LIBRARY 
 
 OF THE 
 
 UNIVERSITY OF CALIFORNIA. 
 
 Class 
 
THE ECONOMIC CRISIS. 
 
(Vfainicl M,I<»irrc?n 
 
 THE 
 
 ECONOMIC CRISIS. 
 
 MORETON FREWEN, 
 
 B.A. TRINITY COLLEGE, CAMB. 
 
 LONDON: 
 
 KEGAN PAUL, TRENCH AND CO. 
 
 i, PATERNOSTER SQUARE. 
 
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 The rights of translation and of reproduction are riser. 
 
DEDICATED 
 
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 THE AUTHOR OF 
 
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Digitized by the Internet Archive 
 
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 http://www.archive.org/details/economiccrisisOOfrewrich 
 
PREFACE. 
 
 While in^India last winter I wrote for the 
 Pioneer a series of articles on the Economic 
 Crisis. It has been suggested to me to re- 
 publish these in book form, and this I have 
 now ventured to do, because, however incom- 
 plete as a statement of the present currency 
 conditions, I hope that at least it may possess 
 some value as coming within the comprehension 
 of the average reader. 
 
 The first ten chapters are republished from 
 the Pioneer with but few alterations ; the con- 
 cluding chapter on " The Socialism of To- 
 morrow " has not been published elsewhere. It 
 is intended as a timely protest against the 
 dogmas of the individualist school of writers, 
 
viii PREFACE. 
 
 and to show that there is an alternative neither 
 unscientific nor necessarily uneconomical, if the 
 excesses of that gigantic "sweating system," 
 induced by unrestricted competition, and now 
 so universally obtaining, are found to admit of 
 no remedy short of State intervention. 
 
CONTENTS. 
 
 CHAPTER I. 
 
 DEPRESSION OF PRICES BY LEGISLATION. 
 
 Universal prosperity resulting from Californian and Australian 
 Gold supplies — Mr. Disraeli on the effects of recent mone- 
 tary legislation — Mr. Goschen in agreement as to cause 
 of depression — The Money Famine — The "Quantity" 
 Theory — Hume — J. S. Mill — Rapid growth of political intel- 
 ligence in the United States and the victory of the " Silver 
 men" — Increasing tyranny of the Money Power in Europe 
 — Simultaneous legislation in 1883 to demonetize Silver — 
 As showing effect of similar legislation on prices — Analogy 
 of change of values of beef and mutton — The enrichment of 
 the few by the impoverishment of the many ... ... p. 1 
 
 CHAPTER II. 
 
 THE BLAND BILL. 
 
 Widespread educational results following from agitation over 
 Bland Act — Interest of Europe in the continuance of this Act 
 — Mr. Evarts at Paris Conference — Mr. Goschen at Man- 
 chester in 1885— The real Silver Crisis was in 1884— Triumph 
 of Anti-Contraction Party in the United States — Surrepti- 
 tious demonetization of silver at Washington in 1873— Why 
 it escaped notice — Exactly similar reasons permitted Lord 
 Liverpool's legislation in 18 16 — Resumption of specie pay- 
 ments in England— Mr. Western and Mr. Attwood in 1822 
 on the cause of the sufferings of the agricultural interest — 
 Warning to Congress to resume specie payments on basis 
 
x CONTENTS. 
 
 not of one, but of both metals — Bland Act vetoed by Presi- 
 dent Hayes — But repassed by a two-thirds majority in Con- 
 gress — Entire collapse of "law of Greshanv' as understood 
 by the Wall Street economists — Extraordinary sustained 
 attack in English press upon the bona fides of Congres- 
 sional majority — Bland Bill merely an effective makeshift, 
 awaiting finality p. 10 
 
 CHAPTER III. 
 
 PRICES. 
 
 Short history of prices — Historical interdependence of volume of 
 money and prices — Steady rise of all prices for a thousand 
 years, pari passu, with mechanical improvements — Alison on 
 Californian discoveries — His bright expectations not veri- 
 fied, consequence of anti-Silver legislation — Disinherison of 
 Silver — Prices and the currency before and after discovery 
 of America — Potosi — Jacob's history of precious metals — 
 His recognition of currency conditions which theoretically 
 should have depressed prices — But the discovery left to 
 Newmarch and Jevons that this fall of prices had actually 
 taken place — " Over-production " theory — Years between 
 1830 and 1850 were years of maximum "cheapness," of 
 maximum distress also — Mr. Disraeli on the situation in 
 1832 — Opportune gold discoveries in California in 1845 — 
 The "Golden Age" — Index numbers, Soetbeer — Jevons — 
 Economist — England's stock of legal tender money in 1878, 
 1884, 1888 — Lord Iddesleigh's Royal Commission — M. 
 Sauerbeck's index numbers — Are we returning to the prices 
 of the 15th century ? p. 24 
 
 CHAPTER IV. 
 
 FALL OF PRICES. 
 
 Fall of prices according to Messrs. Fowler, Mulhall and Wells 
 — Their theory enormously emphasizes the importance of 
 guarding against a currency contraction — Otherwise entirely 
 irrelevant — Mistakes of Mr. Wells — Mr. Mulhall on ratio 
 of metallic money to business done — Increase of banking 
 system may even require increase of metallic money — 
 
CONTENTS. xi 
 
 Mr. Wells on gold deficiency — Importance of statistical 
 accuracy — Mr. Wells' misconstruction of statements of MM. 
 Cernuschi and Sauerbeck— Lower freight charges may 
 either be the cause or the effect of lower prices — Jevons on 
 the depreciation of Gold — Probable direction of future 
 legislation P- 37 
 
 CHAPTER V. 
 
 MR. DAVID A. WELLS ON " BIMETALLISM.'' 
 
 Bimetallism omitted from his inquiry — Chevalier's testimony 
 that the automatic action of French bimetallism was the 
 parachute which broke the fall of Gold, and thus prevented 
 in gold countries a catastrophic rise of all prices — Mr. 
 Wells on the automatic action — Admits however the recent 
 steadiness of Silver as a measure of prices — Therefore Gold 
 has appreciated, not Silver depreciated — Fall of price of 
 Silver must induce fall of wheat prices — The Hindoo riot 
 and the interests of the English and American farmer — 
 " Perversity " of rupee — Conclusion derived from Mr. Wells' 
 mistakes — Science of statistics inductive — But economic 
 science why analytical and deductive — Mental method of 
 statisticians probably defective — Importance of statistical 
 accuracy ... ... p. 56 
 
 CHAPTER VI. 
 
 NATIONAL DEBTS AND THE GROWTH OF SOCIALISM. 
 
 What is National Debt — National debts actually though not 
 nominally increase their burden with every fall of prices — 
 Amount of our National Debt measured in wheat at the 
 time the debt was being contracted — National Debt of the 
 United States — Its rapid dollar reduction — But its persist- 
 ent increase in terms of commodities — Argument of the 
 bondholder refuted — Premium on his patriotism measured 
 by the premium on Gold — That almost the entire amount of 
 taxation is deducted from that share of production which is 
 paid to Labour — Lord Derby on the coming Repudiation — 
 The argument that being a creditor Nation, England 
 profits by appreciation of Gold — Turkey's reply to this — 
 
CONTENTS. 
 
 Violation of contract involved in the National Debt — Non- 
 responsibility to the State, of mere owners of gold as com- 
 pared with owners of other forms of fixed capital — The 
 Appreciation of Gold and the Egyptian finances — British 
 treatment of a similar disease in Ireland and Egypt— Pro- 
 spective emergence of Socialism, on a scientific basis p. 70 
 
 CHAPTER VII. 
 
 THE TWO GROUPS OF " BIMETALLISTS." 
 
 Misapplication of the term "Bimetallist" — Reformers favour 
 Unity of Standard, but monometallists favour two distinct 
 Standards within one Empire, one in England, the other in 
 India — Inconvenience of the two standard system increases 
 as the distance increases — Profits of Trade depend on such 
 subjective causes as a speech from Mr. Goschen — Buying 
 "forward exchange" a costly form of Insurance against 
 risk — Alleged differences of opinion amongst bimetallists 
 accounted for — Two distinct standpoints — Those who 
 merely assert Mills' quantity theory, and those who attach 
 the greater importance to the dislocation of the par of 
 exchange — A u Gold question " and a " Silver question " — 
 Issue of pound notes, inoperative qua prices, mischievous 
 in this, that they would displace and drive out Gold — 
 Cernuschi's attitude ... p. 81 
 
 CHAPTER VIII. 
 
 THE FIXED RATIO— IS IT PRACTICABLE? 
 
 Origin of word "pecunia" (pecus) the legal tender of Cattle — 
 Why impossible that State could establish ratio between 
 value of sheep and cattle — Cost of production decides such 
 values — But not so the precious metals — Cost of production 
 of Gold or Silver greater than value when produced — How 
 this can be — Gambling propensity inherent in human nature 
 — Leadville — Comstock Mine — Within what limits there- 
 fore is it in the power of the State to fix ratio — Suggested 
 between one to seven, and one to thirty — Wolowski on 
 importance of Money — But what should ratio be ? ... p. 90 
 
CONTENTS. xiii 
 
 CHAPTER IX. 
 
 THE FIXED RATIO— ITS PROPORTION. 
 
 Sudden considerable disturbance of ratio, twice only in six 
 hundred years — To be referred each time to monetary 
 legislation at (i) Venice about 1290, (2) in Berlin in 
 1873 — Alterations in comparative supplies of precious 
 metals, inter se, have never considerably affected ratio — 
 How to restore ratio without injustice — M. Cernuschi — 
 Silver legal tender in terms of Gold — Clearly thereafter 
 Silver could never fall — Reason why it would immediately 
 rise— Automatic action of bimetallism — Neither metal can 
 fall if given prerogative of legal tender — Therefore inter se 
 neither meta^-can rise— Finality of 1 to 15I established by 
 legislation now hundreds of years old — The " Warner 
 compromise" — Endorsed by Earl Grey p. 99 
 
 CHAPTER X. 
 
 INDIA AND THE SILVER QUESTION. 
 
 The stimulus afforded by a falling exchange to exports of wheat 
 and yarns from India — The position of the Bombay Cotton 
 Industry— Mr. J. G. Scott on the conditions of cotton 
 manufacture in Bombay — Stimulus, however, merely affects 
 export Trade of India, which is only five per cent, total 
 commerce of India — Increased taxation and uncertain- 
 ties in all trades — Quarterly Review on the production of 
 wheat — Mr. Edward Atkinson — Brisk railway construction 
 by immense expenditure locally, has served to raise local 
 prices in the wheat growing States of America, and thus to 
 protect them from agricultural collapse — By diminishing 
 wheat cultivation, production of meat has been stimulated 
 in the United States, consequently increased competition 
 and fall of prices in Ireland 108 
 
 CHAPTER XI. 
 
 INDIA AND THE SILVER QUESTION {continued). 
 
 Prodigies of modern production — Consequence of (1) improved 
 modem machinery, (2) cheap loanable capital — Cheap 
 
xiv CONTENTS. 
 
 capital enabbs modern manufacturer to operate profitably 
 with very low margin of profits — Present difficulty of ex- 
 change is checking flow of capital from England to India, 
 and thus makes borrowing rates in India artificially high — 
 Consequences of the Economic Crisis in England and India 
 summed up p. 119 
 
 CHAPTER XII.' 
 
 DEPRECIATED CURRENCIES AND THEIR EFFECT ON PRICES. 
 
 The Russian currency — Mr. Harris on imported wheat— Argu- 
 ment of Mr. Harris considered — Remedy for increasing 
 premium on Gold, to restore Silver everywhere to legal 
 tender — Interest of Germany in Russian finances — Depre- 
 ciating currencies, however stimulating to export trades, 
 destructive of domestic trade and of foreign credit — 
 Argentine finances — Rapidity of variations in gold agio — 
 Profitable exchange operations in consequence of these 
 variations p. 125 
 
 CHAPTER XIII. 
 
 THE SOCIALISM OF TO-MORROW. 
 
 Socialism and the future of legislation — Socialism not necessarily 
 unscientific — Extension of Franchise has deprived middle 
 classes of paramount influence — Working classes have little to 
 fear from experimental legislation — A form of Socialism which 
 is not anti-social — Not re-distribution but a more equitable 
 distribution in future — Success of the State Post Office — The 
 State an efficient " middle man " — Production the domain 
 of the individual, distribution the domain of the State — 
 The State not in sympathy with "the masses." Why? — 
 The State ownership of railways — An incident of a recent 
 "rate war" in the United States — Cost of purchase practi- 
 cally a " conversion " scheme — Elimination of brokers and 
 other commission agents — Moment for such changes oppor- 
 tune in United States — Utilize surplus revenue — Industrial 
 aspects — Social and moral aspects — The tyranny of " Rings " 
 of middle men — Only remediable if railways in the hands 
 
CONTENTS. xv 
 
 of the State — State purchase of Banks — Bagehot's inquiries 
 as to profit of banking — Present profits of London Joint 
 Stock Banks would rapidly redeem our National Debt — 
 Banking even now subject to frequent State interference — 
 Injustice of Peel's Act of 1844 — Lord George Bentinck on 
 Peel's Act — Land Socialism uneconomical until a better 
 distribution of products is secured — State regulation of 
 hours of labour — Free Trade was a remedy devised in the 
 interests of the middle classes — Which classes should most 
 fairly be called on to emigrate, middle men or working men ? 
 — Limitation of State functions. Where ? — Limited Liability 
 principle failure, except in cases where State could operate 
 more profitably still — Bagehot on the Joint Stock principle 
 — Bismarck and Industrial Insurance Offices — Profits of 
 Insurance Companies — The Credit of the State is so much 
 better than that of the individual that the entire revenue 
 might be derived from the State Credit — Political aspects of 
 State Socialism — Example of France — Our present experi- 
 ence of State control — The Professors and laissez fah'e — 
 Value of legislative decentralization, but of industrial 
 centralization — Value of a distinct political issue — The 
 demands from below inevitable p. 131 
 
 APPENDIX. 
 
 THE ECONOMIC DISTURBANCES SINCE 1873 ... p. 165 
 
 (Reprinted from the New York Commercial Chronicle.') 
 
THE ECONOMIC CRISIS 
 
 I. 
 
 THE DEPRESSION OF PRICES RY LEGISLATION. 
 
 More than eight years ago a writer in the 
 Edinburgh Review closed a very elaborate state- 
 ment of the social and industrial effects of the 
 great gold discoveries in California and Australia, 
 with these words : u The world has come to the 
 close of a very memorable epoch : the present 
 generation has seen come and go the most re- 
 markable outburst of material prosperity which 
 has ever visited the nations of mankind. The 
 epoch has been short-lived as a northern summer, 
 and the world has fallen into winter again ; but 
 a large portion of the fruits of the golden sum- 
 mer enduringly remain a rich heritage for sub- 
 sequent generations." 
 
 B 
 
2 THE ECONOMIC CRISIS. 
 
 At the time those lines were written the con- 
 nection between the prevalent high range of 
 prices and gold "cheap," because abundant, was 
 little considered, except by a few professors of 
 the " dismal science ; " the collapse of all prices 
 which has since taken place, and which has pro-, 
 duced not only in Ireland but in America and 
 on the European continent, such an extraordinary 
 social upheaval, could not at that time have been 
 foreseen by the writer, nor had the question of 
 the legal tender position of silver and the agita- 
 tion over the Bland Bill become, as to-day, the 
 chief political issue in the great Republic of the 
 Western Hemisphere. Almost alone among our 
 public men Mr. Disraeli appears to have foreseen 
 the troubles which were to follow from the effect 
 of recent monetary legislation on prices. Speak- 
 ing at Glasgow in November 1873, just after the 
 change of her standard by Germany, to which 
 I shall refer later, Mr. Disraeli said : — 
 
 " I attribute the monetary disturbance which 
 has occurred, and is now to a certain extent act- 
 ing very injuriously upon trade, I attribute it to 
 the great changes which the Governments of 
 Europe are making in reference to their standard 
 of value. Our gold standard is not the cause of 
 our commercial prosperity, but the consequence 
 
DEPRESSION OF PRICES BY LEGISLATION. 3 
 
 of that prosperity. It is quite evident that we 
 must prepare ourselves for great convulsions in 
 the money market, not occasioned by speculation 
 or any of the old causes which have been alleged, 
 but by a new cause with which we are not 
 sufficiently acquainted. ,, 
 
 • Six years later, in March 1879, when the 
 monetary morbus had become evident, Mr. 
 Disraeli, then Lord Beaconsfield, said : — 
 
 " All this time the produce of the gold mines 
 of Australia and California has been regularly 
 diminishing, and the consequence is that, while 
 these great alterations on the continent in favour 
 of a gold currency have been made, notwith- 
 standing that increase of population which alone 
 requires a considerable increase of currency to 
 carry on 'its transactions, the amount of the cur- 
 rency itself is yearly diminishing, until a state of 
 affairs has been brought about by gold produc- 
 tion exactly the reverse of that which it produced 
 at first. Gold is every day appreciating in value, 
 and as it appreciates the lower become prices. 
 It is not impossible that, as affairs develop, the 
 country may require that some formal investiga- 
 tion should be made of the causes which are 
 affecting the value of the precious metals — and 
 the effect which the change in the value of the 
 precicus metals has upon the industries of the 
 country, and upon the continual fall of prices." 
 
 b 2 
 
4 THE ECONOMIC CRISIS. 
 
 Lord BeaconfielcTs view thus expressed, that 
 prices were falling not because of any general 
 over-production of commodities, but because of 
 a rapid local diminution of the supply of that 
 precious metal which measures values, was ac- 
 cepted at once by Mr. Goschen, one of the 
 ablest financiers of the age. The production of 
 gold from the mines was known to be diminish- 
 ing; its yearly consumption in the arts and 
 manufactures had increased, till it was now nearly 
 seventy per cent, of the entire annual yield, and 
 coming on the top of these causes of apprecia- 
 tion, two great nations, Germany and the United 
 States, had discarded, the one her silver money, 
 the other paper money, and had come to market 
 to buy gold instead. Their purchases of gold 
 have been on such a vast scale, that to-day these 
 two nations are retaining more than a quarter of 
 all the gold currency of the world. To use M. 
 de Laveleye's words, gold like water being now 
 spread over a larger area has lowered its level 
 at its original basin. If concurrently with an 
 immense new demand for bread, the wheat har- 
 vest of the world was for several years a failure, 
 surely bread would be very dear, and in the same 
 way an increased demand for gold, side by side 
 with supplies rapidly diminishing, has brought 
 
DEPRESSION OF PRICES BY LEGISLATION. $ 
 
 about a gold famine which shows itself more and 
 more every day in a constant shrinkage of prices. 
 More cotton or wheat, more labour or land, must 
 be given for gold because gold is scarce. The 
 statesmen having satisfied themselves that such 
 was the origin of the growing financial disorder, 
 we v*ere induced to turn to our school-books to 
 find that Cairnes, Newmarch, Jevons and a score 
 of others writers were in complete agreement. 
 Hume more than a century since wrote : "Sup- 
 pose four-fifths of all the money in Britain to be 
 annihilated in one night. Must not the price 
 of all labour and commodities sink in propor- 
 tion ? " More emphatic still is John Stuart Mill's 
 statement of the " quantity theory." " That an 
 increase of the quantity of money," wrote Mill, 
 " raises prices, and a diminution lowers them, 
 is the most elementary proposition in the theory 
 of currency, and without it we should have no 
 key to any of the others." But where eight 
 years since a few students and professors under- 
 stood the significance of the "Silver question," 
 to-day the subject is attracting the intelligent 
 interest of ten thousand business men. In the 
 United States, where, under the tutelage of man- 
 hood suffrage, a very advanced condition of 
 political enlightenment has been arrived at, the 
 
6 THE ECONOMIC CRISIS. 
 
 so-called " Silver men," the opponents of a con- 
 tracted currency, have simply swept the field 
 from Maine to California, from Puget Sound to 
 the Gulf of Mexico. It is now recognized in 
 America that the money power may become a 
 most dangerous tyranny, and that in Europe it 
 is this power, wielded to-day by half a dozen 
 financial houses, which controls to an ever in- 
 creasing extent the legislatures of Europe, which 
 directs the movements of armies, and was even 
 beginning to make its influence felt in the lobbies 
 of the Capitol at Washington. Gold was appre- 
 ciating from natural causes, from a falling-ofF in 
 the output of the mines ; as the sovereign became 
 more valuable, those who either owned, or had 
 loaned sovereigns, were becoming richer, while 
 the debtor classes of the communities were suffer- 
 ing. The man who had borrowed a sovereign 
 when it represented only a week's work, was to 
 return it when it required the labour of ten days 
 to procure it. But as if the natural causes for 
 the appreciation of gold were not sufficient, class 
 legislation of a most complex and insidious kind 
 was now to be secured in order to bring about a 
 further fall of prices, and a further impoverish- 
 ment of the industrious ; if silver could be de- 
 prived of its legal tender position as a money 
 
DEPRESSION OF PRICES BY LEGISLATION. 7 
 
 metal, then the work previously done by silver 
 would have to be done by gold, all property 
 measured by the gold standard would be shorn 
 of half of its value, and bankers and bondholders 
 would see their fortunes double in a day. The 
 agitation for the repeal of the Bland Bill in 1883 
 and 1884 was intended to supplement the mone- 
 tary legislation at Berlin in 1873 ; Germany was 
 formerly, as India is to-day, on a silver basis, but 
 legislation had been procured so that Germany 
 had sold her silver en masse, and bought gold 
 with it. This artificial demand for gold was 
 every day driving gold to a famine price, while 
 forcing down the price of all other commodities. 
 If only it were possible to arrange similar legis- 
 lation in the United States, so that fifty millions 
 sterling more of legal tender silver could be 
 pitched upon the world's silver market and sold 
 for gold, then, while the price of the rupee might 
 fall towards sixpence, the value of every sovereign 
 to buy land, labour or any commodity would be 
 doubled ; those debtor classes of the community 
 who owed fixed amounts of gold would be in- 
 solvent, their creditors the " Gold Bugs," accord- 
 ing to the current phraseology in America, would 
 become the universal owners ! Is it any wonder 
 that a nation which had shed blood like water 
 
8 THE ECONOMIC CRISIS. 
 
 to emancipate black men was found to recoil 
 from legislation which aimed at the enslavement 
 of nine-tenths of the white community for the 
 benefit of the other tenth. 
 
 The currency problem is supposed even by 
 many intelligent men to be so dismal and in- 
 scrutable, that even the doctors disagree over 
 fixed ratios and other subtleties. As regards the 
 main issue, however, the question of two legal 
 tenders or one — the question of money cheap or 
 money dear — the question whether the burden 
 of all debt, national or private, is to be aggra- 
 vated by anti-silver legislation — this question is, 
 in its broader aspects, clear to the most ordinary 
 intelligence. Silver and gold have been pro- 
 duced for a thousand years for purpose of legal 
 tender money; cattle and sheep have been pro- 
 duced for food. If we substitute the meats for 
 the metals, the analogy holds good ; legislation 
 is demanded which will prohibit the consumption 
 of mutton, because, then, as mutton becomes 
 worthless, beef will rise to a famine price, and 
 the cattle owners will become suddenly wealthy 
 at the expense, not merely of the owners of 
 sheep, but of the general community. To carry 
 the analogy further : this job was to be contrived 
 at a time when cattle were unusually scarce and 
 
DEPRESSION OF PRICES BY LEGISLATION. 9 
 
 sheep more than usually numerous. Such a 
 process — the enrichment of the few by the im- 
 poverishment of the many — had been success- 
 fully inaugurated by the monetary legislation of 
 Germany in 1873 ; a new and unexpected demand 
 for gold had been created by law; prices were 
 falling because the value of gold was rising ; 
 gold owners and mortgagees were in clover; it 
 was only now necessary to achieve similar legis- 
 lation at Washington, and such a collapse of 
 prices would be brought about that the bond- 
 holder, the banker, the mortgagee, would be in 
 complete possession of the redistributed assets 
 of the entire communities ! And this fresh raid 
 on silver in the United States only failed to 
 achieve a similar success and a similar result, 
 because no sufficient allowance had been made 
 both for the general intelligence of the American 
 community, and for its prompt recognition of 
 the sinister nature of the proposals. The bird 
 itself was wary and the net was set in full view. 
 
II. 
 
 THE BLAND BILL. 
 
 Without some consideration of this Act of 
 1878, which takes its name from Mr. Richard 
 Bland, a member of Congress from the State 
 of Missouri, it would be hardly possible to make 
 clear from what an acute monetary crisis the 
 world has escaped, and from what dangers the 
 business community have been saved, if indeed 
 there is safety to-day. 
 
 And, too, from the political passions roused 
 by this Bill, one invaluable result has followed, 
 a result which neither its sponsors nor its op- 
 ponents contemplated. Not in the United States 
 merely, but eastward beyond the Atlantic, and 
 westward across the Pacific, entire communities 
 have been educated by the struggle at Washing- 
 ton to the recognition, that currency laws are 
 not of local but of international importance; that 
 prices universally can be made the mere football 
 
THE BLAND BILL. n 
 
 of the Legislatures, rising as the volume of legal 
 tender is expanded by legislation, falling as it is 
 contracted ; and that on account of this inter- 
 dependence of prices all the world over, great 
 nations, England, France, India, have an interest 
 not less, but I think on the contrary much 
 greater, in the continuance, or the repeal, of the 
 Bland Act, than have the Americans themselves. 
 At the close of the last International Monetary 
 Conference iif Paris in 1 88 1, when all the other 
 Great Powers represented there were in favour 
 of concerted action to make silver legal tender 
 money, while England alone held aloof, Senator 
 William Evarts, of the United States Com- 
 mission, said to the representatives of Great 
 Britain : " Very well, gentlemen, you will soon 
 learn that this is not Uncle Sams funeral" and 
 in 1885 Mr. Goschen, when addressing the 
 Manchester Chamber of Commerce, frankly 
 admitted that any statement as to the future 
 prospects of the Lancashire cotton industry was 
 mere guess work, until the then active agitation 
 for the repeal of the Bland Bill was in one way 
 or the other decided. It was a great black cloud 
 this, in the West, a cloud with a silver lining. 
 If it broke, the exchange value of the rupee 
 would fall to a shilling, while half Lancashire 
 
12 THE ECONOMIC CRISIS. 
 
 was unemployed, and trade between the East 
 and the West paralyzed, pending a slow — an 
 infinitely slow — process by which prices might 
 re-adjust themselves to the altered state of the 
 exchanges. I think, therefore, that history will 
 later take the view that the crisis of the " Battle 
 of the Standards " must not be referred back to 
 Lord Liverpool's Act, which in 1816 first 
 degraded silver from its legal tender prerogative, 
 not even to the action of Germany in 1873, 
 when, the pockets of that nation being stuffed 
 with the French war indemnity, paid in gold? 
 she sought to strike down that silver standard 
 which had helped to carry her to Paris. These 
 were not the real crises, though they directly led 
 up to it. And similarly the efforts of Wolowski, 
 Cernuschi, of Arendt and Haupt, and of Laveleye, 
 to awaken public opinion on the Continent, 
 of Seyd and Grenfell, of Samuel Smith and 
 Gibbs, to whom chiefly it is owing that the pre- 
 sent silver party in England has been collected 
 — these were not the efforts which principally 
 availed to prevent a monetary collapse. The real 
 fight has been fought at Washington ; I believe it 
 has been won, and to my mind there is nothing so 
 encouraging, pointing as it does the direction of 
 universal progress, when other nations also shall 
 
THE BLAND BILL. 13 
 
 have been educated by the possession of the 
 franchise, as the way in which the mass of the 
 American electorate has pronounced itself upon 
 this subject, — a subject at once the most complex 
 and the most momentous of existing political 
 issues. The battle has been the battle of long 
 hours of labour, at low wages, versus short hours, 
 at full wages ; the battle of a faulty distribution 
 of wealth, mere gold collected in a few hands, 
 against a wider and a more equitable distribution 
 — a battle where the forces of avarice allied with 
 ignorance had decided to increase the burden of 
 all national debt and fixed debt, by securing a 
 huge " unearned increment " in the purchase 
 power of gold. Such was the nature of the 
 conflict won by the Congress of 1884 against 
 the united front of the banking houses of New 
 England, against the active partisan opposition 
 of the officials in the Government department, 
 against nearly the entire Press of the Eastern 
 States, and against the dictum of the President- 
 Elect ; and it was not only won but won hand- 
 somely. The silver men controlling the Central 
 States of the Union, the West and the " Solid 
 South " were found to constitute a full two-thirds 
 of the Lower House, and a large majority of the 
 Senate. 
 
14 THE ECONOMIC CRISIS. 
 
 A few words now as to the Bland Act itself. 
 In 1873, the United States currency being still 
 dominated by the immense paper issues — " green- 
 backs " — the relict of the late war, gold and 
 silver had left the country, or at least, were never 
 seen. Germany the previous year had struck 
 down silver, and the same thing was now to be 
 effected in the United States. The manner in 
 which this demonetization was brought about 
 is very curious reading. Congress had agreed 
 to a mere abstract proposal that, for the sake 
 of public convenience, the various Mint laws 
 should be codified. The silver dollar had, up 
 to that time, been always and everywhere legal 
 tender, and was expressed as such in all the old 
 Mint statutes. Was it by accident or design 
 that the new Code omitted all mention of the 
 silver dollar as one of the coins which the 
 Secretary of the Treasury might allow to be 
 coined ? The old laws, thus mutilated in codify- 
 ing, were passed heedlessly through Congress, 
 and it was not till President Grant's signature 
 had been given that the nation awoke to the 
 fact that the "dollar of the fathers" had, all 
 unknown to it, been legislated out of existence. 
 Whether the important omission was fraudulent 
 or was really accidental, will no doubt be made 
 
THE BLAND BILL. 15 
 
 clear at some later day. Senator Beck of Ken- 
 tucky has declared repeatedly that Grant detected 
 the fraud when too late, and admitted that he 
 had been tricked into giving his signature. 
 
 It is extremely important to bear in mind that 
 Lord Liverpool and the English Parliament in 
 1 816 were in a position precisely similar to that 
 occupied by President Grant and Congress in 
 1873. Each nation had at the time suspended 
 specie payments, and under these circumstances 
 the a outlawry of silver " by legislation failed to 
 attract the attention of the constituencies, be- 
 cause it involved no present and visible change. 
 The legislation was prospective only ; in both 
 cases it merely said : " When the time does 
 come that we resume specie payments, then we 
 will employ gold, and gold alone, as legal tender 
 money." England heedlessly permitted Parlia- 
 ment to do this deed in 1816, ignorant of the 
 consequences to follow later, just as the United 
 States permitted Congress to demonetize silver 
 in 1873. In England the resumption of specie 
 payments on a gold basis had been the signal 
 for an immense fall of prices and for universal 
 sufferings. Mr. Western said in a debate in 
 the House of Commons in July, 1822, that as 
 a consequence of resuming specie payments 
 
1 6 THE ECONOMIC CRISIS. 
 
 "two-thirds of the cultivators of the soil have, 
 ^ in the course of a few years, and in a time of 
 profound peace, been rendered insolvent. The 
 turn of the landlords will soon come ; they must 
 also be involved in the ruin of their tenantry." 
 In the course of the same debate Mr. Attwood 
 said : — " Either all the productions of all in- 
 dustry have suddenly increased, which it is 
 impossible to believe ; or, otherwise, from what- 
 ever cause, a reduction in the amount of the 
 money generally in circulation has taken place." 
 England endured the sufferings, consequent on 
 Lord Liverpool's blunder, and struggled on until, 
 in the very nick of time, the great gold dis- 
 coveries brought relief. The new gold has now 
 been absorbed ; has gone to other lands ; has 
 disappeared from England's currency, and from 
 this cause she has again, since 1880, commenced 
 to struggle and to suffer. 
 
 But not so the United States. That country 
 had for a warning the example of our distress in 
 the years between 1820 and 1850, and the nation 
 was immediately awakened to the dangers which 
 threatened it. The bondholders and other gold- 
 owners meant that specie payments should be 
 resumed through the intermediary of gold alone, 
 and keeping this in view the full significance of 
 
THE BLAND BILL. 17 
 
 the Act of 1873 was at once apparent. Legis- 
 lation had been smuggled through Congress; 
 but what Congress had done, that Congress 
 could reverse. The nation was anxious to 
 resume specie payments, but on the basis of 
 two legal tenders, not one. The producers of 
 the community were not prepared to permit the 
 price of all produce to collapse, and the burden 
 of every fixed debt to be doubled in order that 
 a handful of " Geld Bugs" should build their 
 palaces on Fifth Avenue. Silver had been 
 demonetized by stealth. The " dollar of the 
 fathers" had been removed from its niche. It 
 should at once be brought back again. 
 
