Commercial crises of the nineteenth century

Front matter

CORNELL

UNIVERSITY

LIBRARY

Preface

It suggested itself to me to write this little booi when I read certain letters whioh appeared in tht Times last year in answer to some letters of my owr in that journal on " The Coming Crisis in Trade." Mj opponents, it was manifest, had never carefully considered how it came about that these crises shoulc continually recur during a period when the power oi mankind to produce wealth was increasing witl greater rapidity than ever before in the history ol the world. I have endeavoured in the following pages to give a brief but, I hope, clear sketch of sue! crises during the present century.

My indebtedness to Herr Max Wirth's elaborate work, " Geschichte der Handels Krisen," in regard tc the details of the earlier crises, I hereby cordiallj acknowledge.

H. M. H.

London, February, 1892.

Contents

CHAP. PAGE

PREFACE iii

INTRODUCTION I

Introduction

The causes and effects of industrial crises must be

reckoned among the most important subjects for

consideration in tlie concluding years of the nine-

"teenth century. From time to time all civilised

t countries are now exposed to a complete upset

I of their industrial, commercial, and financial

i, machinery, at the very moment when the great

'majority even of those who are directly engaged

"iti business imagine that trade is at its best and

j'that no danger threatens them. Suddenly, in

jtlie midst of the greatest apparent prosperity,

when the promoters and contractors have their

hands full of work ; when merchants and traders

are congratulating themselves on the extent of

* their turnover; when manufacturers, mine-owners

-'and shipping companies are dividing most satis-

ijfactory profits ; and when the workers are being

j,paid a somewhat better rate of wages — at that

juncture a change for the worse begins. Prices,

which have risen all along the line of commodities

";hat enter into our social life, fall with great

rapidity, uneasiness and distrust spread through-

mt the business community, there is a rush to

obtain money either ^by sales of securities and

Toods, or by obtaining advances from the banks ;

md a nation, or as ^is now commonly the case, a introduction:

whole group of nations, finds itself in the midst of a dangerous crisis, without knowing the whj or the wherefore of the crash.

Now if this recurrence of financial and iri' dustrial disasters could be traced to well-define( natural causes, mankind would, in this as in othe cases, be compelled to accept the inevitable, anc make preparations to lessen the mischief whicl may be done. Earthquakes, droughts, tida waves, hurricanes, swarms of locusts, epidemics have all brought about serious disturbances trade at different times ; and some of the dis turbances thus occasioned have had more thai local or temporary effects. As science advance and knowledge spreads, we may succeed ii counteracting some of the injury done to societ; by these convulsions of nature, and in limiting th' ravages due to others which are in a certaii degree open to human control. But nobod; imagines that they Avill ever be finally stoppei or that within a conceivable period our descen dants will have the power to order the wind and waves to be still, even if drought proves t be, like monarchs, amenable to skilfully-used es plosives in the higher air.

Many of the trade difficulties of ancient timf and of the middle ages can be directly traced t drought, or to flood, in the same way tb famine due to similar causes has a prejudicii effect upon commerce in China, in India, i Russia, and even to a certain extent in Euroj and America to-day. Such troubles, it is un versally recognised now-a-days, should be m<

,ii c|

INTRODUCTION.

by freely using the surplus of one country, or one district, to make up the deficiency in another. Formerly, periods of scarcity were prepared for by the establishment of granaries and grain pits, which were not opened until such time as the failure of the crops in the particular region affected had deprived the people of their annual food supply ; and it is more than probable that, in our modern zeal for applying the latest methods of western civilisation to communities in quite a different stage of social and economical development, this method for providing against a rainless day has been foolishly abandoned.

It is certain, at any rate, that at no period prior to the growth of what is now known as the capitalist system of production — the system of production, that is to say, of articles of social use for profit, by free labourers who are paid wages — did difficulties arise in the trade or finance of any community from an actual superfluity of the wealth which the members of that community needed in their daily life. Famine, in former generations, of course attacked the poorer members of society first, and in the ancient slave-supported civilisations, as well as uader the feudal regime, the contrast between the well-being of the few in " hard times," as compared with the want and misery of the many, was in some respects as striking as it is to-day. But still the crucial distinction between our own and any former period in the world's history remains — that the times of greatest distress for the mass of the people now are the

INTRODUCTION.

times when there is a complete glut of the commodities which they need and which they make.

Local gluts and national crises due to the same cause, which now take so wide a range, have been recorded before the present century. Economists were anxious to account for them, and philanthropists were eager to remedy them, in the seventeenth and eighteenth centuries. As the growing influence of the middle-classes due to the extension of their political power was felt, and as the restrictions imposed by the elaborate balancing of interests in the feudal system slowly gave way before the spread of commerce and the widening of the local into a national market, the tendency to inflation followed by corresponding depression made itself manifest more clearly.

