The Economic Basis of Commercial Prosperity,By William Hoyle,
John Heywood Manchester 141 and 143, Deansgate. London: Simpkin, Marshall, and Co.
The Economic Basis of Commercial Prosperity Viewed in its Application to the Present Stagnation.
AT the present time the stagnation and depression which prevails in trade is such as has not been experienced within the memory of the present generation. This stagnation has now, for more than a year, prevailed in all branches of trade, whilst in some branches it has continued over three or four years; and now, in the outlook of the future, there appears to be nothing to inspire any hope of early improvement. It therefore becomes a question of the deepest interest as to what is the cause and wherein lies the remedy for this deplorable state of things.
It will greatly help us in this inquiry, if, first of all, we can form a correct idea as to the general principles which underlie healthy industry and trade, for then we shall be in possession of a standard by which to judge the causes which have been in operation injuriously affecting trade, and thereby we can determine what steps should be taken in order to apply a remedy.
Generally speaking, we may say that the object of all trade and commercial industry is to acquire wealth. By wealth, in its broad acceptation, we understand all those necessaries, conveniences, and luxuries of life which are the product of human labour.
Things which can be obtained without labour do not come within the category of articles of wealth, for though they may have a value of use, they possess no value commercially, because they cannot be sold or exchanged. page 4 Air, water, and many other things are very useful, and, in this sense, valuable, but being free to all, they possess no commercial value, and hence, unless under very exceptional circumstances, they cannot be traded with.
Seeing, then, that the commercial value of an article depends upon the labour which has been bestowed upon it, it will follow that the measure of the wealth or the income of a country—where trade is free and monopolies do not exist—will be determined by the degree of its industry; or, in other words, of its production, and as trade consists in the interchange of these commodities, it will follow, further, that in proportion as they are augmented, so will be the increase of trade. To diminish production by one-fourth, would have exactly the same effect as if one-fourth of the population were thrown out of work, and had to live upon the produce of the labour of the other three-fourths doing full work. That this would injure trade will be manifest to all; but a little reflection will show that the like injury will result in the other case.
Doubtless there may be, and often are, departmental instances of over-production. There may, for the time being, be too much of one thing produced, but this is both a local and a transient affair. The manufacturer who has miscalculated the demand, soon finds out his error in the losses he sustains from stocks, and he quickly reduces his production of the overdone article, and transfers his capital to the production of things for which there is greater demand.
We have referred to wealth as being the produce of a nation's industry, or, in other words, it is the capitalised or accumulated labour of its population. This capitalised labour is the fund from which, week by week, the wages of the population are drawn, and from whence the materials of its trade are derived. Whatever, then, increases this fund, increases the hiring power for labour, and correspondingly augments the trade of the country. On the other hand, whatever diminishes this fund lessens the demand for labour, and also decreases the general trade.
When, however, we come to consider the accumulation of wealth, another essential factor is involved in the con- page 5 sideration. This factor is consumption—for whatever an individual or a nation may produce, if their consumption or waste be greater than their production, they inevitably become poorer.
The wonderful inventions in machinery, and the marvellous development of power which has resulted therefrom, has enormously increased the producing capacity of human labour, and in the like proportion it has lessened the need for physical toil.
A careful investigation of the facts of the case will show that one individual, aided by the appliances which modern machinery affords, will, on the average, produce as much of the necessaries and comforts of life as will support eight or ten people, or even more; and therefore, if habits of industry prevailed, and reasonable economy were practised, destitution and dullness of trade would be unknown.
|I.||When labour is directed to productive and useful objects, and these objects are rightly used, there will necessarily be a rapid accumulation in the products of industry—that is, of wealth.|
|II.||That whatever tends to promote the development of wealth will help to increase trade, and also will give additional employment to labour. On the contrary, whatever tends to retard the development of wealth will diminish trade and lessen the demand for labour.|
|III.||Whatever tends to consume or destroy wealth, without at the same time producing an equivalent in place of that which is destroyed, has a pernicious influence upon trade, for it diminishes the commodities which are available for exchange, and thereby also lessens the buying power of the community.|
From the observations we have made it will be manifest that there can only be two causes for the depression which exists in trade—1st, deficiency of production, or, 2nd, excess of consumption; or, in other words, deficiency in creating wealth and extravagance in consuming it.page 6
This brings us to the point of our present inquiry. What are the causes which have been recently in operation retarding the development of wealth, or causing its waste when produced? If we can discover this we shall have arrived at the cause of the present stagnation.
