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The Pamphlet Collection of Sir Robert Stout: Volume 51

Chapter XIV. — The Amount of our Foreign Trade has been Diminishing since 1874

page 50

Chapter XIV.

The Amount of our Foreign Trade has been Diminishing since 1874.

The subjoined table exhibits the fluctuations in our foreign trade (exports and imports combined) since 1867; in millions of sterling.

Total trade in
1867 £501
1868 523., an increase of 4 per cent, compared with 1867
1869 532., an increase of 2 per cent. compared with 1868
1870 547., an increase of 3 per cent. compared with 1869
1871 615., an increase of 12½ per cent. compared with 1870
1872 669., an increase of 9 per cent. compared with 1871
1873 682., an increase of 2 per cent. compared with 1872
1874 668., a decrease of 2 per cent. compared with 1873
1875 656., a decrease of 2 per cent. compared with 1874
1876 632., a decrease of 3½ per cent. compared with 1875
1877 646., an increase of 2 per cent. compared with 1876
1878 611., a decrease of 5½ per cent. compared with 1877
In the above trade returns, the influx and efflux of bullion are not included. But the balance between the export and import of the precious metals is, on an average of years, so insignificant and has so slight a connection with our trade in goods, that it is of very little account. Taking the three last years of the above series, viz., 1876, 1877, and 1878, the total amount of the gold and silver imported into, and exported from, the United Kingdom during that period was as follows:—
Importation during the three years, of gold £59,000,000
Exportation during the three years, of gold 51,500,000
Excess £7,500,000
Importation during the three years, of silver £46,800,000
Exportation during the three years, of silver 44,100,000
Excess £2,700,000
page 51

So that the operations of the country in bullion and specie during the last three years resulted in an excess of importation amounting to about £10,000,000, or a little more than £3,000,000 a year. It may, by-the-by, be as well to note that, during those same three years, the aggregate excess of our imports over our exports amounted to upwards of £200,000,000, and that, instead of our sending our bullion abroad to pay for this excess of imports, as the protectionists assume, we actually received £10,000,000 in bullion from other countries. But we shall refer to this more fully elsewhere.

It appears, then, that in the years 1871 and 1872 there occurred a large and sudden inflation in the amount of our foreign trade. Instead of the previous steady and normal advance of about 2 per cent, each year, it, at that period, increased by sudden jumps of 12½ per cent, one year, and 9 per cent, the next. A brisk demand arose for all kinds of commodities, and the activity extended more or less to every branch of trade. In the year 1872 we sent abroad and received from abroad goods to the amount of £120,000,000 more than in 1870. Not that this enormous increase in the money value represented a proportionate increase in the quantities exported and imported. Mines, collieries, factories, &c., when in ordinary fair work, as they were when this exceptional activity sprang up, could not be made suddenly to increase their productiveness beyond a certain ratio. The enhanced amount of our trading operations was to no small extent due to the great and rapid rise that took place in the prices of commodities. This rise (as will be shown further on by tables) was entirely confined to our own productions. While we charged much dearer for our exports, we paid no dearer for our imports, and the increased money amount of the latter was owing to their increased volume. But, as regards our exports, the increase in their amount was largely due to enhancement of prices, and only partially to increase of quantity. The demand from abroad for our staple productions was, during the height of the inflation far in advance of the supply, and the advance prices, page 52 caused by the competition of buyers yielded magnificent profits to the manufacturers, abundant wages to the working men, and stimulated production to its utmost. Capital and credit came forward profusely, and almost pressingly, to share in the general prosperity, and increased the activity of trade by the unusual facilities which they afforded.