The local difficulty of transmitting goods produced for profit into money appeared then as a national difficulty. At the end of the seventeenth century such crises were recognised and partially analysed by John Bellers, who, in a passage quoted by me some years ago from his " College of Industr}^," puts the matter thus: — " In the common way of living on trade, men, their wives or children, often lose half what they get either by dear bargains, bad debts or law suits of which there will be neither in the college ; and if the earth gives but forth its fruit, and workmen do but their parts, they will have plenty; whereas now, the husbandmen and mechanics both are ruined, though the first have

INTRODUCTION.

a great crop and the second industriously maketli much manufacture. Money and not labour being made the standard, the husbandman paying the same rent and wages as when the crop yielded double the price ; it being no better with the mechanics, where it's not who wants his commodity, but who can give hiin money for it (will keep him) , and so often he must take half the value in money another would give him in labour that hath no money."

Here the difficulty is to bring the two producers of wealth together by reason of the necessity for converting commodities into money. Though also in this case a particular set of workers are spoken of as if they were producing for their own profit, the fact, of course, is that, under the system of production in which the capitalist class employs the wage-earners to produce, the profit is realised by the employers and not by the actual producers.

Now, so long as the labourer, be he husbandman or mechanic, makes goods for his own use, or to the direct order of his customers, or for the supply of a local and limited market, he is in control of his tools, of his farm or workshop, of his raw material, and owns his product. Thus, though he does produce primarily for his own individual advantage, and not, as was the case under the old communal and gentile 'arrangements, for the advantage of the whole J society in which he himself was included as a u.nit, yet he is not producing wholly and solely with a view to exchange on a great general

INTRODUCTION.

market ; and, above all, his products are owned by liim, and are dealt with under his own control. So soon, however, as in the course of economical development, the workers began to produce no longer as individuals for their own use, or for the direct use of others in their locality, but as wage-earners, . bound together by no tie other than that of turning out commodities or articles of use in the social conditions of the time to the order of an employer who threw the goods on the market ; so soon as they did this a direct antagonism was established between the two parts of the wealth-creating machine.

The workers were then working no longer as individuals ; they were working together in social union, and, as division of labour came in, were working together in co-operative union for a social purpose — namely, to produce goods which were articles of no use to them for the use of others at a distance, the limits of whose wants they could not gauge, although these were supplied by the exercise of a social function, to wit, exchange. In these circumstances the actual producers of the goods have no control over the raw material, no ownership of the finished article, no say in the matter of exchange, and, in the complete form of the process as we see it to-day, no proprietorship in the tools oi machinery. They are simply wage-earners, working at wages regulated by the average standard of life or subsistence in their trade; which wages] represent onl}^ a fraction of the value of the commodities produced by their labour. But the

INTRODUCTION.

icapitalist or employer, he Has still retained the : right of individual appropriation or ownership, and with it the power to exchange, which formerly belonged to the individual workers. The workers are working socially for social objects : the employer appropriates individually, and exchanges for individual objects — the realisation of his profits namely. Thus we have here a distinct and definite antagonism lying at the very basis of our modern system of wealth-creation, an antagonism between the social form of the actual production and the individual form of the appropriation and exchange.

Now, the remarkable point about the position of thought in regard to political economy to-day is that the orthodox political economists, and even some who call themselves socialists, fail to discern this antagonism even when it is pointed out to them. Not a few still maintain, also, that there is no antagonism between the labourers and the capitalists; in this respect proving themselves less clear-sighted than their master, Adam Smith, who, at least, detected that employers were in a permanent conspiracy to keep down the rate of wages.

But it is precisely this original antagonism between social production for social purposes and individual appropriation and exchange for individual profit that gives the key to all the industrial, commercial, and financial difiiculties which arise in our society at the present time.

Failing this key, the most absurd explanations are given of those modern crises arising from

INTRODUCTION.

superfluity and glut, followed by the discharge of work-people and the general distress, which occasion such grave anxiety to every thinking man.

Thus the problem of crises has been confidently solved by a reference to over-population, and there are still not a few wiseacres left who persist in this explanation ; though it has been conclusively proved time after time that the power of man to produce wealth is increasing in every civilised country in a far more rapid ratio than any increase of population ever recorded among the poorest nations in the world. Though, moreover, it is seen at each successive crisis that a country which, like the United States in 1856 and 1872, had no over-population, and could have no over-population, before the crisis, had hundreds of thousands, not to say millions of people, out of work or employed at half-time when the crisis came. Manifestly, therefore, the over-population theory in nowise touches even the fringe of the problem.