The Economist newspaper, in its issue of March 11th, 1876, gave a review of the trade of the United Kingdom for the year 1875, and therein advanced the following as being the reasons for the depression which exists in trade.
The first and foremost reason was the Franco-German war, which cost Prance the enormous sum of £400,000,000. But the Economist answered itself upon this point, for it stated that France, which suffered most by the war, had suffered least commercially. "Her thrift, patience, skill, invention, and hard work saved her from calamities apparently overwhelming." The moral to be drawn from this is, that if thrift and industry could do so much for France, with the tremendous burden that she had to bear, what would they do, if acted upon, in countries which have no such burdens to carry?
The second and third reasons assigned were the large investments in United States and Russian Railways. But the total outlay upon these was only £260,000,000, and this was borrowed from the whole of Europe as well as the United States, and stretched over a period of five or six years, so that it only came to some £50,000,000 per annum, part of which would rapidly be returned in income, and all of it ultimately. Obviously, therefore, the influence from this source must have been of only trifling extent.
The fourth reason given was the opening of the Suez Canal. This was thought to operate by diminishing the time en voyage and thus reducing the need for holding stock, and thereby lessening exports. But exports were not lessened—on the contrary, they increased; and hence this could not be the cause of the bad trade.
The fifth and last reason assigned was "the rapid rise of wages." Of course this enhanced the cost of materials; but whilst it raised the selling price, it also enhanced the buying power, and if the money had been rightly spent, seeing that the buying power would have been increased page 7 equal to the rise in wages, the rise could have had little effect upon trade.
The Economist hints at the true cause when he says, touching the high wages, "More expenditure and less work took the place of frugality and diligence."
If we tabulate in money value the loss to commerce resulting from these causes, stretching over five or six years, it will not exceed some £600,000,000, of which £400,000,000 fell upon one country alone—France, and which country, the Economist says, suffered the least commercially; so that it will be plain there must have been influences at work other than those specified.
"Commercial distress means in exact language that the production of a large class of important commodities, requiring vast capital and thousands or hundreds of thousands of labourers, is so decidedly in excess of the cash demand as to reduce the prices of these commodities below the limit which leaves the usual, or even any, rate of profit to the manufacturer.
"But why does the production become in excess of the cash demand? For two reasons, and for two only: (1) The cash demand falls off because the means of the consumers from some cause become lessened; (2) because, in consequence of some special circumstance, a larger amount of floating capital is applied to production than the actual facts justify. The explanation of the past and present distress will be found in an intelligent application of these two considerations.
"It is perfectly certain that the means of consumers, whether in this or other countries—that is to say, the cash demand for commodities—can only be augmented by the operation together, in pairs or singly, of three causes—(1) greater frugality, harder work, and more invention; (2) unusual productiveness of the seasons; (3) the accumulation of ordinary savings over a considerable period of years."
"We attach more consequence to the first of our conditions, that is to say, greater frugality, harder work, and more invention. These are the three natural and infallible correctives of commercial and financial errors, and the three natural and indispensable precursors of economical prosperity and progress."
These quotations land us much nearer to the true page 8 explanation of the present stagnation than the references of March, 1876; indeed, the writer indicates, in a negative manner, and in general terms, what is the real cause of the present depression in trade. "More frugality," he says, "is needed," which is an indirect way of saying that it is extravagance—overspending—which is the cause of our present trade difficulties.
"We are thus brought to the root of the question. What, then, is that cause 1 Why is it that for some three years or more so many countries are suffering under stagnation of trade—are complaining of reduction in business? . . . . That cause is one, and one only—over-spending, over-consuming, destroying more wealth than is reproduced, and its necessary consequence, poverty. This is the real fons mali, the root of all the disorder and the suffering, the creator of the inevitable sequence of cause and effect."
"When wages are large, they (the English workmen) do not, like the French peasant, turn a portion of them into saving, and thereby increase capital and the production of wealth in the country. What they extort from employers they consume unproductively—they destroy it in indulgences, and only too often in drink."
In these extracts which we have given from the Economist and from Professor Price, there is contained the entire philosophy of bad trade, and, therefore, the explanation of the present commercial depression. If there be any shortcoming in their explanations, it is the want of a little more specificness as to where the over-spending and destruction of wealth lies. They leave us very much in the condition of the sick man, who is visited by his doctor and told that his illness arises from the eating of improper food, but is not informed by the doctor as to which food it is that is improper. The man cannot live without food, and hence he must go on eating, and for any help he gets from his doctor, he may go on to his destruction, for page 9 though the advice is useful in pointing his attention in the right direction, it is spoiled for want of more precision.