 Mr. Bland himself at that time was, and to- 
 day is, an advocate of unlimited free coinage of 
 silver ; that silver should in the United States be 
 placed on precisely the same footing as gold ; 
 but such a measure, then as now, was regarded 
 by many of the silver party as too heroic. Mr. \\y y ' 
 Bland's Bill was accordingly modified by thtf v 
 amendment of Mr. Allison, and the "Allison- 
 Bland Bill," as the measure was formerly called, 
 passed both Chambers. The Act declared the 
 standard dollar of 412^ grains to be again legal 
 tender, and, although unlimited coinage was not 
 permitted, the Act provided that the Treasury 
 
1 8 THE ECONOMIC CRISIS. 
 
 should buy silver bullion for coinage to the 
 amount of not less than two million and not 
 more than four million dollars per month. The 
 Bill passed, but was at once vetoed by President 
 Hayes. According to the Constitution of the 
 United States, the veto of the President is abso- 
 lute, unless confronted by a two-thirds majority 
 of both Houses : the Bland Bill thereupon went 
 back to Congress, and having secured the requi- 
 site two-thirds majority became the law of the 
 land over the veto of the President. And what 
 has been the result ? 
 
 The wiseacres of the Wall Street Banks ; the 
 leader-writers for financial papers ; the City 
 editors of leading journals, assured the American 
 legislators, in the first place, that they were fools, 
 that it was time for them to be taught that there 
 was a " law of Gresham " as inevitable as the law 
 of gravitation, which decreed that legal tender 
 coins composed of cheaper bullion would drive 
 out legal tender coins composed of that bullion, 
 which at the Mint rating was the more valuable. 
 The coinage of the Bland dollars was at the ratio 
 of i of gold to 1 6 of silver, whereas the market 
 price of the metals was then as i to 18. Silver, 
 therefore, would surely drive out gold, and the 
 issue of these " dishonest dollars," these * bogus 
 
THE BLAND BILL. 19 
 
 dollars," these " pot-lid dollars," was to be the 
 signal for the collapse of the growing credit of 
 the country abroad, and for the expulsion of all 
 the gold coins from the currency at Home. 
 Instead of the currency including the two legal 
 tenders which Congress was ignorantly attempt- 
 ing to secure, it would consist of one only, and 
 that the one least worthy of the nation's great- 
 ness. Such were the theories of those who 
 " prophesied before they knew ! " And now for 
 the facts which have become historical ! Since 
 the passing of the Bland Act ten years since, 
 the United States has added to its legal tender 
 metallic currency more than 130 millions sterling 
 of gold — an amount 12 per cent, greater than all 
 that Great Britain now has — and less than fifty- 
 one millions sterling in silver. While coining 
 two standard dollars the country was attracting 
 five gold dollars! Never did facts more deci- 
 sively antagonize the Law of the Prophets ; neve 
 was the common sense of the nation more com- 
 pletely vindicated ! So much for the fine-spun 
 theories of those who undertook to show that 
 coinage at a ratio of 1 to 16 would drive out 
 gold ; that Congress had undertaken to make 
 
 water run up-hill ; that, in short, they, the critics^ 
 
 c 2 
 
20 THE ECONOMIC CRISIS. 
 
 were vastly superior people, while, as Carlyle 
 once said of his surroundings, the remainder 
 were " fifty millions, mostly fools ! " Ignorant 
 people may still be found who, seeing some thou- 
 sands of tons of these dollars piled up in the 
 Treasury vaults at Washington, are asking for 
 what purpose they were coined. The fact that 
 three-fourths of these coins are in active circula- 
 tion in the form of silver certificates — paper notes 
 — and the fact that no American will burden his 
 pockets with metallic currency, whether of gold 
 or silver, will account for these hoards in the 
 reserve. There is to-day more gold coin in the 
 Treasury than silver: some 190 millions of gold 
 dollars as compared with 180 millions silver. 
 But when it was found that critical essays of 
 the superior persons as to the absurdity of the 
 Bland legislation could make no head at all, and 
 that the "folly theory" had no effect upon the 
 phalanx of "Silver men," who, while two-thirds 
 strong in Congress, were in the constituencies 
 themselves about as the coinage ratio, 16 to 1, 
 then there commenced an attack upon Congress 
 by many of the leading papers in England — 
 papers, too, of the very highest standing — for 
 which probably no parallel can be found in the 
 
THE BLAND BILL. 21 
 
 entire history of journalism. For, indeed, it was 
 left to a handful of leader-writers to point out, 
 not for a week or two, but by a sustained attack 
 that lasted for years, that, if not fools, the Silver 
 men at Washington were a compact band of 
 rogues, who had sold their consciences and their 
 constituents for the silver dollars of the Rocky 
 Mountain miners. That, in short, two-thirds of 
 both Houses, because they refused to join in a 
 crusade against silver, which crusade President 
 Grant declared had originated in a fraud on 
 Congress in 1873, and because they refused 
 further to take the view that "dear money," 
 showing its effects in rapidly falling prices, was 
 a blessing in disguise, and that it was the first 
 business of Congress by contracting the currency 
 of the country to make the rich man richer 
 by making the poor man poorer — because the 
 majority had given a legitimate expression in 
 Congress to views contrary to these, that there- 
 fore this majority was composed either of the 
 owners of silver mines or of men who were in 
 the pay of some Lobby subsidized by the Corn- 
 stock " Bonanza." Here was a Bill, intended by 
 supplying some coinage demand for silver to 
 support the price of that metal, and a Bill, the 
 
22 THE ECONOMIC CRISIS. 
 
 continuance of which was declared by Mr. 
 Goschen a little later to be of vital importance 
 to the industries of Lancashire, and which is 
 to-day determining the profit and the future of 
 England's trade with the myriad-peopled East, 
 and yet we were gravely assured in the English 
 Press that it was a Bill corruptly devised in the 
 interests of a few scattered mining camps in 
 Colorado and Nevada ! Incredible as such charges 
 were, it is still more incredible that they should 
 have made a profound and lasting impression 
 on public opinion in England, an impression 
 even to-day not wholly effaced. The value of 
 the annual output of silver in the United States 
 is some ten millions sterling ; the value of the 
 annual production of hens' eggs is some sixteen 
 millions sterling. We shall next be told that 
 Congress is in the pay of the hen-wives of the 
 Republic, because it refuses to forbid the con- 
 sumption of hens' eggs ! 
 
 The Bland Bill is not a complete Bill. Quite 
 true. But judged by its results it was a valu- 
 able and a careful measure intended to tide the 
 world over a crisis. There may be different 
 opinions as to its breadth and sufficiency. But 
 no intelligent observer will question that by 
 
THE BLAND BILL. 23 
 
 taking a portion of the loose silver off the market, 
 it has availed to steady the fall of silver that was 
 inevitable from unwise and ill-considered legis- 
 lation, which fall and the fall of all prices with 
 it must otherwise have been on such a scale that 
 an unparalleled monetary crisis would doubtless 
 have occurred. 
 
III. 
 
 THE HISTORY OF PRICES 
 
 Having drawn attention, in the earlier of the 
 two preceding chapters, to the successful attempt 
 made in the Legislatures of Europe to " scale 
 down " all prices by forcing up the value of gold, 
 and in the second chapter to a similar attempt 
 which, after being all but successful, was detected 
 and defeated in America — and having in both 
 endeavoured to show why this so-called "silver 
 question " is destined to become, a little later 
 in the Eastern hemisphere, as to-day in the 
 Western, a leading political issue — let me now 
 pass on to make a short survey of the world's 
 history of prices, and of their fluctuations. Of 
 course it is neither possible nor necessary to 
 examine the fluctuations that may have occurred 
 over short periods : my intention is merely to 
 show that the general range of prices has been 
 largely controlled by the increase in, or the 
 
THE HISTORY OF PRICES. 25 
 
 diminution of, the output of the money metals 
 from the mines. That when from the earliest 
 times in the world's history population and pro- 
 duction have increased more rapidly than the 
 stock of currency, then prices have fallen, the 
 relations between creditor and debtor have 
 become strained, and great social troubles have 
 resulted. That such effects should have followed 
 such causes will not appear surprising, even after 
 a casual examination. At the outset I wish 
 to disclaim any intention of attaching too ex- 
 clusive an importance to the "quantity theory" 
 of money, in raising or depressing prices. 
 At the present time, no doubt, there are other 
 agencies at work, such as improved machinery, 
 the development of electricity and steam, which, 
 notwithstanding that prodigious increase in popu- 
 lation of which they have been the parent, would 
 account probably for a portion of the recent fall 
 of prices. But it must not be forgotten that 
 industrial developments have been going steadily 
 forward from the earliest history of civilization, 
 and yet prices have not been falling, but, on the 
 contrary, perpetually rising. Indeed, it is not 
 too much to affirm, that the rise of prices has, 
 during a period of two thousand years, been an 
 efficient indicator of the comparative progress of 
 
26 THE ECONOMIC CRISIS. 
 
 civilization. When prices have fallen for a time, 
 then we recognize reaction — the ebb of the tide ; 
 while the steadier the rise of prices — metallic 
 prices — the greater has ever been the stimulus 
 to industry, to enterprise, and to the accumulation 
 of capital. 
 
 The historian Alison has very happily ex- 
 pressed the universality of the monetary influence. 
 He writes : — 
 
 The two greatest events that have occurred 
 in the history of mankind have been directly 
 brought about by a successive contraction and 
 expansion of the circulating medium of society. 
 The fall of the Roman Empire, so long ascribed, 
 in ignorance, to slavery, heathenism, and moral 
 corruption, was in reality brought about by a 
 decline in the silver and gold mines of Spain 
 and Greece. And, as if Providence had intended 
 to reveal in the clearest manner the influence 
 of this mighty agent on human affairs, the resur- 
 rection of mankind from the ruin which those 
 causes had produced was owing to a directly 
 opposite set of agencies being put in operation. 
 Columbus led the way in the career of renova- 
 tion ; when he spread his sails across the Atlantic 
 he bore mankind and its fortunes in his barque. 
 The annual supply of the precious metals for the 
 use of the globe was tripled ; before a century 
 
THE HISTORY OF PRICES. 27 
 
 had expired the prices of every species of pro- 
 duce were quadrupled. The weight of debt and 
 taxes insensibly wore off under the influence of 
 that prodigious increase. In the renovation of 
 industry the relations of society were changed, 
 the weight of feudalism cast off, the rights of 
 man established. Among the many concurring 
 causes which conspired to bring about this 
 mighty consummation, the most important, 
 though hitherto the least observed, was the 
 discovery of Mexico and Peru. If the circulat- 
 ing medium of the globe had remained stationary, 
 or declining, as it was from 18 15 to 1849, from 
 the effects of the South American revolution and 
 from English legislation, the necessary result 
 must have been that it would have become 
 altogether inadequate to the wants of man ; and 
 not only would industry have been everywhere 
 cramped, but the price of produce would have 
 universally and constantly fallen. Money would 
 have every day become more valuable : all other 
 articles measured in money less so; debt and 
 taxes would have been constantly increasing in 
 weight and oppression. The fate which crushed 
 Rome in ancient, and has all but crushed Great 
 Britain in modern, times, would have been that 
 of the whole family of mankind. All these evils 
 have been entirely obviated, and the opposite 
 set of blessings introduced, by the opening of 
 the great treasures of Nature in California and 
 
23 THE ECONOMIC CRISIS. 
 
 Australia. Before half a century has elapsed, 
 the price of every article will be tripled, enter- 
 prise proportionally encouraged, industry vivified, 
 debts and taxes lessened. 
 
 If these bright anticipations have been dis- 
 appointed, and if in Europe we are to-day again 
 confronted by those social troubles from which 
 we escaped so providentially in the middle of 
 this century, the reaction has resulted in a very 
 large measure from the betrayal of silver by the 
 legislatures of the West. In full view of the 
 beneficial results of " cheap money " from the 
 mines, in full view of the glorious effects of 600 
 million sterling of gold added rapidly to the 
 world's stocks, the attempt has yet been made 
 during the lifetime of that very generation which 
 was a witness of this universal prosperity, to strike 
 down silver, to lop off nearly one-half of the 
 active currency of the world. Instead, therefore, 
 of the blessing of a full and expanding currency 
 and of enterprise stimulated by rising prices, the 
 currency has been deliberately starved, a money 
 famine has been contrived, so that, while prices 
 have everywhere fallen, the burden of all debt 
 is doubled. Here is again " the winter of our 
 discontent. ,, 
 
 At the close of the 15th Century, when 
 
THE HISTORY OF PRICES. 29 
 
 America was discovered, it is estimated that 
 the monetary stock of Europe did not exceed 
 forty millions sterling, while the annual pro- 
 duce of the mines was less than ^100,000. 
 At that time the average price of wheat in 
 England was twelve shillings, and the price of a 
 good bullock thirty shillings, while, as compared 
 with the range of prices to-day, all other com- 
 modities were similarly u cheap." Then what is 
 known as the t£ Silver Age " in the world's history 
 commenced with the discovery of silver mines in 
 America. In 1545 the immense veins of Potosi 
 were opened, and as the annual supply rose to 
 two millions sterling — to twenty times the yield 
 at the commencement of the century — so also 
 before the close of the 16th Century, while the 
 monetary stock of Europe had increased sixfold, 
 all prices were found to have quadrupled. From 
 this time, although the yield of the mines con- 
 tinued to increase steadily, so that in the early 
 years of this century the annual addition was 
 nearly ten millions sterling, yet so large and ex- 
 tending was the area of distribution, and so 
 immense the increase both of production and 
 population, that from 1650 to 1800 a fair level 
 only of prices was maintained. 
 
 To come now to the currency history of our 
 
3° THE ECONOMIC CRISIS. 
 
 own century. Mr. Jacob, the historian of the 
 precious metals, in his great work published in 
 1 83 1, showed that the monetary stock of Europe 
 and America had decreased between 1809 and 
 1830, owing to losses, abrasion, and the require- 
 ments of the Arts, from 380 millions to 313 
 millions; and when, considering the natural 
 tendency of this contraction to lower the scale 
 of all prices, he writes : " If the prices of com- 
 modities were regulated solely by the quantity of 
 the circulating medium, there would have been a 
 fall of 13 per cent, from this cause in these twenty 
 years, and of 32 per cent, from the increase of 
 population in Europe and America, causing a 
 natural decline of prices at the rate 42 per cent." 
 But, owing to the disturbing effect of issues of 
 inconvertible paper money, and also to the diffi- 
 culty of averaging prices in the days before 
 railroads, when prices low in one locality were 
 often at famine rates a hundred miles away, Mr. 
 Jacob was unable to establish that there had 
 been any such fall as the figures of the monetary 
 stock appeared to suggest, and he says, there- 
 fore : — " Owing to circumstances, whose influence 
 it is difficult to calculate, the depression of prices 
 which would be the natural result of a diminution 
 of money, and an increase of population and 
 
THE HISTORY OF PRICES. 31 
 
 exchangeable goods, has been either prevented 
 or lessened." 
 
 But the later investigations made by Mr. New- 
 march, and confirmed by the painstaking ability 
 of Professor Jevons, show that the fall of prices 
 which Jacob only recognizes as theoretically pro- 
 bable, but which he failed to detect, had actually 
 taken place, and was on an even greater scale 
 than the monetary figures indicated. Jevons 
 has established that between 1809 and 1833, 
 prices fell 43 per cent.; while between 1809 
 and 1849 P r i ces na d fallen "in the ratio of 100 
 to 41." 
 
 This is very interesting. Jacob admitted the 
 theory and drew attention to it, even when the 
 result appeared refractory; while to-day, although 
 we have to guide us the fact of a currency con- 
 traction in metallic currency countries, and also 
 the fact of a huge fall of prices, we are yet asked 
 by a number of ingenious persons who run about 
 looking for sun-spot theories or for surplus stocks 
 which have no existence, to warm their mares' 
 nests, and reject the experience of the past ! In 
 the 15th Century the price of a quarter of wheat, 
 now thirty shillings, was only twelve shillings ; 
 the implements of agriculture, at that time most 
 rude and imperfect, have ever since been im- 
 
32 THE ECONOMIC CRISIS. 
 
 proving. If prices are to fall with improvements 
 in machinery and distribution, wheat then at ten 
 shillings should be to-day at two shillings per 
 quarter. And this equally disposes of the " over- 
 production " argument so frequently advanced to 
 account for low prices. There was no over-pro- 
 duction of wheat in the 15th Century; on the 
 contrary, half the world was periodically in danger 
 of starving. Wheat was at twelve shillings then, 
 as compared with thirty to-day, and this clearly 
 because money was then much scarcer than now, 
 and its purchase power therefore proportionally 
 greater. Those who abuse that hapless adjective 
 " cheap," and who tell us that the fall of all prices 
 is beneficial because it cheapens bread, would 
 doubtless also tell us that the two-penny loaf of 
 the 15th Century was "cheaper" than the four- 
 penny loaf to-day. And to minds of that order 
 the present contraction of the world's currency 
 at the hands of the Legislatures, and the conse- 
 quent wild tumble of prices, appears no doubt to 
 be an effort of modern scientific statesmanship 
 nearly equivalent to the finding of the philosopher's 
 stone. History, however, will be likely to agree 
 that such currency tinkering, which at the ex- 
 pense of the general community has built up 
 most of the great fortunes of the century, stands 
 
PRICES. 33 
 
 in much the same relation to statesmanship that 
 picking pockets does to philanthropy. 
 
 Those years of maximum " cheapness " be- 
 tween 1830 and 1850 were marked by the 
 extraordinary sufferings of all classes of the 
 community. The distress occasioned by the 
 continuous fall of prices is reflected in these words, 
 which, in 1832, Disraeli addressed to his con- 
 stituents: "Ireland in rebellion; the farmer in 
 doubt; the shipowner in despair; our merchants 
 without trade ; the revenue declining; the wealthy 
 hoarding their useless capital. ," To this position 
 then, as to-day, the country had been brought 
 by a contraction of the currency. From this 
 crisis the world was only rescued in 1849 by 
 the discovery of the great treasure-trove of the 
 American Continent, which three years later was 
 to be supplemented by the larger supplies still 
 from the river-beds of Australia. Here was the 
 commencement of the golden age in the world's 
 history — the age of gold, " cheap," because 
 abundant; the age of universal enterprise; the 
 age of high rates of interest, because of the 
 stimulus afforded to investment from the know- 
 ledge that prices were rising. Taking 100 as the 
 index number, denoting the average of prices in 
 1850, Soetbeer estimates that the index number 
 
34 THE ECONOMIC CRISIS. 
 
 for 1870 was 125; Jevons, 121 ; the Econo- 
 mist's table prepared, I believe, by the late Mr. 
 Walter Bagehot, 140. Were those years of 
 rapidly advancing prices, years memorable also 
 for a prosperity widespread and even universal? 
 Happily, the answer to this question can be 
 received direct from those who lived in that 
 sunshine. What wonderful years those were for 
 all classes ! Wealth increased ; wages advanced ; 
 each class of the community recognized its pro- 
 motion to a higher plane of comfort, of leisure, 
 and education ; bread and meat were becoming 
 " dearer ; " but were they ever before or since 
 so really cheap. 
 
 The annual addition to our gold currency 
 during those years averaged more than 4^ 
 millions; so that, in 1878, according to M. de 
 Laveleye's estimate we had 145 million sove- 
 reigns in our currency. Six years later Mr. 
 Fremantle, the Director of the Mint, estimated 
 the amount at less than 121 millions; and now 
 the official report just issued by Mr. Kimball, 
 the Director of the United States Mint, states 
 that there has been yet a further reduction of 
 twenty millions sterling ! If these figures are 
 even approximately correct, we have lost nearly 
 thirty per cent, of our entire legal tender currency 
 
PRICES. 35 
 
 in less than ten years! What wonder under such 
 
 conditions that since the " outlawry of silver " 
 
 by Germany in 1873, prices have been falling 
 
 " by leaps and bounds." The evidence given 
 
 before Lord Iddesleigh's Trade Commission all 
 
 pointed in the same direction : no traders knew 
 
 where they stood ; goods were losing their value, 
 
 while on the shelf of the warehouse, and having 
 
 been consigned to some market across the ocean, 
 
 the tidings of a fresh fall was sure to meet them 
 
 on arrival ! Every witness spoke of the fall of 
 
 prices, and the disaster consequent upon the fall. 
 
 In one trade it was a fall of 20 per cent., in 
 
 another of fifty. The crisis, all agreed, was a 
 
 price crisis ; demand was increasing ; supplies 
 
 seemed to be diminishing; and yet prices were 
 
 all the time going steadily downwards. 
 
 Mr. Sauerbeck, whose tables of prices are now 
 
 regularly published by the Statistical Society, 
 
 and who occupies in this connection much the 
 
 same position to-day that was formerly filled by 
 
 Professor Jevons, has taken as his index number 
 
 100, to denote the average of prices between 
 
 1867 and 1877. The margin of variation is 
 
 quite extraordinary. In 1873, the 100 had 
 
 risen to in, while in 1878 it had fallen to 87. 
 
 In 1879 it was 83, and in the succeeding years 
 
 d 2 
 
36 THE ECONOMIC CRISIS. 
 
 it was 88, then 85, then 84, then 82, then 76, 
 then 72. In 1886 it had fallen to 69, while for 
 the month of September 1887 it was 68*7 ! The 
 average of prices for the principal articles, writes 
 Mr. Sauerbeck, for the first nine months of the 
 year 1887 is the lowest recorded for a hundred 
 years. With the exception of somewhat higher 
 prices for tin, and lately for Manila hemp, there 
 is only one article which has experienced a con- 
 siderable rise, viz., coffee, on account of the 
 failure of the Brazil crop. English wheat was 
 in September last 47 per cent, below the average 
 point, the lowest point touched since 1761. 
 Sugar is now 50 per cent., tea 48 per cent., 
 pig iron 41 per cent., copper 47 per cent., 
 coals 30 per cent., cotton 45 per cent., merino 
 wool 2>?) per cent., meat and butter 15 per cent., 
 below the average of 1 867-1 877; while tin is at 
 par and coffee 21 per cent, higher. 
 
 Is the world with some ^5,000,000,000 sterl- 
 ing of national debt, the interest payable in gold, re- 
 turning to the prices current in the 15th century 5 
 
IV. 
 
 TFIE FALL OF PRICES. 
 
 Under the above title two articles have re- 
 cently appeared from the pen of Mr. David A. 
 Wells, in the Contemporary Review. The desire 
 of the writer is to demonstrate that the fall of 
 prices, where it has occurred, is the result of 
 such natural causes as increased supplies, im- 
 proved machinery and lower freight charges. 
 The stock arguments of Messrs. Mulhall and 
 Fowler are again made the most of, and although, 
 as I pointed out in a previous chapter, the course 
 of prices has, for hundreds of years past, been 
 rising pari passu with increased production and 
 the developments of science, although between 
 1850 and 1875, years by comparison with the 
 previous quarter of the century characterized by 
 the universal development of science, prices rose 
 some 40 per cent., still Mr. Wells invites us, 
 with a sweet reasonableness, to abandon once and 
 for all the currency theory of the fall of prices, 
 in favour of his statement of "supply and 
 
38 THE ECONOMIC CRISIS. 
 
 demand.' , If I enter upon an extended examin- 
 ation of these papers, I do so in no spirit of 
 hostility to Mr. Wells, but only because he ably 
 represents a certain school of writers who are 
 always getting in the way of the demands for 
 currency reform. As for Mr. Wells himself, 
 any argument he advances is entitled to respect- 
 ful consideration. He is a statistician of accepted 
 position, and he is also the leader in the United 
 States of a Salvation Army which makes up for 
 any deficiency in its numbers by its unwearied 
 enthusiasm in spreading the gospels of the 
 Cobden Club. But the line of argument taken 
 by Mr. Wells in the pages of the Contemporary 
 Review, while peculiar to himself and a diminishing 
 number of disciples, is, it seems to me, no answer 
 whatsoever to our assertion that the present con- 
 traction of the world's currency, and further, and 
 more important still, the dislocation of the old 
 " par of exchange " between the two metals, must 
 inevitably be followed by a corresponding fall 
 of prices in gold countries. Such is the position 
 we take ; but the moment we invite discussion, 
 Mr. Wells very adroitly leads us off into a very 
 labyrinth of statistics, which are meant to show 
 that the fall of prices has followed from the 
 activity of the inventor ! If to save trouble we 
 
THE FALL OF PRICES. 39 
 
 at once admit every point claimed by Mr. Wells, 
 as to increased production and diminished freight 
 charges, still all this merely emphasizes the pro- 
 digious importance of the reply to what is an 
 entirely distinct question — " Are not the currency 
 conditions, and our knowledge of what has hap- 
 pened in past times from similar conditions, such 
 as to enable us to forecast a fall of some forty 
 per cent, in prices ? " If it is a fact that the 
 conditions of supply and demand account of 
 themselves for a fall of forty per cent., how 
 enormously this increases the urgent nature of 
 our claim for currency reform I If the tendency 
 to a fall of forty per cent, in prices, because of 
 the reasons advanced by Mr. Wells, had yet been 
 more than counteracted by an immense increase 
 in the production of the precious metals, then 
 that Legislation which has deprived silver of its 
 legal tender prerogative, would appear less un- 
 reasonable ; but Mr. Wells' attitude is that of 
 a doctor whose remedy for one broken leg is the 
 fracture of the other! We have had a general 
 fall of forty per cent, in prices ; the currency con- 
 ditions would of themselves account for such a fall ; 
 still we are assured by Mr. Wells that the entire 
 fall is to be accounted for on other and entirely 
 distinct grounds — very well then, it is clear that a 
 
4o THE ECONOMIC CRISIS. 
 
 further fall, more perilous and more disastrous, still 
 awaits us, unless something is done to counteract 
 the insidious agencies at work. Mr. Wells, and 
 those who think with him, have unconsciously 
 done us the very greatest service. Clearly if prices 
 are collapsing from natural causes also, it is high 
 time to call public attention to the suspicious 
 doings of the Legislatures, in running amuck at 
 silver. But while gratefully admitting the figures 
 of production and of freights which Mr. Wells 
 adduces to support his views, it is quite clear that 
 his great mastery of statistics deserts him com- 
 pletely in his investigation of the Currency Ques- 
 tion itself. The confusion of ideas resulting from 
 mixing up the stock of currency with the money 
 market stock of loanable capital is apparent in 
 almost every page of the second article. For 
 example, Mr. Wells writes (p. 6$2>) > "But the 
 years from 1875 to 1879 inclusive, taking the 
 English market as the criterion, were character- 
 ized generally by an excessive supply of money 
 and currency of all kinds: and the same has 
 been true of the period from 1880 to 1886-87, 
 when if the supply of money from gold wets con- 
 stantly diminishing, contrary results would seem to 
 have been inevitable" But surely Mr. Wells 
 must admit that, if owing to currency contraction 
 
THE FALL OF PRICES. 41 
 
 or any other cause, prices are falling, there will 
 always be an excessive supply of money seeking 
 investment at the money centres. The supply 
 of money may have diminished, but in the face 
 of falling prices the demand for it will naturally 
 have diminished faster still. There is all the 
 difference in the world between buying gold and 
 borrowing gold. It is when prices are rising that 
 the loan demand for money is active ; ris'ng 
 prices stimulate borrowing and investment, and 
 are therefore always followed by a rising bank 
 rate. M. de Laveleye writes of the money crisis 
 caused in Hamburg in 1820 by the fall of 
 prices that " the premium on gold mounted up 
 to ten per cent., while the rate of interest re- 
 mained extremely low, discount falling to only 
 ij per cent., a proof of the extreme stagnation 
 of business." 
 
 Mr. Wells advertises very usefully the estimate 
 made by M. Soetbeer and Mr. Pixley of the 
 average yearly amount of gold available since 
 1850 for the supply of coin. Of course any such 
 estimate must be largely speculative, but Mr. 
 Wells makes the really extraordinary error of 
 supposing that these estimates are estimates of 
 the total additional supply from the mines. He 
 writes (p. 636) : — 
 
42 THE ECONOMIC CRISIS. 
 
 That the world's annual product of gold 
 consequent upon the exhaustion of the mines 
 in California and Australia has largely diminished 
 in recent years, is not disputed. Opinions as to 
 the extent of this reduction of supply are, however, 
 widely at variance. This is illustrated by the 
 following tables, presented in the " First Report 
 of the British Commission on the recent changes 
 in the relative values of the precious metals," 
 which give the estimates of Messrs. Soetbeer of 
 Germany and Pixley of London, two of the best 
 recognized authorities on this subject, as to the 
 average yearly amount of gold available for the 
 supply of coin at different periods since 1850: — 
 
 Soetbeer. Pixley. 
 
 1857-60 ... ^22,780,000 
 
 1861-70 ... ^14,060,000 
 
 1871-80 ... ^"10,255,000 
 
 i88r-84 ... £ 3,050,000 
 
 1852-60 ... ^27,600,000 
 
 1861-70 ... ^'17,600,000 
 
 1871-80 ... ^"18,700,000 
 
 1881-85 ... ^11,200,000 
 
 But these are estimates, not of gold produced, 
 but merely of the balance probably remaining 
 over after the requirements for the arts and 
 manufactures have been satisfied. M. Soetbeer 
 has evidently classed as gold " absorbed," the 
 several millions which are annually drained away 
 to be hoarded in British India, while Messrs. 
 Pixley and Abel have classed these millions as 
 still available for currency purposes, the apparent 
 discrepancy in the estimates is therefore largely 
 
THE FALL OF PRICES. 43 
 
 accounted for. The great danger of statistics 
 is in this : the public can be relied upon to 
 add two and two together for themselves, but if 
 pelted with paper millions, any statement is ac- 
 cepted, and every one who for a few years writes 
 in millions, no matter how inexactly, becomes 
 " an authority." Recently in the House of 
 Commons Mr. Gladstone quoted some figures 
 of Irish evictions on the authority of an Irishman, 
 Mr. Michael Mulhall— Mr. Balfour challenged 
 the figures which were established to be inac- 
 curate in the ratio of 1 to 5 ! Now, Mr. 
 Wells quotes the same authority as stating 
 that in 
 
 Great Britain the ratio of metallic money 
 used to the whole commerce of the country is 
 only 20 per cent., the ratio rises in Germany 
 to 34 per cent., in the United States to 58 per 
 cent. ; and in France to 85 per cent. Further- 
 more the banking facilities of the world, accord- 
 ing to the same authority, have increased since 
 1840 eleven-fold or three times greater than the 
 increase of commerce and thirty times greater 
 than that of population. 
 
 It is really impossible to accept such figures as 
 these as requiring serious analysis. What is the 
 commerce of a country ? The annual production 
 
4* THE ECONOMIC CRISIS. 
 
 of wealth in the United States is upwards 
 of two thousand millions sterling, its commerce, 
 as this wealth on its way from the producer ro 
 the consumer changes hands many times, is many 
 times greater ; but if we accept this ratio of 
 metallic money not to commerce but even to 
 produced wealth, then, according to Mr. Mulhall, 
 or at least to his commentator, the United States 
 must have nearly twelve hundred millions sterling 
 of metallic money, whereas, according to the last 
 report of the Director of the United States Mint, 
 the amount is not much more than half as many 
 dollars. But if the figures here quoted are 
 intended to suggest that cash transactions in the 
 United States as between buyer and seller are 
 nearly three times as frequent as in England — 
 that is in the ratio of 58 to 20 — this statement 
 seems to me to be also wildly inaccurate. I 
 believe, on the contrary, that in no country in the 
 world is business conducted to so dangerous an 
 extent, on a basis of credit, as it is in the United 
 States. The Americans are even more than 
 ourselves a commercial nation, a " Nation of 
 Shopkeepers;" the entire volume of their com- 
 merce is doubtless as much greater than that of 
 Great Britain as their population is greater than 
 that of Great Britain ; so that if in the United 
 
THE FALL OF PRICES. 45 
 
 States three exchanges were effected by means of 
 metallic money as compared with one in England, 
 the volume of metallic money per capita would 
 require to be greater in the United States than 
 in England, whereas it is slightly less— is, accord- 
 ing to the last report of the Director of the 
 United States Mint, sixteen dollars and forty- 
 nine cents, as compared with sixteen dollars and 
 fifty- two centsjn England. 
 