Then there are those Avho enlarge upon the dangers of over-production, and consider that here we have the undoubted cause of crises. But this is to restate the problem, not to solve it, seeing that at the time when this '' over-production," thanks to the enormous power of modern machinery, has been pushed to its last point, there are thousands of people who stand in need of the results of the over-production, and would gladly give their labour and its product in return for some of these very articles

INTRODUCTION.

including not unfrequently food itself, wMch have been so overproduced.

There are, again, the currency quacks who attribute everything to the lack of sufRcient means of circulating commodities; though the same phenomena precisely have been recorded when currency was somewhat restricted, as, prior to the gold-discoveries in America and Australia, gold coin certainly was ; and when it is if anything too plentiful, as during the crisis of 1857 it may be taken to have been. Similarly, it has been suggested that the system of banking is to blame, though here again it is impossible to show how tinkering with credit based upon production can remedy the defects of the faulty system of production itself.

To such a pitch of despair have economists been driven in their anxiety to avoid the true solution propounded for them already by a greater thinker than themselves, that Mr. Stanley Jevons traced crises to periods of bad harvests, and then, triumphantly connecting bad harvests with spots on the sun, referred the whole of our social troubles in this particular to these strange changes in that great body. This theory was actually accepted for a time, until what was perhaps the worst crisis of the century came in the same year with one of the finest harvests ever known on the planet, and when also the sun's disc was exceptionally afflicted with spots. Then it became apparent to the most credulous that the spots on the sun had as much influence on industrial crises as the spots on the leopard lo INTRODUCTION.

in the Zoological Gardens ; and that the genius before whose shrine our Professors of Political Economy at Oxford and Cambridge still prostrate themselves had only added another to his long list of blunders.

The ablest summary of the causes of crises yet formulated outside of the school of Marx is really but a recapitulation of the symptoms which precede a crisis, not in any sense an analysis of the causes which bring it about. A rush into new enterprises and a mania for speculation ; an eager anxiety to get rich without toil ; the credulity of the public in accepting unsound enterprises ; the increase of luxury ; the rise of prices ; the exceptional demand for labour and increase of wages, etc., etc. — all these are precursors of an industrial crisis, but they cannot be considered as more than effects of what is going on below all the time.

To return, therefore, to the view already set forth. We have historically on record the origin of the antagonism between that social form of production and individual form of appropriation of commodities which replaced the limited individual production of the middle ages, Thus, the workers, though nominally free, lost all control over the products of their labour, and could in no wise direct or influence either the nature or the disposal of the commodities. From this time forward all improvements in machinery, and all the conquests of science as applied to the increase of wealth, have come into the hands of the employing class, who, by decrees,

INTRODUCTION.

relieved themselves of all trade regulations and State or mianicipal restrictions, and went forward to capture and control new markets for their goods. With the industrial revolution at the end of the eighteenth century and the establishment of the factory system, this monopoly of improvements in the hands of the employing class became more and more dangerous to the welfare of the community.

For now the antagonism to which reference has been made began to show itself on a wider scale than was possible before. Each manufacturer is, of course, solely anxious to make hay Avhile the sun shines. When, therefore, markets are good, he produces as much of the special commodities he manufactures as he possibly can, he employs more " hands," or works those he has overtime in order to gain greater and greater profits while prices are high. All do the same thing at the same time, no one having the slightest regard in the heat of competition for the interests of his neighbour manufacturer or for the glut of the market which may ensue. This arises from the inherent nature of the competitive system in its first hey-day of youth and prosperity. Every employer and capitalist, in order to live himself, must try his hardest to extend and not merely to maintain his trade. Good employers and bad employers there may be, but no capitalist, so long as competition is the rule in his trade, can help proceeding in this way. The moment he relaxes his efforts, down he goes in the struggle, his firm

INTRODUCTION.

appears in the bankruptcy court, and the fury o: competition rages on as before over his business remains.

But this cannot go on permanently. Thougl the marlcets are larger than ever they were and the cheapening of goods perpetually goin^ on enables the machine industry to conquer the old forms of production in other countries nevertheless, the crisis is approaching. There is no social control whatever exercised over tlif individual rush for profit. As the labour in the factory, in the works, in the mine, on the farn is more and more completely organised and ordered, so do the anarchy and disorder more and more completely dominate in the exchange, While inside all is conducted with the mosi careful regard to the profit-making efficiency ot ] all the parts, outside eacli contends against his fellow to sell his goods most rapidly and in the greatest quantity.

