 
 
28 TJie Recent Depression of Trade. 
 
 value and in quantity, as well as of the imports per 
 head of population, shows clearly that the comfort 
 and material happiness of the mass of the people 
 must have been steadily improving. 
 
 If we look at some of the items of import, we 
 shall be confirmed in our belief that the inflation 
 of 1870-1873 was mainly a capitalist's inflation, 
 harmful to the working classes ; whilst the depres- 
 sion from 1873 01" 1874 to the beginning of 1878 
 was a capitalist's depression advantageous to the 
 working classes. Professor Fawcett (" Free Trade 
 and Protection/' p. 136) justly remarks that " it is 
 generally admitted that the quantity of tea which 
 is annually consumed by the English people aflbrds 
 a very correct index of the prosperity of the 
 country." It is distinctly a luxury. i5ut it is the 
 luxury of the whole people and not a few. Now, 
 throughout these years of depression the tea 
 imported and retained for consumption has shown a 
 steady improvement, both in total quantity and 
 (what is perhaps more important) in quantity per 
 head of population. The following are the figures : — 
 
 Quantity of tea consumed per head of population in lbs. 
 
 J870 
 1871 
 1872 
 
 3-8i 
 
 1875 
 
 392 
 
 1876 
 
 4"oi 
 
 1877 
 
 4-II 
 
 1878 
 
 423 
 
 1879 
 
 4*44 
 450 
 4 "5 2 
 
 J873 4-II I 1878 \-66 
 
 1B74 4"23 i«7<; 4"ii 
 
IV/iai is the Depression of Trade f 29 
 
 This seems to indicate a decided improvement 
 in prosperity, thougii we must not forget one 
 disturbing element. Tea, like beer, is a cheap 
 beverage as compared with wine, and hence M'ill be 
 drunk more largely by the wealthier classes when 
 they are badly off than when they are prospering. 
 
 The same remarks hold good of tobacco, which is 
 more completely a luxury than tea, and cannot 
 be used as a substitute for any more expensive 
 article. In this ease there is a steady increase till 
 1877, followed by a decided drop in 1878 and 1879. 
 The figures per head of population are as follows : — 
 
 1870 1-34 I 1875 '"46 
 
 [871 
 1872 
 
 1873 
 1874 
 
 1-34 
 
 1875 
 
 1-36 
 
 1876 
 
 1-37 
 
 1877 
 
 1-41 
 
 1878 
 
 1-44 
 
 1879 
 
 1-47 
 I 49 
 
 1*45 
 1-42 
 
 The sudden diminution in consumption which 
 took place in 1878 naturally suggests that the 
 increased duty which was levied in that year 
 was the cause of the diminished consumption. 
 However, Sir Stafford Northcote, in his Budget 
 speech of last year, argued — no doubt correctly 
 — that this could not be so, as the price of 
 tobacco had so fallen that it was cheaper than it 
 had been before, in spite of the increased duty. 
 Hence he inferred that the diminished consumption 
 was due to diminished prosperity. It should be 
 
30 TJie Recent Depression of Trade. 
 
 noticed that this diminution did not begin till 
 1878. 
 
 There are one or two other facts which we may- 
 cite in proof of our position that there was at first 
 no general distress. Pauperism, for instance, showed 
 a considerable diminution during the depression, 
 until 1878. The total number of paupers in 
 receipt of relief on the ist January in England 
 and Wales reached a maximum of 1,081,926 in 
 1 87 1, since which year it declined continuously till 
 1877, when it stood 728,350. In 1878 it had risen 
 again to 742,703, and in 1879 it stood at 800,426. 
 The number of adult able-bodied paupers also stood 
 at its lowest in January 1877, when it was 92,806. 
 In 1878 it had increased to 97,927, and in 1879 
 to 118,933. An alarming increase of more than 
 28 per cent, in two years. It is, however, very 
 noteworthy that the increase did not begin till 
 1877. 
 
 Again, the amount of the deposits in Savings 
 Banks has shown no falling off, but, on the contrary, 
 a steady increase.* 
 
 * The deposits in the hands of Savings Banks in the United Kingdom 
 at the end of each of the seven last years were as follows : — 
 
 1872 ^^59,406,687 
 
 1873 61,667,884 
 
 •i^74 64,663,418 
 
 i«75 67,595,114 
 
 1876 ;;f7O,280,I2O 
 
 '877 74,226,175 
 
 1878 75,966,626 
 
What is the Depressiofi of Trade ? 31 
 
 There is, indeed, oue important series of figures 
 which at first sight seems to contradict the con- 
 clusion at which we have arrived. The number of 
 marriages has greatly decreased since the time of 
 high water in our trade. It was greatest in 1873, 
 and has decreased almost continuously since that 
 time. The numbers for the United Kingdom are 
 as follows : — 
 
 1873 258,615 
 
 1874 252,738 
 
 1875 251,170 
 
 ^876 254,825 
 
 1877 244,864 
 
 1878 239,353 
 
 Thus the number of marriages since 1873 has, in 
 spite of the growth of population, fallen off by 
 more than ly.ooo, or about 7*4 per cent. 161 
 persons out of every 10,000 were married iu 1873, 
 and iu 1878 only 141. It will be observed that 
 though the decrease has taken place throughout the 
 whole period of depression it has become much 
 more marked during the last two years. Between 
 1873 and 1876 the diminution was only 3990. 
 Between 1876 and 1878 it was 15,472. Moreover, 
 the difference between 1873 ^"^^ 1876, which is not 
 great when we remember that it is a falling off 
 from an abnormally high rate, does not necessarily 
 indicate any real diminution of general prosperity 
 in the country. People are encouraged to marry not 
 by a careful calculation of their real means founded 
 on the costs of housekeeping, but by the vague 
 
32 The Recent Depression of Trade. 
 
 impression that they are in good employment and 
 getting high wages. This impression^ of course, 
 would be very common in the years of prosperous 
 and inflated trade, when money wages were high, 
 although prices were still higher. People who 
 wanted to marry did not calculate how low their 
 real wages were, still less how hollow and transitory 
 a thing was much of the apparent prosperity. 
 
 The marriage returns suggest, indeed, an impor- 
 tant qualification which must be made when we 
 assert that till 1878 the condition of the working 
 man was improving. It did not seem to be im- 
 proving. He is not a political economist, and like 
 most other people reckons his income in money. If 
 his money wages are reduced he feels aggrieved 
 and does not think much about the price of corn. 
 Nor is it a question of feeling only. If he thinks 
 he is a loser he may strike, and a strike like a war, 
 whether successful or unsuccessful, is an immense 
 waste, and is almost certain to turn a fancied loss 
 into a real and heavy one. We shall have more 
 to say of strikes presently. This much by way of 
 parenthesis, to show how deep an injury may be 
 done indirectly to the working classes by a fall in 
 money wages, even though it result from a still 
 greater fall of prices. 
 
 The expression " balance is trade" is dangerous, 
 for though in itself it has a distinct and valuable 
 
W/mf is tJic Depression of Trade ? 33 
 
 meaning, it is closely associated witli the false and 
 pernicious doctrine, called by Adam Smith the " mer- 
 cantile system ;" the doctrine that a nation grows 
 richer by its exports and poorer by its imports, and 
 that the real profit of its trade is to be measured 
 by the excess of the former over the latter. Not 
 only is this theory false in itself, but it would 
 be difficult to mention any false opinion which 
 has in practice given rise to such pernicious 
 results. 
 
 We will try to use the words and yet to steer 
 clear of their evil associations. The " balance of 
 trade/' then, is the difference in value between the 
 exports and imports oi merchandise, whether between 
 some particular country and the rest of the world, 
 or between any two countries. It is clear that this 
 balance must be paid in some form or other by the 
 country " againsf whom it stands. Now, it has 
 often been noticed, with unreasoning alarm, that 
 the balance of trade against us is very large, and 
 has till of late been rapidly growing. In the seven 
 years from 1865 to 1871 inclusive, the balance 
 against us varied from 67 millions (in 1868) 
 to 47-| millions (in 1871), the average amount being 
 about ^^\ millions. In 1872 the balance stoodat the 
 low sum of 40 millions, but since that year till 
 1877 it has rapidly increased, as we may see from 
 
 D 
 
34 Tlie Recent Depression of Trade. 
 
 the following table of total exports, total imports^ 
 and of the difference between them : — 
 
 Exports. Imports. Balance. 
 
 Millions of Millions of Millions of 
 
 £ £ £ 
 
 ^8/2 314 354 40 
 
 1873 311 37^ 60 
 
 1874 297 370 72 
 
 1875 281 374 92 
 
 1876 256 375 118 
 
 ^877 252 394 142 
 
 1878 245 368 T23 
 
 Thus, during five years from 1872 to 1877 the 
 balance against us rose from 40 millions to 142 mil- 
 lions. In 1878 the tide turned, and the balance 
 against us was considerably lessened, the imports 
 having fallen off much more than the exports. 
 
 Now, it is natural and right that there should 
 be a balance against us. We arc the richest 
 people in the world, and have invested our surplus 
 capital abroad, both in public and private loans and 
 in private undertakings, especially railways. Besides 
 this there is a large number of Englishmen who 
 are making money abroad, in India or in the 
 colonies, who send remittances to their relatives 
 in England,"*' or who come home to spend the 
 
 * The amount remitted home from the United Slates and Canada in 
 187S is stated at ^784,067. This return, however, does not profess to 
 be complete. — " Statistical Tables relating to Emigration and Immi- 
 gration in 1S78." 
 
W/iat is tJie Depression of Trade ? 35 
 
 fortunes which they have earned at the Antipodes ; 
 and our merchants do a hirgc carrying trade 
 for foreign countries, which in no way swells our 
 own trade returns, but which is necessarily paid 
 for in imports without corresponding exports. In 
 all these ways we have an immense tribute con- 
 tinually coming in to us from abroad which must be 
 sent to us in goods ; at least the balance between 
 what is thus due to us and the fresh capital which 
 we lend out must ultimately come in that form. 
 
 There is another circumstance which makes the 
 balance against us appear rather larger than it 
 really is. The values given in our trade returns 
 are estimated in England ; so that, in the case of 
 imports carriage is counted — with the exports it 
 is not. Hence the " balance" is not struck fairly. 
 
 These considerations show why the balance of 
 trade is normally and constantly " against" us, 
 but they do not explain why it increased so 
 largely during the earlier years of the depression. 
 It is certain that foreign countries have not been 
 sending us their produce for nothing, and yet we 
 have not fully paid them in goods. Nor has the 
 balance been set right in gold and silver. In these 
 metals, as in other merchandise, there has been a 
 considerable balance against us,^ which has to be 
 
 * In our use of the word "against" of the balance in precious metals, 
 we are speaking after the analogy — but by no means in the spirit — of 
 the " commercial system.'' 
 
 D 2 
 
^6 TJie Recent Depression of Trade. 
 
 added to that arising from ordinary trade. In each 
 of the last six years our imports of gold and silver 
 have considerably exceeded our exports except in 
 1877^ when the exports were rather the greater. 
 
 From 1873 to 1878 we have imported gold and 
 silver in excess of our exports to the aggregate 
 value of 28^ millions — that is to say^ on an average 
 of 4f millions a year. These figures ought to bring 
 much comfort to those who believe that the wealth 
 of a nation consists in its gold and silver. To those 
 who know that these are only two out of many 
 objects of trade, and that every country is sure to 
 import as much of them as it has need for, the 
 above figures will be of interest onlv as a confirma- 
 tion of their previous conviction. 
 
 Nor have we redressed the balance by run- 
 ning into debt ; the debts owed by England to 
 foreigners are insignificant when compared with 
 those which are owed to us. But we have, for 
 the most part, ceased to lend abroad, partly 
 because we have found that many of our debtors 
 are utterly untrustworthy (and certainly no one 
 can regret that we have ceased to lavish our 
 wealth upon Turkey and Paraguay, upon Egypt 
 and Ecuador), partly also because our capitalists 
 have so little to lend. jMoreover, the contrary 
 process has for the time set iu. We have been 
 calling in our old debts because the capitalist has 
 
What is the Depression oj Trade ? 37 
 
 been losing heavily aud has been obliged to sell 
 out securities. The working mau who has gained 
 so much of what the capitalist lost, did not care for 
 the securities, but preferred to spend them on 
 meat and corn and beer. Hence we have bought 
 cargoes of provisions from America and have paid 
 for them in railway shares and government stocks. 
 If the working classes had been losing like their 
 employers we should have had no occasion for the 
 foreign goods. 
 