 Whether, as Mr. Mulhall goes on to remark, 
 the banking facilities of the world have increased 
 " eleven-fold since 1 840 " is merely guesswork ; 
 but, in any case, to attempt to argue as to 
 monetary requirements from the ratio of banking 
 facilities to the world's population, is as ridiculous 
 as to try to establish a ratio between professional 
 beauty and the Rocky Mountains ! There is in 
 either case no common denominator. If a com- 
 plete banking system could be established to- 
 morrow in China, this, so far from diminishing 
 the currency requirements of the world, would, 
 by extending the metallic area, enormously in- 
 crease those requirements — would have a similar 
 effect in redistributing silver money as the action 
 of Germany had in 1873 on the gold stocks of 
 the world. China would require perhaps two 
 hundred millions sterling of currency, and subject 
 
46 THE ECONOMIC CRISIS. 
 
 to such a demand for silver — the ratio of i to 
 1 5i wou ld be restored at one jump. 1 That credit 
 
 1 The North China Herald, published at Shanghai, ques- 
 tions this view in a very interesting editorial of March 23rd. 
 " Now, everybody who knows China knows that this country 
 possesses a very complete banking system, so far as the 
 number of banks and their extension all over the Empire 
 goes. It is not the best banking system in the world, and 
 it would bear improvement and modernizing to a very great 
 extent. Except, perhaps, Scotland, China is more amply 
 banked than any other country that we know of. What is 
 wanted, to enable the officials and the mercantile classes 
 to improve their financial methods, is the formation of a 
 National Bank, which shall have branches in the large cities, 
 transacting ordinary banking business and assisting the 
 Government as national banks in other countries assist 
 theirs. But though a part of the capital of such a bank 
 would require to be imported, in some form or other, if 
 foreigners were allowed to hold shares in it, it is by no 
 means certain that any large amount would require to be 
 provided in this way. And it is highly improbable that a 
 sum anything like two hundred millions sterling would be 
 necessary to provide a currency. China possesses and 
 always has possessed a large amount of sycee silver, and if 
 the Government determined to issue a coinage much of that 
 silver would be used for the purpose. Probably the best 
 policy for the Government to adopt would be to offer some 
 advantages to the owners of sycee to send it to the mints to 
 be coined. Sycee would go out of currency as soon as a 
 coinage was made, as we presume it would be made, the 
 only legal tender, and the mercantile classes, at all events, 
 would get rid of their silver as soon as possible. It is by 
 no means the first time that we have seen bi-metallists, and 
 some who are not bi-metallists, express their belief that 
 China would, as soon as she determined to issue a coinage, 
 
THE FALL OF PRICES. 47 
 
 has not taken the place of metallic money, Mr. 
 Giffen also agrees. He writes : " I much doubt 
 whether any serious economy has been effected 
 with regard to exchanges accomplished by the 
 substitution of credit for gold." The Clearing 
 
 or commence to construct railways on a large scale, require 
 a great amount of silver. Many newspapers hailed with 
 great satisfaction the Concessions to the American bankers 
 last year, because they took it for granted that a large 
 quantity of silver would be required to carry out the schemes. 
 So far from that being the case, every ton of rails or each 
 locomotive that was imported would make China a buyer of 
 gold, or bills of exchange, to pay for them. Anything which 
 increases the debt of China to the West tends to place her 
 finances — as far as these refer to the outside world — in the 
 same position as the finances of India, for the more pay- 
 ments she has to make to Europe or America the greater 
 the amount of gold exchange she will require to remit. Of 
 course a considerable or even a large part of the first cost of 
 railways, and perhaps of other public works, might be raised 
 in loans abroad, but even so that would not lead to the 
 import of any large amount of silver. It is not known how 
 much silver comes to and is sent away from Hongkong and 
 China, but persons acquainted with the trade are of opinion 
 that as much is exported as is imported. And a consider- 
 able part of what comes from San Francisco is sent to pay 
 drafts which the banks in that city issue on Hongkong to 
 returning Chinese or to Chinese merchants. The supply of 
 sycee seems sufficient for the trade of the country, supple- 
 mented as it is by copper cash and by gold and bankers' 
 drafts as remittances. But no believer in China taking off 
 a large quantity of silver, for imperial purposes, has ever, so 
 far as we know, shown what she could give in exchange, 
 supposing she required the metal." 
 
48 THE ECONOMIC CRISIS. 
 
 House returns in London show also of late 
 years no expansion, but on the contrary a steady 
 diminution. 
 
 But the most extravagant misstatement of all 
 is to be credited to Mr. Wells himself. After 
 alleging that every addition to the stock of gold 
 and silver is an addition " to the fund available 
 for exchanges" (a statement so inexact as to 
 require no comment beyond the remark, that a 
 gold plate is no more available to effect ex- 
 changes than when its gold was yet in the 
 bowels of the earth), Mr. Wells proceeds to 
 say (p. 639) : 
 
 The aggregate sum by which the yearly average 
 amount of gold available for coinage fell off 
 during the period from 1861-70, as compared 
 with that from 1852-60, when the mines of Cali- 
 fornia and Australia were most productive, was, 
 adopting Mr. Pixley's estimates, less than one 
 hundred millions sterling, a sum absolutely great, 
 but most inconsiderable — less than one-sixth of 1 
 per cent. — in comparison with the amount of gold 
 believed to have been in existence in civilized 
 countries in 1885. 
 
 Now, apart from the fact that this " most 
 inconsiderable " sum is about equal to the entire 
 gold in currency to-day in Great Britain, what is 
 
THE FALL OF PRICES. 49 
 
 that sum of which a hundred millions represents 
 less than one-sixth of one per cent. ? — Why a 
 sum of upwards of sixty thousand millions ster- 
 ling ! No estimate, however, is in existence which 
 places the entire gold currency not of " civilized 
 countries " but of the whole world at more than 
 seven hundred and twenty millions, or the total 
 of gold of whatever kind, at more than fourteen 
 hundred and sixty millions. So that actually this 
 "inconsiderable" deficiency, instead of being one- 
 sixth of one per cent., is about one-seventh of the 
 whole ! Of course Mr. Wells will be the first to 
 admit the inaccurracy of his own figures. The 
 error is one of mere carelessness, but none the 
 less mistakes on such a scale from a writer of such 
 mark, are most deplorable in dealing with such a 
 subject. The people who read Mr. Wells' articles 
 accept them as data available for fresh currency 
 literature, and are just the people least likely to go 
 to the trouble of reading these corrections, — people 
 hostile to silver, hostile to monetary reform, and 
 only anxious to absorb some figures, correct or in- 
 correct, which they can reproduce when required, 
 alleging the authority of Mr. David A. Wells. 1 
 
 1 For a review of Mr. Wells' figures of " over production," 
 see Appendix A., republished from the New York Com- 
 mercial Chronicle. 
 
50 THE ECONOMIC CRISIS. 
 
 Mr. Wells' two articles, excellent in themselves 
 and full of valuable material, are entirely de- 
 formed by his references to the currency subject, 
 a subject which lies quite outside of the field of 
 statistical study in which he has been such a 
 patient worker. Himself the most honest of 
 writers, he yet, from a mere want of perception, 
 brings within the compass of five lines M. Cer- 
 nuschi and Mr. Sauerbeck as making statements 
 which leave upon the mind of the reader an 
 impression exactly the opposite of that which 
 those distinguished economists would wish to 
 convey. M. Cernuschi had written to the Econo- 
 mist that " the fall of prices which is complained 
 of, is not due to what has been called a scarcity 
 of gold — a scarcity which is purely imaginary;" 
 and this unguarded remark is quoted by Mr. 
 Wells and has been quoted by a hundred others 
 as evidence that there is gold enough alone to 
 maintain prices. Every currency student would 
 understand that M. Cernuschi was referring to 
 the fall of prices as resulting, not from the scarcity 
 of gold, but from the outlawry of silver, which 
 before 1873 not only did a large portion of the 
 work now done by gold, but which maintained 
 also a steady "par of exchange" between the 
 metals — a distinct question which I shall consider 
 
THE FALL OF PRICES. 51 
 
 in a later chapter. If the Legislatures were sud- 
 denly to agree that vegetarianism was the right 
 thing, and that man must live by bread alone, it 
 is evident that a famine would occur. The citi- 
 zen who previously required half a loaf, plus fish 
 and meat and eggs, would now require in the 
 absence of all other food two loaves ; in one 
 sense of the word there would be no scarcity of 
 wheat : the world's wheat harvest might be the 
 largest recorded. There would be no natural 
 scarcity, — only an artificial, a legislated scarcity; 
 and it was in this sense, and this only, that very 
 unfortunately M. Cernuschi denied that there 
 was a "scarcity of gold." Mr. Wells immedi- 
 ately after, with the same idea in his mind, quotes 
 Mr. Sauerbeck as declaring that a "scarcity of 
 gold as understood by bankers, does not exist," 
 and this is quite true as undersood by bankers; 
 the banks were never so full of idle unloanable 
 capital, but to suggest that this is a sign of an 
 abundant currency is absurd. There are a 
 hundred million sovereigns in Great Britain; 
 if these sovereigns were all known to be lying- 
 idle in the Bank of England, it would be a little 
 bewildering to argue that therefore there were 
 plenty of sovereigns in currency outside the 
 Bank! 
 
 E 2 
 
52 THE ECONOMIC CRISIS. 
 
 Nor I think is Mr. Wells luckier in his theory 
 of diminished freight charges. Lower freights 
 are less the cause than the consequence of low 
 prices. If the material of which ships and rail- 
 roads are built falls in price, owing to a currency 
 contraction, freights will fall also. If a ship can 
 be built for half the money, freights will fall 
 accordingly : low freights are the results par- 
 ticularly of cheaper loanable capital, of cheaper 
 material and cheaper labour, which are themselves 
 all primary symptoms of a contracted currency. 
 To say, therefore, that prices are low r because 
 freights are low, is merely to allege that prices are 
 low because prices are low ! 
 
 Finally, I would refer Mr. Wells, and those 
 who think with him, to a paper of the late Mr. 
 Stanley Jevons published in December 1869 in 
 the Journal of the Statistical Society. He was 
 replying to those who alleged the "supply and 
 demand theory/' as a reason for the then rapid 
 rise of prices, and he was insisting that prices 
 were rising because of a currency expansion, just 
 as we to-day urge that prices are falling because 
 of a currency which by comparison with those 
 times has become contracted. Jevons, who was 
 the most fair-minded and reasonable of all the 
 advocates of so-called " monometallism," writes : 
 
THE FALL OF PRICES. 53 
 
 To complete the argument I have only to 
 ask those who think that the growth of popula- 
 tion, the increase of demand, or the progress of 
 trade is the cause of the rise in prices, whether 
 population, demand, trade, &c, were not expand- 
 ing before 1849, not so rapidly perhaps as since, 
 but still expanding; and how it is that causes 
 of the same kind have produced falling prices 
 before 1849, anc ^ rising prices since? To gain 
 some notion oT the degree of probability of con- 
 clusions on this subject (the rise of all prices), it 
 has occurred to me to apply the ordinary methods 
 of the theory of probabilities to the results stated 
 in my pamphlet on the value of gold. The list 
 of commodities there given (including cotton) 
 contained thirty-six different articles, of which 
 twenty-nine were found to have risen in price in 
 1862, as compared with the average of the years 
 1845-50, while only seven had fallen in price. 
 All the alterations of price (excluding the extreme 
 rise in the case of cotton) lay between a fall of 26 
 per cent, and a rise of 67 per cent., but most of 
 the alterations were of about 10 or 20 per cent. 
 Regarding each of these thirty-six commodities 
 as a separate and independent measure of the 
 alteration in the value of gold, I first took the 
 average rise of prices, namely, 16 per cent., as 
 the most probable estimate which these thirty-six 
 measures give, and then proceeded to calculate 
 by the ordinary method of least squares the 
 
54 THE ECONOMIC CRISIS. 
 
 probable error of the results It may be 
 
 safely said that the odds are 10.000 to i in favour 
 of a real depreciation of gold. The meaning of 
 this is that the chances are ten thousand to one 
 against a series of disconnected and casual circum- 
 stances having caused the rise of price — one in the 
 case of one commodity, another in the case of 
 another — instead of some general cause acting over 
 
 them all The tables of your Annual 
 
 Review unmistakably prove the existence of a 
 rise ; to what must we attribute it ? To growth 
 of population and trade ? I think that the growth 
 of population and trade tend to lower prices by 
 increasing the use of gold, and to this cause we 
 may reasonably attribute the fall of prices before 
 1849. But to attribute to the same cause, as 
 some do, the diametrically opposite change which 
 has occurred since 1849, * s illogical in the 
 extreme. The normal course of prices in the 
 present progressive state of things is, I think, 
 downwards, but for twenty years at least this 
 normal course has been checked or even reversed, 
 and why should we hesitate to attribute this ab- 
 normal effect to the contemporary and extra- 
 ordinary discoveries of gold ? It would not be 
 difficult to show that not only have prices risen 
 during the period in question, but that the rela- 
 tions of society have readjusted themselves in 
 accordance. While statisticians have been dis- 
 puting, society has practically accepted the fact 
 
THE FALL OF PRLCES. 55 
 
 of a rise. The pay of the army is increased ; the 
 whole of the Civil Service, and the staff of the 
 Bank of England receive larger salaries, and 
 could the information be obtained, I believe the 
 same changes might be shown to have occurred 
 in most private establishments. 
 
 Because of the depreciation of gold, consequent 
 upon the great discoveries, wages and salaries 
 were all raised. Now a more than equivalent <^ 
 appreciation has occurred, not because of the 
 scarcity of the precious metals, but because of 
 radical legislative changes, whether dishonest or 
 merely capricious. 
 
 The question now asked of our statesman is 
 this : Which will cause the less social disturb- 
 ance, the immediate reduction of all wages and A 
 salaries, or, on the other hand, the reversal of 
 certain legislation, which from the very first was 
 under suspicion, but which is now directly chal- 
 lenged as dishonest ? Surely there can be little 
 doubt as to the nature of the reply ! 
 
V. 
 
 MR. DAVID A. WELLS ON " BIMETALLISM." 
 
 The arguments as to the Fall of Prices 
 advanced by Mr. Wells in the October number 
 of the Contemporary Review, even when they fail 
 to carry conviction, are in themselves valuable, 
 and his statistics of production will be found by 
 all students of prices most useful for purposes 
 of reference. In the number for November, 
 where Mr. Wells reviews the currency aspect of 
 the fall, he blunders badly ; but what is to be 
 said of the concluding paper of his series, which 
 appears labelled "Bimetallism" in the December 
 number of the Review? Mr. Wells is at all 
 times such an agreeable writer that the position 
 of a candid critic is an ungracious one. Just as 
 no one reads the Hunting of the Snark with less 
 enjoyment because at the close he is still puzzled 
 as to the scientific grouping of the genus 
 " Snark," so in Mr. Wells's paper on bimetallism, 
 even where the author is at fault from evident 
 unfamiliarity with his subject, he still rarely fails 
 
MR. D. A. WELLS ON "BIMETALLISM." 57 
 
 to be interesting. But if we are seriously re- 
 quired to consider this paper as a survey of 
 " Bimetallism," by a standard writer, then it helps 
 to explain why, to use the writer's own words, 
 " there is no other economic problem concerning 
 which there is so little comprehension on the part 
 of the general public." For there is really 
 nothing in this paper " bimetallic" except its 
 title ; the relation of the title to the contents is 
 the relation between the announcement often seen 
 in largest type in the American papers : " Ten 
 Thousand Dollars Reward," to the assurance 
 which follows that "St. Jacob's Oil cures all 
 sprains." 
 
 Mr. Wells has, I believe, held the very respon- 
 sible position of Secretary to the Treasury in the 
 United States. We are all of us indebted to him 
 for his careful statistical . researches, but with 
 much respect it must be evident to those who 
 have even skirted the fringe of the Currency 
 question, that Mr. Wells is but an ill-equipped 
 recruit in this conflict around the Standards. 
 No one who is in the habit of thinking out 
 currency problems could possibly have made so 
 extravagant a mistake as to write about a hundred 
 millions of gold being a sum " most inconsider- 
 able," as "less than one-sixth of one per cent." 
 
58 THE ECONOMIC CRISIS. 
 
 of our gold stocks. Every man to whom the 
 Currency question is even interesting carries it 
 always in his mind as a point of departure that, 
 whether a little more or a little less, there are 
 only seven hundred millions sterling of gold in 
 all the currencies of the world, and that when 
 dealing with one hundred millions, he is dealing 
 with a seventh and not a six-hundredth part of 
 the whole. The perusal of any book of Mr. 
 Dana Horton's, indeed, any one of a hundred 
 recent speeches in congress, would have protected 
 a compatriot against inaccuracies such as these. 
 At least the third paper, published in December, 
 might have corrected the statistical errors con- 
 tained in the previous numbers. 
 
 And if there is one argument that makes more 
 strongly than all others for the free coinage and 
 unlimited legal tender of the two metals — an 
 argument admitted to be quite sound even by 
 Jevons — it is this : that the inconveniences and 
 dangers of sudden derangements of prices are 
 immensely diminished by the unlimited coinage 
 of the two metals. How enormous was the 
 service rendered to the world by the automatic 
 action of the bimetallism of the French mints 
 in the years that succeeded the great gold dis- 
 coveries. Had France at that time been either 
 
MR. D. A. WELLS ON " BIMETALLISM? 59 
 
 on a single silver, or on a single gold, basis, then 
 such masses of gold as were pouring into the 
 world's markets could not have failed to inflate 
 prices in gold standard countries to a most dis- 
 astrous degree. So that instead of prices rising 
 steadily some 35 per cent., they would no doubt 
 have doubled or even trebled by "leaps and 
 bounds." Thanks solely to the compensatory 
 action of her < t>imetallic system, France sat in the 
 middle of the commercial world as the universal 
 money-changer, and quietly and almost imper- 
 ceptibly exchanged a hundred millions sterling of 
 her legal tender silver, for an equal amount of the 
 new gold. France, as Chevalier well expressed 
 it, was the " parachute " which broke the fall of 
 gold. Suppose there had been no country keep- 
 ing open mint, where masses of gold could be 
 exchanged against equal masses of silver, one 
 of two evils must have ensued : either a dislo- 
 cation of trade, and wild gambling in " exchange M 
 between all silver standard and gold standard 
 countries, pending an adjustment of all prices, or 
 otherwise a succession of money panics, the ruin 
 of the bond-holding classes and frantic appeals 
 to the legislatures to make changes of standard 
 from gold, at that time depreciating rapidly, to I 
 silver, then as now by comparison stable. Thus ' 
 
60 THE ECONOMIC CRISIS. 
 
 it was that only for the " parachute " — the bene- 
 ficent operation of the French monetary system 
 — the most serious inflation of prices must have 
 taken place, and, what is far more important still, 
 we should now be suffering from a resultant con- 
 traction of all prices, on a scale similar to the 
 antecedent rise. Prices having trebled would 
 have again fallen by two-thirds; and as when 
 gold is cheapest, speculation is most brisk, pro- 
 perties of all kinds, bought twenty years since, 
 subject to fixed gold mortgages, amounting per- 
 haps to fifty per cent, of their then value, would 
 long since have changed hands, leaving the pro- 
 prietor, through no fault of his own — penniless, 
 the mortgagee everywhere in sole possession. 
 So alarmed was M. Chevalier at the magnitude 
 of the coming Jail he saw in the value of gold, 
 that even though he recognized the "parachute" 
 afforded by bimetallic coinage at the French 
 mints, yet he urged the world to revert to a 
 single silver standard. Acting upon his sugges- 
 tions and in order to protect the creditor classes 
 from the coming depreciation of gold, Holland 
 and Belgium demonetized gold, while Russia for- 
 bade the export of silver." And what has Mr. 
 Wells to say of this equilibriating action of bi- 
 metallic France, which at a most critical time, 
 
MR. D.A. WELLS ON " BIMETALLISM." 61 
 
 and in the face of a most unexampled increase 
 in the stock of one metal, yet availed to main- 
 tain a steady ratio of i to 15^ all the world over? 
 He says of it that " there was a ivell-recognized 
 movement in France against silver and in favour 
 of gold from 1853 t0 I ^^5-" The natural, in- 
 evitable movement mint-ward of the more abund- 
 ant metal, when admitted to legal tender coinage, 
 which is one~ of the admitted results of bimetal- 
 lism is thus referred to a moral movement in the 
 public mind against silver! Does Mr. Wells for 
 a moment doubt that if the French mints were 
 to-day open to free coinage of silver, as they were 
 before 1875, silver would come forward and the 
 tendency would be for gold to flow away from 
 France into gold monometallic countries ? And 
 would Mr. Wells describe this also as a "well- 
 recognized movement in France against gold and 
 in favour of silver ! " A few lines later he pays 
 the highest possible tribute to the steadiness of 
 silver, and says that never " would an ounce of 
 silver exchange for so much of sugar, wheat, 
 wool, iron, copper, or of most other commodities 
 as at present." Here is the admission that silver 
 possesses the very attribute required in a standard 
 of value, namely, comparative stability. Prices 
 measured in gold have fallen forty per cent. ; 
 
62 THE ECONOMIC CRISIS. 
 
 prices measured in silver, perhaps ten per cent. 
 Which then is the fairer standard of values for 
 classes and masses alike — for every one, in short, 
 except the universal " Gold Bug ! " And having 
 thus made clear to us that in dealing with silver 
 we are dealing with a good standard metal, in the 
 very same five lines Mr. Wells goes on to give 
 "a rational explanation of the decline since 1873 
 in the value of silver." What decline ? Surely 
 a moment since we were assured that silver had 
 risen in value ? And so we have secured from 
 Mr. Wells this distinct admission — that the de- 
 cline in silver is solely a decline in the gold value 
 of silver, but that its commodity value, its measur- 
 ing value, has not declined ; that in fact it is gold 
 which is appreciating, not silver which is depreciat- 
 ing / And this brings us to the one further point 
 I intend to make as against Mr. Wells, — the 
 question of the connection between the price of 
 wheat and the price of silver. Let us avoid mis- 
 leading jargon about international trade being 
 international barter, and suppose that we are 
 purchasing wheat for export from a ryot in 
 the Punjaub. What does this ryot want for his 
 wheat ? Clearly rupees. Does he cave, I ask 
 him, whether he gets one rupee per maund, 
 or two rupees ? Certainly he cares ; if the value 
 
MR. D. A. WELLS ON "BIMETALLISM." 63 
 
 of the rupee he receives, to buy cottons at the 
 Bombay mills, to buy a cow, to buy labour, 
 does not diminish, he would be twice as well 
 off, he says, with two rupees as with one. 
 Very well : then I am able to tell him that 
 President Cleveland and both Houses of Con- 
 gress have at last been converted by Mr. Wells 
 and his friends and the Bland Act has been 
 repealed ; the"~ inducement to fraudulent coinage 
 has now become so much greater, that in order 
 to protect the morals of their citizens the United 
 States have agreed to withdraw from currency 
 and sell all their legal tender silver, and to make 
 use in future of a single legal tender — gold ; that 
 fifty millions sterling of silver is forthwith to be 
 flung upon the London market ! What will be 
 the effect on its price of this deluge of the white 
 metal ? Certainly the silver ounce will fall to 
 thirty pence, probably much lower ; that is, the 
 rupee is to be reduced from its old value of 
 nearly a tenth, to the twentieth part of a sove- 
 reign. Now the price paid for Indian wheat 
 to-day in the London market is three half-sove- 
 reigns per quarter, therefore the ryot who is to-day 
 getting 22 silver rupees, will get for the same 
 amount of wheat and the same amount of gold — 
 thirty rupees ; are we to understand that this rise 
 
64 THE ECONOMIC CRISIS. 
 
 of price will fail to bring more wheat land into 
 cultivation, and will fail to stimulate the wheat 
 export trade of India at the expense of the British 
 and the American farmer ? Suppose that rupees 
 could be bought in London at the rate of 40 
 to the pound sterling, and still the rupee main- 
 tained in India its purchase power, would that 
 have no effect on the proportion of the wheat 
 trade of England from the Punjaub on the one 
 hand, from Dakota and Minnesota on the other ? 
 The ryot who cares nothing for the theories of 
 economists, merely says, " I want 22 rupees for 
 a quarter of wheat; if I can buy 22 rupees for 
 a sovereign I can afford to sell my wheat in 
 London for a sovereign a quarter. Mr. Wells 
 himself allows that an ounce of silver exchanges 
 for as much of sugar, wheat, &c, &c, as ever it 
 did ; he affirms repeatedly that while the price of 
 the silver ounce has been falling from sixty pence 
 to 44 pence, yet the rupee, with the " perversity \ 
 Mr. Goschen recently stigmatized, maintains in 
 India its full purchase power. Having admitted 
 the premises both major and minor, he resists 
 the inevitable conclusion, and says in his second 
 paper: "No one has been able to trace with any 
 degree of clearness any connection between the 
 two facts — between the fact of the fall in the 
 
MR. D. A. WELLS ON "BIMETALLISM." 65 
 
 price of wheat and the fall in the price of silver." 
 In his third paper also Mr. Wells writes: 
 "Nothing is easier than to get into a state of 
 mental confusion in respect to this matter. ,, 
 The " mental confusion " amounts to this : either 
 there is a connection between the price of wheat 
 and the price of silver, or Mr. Wells must be 
 prepared to affirm that if the value of gold in 
 the United States to buy every other commodity 
 did not diminish, it would still be a matter of 
 indifference to the Minnesota farmer whether he 
 receives one dollar a bushel, or one hundred 
 dollars a bushel, for his wheat ! 1 
 
 1 Replying to the questions of the Currency Commis- 
 sioners, M. Cernuschi says of the " stimulus to exports 
 from silver countries " — 
 
 " So long as exclusively Oriental articles such as tea and 
 indigo were concerned, the fall of prices could displease 
 nobody. Not so if articles are concerned which we our- 
 selves produce — wheat, oilseed, and the like. 
 
 " I will speak only of the most important article, wheat. 
 
 "Many persons maintain' that if Indian wheat be sold 
 cheap, it is because it is produced cheap, because it is 
 carried cheap to the shipping port, and because freights 
 have considerably fallen. Were this the case the classical 
 country of free trade might have no right to complain. But 
 it is not so. 
 
 "To reckon the price of Indian wheat sold in England, 
 there is no need to know what the production of that wheat 
 costs, nor what the carriage to the shipping port costs. It 
 is enough to know the price at which that wheat can be 
 
 F 
 
66 THE ECONOMIC CRISIS. 
 
 It appears possible, however, that from the, 
 mistakes of Mr. David A. Wells, Mr. Mulhall, 
 and other statisticians, when dealing with this 
 subject, the world may arrive at a general conclu- 
 sion of great importance. The science of sta- 
 tistics is clearly an inductive science — it is an 
 adding together of units, dozens, and hundreds, to 
 arrive at sums total. But economic science on 
 
 sold in England, and what has been laid out in maritime 
 transport and sale expenses. 
 
 "Let us take the price of 335. per quarter. Maritime 
 transport and sale expenses are known to require an outlay 
 of 6s. per quarter. Subtracting 6 from 33, there remain 
 27.J., which at the exchange of i&/. produces 18 rupees. 
 It follows that Indian wheat can be bought at 18 rupees on 
 ship at Bombay, to be sold at 33s. in England. But to 
 make these 18 rupees, if the bimetallic par at 2s. per rupee 
 still existed, 36s. would be required instead of 27^. Differ- 
 ence 9s., which would have to increase the selling price if 
 the bimetallic par had not disappeared. 
 
 " Indian wheat selling cheap, English wheat correspond- 
 ingly falls. English agriculturists are forced to sell their 
 wheat 9*. cheaper. 
 
 "This bounty by exchange has had the effect of stimulat- 
 ing wheat-growing in India, so that her exports of wheat 
 have risen from 637,000 cvvt. in 1872, to 21,000,000 cwt. in 
 1886, — an increase about as 1 to 33. Considering that the 
 new arrivals of wheat are themselves by their magnitude 
 the cause of a fall, a cause which would not exist if the 
 bounty by exchange did not itself exist, it may be affirmed 
 that English wheat would now be selling at 44s. to 4js. if 
 the bimetallic par had not disappeared." 
 
MR. D. A. WELLS ON " BLMETALLISM." 67 
 
 the other hand is an analytical science. Take 
 this very subject of the Currency, and what is 
 the method we employ in helping ourselves for- 
 ward to conclusions? We take the history of 
 the world, and we observe that during certain 
 periods before and since the fall of the Roman 
 Empire, there were periods of a flowing pros- 
 perity; and there were on the contrary periods of 
 reaction; we ""make allowance for disastrous wars, 
 for scientific and geographical discoveries, for the 
 expansion of people, of trade, and of credit ; we 
 compare the output of the mines and the progress 
 of nations from barbaric conditions of mere 
 barter to their age of civilization — manifested 
 among other things by their acceptance of a 
 metallic currency. And we are able, as we 
 believe, to establish a connection, almost self- 
 evident, between the variation of prices and the 
 variations in the local distribution of the money 
 metals. And if this is so, we have also arrived at 
 this point, — that statistics require an inductive 
 method of mind, but currency investigation a 
 deductive method ; that as a general statement it 
 may be accepted that the more eminent the 
 statistician, the less he is qualified to guide us to 
 reasonable conclusions in political economy. Of 
 
 course I am not to be understood as affirming 
 
 f 2 
 
63 THE ECONOMIC CRISIS. 
 
 that this conclusion is an exact scientific truth : 
 there are some "ambidexterous" minds which 
 can keep reversing their methods of thought 
 without any loss of power — can, so to speak, 
 regulate their mental exchanges by a certain 
 bimetallic receptiveness ! Mr. Goschen I believe 
 to be such an one, and in a lesser degree Mr. 
 Giffen. The latter as a statistician has probably 
 no living equal ; but that he is also in touch with 
 the currency problem, even those who disagree 
 with his views will still be prepared to admit. 
 
 As a general statement, however, it holds good 
 that there is no more necessary connection 
 between the industry that enables a man to collect 
 figures, and his efficient employment of these 
 figures in the process of abstract reasoning, than 
 there is between the genius of a Krupp or 
 Armstrong, and the genius of a Turenne or a 
 Wellington. 
 
 There is much more danger in extravagant 
 reliance on statistics than is at all generally recog- 
 nized. A high authority has made the discovery 
 that political economy has been banished to 
 Saturn ; and beyond all doubt there is a revolt 
 to-day all over the world, which is changing the 
 face of politics, and which is adding immensely to 
 the cohorts of the Socialists. The revolt indeed 
 
MR. D. A. WELLS ON "BIMETALLISM." 69 
 
 may almost be described as itself Socialism. And 
 this is probably to be attributed not to any 
 fallacies to be discerned in Economic Science, 
 but to the nimbleness and the excesses of certain 
 statistical professors. A man who describes him- 
 self as a Doctor, and who physics his fellow- 
 citizens without the certificate of a diploma, pro- 
 bably will fetch up in jail ; but upon the accuracy 
 of generally-received statistics may, and often 
 does, depend the direction of legislation in the 
 State, and there should therefore be some penalty 
 imposed upon figure vendors, whose variations 
 from admitted facts exceed a fair margin. 
 
VI. 
 
 NATIONAL DEBTS AND THE GROWTH OF SOCIALISM. 
 
 In an article in the Nineteenth Century for 
 October 1885 I drew attention in some detail 
 to the aggravation of the burden of national 
 debts, which may result from a fall of prices. What 
 is a national debt ? Clearly, although expressed 
 in sovereigns or dollars or rupees, it represents a 
 subscription of a certain portion of the capital 
 of the community which, when converted into 
 money, is paid into the coffers of the State. The 
 iron-master realizes so many tons of iron ; the 
 cotton-spinner so much cotton ; the farmer so 
 many bullocks. Now if there was no such thing 
 as money in the world, clearly where an iron- 
 master lent the State one ton of iron, the State in 
 returning the loan would have no possible right 
 to tax the community by repaying two tons. 
 Nor would the State stand excused on any such 
 ground as that the cost of producing iron had 
 meanwhile fallen. And yet this is exactly what 
 the State is to-day doing all the world over ! If 
 
NATIONAL DEBTS, GROWTH OF SOCIALISM. 71 
 
 I am right in concluding that the contracted 
 condition of the currencies, resulting from legis- 
 lation, first in England and later in Germany, 
 accounts for a fall of forty per cent, in prices, 
 which fall from this cause has either already taken 
 place or must inevitably occur a little later, then 
 this fall of prices has added forty per cent, to the 
 burden of our debt just as distinctly, just as 
 directly, as though with prices steady, Govern- 
 ments had increased the number of sovereigns 
 in those debts by 40 per cent., or had increased 
 in that proportion the weight of the sovereign 
 to enrich the bondholder at the expense of 
 the community. Thus it happens that while 
 Finance Ministers are economizing in hundreds, 
 the debts themselves are growing at the rate 
 of thousands ! 
 
