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Lorsque le document est trop grand pour dtre reproduit en un seul cliche, il est filmi 6 partir de Tangle supArieur gauche, de gauche A droite, et de haut en bas, en prenant le nombre d'images nicessaira. Les diagrammes suivants illustrent la mithode. 1 2 3 1 2 3 4 5 6 ^ \ E PRICE SIX PENCE. i .^ FREE TRADE AN' 1 1 ENGLISH COMMERCE. A BY AUGUSTUS MONGREDIEN. THIRD EDITION. Cassell, Petter, Galpin & Co.; LONDON, PAkIS &, NEW YORK. 1879. ^ 'jr!f^!S!f^am FREE TRADE AND ENGLISH COMMERCE. BY AUGUSTUS MONGREDIEN. Cassell, Petter, Galpin & Co. LONDON, PARIS *• NEW YORK'. :i\'=l^ CONTENTS. PART I. CHAP. I. Introductory II. Exports (unless in Payment of Debt) necessitate Imports to the same Amount . . , , III. Futility of the Attempt to Export Much and Import Little IV. If Protection be Beneficial as between Country and Country, it must be Beneficial as between Province • and Province .... V. Reciprocity . . . VI. Division of Labour . . . " , VII. Protection applied to Young States VIIL Protection in Old States IX. What England is to do if she be the only Nation tha adopts Free Trade .... X. Impossibility of encouraging Exports and at the same time checking Imports . . . XI. Free Trade practised Internally by all Protectlonisi States ..... XII. Concluding Remarks .... PACK 5 9 H i6 18 21 24 38 33 38 41 45 IV CONTENTS. CHAP. XIII. XIV. XV. XVI. XVII. XVIII. PART II. Population, Debts, and Trade of the World . t The Amount of our Foreign Trade has been Diminishing since 1874 ..•••• Fall in Prices since 1874 . . ' . . Competition in Neutral Markets , . . Fail in the Wages of Labour . , ' . Commercial and Banking Failures since 1874, and Ratio of Fall in Prices . . . . ■ The Increased Excess in the Amount of our Imports over that of our Exports .... The Depression in Trade not confined to England, but prevalent everywhere • • • The Effect on Trade of Political Complications and of Losses on the Debts of Defaulting States . XIX. XX. XXI. XXII. Summing up TAOR 47 5a 60 65 69 73 80 91 97 99 FREE TRADE AND ENGLISH COMMERCE. CHAPTER I. INTRODUCTORY. It is intended in the following pages to take a short review of the present position of the free trade question in respect to the world at large, and especially in respect to the com- merce of England. Such an inquiry might be useful, and perhaps interesting, at any time, but now, when commerce is abnormally depressed, and when it is a moot point how far that depression is connected with our free-trade policy, it becomes an important and urgent one. It is proposed, in the first part, to show the bearings of free trade on the commerce and industry of nations gene- rally ; and in the second to examine into the real causes of the present condition of English commerce, and ascertain to what extent, if any, it may be ascribable to the operation of free trade. The subject will be treated from a practical and popular point of view, its technical and scientific aspect having had ample justice done to it by Professor Fawcett and others. In matters of this kind, where the practical application of scientific conclusions depends on the action of men laboriously engaged in political or mercantile pursuits, who have little time to devote to the study of abstract questions, it is necessary to place the subject before them in the most direct and concrete form, and to appeal to demonstrable facts and undeniable figures, in order to arrest FREE TRADE their attention and obtain their assent. Still more necessary it is to treat the subject in a popular manner, in order to secure a hearing from the mass of the public, who, not un- naturally, shrink from the study of dry works on Political Economy. Neither is it necessary to study Political Economy as a science in order to arrive at a definite conclusion as to the principle of free trade. The question narrows itself into a few simple issues, on which plain common sense is quite competent to deliver a verdict. We propose, in the first part, to show — 1. That balances due by one country to another are paid directly or indirectly in commodities, and not in specie, un- less occasionally and to an insignificant extent. 2. That, consequently, for every export of goods that is not sent to pay a previous debt there must be an import of goqds to the same amount ; and, vice versd, for every im- port of goods that is not received in liquidation of a pre- vious debt there must be an export of goods to the same amount. 3. That all artificial limitation of imports necessarily limits exports to the same extent ; that it curtails foreign trade, neutralises the benefits of division of labour, and dis- places labour and capital from productive into unproductive channels of employment. 4. That various other inconveniences and disadvantages result from the curtailment of foreign imports and the restriction of commercial intercourse between man and man. To revert to the first proposition : a slight consideration of the actual course of events as they occur under our own eyes, shows that the precious metals play a very small part indeed in the payment of debts between nation and nation. Hardly any specie changed hands in the payment of the enormous French indemnity to Germany ; or in the trans- mission of the ;^4oo,ooo,ooo or so which we lent to foreign countries in the years 187 1, 1872, and 1873 ; or in the settlement of the ;^23o,ooo,ooo which we imported in ex- AND ENGLISH COMMERCE. cess of exports during the last four years, 1875 to 1878. The ebb and flow of bullion is on a scale far too minute to do much towards the settlement of international accounts. A country rarely possesses much more or much less specie than is needed for the purposes of currency and of the arts ; and never exports specie so as to trench, beyond a trifling extent, on the amount required for circulation. On the other hand, a country never retains much of the specie that is in excess of its circulation requirements. In the first case a comparatively small withdrawal of gold raises the rate of interest, lowers the price of goods, discourages importation and encourages exportation, so that the balance is soon restored. In the second case the redundant specie that remains after the wants for circulation are supplied lowers the rate of interest, raises prices, checks the outflow and attracts the influx of merchandise, and finds its way abroad, where its value is greater. This is constantly being exem- plified by the action of the Bank of England. When it is wanted to attract a few millions of gold from abroad, the rate of interest is raised, and it flows in ; when the stock becomes redundant, the rate of interest falls, and the surplus beyond circulation requirements gradually disappears. The amounts which turn the scale are comparatively trivial. So sensitive is the money market, that three or four millions abstracted from or added to the currency are quite enough to depress or to raise the rates of interest sufficiently to produce a counterbalancing effect either way. And yet there are people who fancy that the balances owing to us, or by us from and to foreign nations are paid in specie ! Last year (1878) we imported from abroad ^63,000,000 in excess of what we exported. To send abroad that amount in specie, or one-half of it, or even one-quarter of it, would have been simply an impossibility. Specie tends, like water, to find its level everywhere, the standard being the circulation requirements of each country. When short of that, its value is raised ; when in excess of it, its \alue falls, and it flows in or flows out of the country in proportion. It is under the operation of this law that FREE TRADE inconvertible paper money drives bullion out of a country. If its circulation requirements be partly supplied by paper money, less specie is wanted, and as a country does not long retain specie in excess of its circulr.cion requirements, the precious metals (of course not the paper) are sent abroad where they are in greater demand and of greater value. If not a part but the whole of the circulation require- ments be provided for by inconvertible paper money, then the whole of the specie (except perhaps a little hoarded here and there) will disappear. If it be admitted that no diminution of, or increase to, the amount of specie required for the circulation of a country can be otherwise than both trifling and temporary, it follows as a necessary consequence, that "balances due by one country to another are paid directly or indirectly in com- modities and not in specie, unless occasionally, to an insig- nificant extent." AND ENGLISH COMMERCE. CHAPTER II. EXPORTS (unless IN PAYMENT OF DEBT) NECESSITATE IMPORTS TO THE SAME AMOUNT. If it is not specie that we receive in return for our exports, or that we send in return for our imports, there is no alternative but to conclude that they pay for each other. In the case of national indemnities, subsidies, loans, interest on loans and foreign investments, these are paid for by the export of goods without any return for them. But as fir as commercial dealings go, it is utterly impossible to export goods without