That this feverish prosperity was short-lived, and that, as is usual, it was followed by a grievous reaction, we know but too well, for we are still under the chilling influence of that reaction. It is now well understood and admitted that the operation of that brief period of lurid prosperity was injurious to the permanent and legitimate progress of the country. We had to give way and yield back a large part of the ground which we had gained by an ill-advised rush, and this, like all retreats, was attended with losses and disaster. Habits of indulgence and even of extravagance had been fostered by the rich profits and high wages of those halcyon days. Increased expenditure prevailed among all classes of society, and everything was couleur de rose, even to the budgets of the Chancellor of the Exchequer. But the bubble burst. Prices declined, foreign trade diminished, and profits and wages have, since 1874, been continually falling. We are in the position of an individual who, having had his income unexpectedly doubled by some lucky accident, and having adapted his style of living to his improved circumstances, suddenly finds his income cut down again to its old limit, and has to go through various unpleasant processes of retrenchment and self-denial.

If, instead of the "leaps and bounds" which our foreign trade made in 1871 and 1872 (as shown by the tables at p. 50), we had only progressed at the old steady rate of 2 per cent, per annum, a calculation will show that, starting from the amount of our foreign trade in 1870, viz., £547,000,000, it would by this time have arrived at a higher figure than it actually has attained, notwithstanding the jumps of 12½ per cent, and 9 per cent, in 1871 and 1872. For instance, adding the supposed gradual increase page 53 of 2 per cent, per annum, our foreign trade would have reached
£558,000,000 in 1871, instead of the actual sum of £615,000,000
569,000,000 in 1872 instead of the actual sum of 669,000,000
581,000,000 in 1873 instead of the actual sum of 682,000,000
593,000,000 in 1874 instead of the actual sum of 668,000,000
605,000,000 in 1875 instead of the actual sum of 656,000,000
617,000,000 in 1876 instead of the actual sum of 632,000,000
629,000,000 in 1877 instead of the actual sum of 646,000,000
641,000,000 in 1878 instead of the actual sum of 611,000,000

As, therefore, the causes that led to the inflation of our trade in 1871 and 1872 are, as it were, at the root of the commercial depression from which we are now suffering, it is of importance to trace and determine them, in order to arrive at a correct view of our present position.

Among those causes, the most direct and the most potent was the immense amount of money which England lent to foreign nations in the course of the years 1870, 1871, 1872, and 1873. During that period France, Russia, Turkey, Egypt, Peru, Brazil, India, American States and cities, together with a host of South American republics, and also the promoters of foreign undertakings of all sorts, such as railways, telegraphs, gas-works, water-works, &c., appeared as successful borrowers in the English money-market to an extent totally unprecedented till then, and quite unequalled since. No doubt a certain share of the amount was contributed by foreign investors, but it was British capital that provided a very large proportion of the colossal sum that was raised. It is very difficult to ascertain with any degree of precision the total amount that England had to remit abroad in consequence of making these loans, for they were contracted for at various rates of deduction from the nominal capital—some were payable in installments, and of others a portion was set aside for sinking funds, &c. But it may not perhaps be very wide of the mark to estimate the total amount that England had during the four years, 1870 to 1873, to transmit abroad in fulfillment of these engagements, at £450,000,000; forming an average of £1,10,000,000 per annum.

page 54
How was the transfer of this enormous amount accomplished? Assuredly not by shipments hence of bullion and specie. We have already seen that no large movements of money from one country to another are ever effected by corresponding displacements of the precious metals. A comparative slight encroachment on the circulation requirements of the exporting country so violently disturbs the exchanges that reaction ensues, and the balance is speedily redressed. But setting aside all theoretical reasoning, it is a fact that English imports and exports of bullion and specie for the four years during which the transmission abroad of the vast sum in question took place, were as follows:—
Gold and Silver.
Year. Imports. Extorts.
1870 £29,400,000 £18,900,000
1871 38,100,000 33,700,000
1872 29,600,000 30,300,000
1873 33,600,000 28,900,000
£130,700,000 £111,800,000

We, therefore, during the four years in question, received from abroad gold and silver bullion and specie to the amount of 9,000,000 more than we sent away.