 It would be clearly quite impossible to express 
 in terms of the produce represented by the sove- 
 reigns when borrowed, such a National Debt as 
 that of Great Britain. The period during which 
 it was contracted is a long one, and prices during 
 that period have fluctuated between very wide 
 limits. If it were possible, however, to make an 
 exact statement of the National Debt in terms 
 of the staple products of Great Britain, what 
 a revelation it would appear of the enormous 
 
72 THE ECONOMIC CRISIS. 
 
 injustice done to the general community by the 
 appreciation of gold. 
 
 During the second quarter of the year 1801, 
 while consols had fallen to 54, the price of wheat 
 was within nine pence of £$> per quarter. What 
 is the meaning of consols at 54 ? It means that 
 during the period of our history, when the debt 
 was increasing most rapidly, Government was 
 promising in return for ^54 to repay at some 
 future date £100, with interest in the mean time 
 at 5 per cent, not on the ^54 actually advanced, 
 but on the ^100 of nominal value. Now, 
 suppose for a moment that at that time all prices 
 were, as compared with prices to-day, as ^£S the 
 then price of wheat to thirty shillings the present 
 price ; and further that the 700 millions which 
 we owe to-day had been all borrowed during that 
 time — then clearly the same amount of debt 
 which then represented a borrowing by the State 
 of only ninety million quarters of wheat, is to- 
 day represented by nearly 500 million quarters. 
 
 The national debt of the United States at the 
 close of their war was more than 600 millions 
 sterling, to-day it has been reduced to 230 mil- 
 lions, and yet so far from the debt itself being 
 reduced, rather than the mere quotation of its 
 amount in dollars, it would take more wheat or 
 
NATIONAL DEBTS, GROWTH OF SOCIALISM. 73 
 
 cotton, or iron or sugar, or maize — these are the 
 staple products of the country — to redeem the 
 third of the debt which remains now, than would 
 have wiped out the entire debt at the scale of 
 prices in which that debt was contracted. " But 
 this is all very true," replies the bondholder and 
 gold owner, "still at a time of crisis we showed 
 such patriotic confidence in the future of the 
 country that tve deserve to get back four dollars 
 where we lent one : It was a fair gamble and we 
 were the winners." But as a matter of fact the 
 money owner did nothing of the sort ; the State 
 commenced the deal by borrowing his money 
 without his leave by the simple expedient of 
 printing paper money wholesale, and making 
 these notes legal tender. Every other property 
 owner was taxed through an inflation of all prices 
 equally with the bondholder. But he alone has 
 been permitted to grow rich out of the misfor- 
 tunes of his country. Alone of the community 
 the State has bonused his patriotism : that bonus 
 is neither more nor less than the difference 
 in value between gold and greenbacks. The 
 amount of the premium on gold has been the 
 amount of the premium on this kind of 
 patriotism ! 
 
 And what classes of the community pay nine- 
 
74 THE ECONOMIC CRISIS. 
 
 tenths of all taxes? I believe that indirectly 
 almost the entire sum of taxation is deducted 
 from that share of production which is paid to 
 labour. Mr. Edward Atkinson, of Boston, whose 
 statistics may be accepted without hesitation, has 
 estimated that the annual production of wealth 
 in the United States amounts to ten thousand 
 million dollars, of which sum, after providing for 
 " domestic consumption " — the consumption on 
 the farm or in the factory — 9000 millions re- 
 present the product that comes to market; of 
 this sum Mr. Atkinson finds that taxes con- 
 sume 700 millions and the balance of 8300 
 millions is divided between capital and labour 
 in the ratio of 1 to 10. If, therefore, there were 
 no taxes at all, of the 700 millions absorbed by 
 taxes, one-tenth would be taken by the capitalist, 
 but nine-tenths by the workers. And if this 
 conclusion holds good it is clear that the greater 
 the fali of prices and the larger the share of 
 production which must be converted into gold 
 to be paid to bondholders, the longer must be 
 the hours of labour. In short it is readily con- 
 ceivable that gold debts might increase, not only 
 relatively but absolutely — while prices fell to that 
 point where the entire industrial production of a 
 country was absorbed in the payments of interest 
 
NATIONAL DEBTS, GROWTH OF SOCIALISM. 75 
 
 to the owners of the National Debt. And bear- 
 ing this possibility in mind, Lord Derby's recent 
 speech at Liverpool is very significant. The 
 national debts of Europe have risen from 400 
 millions at the commencement of the century 
 to a present aggregate of nearly 5000 millions 
 sterling. And Lord Derby, who is not an 
 alarmist, warned his audience that the close of 
 the century may probably witness an extensive 
 repudiation of these increasing burdens. And 
 because this can hardly be otherwise if prices 
 are to fall further, such a forecast of the future 
 by a leading statesman affords the best reply to 
 those who say that as England is a creditor 
 nation, and draws annually interest to the amount 
 of eighty millions sterling from other countries, 
 that therefore the greater the fall of prices the 
 greater the amount of the produce of the 
 foreigner which must be paid as annual tribute 
 to England. This is true enough, but the 
 question is how long will it be before debtor 
 communities recognize that England was the 
 first nation to sanction legislation intended to 
 contract the currencies of the world, and thus 
 to increase the burden of debt? And when 
 this point has been made clear, and that in the 
 form of " appreciated gold," the debts owing to 
 
75 THE ECONOMIC CRISIS. 
 
 England have been already paid in full, both 
 principal and interest, how long will it be before 
 the example of partial repudiation set by Turkey 
 comes to be extensively followed ? 
 
 England has advanced some 2000 millions 
 to various foreign countries on certain securities. 
 The margin between the loan and the security 
 diminishes day by day, with each fresh fall of 
 prices. Surely he is a short-sighted creditor who 
 fails to count the cost of such a condition of 
 things if continued beyond a certain point ! 
 After the great gold discoveries in 1849 wnen 
 from natural causes, by reason of increased 
 supplies from the mines, gold was depreciating 
 and the burden of the national debt diminishing, 
 Jevons wrote of the effects of the new supplies : 
 "The country may be said to be looking on, 
 while every contract, including that of the national 
 debt, is being violated against the intention of 
 the contracting parties." To-day the same thing 
 is occurring, and on a greater scale, not because 
 of natural causes, but because of the direct 
 interference of the Legislatures, in manipulating 
 the currencies "contrary to the intention of the 
 contracting parties." 
 
 It is clear, therefore, that the developments of 
 science in labour-saving machinery and in the 
 
NATIONAL DEBTS, GROWTH OF SOCIALISM. 77 
 
 process of a more economical distribution which 
 should be every day diminishing the hours of 
 labour, and increasing that share of production 
 which is awarded to the working classes, has for 
 ten years past, in consequence of the aggravation 
 of all debt, been diverted so as to swell the 
 fortunes of bondholders and bankers. The 
 landowners, the owners of mills and mines, the 
 owners of all^that form of wealth which, being 
 subject to the control of legislation, can be 
 deprived of its rights, if the duties which follow 
 from those rights are neglected — these classes 
 are becoming impoverished by legislation, mone- 
 tary legislation, framed so as to enrich the gold- 
 owner, who is able from the nature of his wealth 
 to evade his duties to the State and to remove 
 his capital at a moment's notice to other invest- 
 ments in other lands. 
 
 To those who profess a convenient belief that 
 although the fall of prices increases the burden 
 of national debts, yet that a lessened cost of 
 production avails to right the balance, I would 
 recommend a short study of Egyptian finances 
 to-day. There is a nation of peasant cultivators 
 — six millions of people farming five millions of 
 acres, whose agricultural implements are neither 
 better nor worse than at the time when Joseph 
 
78 THE ECONOMIC CRISIS. 
 
 was sold by his brethren ; nor is the tide of the 
 same Nile which to-day brings to market the 
 produce of the same fields in similar barges 
 either faster or less fast, than five thousand years 
 ago. Twenty-five years since Egypt was free of 
 foreign debt, but in an evil hour, the ex-Khedive 
 Ismail borrowed about a hundred millions sterling 
 at enormous rates of interest in London and 
 Paris. This money was not spent on internal 
 improvements, but was squandered on the con- 
 struction of twelve royal palaces in Cairo, and 
 in the purchase of pictures and furniture for 
 these palaces. The Levantine contractors who 
 built the palaces made immense fortunes, and 
 for the most part reinvested these fortunes in 
 loans to the fellaheen at rates varying from two 
 to six per cent, per month! Truly a vicious 
 circle! The Khedive pledged the homesteads 
 of his subjects to borrow money in London: 
 this money passed on to foreign middlemen, who 
 in turn lent it at usurious rates to the peasantry, 
 who were themselves the security for the original 
 loans! The cultivators were in the pleasant 
 position of having to pay first seven per cent, 
 to the foreign financier, and a further thirty per 
 cent, per annum on the same money to the 
 foreign contractor ! To pay the interest on this 
 
NATIONAL DEBTS, GROWTH OF SOCIALISM. 79 
 
 National Debt, each acre of cultivated land 
 in Egypt has to convert enough of its pro- 
 duce into gold to send almost a sovereign 
 yearly to the foreign creditor. In addition to 
 this, each acre has to contribute a further share 
 to the expenses of the home Government. The 
 taxes of Upper Egypt are collected not in 
 money, but directly in produce. The lower 
 prices fall, the greater the amount of produce 
 which is appropriated from each acre to pay the 
 sovereign required of it. Since the time the 
 debt was contracted the prices of the staple 
 products of Egypt, cotton, sugar, wheat, and 
 beans, have fallen more than 50 per cent. The 
 Revenue for the current year shows a small 
 surplus over the Budget Estimate, simply because 
 cotton has risen nearly a penny per pound and 
 sugar about three shillings a hundredweight. 
 But if prices are to fall still further, the gold 
 payments which Egypt owes to England, can 
 only be exacted from a starving nation, by the 
 most merciless exactions, and by the free use 
 of the kourbash. Here is an instance, an extreme 
 instance I admit, of that " appreciation of gold " 
 about which philosophers with fixed incomes 
 write so complacently, and which is said to be 
 for the advantage of England the creditor nation. 
 
8o THE ECONOMIC CRISIS. 
 
 Is the burden of judicial rents in Ireland, one 
 half so grievous as the present burden of Egypt ? 
 And yet how different has been our treatment 
 in the two countries of a disease absolutely 
 identical ! 
 
 Such is the nature of the disorder in Egypt, 
 a country which owes one hundred millions of 
 national debt out of the total of five thousand 
 millions. And in other countries in Europe — in 
 Russia, France, Italy, Germany, and even Great 
 Britain — the collapse of prices is to-day more than 
 all else embittering the relations between the 
 governors and the governed, is held to justify 
 the admission into legislation of methods of a 
 perverted socialism, and is leading up rapidly 
 to a complete reconstruction of political parties. 
 Then we shall see emerge a Socialist Party 
 on a Socialist " platform " — a Party which will 
 claim to be the heir of all the Ages, and will 
 revivify economic science on a basis of scientific 
 socialism. 
 
VII. 
 
 Much capifal has been made out of the want 
 of unanimity on the part of the currency reform- 
 ers, and the intelligent spectator begins to fear 
 that the patient will die of anoemia while two 
 schools of doctors are wrangling at his bedside. 
 Every objector to that legislation which during 
 the quarter of a century after 1820 until the occur- 
 rence of the phenomenal gold discoveries in 1 849 
 had all but ruined the agricultural interest in 
 Great Britain, although that interest was pro- 
 tected up to the hilt by a tariff on imported 
 foods ; which was bringing about a collapse of 
 the shipping and manufacturing industries, and 
 which then as to-day had brought Ireland to the 
 very brink of Civil War — every objector to this 
 legislation is called a " bimetallist " by those who 
 are too ignorant to recognize that it is only the 
 term and not the theory which is unintelligent 
 and unscientific. The science of money owes so 
 
82 THE ECONOMIC CRISIS. 
 
 much to the activity and researches of M. Henri 
 Cernuschi that it would be ungracious to say more 
 than that, while his science is faultless, his inven- 
 tion of a term so wanting in precision was unfor- 
 tunate. However, the name " bimetallist" has 
 gone out to the world, and a growing child owes 
 much to its parent which is not included in the 
 christening ceremony. The " bimetallists " then 
 consider that unity of standard is important to 
 the stability of trade. The monometallists, on 
 the other hand, support the present system, a 
 system of two distinct standards of value within 
 one Empire. We have a silver standard in India, 
 a gold standard in England. It would be by 
 comparison much more convenient to have a 
 silver standard in Yorkshire, and a gold standard 
 in Lancashire. The inconvenience of the two 
 standards system clearly varies directly, and not, 
 as some apologists of the present system seem 
 to hold, inversely, as the distance : for between 
 England and India, the uncertainty of exchange 
 to the Manchester merchant is not the uncer- 
 tainty that exists to-day : the cable informs him 
 to-day that the fifteen rupees for which he can 
 sell a piece of cloth will exchange for a sovereign ; 
 but thirty days later, when his goods are delivered 
 and the rupees paid, what portion of a sovereign are 
 
THE TWO GROUPS OF " BIMETALLISTS? 83 
 
 those rupees worh then ? Well, that will depend, 
 not at all on any fluctuations in the supply of 
 silver from the world's mines, but upon contin- 
 gencies impossible to foresee — a rumour that 
 certain monetary legislation is contemplated at 
 Washington, or that during the interval Mr. 
 Goschen has said something complimentary about 
 silver, or because Sir Evelyn Baring rather than 
 Mr. Fowler is believed to have made the better 
 impression on the minds of the Currency Com- 
 missioners. Upon accidents such as these the 
 profit of British Trade is dependent to-day ! But 
 we are told there need be no such uncertainty as 
 to the gold value of these fifteen rupees, that if 
 the merchant wishes to eliminate the speculative 
 element, instead of taking his chances of the state 
 of exchange thirty days later when his goods 
 arrive — then his banker will do the gambling in 
 his place. He has only to give his banker three- 
 pence, and the banke*r will give him a sovereign 
 and take the chance of any loss that may result 
 from a further fall in exchange. It is true, indeed, 
 that if the opponents of the Bland Bill are making 
 a fresh disturbance at Washington, and the news- 
 papers which represent the great Money Power 
 are professing a firm conviction that the Bland 
 
 Act will be forthwith repealed, then, indeed, 
 
 g 2 
 
84 THE ECONOMIC CRISIS. 
 
 exchange will fall in advance of business done, 
 and the banker will require not threepence but 
 perhaps a shilling in the pound. Like the rate 
 of insurance, the premium is in proportion to the 
 risk, but the man who proceeded to put up 
 powder works in a wooden shed with defective 
 fire flues would find his profits sadly diminished 
 by the protection he buys from his insurance 
 office. If legislation were to deny him the right 
 to construct a fire-proof building, it would do 
 precisely what legislation has done for the cotton 
 industries of Lancashire. In the case of Silver- 
 using countries, such as India and China, trading 
 with one another, there is to-day no such charge 
 for insurance, and the amount of this insurance is 
 therefore an addition not merely to profits, but to 
 net profits. 
 
 But what are the lines which divide the two 
 Bimetallic camps ? The differences are, I believe, 
 not differences of principle, out merely differences 
 of policy ; and also the differences are just those 
 which might be anticipated from the fact that 
 two parties are demanding Currency Reform, 
 and are watching their objective, from two dis- 
 tinct standpoints. There are on the one hand 
 the assertors of Mill's " Quantity Theory" of 
 Money, business men who have neither the 
 
THE TWO GROUPS OF " BIMETALLISTS? 8$ 
 
 time nor the inclination to study the "Silver 
 Question " with that minuteness which is evident 
 in the writings of Cernuschi or Arendt, Hermann 
 Schmidt, Dana Horton and others ; nor, I believe, 
 to popularize the currency question is it at 
 present desirable to do more than merely demon- 
 strate that the rapid diminution of the stock 
 of Gold in currency in England would of itself 
 account for the present fall of prices : that where- 
 as ten years since we had 140 millions of sove- 
 reigns, to-day we have scarcely more than one 
 hundred millions. If we have thus lost thirty 
 per cent, in ten years, how long will it take at 
 this rate to drain us of all our Gold ? If prices 
 have fallen thirty per cent, already, why are we 
 not now on the brink of a further and a more 
 disastrous fall still? This is not the Silver 
 Question but the Gold Question, and this is the 
 view of prices which is taken by the majority 
 of those who are anxious for currency reform. 
 That majority has neither the time nor the desire 
 to enter upon the metaphysics of the question ; 
 it is enough if we recognize that if the State 
 undertakes the duty of deciding what is and 
 what is not legal tender Money, and if Gold 
 has become clearly insufficient in volume to 
 support a steady range of prices, that then it 
 
86 THE ECONOMIC CRISIS. 
 
 is the business of the legislatures to act, and not 
 to sit still on the chance that a new El Dorado 
 may be discovered, as was the case in 1849. 
 
 Some authorities consider that issues of legal 
 tender paper in the form of one pound notes 
 not represented by Gold or Silver in reserve, 
 would avail to remedy the contraction of the 
 legal tender currency. But such a makeshift 
 as this I believe would be wholly mischievous. 
 Pound notes representing Gold in reserve, while 
 exercising no influence whatever on prices, would 
 form a convenient kind of currency, and would 
 save the sovereigns they represent from loss of 
 weight by friction, that is all: but beyond this 
 an issue of ten millions of pound notes, not 
 represented by Gold in reserve, would serve 
 merely to slightly expand the currency at home, 
 and would therefore raise prices in Great Britain 
 alone. And the effect of such a rise of prices 
 in a Free Trade country is to immediately in- 
 crease the volume of the imports of that country, 
 without any. corresponding increase in exports. 
 These augmented imports would require to be 
 paid for, not in pound notes but in Gold ; the 
 effect therefore of the issue of ten millions of 
 unsecured paper money would be to drive out 
 of England an equivalent number of sovereigns, 
 
; 
 
 or THE 
 
 UNIVERSITY 
 
 ) 
 
 THE TWO GROUPS OF u BIMETALLISTS." 87 
 
 so that instead of stopping our present drain of 
 Gold, the proposed issue of pound notes would 
 accelerate that result. 
 
 We now come to the Silver Question, and 
 to the position taken by the other school of 
 reformers. 
 
 M. Henri Cernuschi and his disciples consider 
 that the present distress and the fall of prices 
 may be entirely independent of the alleged scarcity 
 of Gold ; and M. Cernuschi would declare with 
 truth that even were another California to be 
 discovered, so that the tendency was toward 
 cheaper Gold and a rise of prices in Gold 
 countries, yet that any such anti-silver legislation 
 as that of Germany in 1873, originating this 
 time at Washington or Paris, might more than 
 neutralize the effect of the fresh Gold discoveries, 
 and might even force down prices to a still lower 
 level ; that is to say, the tendency of the ratio 
 between the metals would be to close up in con- 
 sequence of the cheapening of Gold, formerly 
 scarcer, but now more abundant ; but on the 
 other hand the new legislative restrictions on the 
 employment of Silver in the currencies might 
 even further widen the ratio, and bring about a 
 further dislocation in international trade. 
 
 Let me state the position in this way : we have 
 
88 THE ECONOMIC CRISIS. 
 
 in England a hundred million sovereigns to-day ; 
 suppose the new mines in Wales which we read 
 of gave us a further hundred millions within the 
 next six months, the tendency would clearly be 
 for all prices in England to be doubled ; wheat 
 now selling for three half sovereigns a quarter 
 might sell for three sovereigns. But on the 
 other hand, suppose not only that the Bland Act 
 was suspended, but that the United States and 
 France throw their Silver upon the market to be 
 sold for what it would fetch. Clearly the rupee 
 would tend to fall towards six pence. And if the 
 rupee were to fall, what must be the effect on the 
 price of English wheat ? The ryot, if the value 
 of Silver in India to buy commodities remained 
 the same, would require only 23 rupees a quarter 
 to return him a fair profit; therefore, as I mentioned 
 in an earlier chapter, the great fall in the price of 
 Silver would so stimulate wheat exports from 
 India that, notwithstanding the tendency of the 
 Welsh Gold to effect a rapid rise of prices in 
 England, the still more rapid fall in the price of 
 the rupee would force down English wheat prices 
 to a point even lower than before. It is not the 
 scarcity of Gold which M. Cernuschi dreads, nor 
 perhaps has he ever put himself on record as 
 opposed to a fall of prices, so long as that fall 
 
THE TWO GROUPS OF " BIMETALLISTS" 89 
 
 is an universal fall. But in his view, what is 
 making Trade, and especially Free Trade, im- 
 possible, is Western monetary legislation which 
 has sufficed to force down Gold prices locally, to 
 the confusion of industry in the West, but which 
 as yet has been powerless to alter the level of 
 Silver prices in the great Silver-using Nations 
 of the East. And this is why M. Cernuschi and 
 others attach "such importance to a fixed ratio 
 between Silver and Gold, without which what is 
 termed the par of exchange between Europe 
 and the great Nations of the East cannot be 
 maintained. 
 
 And this brings us to a consideration of the 
 most disputed question in the entire domain of 
 Economic Science — the question of the Fixed 
 Ratio ; whether it is possible to maintain a 
 Fixed Ratio, whether, if possible, it is just and 
 necessary to fix such a ratio by international 
 agreement. 
 
VIII. 
 
 THE FIXED RATIO IS IT PRACTICABLE ? 
 
 There are great numbers of intelligent people 
 who recognize both the distress which has fol- 
 lowed from the recent fall of prices, and that this 
 fall is mainly attributable to certain novel con- 
 ditions in the world's currencies introduced by 
 the process of recent legislation. But though 
 the disease is very evident, there are grave doubts 
 as to the nature of the remedy. It is clear that 
 if instead of a single legal tender, we are to have 
 two legal tenders current side by side, the two 
 metals must bear a certain ratio to one another. 
 Now what is this ratio to be ? The origin of the 
 word money (pecunia) was in the legal tender of 
 cattle (pecus), and if the State to-day were to 
 determine that all debts might be paid at the 
 option of the debtor in bullocks or in sheep at 
 the ratio of one bullock to two sheep, the State 
 would clearly have established a ratio of i to 2 
 between the values of bullocks and sheep. But 
 could the State maintain this ratio i Clearly the 
 
THE FIXED RATIO— IS IT PRACTICABLE? 91 
 
 State could not ; the cost of producing a bullock is 
 much more than the cost of producing two sheep, 
 because a larger expenditure of labour, time, and 
 food has been incurred in the case of the bullock. 
 Therefore if the State declared such a ratio of 
 value as 1 to 2 between bullocks and sheep, the 
 loss on producing cattle would be on such a scale 
 that every one would either breed sheep or at 
 least find some other employment than cattle 
 raising. The reason, and the only reason, why 
 the State could not establish a ratio between cattle 
 and sheep, or between potatoes and pineapples, is. 
 this — their cost of production varies from time to 
 time, and therefore the price of potatoes as com- 
 pared with the price of pineapples must vary as 
 their cost of production varies. And for similar 
 reasons all the earlier economists — Ricardo, Mill, 
 and others — and even so recent a writer as Jevons, 
 have assumed that the price also of the precious 
 metals was controlled by their cost of production. 
 For this reason, and for no other, they decided 
 that bimetallism was unscientific ; that whichever 
 of the metals came to be undervalued would no 
 longer be produced ; and that therefore no fixed 
 ratio could be maintained. But as to this all- 
 important point, what has been the evidence 
 accumulated during the past ten years? The 
 
92 THE ECONOMIC CRISIS. 
 
 experts, while they differ as to the exact figures 
 of cost, are all agreed that the cost of producing 
 either an ounce of silver or an ounce of gold 
 is much more than the value of those ounces 
 when they have been produced. Herein, then, 
 is the great difference between the production 
 of the precious metals and the production of 
 turnips. The total world's outlay in producing 
 gold and silver is greater than the money value 
 of the two metals produced. The total outlay on 
 turnips is less, taking one year with another, than 
 the money value of the turnip crop. It is some 
 two thousand years since a poet wrote of the 
 auri sacra fames. He had clearly in his mind 
 a tendency in human nature which was at 
 variance with the laws of economic science. It 
 would never have occurred to him to write of 
 the " divine hunger" for turnips! At that time 
 the precious metals in the Roman Empire were 
 being produced entirely by slave-labour under 
 the stimulus of the lash. When there were no 
 longer fresh nations for Rome to conquer and 
 enslave, the production of the precious metals for 
 hundreds of years ceased entirely. Jacob states 
 that in the reign of Augustus, about the time of 
 the nativity of Christ, there were current in the 
 Roman Empire 328 millions sterling of metallic 
 
THE FIXED RATIO— IS IT PRACTICABLE? 93 
 
 money — three times the stock England holds 
 to-day, while at the commencement of the 9th 
 century this mass had been reduced to 33 
 millions only — to less than one-tenth! Not with- 
 out reason does Allison declare that the collapse 
 of the Roman Empire is to be attributed to 
 this prodigious contraction of currency and 
 prices. 
 
 It may se€fn at first sight incredible that 
 humanity should in these philosophic days 
 continue to produce gold and silver at a loss ; 
 but the life of the gold-seeker is a life often of 
 intense excitement ; the attraction is that of the 
 gambling table intensified; the blanks are indeed 
 many, but the prizes though few are very 
 valuable. The hundred lose all they possess, and 
 perhaps an entire life's work, but the one becomes 
 a millionnaire. In the spring of 1879 I visited 
 the town of Leadville in Colorado. The previous 
 year some rich deposits of silver carbonates had 
 been discovered, and a few working miners had 
 realized suddenly large fortunes. The result 
 was a rush to Leadville from all parts of the 
 world, so that a large town had in a few months 
 sprung up as from the wand of the magician on 
 the very summit of the Rocky Mountains, more 
 than a hundred miles from any railway. Fifty 
 
94 THE ECONOMIC CRISIS. 
 
 thousand people were at that time encamped 
 there almost within the line of perpetual snow. 
 Now here was the recent instance of a large town 
 built solely for the purposes of the silver mines, 
 while enormous numbers of men, withdrawn from 
 other productive industries, were being employed 
 at very high wages in the mines. Hay was 
 selling for ^50 per ton \ all other things pro- 
 portionately high. During the " boom times " at 
 Leadville, it is possible that the output of silver 
 may have been equal in value to the wages, say 
 ^20,000 a day, paid in the town ; but taking 
 into consideration the enormous sums of money 
 sunk ni the mine-shafts and in the building of 
 this now half deserted town, it is certain that the 
 silver produced even at Leadville was produced 
 at a great loss. Nor was this all. The excite- 
 ment of the discoveries at Leadville made itself 
 felt in every State and every territory within the 
 district of the Rocky Mountains: thousands of 
 working men abandoned their ordinary pursuits, 
 and swarmed into the nearest hills, having 
 sold their homesteads and invested all their 
 savings in the purchase of pack-horses and 
 mining tools. 
 
 Such is the result of every fresh discovery of 
 the precious metals. It was said that at one 
 
THE FIXED RATIO— IS IT PRACTICABLE? 95 
 
 time the great Nevada " bonanza," the Comstock 
 silver mine, was producing silver at the rate of 
 eighteen pence per ounce, silver being at that 
 time worth sixty pence : the excitement was in 
 consequence intense, and reflected itself in a 
 widening circle all over the world. But so far 
 from bringing down the cost of producing silver, 
 I have no doubt that the real effect was quite 
 the contrary. ^ By increasing the number of those 
 who were seeking the precious minerals, it doubt- 
 less immediately raised very largely the universal 
 average cost of producing the ounce of silver. 
 The United States produce annually about ten 
 millions sterling of silver. If it were possible to 
 procure exact returns of the number of men not 
 merely working in the mines, but of the far 
 larger number who are hunting for fresh mines, 
 who are building mining camps and roads and 
 bridges to mining towns in the most inaccessible 
 regions — the expenditure also on horses and 
 mules an i other locomotive power — on the tools, 
 the machinery, the smelters, and the fuel for 
 those smelters, it would be found that Mr. del 
 Mar's estimate that it costs three dollars to pro- 
 cure a dollar's worth of silver is well within the 
 mark. 
 
 Now if it is once admitted that the cost of 
 
96 THE ECONOMIC CRISIS. 
 
 producing the precious metals is more than their 
 value when produced, it is clear that any diffi- 
 culty as to fixing the ratio between their values 
 at once disappears. If the cost of producing is 
 to-day so far against the miner that merely econo- 
 mic reasons should already have driven him into 
 other occupations, then to declare a fixed ratio 
 between gold and silver need not, within certain 
 limits, discourage the silver miner and encourage 
 the gold miner. The more so when we consider 
 that most silver mines also produce gold, and 
 vice versd. The greatest silver mine the world 
 has ever known is the Comstock, and yet nearly 
 forty per cent, of its entire yield of bullion 
 was gold. 
 
 Of course, if legislation went the length of 
 declaring a ratio of i to i or even i to 4, the 
 man who is to-day gold-seeking would give it 
 up, finding it somewhat less unprofitable to aban- 
 don gold and turn his attention to silver. The 
 immense over-valuation of silver at a ratio of 1 
 to 1 would be apparent. But any ratio between 
 the limits of 1 to 7 and 1 to 30 would probably 
 not withdraw labour from the production of one 
 metal rather than the other ; and it may, there- 
 fore, be entirely practicable for the State to fix 
 any ratio between these wide limits. As a matter 
 
THE FIXED RATIO— IS IT PRACTICABLE? 97 
 
 of policy perhaps the ratio should favour silver 
 rather than gold, because while gold-seeking in 
 the river-beds requires little or no outlay, silver- 
 mining on the other hand, which involves shaft- 
 ing and quartz-crushing, offers less attraction to 
 the ordinary miner, who* is not a capitalist, and 
 therefore silver-mining requires a more direct 
 encouragement from the State. For this reason, 
 if the world were beginning all over again, the 
 ratio of 1 to 10 would seem to be preferable to 
 the immortal 1 to 15 J, so beloved of M. Cer- 
 nuschi and his school. Assuming however that 
 the money metals are produced at a dead loss, 
 there is clearly nothing impracticable in a fixed 
 ratio. 
 
 It may be said that if the bringing of the pre- 
 cious metals to the surface involves such a huge 
 waste of human labour, it is the duty of the 
 State to discourage production by demonetizing 
 one or even both of the metals. But on the 
 other hand metallic money is of all the machinery 
 of civilization the most necessary. As Wolowski 
 has well said, " Of all human agencies money is 
 that one which costs the least for the work it 
 performs ; " and I think when all things are con- 
 sidered, the two metals, silver and gold, comply 
 with the requirements of a standard of value not 
 
98 THE ECONOMIC CRISIS. 
 
 in spite of, but even in consequence of, the fact 
 that because their production entails an annual 
 loss, their price is not determined by their " cost 
 of production," and they can therefore jointly 
 perform the function of legal tender. 
 
 It remains, however, further to consider the 
 question as to what the ratio should be, and here 
 we have arrived at the very thickest of the fight 
 around the standards. What is the present duty 
 of the State to its citizens where interests — 
 pocket interests — are found to be diametrically 
 opposed ? 
 
IX. 
 
 THE FIXED RATIO ITS PROPORTION. 
 
 If we trace the comparative values of gold and 
 silver for the past seven hundred years, we shall 
 find that the ratio has varied suddenly and con- 
 siderably twice only — once at the close of the 
 thirteenth century, and again in the past twelve 
 years. On each occasion the variation cannot be 
 attributed to natural laws, but to the effect of 
 monetary legislation. Professor Thorold Rogers 
 has established that in 1262 the ratio of gold to 
 silver in Europe was as 1 to 9f, whereas in 1292 
 gold had so appreciated in relation to silver that 
 the ratio was as 1 to i2|. It appears that 
 Venice, which at that time was the leading trad- 
 ing community in Europe, had about 1270 com- 
 menced to discard silver and to buy and coin 
 gold ducats instead, and that the example of 
 Venice had been followed, at least as far as a 
 gold currency was concerned, by the coining of 
 gold pieces in Hungary and at Brescia and 
 
 Florence. 
 
 h 2 
 
ioo THE ECONOMIC CRISIS. 
 
 As to the violent changes of ratio in the last 
 twelve years, which no one now questions have 
 been the result of the anti-silver legislation of 
 Germany in 1873, the consequent stoppage of 
 the coinage of silver in France and the immense 
 drain of gold to the United States in consequence 
 of the monetary legislation in that country — as to 
 these changes, I have considered them fully in the 
 earlier chapters of this volume. Enough to say 
 that mere alterations in the supply of the precious 
 metals, when the mints of the Western nations 
 have been freely open to both metals, have not 
 been sufficient at any time to cause any variation 
 in the ratio. In 1846 the output of gold was six 
 millions, that of silver six millions and a half. 
 Six years later the output of gold had increased 
 to 30 millions ; the output of silver had risen to 
 85- millions. Although a similar disparity of 
 production continued for many years, there was 
 yet no disturbance of the ratio itself, which, 
 owing to the bimetallic action of France, was 
 steady all the world over at 1 to 15^. Then 
 occurred the legislation complained of, with the 
 result that in fifteen years the ratio of 1 to 15^ 
 has widened, until it is to-day as 1 to 21. 
 