importing goods to the same amount, and vice versa. Of course, this is a mere truism to those who are conversant with the subject, but there is a large number of people who look with dread on large imports, and it is necessary to make it clear to them that large imports mean large exports. If it be, as they deem, an advantage to import as little as possible, it follows as an indispensable consequence that they deem it an advantage to export as little as possible, and to have as little foreign trade as possible ; for reduced imports necessarily imply reduced exports, and reduced foreign trade. But let us suppose it possible for a country to export largely without importing in return any commodity except bullion, and to compel the retention of the bullion, by prohibiting its re-exportation, would that country be the richer for it ? Certainly not. Let us work it out. There could be no increase of real wealth, for the bullion being in over- supply in respect to the commodities which it represents, II lO FREE TRADE would fall in value in the exact proportion of such over- supply ; in other words the money price of all commodities would rise in that ratio. No one would be the richer for that, for the exchangeable value of all commodities (that is, their relation to each other) would remain precisely the same. If the working man received twice his former wages, he would have to pay double for all he consumed, which would leave him where he was ; indeed, the cost of living would rise upon him far more rapidly than he could, by remon- strance or strikes, &:c., enforce a rise of wages from his employers. The gold and silver coins being but the counters used to represent the various object^j that con- stitute the wealth of the country, the result of doubling the number of the counters would be, not to increase the wealth of the country, but simply to diminish the purchasing power of the counters, and make two of them necessary to repre- sent the same commodity which was before represented by one. Meanwhile the money-cost of production would have become so great that the foreigner could no longer afford to purchase the productions of that gold-glutted country, and exportation would cease. Foreign trade would, therefore, be totally suppressed, and the happy country would, like Japan of yore, live within itself, and be independent of the foreigner — a model result of the perfection of protective policy. True that there would be an accumulation of twice as much bullion as before, but as its purchasing power would be diminished by one-half the possessors would be no richer than those men abroad who had but half the quantity. The only way to obtain the full value of the accumulated bullion would be to allow its export, and sell it to the foreigner. But to export bullion means the importing ot goods, for what else could be got in exchc^nge for it ? And that means a total abandonment of the gold-accumulating policy. Yet what is to be done ? Gold may be piled up in mounds, but if it loses its purchasing power it ceases to be wealth. Bullion is only worth what it will fetch in the commodity-market. It will buy twice as much abroad as it AND ENGLISH COMMERCE. XI will at home. To utilise it, therefore, it must be sold to the foreigner. Then there would occur the converse of the operations that produced the glut of bullion. There would be large imports and small exports of goods, the protected interests would be ruined, internal commerce would be disorganised for a time, and everything would be unsettled until the superfluous bullion had been worked off, and its quantity reduced to the level of legitimate circulation requirements. But what can be said of a policy that led to such disasters as its reversal alone could remedy ? The supposititious case, however, of a country which let specie flow in but allowed none to flow out, never did actually occur, because no prohibitory measures ever could prevent the precious metals from being transferred from a country where their value is less to those countries where their value is greater. But the hypothesis serves to show that even if such regulations could be enforced, they would be productive, not of advantage, but of evil. There are countries of which the imports habitually exceed the exports, and others . in which the converse is the case. These apparent exceptions to the rule that every import must be balanced by an export are easily explained, and only tend to prove the rule. In the first place, the balance on either side is not paid or received in specie, the movements of which, as we have seen, are quite insignificant in comparison with the balances in question. For instance, the imports into the United Kingdom exceeded the exports in 1877 by ;^8o,ooo,ooo, and in 1878 by ^^63, 000,000. If these enormous balances had had to be paid in specie, they would have swt pt away not only every coin, but also all the plate, watches, and trinkets, in these islands. For it is calculated that the entire circulation of the country, together with all the precious metals it possesses as articles of ornament or utility, from a gold tankard to a silver pencil-case, barely amount to the ;!^ 143,000,000 in question. But fiir from the country being drained of its gold and silver, there is in it now quite as much as there was two years ago, before these \l la FK£K TRADE balances arose, and our circulation requirements have not been trenched upon in the slightest degree. Neither has England obtained these ;^i 43,000,000 worth of goods on credit. Merchants do not, in these days, give or take the same long credits as formerly. If the enormous sum in question had to be paid for by England at all, it has been paid long ago. Indeed a certain portion of our imports are paid for long before the goods themselves come to hand. A cargo of wheat from California takes four to five months from the day of ship's sailing before it reaches PZngland, but it is paid for by drafts on England at sixty days' sight, which, sent forward by rail and steam, mature one or two months before the wheat itself arrives here. No ! In whatever way we obtain the possession and use of this immense mass of commodities over and above what we send away, it is certain that the amount is not a debt owing by us. Indeed, it is just the contrary ; it is sent to us in satis- faction of debts owing to us for interest and dividends on money lent to, and invested in, foreign countries. We shall treat this subject fully later on, meanwhile we will just indulge in one or two remarks. All wealthy nations which have lent money to other countries must of necessity import more than they export, since the annual income which they derive from those countries is paid them in goods. In the same way, the poorer nations who have borrowed money from other countries must of necessity export more than they import, since it is in goods that they pay the yearly interest on the money they owe. Indeed, the comparative wealth or poverty of nations may be pretty fairly measured by the amount by which their imports or exports are in excess of each other. That amount which a nation exports without receiving a return for it in imports, goes to pay a debt that it owes. That amount which a nation imports without sending out a return for it in exports, constitutes the payment of a debt owing to it. Consequently, instead of a large excess of exports being a matter of pride, it is a proclamation of indebtedness; and on the other hand, AXD E.VGLISH COMMERCE. Its have not 13 to view with regret the increased excess of imports over exports, is to view with regret the increase of national income arising from foreign investments. In the following pages it is always to be understood that in viewing the relation between imports and exports, allow- ance is made for that portion of either that is sent or received as payment for loans, war indemnities, subsidies, interest on investments &c., leaving the question of the commercial interchange of commodities to rest on its own merits. I m excess I 1 ^: M JiREE TRADE CHAPTER Iir. FUTILITY OF THE ATTEMPT TO EXPORT MUCH AND IMPORT LITTLE. All parties seem to agree as to the great advantage it is to a country to export largely. Each country produces some things that are useful and desirable to other countries, and whether from climate, soil, geological formation, natural aptitude or practice and education, it has some speciality in which it excels. It benefits itself by exchanging its surplus productions for the productions of other countries, and the latter are also benefited by the process. The more largely that country exports, the greater the ber efit to itself and others. To put it more concisely — foreign trade is a universal benefit. Up to this point the unanimity of opinions is wonderful ; and what we have said appears a mere enunciation of a string of truisms. But how are these truths acted on practically ? By a persistent attempt on the part of the majority (at present) of nations to export a great deal and to import very little, ignoring the utter incompati- bility of the two courses. All are agreed as to the great advantage it is