 The fact that the imports last year greatly fell 
 off as well as the exports, and that the balance of 
 trade against us was thus diminished, was cold 
 comfort in our distress. It was not a sign that we 
 were saving more, only that we had less to spend. 
 The capitalist was losing more heavily than ever, 
 and the workman was no longer gaining all that 
 the capitalist lost. 
 
 So far we have considered the effects of a depres- 
 sion of trade on capital and labour respectively. It 
 is well to remark before concluding this chapter 
 that there is a large minority of the nation who 
 gain greatly and obviously by depressed trade and 
 low prices. These are all those whose income is 
 fixed in money, whether they belong to any branch 
 of the Queen^s service, or hold some other office of 
 which the remuneration is invariable, or draw their 
 income from fixed investments, such as government 
 
38 The Recent Depression of Trade. 
 
 stocksj mortgages, preference shares, and the like, or 
 enjoy fixed annuities of any other kind, such as 
 pensions or charges upon estates. To all such persons 
 (and amongst their number are many who deserve 
 our deepest sympathy, the widow, the orphan, the 
 helpless) brisk trade and a rise in prices are an un- 
 mixed evil. 
 
CHAPTER III. 
 
 THE CAUSES WHICH GAVE RISE TO THE DEPRESSION 
 
 AT HOME. 
 
 ^PHE causes of the depression of trade in 
 -^ England naturally fall under two great 
 heads. 
 
 The whole world was impoverished by consum- 
 ing too much and producing too little, and could 
 not afford to buy our iron and cotton. If we sur- 
 vey the nations of the world we shall find that 
 they have almost all, in one way or another, been 
 consuming more than they have been producing, 
 and this with nations no less than with indi- 
 vidual men is the certain road to poverty and 
 ruin. 
 
 But it is also true that various causes have 
 combined to diminish the share of the world's work 
 which we do, and to make it less than that for 
 which Ave have provided the factories and the 
 furnaces. 
 
 It will be convenient first to consider why we 
 suffered more than our neighbours from the general 
 
40 The Recent Depression of Trade. 
 
 impoverishment of the world, and then to consider 
 the causes which led to that impoverishment. 
 
 The export trade of many other nations has 
 fallen off, but in most cases to a less extent 
 than ours ; whilst that of Russia, the United 
 States, and Germany, shows a considerable de- 
 velopment.* 
 
 There are several causes which we mav assign for 
 the fact that England has lost more of the world's 
 custom than her neighbours. In the first place, 
 during the period of prosperity her trade and 
 manufactures were inflated to a thoroughly abnor- 
 mal extent. The main causes of this excessive 
 inflation I will try to enumerate. 
 
 J. The Franco-German War. 
 
 It is clear that the enormous armies brought into 
 the field on both sides were not only a great direct 
 loss to the industry of their own countries, but 
 were also consumers of jn'oduce on a large scale ; 
 so that at the very moment when their consumption 
 
 * The exports from Kussia iu 1877 had increased 52-7 per cent, 
 since the years 1872 and 1S73. Those of the United States had in- 
 creased 56'6 per cent, in 187S. The values of the German exports are 
 not given, Init from the almost universal increase in the quantities, 
 there can be no doubt that the total value has also increased. The 
 British exports of home produce in the same periods fell otf 22'2 and 
 24"5 per cent, respectively. With respect to Germany we must remem- 
 ber that in the years 1872 and 1873 she was recovering from 
 the effects of the war with France, which, economically spe;ikiug, was 
 not less disastrous to her than to her adversary. 
 
The Depression at Home. 4 1 
 
 was largest their powers of production were 
 paralyzed. The ultimate result was that the 
 nations concerned were greatly impoverished and 
 have become bad customers to us ; but for the 
 moment our industry and commerce were power- 
 fully stimulated. 
 
 2. We have already alluded to the railway mania 
 which seized upon the United States after the civil 
 war had been brought to a close. The whole nation 
 seemed to be engaged in making railways and in 
 making their fortune. In eight years (from 
 January i, 1865, to January i, 1873) the American 
 railway system was doubled in mileage. It had 
 increased from 35,000 miles to upwards of 70,000.* 
 In the course of four consecutive years (1869- 
 1872) 24,305 miles of railway were opened — 
 that is to say, an average of over 6oco miles a 
 year. For a considerable time America was spend- 
 ing over 100 millions every year upon railways. 
 
 The speculative tendencies of the Americans 
 which doubtless were strong enough already were 
 fanned to a flame by unwise legislation which 
 set a premium upon premature railway making, 
 in the form of land grants conditional on the 
 lines being opened by specified dates. Hence there 
 arose an extraordinary inflation, as in England, 
 
 * Poor's ' ' Auiericau Railway Mauual." 
 
42 TJie Recent Depression of Trade. 
 
 followed by a panic and extraordinary depression. 
 This result was natural. The Avhole nation had 
 been devoting its energies and its wealth (and 
 much of our wealth too) to the making of rail- 
 roads through the desert which, though in time 
 they will be very useful, cannot repay their 
 cost for many years. A popidation must first 
 grow vip around them. In the meanwhile 
 they have impoverished the nation as effectually as 
 if it had sjieut its millions in the erection of 
 pyramids. 
 
 England, of course, shared largely in this hollow 
 prosperity. There was an immense demand for 
 English capital and English iron which stimulated 
 speculation and sent iron and coal up to famine 
 ])rices, and which acted at the same time powerfully, 
 though less directly, upon other branches of trade. 
 At that time it w^as America who was buying from 
 us and paying her balance in railway shares. But 
 it soon became evident that many of the railways 
 were not wanted and that the shares were nearly 
 worthless. The dividends shrank away to nothing, 
 and some of the companies became bankrupt. The 
 same thing took place on a smaller scale in 
 Russia, Austria, and other countries. Between 
 1865 and 1874 the railway mileage in Russia was 
 multiplied nearly five-fold ; in 1865 there were 2371 
 miles of railway, and in 1874 there were 11,556, 
 
TJic Depression at Home. 43 
 
 showing an average railway construction of over 
 1000 miles a year sustained for nine years, which 
 is a much more rapid development than was prudent 
 for so poor a country as Russia. Of course at that 
 time she was an excellent customer for our irou^ 
 and helped to swell our prosperity. It is evident 
 that we may soon see a repetition of the same 
 course of events. There is hardly a country in 
 the world which is not at present contemplating 
 additions to its railway system on a large scale. 
 If only a small part of the schemes which are 
 proposed for the next few years are carried out 
 we shall certainly see a repetition of the inflation 
 of 1873 and 1873, followed by a repetition of the 
 depression which succeeded it. We may however 
 hope that there will not again be so alarming a 
 complication of diseases preying upon the social 
 economy of the whole world. But at this moment 
 the air is full of rumours of wars, and whether or 
 not a great European war come to complete the 
 parallel with the earliest year of the last decade, it 
 is certain that the ever-increasing armaments of 
 the continental nations are a most formidable 
 impediment to healthy trade. 
 
 3. Immense sums were lavished in loans to foreign 
 States. It seemed that no country could be too 
 insignificant^ or too unprincipled, or too insolvent 
 to draw its millions from the pocket of the con- 
 
44 TJie Recent Depression of Trade. 
 
 Ming British investor. Lord Derby^ expressed his 
 wonder that the King of Dahomey had never raised 
 a loan, " but prcbably he was too much of a savage 
 to see the advantage of being in debt." It has 
 been estimated thatf " English capitalists have 
 lent more than three hundred millions sterling to 
 States that will never pay them a shilling." 
 
 The results of this free-handed lending are at 
 first very pleasant. It affords an outlet for capital 
 and so helps to raise the rate of profit and interest 
 in England ; and at the same time^ since we send 
 out our loans, not in gold, but in ironclads and 
 in railwav bars, it stimulates the home manu- 
 factures. The creditors for a year or two are paid 
 a high interest which all comes out of their own 
 pockets. Soon there is a crash, and the payment 
 of interest and the demand for railway bars cease 
 
 simultaneously.^ The following States are more 
 or less defaulters ; many of them have paid no 
 
 dividend at all for several years : — Turkey, Egypt, 
 
 Greece, Bolivia, Costa Rica, Ecuador, Honduras, 
 
 * Speech at Eoclidale, Jan. 2, 1879. 
 
 t Quoted by L( rd Derby at llocbdale. 
 X We may cite the case of Paraguay as a typical instance of the 
 process here described. In 1861 and 1872 she contracted two foreign 
 loans of the nominal amount together of three millions at a rate of 
 interest equivalent to ten per cent. Payment both of interest and of 
 sinking fund ceased in 1874. "No part of the previous payments," 
 according to the lleport of the Select Parliamentary Committee on 
 I'oreigu Loaus, 1875, " was provided by the (iovciumcut of Paraguay, 
 
TJic Depression at Home. 45 
 
 Mexico^ Paraguay, Peru, St. Domingo, Uruguay, 
 and Venezuela. 
 
 Of course these great loans helped to keep the 
 balance of trade comparatively low, and " practical 
 men'^ had the delight of seeing that we were sending 
 our iron abroad, and getting nothing in return but 
 the lOU of a bankrupt spendthrift ! 
 
 4. The Suez Canal was opened on I^'ov. I7tli, 
 1869, and about the same time the telegraph system 
 of the world was becoming fairly complete. These 
 undertakings, or at any rate the latter, helped 
 directly to swell the inflation of our trade, but by 
 far their most important effects were indirect. They 
 revolutionized the commerce of the world, and 
 caused it to be carried on in a very different man- 
 ner from that of the old days. Now it is a race in 
 which time is everything. It is said, for instance, 
 that in a certain Exchange the desks nearest to the 
 Telegraph Office fetch a much higher rent than 
 those at a distance — such is the pecuniary value of 
 a few yards start in a race thither. 
 
 Thus, there arose a demand for a new class of 
 
 but the whole was derived from the proceeds of the loans themselves." 
 — " Statesman's Year Book," 1879. 
 
 Spain is an old defaulter : her debt, according to a certain 
 high authority is divided into three classes. 1st, the active, which 
 engages to pay interest now, and doesn't; 2nd, the deferred, which 
 engages to pay interest at some future time (date unspecified), and 
 won't ; 3rd, the passive, which engages to pay interest neither now 
 nor at any future time, and keeps its engagements strictly. 
 
46 The Rece7it Depression of Trade. 
 
 swift and powerful iron steam ships, which seemed 
 to be rapidly superseding the sailing vessels in which 
 our trade was formerly carried on. The chanjje in 
 this respect was very marked. In 1863, 574 steam 
 vessels were employed in our foreign trade, with an 
 aggregate tonnage of 371,201. The numbers and 
 the tonnage have both been rapidly growing with 
 hardly any break since that time ; and in 1878 they 
 stood at 1820 and 1,811,024 respectively. The 
 fleet of sailing vessels could not in the nature of 
 things decrease as rapidly as the steam ships could 
 increase, but the diminution was very marked. 
 The number of ships employed was at its maximum 
 in 1853, when it stood at 8120; whilst at the end 
 of 1878 it had diminished to 5235. The tonnage 
 reached its maximum, i.e., 3,646,150 in 1868 ; in 
 1874 it had fallen to 3,092,730, but since that year 
 it has somewhat increased again. 
 
 One effect of this revolution in the course of 
 trade was to give a great impetus to the trade in 
 iron ships, and to others connected with it. 
 
 These seem to have been the chief primary 
 causes that gave rise to the great inflation of trade 
 which marked the earlier years of this decade in 
 England ; but we must not forget that secondary 
 causes are excited by the primary, and are perhaps 
 even stronger than those which gave them birth. 
 In the most powerful modern electrical machines the 
 
TJie Depression at Home. 47 
 
 current is at first generated by means of a piece of 
 soft iron, which retains only faint traces of mag- 
 netism. But these traces are sufficient when 
 the machine is set in motion by an engine to pro- 
 duce a slight current ; tliis current itself makes the 
 feeble magnet an electro-magnet^ and the electro- 
 magnetism reinforces the current. Thus current 
 and magnet act and react on one another till both 
 are of the utmost intensity. Just so is it with the 
 causes of a commercial inflation ; they act and re- 
 act on one another till it has reached a pitch quite 
 incommensurate with the original causes. 
 