 But now the question is how can we undo the 
 harm done by hasty or dishonest legislation 
 
THE FIXED RATIO— ITS PROPORTION. 101 
 
 without dealing unfairly with contracts recently 
 entered into between debtor and creditor ? It is 
 easy to agree that in view of the recent disturb- 
 ance of trades, if the ratio were once again re- 
 stored to 15J, then the Western nations would 
 be wise to open their mints to the free coinage of 
 both metals at that ratio. But there is at present 
 a hideous gap between the old ratio and the 
 present values of bullion. How can it be closed 
 up? At this point M. Cernuschi assures us that 
 if an international monetary conference agreed 
 to admit silver to free coinage at 1 to 15^, no 
 creditor would lose ; that he would be as well ofF 
 as though paid in gold or in the silver equivalent to 
 that gold. Silver, M. Cernuschi considers, would 
 immediately rise in value, its lawful historic prero- 
 gative of legal tender money being again restored 
 to it. I have not done justice to M. Cernuschi 
 in stating his position thus shortly ; and further, I 
 recognize my inability to do him entire justice on 
 this point. But what is of the first importance, 
 the reasoning faculty of the man in the street is 
 not equal to this bimetallic subtlety, and before 
 bimetallism can win the day, we have to carry 
 with us the man in the street. For one man 
 who at present follows M. Cernuschi, ten men are 
 repelled by this proposal to refix the old ratio in 
 
to* THE ECO XO MIC CRISIS. 
 
 ..incc of the present market price of silver. 
 . " We are owed £^o — say five ounces 
 of gold — that gold is to-day worth 105 ounces of 
 silver, whereas you wish to pay us off with only 
 ounces! Are we then Irish landlords that 
 we are to he treated after such fashion:" To 
 recommend to these ten creditors a study of 
 Cernu9chfs writings is useless. At least nine- 
 tcnths c f them, however, stand ready to receive 
 their five ounces of gold, or the. silver equivalent 
 to tJint gold (that is, 105 ounces), if the State has 
 previously declared silver to be legal tender money 
 for all taxes and debts; only the incorrigible 
 Gold Bug, the man who desires to contract the 
 currency by legislation, so that he may get rich 
 at his neighbour's expense, will object to this 
 action of the State at a time when it is so clearly 
 necessary in order to protect the general com- 
 munity against a vast further fall of prices. 
 
 We may assume, therefore, that if the Parlia- 
 ment of England said to-morrow, " You can all 
 pay your debts in gold, or in the silver equivalent 
 to that gold at the market price of silver for the 
 time obtaining, and we will, as a matter of con- 
 venience, issue notes representing all the silver 
 that is brought to the mints," no one would have 
 the right to object to legislation which takes 
 
THE FIXED RATIO— ITS PROPORTION. 103 
 
 not one penny oat of the pockets of any one, 
 and which is clearly required by the present con- 
 tracted condition of the currency — a contraction 
 rapidly intensifying. Such legislation would no 
 doubt be furiously opposed by one class, but 
 would meet with the approval of nine-tenths of 
 the community. There is no difficulty at any 
 time in ascertaining the price of silver. The 
 Indian Courfcil sells to the highest bidder more 
 than a quarter of a million sterling in council 
 drafts every week. The price of these drafts, 
 of course, sets the price of silver bullion. Now, 
 suppose that silver was declared legal tender in 
 Great Britain for unlimited sums at the ratio 
 of 1 to 21, then clearly the price of silver could 
 never fall lower'. There are more than four 
 thousand millions sterling of debts in Great 
 Britain, and only a little more than a hundred 
 millions sterling of metallic legal tender, so that 
 any tendency of silver to depreciate would, at 
 any time, be neutralized by the desire of men to 
 pay their debts in the cheaper metal. England 
 therefore having " put in the peg " below which 
 silver could not fall, this would at once happen : 
 in France to-day is more than a hundred millions 
 sterling of legal tender silver which was coined 
 at the ratio of 1 to 15^. That is to say, the 
 
104 THE ECONOMIC CRISIS. 
 
 silver of which a five-franc piece is composed can 
 be bought for less than four francs. This being 
 the case, an inducement in the shape of a premium 
 of 25 per cent, exists for individuals to fraudu- 
 lently coin legal tender silver. In the uttering 
 of these coins there is no risk whatever, theii 
 intrinsic value being equal to that of any five- 
 franc piece issued by the mint. Quite recently 
 an issue of Sicilian dollars was called in, when 
 it was found that more of these dollars were re- 
 turned to the State than had ever been issued 
 by the State. It is generally believed also that 
 many "Bland" dollars have been coined in the 
 United States in this way on " private account." 
 
 Such a state of things as this must be very 
 inconvenient to Italy, France, the United States, 
 and Germany, and it is certain that the action 
 of England in making silver legal tender at 1 
 to 21 would be promptly followed by action on 
 the part of these countries to restore their old 
 ratio. And the restoration could be quickly 
 effected in this way : the price of silver next week 
 will depend on the price at which some quarter 
 of a million sterling of advertised council drafts 
 will be sold in London. The French Government, 
 in order to restore the bullion value of their own 
 immense stock of silver to par with gold, would 
 
THE FIXED RATIO— ITS PROPORTION. 105 
 
 no doubt send an agent to London to bid up 
 the price of council drafts to the old silver value 
 of 6of pence per ounce : a few thousands of 
 pounds would suffice for this purpose, once the 
 price was put up, silver being still legal tender 
 in England at its market ratio to gold, silver 
 could never again fall below 1 to 15^, for the 
 same reason that it could never fall below 1 to 
 11 — on account of the demand of the great 
 debtor class, which would wish to pay its debts 
 in whichever metal tended to become cheaper. 
 And if the Bank of France did not seize this 
 opportunity, this would be immediately done by 
 private enterprise. The exporting merchants of 
 London and Liverpool would buy " forward 
 exchange " from their bankers to the amount 
 of some millions sterling, and would then bid up 
 the exchange till the old value of the rupee was 
 restored. The profits on this transaction would 
 be immense : loss would be impossible. And 
 the ratio once restored to 1 to 15^, it is clear 
 that it could never rise higher, say to 1 to 12, 
 because just as France did after the great gold 
 discoveries, so she would again do — she would 
 buy and coin that metal which tended to become 
 cheaper ; and if the ratio of gold to silver came 
 to less than 1 to 15^, she would sell her silver 
 
io6 THE ECONOMIC CRISIS. 
 
 and replace it with gold, thereby establishing 
 the ratio as long as there was any legal tender 
 gold at all left in Germany, in England, or the 
 United States. 
 
 Such is the automatic action of bimetallism ; 
 silver cannot become cheaper, because if there 
 was any such tendencies the demand of the 
 debtor classes would suffice to restore it. For the 
 same reason neither can gold become cheaper ; 
 therefore absolute stability of the ratio is main- 
 tained. And as things are, that ratio can be 
 none other than the ratio of i to 15^-, not 
 because there is anything natural in such a 
 ratio, but because it has been so fixed by gener- 
 ations of past legislators and by the accumula- 
 tion of masses of legal tender silver coined at 
 that ratio during hundreds of years. It is this 
 mass of legal tender silver which can always be 
 relied upon to absorb any smaller mass coined 
 at any other ratio, if, and only if, silver is per- 
 mitted its former prerogative of free coinage and 
 legal tender. 
 
 I am aware that this proposal — the making 
 of silver legal tender at its gold value — a pro- 
 posal made by Mr. Warner in the United States 
 and by Earl Grey in England — is opposed to the 
 orthodox bimetallic platform. But on the other 
 
THE FIXED RATIO- ITS PROPORTION. 107 
 
 hand it has always appeared to me that solution 
 which will attract to the monetary reform move- 
 ment the most ready support from the general 
 community. It has been suggested, but :without 
 sufficient reason, that the ratio would, under this 
 operation, crystallize at 1 to 21 ; but the lesson 
 of the past has been quite otherwise. When the 
 ratio in the United States was 1 to 15, silver was 
 found to be overvalued, and. was melted and sent 
 abroad to be sold for gold.- The ratio was 
 accordingly altered to 1 to 16, at which ratio gold 
 was overvalued and left the country. Nor could 
 it be otherwise if we opened our mints to free 
 coinage at 1 to 21. The price of silver would 
 rise, other Western nations would commence to 
 coin, and the historic ratio of 1 to 15J would be 
 restored probably in a very few days. 
 
 If this view is correct, then there is no need 
 for England to wait for the action of any inr 
 ternational monetary convention. She can alone 
 and unaided restore the "par of exchange" and 
 terminate the existing depression of Trade and 
 Prices. 
 
X. 
 
 INDIA AXD THE SILVER QUESTION. 
 
 In considering Mr. David Wells's views on bi- 
 metallism I drew attention to the fact that each 
 fresh fall in the price of silver stimulates the 
 exports of Indian wheat and other produce to 
 Great Britain. In other words, the Indian exporter 
 can sell his wheat profitably in Mark Lane for 
 22 rupees ; these 22 rupees for which he formerly 
 paid two sovereigns, he can now buy for three 
 half-sovereigns. Clearly it may be such a con- 
 dition of exchange as this which is to-day 
 destroying the profits of English agriculture. 
 
 And while the maxim of the Manchester cotton 
 spinner, who can neither afford to stop his ma- 
 chinery nor disperse his hands, is " business at 
 any price," it is evident that he, too, must suffer 
 not less than the farmer by a fall in the exchange 
 value of the rupee. His Indian customer, the 
 up-country merchant of Delhi or Agra, desires to 
 buy cotton goods for rupees, and if the rupee is 
 worth 2od. in Manchester, this customer can buy 
 
INDIA AND THE SILVER QUESTION. 109 
 
 a certain piece of cotton cloth for 100 rupees, but 
 if the rupee falls to its present price ijcl., then 
 the same piece of cloth will cost 114 rupees. 
 Now, while the Bombay mills may be unable to 
 manufacture this piece of cloth for 100 rupees, yet 
 its cost of production may be slightly less than 114 
 rupees; therefore, whether this merchant's order 
 goes to Manchester or to Bombay will be decided 
 by the fluctuating value of the rupee. And the 
 fact that Bombay is now doing an immense pro- 
 portion of the trade in yarns to China w r hich was 
 formerly done by Manchester, may be fairly 
 referred to the recent currency disturbance. Of 
 course there is the other view of it — that it is 
 economical to manufacture yarns where labour is 
 cheap, and the cotton itself is produced, rather 
 than to send the raw material four thousand 
 miles to Manchester from Bombay, and after 
 manufacturing bring the yarns back again. But 
 Mr. J. G. Scott has met this argument very fairly. 
 He points out that while the Manchester spinner 
 buys his coal at 8s., the cost of coal in Bombay 
 averages 24s. per ton, that each ton of yarn 
 requires for its manufacture more than two tons 
 of coal ; owing, therefore, to the cheapness of 
 coal, the English manufacturer of yarns is at 
 an advantage of 32s. per each ton of yarn as 
 
no THE ECONOMIC CRISIS. 
 
 compared with the Bombay manufacturer. Ihe 
 steamship charges on a ton of cotton from 
 Bombay to Manchester are 22s., upon the ton of 
 yarn from Manchester to Bombay 12s. 6cl., so that 
 looking at the China trade the economy in freight 
 charges in favour of Bombay is fairly offset by 
 the economy in coal in favour of Manchester. 
 Again, owing to the higher price of coal, boilers 
 in Bombay are worked at much higher pressure, 
 and, therefore, only last half as long as in Eng- 
 land. The salary of a manager in a Bombay 
 mill is from ^£8o to ^100 per month as com- 
 pared with ^£16 in Manchester. The Govern- 
 ment of India further requires that only certifi- 
 cated engineers at salaries which average ^40 a 
 month should be employed in the Indian mills, 
 while the engineer in a Manchester mill receives 
 only ^£6 a month. For these and other reasons 
 Mr. Scott believes that the cheaper labour of 
 Bombay, and the propinquity to China, are not 
 of themselves sufficient to account for the pheno- 
 menal growth of the yarn trade between India 
 and China. 
 
 But such a condition of exchange as the 
 present, when silver seems destined to fall steadily 
 and continuously, is considered by many high 
 authorities to be beneficial to India, even though 
 
INDIA AND THE SILVER QUESTION. in 
 
 this benefit is secured at the expense of England, 
 and, however erroneous this view, I must admit 
 that it was a view I used fully to share. And 
 there are many who to-day consider that because 
 a continuous decline in the value of silver stimu- 
 lates Indian exports, it would therefore be unfair 
 to sacrifice the East to the West, by a monetary 
 convention which in admitting silver to legal 
 tender would increase the coinage demand for 
 silver and raise its price. It is clear, however, in 
 the first place that only a very small portion 
 of the trade of India — her export trade — can 
 benefit by the stimulus afforded by the fall in 
 the exchange, and however many fallacies may 
 be discerned amongst the axioms of the free 
 traders, this at least holds good, that in consider- 
 ing international trade between two countries 
 such as England and India, which exchange freely 
 with each other, any condition of exchange which 
 may be detrimental to the one cannot be bene- 
 ficial to the other. The original idea of free 
 trade was this and this only — that as some men 
 possess a special aptitude for making hats, while 
 others make boots more cheaply, it is therefore 
 for the well-being of the world that the makers 
 of cheap hats should exchange freely with the 
 makers of cheap boots, and this theory of ex- 
 
ii2 THE ECONOMIC CRISIS. 
 
 change applies as well to nations as to individuals. 
 But if the right arm of the man who makes hats 
 is to be tied up, then he can neither make hats 
 so cheaply, nor give so many hats as before in 
 exchange for boots. In consequence of the 
 dislocation in the par of exchange, England, with 
 her right hand disabled, is still protesting that she 
 trades freely with India. Thus it has come about 
 that English manufacturers are finding the 
 margin of their profit vanishing, and while the 
 Asiatic myriads have become unprofitable cus- 
 tomers, our home trade is also languishing from 
 a perpetual contraction of prices, and also from 
 the destruction of the landed interest. The 
 depression flowing from this source has spread 
 from one business to another, till it has affected 
 every industry in the country. Therefore, while 
 the cheap rupee may be directly benefiting certain 
 export trades, yet indirectly it is contracting 
 India's market area abroad, by diminishing the 
 general prosperity of nations which are customers 
 for Indian produce. And, in another direction, 
 India clearly suffers ; she has borrowed immense 
 sums of money in England to build railroads and 
 other public works : the interest on this money is 
 fixed in terms of gold; where formerly 10 rupees 
 would pay a sovereign in interest, now 14 rupees 
 
INDIA AND THE SILVER QUESTION. 113 
 
 are required ; each fall of a penny in the exchange 
 value of the rupee involves a loss of a million 
 sterling to the Indian revenue. The present 
 value of the rupee accounts therefore for a loss 
 of more than five millions of revenue ; and while 
 the revenue has thus diminished, or, to be more 
 correct, while taxation has been thus increased, 
 it is not equally clear that the profits of the 
 Indian export trades have absorbed even the 
 amount of the increased taxation. It is on the 
 contrary quite possible that two rupees are being 
 taken from the pocket of the community in the 
 form of increased taxes, in order to give one 
 to a class — a very small class — the exporting 
 merchants. The annual gross exports of India 
 are some fifty millions sterling ; it is hardly pro- 
 bable that the profits on this trade are as high 
 as 20 per cent., or ten millions, and to secure this 
 sum of ten millions of profit against a possible 
 reduction — to secure for it that bonus now 
 afforded by the depreciated rupee, the community 
 is asked to pay five millions sterling in increased 
 taxation ; the salt-tax has to be increased, and 
 while every Anglo-Indian official finds his salary 
 diminished by the imposition of an Indian 
 income-tax, a further income-tax of nearly five 
 shillings in the pound awaits him on every sove- 
 
ii4 THE ECONOMIC CRISIS. 
 
 reign of his savings which he requires to remit 
 to England. 
 
 Let us admit freely what the monometallists 
 now claim, that the present relations between the 
 two metals do stimulate the exports of Indian 
 wheat to England and of Indian yarns to China, 
 and that the more the ratio widens the greater 
 will be the stimulus to Indian exports. Let us 
 even suppose that one-half of the entire export 
 trade of India is clear profit, and results from the 
 depreciation of silver, then there is a sum of 25 
 millions sterling which goes into the pockets of 
 certain Indian merchants, less only five millions 
 the amount of the increased taxes. Is it then to 
 the advantage of India to continue the present 
 currency condition for the sake of this twenty 
 millions of supposed bonus ? I believe not. I 
 believe that the evident stimulus to the mere 
 export trades of any country which is clearly the 
 result of a depreciating currency whether of silver 
 or paper, is offset ten times over by the losses 
 and uncertainties which must occur in the 
 channels of the domestic trade of that country. 
 The annual production of wealth in India pro- 
 bably aggregates to at least a thousand millions 
 sterling, which sum is only one-half of the wealth 
 estimated to be produced annually in the United 
 
INDIA AND THE SILVER QUESTION 115 
 
 States by a population numbering one-fourth 
 only that of India, and which pays only about 
 an equal revenue to the State. Is the present 
 condition of the Indian currency sacrificing the 
 interests of the producers of nine hundred and 
 fifty millions consumed at home, for the benefit 
 of the producers of fifty millions sent abroad ? I 
 must leave the consideration of this question for 
 another chapter, merely mentioning in advance 
 that the general opinion of the export merchants 
 themselves seems to be that while they do not 
 profit considerably by the decline in exchange, 
 the impossibility of realizing their capital and 
 remitting it home without immense loss, far out- 
 weighs the benefit of the bonus afforded to exports. 
 As far as the outer world is concerned the fall of 
 prices resulting from the depreciation of silver 
 is bringing losses immensely greater than the 
 advantages supposed to be secured by India. As 
 is always the case when bonused imports are 
 admitted freely, the rival producers who receive 
 a million of bonus are able, by destroying the 
 profits of our home trade for a few years, to 
 displace an entire industry, to destroy also tens 
 of millions of fixed capital locked up in that 
 industry ; and this I believe to be the case with 
 
 the bonus afforded by the cheap rupee. Not 
 
 1 2 
 
n6 THE ECONOMIC CRISIS. 
 
 only is the capital of the English farmer being 
 swept away, but the land through being neglected 
 has become unsaleable, and this deplorable condi- 
 tion of things dates back to the silver crisis which 
 commenced in 1875. The amount of the fall in 
 the price of wheat which has been brought about 
 by the fall in the price of silver, Mr. Inglis 
 Palgrave, the late editor of the Economist, 
 declares to be at the rate of 17^. per quarter for 
 each penny the rupee has fallen — in all to some 
 seven shillings a quarter. It must be remembered 
 that the three to four million quarters of wheat 
 which India exports to Europe, absolutely settles 
 the price of wheat in the Mark Lane market. 
 The Indian exporter can afford to sell his wheat 
 for 22 rupees per quarter ; the competition of other 
 Indian producers must always avail to keep prices 
 down to that point, and, therefore, the English 
 and the American farmer must also sell his wheat 
 in Mark Lane for the gold equivalent of 22 
 rupees, that is, for thirty shillings. If, then, we 
 admit that the English market is the objective of 
 all wheat-growers — that it is on this market that 
 the American, the Indian, and the Russian relies 
 to dispose of any surplus crop — then it is clear 
 that the price of the world's wheat is decided by 
 the price of wheat in Mark Lane, and the price 
 
INDIA AND THE SILVER QUESTION. 117 
 
 of wheat in Mark Lane is set by the fact that the 
 Indian ryot can afford to sell a quarter of wheat 
 there for eight ounces of silver. In other words, 
 the price of wheat is controlled by the price of 
 silver. 
 
 A very able article on wheat-growing appeared 
 in the Quarterly Review for April, 1887. The 
 writer drew attention to the fact that while wheat 
 in England has for years past been produced at an 
 admitted loss, the position of the wheat-growei 
 in the United States is no better than in England. 
 And, although this statement has been contested 
 with much ability by Mr. Edward Atkinson, the 
 weight of the evidence seems to be on the side of 
 the Quarterly Review. From my own observa- 
 tions in the Western States of America, I am 
 convinced that the wheat farmers of Kansas, 
 Nebraska, Minnesota, and Dakota have suffered 
 enormous losses, and that these States have only 
 avoided an agricultural collapse more complete 
 even than that in England because of the large 
 local disbursements of money to build new rail- 
 roads in those States. It is worthy of notice that 
 during the past twelve months no less than four 
 thousand miles of railway have been constructed 
 within the three States of Kansas, Nebraska, and 
 Dakota, at a cost approximating twenty millions 
 
n8 THE ECONOMIC CRISIS. 
 
 sterling. Of this sum probably one-half may 
 have been spent on land labour and local produce 
 within those States, thus raising prices locally and 
 increasing profits. But when a " boom " of this 
 temporary nature has passed by it will be impos- 
 sible for the Americans to continue to export 
 wheat at anything approaching present prices ; 
 they have already, owing to the fall of prices, 
 largely contracted their area under wheat, and are 
 turning their attention to the production of meat 
 and dairy produce, with the result that the prices 
 of these exports also have been forced down by 
 American competition, to the confusion of Irish 
 "judicial" rents, and to the destruction of a social 
 system. 
 
 Thus the fall not in wheat prices only, but 
 also in the price of meat, and other agricultural 
 produce, is to be traced directly to the present 
 position of silver. 
 
XL 
 
 INDIA AND THE SILVER QUESTION (continued). 
 
 The prodigies of production which the 19th 
 century has revealed to us may be referred to 
 two concurrent causes: (1) The developments of y 
 modern machinery, and (2) the cheapness of 
 loanable capital under the conditions of modern 
 credit. It would be difficult to decide which of 
 these two has been the more important factor in 
 the mighty results we have been permitted to 
 witness. 
 
 How is it that the manufacturers of Europe 
 and of America can be induced to continue to 
 manufacture when prices are so low, and the 
 margin of profit so extremely small? How is 
 it that when the net profits of trade have been 
 reduced to a margin of eight per cent., yet the 
 profits of the manufacturers are twenty per cent. — 
 are actually greater than when the profit margin 
 was nominally twelve per cent, instead of eight ? 
 This problem does not involve any startling 
 
120 THE ECONOMIC CRISIS. 
 
 paradox. Suppose a man with ten thousand 
 pounds of his own connects himself with such an 
 industry as, for instance, the shipping or cotton 
 spinning trade. He requires ^50,000 for his 
 plant and operating expenses ; the balance of 
 forty thousand he is able to borrow upon the 
 security of his own capital and the plant at say 
 four and a half per cent. : now if the net profit of 
 his business is eight per cent., he earns ^4,000 
 a year, less 4 per cent, on ^40,000, or ^1,800 : 
 so that his net profit on his original ^10,000 
 amounts to ^2,200, or 22 per cent, per annum. 
 Owing to the fact that he is able to borrow 
 money at \\ per cent, rather than eight, he is able 
 also to secure such a rate of profit as keeps 
 him actively engaged and satisfied to remain in 
 business, and he is able to pay the wages of brisk 
 business times to the labourers he employs. Now 
 it is clear that if the loan rate of money was 8 
 per cent., then, unless he sold his goods at a much 
 higher price and so obtained a much higher 
 margin of profit than 8 per cent, on each sale, 
 this manufacturer would retire from active 
 business and would prefer to be a lender of 
 money rather than a borrower. 
 
 Now herein is, as it appears to me, the entire 
 crux of this Silver Question with reference to 
 
INDIA AND THE SILVER QUESTION. 121 
 
 India. Solely and entirely in consequence of the 
 exchange difficulty — of the fact that a western 
 capitalist who converts gold into silver, for the 
 purpose of making loans in India, never knows 
 when or to what extent in consequence of a 
 further fall in exchange, his sovereigns may come 
 back to him in diminished numbers — solely in 
 consequence of this insecurity, the market price 
 of money loaned on first class mortgage security, 
 for one year, two or five years is at least as high 
 as 7 per cent, per annum throughout British 
 India. It has indeed come to this point, that 
 British Trustees are no longer permitted to invest 
 trust moneys in India at all ! Can any one 
 suggest any other than the currency reason for 
 the present rate which can be obtained for money 
 in India ? If money is to-day being loaned freely 
 at 3 per cent, on land mortgages in London, 
 why is it that such a rate as 7 per cent, can be 
 obtained on mortgage of the most valuable and 
 constantly improving building sites in the City 
 of Bombay ? The only possible explanation is, I 
 think, the natural feeling of insecurity occasioned 
 by a falling rate of exchange. If money in India 
 was 50 per cent, cheaper to borrow — was as 
 cheap for example as it is in Manchester, then 
 without the advantage resulting from a depreci- 
 
122 THE ECONOMIC CRISIS. 
 
 ated currency, it seems to me that the cotton 
 mills of Bombay could still compete with the 
 cotton mills of Manchester in supplying the 
 China market ; and in addition the one burning 
 need of India and of England would be supplied 
 — the East would be supplied with cheap capital, 
 while at the same time the Western capitalist 
 who is now forced to lend his money for i\ 
 per cent, would obtain 4 per cent. ; the Indian 
 Government or the Indian producers who to- 
 day borrow at 6 and 8 per cent, respectively 
 would at once be able to borrow at 4; both 
 parties, the borrower and lender also, would thus 
 be suited, and while India would be developed, 
 the benefit of her political connection with the 
 richest country in the world would be made 
 evident to the native mind. 
 
 At present, in consequence of the economic 
 crisis — the Silver crisis — India might almost as 
 well, as far as the blessing of cheap loanable 
 money is concerned, be connected not with Eng- 
 land but with the Turkish Empire. And how 
 greatly it would emphasize the comparative ad- 
 vantage of English over Russian rule if we could 
 show the native masses that the consequence of 
 British rule is money at 4 per cent. — that, on 
 the other hand, the cost of the Russian connec- 
 
INDIA AND THE SILVER QUESTION 123 
 
 tion would be depreciating rouble paper and a 
 9 per cent, bank rate. 
 
 The point therefore to which this so-called 
 "monometallic system" — a system of two dis- 
 connected standards of value within the bounds 
 of one Empire — the point to which this system 
 has brought this Empire may be summed up in 
 these words. 
 
 In England an unhealthy glut of capital seek- 
 ing investment and finding no remunerative 
 demand; 
 
 But in India a money famine, high rates of 
 interest, and a tardy development of her national 
 resources. 
 
 In England our manufacturers and our farmers 
 distracted by Indian exports bonused by the 
 depreciating rupee; 
 
 But in India business conditions which are 
 generally unprofitable because of money scarce 
 and dear, excepting only in the case of a few 
 highly-favoured, and so to speak " protected " 
 export trades, which are a mere fraction of the 
 entire trades of the Indian Peninsula. 
 
 In England low prices and an absence of all 
 profit ; 
 
 But in India prices high by comparison with 
 those which would obtain with cheaper loanable 
 
124 THE ECONOMIC CRISIS. 
 
 capital : an insecure scale of profit, fluctuating 
 between wide extremes, and subject to exchange 
 gambling: a retarded railway development, in- 
 sufficient irrigation, and a famine at hand. 
 
 Such are some of the fruits of the Gold Bugs' 
 Creed. 
 
XII. 
 
 DEPRECIATED CURRENCIES AND THEIR EFFECT 
 ON PRICES. 
 
 The recentTurther depreciation of the Russian 
 Paper Currency, that is, the increased premium 
 on gold in Russia, has brought the question 
 of depreciated paper currencies again before the 
 public attention. Any statement of the Cur- 
 rency Crisis would be incomplete which omitted 
 to consider the effect on prices in countries 
 which have a sound metallic currency, of exports 
 from countries where an inconvertible paper 
 currency is depreciating more or less rapidly. 
 The question itself is of extreme importance, 
 but has hitherto been so far neglected that there 
 is very little if any statistical data which can be 
 reliably used in this connection. At a recent 
 meeting, however, of the Central Chamber of 
 Agriculture, Mr. W. J. Harris shrewdly argued 
 that, while quite recognizing the bonus to wheat 
 exports from India afforded by the depreciating 
 rupee, it would still be impolitic to correct this 
 
iz6 THE ECONOMIC CRISIS. 
 
 by any monetary agreement which would restore 
 its value to silver, because the effect would be 
 to shut off India's wheat exports to England 
 and to permit their place to be taken by exports 
 of wheat from Russia, where Mr. Harris declared 
 from his own experience as a wheat importer, 
 that although the rouble — just as the rupee in 
 India — was depreciating, yet that this depre- 
 ciation was not diminishing in Russia itself the 
 purchasing power of rouble paper notes. As to 
 his facts, Mr. Harris is borne out by much 
 independent testimony. Colonel Le Mesurier 
 assured me recently in Calcutta that in the trans- 
 Caspian provinces of Russia this year he was 
 obliged to exchange gold for rouble notes, pay- 
 ing a positive premium for the "depreciating" 
 notes. As to Mr. Harris's conclusion, however, 
 and his rejection of the bimetallic remedy, Mr. 
 Harris is perhaps not wholly correct; for what 
 is the increasing depreciation of the rouble, 
 except another form of the statement that the 
 premium on gold in Russia is increasing. Now 
 such a depreciation of the currency of a country 
 comes from one of two causes, or from both 
 these causes operating together — (i) a paper in- 
 flation within the country itself, as was the case 
 with assi gnats in France, or (2) a cause which 
 
DEPRECIATED CURRENCIES. 127 
 
 is not local but universal — the growing com- 
 parative scarcity of international legal tender 
 money. In the case of India at least, while the 
 rupee has fallen some 25 per cent., this fall is 
 clearly not owing to any currency inflation. 
 India is on a metallic basis, and the fall in the 
 rupee is net, as I have before pointed out, owing 
 to a fall in the value of silver, but to a rise in 
 the value or gold. The remedy for this is 
 evidently to increase the mass of international 
 legal tender money, by making silver "good 
 money" — the money of exchange. This rise 
 in the value of silver would reduce the premium 
 everywhere on gold ; and similarly a rise in the 
 value of silver, which is the standard within 
 Russia, would also reduce the premium on gold 
 in Russia — that is to say, would tend to correct 
 the increasing depreciation of the rouble notes. 
 I suppose therefore that of the amount of the 
 present premium on gold in Russia (some 45 
 per cent.), at least 25 per cent, would disappear 
 were its old value to be returned to silver. 
 There would then, instead of a bonus of some 
 45 per cent, on Russian exports of wheat to 
 England, be a bonus of not more than 20 per 
 cent, a very serious condition of things if 
 permanent, a condition which clearly entitles Mr. 
 
 \ 
 
128 THE ECONOMIC CRISIS. 
 
 Harris and others to raise the question whether 
 Free Trade was ever intended to cover such a 
 condition of exchange as this. 
 
 The further fall in the value of the Russian 
 currency, which has necessarily been followed 
 by a fall in the price of all Russian securities, 
 should prove an additional incentive to Germany 
 to support international bimetallism. The 
 Russian securities are held in immense amounts 
 by the Berlin banks, and if the gold premium 
 in Russia is diminished Russian government 
 securities will certainly rise. 
 
 But now it will be objected that if the fall 
 in the rouble, as in the rupee, stimulates Russian 
 exports, may it not be a good policy both in 
 Russia and in other countries to inflate their 
 currencies with inconvertible paper money, in 
 order to swell the volume of their exports. But 
 there can be no doubt that while under such 
 conditions the mere export trade of a country 
 may expand, yet the destruction of the National 
 Credit, the fall in the value of its securities both 
 at home and abroad, and the inevitable demoral- 
 ization of all trades, if not in the remote 
 interior, yet at least near the ports and the 
 money centres — these causes of disturbance far 
 more than outweigh any temporary advantage 
 
DEPRECIATED CURRENCIES. 129 
 
 which may be obtained by a few exporting 
 merchants. As I endeavoured to show was the 
 case in India, the depreciation of the rupee by 
 stimulating exports is a possible benefit to some 
 five per cent, of the National Industries, at the 
 expense of 95 per cent, of those industries. 
 That exports stimulated in this way, and coming 
 from countries with a depreciated currency, are 
 destructive of*"the stability of trade and prices 
 in countries such as England where the standard 
 of value is appreciating — this is now universally 
 conceded. But while this is a strong argument 
 for National protection — self-protection — it is 
 perfectly certain also that the offending — the 
 inflating nation itself suffers. 
 