to a country to export largely, only it must not be overlooked that those exports must be paid for in goods, since, as we have seen, specie is not used for that purpose (except sometimes provisionally and to a fractional extent). If, therefore, you import little, you can only export little. If you want to export much, you must import much. You cannot curtail your bite noire, imports, without curtailing to just the same extent your pet, exports. For every hundred pounds' worth of foreign articles which, by prohibition or by prohibitory duties, you prevent coming into your country, AND ENGLISH COMMERCE, 15 D IMPORT you prevent one hundred pounds' worth of your own articles of production from going abroad. It cannot be repeated too often — because it is at the very root of the question — that to restrict imports is (by the inexorable law of logical sequence) to restrict exports to the same extent, and there- fore to that extent, to restrict foreign trade. The delusion of wishing to sell without buying is equivalent to the old paradox of a valley without a mountain. In vain do the prophets of protection preach — " Let us have an extensive foreign trade to consist wholly of exports." It is simply an impossibility. As well say let us have shadows without light, or a square without corners. The doctrine that foreign trade is an evil would be, though a questionable one, at all events intelligible ; but to maintain that foreign trade is a good while the influx of foreign commodities is an evil, is a palpable contradiction. Practically, all interchange of commodities is barter, and money is merely a common standard by which to measure their relative values. ?■ i6 FRKE TRADE CHAPTER IV. IF PROTECTION BE BENEFICIAL A§ BETWEEN COUNTRY AND COUNTRY, IT MUST BE BENEFICIAL AS BETWEEN PROVINCE AND PROVINCE, If to protect native industry by putting such duties on foreign commodities as shall keep them out of the market, and compel the consumers to deal exclusively with native producers, be beneficial to a country, the same system must, for the same reasons, be beneficial if applied to the various provinces of that countr). Let us take an instance. Wales at present buys her cotton goods from Lancashire, and her pottery from .Staffordshire. There are a few small cotton- mills and three or four manufacturers of coarse earthenware scattered here and there throughout the Principality, but these cannot develop themselves under the competition of English producers. Wales therefore demands " protection for her native industry," through the imposition of such protective duties on English cottons and pottery as shall keep them out of the Welsh market. Supposing the request granted, the Welsh cotton-mills and potteries at once receive great extension ; capital and labour are diverted to them from other industries, and the entire Cambrian community pays a heavy tax in the shape of high prices for bad goods, in order to support a it^v native manufacturers, and in order that capital and labour should be transferred from profitable to unprofitable employments. We will suppose, however, that this is a benefit to the Principality. If so — by parity of reasoning — why should not the native industry of Monmouth- shire be protected against the competition of the Carmar- thenshire producers ? And if we continue to carry out the principle to its logical results, we finally arrive at a state of i AND ENGLISH COMMERCE. 17 things which in primitive times did really exist — viz., that in which each family live on their own farm produce, and in clothes of their own spinning and making — a state of things in which there would be no imports, and which would afford complete protection against foreign competition. We have put the case of England and Wales, but the reasoning equally applies to the various parts of which all large states are constituted. If America or France deem it good policy to protect their population from foreign com- petition at the expense of their foreign trade, they must, as a logical sequence, deem it good policy for California to be protected from the competition of New England, or for Provence to be protected from that of Normandy. Why should not San Francisco and Marseilles be protected against the cotton goods of Lowell and Rouen, so as to foster and develop cotton manufactures of their own ? Why should the west of America be dependent on the east, or the south of France dependent on the north, for hardware or linen fabrics ? The fact of San Francisco and Lowell, or of Marseilles and Rouen, being under the same national government does not affect the question of free trade or protection in the slightest degree, for it is an economic not a political question. If a free interchange of commodities between two regions be an evil at all it must be an evil inherent to the system itself, and not convertible into a good, if the two regions happen to be under the same government. If it be to the advantage of a community to restrict its trade with the rest of the world by lessening its imports, it can make no difference as to the truth of that doctrine whether the community be large or small, or whether it be independent or politically connected with other communities. We shall have occasion in a subsequent chapter to advert again to this subject. B i8 FRSS TRADE CHAPTER V. RECIPROCITY. It has been proposed to enlarge our foreign trade by the following curious process. We are to compel foreign coun- tries to take more of our goods by threatening that, if they do not, we shall take less of theirs. We are to induce our neighbours to extend their foreign trade by proposing, as the alternative, that we shall diminish our own. This is called the reciprocity, but it ought to be called the re- taliatory, system. If the foreign country with which we are negotiating yield to our pressure, we increase our foreign trade ; if not, we diminish it. In the first case we increase -our exports and consequently our imports too. In the second case we diminish our imports and consequently our •exports too. It is to be left to the caprice, ignorance, or ill-will of a foreign nation to decide whether England is to lose a portion of her foreign trade or not. For it cannot be too often repeated that if we carry out our threat of import- ing less, it necessitates our exporting less to the same ex- tent. It is proposed that we should enter into a formal international engagement to lop off a portion of our foreign trade, and in various other ways to do ourselves a serious injury, unless other people agree to alter their fiscal policy. Supposing that other countries decline acceding to our minatory invitation that they should reduce their tariffs, and that we accordingly impose such an import duty on articles that they have been in the habit of sending us, as shall reduce our annual importations thereof by ;^io,ooo,ooo, what then ? No doubt they will not like it, but how shall we? A reduction of imports of ;^io,ooo,ooo means a cor- AND ESGUSH COMMERCR. «9 t by the :n coun- \i they uce our sing, as This is the re- we are foreign ncrease In the »tly our ice, or is to not be mport- ne ex- formal breign erious Dolicy. o our tariffs, ty on us, as 3,ooo, shall ft cor- responding reduction of exports to same amount, and is equivalent to a diminution of our foreign trade to the ex- tent of ;£2o,ooo,ooo per annum, to say nothing of the disastrous effects to every consumer in the country, of the rise that would ensue in the price of the articles which we ceased to import, and the numerous other evils which the change would entail. Are we prepared to enter into a compact that we will submit ourselves to all these calamities in the event of other countries declining to be coerced by us into free trade ? It is surely better to leave things as they are than to resort to measures that shall subject us to such an alternative. ^rr* lately, reciprocity possesses one great advantage — Viz , it IS impracticable. Among the articles which we re- ceive from abroad there is hardly one that reciprocity can lay hold of. Ninety-one per cent, of what we import consists of raw materials, to tax which is out of the question, and the nine per cent, of manufactured goods — which is all that the entire world supplies to us — afford far too feeble a lever- age to work with. This part of the subject has, however, been made so clear in various recent publications that we need not dwell on it. There is the greater incongruity about the reciprocity system from its being advocated by many who, in all other respects, profess free-trade principles. For there is a mani- fest inconsistency in asking our foreign friends to admit our goods and so far adopt our policy of free trade, under the alternative that, otherwise, we shall shut out theirs and so far adopt their policy of protection. Since free trade teaches us that it is unwise in foreign nations to exclude our com- modities from their ports, how can it be wise in us to carry out our threat and exclude their commodities from our ports ? It is tantamount to proclaiming to the foreigner, " Unless you will become free traders we will become pro- tectionists." We