Moreover, the necessities of the capitalist system force the manufacturer, or contractor, or mine-owner, or shipbuilder, contmuously to realise his value embodied in goods, or railways, or coal, or iron, or vessels, in the shape of cash. Without doing this he cannot recommence his operations by buying raw material, fuel, oil, labourforce and the like. The commodities produced by other manufactures are of no use to him, any more than his commodities are of use to them. Each and all must realise their products in coin or its equivalent. However good a firm's credit may be, to this complexion must they all come

INTRODUCTION. 13 a,t last. Consequently, the capitalist system of production involves an antagonism between money and commodities.

If the circulation of the capitalist's commodities is checked, or the realisation of his paper representing vfork done is impeded, then the work sannot be carried on at all, but must be stopped altogether. But before this point is reached, doubts arise as to whether matters have not been pushed too far. 'Ihere is a rush to discount bills and to obtain advances on securities, 3r to sell out and out for cash at reduced prices. But just as everybody before was anxious to produce more on the rising prices, and buyers were eager to buy — not for use but for profit — 30 all now are looking about to see how they :.an contrive to produce less, and those who were buyers are eager to sell, no longer to obtain enhanced profits, but to avoid actual loss. A crisis has, in fact, set in, and what should be the gain of society becomes its direct injury. That increased power to create wealth on which men are in the habit of congratulating themselves, becomes an actual hindrance to the creation of more wealth. That is to say, the sole object of capitalists in producing commodities is to obtain profits for themselves. Their individual control and anarchical method has resulted in a glut. That glut renders it impossible for them to continue to produce on the same scale. Therefore, many of them go into bankruptcy, and many more close their factories and works, or run them on short time. Hence labourers thrown

14 introduction:

out of work, goods unsaleable, and at intervals a commercial and financial crash.

What has happened ? The capitalist class has virtually declared its own inability to conduct the business of the community. The form of the production has revolted against the form of the exchange.

As a result, prices fall all along the line, economies are resorted to, mostly at the expense of the workers : and in due course, after a period more or less prolonged of stagnation and depression, the heavy accumulations of st(^ks are disposed of, confidence is gradually restored, orders begin to come in afresh, and the whole cycle is repeated, ending in a similar crisis on probably a larger scale than before. Such crises with the liquidations that follow upon them now frequently extend over many years. The power of production hampers its continuous employment So far as the actual producers are concerned, the, destruction of the goods manufactured would be| a direct benefit. They have been employed in producing their worst enemy and bringing about their own discharge. Men, that is, in civihsed communities, are now controlled and overmastered by their own machinery of production, instead of controlling and mastering it themselves for the general advantage.

To formulate the diagnosis of the evil is, in fact, to point out the only possible remedy. This remedy society itself is unconsciously beginning to supply. In every direction the unregulated capitalist competitive system is being

INTRODUCTION. 15 modified and partially transformed. How the changes which are now being brought about, unconsciously and anarchically, may in the near future be carried on consciously and in an orderly fashion by an educated and organised democracy, will be partially suggested in the concluding chapter of this work. Meanwhile the recognition of the economic and class antagonisms in which our civilised society nioves and has its being is slowly making way even among those whose position is threatened by the coming change.

COMMERCIAL CRISES OF THE NINETEENTH CENTURY.

Chapter I

The first important crisis of the nineteenth century occurred under quite exceptional circumstances, and although not entirely confined to Great Britain, this country was chiefly affected by it. This crisis of 181-5 came immediately upon the conclusion of the peace on the downfall of Napoleon. It was generally believed that immediately after the signature of the treaty of peace at Paris a period of great commercial prosperity would begin, and that England in particular would reap the fruits of her supremacy at sea and of the great development of her internal resources which had taken place during the war. Such exertions had never before been made, nor such expenditure incurred, by any nation.

The weight of taxation was crushing during the war, the drain for men and material was unprecedented on so small a population, and so great was the stringency in the precious metals that the Bank oi England had suspended specie payments since 1797 In ]766 the funded debt of the United Kingdom was little more than £72,000,000, in 1815 it wai £800,000,000. The public expenditure in 1814 waj no less than £100,832,260, in 1816 it was £92,000,000, and two years later only £55,000,000. Tens of thousands of men were then set free from the uselesi services of Avar to devote themselves to increasing the wealth of the country ; the markets of the Continent, long nominally, at least, closed to Englisli goods, were thrown open ; and a fine harvest at home helped on, as it was thought, the general improvement due to the beneficial change in foreign affairs.