 And not alone is Russia an offender in this 
 respect. The currency condition in the Argen- 
 tine Republic in a similar manner stimulates 
 the export trade of that country in beef, mutton, 
 and wool, and also the cereals. And unlike 
 Russia and India, where the depreciation has 
 until quite recently been characterized by some 
 steadiness, the gold premium in the Argentine 
 ranges from zero to 50 per cent, within a 
 period of a few months. This is the result 
 no doubt of large frequent borrowings of gold 
 in London and Paris; but the merchants of 
 
130 THE ECONOMIC CRISIS. 
 
 Liverpool have come to make a profitable 
 forecast of these exchange fluctuations, and are 
 able thereby to secure very large profits from 
 time to time. For example Messrs. Nelsons, 
 the leading meat salesmen of Liverpool, are 
 able, as the premium on gold at Buenos Ayres 
 // rises, to buy for one hundred sovereigns ^150 
 or more of the paper currency of the Argen- 
 tine : this sum invested in sheep within that 
 country will clearly buy as many sheep as 
 ^8150 would buy when the paper currency is 
 at par with gold, for just as is the case with 
 the rupee in India, so also in the Argentine 
 Republic, merchants are agreed that local prices 
 are not disturbed pari passu with the fluctua- 
 tions of the paper currency — that prices, in short, 
 are controlled by the local paper money, and 
 are almost independent of the increase or the 
 diminution of the premium on gold. 
 
XIII. 
 
 THE SOCIALISM OF TO-MORROW. 
 
 To carry the intention of this book to com- 
 pletion, it is necessary not only to point out the 
 effects of class legislation in inducing the present 
 Economic Crisis, but also to consider by what 
 means the community may in future protect 
 itself against the inequalities of distribution 
 which have been induced by this legislation. 
 
 The rapid spread of Socialism on the con- 
 tinent of Europe and in America ; the growing 
 disregard of those established principles which 
 have hitherto controlled the law-makers, and the 
 breaking up everywhere and the re-grouping of 
 political parties ; the revolt also, whether against 
 economic science itself, or against the admitted 
 excesses of its professors — these and many other 
 symptoms of a vague unrest in the public mind 
 are accumulating evidence that large social changes 
 are at hand, and that the relations of the State 
 
 K 2 
 
1 32 THE ECONOMIC CRISIS. 
 
 to the individual are even now in due process of 
 evolution. 
 
 It is the object of this concluding chapter to 
 show, that the Socialist conception, if rightly 
 understood, is not necessarily antagonistic, either 
 to Economic Science or to the State — that, on 
 the contrary, if permitted a peaceful growth, 
 Socialism will increase the number both of good 
 citizens and of intelligent Professors — a consum- 
 mation much to be desired. 
 
 At present the State is everywhere seen to 
 resent strongly the new pressure from below, and 
 gives, when it does give, with no good grace; 
 the demands made upon it are frequently ill- 
 defined and frequently also dishonest. The 
 Vessel of State appears to those on board to be 
 asked to undertake some voyage for the dis- 
 covery of another continent ; no pilot is on the 
 ship, nor any completed chart of the ocean. So 
 that the immense social forces which have evi- 
 dently broken loose, and which appeal so strongly 
 to the sympathies and the imagination of men, 
 are at present worse than wasted forces ; they 
 are as cyclones, they impede progress, they have 
 evaded Eolus and are chasing one another about 
 the Universe, true demons of terror and discord. 
 Thus it happens that because absurdities are 
 
THE SOCIALISM OF TO-MORROW. 133 
 
 being demanded by the fanatical few, the State 
 is in danger of coming into conflict with the 
 expectant many; because unable to do every- 
 thing, the State would be inclined to do nothing 
 if only it were possible to bury Socialism under 
 a handful of old school-books. 
 
 Voltaire has somewhere said that "the art of 
 Government js to make two-thirds of a nation 
 pay all it possibly can pay, for the benefit of the 
 other third," but this is ceasing to be true or 
 possible. In England we have recently deprived 
 the capitalist middle classes of the political con- 
 trol which for many years had been theirs, by 
 adding to the electorate an immense body of 
 men who have everything to gain, and little to 
 lose by any extension of the functions of the 
 State. It is certain therefore that the State will 
 be required in the future to largely extend the 
 sphere of its duties, and it only remains to decide 
 what are those duties which the State can under- 
 take with the least probability of disaster, and 
 with the best prospect of satisfactory results. At 
 the outset of this inquiry it may be assumed that 
 the State is in a position to recognize without 
 any discussion the distinction between the Social- 
 ist demands which it must refuse and those 
 demands which it may fairly consider. There 
 
134 THE ECONOMIC CRISIS. 
 
 is a demand on the part of a very few that wealth 
 already created and which has become private 
 property should be redistributed, whether by posi- 
 tive confiscation or by excessive taxation ; this is 
 the red spectre of "the International/' ' a form of 
 Socialism quite anti-social and which it is not 
 •my intention to discuss ; but the Socialism which 
 is to-day entitled to a fair consideration is that 
 which demands the employment of the machinery 
 of the State, to ensure a less faulty distribution 
 of the future wealth which is destined to be 
 created from time to time. 
 
 What then are those functions which the 
 State can discharge more cheaply and more 
 efficiently than private enterprise, and is it pos- 
 sible so to generalize, that without a series of 
 dangerous and costly experiments, the State 
 may recognize in advance what these functions 
 are ? This is the problem which the rulers of 
 the western nations will shortly be required to 
 consider. 
 
 Among other successful experiments in State 
 intervention, we have for our guidance the ex- 
 ample of the post-office. Here is a department 
 which in the hands of the State has safe- guarded 
 the community against such a collapse as, always 
 1 See M. Emile de Laveleye's work, Socialism of To-day. 
 
THE SOCIALISM OF TO-MORROW. i$3T 
 
 possible in the case of private enterprise, would 
 paralyze at least for a time the whole industrial 
 body. Yet the post-office, though remarkably 
 successful, is a clear infraction of the economic 
 dogma of laissez /aire ; if A had been permitted 
 to contract to deliver all letters in Middlesex and 
 B in Surrey, it is certain that a penny postage 
 rate would have never been heard of, that the 
 four millions sterling of annual profit would not 
 now be going to diminish taxes, and not only 
 so, but we should be getting our letters far less 
 regularly and far less rapidly. Here then is the 
 instance of the State using efficiently an enormous 
 machinery which would be beyond the power of 
 individuals to control, and using this machinery 
 to the profit and advantage of the community ; 
 it is the instance of an immense centralized ad- 
 ministration of the greatest possible advantage. 
 The State having become in this instance an 
 efficient distributor, is it not probable that other 
 operations of the middle-man can be similarly 
 undertaken, so that while the community might 
 get the advantage of lower prices, the State may 
 collect a great portion or even the whole of its 
 revenue solely from its own economy of system 
 in connecting the Producer with the Consumer ? 
 Indeed, is it not possible that because the demo- 
 
136 THE ECONOMIC CRISIS. 
 
 cracy has, under our extended franchise, now dis- 
 placed the middle classes — the classes dominated 
 by the middle-man— the demand made by the 
 democracy is really this — that while the domain 
 of Production shall still belong entirely to the 
 individual, so that effort and individuality may 
 not be impaired, yet the distribution of Products 
 shall be left in a degree definable by moral 
 science to the direct intervention of the State ? 
 is it not probable that the concern of political 
 parties, or at least of a future political party, will 
 be to effect such an evolution of Economic 
 Science, at present most incomplete, that it may 
 be made to satisfy the requirements of a Scientific 
 Socialism ? It is the present grievance of the 
 masses everywhere that the State does nothing 
 for them ; its machinery is being entirely em- 
 ployed to advance the interests of the middle 
 and upper classes. What concern has the pro- 
 letariat in the cheapness of telegrams which it 
 never receives, or in cheap postal connections 
 which it never uses ! It is little wonder then 
 that to the masses of the community the State 
 appears at best as a cynical spectator of their 
 wretchedness, only now and then waking up to 
 the necessity of sending its policemen to break 
 a few heads. If in the future the State can be 
 
THE SOCIALISM OF TO-MORROW. 137 
 
 associated in the minds of these classes with any 
 operations by which their daily needs are sup- 
 plied more cheaply and more effectually, if the * 
 State is seen to be both the largest and the most 
 considerate employer of their labour, something 
 of the mutuality of those interests which origin- 
 ally brought Society together will be again 
 diffused, within the lines of a wider sympathy. 
 
 And the State having proved itself such an 
 efficient middle-man in distributing letters and 
 telegrams, there is a far larger machinery of dis- 
 tribution ready to its hand, in the Railway System 
 of the country. The present direction of the 
 demand is that the State shall merely interfere to 
 decide freight rates — an interference of the same 
 mischievous nature as that which in the case of 
 Irish land has been attended by disaster and 
 discord. The right of the State to buy what it 
 requires has come to be generally admitted, 
 but interference — without purchase — with vested 
 rights has always resulted, and must always result, 
 in a feeling of insecurity, and such a consequent 
 reduction of values as must injure all parties in 
 the State. 
 
 It seems nearly certain that the State owner- 
 ship of Railroads would, economically considered, 
 be at least as advantageous as has been the case 
 
138 THE ECONOMIC CRISIS. 
 
 \ with the Postal and Telegraph systems, and it is 
 most reasonable that these roads, which are the 
 very arteries of the commerce of the various 
 countries, should be operated not as at present, 
 to fill the pockets of a handful of shareholders, 
 but to support and stimulate National industries, 
 for the greatest happiness of the greatest number. 
 Just as was the case with the penny postal rate 
 and the sixpenny telegram, where the initial losses 
 in consequence of the reduction of rates were on 
 such a scale that a mere body of shareholders 
 would never have permitted so costly an experi- 
 ment, so with the railways to-day ; probably if a 
 third-class ticket from London to Edinburgh 
 cost five shillings instead of thirty-five, after a 
 few months or years the diminished charge would 
 have so increased the volume of travel, that the 
 community would be, as it were, making money 
 at both ends — would be travelling at a seventh of 
 the present cost, and the Railways would be 
 paying, just as the Post Office does, a growing 
 proportion of the required Revenue. Two years 
 since I was discussing with the freight manager 
 of an American Railway a " war of rates " at that 
 time active between Chicago and the Pacific 
 Ocean ! Railway tickets were being issued from 
 San Francisco to Chicago and back — some 4800 
 
THE SOCIALISM OF TO-MORROW. 139 
 
 miles — for =£3 instead of the usual ,3830 ; the 
 result was such an increase of travel that the 
 Western Companies were obliged to borrow 
 rolling stock from the Eastern roads, and the 
 trains were running out of San Francisco daily, 
 quite full — sixty passengers in each long pas- 
 senger coach. And low though the fares were, 
 it soon appeared that at nine hundred dollars per 
 coach for the " round trip " the railways were at 
 least not losing money, while the business in the 
 local towns, in Ogden, Salt Lake City, in Denver 
 and Omaha, was much increased ; within a few 
 weeks, however, the war came to an end, and the 
 old scale of fares was restored, to the great loss of 
 the community, to the no very considerable 
 gain even of the railway companies, but to the 
 immense relief of their employes, upon whom 
 the strain of the increased work had come. It 
 is quite certain that if the railways of the 
 United States are eventually to become the 
 property of the Government, the constituents will 
 at once secure that fares are reduced at least two- 
 thirds, even though at present, if regarded from 
 the standpoint of private enterprises, American 
 railway charges are exceptionally moderate. The 
 amount of capital involved in such a purchase 
 operation would be very large : in England some 
 
140 THE ECONOMIC CRISIS. 
 
 eight hundred millions, in the United States more 
 than twice as much ; but, as a matter of fact, it 
 would be largely a refunding operation ; the pre- 
 sent holders of bonds and shares, who are perhaps 
 getting four per cent., would be certain, if bought 
 out by a Government issue of consols, to reinvest 
 at three per cent, or less in the new Government 
 Stock; a three per cent. Government, secured 
 Stock, irredeemable for fifty years and clear of all 
 possible Stock Exchange manipulation, would have 
 at least as high a market value as a four per cent. 
 Company Stock. Instead then of half a hundred 
 railway companies, each with a staff more or 
 less efficient, and amateur directors more or less 
 useful and wasteful, and the present costly com- 
 petition between empty express trains, at the direct 
 expense of third-class travellers by the slower 
 trains, there would be, as is the case in Prussia, 
 Italy, and Belgium, a Government Department 
 which would include the most skilful specialist 
 talent in the country, at high salaries. Of course 
 there would come a howl from Wall Street and 
 the Stock Exchange, for it would no longer be 
 possible for syndicates and railway kings to 
 manipulate Stocks, and by " bull " and " bear " 
 raids, and by fictitious intelligence affecting the 
 prices of securities, to keep the community 
 
THE SOCIALISM OF TO-MORROW. 141 
 
 and the interests of the bond Jide invester in a 
 perpetual state of unrest. A single firm of 
 brokers, selling a single Government Stock, at a 
 price as free from variations as consols are, 
 could do the work now done by a hundred 
 firms ; and although this collapse of speculation 
 would involve a loss to some brokers and 
 middle-men, it is evident that their losses would 
 be recouped ten times over by the general com- 
 munity. 1 
 
 In the United States the time for such a 
 development as this is most opportune. That 
 nation is very anxious to continue its present 
 protective Tariff, because, relieved from the free 
 competition of other countries where the labourer 
 is constrained to work far longer hours, the 
 American working-man looks confidently forward 
 to a working day restricted to six hours ; but the 
 present difficulty is this — how, without increas- 
 ing the competition of the foreigner by Tariff 
 
 1 Messrs. Chapman and Hall have published recently a 
 book by the late Mr. Charles Waring, the eminent railway 
 contractor, upon the State Purchase of Railways, in which 
 the case for Reform is stated with much ability. The views 
 advanced by the late Mr. Waring are the more important 
 as coming from one who to much distinction in the field of 
 economic science added that further claim to the attention 
 of the community which results from a particularly success- 
 ful business career. 
 
142 THE ECONOMIC CRISIS. 
 
 reductions, still to get into circulation the mass of 
 surplus revenue which the Tariff on imported 
 goods continues to accumulate in the Treasuries 
 — on what National undertaking can this surplus 
 be profitably expended. A surplus revenue of 
 more than thirty millions sterling, accumulating 
 year by year, would, after paralyzing prices, in a 
 very few years lock up the entire currency of the 
 country, and bring the nation back again to the 
 sweet simplicity of exchange by barter. But if 
 the National Debt of the United States was 
 increased by the State purchase of the entire 
 Railroad System, not one dollar of this surplus 
 revenue need ever linger in the Treasury; the 
 fares on the railways might be reduced to such an 
 extent that labour could migrate at the minimum 
 of cost to those centres, whether in the west or 
 south, where any temporary and active demand 
 for labour should spring up, and in return for the 
 Tariff collected in the ports — a Tariff levied 
 largely on the luxuries of the rich — the neces- 
 saries of a cheaper subsistence for the working 
 classes could be brought at an ever diminishing 
 cost from the prairie areas west of the Mississippi 
 river. Thus because exports and production also, 
 in consequence of the lower freight charges, would 
 increase, imports, and therefore the revenue col- 
 
THE SOCIALISM OF TO-MORROW. 143 
 
 lected on imported goods, would also increase ; in 
 fifty years by such means the entire railways of 
 the United States might be bought up, paid for, 
 and made a present to the community. Were 
 the railways once in the hands of the State it 
 might be a sound National Policy to carry all 
 third-class passengers everywhere free, and to 
 reduce the freight charges to the mere cost of 
 operating the railroads, leaving the interest charges 
 required by the purchasing operation to be paid 
 for out of the Tariff Revenue, and out of the 
 increased value of the assets of the capitalists of 
 the community; these assets necessarily appre- 
 ciating pari passu with the reduction in transit 
 charges. Such a condition of things would so 
 stimulate emigration from Europe to America 
 that it would be wise and even necessary to 
 pick and to choose — to admit only those emi- 
 grants who were able to secure the certificate 
 of the parish priest and doctor, endorsed by the 
 Consul; under such conditions the moral and 
 physical supremacy of the United States citizen 
 of the future would be assured. Is not such a 
 conception of the dignity and the future of the 
 Great Republic more worthy of its position than 
 any mere peddling reduction of the Tariff on 
 imports, which both political parties profess to 
 
144 THE ECONOMIC CRISIS. 
 
 deprecate in the interests of the working man, 
 because the change must involve a fall of wages, 
 and the underselling of American labour in 
 American markets by the competition of the 
 toiling, overstrained producers of Germany, where 
 men and women also are at their handicrafts 
 seven days in the week. 
 
 And while it appears to be to the general 
 interest, in every fairly developed country, that 
 the railways shall come into possession of the 
 community, in the United States this offers the 
 only prospect of protecting the citizens from 
 the tyranny of " Rings " and " Trusts " ; there is 
 no other country in the world where the equit- 
 able distribution of wealth is being so tampered 
 with by organizations of millionnaire middle-men 
 who, possessing the monopoly of certain markets, 
 have suppressed all competition, and are able both 
 to buy from the producer at a price which they 
 dictate, and also to force the consumer to purchase 
 at monopoly prices. These Rings have become 
 so suddenly and so colossally wealthy, that nothing 
 short of State intervention will avail to protect the 
 community. There is the Standard Oil Company, 
 which controls the entire production and sale of 
 mineral oils in the United States. The monopoly 
 of Messrs. Armour and Swift, the "Butcher 
 
THE SOCIALISM OF TO-MORROW. 145 
 
 Kings " of Chicago, who are able to dictate the 
 price of beef, mutton, and pork in all the towns 
 of New England and New York. There is a 
 " Sugar Trust," which has either closed or is to- 
 day controlling all the sugar refineries in the 
 United States ; there is a " Milk Trust," and also 
 a " Whiskey Ring " ; while a combination of the 
 Ice Companies last summer raised the price of 
 ice suddenly some three hundred per cent. This 
 tyranny of Produce "Rings," though, at present 
 but a few years old, is rapidly extending, and it is 
 only possible to control it by putting the principal 
 machinery of distribution — the Railways — into 
 the power of the State. If deprived of this 
 machinery, the operations of these " Rings " 
 would be impossible, and a tyranny which is 
 assuming immense proportions, and which is a 
 prodigy of skilful organization, would come to an 
 end for ever. 
 
 Of no less importance to the welfare of the 
 community than the ownership of the Railways 
 would be the State purchase of Banks, and the 
 consequent control of the Great Money Power, 
 which is to-day all over the world deciding, with- 
 out any reference to national interests or 
 national liberties, the issues of peace and war. 
 It is not too much to affirm, that not only is the 
 
146 THE ECONOMIC CRISIS. 
 
 Money Power dominating the legislatures, but it 
 is in the sight of all men aggravating by process 
 of legislation the burden of all debt, whether 
 national or private, for the benefit of a few over- 
 powerful creditors. It may, indeed, be affirmed, 
 without fear of contradiction, that legislation 
 arranged in the interest of a certain class, first by 
 Lord Liverpool in this country, and again by Sir 
 Robert Peel at the instigation of Mr. Jones Loyd 
 and other wealthy bankers, which was supple- 
 mented recently by simultaneous anti-silver 
 legislation in Berlin and Washington at the 
 instance of the great financial Houses — this 
 legislation has about doubled the burden of all 
 National Debts by an artificial enhancement of 
 the value of money. The fall of all prices 
 induced by this cause has been on such a scale, 
 that while in twenty years the National Debt of 
 the United States quoted in dollars has been 
 reduced by nearly two-thirds, yet the value of the 
 remaining one-third, measured in wheat, in bar 
 iron, or bales of cotton, is considerably greater — 
 is a greater demand draft on the labour and indus- 
 try of the nation than was the whole debt at 
 the time it was contracted. 1 The aggravation of 
 
 1 See Article, ' Gold Scarcity,' Nineteenth Century 
 Review, Oct. 1885. 
 
THE SOCIALISM OF TO-MORROW. 147 
 
 the burdens of taxation induced by this so-called 
 "appreciation of gold," which is no natural 
 appreciation, but has been brought about by class 
 legislation to increase the value of the gold 
 which is in a few hands, requires but to be 
 explained to an enfranchised Democracy, which 
 will know how to protect itself against further 
 attempts to contract the currency and to force 
 down prices, to the confusion of every existing 
 contract. 
 
 Of all classes of middle- men, bankers have 
 been by far the most successful in intercepting 
 and appropriating an undue share of produced 
 wealth. While the modern system of Banking 
 and Credit may be said to be even yet in its 
 infancy, that portion of the assets of the com- 
 munity which is to-day in the strong boxes of the 
 Bankers would, if declared, be an astounding reve- 
 lation of the recent profits of this particular 
 business; and not only has the business itself 
 become a most profitable monopoly, but its 
 interests in a very few hands are diametrically 
 opposed to the general interests of the majority. 
 By legislation intended to contract the currency 
 and force down all prices, including wages, the 
 price paid for labour, the money owner has been 
 able to increase the purchase power of his sovereign 
 
 l 2 
 
148 
 
 THE ECONOMIC CRISIS. 
 
 or dollar by the direct diminution of the price of 
 every kind of property measured in money. 
 The monopoly of banking should therefore be 
 acquired by the State ; if left to individuals the 
 temptation to arrange such legislation as will 
 contract the currency and increase the value of 
 the standard money is too great. Even were the 
 State unwise enough to abuse its powers, then 
 these enormous profits would in the form of 
 Revenue, at least inure to the benefit of the com- 
 munity. Nearly twenty years ago, and at a time 
 when gold was depreciating, Bagehot published 
 the following table of the result of his inquiry 
 into the profits of no British Banks whose 
 annual statements he had examined. 
 
 NO. OF COMPANIES. 
 
 CAPITAL. 
 
 DECLARED DIVIDENDS. 
 
 15 
 20 
 
 36 
 36 
 
 3 
 
 £ 5,302,767 
 £ 5,439,439 
 ^14,056,950 
 ^14,182,379 
 £ 1,350,000 
 
 Above 20 per cent. 
 Between 15 and 20 per cent. 
 Between 10 and 15 per cent. 
 Between 5 and 10 per cent. 
 Under 5 per cent. 
 
 Total no 
 
 ^*40,33i,535 
 
 
 As may be seen from the present returns 
 of the four leading London Banks, these profits 
 have been more than maintained, notwithstanding 
 the extreme depression of trade which has 
 characterized the past fifteen years. 
 
THE SOCIALISM OF TO-MORROW. 
 
 149 
 
 NO. OF SHARES. 
 
 NAME. 
 
 LAST ANNUAL 
 DIVIDEND. 
 
 AMOUNT PAID 
 
 UP ON EACH 
 
 SHARK. 
 
 PRESENT 
 
 SELLING PRICE 
 
 OF SHARES. 
 
 140,000 
 I20,C00 
 110,000 
 
 40,000 ) 
 150,625 j 
 
 Lond. & Westmr. 
 Lond. Jt. Stock 
 Union Bk. Lond. 
 
 Natl. Prov. Bank. 
 
 151 
 
 12* 
 
 19 
 
 20 
 
 jioi 
 
 66 
 
 38 
 
 39 
 
 J 45 
 
 The capital of these Banks is more than forty- 
 nine millions sterling, of which ^8,607,500 has 
 been called up. The shares represented by this 
 sum at their selling price to-day would realize 
 ^27,722,500, a profit of over two hundred per 
 cent. It is clear that if banking is to continue 
 to be even as profitable as at present, its mono- 
 poly in the hands of the State would result in the 
 rapid redemption of the National Debt. It is 
 evident also from the phenomenal success of the 
 Joint Stock Banks operated by salaried managers, 
 that banking is pre-eminently a business which 
 could be conducted by a State department, 
 neither less profitably nor less safely than as at 
 present. There is no reason why, for example, 
 Mr. Astle, the Manager of the London and 
 Westminster Bank, should look less closely into 
 the credit of individuals, if he were responsible to 
 a Secretary of State, instead of as now to a Board 
 of Directors which meets once a month. As 
 things are banking is in no sense " free " ; on the 
 
150 THE ECONOMIC CRISIS. 
 
 contrary Banks are so restricted by State regula- 
 tions that, as Professor Bonamy Price remarks of 
 the Bank of England — " It is a self-acting institu- 
 tion of the State working on the Bank's premises, 
 and directed by rules laid down by the State, 
 and absolutely beyond the control of the Bank 
 Directors." Where the State can afford to 
 meddle the State can better still afford to buy. 
 The Banks are a case in point. Individuality is 
 not only of no value in banking, but it is pro- 
 bably an element of risk ; and if this is so, if there 
 is a business dangerous to the interests of the 
 community, which on many occasions in modern 
 history has controlled the executive and tampered 
 with the legislatures, and which is excessively 
 profitable, is there any reason why it should not 
 become even as the Post Office, a State monopoly 
 equally valuable to every class of the community ? 
 The present law, " Peel's Act " of 1 844, by which 
 the State agrees to meddle with monetary 
 legislation whenever it thinks fit, has hardly one 
 disinterested advocate at the present time. It is 
 generally supposed that Sir Robert Peel per- 
 mitted Mr. Samuel Jones Loyd to draft the 
 entire Bill, which to this day continues unrepealed. 
 It was a Bill intended to deliver over the com- 
 munity tied and bound into the hands of their 
 
or THt 
 
 vcRsn 
 
 THE SOCIALISM OF TO-MORROW. 151 
 
 bankers at every recurring time of crisis. By 
 the present Act, the Act of 1844, the State is 
 virtually made to say this — " There are recurring 
 times of money panics — Black Fridays. At such 
 times early arrivals will be able to borrow from 
 the bankers, but at enormous rates, others will 
 come too late to borrow at all ; the more intense 
 the crisis the more intense also the general 
 sufferings. We shall, however, always permit 
 these sufferings to go to that extreme length 
 where, individuals having been ruined wholesale, 
 the general solvency of the Banks themselves has 
 in turn become endangered ; at that moment we 
 will intervene, and by suspending the Act 
 terminate the crisis." And seeing that such 
 State intervention in the case of a State so 
 wealthy as Great Britain must always terminate 
 a crisis, it would be equally efficacious to prevent 
 any tendency to a crisis. In other words, were 
 the State the banker, the community would be 
 protected against the recurrence of calamities by 
 which, while one man is making a sovereign, ten 
 men by the collapse of business and the general 
 unsettlement of values are losing ten sovereigns. 
 
 There is a letter from Lord George Bentinck 
 written during the money panic of 1847, 1 and 
 1 Dated November 3rd, 1847. 
 
152 THE ECONOMIC CRISIS. 
 
 which is published in the Croker correspondence. 
 Lord George writes : — 
 
 The Act was conditionally suspended last 
 Monday week. The week previous a manufac- 
 turer holding ^100,000 North-Western Railway 
 debentures (guaranteed five per cent, for five 
 years) required bank-notes to meet his liabilities. 
 He went to Samuel Jones Loyd, and desired to 
 have his debentures discounted. Samuel Jones 
 Loyd refused. The manufacturer replied, "I 
 must have money." The banker rejoined, "I 
 can't do it. But stay — strike off 25 per cent, and 
 I will ; but I give but five minutes to consider." 
 The wretched manufacturer had no choice but 
 to submit to the extortion or to suspend pay- 
 ments. Samuel Jones Loyd gave ^75,000 Bank 
 of England notes, and became possessed of 
 ^100,000 North-Western Railway debentures. 
 On the Monday following — the restrictions of 
 the Bank Charter Act being suspended, the Bank 
 of England was set at liberty to discount such 
 a security at eight per cent, for three months. 
 Jones Loyd consequently on the Monday could 
 have gone to the Bank of England and have re- 
 discounted for ^2000 what he himself four days 
 before extorted ^25,000 for discounting. Is 
 not usury like this enough to make one's blood 
 boil ? Peel's monetary laws must be broken down, 
 or the landed property of the country, burdened 
 
THE SOCIALISM OF TO-MORROW. 153 
 
 with encumbrances, will pass into the hands of the 
 Christian Jews. 
 
 It is unnecessary to multiply instances of the 
 injurious working of the present monetary legisla- 
 tion; if it was intended merely to pile up the 
 few mammoth fortunes of this generation at the 
 expense of the general industries, it has certainly 
 achieved its end. 
 
 The Socialist proposals of Mr. Henry George 
 and others, that the State shall become the uni- 
 versal landlord, appear to be both uneconomical 
 and even unattractive. If the State is to become 
 an owner, it requires to buy what is at present 
 profitable, not what is becoming fitfully more 
 and more profitless. To nationalize land under 
 present conditions would be to nationalize pauper- 
 ism ; the evil is in this, that owing to an increas- 
 ing redundancy of middle-men, and the profits of 
 middle-men, the general producer is being ruined. 
 It is therefore essential so to arrange it that the 
 owners of the instruments of production, especially 
 of the soil, the " nursing mother " of us all, shall be 
 secured a full share of profit. As M. Thiers once 
 finely expressed it, " A peasant in every homestead, 
 in every hand a gun, for the defence of property 
 and of our liberties ; " and this consummation of 
 conservative socialism is quite impossible unless 
 
i'54 THE ECONOMIC CRISIS. 
 
 some cheaper method of distribution can be 
 arranged which, while reducing prices to the con- 
 sumer, will yet leave a larger profit to the pro- 
 ducer. Visions of nationalizing the land, and of 
 the establishment of a peasant proprietary, are 
 mere phantoms until the cultivator has been 
 enabled to obtain much more nearly the present 
 retail prices paid by the consumer for what the 
 cultivator produces ; it is the sorely-tried pro- 
 ducer whom we are concerned to assist, and the 
 assistance will have to be afforded not at the 
 expense of the consumer, but at the expense of 
 the middle-man. This can only be secured by the 
 direct agency of the State ; and when a large 
 proportion of the middle- men distributors have 
 reverted to the producing classes, so that pro- 
 duction tends to increase ; then it may be possible 
 to satisfy also a further socialist demand — the 
 reduction of the hours of labour by legislation. 
 
 But now I hear it said, " Granted that the 
 State can distribute much more cheaply than the 
 individual, so that one broker or one commission 
 man can do the work now done by ten, what 
 / then is to happen to the nine ? " But when the 
 franchise now in the hands of the working classes 
 — the classes especially concerned that while pro- 
 duction shall be profitable, the consumption price 
 
THE SOCIALISM OF TO-MORROW. 155 
 
 shall be low — when this franchise was the prero- 
 gative of the middle classes, the reply to exactly,/ 
 the same question, when asked by the agricultural 
 classes whose occupation was being taken away 
 from them, was, "Emigrate." Free Trade was to 
 make of England the entrepot of the world — 
 one monstrous middle-man, commission agent, 
 broker, banker; the Political Economy then 
 devised with much scientific assurance was a 
 bullet-proof process-server, and the nation was 
 required to recognize the governing policy of 
 " Manacles or Manitoba, " as a yoke which had 
 been in readiness since the beginning of the 
 world, to be fitted in the nineteenth century 
 upon the patient neck of labour. But now the 
 old order changes, and in the fulness of time the 
 power with the franchise has come into other 
 hands ; by comparison with the hardships inflicted 
 upon these working men, who, with no capital 
 and little education, were told to " move on M x)ver 
 great seas in the steerage quarters of a sailing 
 ship, or failing that to starve at home, it is a 
 small thing to say to certain middle-men, for the 
 most part capitalists, " London is to-day nearer to 
 Montreal than seventy years since it was to 
 Edinburgh; therefore emigrate freely to the 
 colonies, where your education and your capital 
 
156 THE ECONOMIC CRISIS. 
 
 will secure you a proper welcome; you must 
 yield the field to a more economical process of 
 distribution which will remedy some „of the 
 present awful inequalities of social conditions." 
 
 How far such a re- arrangement can be pro- 
 fitably extended is the problem of future politics. 
 How and where the line can be drawn between the 
 province of the Individual — Production, t£e pro- 
 vince of the State — Distribution, — these things 
 are in the lap of the gods, the gods perhaps of the 
 political gallery ; whether the same cart which de- 
 livers our letters may be destined also to distribute 
 loaves and legs of mutton, — such considerations 
 as these are far beyond the present field of political 
 preparedness. Suffice to say, that the larger the 
 State domain the better for the workers. Indus- 
 trial individualism is to-day a ruthless employer, 
 the young to the Mill, the old to the workhouse ; 
 whereas the State, in the distributing departments 
 connected with its railways, will be able to find 
 suitable light employment at fair wages for thou- 
 sands of the old and enfeebled who now become 
 a burden on the rates. 
 