might just as fitly proclaim to the Turks, "Unless you become converted to the blessed truths of Christianity we will ourselves turn Mahometans." If free trade be a truth and a reliable principle it must remain an If 90 FREE TRADE immutable standard of right to t>'ose who understand and believe in it; and is not to be alternately professed and ignored in order to drive a bargain or gain an advantage. Those who entertain a firm conviction that free commercial intercourse is for the benefit of all men in all countries, will never consent to enter into conditional arrangements under which there may be a possibility of their having to act in opposition to that conviction. To adopt the reciprocity system would be the first step towards re-enacting the Corn Laws. I'l AND ENGLISH COMMERCE, ^ CHAPTER VI. DIVISION OF LABOUR. Among the many advantages conferred on mankind by free foreign trade — that is, by the unrestricted interchange of commodities between man and man throughout the globe — one of the most signal is that, in the highest degree and to its widest extent, it promotes division of labour. There is surely no need to expatiate on the important part which division of labour plays in multiplying and perfecting the products of human industry. Through its instrumentality the productive forces of the human race are employed in such a way as to lead to the most efficient and remunerative results. The larger the community or the aggregation of communities, the more effectually the division of labour can be carried out. In a country village, or in an incipient colony, a shop is a miscellaneous store, a dealer devotes his attention to a number of incongruous articles, and an artisan is a jack-of-all-trades. In a populous district labour is more divided, and to each individual is allotted some special work to do, which constant practice enables him to perform with greatly-increased efficiency. In large countries each province settles down more specially to certain forms of industry, according to a variety of influences, such as geo- graphical position, soil, climate, natural productions, here- ditary tendencies, or early education of the people, sometimes chance immigration, or other causes more or less accidental. By means of this division of labour each province produces more abundantly, more cheaply, and in greater perfection, the special articles to which it devotes itself, and all work harmoniously together for the common good. The benefits conferred by this division of labour would be lost if these 32 FREE TRADE III !i I il Mi ! I I provinces were to split among themselves, and each deter- mine on combining within itself all the various trades and industries which before formed the speciality, some of one province, some of another. All of them would be losers ; because, whereas before, in each of them capital and labour were concentrated on certain employments to which they were the most competent, they are now diverted from these and directed to a variety of others to which they are the least competent. If the pottery district in Staffordshire were to decide on diverting a portion of its cupital and of its skilled labour to the creation of woollen and linen manu- factures, in order to become independent of Leeds and Belfast, it is plain that the operation would be a losing one, chiefly because the immense advantages derived from division of labour and industrial organisation would be wantonly thrown away. So, in the world at large, had it not been for the per- nicious interference of governments with the natural course of things each country would have settled down more specially to certain forms of industry, and, were trade left free, would, through this natural division of labour, each produce cheaply and abundantly those special articles to which it had devoted its attention, and contribute, to the full extent of its productive power, to the wealth of the world. It would, moreover, follow that as each country would devote its energies to the production of those commodities which it was more specially fitted to raise, with a view of ex- changing the surplus, for such commodities as other nations were more specially fitted to produce, the amount of inter- national traffic would be enormous, and foreign trade would be developed to an extent at present undreamt of. It is in the performance of this function of interchanging the commodities of one country with those of another, that foreign trade is instrumental in promoting division of labour all the world over; and whatever tends to curtail the former must impair the latter. Now, protection, by checking imports checks exports, and in that proportion curtails foreign trade. It is, therefore, dear that the protective ASD ENGLISH COMMERCE. n system interferes detrimentally with the division of labour. Indeed, if that system were carried out to its full extent by not only isolating, as it now does, nation from nation, but also province from province, community from community, and family from family, division of labour would altogether cease to exist. Fortunately Nature herself interposes a limit to the isola- ting tendency of protection, by the diversity of the products yielded by different parts of the earth. The most thorough protectionist will admit that there are many foreign com- modities which each country must either import or entirely deprive itself of. The utmost he can accomplish is to abridge foreign trade, he cannot altogether annihilate it. Thus, under the operation of a natural law, no nation can, without an intolerable degree oi privation and suffering, be completely self-dependent, and man is, in order to inter- change some of the products of one zone with those of another, compelled, apparently against his will, to exercise, at all events to a certain extent, the humanising influence oC international commerce. inr 24 FREE TRADE I •! I CHAPTER VII. PROTECTION APPLIED TO YOUNG STATES. There are two classes, of states which, while admitting the theoretical truth of the free-trade system, claim exemption from its operation for contradictory reasons — young states because they are young, old states because they are old. The former say that were they old they would not dream of maintaining protection, but being young their case is exceptional. The latter say that, were they young they would not dream of hampering themselves with protection, which they now find so onerous, but being old their case is exceptional. Let us take the case of the young states first. Their plea assumes the following shape. They are supposed to say, " As a theory, free trade is, we admit, unassailable, but, exceptionally, and for a time, it does not apply to young nations or colonies, for they would never learn to manu- facture anything for themselves unless their early efforts were * protected ' from the sweeping rivalry of older and more expert producers. Give the native manufacturer a fair start by artificially fostering his infant labours, and when he has made some progress, and reached a certain amount of pro- ficiency, we will then strip him of protection, let him breathe the bracing air of open competition, and adopt free trade without reservation." This doctrine will not, however, stand the test of close examination. On the contrary, it can, we think, be shown that it is precisely to young countries, or newly-founded colonies, that the application of the protective principle is most pernicious and indefensible. These young communities are generally located in the midst of an inexhaustible area of fertile land which only AND ENGLISH COMMERCE, 25 waits the application of human industry to be converted into mines of wealth. There is a strong demand for labour, which accordingly receives a high rate of remuneration. But so favourable are the natural conditions, that high wages are perfectly compatible with the cheap production of articles which foreign countries readily take in any quantity, giving in exchange such other articles as the young country could not produce except at a much greater cost. Its commerce is thus carried on under the most favourable possible con- ditions, and the working power of the young nation is all directed into the most profitable channels. It is now pro- posed to alter this prosperous state of things. Some of the articles hitherto obtained from abroad in exchange for the staple commodities of the young country are, at any cost, to l3e raised or manufactured at home, and the export of the staple commodities lessened in proportion. The capital and labour which are now working with admirable results are to be abstracted from the production of commodities so cheap and good that foreign countries willingly buy them, and to be devoted to the production of commodities so dear and bad that in order to compel the native consumers to buy them, the importation of the same articles from abroad has to be prevented by prohibitory duties. And who is it that is benefited by this policy? No one, not even the workman or capitalist whose labour and money are engaged in the new manufacture ; they were fully and remuneratively employed before, and now competition keeps wages and profits down to the average level, while to enable them to get even that, the entire community has to be taxed. Certainly not the rest of the nation, for they have to sub- sidise the new industry to keep it going. It is much more to the purpose to inquire who it is that is injured by this policy. Everybody is. All the consumers of the "protected" fabric, who are mulcted in the difference between the low price at which they used to get a good article from the foreigner and the high price which they now have to pay for an inferior article to the native. All the producers and traders in the country, who suffer from i^ Hi- ,'; r r I •■■ '> ,4. pl a' 5 '111! 