 When any trade is in a state of abnormal 
 activity, it seems to every one easy to make a 
 fortune ; prices are forced up, and there is a ready 
 market for any quantity of produce. Every one is 
 eager to extend his business. New mines are 
 opened, new furnaces put in blast, new factories 
 are built, new railways have to be made. In all 
 these ways great quantities of wealth are spent in 
 permanent works, and all the trades concerned are 
 set in active motion, and in their turn communicate 
 the excitement to yet others, or react on the first 
 and increase their activity. Nor is this all ; every- 
 body seems to be better off than before ; in some 
 cases — that is to say, in the particular trades which 
 are most inflated — they really are so. The result is a 
 general spirit of reckless and extravagant expendi- 
 
48 The Recent Depression of Trade. 
 
 ture on the part of all concerned, from capitalist to 
 workman. The following description was written 
 shortly after the inflation subsided : — '^ The rapid 
 rise of prices and wages threw large systems of 
 production entirely off their balance. More ex- 
 penditure and less w^ork took the place of frugality 
 and diligence^ and the acquisition of riches seemed 
 to have become all at once so easy that the old 
 virtues of diligence, skill, and patience could be 
 laid aside both by men and masters.^' Thus the 
 increased expenditure and inflated production spread 
 itself more and more widely, and infected every 
 industry. 
 
 Moreover, an inflation of legitimate trade such 
 as we have described is generally accompanied 
 by a horrible mushroom growth of a kind of trade, 
 which at its best is gambling, and at its worst 
 swindling. The commercial world is now so large, 
 and the system of trading on credit so developed, 
 that it was very easy to borrow money, and not 
 always easy even for the honest and careful banker 
 or bill-broker to distinguish between genuine and 
 rotten bills. Hence there was a strong temptation 
 to indulge in speculative ventures on the principle 
 of " Heads, I win ; tails, you lose,^' and much wild 
 and unprofitable business was done. Some trading 
 was not even intended to be profitable, but was 
 directed solelv to the floating of bills. One dealer 
 
The Depression at Home. 49 
 
 is said to liave made a habit of buying iron and 
 selling again at 55. a ton below cost price ! This 
 system was carried out on a gigantic scale by 
 Messrs. Collcy, avIio lived sumptuously for years 
 upon borrowed money, and finally failed for several 
 millions. Such dishonesty has been too often 
 winked at by traders of repute Avho have found 
 that dealing with reckless customers like these, if 
 carried on with judgment, may be a profitable 
 though dangerous method of gambling. 
 
 It is a lamentable feature in our economical 
 system, tliat what we may call the natural 
 relations of debtor and creditor are sometimes 
 completely inverted, provided the debtor be bold 
 enough, skilful enough, and deeply enough in debt. 
 A debtor who owes a million can always extort 
 more from his unfortunate creditors by the un- 
 answerable threat of becoming bankrupt, and 
 bringing hopeless ruin upon them. This was in 
 brief the history of the City of Glasgow Bank, 
 of the West of England Bank, and of many other 
 failures. 
 
 Of course the rotten semblance of trade which 
 was merely designed to forward '^ financiaF^ opera- 
 tions added no less to the general excitement than 
 did commerce of a more genuine character. The 
 result was merely this, that we were enabled 
 to live in great jubilation for a year or two upon 
 
 £ 
 
50 The Recent Depression of Trade. 
 
 our own capital^ fancying all the while that we 
 were rapidly becoming rich. In truth we were 
 very rapidly becoming poor, as we may see from 
 the dismal reaction which followed. 
 
 Hence we mnst not be surprised if we, who 
 experienced a more marked inflation than our 
 neighbours, should also have had a greater share of 
 the reaction. 
 
 There are other reasons why we have lost more 
 of our custom of late vears than other countries. 
 One is that we are a great manufacturing nation, 
 and sell wares with which our neighbours if they 
 are in poverty can dispense more easily than they 
 can with the produce of agricultural countries. 
 People restrict their consumption of ironclads and 
 railway bars, or even of cotton, before they will go 
 without bread. 
 
 Besides, the very extent of our trade makes us 
 more liable than others to commercial misfortune ; 
 as M. Juglar remarks : " Les crises ne paraissent 
 que chez les peuples dout le commerce est tres 
 developpe. La oii il u'y a pas de division de travail, 
 pas de commerce exterieur, le commerce interieur 
 est plus sur/' Our dealings with foreign nations 
 are more extensive and more widely branching thaa 
 those of any other country. Hence there is no one 
 who sutlers so much as we from disturbance or 
 poverty in any part of the world. 
 
TJie Depression at Home. 5 1 
 
 The curious and interesting speculations which 
 Professor Jevons has brought into prominence, 
 as to the connection between commercial crises 
 and sun spots, or rather the variation in the 
 heating power of the sun of which sun spots are 
 probably a symptom, seem to suggest that our 
 general commercial prosperity is dependent to a 
 degree hardly suspected before upon the well-being 
 of India and China. However, the peculiarity of 
 the present depression is that many causes all over 
 the world have combined to anticipate and to 
 drown the effects of famine in the East. 
 
 One very satisfactory reason why the exports of 
 foreign nations have not fallen off as much as ours, 
 is that they all have us for their best customer, and 
 we, in spite of the general depression and impover- 
 ishment, have been able till lately to buy larger and 
 larger quantities of their goods. The exports of 
 France, for instance, to all countries except Great 
 Britain had, in 1877, fallen off 17 per cent, from 
 their value in 1873; but this was partly balanced 
 by the fact that the exports to Great Britain had 
 risen in value 15 per cent, in the same period. Of 
 course no one reaped more advantage from the fact 
 that the home market was not impoverished than 
 our own traders and manufacturers. But this busi- 
 ness did not swell the returns of foreign trade for 
 us as it did for our neighbours. We shall see that 
 
 E 2 
 
5 2 The Recent Depression of Trade. 
 
 this was a very substantial advantage to them from 
 tlie subjoined table^ which shows what percentage 
 of the exports of each of the principal nations of 
 
 the world comes to Great Britain : — 
 
 Exports in Percentage of 
 
 Millions of Exports to 
 
 £ Great Britain. 
 
 Eussia in Europe, 1877 8o| 29-2 
 
 Sweden, 1877 12 54'i 
 
 Holland, 1877 44 24-8 
 
 Belgium, 1878 44^ 224 
 
 France, 1878 127 287 
 
 Spain, 1875 ^S 34"9 
 
 Italy, 1878 ?,$ 9-7 
 
 United States, 1878 Uif 577 
 
 China, 1878 42-6 
 
 Unfortunately, the values of the German exports are 
 not given. The percentages are reckoned on the 
 exports of home produce wherever these are given 
 separately, for the latest year which is included in 
 the Statistical Abstract. 
 
 There has, no doubt, been a considerable develop- 
 ment of industry in several foreign countries, espe- 
 cially America, Germany, France and Belgium, 
 which has caused these countries to be worse 
 customers of ours than they used to be. This 
 is very un'pleasant for us ; but we have no 
 right to complain. They are following at a 
 great distance in our footsteps^ imitating the vast 
 development to which we attained years ago, when 
 
TJie Depression at Home. 5 3 
 
 we became the clothiers aud iron workers of the 
 whole world. We certainly have no inalienable 
 right to that position. We can only keep it by the 
 qualities which won it for us, by indefatigable hard 
 Avorkj by skill, perseverance, and above all by 
 good faith and harmonious working of masters and 
 men. 
 
 All these qualities are being undermined by the 
 spirit of trades-unionism — which is a spirit of 
 short-sighted selfishness. 
 
 I intend no offence to trades-unions ; the spirit 
 which I have ventured to call trades-unionism is not 
 an essential of the trades-union. Trades-unions 
 there may be and there are, which are conducted 
 in a thoroughly enlightened spirit, and which the 
 masters find a most useful instrument in dealing 
 with the mass of the workmen. 
 
 But too often their principles have been 
 opposed to the true manufacturing interest of the 
 country. They have acted as though the masters 
 and men had no interests in common, but were 
 natural enemies. Work is simply a contrivance 
 for getting wages out of the master without any 
 care either for its quantity or its quality. They 
 have not perceived that there is a wage fund, other 
 than that fancied by political economists ; that this 
 wage fund is simply the things produced, and that 
 it is the interest of master and man alike to 
 
54 The Recent Depression of Trade. 
 
 make this dividend as large as tliey can. AVhen 
 thev have done this they will have to decide some- 
 how, by fighting if they "will, how it is to be divided. 
 The good workman, the workman who made Eng- 
 land what it is, took a pride in good work and in 
 hard work. The modern workman, dominated by 
 the fear of his fellows, will not venture to put his 
 heart into his work. It is not etiquette to do more 
 than one i& obliged. 
 
 Nor is the spirit of trades-unionism-— of eye work 
 — confined to the men. It has infected the 
 masters also. We often hear of the decline of 
 English goods. It is probably not in any one 
 industry that the quality of our goods is falling 
 off"; Sheffield steel, for instance, has not the same 
 unsullied fame that it once had. There are such 
 things now as Sheftiekl razors made to sell and not 
 to cut. But the most consjiicuous example of 
 worthless and adulterated manufacture on a large 
 scale is to be found in our cotton goods. With 
 regard to some of these ]\Irs. Siddons might well 
 have asked her famous question, " But will they 
 WASH ?" in her most deeply tragic tones. In more 
 senses than one thev will not wash. We cannot 
 expect that foreign nations M'ill long consent to 
 !)uy from us cotton which has more size than 
 cotton in it. 
 
 Before quitting this subject wc may quote som 
 
TJic Depression at Home. 5 5 
 
 weighty sentences which occur in a sermon preached 
 by the Bishop of Manchester. The warning con- 
 tained in them comes with special force and appro- 
 priateness from the Bishop of that city which is the 
 great centre of the cotton trade, and one of the 
 greatest sinners against the laws of commercial 
 morality. He said,* " I do not dream foolish 
 dreams, but I feel that unless there is a radical 
 change iu our lives, in our motives, and in our con- 
 duct one towards another, the prosperity of this 
 country is doomed. If we are perpetually to have 
 strikes between capital and labour ; if we are to trade 
 as we have for ten or twelve years been trading upon 
 fictitious capital ; and if the whole surface of society 
 is to be undermined with rottenness and trickery, 
 so that men. hardly know whom to trust — if this is 
 to be the normal condition of our lives, I do not 
 see how society is to go on. It was once a great 
 puzzle — I will not say to a great statesman, but to 
 a great Englishman — how her Majssty's Govern- 
 ment was to be carried on, but it is a much more 
 important question hoAv society is to go on in the 
 present condition of things.^^ 
 
 Our commerce is no doubt largely injured by 
 protective tariffs. Our manufactures are handi- 
 
 * Sermon preached in the Cliapel of the Blind Asylum, Old Trafford , 
 J-an. 5, 1879. 
 
56 TJic Recent Depression of Trade. 
 
 capped in almost every country in the world by 
 the heavy duties which they have to pay. 
 
 More than thirty per cent, of the whole falling 
 oflF of our exports in 1878 as compared with 1873 
 was due to the decrease of our exports to America, 
 which fell to less than half their former value. 
 Now, the greater part of this diminution was, 
 as we have already stated, due to the iutense 
 depression which has prevailed in that country, but 
 it was also largely caused by the exorbitant protec- 
 tive duties levied. Indeed, it is a remarkable illus- 
 tration of the evil eft'ects of protection, that it 
 should so greatly raise the cost of production 
 in America, that we are able at all to compete with 
 her manufacturers in their own markets, and that 
 our exports thither have not been annihilated by 
 the tariff against which they have to contend. 
 
 We are more or less hampered by protection in 
 our access to almost all the markets of the world, 
 except those of most of our own dependencies ; 
 for though there is no other tariff so extravagantly 
 ])rohibitive as that of the United States, there 
 is hardly any foreign country which does not 
 exact duties that seriously interfere with our trade. 
 One or two even of our own colonies have intro- 
 duced a rigorous system of protection. 
 
 The greatest injury, however, that protection 
 inflicts upon us is indirect. The nations which 
 
The Depression at Home. 5 7 
 
 maintain it greatly impoverish themselves, and 
 tlius make themselves worse customers thau they 
 would otherwise be for our produce. If America 
 inflicts loss upon herself we must bear part of the 
 burden. 
 
