Chapter II.

The Depression at Home.

Description—Economic Sketch, 1870-1884—Statistical Table:—Population, Exports Home Produce, Total Imports and Exports, Savings Banks, Crime, Pauperism—The Fall in Prices, its Causes—Comparison of Trade 1873 and 1884—Scarcity of Gold—The World's Indebtedness to Great Britain—Agriculture—Railway Traffic.

It is in one of these ebbs that we now find ourselves. Let us see in what respects it differs from, and in what it corresponds with, former depressions, and so ascertain its peculiar causes, and prescribe the proper remedies.

When we come to look for points of resemblance, the difficulty is to find them, while, on the other hand, the points of difference are important and numerous. Beyond the fact that depression exists there is scarcely any similarity. On other occasions this nation has suffered from protracted and expensive wars; from rash home enterprises, and speculative foreign loans ending in panic and disaster; from dearness and deficiency of food, arising either from legislation or from bad harvests.

Not one of these causes has been in force on the present occasion. For many years we have had no great war consuming and destroying our capital; our transactions, vast as they are, have been conducted, for the most part, on a cash basis, and not on credit, as formerly; there have been no great home enterprises such as were once entered into in the shape of railways; for a dozen years we have had no reckless foreign loans; the volume of our foreign trade keeps up at a high level; while, lastly, bread and other necessaries of life were never so plentiful and cheap.^*

Nevertheless, our agriculturists say they are half ruined; our manufacturers, merchants, and shipowners complain of vanishing profits; while many of our artisans and labourers are out of work and clamour for employment.

In order to produce results apparently so anomalous, it seems clear that some novel and active agencies must have been at work. We must inquire what these are. I propose, therefore, to take a rapid glance at the history of the last fifteen years, with particular regard to those facts which have an important economic bearing, and, by means of such statistical information as is available, I will endeavour to measure these facts, and show how they have combined to produce the results we see. The period in question, which commences with 1870, when the Franco-Prussian war broke out, comprises the expansion which followed the close of that war in 1871; the depression which began in 1874, and closed in 1878-79; the expansion which then commenced, and which continued till 1881-2; and the depression which has reigned ever since.

We shall thus have for comparison two periods of expansion and two of depression; and for reference, the accompanying table (page 4), which shows the progress of the nation during this time in the important particulars of Population, Exports of Home Produce, Total Imports and Exports, Marriage, Thrift, Crime, Pauperism.

It is hardly necessary to remark that the figures shown in the table, however interesting in themselves, lose much of their significance unless read by the light of the facts and circumstances which underlie them. The table commences with 1870, in the summer of which year the Franco-Prussian war broke out. The war ceased in 1871, and the effect on trade was magical, our exports rising from 199½ millions in 1870, to 256 millions in 1872; and 255 millions in 1873.

The destruction of capital had to be made good. An indemnity of 5,000 millions of francs had to be paid by France to Germany. An era of peace seemed to set in. Confidence in all directions sprang up, and enterprise in consequence flourished. There was a mania for foreign loans, good, bad, and indifferent, France' heading the list of borrowers for 200 millions, Russia taking 27 millions, while such bankrupt and subsequently defaulting states as Bolivia, Costa Rica, Paraguay, and Turkey, came in for 20 millions among them. United States railroad bonds and shares were also imported in vast page 4 page 5 amounts, and large investments were made in other parts of the world. The total of all this could not have been less than 400 millions sterling, and, assuming that we furnished only one quarter of it, we had to provide 100 millions in commodities.

Prices went up with a bound, manufacturers and traders went mad, so did the wage-earning classes; it was a time of general intoxication, bearing within it the seeds of the inevitable collapse. This came in the autumn of 1873, the special feature being the smash in the United States. During the succeeding five years we suffered from the conjoined influences of falling prices, foreign loan defaults, and bad harvests; our exports sinking in 1879 to 191½ millions, a lower figure than that of 1870.