26 FJtEE TRADE the diminution that takes place in their foreign commerce in consequence of the reduced amount of the importations. And, finally, even the protected industries themselves; for, while the labour and capital employed in them obtain no more thari the average remuneration, they are subject to, one peculiar disadvantage : they exist on sufferance, and the system of protection by which they were brought into being, and under which alone they can live at all, is pre- carious, questionable, and liable to break down altogether at any moment that the nation may get tired of paying a yearly subscription for the purpose of artificially maintaining it. These industpes, the nurselings of well-meaning but short-sighted patriots, are for the most part sickly, nerveless, and etiolated ; and although reared into existence with the professed view that they shall some day stand the brunt of foreign competition, the day never arrives when they are equal to the stmggle, and protection has either to be con- tinued indefinitely, or its removal is their death-warrant. As these fragile protected industries increase in number and importance they at last become formidable obstacles to the full adoption of free trade. As to encouraging their growth with the idea that at some future period they will willingly encounter, or be found able successfully to with- stand, foreign competition, it is an error and a delusion of which most old countries furnish abundant illustrations. The time will come when those young countries which have acted in that vain hope, will bitterly repent having done so. They will have made sacrifices to create interests, the vitality of which is entirely dependent on the national bounty, and which will have either to be left to their fate, or will remain a perpetual drain on the resources of the country. Far better not to have called them into existence than to let them grow until the alternative faces you of either immola- ting them, or of unwillingly adhering to a commercial policy which you know to be injurious, and which you only adopted temporarily. The plausible cry under which this mischievous policy is usually inaugurated is, " Do not let us pay the foreigner for AND ENGLISH COMMERCE. J7 what we can produce ourselves ! " The answer is obvious, " You do not pay the foreigner for his goods in the sense you mean it, that is, in money. Imports are paid for by exports, not in bulHon." All commerce is barter. You simply exchange with the foreigner what you can produce better than he can, for what he can produce better than you can, and both parties are benefited. In prohibiting that exchange, you at the same time nullify both the sale of your own, and the purchase of the foreign commodity. In order yourselves to produce the foreign article, you have to pro- duce so much less of the native article which you would otherwise have given in exchange for it ; for the same capi- tal and labour cannot produce both, and by stopping the import of the former you stop the export of the latter. The phrase, " Do not let us pay the foreigner for what we can produce ourselves," correctly interpreted, means "Do not let us exchange our productions for those of the foreigner," or, in other words, " Do not let us have foreign trade." n ri'M ih |! ' i 38 FREE TRADE CHAPTER VIII. PROTECTION IN OLD STATES. The doctrine that we have just examined — as toyoung states being the only proper exceptions to the universal adoption of free trade — offers a curious contrast to another which asserts the precise contrary, viz., that it is the old states, and not the young ones, that are entitled to form the ex- ceptions in question. The plea may be condensed into the following shape : — " As a theory, free trade is, we admit, unassailable, but, exceptionally, it does not apply to old states, in which interests have grown up under the shelter of protection for such a length of time, and have attained such dimensions, that the change now to a free trade-policy would bring with it wide-spread ruin and desolation, and must therefore be avoided. Would that these interests had never been created and fostered by protective laws ! But, un- fortunately, here they are, and we shrink from the task of disturbing them. Of course, young states would not be so foolish as to encumber themselves with such burdens, but our forefathers were unacquainted with political economy, and hence the errors of which we are now feeling the effects." We may observe, in the first place, that as the truth of the free-trade theory is not controverted, and as the only question is whether the positive and permanent advantages which its adoption offers would compensate for the temporary disturbance which it would occasion to pro- tected i" .-rests of old standing, we need only address o e vf;; V TiC latter topic. i piT:>^. ar;3e the old Roman axiom, sa///spoJ>u/i\ suprgma /fc ■- • ft V, y that the good of the people ought to be the first and pur.imount consideration. That the interests of ASD ENGLISH COMMERCE. 29 certain limited classes should be consulted to the detriment of the country at large, that all should be injured in order that a few should be favoured, is a doctrine which has too often been acted upon, but has never been unblushingly proclaimed, and which in the present day will be denounced as utterly false and untenable. And yet that is, in plain words, the doctrine advocated in the foregoing plea. It implies opposition to all change and denial of all progress, merely because the change might be injurious to a few, though the progress would be beneficial to the many. It is, no doubt, to be regretted that the interests which stand in the way of the public good should ever, from a false policy, have been placed in that position, and we may sympathise with the individuals who may prove to be the innocent victims of an evil system, but that sympathy must not blind us to the fact that the community had for a long period been suffering from the existence of the abuse, nor still less induce us to stay the hand that is lifted to destroy it. The longer the evil has lasted, the more just and necessary it is to put a speedy end to it ; and since we know that the change is for the national good, our deSire to confer a permanent benefit on the community must overrule our regret at abolishing privileges by which a few gained and all the rest suffered. All improvements in the machinery by which our social requirements are supplied involve changes that are injurious to some class or other. Railways occasioned a vast dis- placement of the capital and labour employed in the pre- viously-existing modes of conveyance. The adaptation of electricity to lighting purposes would, if successful, occasion heavy losses and deal a severe blow to the innocent holders of shares in gas companies; and so on in hundreds of analogous instances which are of constant recurrence. Yet no one has ever seriously maintained that these improvements were to be " prohibited " in order to " protect " the interests which such improvements interfered with. Even a century ago, when the buckle-makers of Birmingham petitioned Par- liament to protect them, by prohibiting shoe-ties, their I If' n I- I;' i\ r* VA 30 FKES TRADS \f\ ii: 11 ill iil i.'f ill ii request was refused, although it was in perfect consonance with the protective principles that then prevailed. Under the Tudors and the Stuarts the protective system in England assumed the shape of patents and monopolies under the crown. By arbitrary edicts consumers were not left free to buy where they could buy the best and cheapest wares, but were compelled to deal for certain articles with certain " protected " parties only, who frequently were new and clumsy at their trade. This system became so costly and oppressive that the Commons frequently remonstrated with Elizabeth and James against it as an intolerable griev- ance. It was accordingly alternately remedied and renewed, until the sturdy Puritans came and put an end to it alto- gether. The people of Europe and America who at the present day suffer by the protected trades, as we, of old, suffered by patentees and monopolists, and who also are " not free to buy where they can buy the best and cheapest wares, but are compelled to deal for certain articles with certain ' protected ' parties only," have not yet thoroughly realised the situation, and suffer in silence. The fact is, that those who are pecuniarily interested in the maintenance of high duties and protective laws, are few in number but wealthy, energetic, clamorous, and united; while the people, whose individual loss is small, though the aggregate is large, are apathetic and frequently misinformed and misled. It is hardly therefore to be wondered at that the rulers of nations should, hitherto, have found it expedient to court the alliance of the former, instead of siding with the inert and indifferent mass of the public. But if statesmen are sincere in their recognition of the advantages derivable from the adoption of free trade, and only hesitate from the fear of injuring "old protected interests," let them bear in mind that this disturbance of interests is limited and temporary, since, as has been the case with all new movements, whether from scientific or political causes, the displaced capital and labour rapidly get re-distributed into other channels, while the improvement is universal, permanent, and expansive. Moreover, if it should AND ENGLISH COMMERCE. 