 We may, however, console ourselves by the 
 thought that although the American tariff causes 
 great loss to us indirectly as well as directly, yet 
 at the same time it materially helps us by paralys- 
 ing her in her capacity of rival in third markets. 
 It is true that the American exports of manu- 
 factured goods have been growing somewhat, but 
 we have seen that this is an unhealthy and un- 
 profitable trade. The quantity of cotton goods 
 produced under the stimulating influence of pro- 
 tection had completely outstripped the require- 
 ments of the home market, and consequently it 
 had to be " slaughtered " abroad — that is to 
 say, disposed of at ruinously low prices. Any 
 remunerative competition on the part of American 
 manufacturers in third markets is an impossibility 
 under their present commercial policy. The 
 same thing holds good in a less degree of other 
 countries which have more moderate tarit^s. Pro 
 bably one reason why we have retained so 
 much of our manufacturing pre-eminence is that 
 other nations have chosen thus to weight themselves 
 in the struggle for third markets. Hence we need 
 
58 TJie Recent Depression of Trade. 
 
 not be too much disheartened by this perverse 
 policy. We cannot say whether any particular tariff 
 does us most harm or good, but in every ease it is 
 sure to be helping us in one market while it harms 
 us in another. Provided only we do our part 
 strenuously, we may trust that no foreign nation can 
 fatally injure us either by protection or by free trade. 
 There is another cause to Avhich too much im- 
 portance has often been ascribed by partisan 
 speakers and writers, but which no doubt contri- 
 buted somewhat to retard and smother any tendency 
 which there might be to returning prosperity in 
 trade. For several years there were perpetually 
 most serious apprehensions of a great European war. 
 It was believed by many that this imcertainty was 
 the principal cause of the protracted depression of 
 trade, and that if sccuritv could onlv be restored to 
 us trade would speedily revive. When the Treaty 
 of Berlin was signed, all immediate fear of an 
 European war passed away for a time, but trade did 
 not revive. On the contrary, the depression only 
 reached its cidminating point in the summer of 
 i(S79. It is true that the political horizon did not 
 become completely clear, that a cloud appeared in 
 Afghanistan Avhich quickly grew to very serious 
 proportions, and that we have been engaged in two 
 })etty wars, if, indeed, we ought to call wars petty 
 which so seriouslv strained our resources as these 
 
The Depression at Home. 59 
 
 have done. However, it would be absurd to 
 ascribe great influence to political troubles such as 
 these when the Treaty of Berlin did so little to 
 relieve trade. The truth is that the real causes of 
 our distress are deeper and more widespread 
 than anything of this kind. Our traders would be 
 active enough we may be sure if they saw any good 
 chance of making profits. It is not so much sound 
 trade as rash speculation which is checked by 
 political distrust. In this I refer to the direct 
 results of political uncertainty, not to those of 
 increased taxation, which no doubt has done us 
 serious injury. 
 
 The real and deep-seated cause of all our distress 
 is this, the whole world has been consuming 
 more than it has produced, and is consequently in 
 a state of impoverishment and cannot buy our 
 wares. It inevitably feels the pinch of that 
 fundamental law of political economy, '^ You can't 
 eat your cake and have it." 
 
 We have already touched on the principal cause 
 of English impoverishment, it is to be sought for 
 in the over-expenditure of the time of inflation. 
 If the wealth which was spent in the production of 
 manufacturing instruments which were not needed 
 had been thrown into the sea, it Avould hardly have 
 been more completely wasted. At least, in that 
 
6o The Recent Depression of Trade. 
 
 case, we should have been saved the grinding 
 misery of over-production. By over-production 
 we do not mean absolute over-production. Such 
 a thing as that is hardly possible in' this 
 world. We mean over-produclion of particular 
 goods. 
 
 We cannot feed upon iron bars, or clothe our- 
 selves with them ; lience, if we are producing 
 more of these than we can exchange for corn and 
 wool, and the like, there is certainly over- 
 production of iron bars ; but absolute over-produc- 
 tion there cannot be while the community has yet 
 many wants unsatisfied. 
 
 The spirit of reckless and speculative outlay 
 upon the instruments of production which would 
 not yield remunerative returns, together with tlie 
 excessive personal expenditure which it engendered, 
 did more than anything else, or at any rate 
 more than any act of our own, to undermine our 
 prosperity. 
 
 A large part of this expenditure was not merely 
 wasted, but Mas worse than wasted. Much of 
 that which the nation spends upon drink is not 
 merely a vast direct drain upon its resources, but 
 also docs mischief economical as well as moral 
 which is in amount incalculable, by sapping 
 energy and self-respect, by stimulating crime and 
 pauperism. 
 
TJic Depression at Home. 6i 
 
 Another deplorable feature of our social system 
 is to be seen in the strikes, of which there have 
 been so many unfortunate examples of late years. 
 It is hard to form an adequate conception of 
 the waste and loss which these have brought 
 upon us. 
 
 Strikes are the natural concomitant of a decline 
 in trade or even of a mere fall in prices. It is 
 natural that the labourers should resist the reduc- 
 tion of wages which these render inevitable, with 
 greater strenuousness than they will demand an 
 advance when it is their just due. Strikes im- 
 poverish the country not only by the suspension of 
 the branches of trade immediately involved, but 
 also ill many cases b}' disorganising and paralysing 
 other branches of industry. 
 
 The direct loss to both masters and men is 
 very great ; the masters have many fixed expenses, 
 such as rent, interest, taxes, depreciation of ma- 
 chinery, and the like, which they must meet as 
 much in times of idleness as in full work. 
 Their trade must, indeed, be bad if they do not lose 
 bv a strike. 
 
 To the meu loss and suffering are still more 
 inevitable, Whilst the strike continues they are 
 earning nothing ; and it seldom happens that they 
 gain their object » still more seldom is the gain 
 worth the price at which it has been bought. 
 
62 The Recent Depression of Trade. 
 
 The reason of this is simple. The masters will 
 not in most cases incur the risk of a strike except 
 under a strong necessity. They will make any 
 possible concession sooner than submit to the 
 total loss of earnings which it implies. It may, 
 indeed, under special circumstances be convenient 
 to them, but this is highly exceptional. Hence, as 
 the masters have so little choice in the matter, the 
 workmen are almost sure to be beaten. Yet it does 
 not follow that a strike should never be resorted to ; 
 only that more moderation and judgment should 
 be shown. There is a real and important opposition 
 of interest between employer and man, in spite 
 of all that the political economists tell us about the 
 '' wages fund." There is such a fund— that is to 
 say, the things produced — which must be divided 
 between master and man; and assuredly neither 
 party will get as much as they ought — that is to say, 
 as much as they can — unless they are prepared 
 to back up their claim if necessary by war. If 
 the fear of strikes is to be efficacious it must be 
 real. It is visionary to suppose that employers 
 would give as high wages as can be exacted 
 by the fear of a strike, if that fear were to be 
 removed. They will care little for a threat of 
 " mantraps and spring guns," unless the traps arc 
 set and the guns loaded. 
 
 Strikes, like war or capital punishment, ought to 
 
The Depression at Home. 6% 
 
 be preventive, and succeed only when they are not 
 called into play. When they are resorted to, they 
 have ipso facto failed. Thus, it is their real efficacy 
 which causes their apparent futility. The fear of 
 a strike prevents any employer from reducing wages 
 unless he is compelled to do so ; and then, strong 
 in the strength of the tutelary goddesses of the 
 Andrians,* he is sure to wiu. 
 
 Certainly, arbitration is the more excellent way 
 in trade disputes no less than in those of nations, 
 and in both arbitration has done great things, which 
 we may trust are earnest of yet greater. Thanks 
 to arbitration the coal fields and the iron works of 
 the north have till lately enjoyed peace through a 
 time of wearing depression, and in spite of many 
 reductions of wages. 
 
 But in truth, though arbitration may do much 
 to avert wars and strikes, it is hard to see how it 
 can ever completely supersede either the one or the 
 other. Unless the opposing parties are coerced by 
 some higher power, an appeal to force must always 
 be open to them, and it is hardly probable so long 
 as human nature remains what it is that these 
 wretched expedients will ever become wholly ob- 
 solete. 
 
 In a trade dispute the forces in action are, on 
 
 * " Poverty and Helplessness," vide Herodotus, vii. Iii, 
 
64 The Recent Depression of Trade. 
 
 the one side, the power to refuse to work, and on 
 the other, to refuse to employ. The rate of M'ages 
 must be fixed at a point of equilibrium -where the 
 men are willing to work and the masters to employ. 
 Arbiti'ation cannot supersede those forces, or intro- 
 duce some new principle by which wages are to be 
 adjusted. Its function is merely to discover this 
 point of equilibrium peaceably and economically ; 
 but the forces remain dormant, not inoperative. 
 
 We have already spoken of the ruinous foreign 
 loans to insolvent States which have so grievously im- 
 poverished this country, to the extent it is said of 
 300 millions, and also of the disastrous series of bad 
 harvests which have marked the last five years, the 
 loss on which is reckoned at over 20 millions an- 
 nually. These two causes must have done much 
 to undermine the wealth of the country. 
 
 Another cause of impoverishment to England, 
 less serious, than any we have yet mentioned, but 
 still considerable, is to be found in the rapid 
 increase of public expenditure and taxation which 
 has, by an unfortunate accident, precisely coin- 
 cided with the period of depression. During 
 the ten years from 1864 to 1873 inclusive, the 
 average annual expenditure was £69,304,063.* 
 
 * The increase of expenditure is not to be regarded as a real net 
 increase ; it is to some extent capable of satisfactory explanation. But 
 as our present inteutiou is neither to attack nor to defend the Govern- 
 
TJie Depression at Home. 65 
 
 This includes several extraordinary expenses — 
 viz., i65,6oO;000 for the Abyssinian expedition, 
 £760,000 for the New Zealand war, and £1,460,000 
 on account of the Franco-German war. We may 
 therefore fairly take the expenditure of the ten 
 previous years as our basis in reckoning the in- 
 creased expenditure to which we have been subject 
 during the depression of trade. 
 
 Now, the aggregate public expenditure dur- 
 ing the seven years from 1874 to 1880 has 
 been £557,568,834, giving a yearly average of 
 £79,652,690. The increase of average annual ex- 
 penditure is £10,348,684, and the increase in the 
 aggregate expenditure for the seven years over the 
 due amount for seven years as deduced from the 
 average of the ten previous years is £72,440,791. 
 
 The Chancellor of the Exchequer is by no means 
 to be envied the task on which he is at pi'esent en- 
 gaged, of providing for the heavy deficit which will 
 be produced by the combined effect of war expen- 
 diture in two continents and a revenue which was 
 originally calculated in a spirit at once too san- 
 
 inent, but simply to call attention to one among many causes of 
 impoverishment to the country, we have not thought it necessary to 
 enter into these points, but have given the amount of the "total gross 
 expenditure," just as it is set down in the Ofiicial Statistical Abstract. 
 I have chosen the years beginning with 1873-74 for my starting-point, 
 because in that year (which almost entirely fell under the administra- 
 tion of the late Goverument) the marked increase began. 
 
66 The Recent Depression of Trade. 
 
 guine aud too timid^ and which has of late shown an 
 unaccountai)le aud disconcerting shrinkage. 
 
 There can be no doubt that the taxation of this 
 country is a heavy burden on its trade and industry, 
 and that the increased expenditure has sensibly 
 added to this burden ; but I do not believe either 
 that the late depression of trade was mainly caused 
 by impoverishment at home or that the increased 
 taxation had so large a share as other causes in 
 producing that impoverishment. 
 
 It must be allowed that the Government them- 
 selves seem to lay more stress upon this cause than 
 I have done, since they declined to raise any of 
 the taxes for the past financial year in order to meet 
 their deficit. The Chancellor of the Exchequer 
 in his Budget speech said : " The present is not the 
 time in which additional taxation would be borne 
 without considerable distress. Now, considerable 
 distress does not mean merely a great amount of 
 complaint and grumbling ; but it means a diminu- 
 tion of spending power, which diminution of spend- 
 ing power necessarily aft'ects the trading com- 
 munity and the agricultural community, and tends 
 to keep down the condition of the country, which 
 we rather hope to be advancing and improv- 
 ing. For my own part 1 may say that unless 
 under a sense of necessity and absolute duty, I 
 should look with very great reluctance upon 
 
TJie Depression at Home. 6y 
 
 auy jjroposal to make a large addition to our 
 taxation/^ 
 
 The approaching Budget will be a severe test 
 of the courage and honesty of the Government. 
 They will have to face a heavy deficit on the past 
 year which ought to be provided for by a considerable 
 increase of taxation ; but it will be a wonderful 
 feat if they adequately reform their habit of shifty 
 finance on the very eve of a General Election, 
 
 F 2 
 
CHAPTER IV. 
 
 THE CAUSES WHICH GAVE RISE TO THE DEPRESSION. 
 
 2. ABROAD. 
 
 1 F we take a rapid survey of the various nations 
 of the world, we shall find that the same 
 cause has been at work among almost all of 
 them in many different shapes ; they have been 
 consuming too much and producing too little, and 
 have consequently come to a condition of poverty 
 and have nothing to spend on our wares. 
 
 Before considering the countries separately it 
 will be interesting to give some indication of the 
 degree in which each has contributed to the decrease 
 of our trade. 
 