There were circumstances, however, which were working to redress these evils. In the United States many of the railroads which were commenced in the time of inflation were completed, and by their means the vast and fertile regions of the far west were brought into play, and made to supply the needs of Europe. A new era of prosperity was opened for the States, who were enabled to pass easily through the process of the resumption of specie payments; to call in and pay off a large portion of their debt; and also greatly to extend their trade with the rest of the world. Matters soon changed, however, Europe was blessed with better crops, while, in 1881, the States had a bad harvest, and found themselves committed to excessive railroad construction. From that time until now the depression in the States has gone on from bad to worse, and they find themselves in a position from which it seems impossible to emerge, unless they adopt a fiscal policy utterly at variance with that under which their industries are at present conducted.

In addition to these various circumstances I have now to refer to a very potent factor which has been at work for a dozen years at least, I mean the fall in the prices of commodities. This has been a disturbing element, an object of perplexity, and a source of loss to almost every one engaged in commerce.

The fall in prices may be traced to three concurrent causes.

In agriculture we have had opened up since 1870 the wheat and corn fields of the West and North-west of America; and the wheat fields of India, and of Australasia.

In mining, rich veins of copper, tin, and lead, have been laid bare in Spain, California, and Australia.

In manufactures, there is hardly a process in which invention and economy have not been at work to effect a saving of material or of labour. To give only one instance, I may mention the Gilchrist-Thomas process, by which four men now make a bar of steel in the same time, and with less cost of material than it took ten men a few years ago.

As regards the scarcity of gold, it is only necessary to consider the facts to understand what is meant by the term, and how the result has been caused. From the time of the discoveries in California and Australia, 1848-52, the annual production which had been about thirteen millions, increased until it reached its highest point about 1856.

So that we have a rapidly decreasing supply. Let us now inquire into the demand.

This has been two-fold, firstly for currencies, secondly for the arts. For currency purposes there have been large demands on the stock for Germany, the United States, Holland, Italy, and other countries, which have absorbed something like 200 millions sterling; the process, in the case of Germany, being accompanied by the demonetisation of silver, page 7 the price of which has fallen from 60d. per ounce in 1872, to 49½d. in 1884.^*

As regards the arts, Mr. Burchard reports that from many inquiries he learned that at least three millions sterling is now annually used for this purpose in the United States, and the conclusion is that three-fourths of the whole annual supply are consumed in this manner.

In addition to these drains, moreover, it has to be noted that since 1870 India has been a steady importer of gold, and that in 1883, according to a Parliamentary return issued at the end of last year, she imported on balance no less than nine millions worth.

But, there is still another sign of the increasing scarcity to be mentioned, and that is, the fact that in 1884, Great Britain instead of receiving some five or six millions of gold from Australia, as she did annually a few years ago, actually had to remit to that quarter about one million sterling as part of some large loans made to the Colonies, who for the first time in their history called for payment partly in gold, instead of wholly in commodities. Now, inasmuch as the demand for gold during the last few years has far outrun the supply, it is impossible that this circumstance should not have had some influence in producing the fall in prices which has taken place. There are, however, three other factors which have had an influence on prices which have to be taken into account. Two of these have tended to retard the fall. They are increased banking facilities, and improved means of transmission, and communication by steam and electricity, all which have permitted economies in the use of the metal. The third, which has tended to accelerate the fall, is the increased production of commodities which has arisen out of the new fields opened up, and the improvement of manufacturing processes.

It is impossible to apportion with any accuracy the share which each of these factors has had in producing the effect we see, but the fall in prices has steadily progressed since 1873, and has been productive of wide-spread effects in every department of trade, and on every class of society.

Keeping all this in mind let us now turn to the table, and take note of the lessons which it affords.

In the first place, we see the rise of the trade figures which mark the inflation of 1871-3; and their decline from that date until 1879, under the influence of natural reaction, intensified by contracting currencies, and falling prices. We can see also that the prosperity of 1872-3 was to a great extent hollow and unreal, and that it is absurd to make the inflated prices of those years the normal standard of comparison. It was shown by Mr. Giffen in various reports to the Secretary of the Board of Trade, that in order to institute just comparisons, we must take into account, not only prices, but quantities. He pointed out in 1881, that the differences in the prices of 1873 and 1879 would, in order properly to compare the trade of these two years, necessitate an addition in the case of the latter year, for certain enumerated articles on the export side, of £60,694,000; and on the import side, of £63,844,000; which sums added to the total imports and exports for 1879, and supposing no change in the other articles, would raise the total of our foreign trade in 1879 to £737,000,000, which is 55 million above the figures reached in 1873.