3« sonance system lopolies ere not heapest JS with re new costly strated griev- newed, t alto- at the )f old, so are eapest 5 with )ughly act is, nance ;r but eople, large. It is rs of court inert be absolutely necessary, the disturbance which is so much dreaded can be mitigated by graduating the fiscal changes, and spreading them over a certain space of time. As a certain quantity of the previously-prohibited articles gradually obtained adnuttance from abroad into the country, its ex- ports would increase to the same extent, and to the pro- duction of this increased export, the capital and labour disengaged by importing what was before produced at home, would by degrees be applied. This process would go on until the protective duties were wholly removed, and very soon the " old interests," which were dependent for a precarious existence on a subvention from the rest of the community, would become " new interests," vigorous, self-supporting, and contributing to the wealth of the country instead of subtracting fyom it. 1^ u i'l 3 fJ' r the and icted e of the :: or get It is )uld i 3a FREE TRADE I ii i' i! ; CHAPTER IX. WHAT ENGLAND IS TO DO IF SHE BE THE ONLY NATION , THAT ADOPTS FREE TRADE. It has sometimes been asked, "Of what avail is the adoption of free trade to a country if every other country adheres to the protective system? What is a single free- trading nation like Great Britain to do when every other nation is tightening the bonds of restriction, and isolating itself as much as it can from the rest of the world ? What is to become of our foreign trade if all other countries resolve on having as few dealings as possible with each other and, as a necessary consequence, with us?" In the first place, let us observe that this question must proceed from a free trader, and must pre-suppose that the curtailment of foreign trade is an evil. For if it were not so, and if the querist deemed commercial isolation to be an advantage, what room has he for complaint if foreign nations, by carrying the protective system out in its integrity, should force upon us the blessings of isolation ? If it really be the final object of sound commercial policy that each country shall supply its own wants (far da si) and be independent of the outer world, then it must be absurd for us to hanker after foreign trade. Why should we repine at protection indirectly producing the same effects on us as on its own votaries? If those effects are beneficial to them they must be so to us. It is evident then that the querist is a free trader, only he is scared and shaken by the unanimity with which free trade has so far been scouted by foreign nations. True that all their scientific inquirers are in favour of it, but the " still, small voice " of science is drowned in the loud clamour of the interested. AND ENGLISH COMMERCE, 33 the people not understanding the question are silent, and the rulers side with the active and energetic. That protectionist doctrines and policy do prevail in almost all countries but England, and among the people as well as among the governing clas'^es, is very true and some- what strange. Not strange, perhaps, among the people, to whom the old cries, such as, " Ke6p the balance of trade in your favour" — "Sell much, buy little" — "Do not be dependent on foreigners " — and similar fallacies in the shape of aphorisms have been handed down traditionally as the condensed wisdom of their ancestors. But certainly strange among the governing classes, whose business and duty it is to study and make themselves masters of a subject of such vital importance to the people whose destinies they rule. On the question of the truth or falsity of free trade principles, depends the policy which involves the greater or lesser well-being of many millions of human beings. The statesman who, in his fiscal measures, acts on the protective principle without examining with the utmost care and conscientiousness whether it be a true and reliable one, or whether it be (as political economists assure us) a false and misleading one, is utterly unjustifiable. A grave re- sponsibility rests on him if he persists in ignoring or neglecting the warnings of scientific experts who have devoted years to the investigation of the subject, and stakes the welfare of a nation on a line of policy which they utterly condemn. It is a remarkable fact that among the eminent men who have made political economy their special study there is not one who does not uphold free trade and pronounce protec- tion to be a disastrous error. In the Index to the Catalogue of the London Library there is a list of seventy-seven authors who have written on that science. Most of their works are written in English and French, but several are in German, Italian, and Russian. Here, then, are seventy- seVen professional witnesses, men who have investigated the subject thoroughly, and whose opinion must, therefore, carry great weight What do they say ? By a majority of C '\ II if extending over a vast continent and occupying a space equal to one-fifteenth of tiie habitable part of the globe, and yet none of them have uttered a syllable of complaint in respect to the system of free trade which prevails among them, or asked for the enactment of defensive tariffs to protect them against each other. Yet, at the same time, the aggregate of these forty or fifty states fancy that they cannot get on without a defensive tariff to protect the entire body of them from other countries. If one-fifteenth of the world can prosper under internal free trade, why should not a third, or a half, or indeed the whole of the world? But let us glance at anotlier contingency. At present, the United States and the Dominion of Canada form two sepa- rate and distinct governments. Accordingly, each is hedged round by chamux de /rise of tariffs, and their commercial intercourse is checked and hampered by impost duties and restrictions having for avowed object the protection of their respective populations and the increase of their prosperity. According to the protectionist theory, each nation is bene- fited by these arrangements, and would be injured by their removal. Very good ; but let us suppose that political changes were to bring about the admission of Canada into the Union, and a fusion of the two dominions into one federal republic, what would happen with regard to the fiscal regulations which are now declared to be essential to the prosperity of both populations? Would they be per- severed in ? It is not likely ; it would be an unexampled anomaly that one part of a republic should be debarred from free commercial intercourse with the other parts. Con- sequently, the principle of free trade which now governs the commercial relations of the different states of the Union among themselves would be extended to Canada, and the results of unrestricted commercial intercourse between the two dominions, now so carefully guarded against, would have to be faced. It is pretty evident to us that those results would be found, not only not to justify protectionist apprehensions, but indicative of largely increased prosperity to all. AND ENGLISH COMMERCE. 