 The following tables show the extent to which 
 our exports of home produce to each of the prin- 
 cipal countries of the world had fallen off in 1878 as 
 compared with 1873, and also the percentage which 
 each country contributed towards the total falling 
 off in that period which amounted to j€'6 2,3 15,689. 
 
The Depression A broad. 
 
 69 
 
 Foreign Countries. 
 
 liussia , . . . 
 Sweden and Norway 
 Denmark 
 
 Iceland and Danish 
 West Indies 
 Germany 
 Holland . . 
 Java, &c. . 
 Belgium 
 
 France .... 
 Portugal . . . 
 Spain . . 
 Italy . , . _. 
 Austrian Territories 
 Turkey .... 
 Egypt .... 
 United States . 
 Mexico .... 
 Central America . 
 Haiti & San Domingo 
 New Granada . 
 Venezuela . 
 Ecuador . . . 
 Brazil 
 Uruguay 
 Argentine Kepublic 
 
 Chili 
 
 Peru 
 
 China .... 
 Japan .... 
 Other foreign countries 
 
 Total, foreign countries 
 
 Exports 
 
 of British 
 
 and Irish 
 
 produoe in 
 
 1873. 
 
 (000 
 
 omitted.) 
 
 8,99s 
 5.031 
 
 3,023 
 
 27,270 
 
 16,745 
 
 760 
 
 7,201 
 
 17,292 
 2,934 
 3,736 
 7,444 
 1,484 
 
 7,733 
 6,222 
 
 33,574 
 1,194 
 
 4,583 
 
 7,544 
 5.491 
 
 3,165 
 
 2,524 
 4,882 
 1,680 
 8,519 
 
 Exports 
 
 of iiritish 
 
 and Irish 
 
 produce iu 
 
 1S78. 
 
 (000 
 
 omitted.) 
 
 i88,8-,6 
 
 6,559 
 2,798 
 
 1,764 
 
 19,457 
 9.303 
 I,b62 
 
 5.525 
 14,^25 
 2,116 
 3,21 1 
 5,364 
 763 
 7,748 
 2,194 
 
 14.552 
 773 
 
 2,770 
 
 5,578 
 
 3,31s 
 1,191 
 1,369 
 3,738 
 2,615 
 
 7,415 
 
 Decrease 
 
 or 
 Increase. 
 
 (000 
 omitted.) 
 
 -2,438 
 
 -2,232 
 
 -1,258 
 
 -7,813 
 
 -7,442 
 
 + 902 
 
 - 1,675 
 
 -2,467 
 -818 
 
 -525 
 
 - 2,080 
 
 -721 
 
 + 14 
 
 -4,029 
 
 - 19,022 
 
 -421 
 
 l,8l2 
 
 ■ 1,966 
 •2,175 
 
 ■ 1,974 
 •1,154 
 •1,144 
 
 + 935 
 -1,104 
 
 Decrease 
 
 or 
 Increase 
 per cent. 
 
 -27-3 
 -44'3 
 
 -41-6 
 
 -28-6 
 
 + 
 
 -44-4 
 ii8-6 
 -23-2 
 
 - I4'2 
 
 -27-8 
 -14 
 
 -27-9 
 -48-6 
 
 + 0-2 
 -647 
 
 -56-6 
 -35-1 
 
 -39"5 
 
 -26 
 -39-6 
 
 -62-3 
 
 -457 
 -23-4 
 
 + 557 
 - 129 
 
 Percentage 
 
 of 
 Decrease 
 
 or 
 
 Increase 
 
 on the total 
 
 Decrease. 
 
 -3-9 
 -3-6 
 
 -12-5 
 
 -119 
 
 + 1-4 
 -27 
 
 -4 
 -1-3 
 -0-8 
 
 -3"3 
 - 12 
 
 + 0-02 
 
 -6-5 
 
 -30-5 
 
 -07 
 
 -2-9 
 
 -31 
 
 -3-5 
 
 -31 
 -1-8 
 -1-8 
 + 1-5 
 -1-8 
 
 126,611 -62,224 -32"9 -99"85 
 
TJie Recent Depression of Trade. 
 
 British Possessions. 
 
 
 Exports 
 of British 
 and Irish 
 Produce in 
 
 1873- 
 
 (000 
 
 omitted.) 
 
 Exports 
 of British 
 and Irish 
 Produce in 
 
 1878. 
 
 (000 
 omitted.) 
 
 Decrease 
 
 or 
 Increase. 
 
 (000 
 omitted.) 
 
 Decrease 
 
 or 
 Increase 
 per cent. 
 
 1 
 Percentage, 
 
 of 
 Decrease 
 
 or 
 
 Increase 
 
 on the total] 
 
 Decrease. 
 
 Canada and New- ) 
 
 foundland . . \ 
 
 West liidia Islands 1 
 
 Biitish Guiana > 
 
 British Honduras ) 
 
 Australia and New ) 
 
 Zealand . . . ^ 
 
 British India . . 1 
 
 Ceylon . . . . ) 
 
 Straits Settlements | 
 
 ITong Kong. . . \ 
 
 British Possessions ) 
 
 in Afi-ica . . j 
 
 Other Possessions . . 
 
 8,619 
 
 3,481 
 
 17,610 
 
 22,406 
 5,517 
 
 5,037 
 3,656 
 
 6,436 
 2,760 
 
 19,573 
 
 24,080 
 
 4,646 
 
 5,785 
 2,954 
 
 -2,183 
 -721 
 
 + 1,963 
 
 + 1,674 
 
 -870 
 
 + 748 
 -702 
 
 -25-3 
 -207 
 
 + 10 
 
 + 7-4 
 
 -157 
 
 + 14-8 
 - 19-2 
 
 -3-5 
 -I'l 
 
 + 3-1 
 + 27 
 -1-4 
 
 + 1-2 
 -II 
 
 Total to British Pes- > 
 sessions . . . ) 
 
 66,328 
 
 66,237 
 
 -91 
 
 -014 
 
 -015 
 
 These tables present a lively aiid dismal picture 
 of almost universal destitution among our foreign 
 customers. It is, however, cheering to observe that 
 some of our own possessions are amongst the iso- 
 lated exceptions in the general gloom, and that on 
 the whole our exports to them have hardly fallen 
 off at all. 
 
 The main cause which has led to the impoverish- 
 ment of the nations of ]*]urope has been war and 
 the preparation for war. The total cost to France 
 of the war and foreign occupation of 1870-1873 are 
 reckoned at £371,515,280. This includes the in- 
 
TJie Depression A broad. 7 i 
 
 demnity of £200,000,000 to Germany, and may 
 therefore be regarded as a statement of the total 
 war expenses on both sides. But these figures. Large 
 as they are, do not express a tithe of the real price 
 that France and other nations have had to pay for 
 war ; they merely represent the disbursements from 
 the National treasuries for the expenses of one 
 actual war. They tell us nothing of the waste in- 
 volved to the country by the employment of great 
 bodies of men on unproductive work ; they tell 
 us nothing of the effect upon the industry of 
 the countrj^ of taking away its young men in 
 the prime of their youth, and forcing them to 
 spend several years in learning military exercises 
 instead of preparing themselves for their work in 
 life. Nor do these figures tell us of the perpetual 
 and almost unendurable pecuniary burden of the 
 peace establishments. 
 
 For though a modern war is a terrible calamity, 
 which causes a horrible drain of lives as well as 
 of wealth to the conquerors not less than to the con- 
 quered, yet it seldom lasts long, and consequently 
 does not inflict such deep injuries upon a country 
 as the unceasing burden of maintaining a whole 
 nation in arms. 
 
 The numbers of the armies maintained in time 
 of peace by the four great continental powers ex- 
 ceed two millions. But the number of the men 
 
72 TJie Recent Depression of Trade. 
 
 AvLo have passed through war trainings and who 
 might be called upon to serve in time of war, is 
 probably three times as great. 
 
 It is not to be wondered at that nations with 
 such a terrible canker as this, eating away their 
 prosperity, should be poor customers for our 
 goods. In our table, although Russia shows a great 
 decrease, Turkey shows a slight improvement ; but 
 the first effect of the deadly war in which they 
 were engaged was to paralyse the purchasing 
 powers of both. 
 
 We have already spoken of the evil effects at 
 home of over expenditure upon permanent instru- 
 ments of production. We may see the same thing 
 in a more marked shape in Germany as well 
 as in Austria and America. The manufactures of 
 Germany were largely and unhealthily stimulated 
 by the great influx of French gold, and an inflation 
 was produced similar in its nature and its re- 
 sults to that in England. Perhaps the main dif- 
 ference was that it was less profitable though not 
 less excessive than the English inflation. Hence 
 the collapse was all the severer. The following 
 description given by Mr. Brassey"^ of the state of 
 things in Germany is well worth quotation : — 
 
 " Every description of industrial enterprise was 
 
 * Nineteeiiih Century, May, 1879. 
 
TJic Depression Abroad. y^ 
 
 undertaken with rash precipitation, and on a vast 
 scale. The agricultural population gathered into 
 the great cities, causing a portentous rise in rents 
 and in the cost of living. The working classes 
 were dazzled by the sudden rise of wages : they lost 
 their self-control, and became self-indulgent and 
 extravagant. The landed and middle classes suf- 
 fered from the general increase of prices and the 
 cost of living, and they too sought for compen- 
 sation in wild and disastrous speculation. The 
 effects of the commercial mania which followed 
 upon the military triumphs in France have not yet 
 disappeared." 
 
 The magnitude of the German export trade is 
 neither a sign nor a cause of national prosperity ; 
 it is simply a sign of the stagnation and poverty of 
 the home market which, combined with the too 
 rapid development of the means of production, 
 caused a great and unprofitable overflow abroad. 
 Another witness writes of recent German trade, 
 that " it is of a very fitful, disorganised, and alto- 
 gether muddled kind, owing to the burst of insanity 
 which came over the German race after its suc- 
 cesses in the war with France.^^ 
 
 Precisely the same remarks apply to the case of 
 America, where the expansion of exports and the 
 contraction of imports alike are in great measure 
 due to the poverty and inelasticity of the home 
 
74 The Recent Depression of Trade. 
 
 market. Oue natural effect of protection under 
 the influence of the great speculative inflation, was 
 to cause an excessive construction of mills and 
 furnaces. When the home demand fell ofi", goods 
 had to be sent abroad and got rid of at any sacrifice. 
 
 We have already mentioned the extravagant 
 railway expenditure which has been so harmful to 
 Russia and Austria. 
 
 The various small States of Europe — Belgium, 
 Holland, Denmark, Norway, Sweden, Greece — have 
 not themselves had any special cause of impoverish- 
 ment ; but they have sufi'ered deeply from the 
 general collapse of trade, as we may plainly see by 
 reference to the table on p. 69. 
 
 We have not unnaturally heard much lately of 
 Belgian competition, for the Belgians have certainly 
 succeeded to some extent in entering into success- 
 ful competition with our manufacturers on their 
 own soil. We hear of Belgian iron used in the 
 very centre of the English and Scotch iron-fields, 
 whilst our glass makers have been thrown into 
 despair by the sale of Belgian glass at prices which 
 they are quite unable to rival. With regard to 
 their competition in iron, our iron-masters may 
 take some comfort from the small volume of Belgian 
 iron which is imported into England and other 
 countries, when compared with that which we pro- 
 duce. The damage done to our manufacturers by 
 
The Depression Abroad. 75 
 
 competition on so small a scale can not have been 
 great.* 
 
 With regard to glass, Belgian competition seems 
 to be more serious. We are being fairly beaten 
 by them in the production of cheap glass. The 
 total exports of glass from Belgium in 1878 were 
 valued at £ 1,582,520 of which £1,163,917 were 
 brought to Great Britian. The exports of British 
 glass in the same year were only valued at £755,884. 
 This successful competition in the manufacture of 
 glass appears to arise partly from a superiority of 
 manual dexterity and care on the part of Belgian 
 workmen and manufacturers, partly from the 
 absence of certain harassing trades-union rules. 
 It is not, however, a remunerative business ; ex- 
 cessive competition among Belgian glass works has 
 forced down prices to a rate which leaves no margin 
 for profits, and thus for the present they can under- 
 sell us in our own markets. Such at least is the 
 account brought back by certain members of a 
 leading English firm of glass makers, who were 
 lately sent to Belgium to examine the state of glass 
 making there. 
 
 If we look further East we find the most grievous 
 poverty arising from gross misgovernment as well 
 
 * The total exports of iron from Belgium in 1878 were 193,000 tons. 
 Her exports to England in the same year were 65,122 tons. The 
 quantity of British iron exported in 1878 was 2,296,860, and the total 
 quantity of pig-iron produced in that year was 6,381,051 tons. 
 