 But without suggesting that it is the future 
 function of the State to become the " Universal 
 Provider," it is pretty evident that the system 
 of Limited Liability Companies has done more 
 
THE SOCIALISM OF TO-MORROW. 157 
 
 harm than good, that whenever Joint Stock 
 Companies can be profitably operated, the State 
 could be more successful than they ; and wher- 
 ever Joint Stock Companies, as in the majority 
 of instances, are expensive failures competing 
 on ruinous terms with private enterprise, and 
 profitable not to the public, but to certain brokers 
 and commission agents, it is time their opera 
 tions should'' be suppressed. Bagehot declares 
 that the Joint Stock principle is only success- 
 fully applicable in cases where (1) The capital 
 is not used to work the business, but to guarantee 
 the business ; or (2) where Companies have an 
 exclusive privilege ; or (3) where they have under- 
 taken a business both large and simple, employ- 
 ing more money than most individuals have at 
 command, and yet such that, in Adam Smith's 
 words, "the operations are capable of being 
 reduced to a routine, or such an uniformity of 
 method as admits of no variation." 
 
 These are the three conditions which Bagehot 
 held to cover the profitable operations of the 
 Joint Stock principle ; the first includes Banks 
 and Insurance Companies, the second Patents, 
 the third Railways. Not only can the State 
 cover the entire field, but by assuming mono- 
 poly rights, as it has done in the case of the 
 
1 3 8 THE ECO XO MIC CRISIS. 
 
 Post Office and Telegraph, it can almost indefi- 
 nitely extenpl its domain of " exclusive privilege." 
 An attempt has recently been made by Prince 
 Bismarck in Germany to inaugurate State Insur- 
 ance Companies, the profits of which are in- 
 tended to secure to working men a suscentation 
 fund against their old age. If the great Chan- 
 cellor had before him the returns of the entire 
 list of English Insurance Companies, fifty-six in 
 number — the good, the bad, and the indifferent 
 — it is not surprising that he should have recog- 
 nized in this direction a brightened future for 
 the labouring classes. These fifty-six companies 
 last year paid an average of over eighteen 
 per cent, in dividends! One of the largest 
 Companies, the Union Assurance, paid a dividend 
 of 1 20 per cent, and its ^20 shares are selling 
 for ^550. In view of such results as these, it 
 may be safely affirmed, that had the Railways, 
 the Banks, and the Insurance Companies been 
 operated for the last fifty years by the State, 
 while the community might probably have been 
 served better and more cheaply, our National 
 Debt could have been redeemed out of the " un- 
 earned increment," and the revenue now re- 
 quired in this country to carry on the Govern- 
 ment could be supplied from year to year by 
 
\ 
 
 THE SOCIALISM OF TO-MORROW. 159 
 
 the surplus profits earned in these three depart- 
 ments alone. There is the promise that the 
 " eternal fitness of things " may be jherein exem- 
 plified. Let us look a little closer. The profits 
 of Banks and Insurance Companies are in pro- 
 portion to the goodness of their credit. How 
 much stronger is not the credit of the State 
 than that of the corporation ? And the credit 
 of the State Has itself been secured by past and 
 present generations of those who make up the 
 State — in other words, by the continued patience 
 of the tax-payers. That form of modern credit 
 therefore which is exemplified so strikingly by 
 the earnings of Banks and Insurance Companies, 
 and is farmed now by a mere handful of indi- 
 viduals, is yet closely connected with the credit 
 of the State, which credit has been earned, and 
 should therefore be enjoyed by, the citizens in 
 its material, and not merely moral equivalent. 
 And this being so, is not this faith justified — 
 that all unconsciously the State has been doing 
 its duty, and respecting its pledges in order that 
 in due time its vast modern machinery could 
 be constructed and operated, not at the expense 
 of the tax-payers, but directly out of the profits 
 of the Public Credit. 
 
 It remains to consider the objections to the 
 
i6o THE ECONOMIC CRISIS. 
 
 State Distribution of Products — a form of Social- 
 ism which will necessarily meet with the organ- 
 ized opposition of the middle classes everywhere. 
 It may be conceded, that so colossal an increase 
 of the State patronage would immensely strengthen 
 the position of the Government of the day as 
 against the Opposition. Hundreds of thousands 
 of Government employes, whose employment 
 might, theoretically, be held to depend upon the 
 continuance of a party in power, would bring an 
 immense support to the Government at elections. 
 But Democracies are fickle and impulsive, and it 
 is possible that if we in England are to avoid 
 such political distractions as are now in France 
 driving out one Ministry after another, that then 
 an immense unshifting ballast, which would be 
 afforded by the employes of the State, is the 
 best remedy which can be devised. And, too, 
 the more extensive the system of patronage and 
 employment, the less the possibility of its abuse ; 
 it would be impossible, in the event of a change 
 of Government, for the in-coming Ministers to 
 turn out, for example, all the postmen, all the 
 railway porters, still less all the bank officials. It 
 could not be done ; the country would not permit 
 its business to suffer by any such wholesale evic- 
 tions, and to remove merely the heads of depart- 
 
THE SOCIALISM OF TO-MORROW. 161 
 
 ments would not in these days of secret voting 
 affect the fortune of the war. It is probable also 
 that a majority of the community, both in 
 England and the United States, would welcome 
 any changes which added largely to the stability 
 and permanence of any Government. These 
 communities generally have never shared in the 
 excitement which the chief actors themselves 
 derive from *rapid political changes, and would 
 gladly avoid such visitations as frequent elections, 
 which periodically unsettle all business. 
 
 It may still be objected that at least in 
 England there is nothing in the present con- 
 dition of the great State departments which 
 would justify the nation in extending the State 
 functions. But this, though a strong argument 
 for reforms in the spending departments, is no 
 argument at all against the probability of good 
 results in certain earning departments. Because 
 the War Office is found to be uneconomical and 
 incomplete, no one proposes to abolish the Post 
 Office. And from the fact that the German 
 War Office is so nearly perfect, it is clear that 
 what we are complaining of is not the ineffici- 
 ency of State control generally, but merely of a 
 particular system, which appears to have survived 
 its utilities. 
 
 M 
 
1 62 THE ECONOMIC CRISIS. 
 
 Of course the older Professors will still cleave 
 to their dogmas of laissez faire, and deprecate 
 any extension of the State function ; but their 
 academic principles have already disappeared from 
 the practices of modern legislation, and the com- 
 mon sense, at least of the Anglo-Saxon peoples, 
 has always looked upon the rather pedantic ob- 
 jection to any increase of State agency as a mere 
 metaphysical dissertation, applying not only to 
 the extension of Government, but also about as 
 logically to the principle of any Government and 
 of any society at all. While the Professors have 
 been educating us to appreciate the propriety of 
 a vast legislative centralization, the demand for 
 Home Rule has been springing up in all parts 
 of the world ; and while also the importance of 
 keeping the State altogether outside of any in- 
 dustrial co-operation such as might lead to real 
 cheapness is still the text of every lecture, we 
 are experiencing the rapid spread of a belief in 
 both the economy and the capacity of State 
 agency. 
 
 If this then is the form of Socialism for which 
 the world is getting ready, there is nothing very 
 terrible a-head, and our coming revolution may 
 well be a bloodless one. For these are conces- 
 sions which the State may fairly grant; and just 
 
THE SOCIALISM OF TO-MORROW. 163 
 
 as the process of inoculation should properly 
 precede the outbreak of epidemic, so the wisdom 
 of the State will be shown in proportion as these 
 concessions are granted in time. Nor should it 
 be lost sight of, that to political parties will be 
 supplied a distinct issue, which will keep them 
 from breaking up over mere side issues into 
 disordered and shifting sections, and this to-day 
 is a matter^of the first importance. There is 
 that in every man which will intuitively decide 
 for him whether he belongs to the Party of 
 Socialism, or whether the principle of Individual- 
 ism which has been asserted so gallantly and so 
 usefully by the master minds both of this 
 century and the last, is even yet more valuable 
 to direct our legislation than any benefits which 
 might result from the more extended agency 
 of the State. 
 
 The world has become the theatre of a new 
 struggle — the struggle of the enfranchised masses 
 to secure certain concessions from the classes — 
 the middle classes. There are not wanting the 
 symptoms that in this struggle the aristocracy, 
 their interests being coincident, will be found 
 ranged on the side of the people. 
 
 The conflict is inevitable. Privileges wrested 
 from the Church by the Throne, from the Throne 
 
 M 2 
 
1 64 THE ECONOMIC CRISIS. 
 
 by the Aristocracy, have in turn come within the 
 control of the Middle Classes. On the whole, 
 these have used their powers worthily and well. 
 But recently they have permitted the power to 
 be absorbed by a mere section of their body — 
 a non-producing section of extreme intelligence 
 and capacity. 
 
 It is hardly probable that the social struggles 
 ot nine hundred years can have culminated in 
 the enduring conquest of that class which is 
 to-day battening alike upon the producer and the 
 consumer. 
 
APPENDIX. 
 
 THE ECONOMIC DISTURBANCES SINCE 1 873. 
 
 Reprinted from the commercial and financial chronicle 
 (New York). 
 
 Commercial depression may result from two distinct 
 causes, either over-investment of capital, involving increase 
 in the supply of goods and change in the methods of pro- 
 duction ; or contraction of currency and credit, involving 
 decrease in the available means of exchange. The crisis 
 of 1857 was an example of the latter; that of 1847 m 
 England furnished a good instance of the former. 
 
 It is only in their beginnings that the two causes are 
 distinct. As matters progress, each becomes complicated 
 with the other. Over-production produces a fall in prices, 
 loss of credit, and mercantile failures ; and thereby lessens 
 the facilities for payment, exactly as if there had been 
 contraction of currency. Contraction of currency, on the 
 other hand, reduces the immediate purchasing power of the 
 community, and leaves producers and middle-men with 
 unsold goods on their hands, exactly as if there had been 
 an over-production of those goods. The state of things 
 in the advanced stages of a commercial crisis can often be 
 explained on either cause indiscriminately according to the 
 personal bias of the investigator. Until recently the 
 tendency of most writers was to lay too much stress on 
 
1 66 THE ECONOMIC CRISIS. 
 
 matters of banking and currency, and too little on changes 
 in the method of production. The majority of practical 
 English economists of the last generation had gained their 
 chief experience in banking, and had little or no knowledge 
 of manufacturing business. It was natural that they should 
 exaggerate the importance of the causes which came under 
 their own immediate observation. To-day the mistake of 
 these economists is clearly perceived. It is felt that new 
 methods of production are an important cause of commercial 
 crises ; and some people are inclined to regard them as the 
 only cause. In the reaction against the English theory, 
 which treated commercial crises as " panics " of greater or 
 less duration, many writers have gone to the other extreme 
 of considering the contraction as a mere incident, of 
 secondary importance, perhaps more apparent than real, 
 and certainly not an independent factor in the trouble. 
 This is substantially the ground taken by Mr. Wells in an 
 able and carefully-written series of articles on the Economic 
 Disturbances since 1873, which have appeared in the 
 " Popular Science Monthly," and are about to be published 
 in book form. The weight which the writer's name carries 
 and the number of facts which he adduces in support of 
 his conclusions make it important to examine them in 
 detail, and to point out clearly where the argument is open 
 to attack. 
 
 CHARACTERISTICS OF THE PRESENT DEPRESSION. 
 
 The present crisis is in some respects different from any 
 of its predecessors, because the fall in prices has lasted so 
 long. It is this continuous depression of prices which has 
 stood in the way of any real recovery, and which has made 
 even the active speculations of 1880 and 1881 seem like 
 a mere pause in the descent. To determine the reason why 
 prices have so long continued to fall, is the most important 
 problem in economic science at the present day. But its 
 solution is attended with special difficulties. If the condi- 
 
APPENDIX.— ECONOMIC DISTURBANCES. 167 
 
 tions of production had changed while the world's currency 
 system remained the same, we should have one explanation. 
 If the currency system had changed while the conditions 
 of production remained the same, we should have another. 
 But the conditions of production and the world's currency 
 system have both changed at the same time, each in a way 
 which has had no exact parallel in past history; and it 
 becomes an exceedingly delicate matter to determine the 
 relative importance of two causes which so closely inter-act 
 with one another. 
 
 The problem has a practical as well as a speculative 
 interest. If the crisis is simply due to improvements in 
 production, we have nothing to do but to wait for these 
 things to work out their own result. It may be long and 
 hopeless waiting, but we could not expect to turn back and 
 resist the progress of invention in the industrial world any 
 more than the trades unionist can expect to resist for any 
 length of time the introduction of machinery in his particular 
 trade. But if the crisis is to any considerable degree due 
 to the demonetization of silver, the case at once assumes 
 a different aspect. It becomes a matter with which Govern- 
 ments may have at once the power and the duty to interfere. 
 
 Mr. Wells tries to exclude the latter cause altogether. 
 He holds, first, that the general fall in prices, such as it 
 is, is amply accounted for by man's increased control over 
 the productive forces of nature ; and, second, that if we 
 examine the history of individual articles, we shall find 
 reasons for the lower prices of most of them in changed 
 conditions of production, while those whose conditions of 
 production have not changed have not fallen in price. We 
 shall examine these propositions in order, considering this 
 week the general effect of improvements in production, 
 and reserving the detailed analysis of prices for subsequent 
 issues. 
 
 The effect of improvements generally is to throw an 
 increased quantity of goods on the market at a reduced 
 
1 68 THE ECONOMIC CRISIS. 
 
 cost per unit of product. But in anything like a healthful 
 condition of industry, the quantity marketed will increase 
 more rapidly than the price falls. In other words, the 
 aggregate product after the improvement, measured in 
 dollars and cents, should be greater than before. If other 
 things remain exactly the same, this increase in the volume 
 of business will create a need for more money with which 
 to transact it. The old demand for money " to move the 
 crops " had a basis of fact, however wrong the measures 
 may have been by which the United States Treasury under- 
 took to meet it. 
 
 Now, no one would deny that there has been an increase 
 in the volume of business in the last twenty years without 
 a correspondingly large increase in the available amount of 
 metallic currency. Either the credit system must have 
 expanded to meet it, or there must have been a virtual con- 
 traction of the currency as compared with the wants of 
 trade. It has been the custom to assume that the credit 
 system expands, almost automatically, and that an increasing 
 proportion of business is done without the use of cash. 
 Mr. Wells himself makes this assumption, without trying to 
 prove it. That an increasing amount of business is settled 
 without the use of cash, we are ready to admit ; that an 
 increasing proportion of business is thus settled, we do not 
 believe. The use of cash payments in the retail trade has 
 grown enormously in the last twenty years. At the begin- 
 ning of that time weekly payment of operatives was excep- 
 tional, and various forms of truck or store orders were 
 common. To-day a large proportion of the operatives 
 receive cash weekly from their employers and pay the stores 
 cash down. The same general movement has been going 
 on in the dealings between producers and middle-men. 
 In the ordinary operations of life the tendency to shorten 
 the term of credit has been all but universal. One of the 
 ablest living English economists has boldly challenged the 
 doctrine that, as civilization advances, credit takes the place 
 
APPENDIX.— ECONOMIC DISTURBANCES. 169 
 
 of money. On the contrary, money takes the place of 
 credit. To see the credit system in its full vigour one 
 must go to half-civilized countries like Turkey. As a 
 country advances it uses more cash. 
 
 RELATIVE SCARCITY OF GOLD ADMITTED. 
 
 But if volume of business and use of cash are both in- 
 creasing, it follows of necessity that a failure to increase the 
 supply of metallic money involves a relative scarcity of 
 means of payment. Mr. Wells in one place incidentally 
 admits this, and seems to think it an unimportant admission. 
 But it really involves giving up his whole case. It is pre- 
 cisely this relative scarcity which makes the trouble. The 
 Suez Canal, and the railroads, and the other improvements 
 in transportation, on which Mr. Wells lays so much stress, 
 are means of lessening the price to consumers ; but that is 
 not the difficulty. The difficulty is that something else 
 comes in and lowers the price to the producers ; and there 
 is a strong prima facie reason to believe that it is something 
 connected with the currency. Mr. Wells tries to make 
 improvements account for too much. Reduced rates from 
 Chicago to Liverpool will account for lower prices at Liver- 
 pool ; but they will not account for lower prices at Chicago. 
 The introduction of a new machine may account for com- 
 mercial distress among the owners of the old machines, but 
 it will not explain why this distress should be shared by the 
 owners of the new one. 
 
 Mr. Wells says, in brief, that improvements have reduced 
 cost of production, and that therefore prices have fallen. 
 We do not dispute this. But we deny that it is a complete 
 explanation of the facts before us. Improvements have 
 also increased the volume of business. The world's avail- 
 able currency has not been allowed to increase correspond- 
 ingly in volume. A relative contraction has been thus 
 caused which has made it more difficult to carry on the 
 world's trade, and which has given rise to the existing dis- 
 
170 THE ECONOMIC CRISIS. 
 
 tress among producers — a distress too widespread and too 
 profound to be fully explained by Mr. Wells' methods. 
 
 As long as Mr. Wells confines himself to generalities con- 
 cerning man's increased control over the productive forces 
 of nature, or to remote causes like the Suez Canal, it is 
 hardly necessary to answer him. But when he attempts to 
 explain why particular commodities have fallen and are fall- 
 ing in price, he touches matters which are more important 
 and more easy to decide. We believe that many of his 
 conclusions are wrong simply because many of his facts are 
 wrong. 
 
 MR. WELLS' STATEMENTS AS TO WHEAT. 
 
 Take, for instance, those relating to wheat. Of all the 
 articles in his list this is probably the one whose fall in 
 price has had most to do with the distinctive features of the 
 present crisis. Wheat in England has fallen to less than 
 two-thirds of its former figures. In the United States the 
 decline has been hardly less marked. There has been 
 some decrease in cost of production, but nothing corre- 
 sponding to this. How does Mr. Wells explain it ? " An 
 all-sufficient explanation," he says, "would seem to be 
 found in the circumstance that all investigation shows that 
 the comparatively recent increase in the world's supply ot 
 food has been greatly in excess of the concurrent increase 
 of the world's population." This is a sweeping statement, 
 and one which we cannot accept. We do not know of any 
 such investigation which has shown anything of the kind. 
 Mr. Wells certainly has not proved it. The evidence which 
 he adduces breaks down completely. Parts of it are pal- 
 pably untrue or unfair; while those which will stand the 
 test of examination do not prove his proposition, but rather 
 the reverse. 
 
 "According to Mr. Neumann-Spallart," he says, "the 
 production of cereals in Europe doubled from 1869 to 
 1879, and in the case of Russia her exports of wheat in- 
 
APPENDIX.— ECONOMIC DISTURBANCES. 171 
 
 creased from 36,565,000 bushels in 1880 to 67,717,000 in 
 1884." Neumann-Spallart is probably the best authority 
 on the world's grain production anywhere to be found; 
 much too good an authority to make the statement here 
 attributed to him. He never said anything of the kind. 
 The fact that Mr. Wells (who is here blindly following Prof. 
 Laughlin) allows himself to be led into such a statement 
 shows that he is quite unfamiliar with the conditions of 
 wheat-production in Europe. It is not merely a misquota- 
 tion j it is one which no man who writes on the world's 
 wheat supply oiight to make. As for Russia, the year 1880 
 was the worst there has been for a long time in her wheat 
 harvest. In 1878 she exported over 100,000,000 bushels; 
 so that if Mr. Wells had compared 1884 with 1878 instead 
 of with 1880, he would have found a decrease of 34 millions 
 instead of an increase of 31 millions. The exports of 
 Russian wheat for the five years 1 880-1 884 were almost 
 exactly the same as for the five years 1 876-1 880; if any- 
 thing, a trifle less, in spite of all the increased facilities for 
 putting the crop on the market. 
 
 Mr. Wells' statements concerning the United States are 
 hardly less open to attack. " The cereal production of the 
 United States increased from 932,752,000 bushels in 1862 
 to 2,992,881,000 in 1884; or in the ratio of 452 per cent." 
 It may be remarked that Mr. Wells' arithmetic at this point 
 seems, to say the least, a trifle peculiar ; but let that pass. 
 The real objection to this comparison is that the initial 
 year is by no means a fair one. In 1862 little more than 
 half of the country was available either for production or 
 for enumeration ; men's best energies were turned to fight- 
 ing and not to wheat-raising. No wonder that North and 
 South together, in profound peace, and at the end of 
 twenty years of unparalleled growth, should raise three 
 times as much grain as was grown in 1862 by the States 
 then available for enumeration, in the midst of an ex- 
 hausting war. The only wonder is that Mr. Wells should 
 
■:- 
 
 THE ECONOMIC CRISIS. 
 
 make the use he does of a comparison so distinctly unfair 
 in its basis. 
 
 But he has another set of facts with regard to the United 
 States, which impress him so much that he repeats them 
 twice over. "The average wheat production of the United 
 States for the five years from 1881 to 1885, inclusive, was 
 436,000,000 bushels ; while for the ten years preceding — 
 some of which supplied the heaviest demands for exporta- 
 tion ever experienced — the average was only 366,000,000 
 bushels." Very true; but what does it prove? One of 
 these periods was, on an average, seven and a half years 
 later than the other. The increase of population in the 
 United States in such a period is more than 20 per cent. 
 To have kept pace with such increase, the wheat product 
 for the second period should have been at least 450 millions 
 instead of 436. Mr. Wells' theory about food supply in- 
 creasing faster than population falls to the ground, in this 
 instance at any rate. This will be still clearer in tabular 
 form. 
 
 
 I87I-8O. 
 
 1881-85. 
 
 
 Bushels. 
 
 Bushels. 
 
 Average annual product 
 
 366,000,000 . 
 
 . 436,000,000 
 
 Average annual export of wheat, and 
 
 
 
 wheat reduced to flour 
 
 98,000,000 . 
 
 . 144,000.000 
 
 Balance for home consumption 
 
 268,000,000 . 
 
 . 292,000,000 
 
 Mean population for the period, 
 
 
 
 estimated ... 
 
 44,000,000 . 
 
 53,000,000 
 
 Wheat consumed at home per head of 
 
 
 
 population 
 
 \T. a _/* J _ J _ _ _ * ? C 
 
 6-1 
 
 5*5 
 
 No system of deduction for seed, &c, will alter the 
 general character of these ratios. For the United States, 
 at any rate, Mr. Wells' "great increase of food supply, as 
 compared with population," turns out to be a decrease of 
 nearly ten per cent. 
 
 It is impossible to make similar tables for Europe with 
 any approach to completeness, the statistics of production 
 of exports and of imports being much more complicated. 
 Enough, however, is known to disprove rash statements 
 concerning the relation of wheat supply to population. 
 
APPENDIX.— ECONOMIC DISTURBANCES. 173 
 
 The two most careful and most frequently quoted estimates 
 of the population of Europe in modern times are those of 
 Behm and Wagner in 1874, and Levasseur in 1886. The 
 former gives 300 millions of inhabitants for Europe, and the 
 latter 345 millions. Bnt Levasseur's estimates are habitu- 
 ally rather high ; and it is probable that an increase of one 
 per cent, annually would just about cover the actual growth. 
 It certainly cannot be less than three-fourths of one per 
 cent. 
 
 Now, in the face of this growth, let us look at the harvest 
 estimates of Neumann-Spallart for Europe, which furnish 
 altogether the best data available. To avoid the error due 
 to individual seasons, good or bad, we take average results 
 for decades. We give the figures in hectolitres of a little 
 less than three bushels each. 
 
 AVERAGE ANNUAL EUROPEAN HARVEST. 
 Hectolitres (1 hectolitre equals 2^ bushels). 
 
 
 
 
 Change 
 
 
 1870-80. 
 
 1875-84. 
 
 per cent. 
 
 Wheat 
 
 ... 454,000,000 . 
 
 . 440,800,000 . 
 
 —3 
 
 Rye 
 
 ... 448,700,000 . 
 
 . 413,800,000 . 
 
 —8 
 
 Barley 
 
 ... 227,500,000 . 
 
 . 230,900,000 . 
 
 .. . +1 
 
 Oats 
 
 ... 541,800,000 . 
 
 . 524,200,000 . 
 
 —3 
 
 Corn 
 
 ... 120,800,000 . 
 
 . 134,500,000 . 
 
 + 11 
 
 Other grain ... 
 
 ... 102,900,000 . 
 
 88,800,000 . 
 
 .. —14 
 
 Total ... 
 
 ... 1,895,700,000 . 
 
 . 1,833,000,000 . 
 
 .. -3* 
 
 This deficit has not yet been made up in Europe itself; 
 at least as far as wheat is concerned. Reducing the figures 
 to bushels, and bringing our comparison down to date, we 
 find the wheat crop of Europe to have been as follows : — 
 
 1870-1880 (Neumann) 
 
 1875- 1884 (Neumann) 
 
 1883 (Neumann) , 
 
 1884 (Neumann) 
 
 1885 (U. S. Agricultural Department estimate) 
 
 1886 (U. S. Agricultural Department estimate) 
 
 1887 (Vienna Congress estimate) 
 
 Average 1883-1887 
 
 Bushels. 
 1,287,000,000 
 1,249,000,000 
 1,267,000,000 
 T >377>ooo,ooo 
 1, 204, coo, coo 
 1,173,000,000 
 1, 259, ceo, ceo 
 
 1,256,000,000 
 
174 THE ECONOMIC CRISIS. 
 
 The last five years thus show an absolute deficit of 
 30,000,000 as compared with the wheat harvests of a decade 
 earlier. But if we make allowance for the growth of popula- 
 tion during that period, which cannot be considered at less 
 than three-fourths of one per cent, annually, we find an ad- 
 ditional allowance of at least 100,000,000 bushels needed, in 
 order to give the same relative supply. The real deficit, as 
 compared with the needs of the people, is 130,000,000. 
 How is this made up? 60,000,000 bushels of it from the 
 United States, whose exports of wheat and wheat-flour 
 have risen from 75,000,000 in 1875 to ^j 000 * 000 in 
 1885 ; about 40,000,000 from India, whose present wheat 
 export is almost entirely the creation of the last few 
 years; perhaps 10,000,000 from Australia and New Zea- 
 land ; not quite 5,000,000 bushels from the Argentine 
 Republic ; while in other exporting countries — Canada, 
 Egypt, Algiers, Chili, &c. — the gains and losses nearly 
 balance. Even on this minimum estimate of increase of 
 population the per capita wheat supply of Europe would 
 seem to have diminished in the course of the last ten 
 years. 
 
 These figures are probably by no means free from errors. 
 We are inclined to think that Neumann's earlier figure was 
 a little too high, and that there has been no very great 
 diminution in the absolute wheat product of Europe. But 
 they are trustworthy enough to show that there has been no 
 marked change in the proportion between wheat supply and 
 population — certainly none which will account for the 
 actual fall in prices. The picture drawn by Mr. Wells 
 of a market, already overstocked, which India and South 
 America are flooding with an increasing surplus, is a fanciful 
 one. What are the four or five million bushels of the 
 Argentine Republic in a market whose annual variations 
 of supply amount to hundreds of millions ? The increase 
 in Indian wheat exports during the last five years, instead 
 of being, as Mr. Wells implies, " continuous and of great 
 
APPENDIX.— ECONOMIC DISTURBANCES. 175 
 
 magnitude," has been trifling in amount and by no means 
 coutinuous from year to year. 
 
 That the wheat market is in one sense overstocked, we 
 admit. The fall in price shows it. But that this is due to 
 any over-production as compared with the needs of con- 
 sumers, we are disposed to deny. If the statistics which we 
 have quoted (and which are quoted by Mr. Wells himself) 
 mean anything at all, they show that the proportion between 
 wheat supply and population in civilized countries has 
 remained substantially unchanged, while the price of wheat 
 has fallen one-third. The apparent excess of supply in 
 trading centres is to be regarded as a congestion of the 
 market rather than a surplus available for the consumer. 
 
 COTTON. 
 
 We have shown how inadequate was Mr. Wells' expla- 
 nation of the fall in the price of wheat, and shall now 
 consider the history of the production and prices of cotton ; 
 an article less prominently connected in men's minds with 
 the existing depression, but of even greater importance in 
 the international trade of the country. The behaviour of 
 cotton prices in recent years, though to the general observer 
 less noticeable than that of wheat, has really been no less 
 remarkable. Wheat showed an enormous decline in the 
 face of an undiminished popular need ; cotton shows not 
 only a persistent failure to advance, but even a marked 
 tendency to decline in the face of a vastly increased demand 
 for consumption. The smaller decline in the one case 
 is as extraordinary as the greater decline in the other. 
 
 Mr. Wells passes over the subject lightly. In his detailed 
 account of price movements, the article which furnishes 
 more than one-fourth of our exports receives but one-fortieth 
 of the total space — less than one-half the attention which 
 is devoted to nitrate of soda. Yet even this brief treatment 
 is by no means free from errors of details. " Comparing 
 i860 with 1885," he says, "the decline in the price of 
 
176 THE ECONOMIC CRISIS. 
 
 cotton in the New York market has not been material. 
 The year 1886, however, witnessed a decline to a lower 
 point than has been reached, with one exception, since the 
 year 1855. . . . On the other hand, the increase in the 
 world's supply of cotton in recent years has been very 
 considerable, the American crop increasing from 3,930,000 
 bales in 1872-73 to 6,575,000 in 1885-86, or 67 per cent. ; 
 while the supply of the world for the corresponding period 
 is estimated to have increased from 6,524,000 bales to 
 8,678,000 bales, or at the rate of about 32 per cent. Such 
 an increase in production would undoubtedly have occa- 
 sioned a more marked decline in price had it not been for 
 a great and coincident increase in the world's consumption 
 of cotton fabrics ; which in turn was undoubtedly in con- 
 sequence of a material decline in the cost of the same, as 
 the result of improvements in machinery and methods of 
 production." 
 
 In regard to these statements we note, first, that the 
 initial year chosen is conspicuously unfair. Prices in i860 
 represented the lowest point in the reaction against the 
 speculations of 1856-57, and were also unnaturally de- 
 pressed by the very large crops of the previous seasons. To 
 properly appreciate the effect on prices of the increased 
 production in the United States, bear in mind further that 
 this country previous to that period had been furnishing 
 almost all the supply of the raw material the world had, 
 and yet with the increase from America there was a con- 
 current increase from " other countries." Thus it happened 
 that the world's new supply in 1857-58 was 4,037,000 bales 
 — only three times in the history of the trade had it pre- 
 viously reached four million bales — of ordinary weights j in 
 1858-59 it was 4,785,000 bales ; and in 1859-60 it grew to 
 the remarkable total of 5,816,000 bales; and it has been 
 asserted by those best able to judge that nothing but the 
 American war saved our cotton producers from a great 
 disaster. We are therefore obviously justified in saying 
 
APPENDIX.— ECONOMIC DISTURBANCES. 177 
 
 that the initial year chosen by Mr. Wells is conspicuously 
 unfair. 
 
 But a second fact that vitiates the comparison is that it is 
 based on quotations in the New York market, and yet (1) 
 the initial year is in ante war times when there was no 
 official market here, reports in the different newspapers 
 often differing widely j and, what is even more faulty, (2) it 
 omits to make reference to or any allowance for a material 
 change of grade by the new classification which has since 
 the war been adopted. The truth is, the Liverpool market 
 affords the only^sure basis of comparison accessible to any 
 investigator desiring to reach correct conclusons. For the 
 purpose of this discussion, and to show how wide apart 
 theories and facts may often get, we reproduce from Mr. 
 Ellison's circulars the highest, lowest, and average prices 
 at Liverpool for each season since 1856-57, omitting (be- 
 cause of no present use and our space is limited) the years 
 covered by the American war and those following, when 
 prices continued more or less to be influenced by war 
 conditions. 
 
 MIDDLING ORLEANS AT LIVERPOOL. 
 
 Season of — 
 
 1856-57 
 
 1857-58 
 
 1858-59 
 
 1859-60 
 
 1860-61 
 
 1861-72 
 
 1872-73 
 
 1873-74 
 
 1874-75 
 
 1875-76 
 
 1876-77 
 
 1877-78 
 
 1878-79 
 
 1879-80 
 
 1880-81 
 
 1881-82 
 
 1882-83 
 
 1883-84 
 
 1884-85 
 1885-86 
 1886-87 
 
 Highest. 
 
 Lowest. 
 
 Average, 
 
 9'25d. ... 
 
 ■ 6- 3 7d. 
 
 ... 7'8od. 
 
 9"25d. .. 
 
 . 6- 3 id. 
 
 ... 7'i4d. 
 
 7-38d. .. 
 
 . 6 7 5d. 
 
 ... 7 -03d. 
 
 7'37d. .. 
 
 • 5'75d. 
 
 ... 6'6id. 
 
 IO*I2d. .. 
 