This is too much the case with our writers on economics—they speak of greater frugality, harder work, &c., but where is it that the frugality needs to be practised, or the harder work to be performed? Is the man who now takes sugar in his tea to dispense with it, or the person who uses butter to begin to eat dry bread? Or, touching the harder work, are those who now toil from morning till night to toil harder? No! the persons who ought to work harder are the paupers, vagrants, and criminals, and others who not only do not now work, but are a burden upon their fellow-citizens; and the persons who need to practise frugality are those who squander their money in habits of drinking.
We will now proceed to the application of the general principles we have sought to establish, without which the most skilfully-framed theory is practically valueless. The questions for consideration are—What are the influences which retard production, and what are those which lead to extravagance and waste? These constitute the causes of our present stagnation.
There are several minor influences which might be referred to, such as the shortening of the hours of labour, unreasonably high wages, the influence of trades unions, &c.
As to the first, we are strong advocates for the hours of labour being reduced to the point needed to secure their being in harmony with man's physical and intellectual well-being. This, in the long run, is the truest economy both as regards man himself and the trade of a country. If, however, hours of labour are unduly curtailed, they entail upon the capital employed in any business where it happens to occur, an overweighted amount of interest without permitting the production needful to meet it. And when, in addition to this, there is gross neglect of work, as has too often been the case, and the same or higher wages have to be paid, the burden becomes still greater, and, by and by, the point is arrived at where competition with other countries becomes impossible. This has already been the case in some things, especially page 10 in the iron and joinery trades. The result has been, that money has been drawn from the home trade, and invested in the purchase of articles manufactured in other countries, and to that extent our home trade has been injured.
High wages do not operate in a manner to injure trade in a country, unless they are recklessly spent, or get to such a height as to make manufacturing so costly as to render competition with other countries difficult. In some departments there is danger here. As we have before said, if the extra wages which have been paid had been rightly laid out, it would have increased the home demand in a ratio corresponding to the advance of wages, and thus there would have been little or no diminution; but when, as has been the case, it is squandered in dissipation and in the degradation of the workman, it augments in a two-fold way the evil referred to.
Trade unionists have, doubtless, in some cases acted very indiscreetly. Whenever combination is used to cripple freedom of labour or freedom of trade, it becomes an evil, and in the end, if persisted in, it defeats itself, for it drives the trade to other localities or to other countries where it can be carried on unshackled by foolish and improper restrictions. Though this has occurred in some cases, it has yet been too circumscribed to have had much to do with the general depression which now exists.
If we were a self-contained country—that is, if we had no connection with trade in other countries—the tendency of these doings would be to increase the price of commodities, and so lessen the general sum available for the comforts of life; but, coming as we do into competition with other countries, when prices are artificially raised we are undersold and beaten out of the market, and the money which otherwise would be spent in home products goes elsewhere, and to the extent to which this occurs our own trade suffers. The losses and evils, however, resulting from these things are trivial as compared with the losses and evils resulting from want of frugality.
And here let us not be misunderstood. We are not pleading that people should live on bread and water, or page 11 live in houses having only one room upstairs and another room down, and correspondingly stint life in other ways. We believe that life is given for enjoyment, that people should get good food, and as much of it as is needed; that they should have good houses well stocked with furniture, and all the other appurtenances and needs of life in proportion. And our contention is, that were we to aim at this we should fulfil the conditions needed to establish a sound trade, and that by neglecting to do it we so transgress the economic laws that govern society as to make permanent good trade an impossibility; for, instead of appropriating our money to the purchase of things which promote our comfort and happiness, we appropriate too much of it to the obtaining of things that administer largely, if not exclusively, to the sensual passions of our being. For instance, in the item of intoxicating drinks we expended last year over £147,000,000, and for this expenditure we reaped a harvest of disease, misery, vice, crime, degradation, and death.
I will not here enter into the controversy, and attempt to argue the question as to whether intoxicating liquors are useful or not in moderation. If this were conceded a very moderate consumption would meet the case, certainly we might still save over £100,000,000 of direct expenditure. But, believing as I do that these things are mischievous, I shall base my argument on that belief.