'j6 T/ie Rcccjit Depression of Trade. 
 
 as from natural causes. We need say little of 
 Turkey ; she has been ruined by misgovern- 
 meut^ and now the war has reduced her to such a 
 hopeless state of bankruptcy that it would be im- 
 possible for her to introduce eflFectual reforms if she 
 would. 
 
 The same remark applies to Egypt^ which is in 
 an impoverished state through the extravagant 
 expenditure and the cruel misgovernment and 
 rapacity of the late Khedive. Such a country as 
 this has no great resources for trade when it has 
 exhausted the credulity of foreign investors. Hence 
 our exports to Egypt have fallen off by more than 
 half since 1873. 
 
 India Avas one of the very few countries which 
 received more of our goods in 1877 and 1878 than 
 in 1873. But there can be no doubt that India is 
 in a dreadful state of poverty and over-taxation. 
 We maintain there an expensive Army and Civil 
 Service which, whether it be superfluous or not; is 
 certainly beyond the power of the people to sus- 
 tain without grinding over-taxation, and without 
 the help of one most iniquitous but most profitable 
 monopoly.* It is probable that the growth of our 
 exports to India is in some degree accounted for by 
 
 * The gross revenue derived from opium averaged during tlie ten 
 years, 1869 to 1878, more than 8^ millions sterling. 
 
The Depression Abroad. yj 
 
 the recent construction of great lines of railway 
 which have developed her internal commerce, opening 
 out new markets for our cotton goods. However, 
 when we take into account the poverty of the 
 country and the notoriously unprofitable condition 
 of the trade with it, we shall see reason to suspect 
 that the development is for the most part not of 
 this healthy kind, but like the development of 
 the imports from the United States and Germany, 
 the overflow of a glutted market, which must be 
 relieved somewhere at any sacrifice. 
 
 Our exports to China in 1878 show a considerable 
 diminution, which was mainly owing to tlie famine. 
 These famines or scarcities having recurred decen- 
 nially with great regularity are, as I have already 
 pointed out (on page 5 i ), regarded by Mr. Jevons 
 as the actuating cause of our regular decennial 
 crises. Now, at any rate, they have only con- 
 tributed their share to aggravate and prolong 
 mischief already done by many other causes. 
 
 The various South American and Central Ameri- 
 can States show a considerable decrease of trade. 
 Here the cause is mainly one which we have already 
 touched upon. Their former imports were in great 
 measure bought with borrowed money ; now their 
 credit is gone, and they have ceased to be our 
 customers. Nor is this a trade the loss of which 
 
78 TJie Recent Depression of Trade. 
 
 we need greatly regret, although the falling off is 
 very large in amount. 
 
 We have already mentioned the principal causes 
 which impoverished the United States, and 
 caused the decrease of her imports both from 
 Britain and from the rest of the world, so they 
 need not be dwelt upon here. They were 
 mainly extravagant railway expenditure, encouraged 
 as we have seen by unwise legislation, and 
 an excessive and wasteful expenditure on manu- 
 factures, which was artificially stimulated by 
 protection. 
 
 We see throughout the world one great cause 
 leading to the ruin of trade. Everywhere men 
 have been consuming more than they had to 
 consume — that is to say, more than they have pro- 
 duced ; in some cases because they have produced 
 too little, in others because they have consumed 
 too much. 
 
 There has been another class of causes at work 
 to which we can only assign second-rate importance, 
 but which has undoubtedly injured commerce to a 
 considerable extent, by turning it into gambling, 
 and by aggravating the financial difficulties of par- 
 ticular countries. 
 
 There have been serious derangements of the 
 currency in many countries. America, till last 
 
The Depression A broad. 79 
 
 year, had an inconvertible paper currency ; Russia 
 and Turkey have still a great excess of depre- 
 ciated notes. The inconvenience which this 
 brings upon commerce can hardly be exaggerated. 
 The fluctuations in value of an inconvertible paper 
 currency are violent and impossible to foresee. 
 Hence trade is carried on at a great disadvantage. 
 Merchants do not care for transactions in which by 
 some sudden movement of the rate of exchange a 
 profit may be unexpectedly converted into a heavy 
 loss, and in which really sound trade is an im- 
 j)ossibility. 
 
 This excessive issue of paper money is merely the 
 device of an impecunious government for forcibly 
 exacting a contribution from all creditors among its 
 Bubjects. It introduces disorganization and confu- 
 sion into all money dealings to a degree quite out 
 of proportion with the ill-gotten gains which are 
 rearped from the measure. 
 
 Another cause of distress which has affected 
 many countries of the world is similar to this, but 
 even more serious ; the depreciation of silver. For 
 some years silver has been very much below its old 
 value in relation to gold. Its present market price 
 is ^id., which, although somewhat higher than the 
 lowest point it reached, is still much below its old 
 price of 6o(/. 
 
So TJic Recent Depression of Trade. 
 
 The main causes of this depreciation seem to 
 have been the discovery of the immensely produc- 
 tive mines of Nevada, coupled with the demonetisa- 
 tion of silver by Germany, and the restriction of 
 its coinage by the Latin Union, a restriction which 
 is practically equivalent to its disuse. All the 
 richer nations of the world now use the gold 
 standard, and exact their debts in that metal. 
 
 Thus, the loss by exchange is a heavy bur- 
 den upon the finances of silver-using countries, such 
 as India, which have to make large foreign 
 payments. 
 
 Then the injury which the fluctuation in value 
 of silver does to the trade of these countries is im- 
 mense. It has all the effects of an inconvertible 
 paper currency in turning honest trade into specu- 
 lative gambling. Those who are most experienced 
 in Indian commerce will confess most readily 
 their inabilitv to foretell the value of the 
 rupee. Indeed, the matter is so complicated tliat I 
 have heard a broker of fifteen years' experience in 
 the East, express his belief that the exchanges do 
 not depend on any principle at all except the whim 
 of the bankers ! 
 
 Except with respect to old contracts it is the 
 fluctuation, not the permanent depreciation of a 
 currencv which harms a country, or the traders 
 
The Depression Abroad. 8i 
 
 who have dealings with it. Money is merely an 
 instrument of exchange and a measure of value ; 
 the one essential point is that it should be steady. 
 Prices adjust themselves in the long run to any 
 permanent change (though friction sometimes 
 makes the process very slow), but they cannot 
 adjust themselves to a currency which incessantly 
 varies by leaps and bounds. 
 
CHAPTER V. 
 
 KEMEDTES PROPOSED FOR THE DEPRESSION. 
 
 T HA.VE now completed my sketch of the principal 
 causes both at home and abroad which have 
 led to our distress, though my account professes to 
 be nothing more — especially in the case of foreign 
 countries — than the barest outline. We are now 
 in a position to consider a few of the principal 
 remedies which were proposed for the distress under 
 which we were labouring. 
 
 "We shall find plenty of these ready to our hand, 
 but we shall find that in too many instances they 
 are either out of our power to apply, or else if 
 applied would be futile. 
 
 In the first place we have from Lord Beacons- 
 field a piece of advice which, although, when it 
 Avas delivered, it sounded to many almost like 
 bitter mockery — yet undoubtedly it was the true 
 and wise solution to the difficulty. He told us 
 that we must rely upon the " alchemy of patience," 
 which would certaiulv bring a rcmcdv in time. 
 His words have proved true. It was only time and 
 patience which have been able to bring about a real 
 
Remedies Proposed for the Depression. S3 
 
 amelioration of the state of trade in this country, 
 and in the whole world. During the Aveary years 
 of waiting, although profits have everywhere seemed 
 so low, yet really the whole world has been consum- 
 ing less than it has produced, and so has gradually 
 recovered from its impoverishment, and prepared 
 itself for the new burst of railway making, inflated 
 trade, and inflated expenditure which is now coming 
 upon us. This process of enforced economy is a 
 far more powerful remedy than any which we or 
 any other nation can deliberately apply. 
 
 We have seen that the main causes of the 
 depression of trade are to be sought for abroad, 
 and we can do but little to relieve the foreign 
 distress which reacts so disastrously upon ourselves. 
 It is true that we have ascribed much influence to 
 economical and social faults at home. But the 
 remedy for these is in most cases moral, and under 
 the control of individuals, not of the nation. 
 
 For instance, it would do much towards the cure 
 of our distress if we became more honest in our 
 work and in our business habits. If our financiers 
 and merchants would give up practices which are 
 at best gambling, and at worst robbery ; if our 
 manufacturers would do their best to make 
 their goods good, and would not care so exclusively 
 for cheapness, without regard to quality ; if our 
 workmen would do more genuine work, and give 
 
 G 2 
 
84 TJie Recent Depression of Trade. 
 
 their first thought to doing their work well, and 
 their second to getting well paid for it, instead of 
 thinking only of the wages, and caring nothing 
 for the quality of the work — in a word, if the 
 world would become honest, we should soon tide 
 over our difficulties. Now all this, unfortunately, 
 sounds like a somewhat Utopian sermon delivered 
 urhi et orbi. The question how the city and the 
 world are to be induced to obey it is hopelessly 
 bewildering. Legislation may do something. By 
 improving the bankruptcy laws it may perhaps 
 make the game of " Heads, I win, tails, you lose," 
 somewhat more difficult and dangerous to play. 
 At present it would seem that no one can get more 
 comfortable or pleasant treatment than a fraudulent 
 bankrupt, provided only his deficit is on a large 
 enough scale. If a man steal several millions of 
 pounds, thereby ruining thousands of innocent 
 people, he will probably escape M'itli little or no 
 punishment. 
 
 Moreover, legislation has done something and 
 may perhaps do more to check dishonest and adul- 
 terated work : but it can do very little ; nor can 
 it do anything to make the work of workmen 
 more genuine and hearty. 
 
 Again, it would do perhaps more than anything 
 else to relieve the national distress, and in every 
 respect, moral as well as ph}sical and economical, to 
 
Remedies Proposed for the Depression. 85 
 
 raise the condition of the people if we could abolish 
 or alleviate that great national curse^ drunkenness^ 
 which more than anything else eats away the 
 wealth, the strength, and the moral character of 
 the nation. 
 
 A suggestion made by Mr. Forster deserves care- 
 ful consideration. It seems to be thought by many 
 that we have reduced our hours of labour beyond 
 what is needful. They are shorter than those 
 which some other nations find compatible with 
 health and strength. The Belgians, in particular, 
 work for hours which an English workman would 
 reckon impossible. It is obvious that if we shorten 
 our time of work unnecessarily, we are 'heavily 
 handicapping ourselves in the struggle with other 
 nations for manufacturing supremacy. 
 
 But we must remember that the amount of goods 
 produced, or of wages earned, is not the sole test 
 of the proper hours • of labour, but the real hap- 
 piness and comfort of the labourer. 
 
 If the hours are unduly lengthened he sacrifices 
 to his work everything that makes life worth hav- 
 insf. " A land overcrowded with a dense mass of 
 ill-fed, ill-clothed, and poorly-housed inhabitants is 
 surely a miserable spectacle. Modern Europe, 
 alas ! contains populations in whom it might almost 
 seem that the Mosaic prediction had been fulfilled. 
 ' In the morning thou shalt say would God it were 
 
86 The Recent Depression of Trade. 
 
 even, and at even thou shalt say would God it 
 were morning/ '^* - 
 
 On the other hand, if the hours are too short, we 
 shall inevitably lose our foreign custom, and the 
 cotton spinners must starve. In view of this 
 dilemma, Mr. Forster well suggested that the projjer 
 hours of labour should be determined by a mixed 
 body of masters and men. 
 
 In contrast with this demand for longer hours 
 and harder work, we may consider a contrary idea, 
 which has found much favour in some quarters, that 
 all our distress sprang from over-production, and 
 that the true remedy was restriction of output. 
 We were told that if all our mills and furnaces 
 worked half-time the painful glut of the market 
 would come to an end, and there would be a return 
 of remunerative prices. 
 
 It is true that our trouble sprang in a great 
 degree from over-production; but it does not 
 necessarily follow that restricted work was the 
 proper cure. In the first place, the over-production 
 was mainly a thing of the past, whose evil effects 
 w^ould have been aggravated, not alleviated by re- 
 striction. That wealth which we wasted on an 
 excessive stock of the instruments of production is 
 lost and gone ; nothing can repair the injury done 
 
 * Mr. Brassey in the Nineteenth Centxiry, May, 1879. 
 