Once more casting our eyes on the column of exports, we notice that the figures rise from 191½ million in 1879, to 241½ millions in 1882; 239¾ millions in 1883; and 233 millions in 1884.

Then, if we look at the figures of our total trade, we see that they have risen from 611¾ million in 1879, to 732¼ millions in 1883; the estimate for 1884 being 688 millions.^*

If, now, we adopt the process of Mr. Giffen and calculate the value of the quantities of 1884, according to the prices of we should find that the figures of the latter year would

^* The actual figures of our total foreign trade for 1884 have just been published. Instead of being 688 millions, as estimated, they are 685,986,152, which slightly modifies the calculation in the text. These figures might be taken to signify at first sight a vast and sudden drop in our foreign trade, inasmuch as they are 46 million less than those of 1883, and 25 million less than the average of the four preceding years. Of this deficiency of 46 millions, however, 36½ millions were in our imports, and millions in our exports; while of the 36½ millions in the imports, 19½ millions arose from a decreased importation of wheat, oats, and other cereals. This fact is intimately bound up with the question of the world's indebtedness to Great Britain, to which reference is made in pages 10 and 22.

page 9 be largely exceeded. The total for 1884 is estimated at 688 millions, but as this includes the re-export of certain of our imports, we must, in order to arrive at the actual figures of our sales and purchases, deduct their value from each side of the account, say 64 millions, which would leave 560 millions as the total of our sales and purchases. Then, assuming that the prices of 1873 are on the average 30 per cent, above those of 1884, 168 millions would fall to be added to the 688 millions, the actual estimated for 1884, and the comparison would stand thus:—

Year.	Population.	Imports and Exports at prices of 1873.	Per head.
		£	£
1873	32,124,598	682,292,137	21	4	9
1884	35,951,865	856,000,000	23	15	6

showing that, measured in money, on the basis of the prices of 1873 we did a larger business in 1884 by 10s. 9d per head of our population.

This will be made more apparent by an inspection of the following tables which give the quantities, the values, and the average prices, of some of the principal articles of import and export for the years in question:—

Imports.

	Quantities.		Average Prices.		Values.
	1873	1884	1873	1884	1873	1884
					£	£
Cotton cwts.	13.639.252	15,505,851	£4.01	£2.84	54,704,847	44,113,528
Sugar, raw cwts.	14,241,328	19,652.364	s. 23.96	S. 15.51	17,066,026	15,252,249
Do. refd. cwts.	2,273,490	4,266,689	S 33.84	S. 20.88	3,847,271	4,454,759
Tea lbs.	163.765,269	215,212,114	d. 16.67	d. 11.07	11,372,595	10,567,352
Wheat cwts.	43,863,098	47,113,998	s. 13.01	S. 8.41	28,538,746	19,825,021
Do. Flour cwts.	6,214,479	15,103,518	s. 18.83	s. 13.39	5,849,852	10,166,010

page 10

Exports.

	Quantities.		Average Prices.		Values.
	1873	1884	1873	1884	1873	1884
					£	£
Cotton, yarn lbs.	214,778,827	271,077,000	d 17.76	d. 12.02	15,895,440	13,811,767
Do. piece yds.	2,384,174,306	3,095.963,800	d 3.45	d. 2.47	34,273.471	31,856,889
Do. printed yds.	1,083,306,079	1,321,236,400	d.4.78	d. 3.59	21,580,770	19,795,713
Iron, Pig, &c. tons	1,142,065	1,269,677	s. 124.65	S. 46.40	7,118,037	2,945,667
Steel, unwrt. tons	39,418	56,614	£37.11	£19.87	1,462,857	1,125,204
Coals tons	12,617,566	23,343,755	S. 20.90	s 9.29	13,188,511	10,851,760