45 CHAPTER XII. CONCLUDING REMARKS. Sometimes objections are made to free trade, not founded on any imperfection in the theory itself, but arising from altogether extrinsic considerations. But such objections are quite irrelevant. Each science has its own province of inquiry, and its conclusions are confined to the topics that form the special objects of its investigation. The purpose of political economy is to ascertain the laws under which human industry can produce the most ample results, and the " wealth of nations " be best developed. It is no im- pugnment of the truths which it propounds, to contend that there are considerations foreign to the science itself which render it inexpedient to act on its conclusions. In an sesthetical point of view, factories may be objects too hideous to be tolerated, and it may be better to leave a coal-mine unworked than to destroy the lovely trees which adorn its surface. In a political point of view, it may be better that each country should keep itself independent of foreign commerce, so as to be prepared, at any moment, without feeling its loss, to wage war with other nations. Or, in a theological point of view, it may be better for men not to devote too much attention to such subjects, as tending to seduce their minds into mammon-worship. But it is the business of the statesman, not of the political economist, to examine these allegations, and allow them practically such weight as they may deserve. The mission of political economy is confined to the elucidation of economic prin- ciples and their application to plutology or the science of wealth ; and it is no refutation of the truth of its conclusions that objections may be raised to their practical adoption, which arise out of a quite different order of considerations. r f ■ 1- . ■■ ■ I; \ I ■ ■ , t r \ If ■I- I' f ■' %'■[ i-' H'' - • M ill 46 FJtEE TRADE ! II 't IH We have confined ourselves, in these pages, to some of the most salient points connected with the antagonism be- tween free trade and protection. There are, however, a variety of subsidiary and collateral topics that might furnish ample matter for contrasting the two principles. To quote only a few instances, we might enlarge on the tendency of hostile tariffs to awaken and maintain feelings of irritation between one country and another, and on the contrary ten- dency of large international dealings, through free trade, to bind nations together by a strong community of interests, and thus to check and discourage war. We might advert to the beneficial operation of free trade in partially obviating *' gluts," that is, the over-production of some articles as compared with others, and in rendering the commercial world far more sensitive than it now is to variations in supply and demand, so that incipient lluctuations would be quickly checked, and would never reach the extreme range which they now attain. We might point out that free trade would tend to equalise prices throughout the world, and would pave the way to many important improve- ments, such as the general unification of weights, measures, and coins; perhaps even to the assimilation and codification of the laws which now in each country variously affect commerce. But we must refrain from dwelling on these matters, for this does not pretend to be an exhaustive treatise on free trade ; it is simply a rough sketch of its principal features as they practically affect the commerce of the world. We shall now proceed to examine the relation in which free trade stands to the commerce of the United Kingdom, and see how far the present depression of trade may or may not be connected with its adoption here about thirty years ago. AND ENGLISH COMMERCE, 47 PART II.—ENGLISH COMMERCE. CHAPTER XIII. POPULATION, DEBTS, AND TRADE OF THE WORLD. That there exists a great and general depression in trade throughout the United Kingdom is so notorious and recog- nised a fact, that it is needless to do more than to assert it. This depression has been growing in intensity since the year 1874, when it only just began to be perceptible; and the hopes that have from time to time been entertained that it had reached its maximum, and that a reaction was at hand, have hitherto been disappointed. What are the causes that have led to this untoward state of things ? Are those causes of a permanent, or only of a transitory, nature ? If the former, are they remediable by a change in our commercial policy ? If the latter, when may we look for their ceasing to operate, and can any measures be devised to accelerate that result ? These are the inquiries to which we purpose to turn our attention, and in order to give shape and method to our investigation, we shall examine and analyse the following propositions, which are all intimately connected with the subject in hand : — 1. The amount of our foreign trade (combined imports and e?cports) has been diminishing since 1874. 2. Since i874thepriceof almost every commodity, British and foreign, has been gradually tailing — in many cases, con- siderably, but, more or less, in nearly all. 3. Since then, there has been greater competition than before in neutral markets, between the English and foreign producer. w 48 FJIEE TRADE 4. The wages of labour have been forced down by the decline in the price of goods. 5. Since 1874, there have been heavy failures among merchants, manufacturers, and banking establishments. 6. Since then, the excess in the amount of our imports over that of our exports has exhibited a marked and unpre- cedented increase. 7. The inactivity of trade and the decline in prices have during the last few years been more or less general through- out the civilised world. 8. The peace of Europe has been much disturbed the last few years by actual war and by rumours of war. 9. Since 1874, there have been some additional large national defaulters in the payment of interest on the loans made to them. 10. Since then, we have made fewer foreign loans, and embarked in fewer foreign enterprises than before. 11. There is, and there has been of late years, a larger amount in the country than usual of surplus unemployed capital. Before we enter on the consideration of these various topics, we must put forward an important statistical docu- ment which we have been at some pains to draw up as accurately as possible. It exhibits at a glance a compara- tive view of the population, of the indebtedness, and of the foreign trade of every country that can make any pretension to be called civilised. By a reference to it, it will be seen that, I St. it records the financial and commercial position of fifty-six states whose united population amounts to nearly 1,200,000,000 — that is, within about 200,000,000 of the computed population of the entire globe.* 2nd. The amount owing collectively by the specified fifty- six govern- ♦ From the reports of the latest African travellers, we are led to think that the population of Central Africa has hitherto been under- rated, and we are inclined to estimate the number of the uncivilised nations of the earth (those not enumerated in our table) at nearly 400,000,000 ; which would make the total population of the earth about i,Coo,'>oo,ocx). AND ENGL IS If COMMERCE. 49 ments to a number of individuals residing in all parts of the world, for loans made to them, is ;£"4, 8 18,000,000, and on that sum the lenders are entitled to yearly interest according to certain stipulated rates. Seventeen states, however, have ceased paying interest on their debts, amounting to ;;^9 2 9,000,000. On the remaining amount, viz., ;^3, 889,000,000, interest is being paid, and of this interest, we are led, by what research we have been able to make, to estimate the average rate to be 4j- per cent. Assuming this to be correct, the holders of these various government stocks are in the annual receipt of ;^i 65,000,000 from the aggregate of the indebted countries. It may be remarked that these loans were contracted for at somewhat less than the nominal capital, not all of which therefore passed into the borrowers' hands, but they, nevertheless, engaged to repay the nominal capital in full, and meanwhile to pay interest thereon. In the customs' returns of a country's imports, the amount is always in excess of what has actually to be paid to the foreigner; for the valuation taken of them includes freiglit, insurance, and other expenses, whereas the foreign sender has only to receive the net amount after deduction of those charges. To him the importer has only the cost of the goods to pay ; he has to pay the freight to quite a different person, viz., to the ship-owner. What percentage must, on the average, be deducted from the customs' valuation of imports in order to arrive at the correct sum which accrues to the foreign sender is a question of some difficulty. On cheap and bulky articles the percentage of freight is large, as is also the insurance when the voyages are long. On the other hand it is the reverse on compact articles of value and on short voyages. Taking everything into consideration, we have come to the conclusion that we shall be near the mark in estimating the average of freight, insurance, and other minor charges at 1 1 per cent, on the customs' valua- tion of imports. Accordingly, if we take 1 1 per cent, off the ^1,456,000,000 which we find imported from all countries during the one year given, it reduces the amount to D so FREE TRADE ;^i, 2 96,000,000, which is within a mere trifle of the ;^i,3 16,000,000 exported, in totality, by the same countries during the same year. Tabular View of the 'Population, Indebtedness, AND Foreign Trade of all the (more or less) Civilised Countries of the Earth. N.B. — I. In the figures given 00,000's are omitted : that is, our figures represent millions and tenths of millions. Thus, 5.9 stands for 5,900,000 ; £16. for ;^i6,ooo,ooo, and so on. 2. The population, debt, and annual trade given are those of the latest year of which we could obtain a record. 3. The annual foreign trade given is the aggregate of both imports and exports. 