Remedies Proposed for the Depression. ^J 
 
 then, unless we can find a market for all that 
 these instruments can produce. Now this we as- 
 suredly could not do by restricting the hours of 
 work. If we did so we should enhance the cost 
 of production to ourselves ; but we have too many 
 and too keen competitors abroad, who are them- 
 selves suflFering from a glut as severe as ours, for us 
 to expect that an enhancement of cost and a dimi- 
 nution of production in England would sensibly 
 raise prices throughout the world. It would merely 
 give our foreign rivals the opportunity for which 
 they long, of stepping into our place. 
 
 We could not, indeed, go on producing more 
 cotton goods and yarn than our neighbours would 
 buy from us ; but the cure had to be found, not in 
 working short time, which the masters felt in- 
 stinctively was an impossible solution of the problem, 
 but on the contrary in careful economy and con- 
 trivance, as well as in a process of weeding out the 
 least efficient and poorest mills, by a kind 
 of natural selection of the fittest and by the 
 failure of the least fit. This process was very 
 bitter, but it was the only remedy, or the least 
 ruinous remedy, for economical faults committed 
 long ago. 
 
 We have already touched upon the question of 
 strikes. Certainly the abolition of strikes, whether by 
 means of arbitration or in any other way, would be a 
 
88 The Recent Depression of Trade. 
 
 reform of the highest value, both socially and 
 economically. It is a reform which has already 
 in great measure been carried out, and which has 
 been very beneficial in its effects. But it is not 
 easy to believe that strikes will ever become wholly 
 obsolete. We shall probably always be liable to 
 occasional outbursts of temper or unreason, which 
 no arbitrator can appease. 
 
 We see that the time of a first revival of trade 
 is marked by many strikes as well as the period of 
 sinking trade. It is natural that when workmen's 
 wages are at the lowest ebb they should be im- 
 patient — no doubt sometimes too impatient — to reap 
 advantage from the first improvement. 
 
 Emigration will do much for us, not, indeed, by 
 clearing away our surplus population. Mai thus 
 showed long ago that it could do little in that 
 respect, and no doubt he was right, except in pecu- 
 liar cases, such as that of Ireland after the potato 
 famine. 
 
 As a rule it is those who go that reap the benefit, 
 whilst the pressure on those who remain behind is 
 not materially lessened, because the power of popu- 
 lation to increase is sufficient to fill up all ordinary 
 gaps. At the same time emigration will do much 
 to help the prosperity of the old country by opening 
 out great continents to be our markets. There is 
 
Remedies Proposed for the Depression. 89 
 
 a boundless field still left for British enterprise in 
 the wilds of Australia and Africa. 
 
 Agriculture as we saw is very depressed in this 
 country, and though this depression is in part due 
 to temporary causes, especially to an extraordinary 
 succession of bad harvests, it is also probably in 
 some measure permanent. 
 
 Ricardo pointed out that the rent of any par- 
 ticular land is regulated by the difference between 
 its net produce and that of the worst land which 
 it would be worth while to cultivate at all. 
 
 Although this theory is liable to misapprehen- 
 sion, and has been attacked by an eminent modern 
 economist, yet undoubtedly it is true in theory ; 
 that is to say, true under the hypothesis — so> 
 familiar to physicists — of a world without friction ; 
 whilst in practice it is a rough approximation to 
 the truth. 
 
 We must understand, of course, that the theory 
 does not imply that the land " on the margin of 
 cultivation^^ is a sort of standard to which landlord 
 and tenant refer with unanimous reverence when 
 haggling over the question of rent ; but that rents 
 will of their own accord, by virtue of the ordinary 
 laws of supply and demand, conform themselves 
 with a certain measure of accuracy to the value 
 which the theory assigns for them. 
 
90 TJie Recent Depressioji of Trade. 
 
 It is perhaps hardly necessary to add that when 
 ■we speak of the rent of land being regulated by its 
 " fertility/'' the word fertility is to be understood 
 in its widest sense, as including not only Avhat 
 is ordinarily called fertility, but every other ele- 
 ment which contributes to the total profits which 
 the land brings in to the farmer. Of these 
 elements one of the most important is the distance 
 from the market. 
 
 America has been practically brought nearer 
 to us by her railways and by the cheapening of 
 steam navigation as well as by improvements in the 
 methods of carrying meat. Indeed, it would 
 seem that within the last few months Australia 
 has been brought within the circle of countries 
 competing to supply the English meat market. 
 Thus the margin between the better land and the 
 worst that can profitably supply our markets has 
 been reduced. If this be so the necessary remedy 
 is evident. Farming having become unprofitable, 
 rents must and will fall. The wisest landlord will be 
 the first to recognise this and to avoid the loss of 
 tenantless farms. 
 
 We have seen the incalculable mischief that is in- 
 flicted on us and on all the world by war and the 
 preparation for war. Far the greater part of the 
 money raised by taxation throughout the world is 
 
Remedies Proposed for the Depression. 91 
 
 spent either in providing for future wars or in 
 paying for those that are past. 
 
 We cannot do much towards getting rid of this 
 terrible incubus. Happily we are extraordinarily 
 fortunate in having hardly any frontier line in all 
 our vast empire, except where we border on bar- 
 barous tribes, and there our frontier is now 
 thoroughly " scientific^^ ! In the one important 
 exception to this there is not the least apprehension 
 of war. 
 
 Hence we are enabled to avoid the terrible drain 
 upon our resources which would be occasioned by 
 an overgrown standing army raised by conscription. 
 We have, however, a special burden in our navy. 
 
 Neither we nor any other single nation can 
 afford materially to reduce our armaments, in the 
 midst of wars and rumours of wars, and whilst all 
 our neighbours are armed to the teeth and bent 
 upon increasing their armaments. But certainly 
 it is the manifest duty and the dearest concern of 
 this and of every other nation to do our utmost to 
 preserve peace and security. For nations no less 
 than for individuals the saying holds good, " Blessed 
 are the peacemakers." 
 
 "VVe as a nation have often thrown great weight 
 into the cause of peace. We set a noble example 
 of loyal submission to the verdict of arbitration 
 
92 The Recent Depression of Trade. 
 
 under trying circumstances, and in spite of a sus- 
 picion of hardship in the decision. 
 
 But it is a very serious question whether of late 
 years our policy has been peaceful — whether we have 
 not by our selfish jealousy and our selfish fears 
 acted as a disturbing element which has rendered 
 peace difficult or impossible all over the world. If 
 there be any truth in this indictment our national 
 responsibility is indeed heavy, and we should do 
 much to alleviate the sufferings of the whole world 
 by pursuing a quieter and less aggressive course. 
 
 A year ago the word " reciprocity^' was often 
 heard, to express a highly fashionable nostrum for 
 our distress. But we do not so often hear of it 
 now ; most probably because the thing signified was 
 so indefinite and unsubstantial, and that when its 
 advocates attempted accurately to formulate their 
 meaning they found the task an impossibility. 
 Reciprocity merely meant protection justified as a 
 retaliatory measure. jNEost Englishmen profess to 
 be adherents of Free Trade, but too often they 
 have a narrow and mercenarv view of its advan- 
 tages. They think that Free Trade is a gain to the 
 nation that sells and a loss to the nation that buys. 
 Universal Free Trade would no doubt be good for 
 us, but the present system of free trade in imports, 
 and heavy taxes on our exports, is, they think, a 
 pure loss. 
 
Remedies Proposed for the Depression. 93 
 
 This is the fundamental fallacy which underlies 
 all protectionist systems. Men do not see that im- 
 port trade is a source of wealth no less than export 
 trade, and that an import duty does more harm to 
 the nation which levies it than to tliat on whose 
 merchandise it is levied. It is of no use for us to say 
 that " half a loaf is better than no bread" to men 
 who believe that the half which we keep is a 
 negative quantity, and that the half which is taken 
 from us is the only good part of the bread. 
 
 Attention was called to the matter in the House 
 of Lords last year, and it there found several ad- 
 vocates; but far the most important speech of the 
 evening was Lord Beaconsfield^s. His speech was 
 not that of a thorough going Free Trader. On the 
 contrary, he displayed a certain hankering after 
 Protection: but he made it abundantlv clear that in 
 his opinion at least Free Trade is for this country 
 a fixed policy which will never be ciianged. " Reci- 
 procity^^ he dismissed as an idle " phantom" to which 
 definite form cannot be given by its most ardent 
 supporters. We need not therefore at present 
 argue the question of Reciprocity at any length. It 
 is a simple and sufficient answer to say that we 
 have nothing to tax which would put serious 
 pressure upon foreign nations. Far the greater 
 part of our imports from abroad are food and raw 
 materials. If we tax these we may certainly harm 
 
94 The Recent Depression of Trade. 
 
 the countries which send them, but we should do 
 much more serious harm to ourselves, whom we 
 should necessarily exclude from foreign markets, and 
 that, as we have seen, would be misery and death 
 to us. 
 
 If we protect manufactured goods only, the con- 
 sequences would be less serious, since the imports 
 of these are not considerable in amount. But, for 
 this very reason, our action would be futile, 
 whilst it would be a cruel injustice to the agri- 
 cultural classes, whose industry would be the onlv 
 one unprotected, as well as to consumers in general. 
 
 The advocates of Reciprocity do not for the most 
 part attempt to put their demands into definite 
 shape ; but when they do, the absurdity and con- 
 fusion of thought involved becomes glaringly ap- 
 parent. The clearest proposal I have met with is 
 contained in an Article by Mr. Wallace, the eminent 
 naturalist, in the Contemporary Review for March, 
 1879. He proposes that whatever tax any foreign 
 country lays upon our goods, we should lay precisely 
 the same on the imports of the " very same" goods 
 from them. By this simple jirocess of retaliation 
 he seems to think that in some mysterious manner 
 we should annihilate the effects of Protection, and 
 [)ut ourselves on the same footing as though there 
 were no tariffs at all. 
 
 It does not occur to him that we do not export 
 
Remedies Proposed for the Depression. 95 
 
 aud import the "very same" goods from and to the 
 various countries, in whatever sense we are to 
 understand the ambiguous words " very same." He 
 does not explain what good it will do us if we can 
 induce France to admit our wine free of duty, or if 
 America shows herself equally generovis in regard 
 to British corn. 
 
 Such a system would certainly injure the few 
 countries, such as Belgium, which really send us 
 the same kinds of manufactured goods as we send 
 them. But in most cases it would be wholly in- 
 operative. 
 
 It is madness to expect to force Free Trade upon 
 our neighbours by giving it up ourselves. If we 
 were to recede from our old policy it would be re- 
 garded by every nation of the world as a confession 
 that we, the pioneers of Free Trade, had discovered 
 that it was a mistake : and certainlv those who 
 have been so slow to learn from our example would 
 be still slower to learn from our apostasy. 
 
 Although we have no power to counterbalance 
 the duties levied upon our exports, we could if we 
 would, put an end to another violation of the prin- 
 ciples of Free Trade, by a course of action which 
 depends on our own will. 
 
 The trades of sugar growing and sugar refining 
 are being ruined in England, not only by foreign 
 duties, but also by foreign bounties which enable. 
 
g6 The Recent Depression of Trade. 
 
 our rivals to sell their sugar in England below the 
 cost of production, indemnifying themselves at the 
 expense of their own tax-payers. 
 
 There is no doubt that in so doing they are 
 making a present to the English consumer ; but it 
 is a present of no great value to him, whilst it is 
 fatal to a thoroughly legitimate British industry, 
 and it is given at the expense of the foreign tax- 
 payers, as well as at the cost of much absolute 
 waste. 
 
 With such a present "we can afford to dispense ; 
 at any rate, a succession of Governments have 
 shown this to be their opinion, by the frequent 
 remonstrances which they have addressed to foreign 
 Governments on the subject. 
 
 If "we could impose on foreign sugar a duty 
 exactly equivalent to the bounty it has received 
 abroad, we should simply annihilate the effects of 
 the bounty and restore a sort of virtual Free Trade. 
 The foreign Government would be making a present 
 to the English Government instead of to the 
 English consumer. But no doubt they would soon 
 cease to confer a bounty which Avould do no good 
 to any of their own subjects. 
 