As to the comparative profitableness of these two years, I do not propose to enter thereon for two reasons, the first of which is, that they are years of extreme inflation and extreme depression; and the second is, that it would require a long calculation based on the variations in the price of every item on each side of the account, with a full knowledge and consideration of the difference in cost which improved processes bring out, and of the difference for which allowances would have to be made in the cost of raw materials imported, and re-exported in the shape of manufactures. It will be sufficient to remark that, as our imports are, to our exports, in the ratio of about three to two, anything like an equal fall in prices must be a great gain to us; and that a fall of 20 per cent, in the price of our imports would be an equal set-off against a fall of 30 per cent, in the price of our exports.

In this connection it is difficult to over-estimate the value to us of the relation in which we stand to the rest of the world, as the great creditor nation. It is a subject which has not received due attention. The world's indebtedness to Great Britain is probably, at a moderate computation, 1,500 millions, producing an annual income of something like 75 millions; our colonies and India standing for 600 millions. We thus have 75 millions per annum, payable in London in gold, that is, in a commodity which, unless fresh discoveries of the metal are made, must indefinitely increase in value, and thus, as time goes on, be a source of increasing wealth to the country which holds this unique and enviable position.

Resuming our examination of the table, we see that as page 11 regards population, there is a steady increase from 31,205,444 in 1870, to 35,951,865 in 1884.

Turning to the column relating to marriage, we find that for the first cycle of inflation and depression, the figures follow pretty closely the fluctuations in the trade columns, rising from 205,443 in 1870, to 232,345 in 1873, and falling to 205,544 in 1879; while, for the second cycle, commencing in 1879, there is a rise to 230,979 in 1882, and to 232,669 in 1883, and a fall to 230,066 in 1884, showing a check. It appears, moreover, that the number of marriages in 1883 was almost the same as in 1873, although in the meantime there had been an increase in the population of 3½ millions.

In the column relating to thrift we have to note a steady rise during the whole period of 15 years. Calculating the amounts lodged in the Savings Banks, per head of population, we find that in 1870 they were £1 14s.; in 1873, £1 18s. 5d.; in 1879, £2 4s 5½d.; and in 1883, £2 8s. 9d. I find, moreover, that at the end of January, 1885, the total sum lodged amounted to £91,414,634, as against £87,651,517 at the end of January, 1884, which would give something like £2 10s. 8d. per head.

As regards crime, the figures show a steady diminution. In 1870, with a population of 31 millions, there were 18,401 convictions, whereas in 1883, with a population of 36 millions, the convictions have dropped to 15,001. The decrease has been so marked as to attract the attention of judges like the Lord Chief Justice Coleridge and Mr. Justice Denman, who have commented in suitable terms on this favourable feature. The same remarks are applicable to the column in which the number of paupers is recorded, the figures for England and Wales being in 1870, 1,079,391, and in 1884, 774,310.

This completes our examination of the table, but in order to obtain a correct notion of our internal condition, it will be necessary briefly to consider two subjects of importance, viz., agriculture and railway traffic We find agriculture sutlering from the effects of inclement seasons, and from a severe fall in the price of wheat, brought about by the opening up of new fields of production, to which allusion has been made. The consequences have been far-reaching. During the last ten years, although one million additional acres in the United page 12 Kingdom have been brought into cultivation, there has been a decrease of 1,200,000 of corn crops, one million of them being wheat, while there has been an increase of 2½ millions of acres devoted to grass, and other crops. This change in cultivation has been accompanied by a decrease in the rural population of 275,000 persons, many of whom have migrated to the towns, and helped to swell the ranks of the unemployed.

With regard to this table it will be useful to note that in 1883 the number of third class passengers was 581,233,476, which was 29¼ millions in excess of the number carried in 1882; and that these numbers are in addition to those of season ticket holders.

The figures for 1884 have not yet appeared in a collected form, but the total receipts may be set down at about £70,000,000, or per cent, less than those of 1883.^*