 . 6'5od. 
 
 ... 7'66d. 
 
 Omitted for reasons 
 
 stated. 
 
 iO'5od. .. 
 
 . 9*ood. 
 
 ... 9-65d- 
 
 9*37d. .. 
 
 . 8-i8d. 
 
 ... 8'52d. 
 
 8- 3 7d. .. 
 
 . 7-i8d. 
 
 ... 7'87d. 
 
 7'37d. .. 
 
 . 6'ood. 
 
 ... 6.62d. 
 
 7'3id. .. 
 
 . 6'ood. 
 
 ... 6'5od. 
 
 6-87d. .. 
 
 . 6 - ood. 
 
 ... 6'5id. 
 
 7*3id. .. 
 
 • 5'25d. 
 
 ... 6-26d. 
 
 7*62d. .. 
 
 • 675d. 
 
 ... 7*o6d. 
 
 7'43d. .. 
 
 . 5 -8id. 
 
 ... 6'62d. 
 
 7'37d. •• 
 
 . 6 -43d. 
 
 ... 6-87d. 
 
 7'i2d. .. 
 
 . 5 - 5 6d. 
 
 ... 5'87d. 
 
 6'56d. .. 
 
 . 5 -8 7 d. 
 
 ... 6*2od. 
 
 6'25d. .. 
 
 • 5-56d. 
 
 ... 5'87d. 
 
 5'62d. .. 
 
 • 475d. 
 
 ... 5-2 5 d. 
 
 6ood. .. 
 
 . 5'i9d. 
 
 ... 5"5od. 
 
178 THE ECONOMIC CRISIS. 
 
 What further need be said with regard to Mr. Wells' 
 assertion that the decline in cotton has not been material ? 
 Even making comparison with his initial year of 1859-60 
 (which is an unfair starting-point, as we have shown), his 
 assertion is certainly surprising in view of the above results. 
 Look at the yearly averages given — at the earlier date 
 (1859-60), 6'6id. per lb., now 5'5od. per lb. That indicates 
 a loss of iy^d. (say approximately 2J cents) on every pound 
 of cotton the producer sells — one-sixth of the whole gone, 
 call it 50 millions of dollars. W T e think no planter or 
 dealer — in fact we are inclined to believe no reader — will 
 be able to agree with Mr. Wells that this is an immaterial 
 loss. 
 
 Note further the persistency of the decline in the fore- 
 going averages since 1873, when the anti-silver crusade 
 began. Observe that though not wholly uninterrupted, the 
 decline is continuing, each recovery being followed by 
 a lower dip ; and this has taken place when, as we shall 
 presently show, under the influence of supply and demand, 
 an advance ought really to have been recorded. Even as 
 to increased supply we see that Mr. Wells' figures are quite 
 inadequate. He has made his comparison on the basis 
 of number of bales produced, whereas from year to year the 
 average weights differ materially. Following the ordinary 
 method of reducing the bales to an average of 400 lbs., it 
 will be seen that the new supply increased between 1872- 
 73 and 1885-86 (the thirteen years he uses) 50 per cent., 
 instead of 32 per cent., as he states it. 
 
 But an error which is far more serious than that is in the 
 explanation of the causes which led to this increase of 
 supply. He implies that the larger production was an 
 independent event, and that the increased demand was a 
 sort of lucky coincidence. Obviously, the effect upon prices 
 would be different according as demand was a cause of the 
 increased supply or not. In the former case we should 
 expect prices to rise ; in the latter case they would be 
 
APPENDIX.— ECONOMIC DISTURBANCES. 179 
 
 likely to fall ; but even in that case not so materially as 
 they have fallen, unless the supply kept constantly in 
 advance of consumption, accumulating year by year. 
 
 Fortunately we have statistics which are so complete that 
 they enable us to answer this question with confidence. 
 No other trade has such perfect records, and the conclusion 
 they teach is clear. The increased use of cotton was the 
 independent event ; the increased supply was produced in 
 order to meet the demand thus created. 
 
 One of the most striking things in recent industrial 
 history has been the steady growth in cotton consumption. 
 Beginning in 1868, when the total was slightly under five 
 million bales, it advanced, practically without interruption, 
 until 1882-83, when it amounted to about nine and a half 
 million bales of 400 lbs. each — an increase of over 90 per 
 cent. Then there was a slight drop; but matters soon 
 recovered, and the figures for 1886-87 were 200,000 bales 
 higher than for 1882-83. There is no difficulty in account- 
 ing for this immense increase. Mr. Wells himself states 
 the reason in part. Improvements in machinery have re- 
 duced the price to the consumer; this reduction in price 
 has greatly increased the quantity which the market will 
 take, even in times of commercial depression. But what 
 Mr. Wells fails to see, is the natural effect which this would 
 have on the price of raw cotton. If other things remained 
 the same, it would make the price rise. 
 
 Suppose that the raw material in a certain piece of goods 
 cost 2 cents, and that the expenses of manufacturing were 
 4 cents, the goods cannot be put on the market below 6 
 cents. Now, suppose that an improvement in machinery 
 reduces the cost of manufacturing to 3 cents, the goods can 
 now be sold at any price above 5 cents. But this produces 
 an increased demand for the raw material. Even if this 
 demand raised the price of the cotton to 2J cents, there 
 would still be more consumed under the new system than 
 under the old. The old price gave 2 cents to cotton and 
 
 N 2 
 
180 THE ECONOMIC CRISIS. 
 
 4 to manufacture ; the new price gives 2 \ cents to cotton 
 and 3 to manufacture. The final cost to the consumer 
 is less, and the quantity taken by the market is greater. 
 Improvements in machinery put the manufacturers in posi- 
 tion to demand a larger amount of raw material, even if it 
 be at a slightly higher price ; and the natural tendency of 
 such increased demand is to make prices rise. 
 
 Now, in the case of cotton there has been such an in- 
 creased demand, and prices have not risen ; in fact, they 
 have fallen materially, as we have seen. The fall has not 
 been wholly uninterrupted, but nearly so. Its extent and 
 regularity are made more distinct if we take long enough 
 periods to escape the more temporary causes of variation. 
 In the following we so divide the yearly averages given 
 above from 1873-74 down to the present time; the periods 
 are five years, except the last, which is but four years. 
 
 LIVERPOOL AVERAGE PRICES OF MIDDLING ORLEANS. 
 
 1873-74 to 1877-78, both inclusive — average per lb 7'2od. 
 
 1878-79 to 1882-83, b° tn inclusive — average per lb. ... ... 6 *54d. 
 
 1883-84 to 1886-87, both inclusive — average per lb 5'7od. 
 
 These figures point strongly toward an appreciation of 
 gold as the only satisfactory explanation. This presump- 
 tion, if it is to be met at all, must be met in one of two 
 ways — either by showing that there was an over-production, 
 which more than met the demand, or by proving that there 
 were such important changes in the cost of production as to 
 make prices fall to the extent they have fallen, in spite of 
 this tendency toward increased demand. 
 
 The first hypothesis is out of the question. There has 
 been no over-production of cotton. The consumption 
 tends to trench more and more closely upon the limits of 
 the available supply. In our annual crop report, figures 
 were given showing not merely the annual production and 
 consumption, but the stocks carried over from year to year. 
 We find that in October, 1872, after a crop of 6,277,000 
 bales, the supply carried over, visible and invisible, amounted 
 
APPENDIX.— ECONOMIC DISTURBANCES. 181 
 
 to 2,453,000 bales. Nor was this unprecedentedly large. 
 For the next five years the supply did not fall below 
 2,300,000 bales. But in more recent times we find that 
 even after the enormous crop of 1883 (10,408,000 bales), 
 the amount carried over was only 2,405,000, or less than it 
 was in 1872 ; while in subsequent years it has not reached 
 2,000.000 ; and, including the current year, has probably 
 not averaged 1,850,000, of which over 650,000 bales is 
 invisible. In other words, this shows a loss of nearly 
 600,000 bales since 1883, about all of it in the visible 
 supply, leavings only about 1,200,000 bales in sight (that is, 
 stock in ports and afloat all over the world) for spinners' 
 current takings — a wholly inadequate amount for the free 
 working of the mills, as each summer proves, and every one 
 in the trade knows. Or consider it from another point of 
 view. Compare the years of commercial depression now 
 with those of the preceding period of the same character — 
 we find that the absolute surplus has diminished 20 per 
 cent., that the total crop has increased about 40 per cent., 
 and that the proportion of surplus to total crop has dimin- 
 ished 50 per cent. Whatever such facts mean, they clearly 
 do not mean relative over-production. 
 
 With regard to changes in the cost of production, it is 
 harder to get positive evidence. On many plantations it 
 has undoubtedly been reduced. People are learning how 
 to use free labour and intelligent methods of cultivation. 
 Yet it must be remembered that the decisive element in the 
 effect on the price of our agricultural products, is the cost 
 of that part of the supply which is produced at the greatest 
 disadvantage, and it is a question whether the majority of 
 planters are cultivating cotton at any less cost than in 1873. 
 But that inquiry need not be pressed, since the decline in 
 price is so material, and the decline, if any, in cost of produc- 
 tion must be so slight, as to make it obvious that the lower 
 cotton quotations cannot be accounted for on the theory of 
 a less expenditure of capital and labour in production. 
 
i Si- THE ECONOMIC CRISIS. 
 
 Mr. Wells says that " the decline in prices of the com- 
 modities which have been specified has been so largely due 
 to conditions affecting their supply and demand, that if any 
 or all other causes whatever have contributed to such a 
 result, the influence exerted has not been appreciable." 
 The demand for cotton has increased ; the stocks of cotton 
 have diminished ; there has been no tendency to over-pro- 
 duction, and no radical change in the conditions of supply ; 
 at the same time prices between the first and last period 
 given in the above statement have fallen off over one-fifth. 
 Our readers can draw their own conclusions. 
 
 We have shown that there has been no real over-pro- 
 duction of wheat or cotton. These are the two most im- 
 portant articles in the trade of the United States. A theory 
 which does not explain the price of these articles cannot be 
 accepted as satisfactory. 
 
 MEAT. 
 
 But wheat and cotton do not stand alone. Mr. Wells' 
 statements concerning many other articles in his list will be 
 found to be misleading. We have neither the space nor 
 the time to enter into a detailed examination of the whole 
 field of industry ; it will be sufficient if we point out a few 
 of the most serious errors into which Mr. Wells has fallen. 
 
 He mentions as one important factor in the recent fall 
 in prices a great increase in the amount of live animals 
 imported into Europe— from a value of $3,025,000 in 1870 
 to 840,650,000 in 1885. All this is true enough; but it 
 is not fair to produce this set of figures and omit the 
 equally striking figures with regard to the decrease in 
 number of cattle grown in Europe itself. According to the 
 Census enumerations of successive periods, we find the 
 number of cattle for every 1,000 inhabitants to have been 
 
 as follows : — 
 
 Beeves. Sheep. Pig s ' 
 
 1869 331 700 152 
 
 1880 302 568 140 
 
APPENDIX.— ECONOMIC DISTURBANCES. 183 
 
 Since 1880 there has been no general re-count, but there 
 is every reason to believe that there has been an absolute 
 diminution in the number of sheep in the face of an increase 
 of population. 
 
 It is obvious that this may offset the increase in imports. 
 The two sets of results are not in a form where they can 
 readily be compared with one another. We can only quote 
 Major Craigie's estimates as to the consumption of meat 
 per head of population in the United Kingdom : — 
 
 1868 
 1872 
 1876 
 
 [8831 
 
 Lbs. 100 '5 
 
 ... 109*2 
 
 ... 111-4 
 
 ... 114-1 
 
 ... 108-3 
 
 ... 103-3 
 
 ... iu-6 
 
 This certainly shows no great tendency toward over-pro- 
 duction. And in connection with Mr. Wells' statistics as 
 to the growth of a particular form of meat trade, we may 
 call attention to the fact that according to Neumann's 
 estimate the total international trade in meat of all kinds 
 had only increased from 1,946 million marks in 1877 to 
 1,954 millions in 1884. 
 
 wool. 
 
 Passing from food products to the raw material of cloth- 
 ing, let us take the history of wool. Here we find the same 
 story as in the case of cotton. New processes had created 
 an increased demand — one which the growers were hardly 
 able to supply. The stocks in Europe at the end of the 
 year 1880 were 207,000 bales; at the end of 1885, in spite 
 of the increased production, they were only 180,000 bales. 
 This does not look like over-production. It looks much 
 more like the effort to supply an increased demand. Mr. 
 Wells says that the increase in the world's production from 
 i860 to 1885 was 100 per cent., and from 1873 to 1885 20 
 
 1 Major Craigie's last investigations seem to indicate a slight falling 
 off in 1886-7 P er capita, as compared with 1883. 
 
1 84 THE ECONOMIC CRISIS. 
 
 per cent. This would make the increase from i860 to 
 1873 67 per cent. Why should the comparatively small 
 increase in the latter period have the effect on prices which 
 he attributes to it ? 
 
 The only difference between wool and cotton seems to 
 be that our statistics with regard to the former are not quite 
 so complete, and therefore we cannot speak with so much 
 confidence. The general indications with regard to the two 
 articles seem much alike. 
 
 IRON AND COAL. 
 
 Nor can we regard Mr. Wells' facts as conclusive in the 
 case of articles like iron and coal. It is true that the cost 
 of production of these things has been somewhat lessened ; 
 but it is seriously open to question whether this reduction 
 will account for the fall in price which has actually occurred. 
 Nor can we accept Mr. Wells' statements of fact without 
 challenge. He says that "in 1870 the average output of 
 coal per miner in the British coal-mines (counting all the 
 men employed) was 250 tons — an amount never before 
 reached. In 1879 this amount had increased to 280 tons 
 per man, and in 1884 the average for the five preceding 
 years was reported at 322 tons." Mr. Wells does not quote 
 his authority, so that we have not had the chance of verify- 
 ing his statement directly, but bringing it into comparison 
 with the reports of H.M. Inspectors of Mines, as quoted by 
 Jeans and others, we find the following discrepancies : — 
 
 Av. output Output per 
 
 
 Product. 
 
 No. of men 
 
 per man. 
 
 man, as stated 
 
 Year. 
 
 Tons. 
 
 employed. 
 
 Tons. 
 
 by Wells. 
 
 1870 .. 
 
 110,400,000 
 
 ... 350,900 
 
 ••• 3H 
 
 ... 250 
 
 1879 .. 
 
 134,000,000 . 
 
 .. 523>9°o 
 
 ... 256 
 
 ... 280 
 
 1880 .. 
 
 . 146,800,000 . 
 
 .. 537,800 
 
 •• 273 
 
 — 
 
 1881 .. 
 
 . 154,200,000 . 
 
 .. 495,500 
 
 ... 3" 
 
 — 
 
 1882 .. 
 
 . 156,500,000 
 
 .. 504,000 
 
 ... 311 
 
 — 
 
 1883 .. 
 
 . 163,700,000 . 
 
 .. 514,900 
 
 ... 318 
 
 — 
 
 Average '79-83 151,000,000 ... 515,200 ... 293 ... 322 
 
APPENDIX.— ECONOMIC DISTURBANCES. 185 
 
 Instead of an increase of 29 per cent, as indicated by 
 Mr. Wells, we find a decrease of 7 per cent, in the output 
 per man in 1879-83 as compared with 1870. Nor does 
 the output per man for the years 1884 and 1885 appear to 
 have maintained itself at the level of that of 1883 ; it is pro- 
 visionally stated at about 309 tons for each year, and the 
 tendency of the final corrections is to lower rather than 
 increase the provisional figures. Of course Mr. Wells may 
 have based his statements on other authorities than those 
 to which we have access ; but, in the absence of any definite 
 citations, we are justified in letting these contradictions 
 stand without further attempt to explain them. 
 
 With regard to iron the case is more complicated. We 
 note, however, that Mr. Wells' statement • of an increase of 
 " about 100 per cent." from 1870 to 1886 is not justified. 
 The figures on which he bases it do not bear out the state- 
 ment; and if the necessary allowance is made for the 
 incompleteness of the earlier returns, we find it still further 
 from the truth. Sir Lowthian Bell's estimate of an increase 
 from 14,345,000 tons in 1872 to 21,063,000 in 1883, or 47 
 per cent, in twelve years, is probably very near the truth. 
 It should, however, be noted that the year 1883 represented 
 a maximum, while 1872 did not. The world's production 
 in 1884 and 1885 was much less than in 1883 ; and though 
 the product of the United States for 1886 was very much 
 greater than ever before, this fact cannot be used to explain 
 the course of prices in 1884 and 1885. 
 
 It should be further noted that, while there has been an 
 increased output per man, corresponding pretty accurately 
 to this increase in product, the decline in prices has gone 
 on much faster than the reduction in cost. In other words, 
 while a single labourer produces 50 per cent, more iron 
 (according to Mr. Wells' figures), the price of that iron has 
 fallen so much that his aggregate product commands a very 
 much smaller price than it did before. The facts are as 
 follows : — 
 
1 86 THE ECONOMIC CRISIS. 
 
 
 
 r 
 
 Prices per ton. 
 
 V 
 
 
 
 America. 
 
 England. 
 
 Germany. 
 
 World 
 
 'slron Product. 
 
 Anth'cite pig 
 
 . Clev'd No. 3. 
 
 Spiegeleisen. 
 
 Year. 
 
 Metric tons. 
 
 % 
 
 s. 
 
 rm. 
 
 1872 ... 
 
 14,700,000 
 
 ... 48-87 
 
 ... 97-12 
 
 210 
 
 1882 ... 
 
 21,300,000 
 
 - 2575 
 
 ». 43*5 
 
 72 
 
 1883 ... 
 
 21,500,000 
 
 ... 2237 
 
 ... 395 
 
 ... 58 
 
 1884 ... 
 
 20,200,000 
 
 ... 19-87 
 
 ... 37-0 
 
 55 
 
 1885 ... 
 
 1 9> 500. 000 
 
 ... 17-87 
 
 ... 33'o 
 
 47 
 
 The decline in price has been so much greater than the 
 improvement in efficiency, that some further explanation 
 must be sought. Was there an over-production of the raw- 
 material beyond the requirements of the market? Mr. 
 Wells thinks that there was, and introduces some evidence 
 to support his view, but not nearly enough to make out 
 a case ; while he passes in silence over some important 
 evidence on the opposite side. 
 
 The fall from 1873 to 1878 was special, concurrent with 
 the panic in the United States and- the contraction and 
 liquidation in the commercial world subsequently. The 
 amount of unsold stocks in the producers' hands increased 
 during that period from 600,000 to 800,000 tons, on an 
 aggregate American product of from 2,300,000 to 2,900,000, 
 or from 25 to 50 per cent, of the whole. In recent years 
 the aggregate American product has nearly doubled, but 
 the unsold stocks run very much smaller — 10 per cent, of 
 the total instead of 25 or 30 per cent. This does not look 
 as though production had been outrunning the needs of the 
 world for actual use. In point of fact, the use of iron has 
 increased enormously. Take one instance — the increase 
 in the world's railroad mileage from 187 1 to 1875, in- 
 clusive, was about 46,000 miles; from 1881 to 1885, in- 
 clusive, it was about 72,000 miles. This difference was 
 more than proportionate to the relative increase in the iron 
 product. 
 
 We reach the conclusion that though the cost of pro- 
 duction of iron is less, prices have fallen to a greater extent 
 than can be accounted for in this way ; and that Mr. Wells 
 
APPENDIX.— ECONOMIC DISTURBANCES. 187 
 
 fails to make out a case of real over-production as compared 
 with consumers' needs. 
 
 There is one commercial staple of first-rate importance — 
 namely, sugar — in which we think that Mr. Wells proves 
 that there has been real over-production. If so, his success 
 at this point is as damaging to his general line of argument 
 as are his failures elsewhere. He himself admits that this 
 over-production has been mainly due to an artificial stimulus 
 by sugar bounties. Let us look at the bearing of this fact 
 on the question at issue. He has set out to prove that the 
 fall in prices is due to multiplication and cheapening of 
 commodities, and that this in turn is due to man's increased 
 control over productive forces. Taking the seven com- 
 modities which are probably the most important in his list 
 — wheat, cotton, meat, wool, coal, iron, sugar — we find that 
 in the first two there has been no over-production ; that in 
 the next four he has at any rate failed to prove his case ; 
 while in the seventh — the only one where the facts are on 
 his side — he himself admits the existence of a special set 
 of reasons, different from those with which we are immedi- 
 ately concerned. In six cases his facts are open to objec- 
 tions ; in the seventh case, where the facts are right, they 
 are totally inconclusive. 
 
 EFFECTS OF FALL IN PRICES UPON FIXED AND DEFERRED 
 PAYMENTS. 
 
 There is one aspect of the question, as Mr. Wells pre- 
 sents it, which yet remains to be considered. What has 
 been the effect of these changes upon the relative positions 
 of debtors and creditors ? Have prices fallen so rapidly as 
 to make it harder to pay one's debts ? or have the improve- 
 ments in production more than counterbalanced this effect. 
 
 Money is not merely a medium of exchange or a measure 
 of value of different things at the same time. It is also a 
 standard of deferred payments. In modern commercial life 
 this is perhaps its most important use. A has borrowed 
 
1 88 THE ECONOMIC CRISIS. 
 
 one thousand dollars of B in 1877. Will he in paying that 
 same amount in 1887 virtually have to give back a great 
 deal more than he received ? Or A has leased some land 
 of B at a fixed rental — will he in paying that rental have 
 to give much more now than he was forced to give in 
 1873? This is the practical form in which the question of 
 the appreciation of gold puts itself; except that, for the 
 majority of men, the periods of payment are not so long, 
 and the change covers a series of transactions rather than 
 a single one. The advocate of the debtor class says that 
 his client has to pay more, because the same number of 
 dollars represents a larger amount of wheat or sugar, coal 
 or iron, or almost anything which his client is likely to 
 produce. The other side answers that he does not, because 
 a given amount of sugar or iron is produced with corre- 
 spondingly less labour; that while the amount of com- 
 modities representing the debt may be greater, the real cost 
 as measured by human labour and human sacrifice has not 
 increased in the same way ; and that this cost of production 
 is a fairer measure of steadiness of value than the mere 
 amount of commodities of any kind. If he does not say 
 this, he at any rate implies it. 
 
 We ought to premise that this is a question which, aside 
 from the facts already cited and others of similar import, 
 will never be put so entirely at rest that those who believe 
 as Mr. Wells does cannot argue about it with a degree of 
 plausibility to themselves. The books show that the same 
 interpretation has by some been applied at every period of 
 depression of prices the world has ever experienced, and 
 has just this in its favour, that it is to an extent true of all 
 of them. Industrial history is but a record of man's in- 
 creasing power. Gradually he has been obtaining control 
 of the forces of nature, ever seeking, and each succeeding 
 decade more and more nearly securing, the growth of two 
 blades of grass where one grew before. It is easy enough 
 to say that the progression has been marvellous since this 
 
APPENDIX.— ECONOMIC DISTURBANCES. 189 
 
 century began. At its very opening Whitney's cotton gin, 
 Watt's steam-engine, Hargreaves and Arkwright's spinning 
 machines, and the factory system simply re-created manu- 
 facture. From that point it has grown and expanded almost 
 daily, concurrently with the spread of civilization and the 
 opening up of new peoples to civilized habits and tastes, 
 while giving to those peoples through a mutual interchange 
 of commodities the power to gratify desires. 
 
 Now, why should the action of this principle culminate 
 with 1873? Up to that date we had gone on in accord 
 with John Stuart Mill's natural sequence, simply increasing 
 the productive powers of the world, increasing the supply 
 of commodities in the markets, and at the same stroke, and 
 to the same extent, increasing purchasing power. All at 
 once the natural operation of improved methods in pro- 
 duction, according to tins claim, absolutely changed the 
 relation of things. Although prices since that date have 
 fallen as never before, man's increased control over the 
 productive forces of nature is held to account for it all ; 
 and the further assumption is boldly made, that a given 
 expenditure of labour and capital will pay a debt of a given 
 amount to-day as easily as it would a few years ago. While 
 accepting neither proposition, let us for a moment notice 
 the latter claim, as it includes both, and so many make 
 much of it. 
 
 How, we would ask, can it be reconciled with the change 
 in the position of capital ? The difficulty in investing it in 
 such a way as to obtain the same return per cent., which 
 could readily be had a few years ago, is too obvious to be 
 dwelt upon. How can it be urged, in view of the notable 
 alteration in the position of the lessees of farms in Great 
 Britain and Ireland? If their rent can be paid with the 
 same expenditure of labour, why reduce it ? Only a few 
 years ago Irish rents were lowered on account of the obvi- 
 ously increased burden which a full payment imposed, and 
 they were fixed judicially for fifteen years on what was 
 
190 THE ECONOMIC CRISIS. 
 
 believed to be a fair basis. Hardly was the settlement 
 completed before a further fall in the prices of produce 
 made the reduced rent as onerous as the original had been. 
 How can we make this claim accord with the situation of 
 debts due England by India and others due Europe by 
 Egypt? Each of them was contracted when the prices of 
 wheat, cotton, and the other products those people pay in 
 were, some of them, 50 per cent, higher than now. How 
 can the proposition be made to conform to the condition 
 everywhere admitted in commercial circles, that the margin 
 of profit in nearly every industry is so reduced that the 
 return to the producer is very small indeed? In this 
 narrow margin we have the basis of all the combinations 
 and " trusts " that are being formed — they are merely the 
 efforts of struggling industries to recover or save themselves 
 by resisting the tendency of the times, and are consequently 
 extending so as to include more and more departments of 
 trade. 
 
 With regard to labour there seems at first sight more 
 doubt, many maintaining that labourers have gained greatly 
 by the recent fall in prices. Any grain of truth contained 
 in this statement, if there be such, is confined to certain 
 trades in this country, and due wholly to combinations 
 which have been able, in a greater or less extent, to main- 
 tain wages in face of a tendency to decline. But those who 
 urged this view must make it general in its application. 
 Their argument is something like this : True, the labourer 
 gets less wages per yard or per ton than he did a few years 
 ago, but his efficiency has been so much increased that he 
 makes about the same per day which he did before. Mean- 
 time the articles which he buys have fallen in price ; he 
 has therefore less expenditure and more available surplus. 
 
 WAGES AND EARNINGS. 
 
 Our previous remarks seem clearly enough to refute this 
 claim. We may, however, suggest one condition without 
 
APPENDIX.— ECONOMIC DISTURBANCES. 191 
 
 stopping to cite others which, even if the assumption could 
 otherwise be established, would interfere with such reason- 
 ing. The chance for the labourer depends not on the 
 amount he makes per day, but on the amount he makes 
 per year. Suppose that a single labourer in a day pro- 
 duces fifty per cent, more goods. If the piecework price 
 has fallen fifty per cent., he receives approximately the 
 same wages as before. But sometimes the market will not 
 take the whole additional stock of goods which would be 
 produced if the labourer worked all the year through. The 
 effect of the change in many instances has been not that 
 the labourer produces more goods, and thus earns the same 
 amount with the same labour, but simply that he produces 
 the same amount of goods with less work and therefore less 
 aggregate pay for the year, even though the amount received 
 per day be the same. 
 
 Of all industrial statistics, those concerning time lost are 
 among the most important, and at the same time the most 
 difficult to obtain. We only know the general drift of the 
 facts ; but in many instances this is quite unmistakable. 
 In the textile industries it shows itself in the increasing dis- 
 inclination on the part of the manufacturers to run except 
 for orders. In the manufacture of those articles of wearing 
 apparel which are subject to definite seasons — the hat trade, 
 for instance — the times of work are becoming shorter and 
 shorter, the intervals of inactivity longer and longer. 
 
 But we are not quite confined to these general indica- 
 tions. The English figures furnish us indirectly with the 
 ground for important inferences on this matter. Take 
 those for iron, as quoted by Mr. Wells himself. If, as he 
 says, the average product per man at the furnaces increased 
 from 173 tons in 1870 to 261 tons in 1884, or 51 per cent., 
 while the total product increased only from 5,962,000 tons 
 in 1870 to 7,529,000 tons in 1884, or 26 per cent., it 
 follows that the amount of employment in the iron industry 
 must have decreased nearly one-fifth. The statistics of 
 
192 THE ECONOMIC CRISIS. 
 
 occupations give us no warrant for assuming that this change 
 is due to diminished number of labourers seeking work; 
 we are forced to the conclusion that it represents forced 
 idleness on the part of a large number of them. The 
 statistics of the British coal industry furnish the same 
 general indications. The number of men employed in 
 1874 to produce 125,000,000 tons of coal was 539,000 ; in 
 1883 the product had increased to 164,000,000, but only 
 515,000 men were required to produce it. Yet there is 
 reason to believe that the number of coal miners in 1883 
 was greater than in 1874, and that the difference in ap- 
 parent number employed may be due to short time, rather 
 than to the presence of any large number of hands who 
 were completely out of work. 
 
 The United States Census figures for 1880 and 1870 are 
 not without value in this matter. If we compare the statis- 
 tics of occupations with those of manufactures we have a 
 rough means of comparing the total number employed with 
 the average number employed ; and this furnishes a sort of 
 indication as to the regularity of employment. In this con- 
 nection we find that the total number (occupation table) em- 
 ployed in manufacturing, mechanical, and mining industries 
 increased from 2,707,000 in 1870 to 3,837,000 in 1880, or 
 41 per cent. ; while the average number of hands employed 
 by the manufacturers increased from 2,054,000 in 1870 to 
 2 >733> 00 ° m 1880, or only ^^ per cent. The same ratio 
 of increase is found in the detailed returns from the mines. 
 But if the number of workmen was increasing faster than 
 the amount of employment from 1870 to 1880, there is 
 reason to believe that the further change in the same 
 direction since 1880 has been much more marked. It is 
 hardly too much to say that the facts with regard to 
 efficiency of labour, on which Mr. Wells relies to explain 
 the fall in prices, really indicate that the labourers are pro- 
 ducing very much less than they might, and are therefore 
 suffering from irregularity of employment. 
 
APPENDIX.— ECONOMIC DISTURBANCES. 193 
 
 CONCLUSION. 
 
 From whatever point of view we regard it, the attempt 
 to prove that the existing fall of prices is unaccompanied 
 by any appreciation of gold seems to fail distinctly. We 
 may differ as to the inferences to be drawn, or as to the 
 practical measures to be adopted, but we cannot shut our 
 eyes to the fact that there has been a change in the con- 
 ditions of currency of the world, and not merely in the 
 conditions of production. We have unsparingly called 
 attention to Mr. Wells' errors of fact, because we believe 
 that his statements, if accepted, are likely to defeat his 
 main purpose in writing the present series of articles. What 
 will be the practical lesson which most people will draw 
 from what Mr. Wells tells them ? When he adduces argu- 
 ments to show that currency questions have little or nothing 
 to do with the present state of things, he simply urges them 
 all the more strongly in the direction of artificial restrictions 
 of the supply. Of one thing they are certain, and that is 
 that prices have fallen. Whether they are going to fall any 
 more neither Mr. Wells nor any one else can tell them. Of 
 the future they know nothing. Of the present they know 
 that under existing conditions it is a great deal harder to 
 pay their debts, or to get any profit on their capital, not to 
 speak of fully employing their labourers, than it was fifteen 
 years ago. They know, if they will look at the facts, that 
 artificial stimulus by positive bounties has failed. The 
 attempt to increase production does more harm than good. 
 If, then, the matter is one which is solely and squarely a 
 question of production and not of exchange, they see but 
 one thing left. The supply must be restricted. 
 
 Their control over the productive forces of nature they 
 find illusory, unless they can control the same thing in the 
 hands of other people as well as themselves ; whether by 
 trusts or by a high tariff is a matter of indifference. What 
 will be the outcome of this tendency it is as yet too soon 
 
 o 
 
194 THE ECONOMIC CRISIS. 
 
 to predict. But it is at least open to question whether the 
 advocates and supporters of currency restriction are not 
 playing into the hands of those who advocate and practise 
 restriction of trade. There is no one who would deprecate 
 this result more strongly than Mr. Wells. Freedom of 
 production has no more vigorous or successful champion 
 than he. His last article in the series, on Government 
 Interference, is admirable, both in its facts and its lessons. 
 For the sake of what is strongest in Mr. Wells' position, we 
 deem it important to correct some of his errors with regard 
 to prices. For if he, under a misapprehension of the facts, 
 persuades his readers that the monetary standard has nothing 
 to do with the present depression, they will rush to the 
 conclusion that free competition of producers is wholly 
 responsible for it, and will act accordingly. 
 
 THE END. 
 
 Richard Clay &> Sons, Limited, London &> Bungay. 
 
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