 This course of imposing a duty to countervail a 
 foreign bounty on the verij same article would bear 
 only a most superficial resemblance to that of im- 
 posing a duty to retaliate for a foreign duty on 
 
Remedies Proposed for the Depression. 97 
 
 another article, eveu tliough it be of the same kind.* 
 The scheme appears to be objectionable, not because 
 in principle it involves any violation of the laws of 
 Free Trade, when these are rightly understood, but 
 because of the immense difficulties of detail which 
 would attend its practical application. Unless our 
 countervailing duty is to be protective, it must be 
 different for every foreign country, and adjusted 
 accurately to the amount of bounty conferred hj 
 that country. Moreover, the duty must be varied 
 whenever the bounty is changed. We may infer 
 the Cimmerian darkness in which the whole subject 
 is wrapt, and the difficulty which the necessary ad- 
 justments would involve, when we find that the 
 amount which the bounty costs France annually 
 has been variously estimated from <£8o,ooo to 
 £1,000,000. Then there would be great difficulties 
 in levying a differential duty, as it is not always 
 easy to discover the real country of origin. We 
 should besides find ourselves seriously hampered 
 by our commercial treaties, which are, accord- 
 ing to Lord Beaconsfield, more than thirty-eight 
 in number. Besides this, we cannot aftbrd to 
 make any concession, even in appearance to Pro- 
 
 * Mr. Wallace, as we hinted above, in liis Article iu the Contem- 
 porary, seems to fall into a hopeless confusion of language between 
 the two senses of " very same," which sometimes in his Paper means 
 identically the saT.e, and sometimes only of the same descrii)tion 
 
 H 
 
98 TJie Recent Depression of Trade. 
 
 tection. England^ like Csesar^s wife, must be above 
 suspicion. 
 
 Bi-metallism seems of late to have won many 
 adherents. The Liverpool Chamber of Commerce 
 appointed a special committee of seventeen mem- 
 bers to inquire into " The state of trade in connec- 
 tion with the discrediting of silver as money." 
 They arrived unanimously at the conclusion that 
 the present distress arose in very large measure 
 from that cause, and that it would be possible to 
 restore silver to its former value by " recognition of 
 the two metals as full legal tender money^^ at a 
 " fixed ratio,^^ to be fixed by an agreement among 
 the " leading monetary powers." A deputation 
 waited upon the Chancellor of the Exchequer to 
 urge these views upon him. 
 
 Now, undoubtedly the depreciation of silver is a 
 most serious evil, threatening bankruptcy, or, at any 
 rate, extreme financial difficulties to India and manv 
 other silver-using countries, besides causing the 
 gravest inconvenience to trade by its violent fluctua- 
 tions in degree. Any measure which would raise or 
 steady the value of silver would be most useful. 
 
 It may well be doubted, however, whether any 
 change in the price of the precious metals has such 
 serious effects as many suppose. International 
 trade is after all virtually barter, and the part 
 
Remedies Proposed for the Depression. 99 
 
 which gold and silver play in it is of secondary 
 importance. 
 
 India buys our cotton goods and our iron with 
 raw cotton and jute, not with rupees. To the 
 merchant who transacts the business it will matter 
 little if he gets more rupees than usual for his 
 cotton and iron, and less cotton and jute than usual 
 for his rupees. It is only rapid fluctuations in value 
 that will sometimes hurt him and sometimes help 
 him j but on the whole will do much harm by in- 
 troducing an unnecessary element of uncertainty 
 into his business. 
 
 The case is different with old standing debts 
 which must be paid in gold, or with fixed payments, 
 such as salaries, pensions, aud the like, which are 
 received in India and spent in England. Here 
 the result of depreciation is pure and unmitigated 
 loss. 
 
 It is often supposed that the relative value of 
 gold and silver depends upon causes out of the con- 
 trol of legislation, and that it would be as impossible 
 to fix it arbitrarily as it has always proved to fix 
 the price of bread. 
 
 But this view is not altogether correct. The 
 value of these metals, as of otlier things, depends 
 upon the establishment of an equiiibT'ium between 
 supply and demand. Now, the demand for the 
 
 H 2 
 
I oo The Recent Depression of Trade. 
 
 precious metals depends largely upon legislative 
 action. We have seen that the cause of the 
 present appreciation of gold and depreciation of 
 silver is to be found in the action of the German 
 Government, which has substituted gold for silver 
 as the principal currency, and in that of the Latin 
 Union which has practically followed its example, 
 even more than in the enormous silver production 
 of the mines of Nevada, and in the decreased and 
 inadequate supply of gold from Austraha and 
 California. 
 
 If any State make both metals legal tender in- 
 differently at a fixed ratio, the result is that if either 
 metal be undervalued, with regard to the market 
 value of the metals for the time being, it is (in ac- 
 cordance with " Gresham's Law") driven out of 
 circulation in that country, and the currency will 
 consist exclusively of the over-valued metal. Of 
 course this, by creating an extra demand for the 
 cue metal and an overflow of the other, tends to 
 bring both all over the world nearer to the fixed 
 ratio. 
 
 If several countries which together employ a 
 large fraction of the world's currency were to agree 
 together to make gold and silver legal tender at 
 some fixed ratio — the same, or anything like the 
 same, as that which they bear spontaneously — 
 there would be a strong tendency for them to re- 
 
Remedies Proposed for the Depression. loi 
 
 main automatically at that point. Supposing, for 
 instance, England, America and the Latin Union 
 agreed to fix the legal tender ratio at 15^, 
 and to allow unlimited coinage of both metals, 
 every one who had debts to pay would iustantly 
 wish to buy silver and sell gold, and the inevitable 
 result would be that silver would rise in price to 
 that ratio. Then it would be indifferent to every 
 one in these countries whether he paid his debts in 
 gold or silver, and either metal would be used ac- 
 cording to convenience. But if either fell in the 
 least below the fixed ratio there would be so strong 
 a demand for it, and the demand for the other 
 metal would fall off so much in all countries where 
 the ratio was fixed by law, that the conventional 
 ratio would necessarily be restored. 
 
 This experiment has been tried in America as 
 well as in France, and has tended, no doubt, to steady 
 the oscillations of the two metals. But neither 
 country held a large enough fraction of the world's 
 coinage to make the ratio completely fixed, and 
 the ratio chosen by America was not exactly the 
 same as that of France ; so that the former country, 
 unable to make her ratio prevail over that of 
 France, never had the advantage of a real double 
 currency at all, but used at one time silver to the 
 exclusion of gold, at another gold to the exclusion 
 of silver. 
 
102 The Recent Depression of Trade. 
 
 ■ TTTTetrt 
 
 When gold was ^^valued in France, it was 
 
 altogetLer driven ont by silver ; but although this 
 must have somewhat lowered the value of gold and 
 raised that of silver it was not a sufficiently power- 
 ful cause to bring them to the legal tender ratio. 
 In like manner, w^hen gold became depreciated it 
 drove out the silver from France, and she, according 
 to Chevallier, acted as a parachute to break the fall 
 of gold. We may reasonably suppose that a more 
 extensive confederation of States would act, not as 
 a parachute, but like a balloon which trails a 
 rope on the ground and so remains automatically 
 at a fixed heiuht. 
 
 Thus, a state of stable equilibrium in which the 
 two metals should bear perpetually a ratio of value 
 to one another, fixed by law, is not such an im- 
 possible dream as it at first sounds. On the 
 contrary, it has been partially realized in the 
 past, and probably will be again achieved in the 
 near future. 
 
 It is a question for the metallurgist to decide 
 Avhether there is more probability of a very rich 
 new field of silver being opened up than of gold. 
 Unless this be the case, it appears that, as Professor 
 Jevons has pointed out,* a double standard of 
 gold and silver would be less extreme in its com- 
 
 * See Jevons' "Money," p. 138. 
 
Remedies Proposed for the Depression. 103 
 
 pounded oscillations of value, "with respect to things 
 in general, than a single gold standard. 
 
 Although we came to substitute a single gold 
 standard in England for our ancient silver standard 
 by a sort of accident, there is a general, although 
 a vague, feeling in England that not only is the 
 single gold standard the best of all possible stan- 
 dards, but that it is a part of the order of nature, 
 and that any proposal to modify it is almost as 
 dishonest, or at any rate quite as dangerous, as an 
 attempt to repudiate the National Debt. 
 
 Our intense shrinking from change, unless the 
 change be very clearly proved to be for the better, 
 and our slowness to see that it is for the better, 
 is, on the whole, one of the most valuable qualities 
 of the English race ; but it is often almost as 
 great an obstacle to reform as it is to dangerous in- 
 novation. 
 
 But if we could deal with our monetary system 
 unfettered by national prejudice, it would not be 
 difficult to devise arrangements which, although in 
 principle complicated, would be simple enough in 
 practice, and would answer all the ends of money 
 better than the somewhat rude system which we 
 have at present. 
 
 There are two main requisites for a good system 
 of currency. The standard of value should be 
 invariable, or as nearly so as in the nature of 
 
104 T^^^^ Recent Depression of T^'adc. 
 
 things is possible^ and the money should be con- 
 venient for the ordinary business of buying and 
 selling and the like. 
 
 The first object would be best attained if we^ in 
 common with a sufficient number of other nations, 
 constituted gold and silver indifferently our standard 
 legal tender money, at some convenient fixed ratio. 
 Provided this were done on a large enough scale, 
 it would be almost impossible for either metal to 
 deviate much from the ratio. 
 
 But one great disadvantage of this double 
 standard system is that the very machinery by 
 which uniformitv of ratio is secured is an alternate 
 disappearance from the circulation of the country 
 of whichever metal is for the moment under- 
 valued. 
 
 Now, with our present arrangements of currency, 
 we could not dispense either with gold or silver in 
 the transactions of every-day life without extreme 
 inconvenience. 
 
 This difficulty would be avoided if we reintro- 
 duced &\ bank notes, which are a more convenient 
 medium of circulation than sovereigns ; and if 
 besides our standard silver coins — which might 
 be crowns, or whatever other large coin is most 
 convenient — we used, as at present, small silver coins 
 of nominal value exceeding their real value, and 
 only legal tender to a limited point. 
 
Remedies Proposed for the Depression. 105 
 
 Then silver and paper would be our ordinary- 
 currency ; neither of which could possibly be 
 driven out of circulation, and it would be a matter 
 of indifference to us whether gold or silver were 
 for the moment the prevailing standard. 
 
 But at present there would be serious diffi- 
 culty and inconveuience in introducing a double 
 standard. The tendency has been of late in the 
 opposite direction ; it has seemed that all tlie 
 most civilized nations of the world would become 
 chrysomono-metallic^ and it will not be easy to turn 
 back the current. 
 
 The present ratio of gold to silver* is t8 in- 
 stead of the old 15^. If the ratio were to be fixed 
 by convention it would have to be at 15I or at 
 some point much nearer to that than to 18. Those 
 who are interested in silver would not be content 
 to have the present ratio stereotyped. 
 
 But if the old ratio or anything like it were 
 chosen, the market value of the two metals 
 could only be brought into accordance with the 
 fixed ratio and kept there, by an extensive revo- 
 lution and a general substitution of the use of 
 silver for gold. 
 
 We may hope, however, that the approaching 
 exhaustion of the silver mines of Nevada, and the 
 promised opening of a new and rich gold field in 
 
 * March 15, 1880, silver at 5il|(/. 
 
io6 The Rectnt Depression of Trade. 
 
 India will tend to restore to silver its old value in 
 relation to gold. If this be brought about^ not 
 only will it be a great relief to the finances of 
 India, but it Avill also make the way clear for 
 bi-metallism. 
 
 In the meanwhile any artificial rehabilitation of 
 silver must be at the expense of gold which would 
 be extensively thrown out of circulation, and con- 
 sequently depreciated all over the world. 
 
 Now, we in England have a wholesome horror 
 of any voluntary action which can affect the 
 standard of value. It saA'Ours too much of sharp 
 practice and even of repudiation. Hence we most 
 justly shrink from a measure which would certainly 
 injure creditors and benefit debtors. 
 
 No doubt in one sense depreciation of gold, or, 
 in other words, a general rise of prices, would bene- 
 fit trade. It would have the reverse effect to that 
 which we traced in the case of a general fall in 
 prices, and would enable the capitalist to get a 
 larger share of the produce of labour, ^vhilst the 
 labourers' money wages would rise. 
 
 Thus every one would appear to be better off 
 and the approaching inflation of trade would be 
 hastened and increased. But the prosperity which 
 depends merely upon the value of money can have 
 no reality. It is built on a foundation of sand, 
 and cannot bring us true wealth. What one man 
 
Remedies Prvposed for tJie Depression. 107 
 
 gains another loses^ and althougli every one may 
 seem to be growing rich, much of the wealth which 
 men acquire is a fairy gold which soon withers away 
 to wortliless ashes. It is not by changes such as 
 this that we can reap solid wealth, but by Hard 
 Work, Free Trade, Honesty. 
 
 THE END. 
 
 PRINTED BY BAt-LANTVNE AND HANSON 
 LONnON AND EDINBURGH