The Economist says that greater frugality and harder 'work are needed, and that commodities are in excess because the means of consumers are lessened. We have just pointed out the maelstrom which swallows up the means of buyers—here is the place for the application of frugality. Let the £147,000,000 squandered in drink be expended in useful articles, and in one week after the markets of the country would receive such an impulse as would at once sweep away the gloom that now oppresses it, and the political, moral, and social well-being of the people would be benefited in like proportion.
But frugality here would insure great saving in other ways. Most of the taxes we now pay as poor's and police .rates, &c., would be saved, and the amount thus page 12 saved would be so much added to the purchasing power of consumers. Again, all that the country loses through illness, incapacity, accidents, disease, and premature deaths would be added to the means of consumers. The total of the indirect losses which result from drink are estimated to be equal to the direct expenditure. This would give near £300,000,000 as the cost of these drinks to the country, but making allowances for what goes to the revenue, and also allowing something for moderate drinking, it would still leave a sum of at least £200,000,000 wasted—nay, worse than wasted!—ought I not to say, appropriated to the demoralisation and ruin of the people!
The total value of the exports from the United Kingdom last year was £200,575,856, or about the same amount as our losses through drink, after making allowance, as we have done, for revenue, &c. Now, supposing our foreign trade increased 50 per cent, what busy markets we should have, and if it doubled we should be unable to meet it. But is it not evident that if we applied our money properly at home we might thereby double it, and besides, if we thus appropriated it, we should escape the sad moral ruin now caused by drunkenness.
If our foreign trade should again increase much—which, however, considering the greater competition now existing, is somewhat doubtful—we may, even with our present drinking, possibly see better commercial days again; but what a mournful reflection it is, that a Christian country priding itself upon being a pattern of civilisation, of freedom, and virtue, should be thus dependent upon outside commerce, and all this because it applies the proceeds of its industry to its sensual gratification and demoralisation, and when anything happens to lessen that trade, it is at once thrown into a state of panic and distress.
Let us recapitulate the principal ways in which the drinking habits of the nation injure trade.
1st. There is the diversion of the money directly spent in drink. Last year (1876) this reached the enormous sum of £147,000,000! If but a third of this had gone into the page 13 general home trade, it would have entirely banished the present stagnation, and placed us in a position of comfort and prosperity.
2nd. Our drinking customs entail upon us heavy extra taxations in the shape of poor's and police rates. Last year this taxation amounted to over £15,000,000—at least two-thirds of which might be placed to. the credit of drinking; and when we reflect also that the published expenditure is only a portion of the cost so entailed, we shall have some idea of its weight. If this amount had been saved it would have been so much added to the purchasing power of consumers, and to that extent would have benefited trade.
3rd. To manufacture the intoxicating liquors consumed last year we destroyed 80,000,000 bushels of grain, or its equivalent in produce. All this needs to be replaced by an import of grain from other countries. Last year (1876) the value of the food imports into the United. Kingdom reached the sum of £78,977,000. If we destroyed no grain, the money which we pay other countries to replace it would be available for home use, and would thus help to stimulate trade.
4th. The loss of labour which is caused by the idleness, pauperism, crime, lunacy, &c., engendered by drink tends seriously to injure trade. For, in the first place, all these idlers need to be supported out of the earnings of others. This is partly, but not wholly, included in our second item. Now to the extent that others are taxed to support the idlers, to that extent is their purchasing power crippled; but, secondly, if the idlers were producing wealth, instead of being supported by others, they themselves would be earning an income, and thus would become valuable customers to the trade of the country.
5th. Heavy taxation is entailed upon the community owing to the losses through accidents, disease, physical deterioration, and premature death. All these charges are so many taxes upon the resources of the people, and to the extent which they have to be met it is plain that they must cripple the resources of the people, and curtail their purchasing power.page 14
I might have greatly enlarged upon these points, and also have referred to other ways in which the drinking customs injure trade, but these will suffice. If we sum up the total in money value we shall find it will amount to about double the direct cost, or over £290,000,000; and after making the liberal deductions we have done, it would still leave a loss of £200,000,000, or during the last five years we should have saved about £1,000,000,000, a sum exceeding our entire exports for the last four years, and which if invested in our home, trade would have insured such a demand for goods as would have freed us from the possibility even of dullness.