Precisely the contrary, however, of that which was expected took place. Great Britain had been enabled to hold her own during the long war of twenty-two years, had subsidised half Europe against the Frencli, and had supported a weight of taxation previously unknown, because during these twenty-two years the great machine industry and the extension of commerce poured into the pockets of her trading and land-owning classes untold wealth. Napoleon's policy of excluding English goods from Europe had forced our manufacturers and merchants to seek outlets for their cotton, iron, wool, and other manufactures farther afield. They found their new markets, thanks to the complete supremacy of England at sea, in India, North and South America, the West India Islands, and Asia Minor, pushing their trade over tiie whole known world with the greatest vigour. The cheapness of English goods became the marvel of the universe, and the machine-made stuffs of Lancashire and Yorkshire gave an impulse to English commerce scarcely equalled even during the period of railway construction and the gold discoveries. Hargreaves and Jennings, and Arkwright and Watt, the first fruits of machinery, and the early application of steam, piled up riches for England ; and military and naval victories were made possible by extraordinary commercial success.

But now there was peace. The great European markets close at hand were again open to our trade, and every preparation was made to take full advantage of this great opportunity. Scarcely a manufacturer in business had failed to take time by the forelock and produce more than his usual quantity of goods, with a view to disposing of them on the Continent. The truth was, however, that English commodities liad never been so completely shut out as was supposed. Cheapness had broken down the Custom-House barriers, and smuggling, winked at by the officials, had developed the proportions of a regular trade. In addition. Continental manufacturers, though lagging behind their English competitors in some branches of business, had not been wholly neglectful of the changes in the form of production. They, too, were beginning to produce with the new machinery, and with the aid of steam.

Thus, in all districts which English goods were obliged to reach by long land transport, the native manufacturers had the advantage. No account of these facts was taken at the time, and it was hastily assumed that if, under all the drawbacks of smuggling and possible confiscation, twelve millions sterling worth of English goods could be profitably delivered at foreign ports, certainly not less than double that quantity might safely be disposed of now that peace had been firmly established. All rushed in at once to benefit by this exceptional opportunity, The result was that the foreign markets were speedily glutted. English goods were to be had cheaper at foreign ports than they could be bought for at their place of manufacture. For the foreign buyers had nothing' to ofi'er in exchange for these manufactures except their agricultural products. But these were shut out from the English markets by high duties, Corn, wine, and spirits could not be taken by English merchants owing to the tariffs, and as there was nothing else to offer, piles of English commodities lay unsaleable on the Continent, and either brought their owners nothing at all, or were "slaughtered'' at ridiculous prices. Not only were numberless speculators ruined, but the manufacturers sustained terrible losses.

The good harvest itself did but seem to make matters worse. Everybody had become accustomed to high prices during the war. The land-owners and farmers had done well during the troubled period, Paper money at a discount of about twenty-five per cent., as compared with gold, was the general currency, and inflated prices ruled to an abnormal extent. All calculations for sale of agricultural produce had been based on the continuance of a similar state of things.

7 HE NINETEEN! H CENTURY.

But suddenly the change came, and with it so plentiful a harvest that the barns and storehouses were filled to repletion with grain, in the same way that the warehouses were choked with manufactured goods. There was a conspiracy of superfluity to impoverish all classes. Nobody knew what to do. The state of things transcended all experience. Crises and stagnation of trade had been known before, but never on so large a scale. For in this case, as in those cases which follow, the cause of all the collapse of trade and general poverty was manifestly a superabundance of wealth.

The working people, who suffered most from the crisis, were little inclined to bear their misery silently. Discharged soldiers and sailors came in to compete on an already overstocked labour-market, and the attitude of the unemployed and starving labourers became threatening in the extreme. Observing that machinery was everywhere supplanting hand-labour, they not unnaturally jumped to the conclusion that these increased powers of producing wealth were really injurious to the workers, seeing that they were, in many instances, the direct cause of their want of employment. Bands of men consequently paraded the country smashing machinery, and demanding work and food.

The amount of machinery even then in use in Great Britain very far exceeded in power of production the total quantity of manual labour employed. But the war, that great and most extravagant customer to farmers, manufacturers, and othei' producers of wealth, having come to an end, those who were most anxious to obtain some of their superabundantj supplies of food and manufactures in return for useful work were prevented from doing so by the fact that they could not be employed at a profit. Instead of increasing the number of their hands, and thus aggravating the glut, the one object of the producers was to lessen their output, until the accumulated stocks should be taken off the market, and they might, owing to rising prices, be able again to produce at a profit. If the stock in the farm buildings and warehouses had been burnt then, such was the irony of the situation, prosperity would have immediately recommenced on the same scale and for practically the same-reasons as during the war.