In proceeding to solve the question, it must be borne in mind, in the first place, that British investments abroad had for many years before 1870 been constantly on the increase, so that by that time the dividends which foreign debtors had to remit yearly to England formed a very considerable sum. Each year after 1870 those annual payments have become larger, and by this time they have expanded into a prodigious total. It has been shown (p. 47) that after deducting the dividends that should be, but are not, paid by the insolvent States, the yearly sum of £165,000,000 is still actually divided among the holders of national stock throughout the world. To these dividends on national page 55 loans must be added the dividends payable on a multiplicity of foreign, municipal, joint-stock, and other public investments which swell the total sum distributed annually among private investors to upwards of £200,000,000. What proportion of this amount falls to the share of the British investors can only be a matter of conjecture. It must, however, be observed that, with the exception of France, the United States, Portugal, and, perhaps, one or two others, only a small proportion of the money borrowed by the fifty other States of the world has been lent to them by their own subjects respectively. Who, then, are the lenders? France, Germany, and Holland are wealthy nations, and are holders of a considerable amount of foreign stocks; as also are, of course, a certain number of opulent individuals in' most civilised countries, but, undoubtedly, it is British capital which is the most profusely invested abroad, and which is the recipient of a proportionately large share of the total annual dividends.

Whatever that share may now be, there is reason to believe that in 1870 the annual amount accruing to England for interest and dividends on foreign investments was at least £30,000,000, and that by 1874 this amount was increased, by the large fresh advances made meanwhile, to £50,000,000, which gives an average of £40,000,000 for the intervening period. This sum would naturally form a part of the £110,000,000 remitted to the borrowers abroad each year of the four in question, leaving £70,000,000 still to be accounted for. This enormous amount was supplied, either directly or indirectly, by an increase to the same annual amount in the exportation of British goods. That this was the case, we have both negative and positive proofs. Negative, because there is no other way of showing how the money was handed over to the borrowers. That they did receive it, nobody denies; that it was not sent to them in the shape of bullion or specie we have made abundantly clear; there is, therefore, no other possible way in which it could have reached them, except in goods, either directly or indirectly. And as regards proof positive, we have merely to refer to the unerring page 56 records of the Board of Trade. These show that the exports from the United Kingdom during the four years 1871-1874. averaged nearly £68,000,000 in excess of those of the preceding four years, 1867-70; which excess as nearly as possible accounts for the £70,000,000 which remained to be provided for out of the £110,000,000. The following are the exact figures:—

Total exports (in millions of £) from the United Kingdom for the years
1867 £226.
1868 228.
1869 237.
1870 245.
Annual average, £234.
1871 £284.
1872 314.
1873 311.
1874 298.
Annual average, £302.
exhibiting an excess of £68,000,000 per annum in the latter four years.
To show that the great increase in the exports of the years 1871-1874 was owing not to the natural growth of trade, but to the abnormal stimulus given to exportation by the vast sums which England had then contracted to lend to foreign nations, we append a statement of the annual exports (in millions) of the four years which followed the cycle of 1871-1874, viz:—
1875 £281.
1876 257.
1877 252.
1878 245.
Annual average, £259.

It is evident, therefore, that, as soon as the "abnormal stimulus to exportation" was withdrawn by the cessation of England's mania for granting foreign loans, the amount of our exports rapidly diminished, and they have continued gradually to recede until at the present time they have fallen page 57 to the exact point in 1870 (£245,000,000 per annum) from which they darted forward so briskly in 1871.

No small portion of the loans made to foreign countries had been handed over direct to them in the shape of commodities required for national purposes, such as iron rails, locomotives, iron steamers, machinery, fire-arms, steam-coal, and similar objects; and while exportation generally was stimulated to an unprecedented extent, the articles above referred to were, beyond all others, forced up to unnatural prices. Of course, these were the articles that most keenly felt the reaction. England, after 1874, not only lent money abroad much more sparingly, but had yearly to receive more from abroad for interest and dividends. Exportation, therefore, no longer artificially excited, gradually fell off, and now flows within its former natural channels, so that compared with its previous impetuosity, the current appears to have become languid and sluggish.

So much for the causes of the transient prosperity of the years 1871-1874, and for their bearings on the depression in trade that has since prevailed.