It may, perhaps, be said that trade is bad in other countries as well as our own, and that therefore the argument we have advanced loses weight. This by no means follows; for, in the first place, there is no nation in the world that has such an amount of commercial outside help as ourselves, for, although only a population of 33,000,000, we supply over one-fourth of the entire foreign commerce of the world, and therefore trade with us ought to be better than with other nations.
But trade in most countries suffers from the same cause as with ourselves. This is especially the case in America, where the annual drink expenditure, according to the Congressional Record, reaches the sum of over £140,000,000, whilst in extravagence in other things they have, perhaps outstripped ourselves. Hence, the terrible and the prolonged character of the commercial depression which has prevailed in that country.
But, again, the dullness of the home trade in this country necessarily, more or less, affects the trade of other countries; for it will be manifest that the goods which, with a good home trade, would find a market here, in the absence of such a trade, have to be sent elsewhere. To get rid of them they are shipped off to foreign markets, and hence these markets become glutted. Now, if our own markets were brisk, fewer goods would be sent abroad, these markets would be relieved, and trade would thus be benefited both at home and abroad.
As we have shown, the expenditure upon intoxicating page 15 liquors in the United Kingdom last year was £147,000,000, and in the United States it is about £140,000,000 .annually, making together a total drink expenditure of £287,000,000 annually. As has been said, the indirect cost and losses resulting from habits of drinking are equal to the direct cost; this would give a total of over £570,000,000 annually as lost to the two countries through drinking. If we take £100,000,000 off from this amount, it will still leave a sum of £470,000,000 as being the direct and indirect cost of the drinking habits to the two countries named; or, taking the last seven years, it would exceed £300,000,000. Compared to this amount, losses on railways, &c., are but a mere fleabite. No wonder that trade should be depressed. The marvel is that the depression has been so long delayed. But the enormous foreign trade we have had has propped it up, and now that this is diminishing we find ourselves falling into distress.
The student of political economy will sometimes have been perplexed to reconcile the doctrine that trade is injured by diminished production with the fact that the country is burdened with unsaleable goods. Hence the cry is, "We want short time—we are killed by overproduction." How happens this?
If it were seen, that along with these heavy stocks of goods, the needs of the country were all satisfied, then the want of demand and the heavy stocks would show overproduction. But the fact is that whilst stocks of manufactured goods are so heavy, a great proportion of our population are in a state of destitution. The stocks which cram the warehouses of merchants and manufacturers are wanted in the homes and upon the backs of the people. How is it that they have not found their way there? For the simple reason that the money which should have procured them has gone into the till of the publican, and to pay the taxes and repair the mischiefs caused by drinking. Let the drink cost, instead of being applied as it is at present, be appropriated to the purchase of goods, and the whole of the present stagnation would vanish, and comfort and prosperity would everywhere prevail. Here is the explanation of the whole matter, and there is none other.page 16
"But," perhaps, the objection may be raised, "where is the line of expenditure to be drawn?" The answer to this is—at the point where value of use ceases to be received for value paid. But who is to determine this point? Does it not vary according to the different views taken as to what is useful? It does, and there cannot be a hard and fast line drawn, nor is it needful; for, first, there is such an overwhelming proportion upon which all are agreed, that the question need hardly be discussed; and, second, there is such a large margin to operate upon that nicety need not be enforced.
During the last few weeks the country has been deeply concerned as to the prospects of the harvest. The weather, especially in the north, during the whole of August was uninterruptedly wet, and gloomy have been the forebodings which this has induced. When our grain is spoiling in the fields we see and deplore the thing, but, is it not far worse to take the food of the people and destroy it by converting it into a pernicious liquor? The Economist of August 11, estimated that the extra cost we should have to pay for our grain, owing to the mischief caused by bad weather, would be under £5,000,000, but we have to pay £30,000,000 extra in consequence of the destruction of grain used in the manufacture of drink. If the first one be serious, the second must be truly calamitous.
In this paper we have sought briefly to indicate the true cause of our present commercial difficulties. The question is one of facts, and the deduction therefrom of their legitimate conclusions. Unless the facts can be disproven, or their application shown to be incorrect, the entire case is overwhelmingly demonstrated. But even if the entire view which is taken by the writer be not adopted there will yet be sufficient fact and argument remaining to prove beyond cavil, that the drinking habits of our country are incomparably the greatest cause of the stagnation in trade which now universally prevails.
John Heywood, Excelsior Printing and Stationery Works, Hulme Hall Road, Manchester.