4. The National Debts include both the home and the foreign, but not the floating debts. States. Popula- tion. National Debt. Annual Foreign Divided into Trade. Imports. ' £' " Exports. £ £ £ Algeria 2.9 • •• 16. 9. 7. Argentine Confedera- tion & Buenos Ayres 1.8 21. 17. 7. ID. Austria and Hungary 37- 343. 103. 52. 51. Belgium 5- 47. 185. 98. 87. Bolivia 2. 3.3 2. I. I. Brazil 10. 74. 32.5 15.5 17. Canada 3.7 30. 35- 20. 15. Cape Colony 1.4 6. 9. 5. 4. Ceylon 2.4 .8 ID. I 5.6 4.5 ^-^niii ••• ••, ••, 2. 12.7 13- 7. 6. 1 China 425. 2. 45. 21. 24. Colombia 3. 14.7 3-3 1-3 2. Costa Rica .2 3-4 i-S .6 •9 Denmark 2. 10. 23- n- TO. Ecuador I. 3.3 .7 .3 .4 Egypt 17. 87. 16. 4- 12. France 37- 750. 367. 174. 193. Germany 43- 190. 324. 196. 128. Greece i.S 15. 8. 5. 3. nsi AND ENGLISH COMMERLE. SI Sutes. Popula- iinn National Debt Annual Foreign Divjd< :d into ■~— ftiUlI* X^CL/Lf Trade. Imports. Exports. L £, £ £, Guatemala 1.2 .9 1.2 .6 .6 Haiti .6 3 2-5 1.2 1-3 Honduras .3 6 .4 .2 .2 India . 240, 127 114. 49. 65. Italy . 27. 4CX) 85. 45- 40. Japan Zl- 3 5 10.3 4.8 55 Java 18. .. 17. 7. 10. Mexico 9-3 79 10.7 5-7 5- Morocco 6. , , 2.6 1-5 I.I Natal •3 3 1.9 I. .9 Netherlands 3-9 80 104. 59- 45. New South Wales .. .6 12 5 27.6 14.6 13. New Zealand •4 20 7 133 7. 6.3 Nicaragua .4 2, .3 .2 .1 Paraguay .2 3 .2 .1 .1 Persia 5-S , , 3-9 2.4 1. 5 Peru 3-2 49 12. 4- 8. Portugal 4- 85 14. 8. 6. Queensland .2 6. 5 6.8 3-2 3.6 Roumania ... • o5-3 21 9.4 4.1 5.3 Russia 86. 350 109. 59. 50- San Salvador •4 9 I.I • 5 .6 Servia 1.7 , , 2.9 1.3 1.6 Siam ... 9. • • 2.8 I. 1.8 South Australia .2 4 3 8.9 4- 4.9 Spain 17. 460 31- 15- 16. Sweden and Norway 6. 14 46. 27. 19. Switzerland 2. I 3 6. 3-5 2.5 Tasmania .3 I. 5 2.7 1-3 1.4 Tunis 2.7 5- I.I •4 .7 Turkey 21. 1 194 32. 14- 18. United Kingdom 34- 778. 611. 366. 245- United States 47- 460. 226. ^7-o 139- Uruguay .5 12 I 5.8 2.8 3- Venezuela ... i.S 8 6.2 3- 3-2 Victoria .8 17 31- 16. 15- Western Australia .. Total .1 2 .7 ■7 1,456. .4 .1,189.9 4,818. 9 2,772.4 1,316.4 %■■ 1; ■. r t ii 52 FREE TRADE i ti 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 mil- lions of j£ sterling. Total trade in 1867 1868 1869 1870 1871 1872 "873 1874 1875 1876 1877 1878 523-, 532., 547-. 615., 669., 682., an increase of 4 per cent, compared ,, ,, 2 per cent. ,, ,, 3 per cent. ,, 12^ per cent. — ^., „ „ 9 per cent. 682., ,, ,, 2 per cent. 668. , a decrease of 2 per cent. 656., ,, ,, 2 per cent. 632., ,, ,, 3^ per cent. 646. , an increase of 2 per cent. 611., a decrease of 5 J per cent. if ft tf >» with 1867 1868 1869 1870 1871 1872 1873 1874 1875 1876 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 : — AND ENGLISH COMMERCE. S3 Importation during the three years, of gold ;^S9,ooo,ooo Exportation „ „ „ 51,500,000 Excess ;^7f5cx),ooo Importation during the three years, of silver ;^46,8oo,ooo Exportation „ ,, ,, 44,100,000 Excess ;^2, 700,000 ' So that the operations of the country in bullion and specie during the last three years resulted in an excess of impor- tation amounting to about ;^* 10,000,000, or a little more than ;^3,ooo,ooo a year. It may, by-the-by, be as well to note that, during those same three years, the aggregate ex- cess of our imports over our exports amounted to upwards of ;^2 00,000, 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 else- where. It appears, then, that in the years 187 1 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 12 J 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 ta 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 pro- portionate increase in the quantities exported and imported. Mines, collieries, factories, &c., when in ordinary fair work, as they were when this exceptional activity sprung up, could not be made suddenly to increase their productiveness be- yond a certain ratio. The enhanced amount of our trading operations was to no small extent due to the great and rapid i M :i ' 54 FXEE TRADE I if. 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 pro- ductions was, during the height of the inflation, far in ad- vance of the supply, and the advanced prices 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 extrava- gance 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 couleiu- de rose^ even to the budgets of the Chancellor of the Ex- chequer. 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 circumstances, living I proved iddenly income cut down again to its old limit, and has to go AND ENGLISH COMMERCE. 55 through various unpleasant processes of retrenchment and self-denial. If, instead of the " leaps and bounds " which our foreign trade made in 187 1 and 1872 (as shown by the tables at p. 52), 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,ooo,ooo, it would by this time have arrived at a higher figure than it actually has ^.ttained, notwithstanding the jumps of 12 J per cent, and 9 per cenl. in 187 1 and 1872. For instance, adding the supposed gradual increase of 2 per cent, per annum, our foreign trade would have reached ;i^558,ooo,ooo in 1871, instead of the actual sum of ;^6i5,ooo,cxx> ., 669,cxx),ooo ,, 682,000,000 ,, 668,000,000 ,, 656,000,000 ,, 632,000,000 ,, 646,000,000 ,, 611,000,000 As, therefore, the causes that led to the inflation of our trade in 187 1 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 pr..^sent 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, 187 1, 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 pro- moters of foreign undertakings of all sorts, such as railways, telegraphs, gas-works, water-works, &c., appeared as suc- cessful 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 569,000,000 in 1872 581,000,000 in 1873 593.000,000 in 1874 605,000,000 in 1875 617,000,000 in 1876 629,000,000 in 1877 641,000,000 in 1878 1 im: I li 11 56 FREE TRADE 1 very large proportion of the colossal sun that was raised. It is very difficult to ascertain with any degree of precision the total amount that England had to remit abroad in con- sequence of making these loans, for they were contracted for at various rates of deduction from the nominal capital — some were payable in instalments, 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 fulfihuent of these engagements at ;^45o,ooo,ooo ; forming an average of ;^i 10,000,000 per annum. How was the transfer of this enormous amount accom- plished ? Assuredly not by shipments hence of bullion and specie. We have already seen that no large movements ot money from one country to another are ever effected by corresponding displacements of the precious metals. A comparative slight encroachment on the circulation require- ments of the exporting country so violently disturbs the exchanges that 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 : — Year, 1870 1871 1872 1873 GOLD AND SILVER. Imports. • /^29,400,CXXD 38,100,000 29,600,000 33,600,000 ;^I30, 700,000 Exports. ;^ 1 8,900,000 33,700,000 30,300,000 28,900,000 ;^I 1 1,800,000 ^ 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. AND ENGLISH COMMERCE. 57 ^ 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. 49) that after deducting the dividends that should be, but are not, paid by the insolvent States, the yearly sum of ;^i 65,000,000 is still actually divided among the holders of national stock throughout the world. To tliese dividends on national loans must be added the dividends payable on a multipli- city of foreign, municipal, joint-stock, and other public invest- ments which will swell the total sum distributed annually among private investors to upwards of ;^20o,ooo,ooo. 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 that is the most profusely invested abroad, and that 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 Eng- land for interest and dividends on foreign investments was at least ;^3 0,000,000, and that by 1874 this amount was increased, by the large fresh advances made meanwhile, to ;^5o,ooo,ooo, which gives an average of ;^40,ooo,ooo for the intervening period. This sum would naturally form a part of the ;^i 10,000,000 remitted to the borrowers i .■ ;..» ^ I ; 1 1 li S8 FREE TRADE Mr I.'.i, 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 re- gards proof positive, we have merely to refer to the unerring 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 ;!^7 0,000,000 which remained to be provided for out of the ;£i 10,000,000. The following are the exact figures : — Total exports (in millions of £) from the United Kingdom for the years 1867 1868 1869 1870 £226. 228. 237. 245. 1871 ;^284. 1S72 314. 1873 3". 1874 298. ;^936. ;^I,207. Annual average, £2^^. Annual average, ;^302. exhibiting an excess of ;£68,ooo,ooo 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 AND ENGLISH COMMERCE. 59 annual exports (in millions) of the four years which followed the cycle of 1871-1874, viz : — 1875 1876 1877 1878 ;C28i. ; 257. 252. 245. Annual average, jC2^g. It is evident, therefore, that, as soon as the " abnormal stimulus to exportation " was withdrawn by the cessation of England's mania for making foreign loans, the amount of our exports rapidly diminished, and they have continued gradually receding until at the present time they have fallen to the exact point in 1870 (;£'245, 000,000 per annum) from which they darted forward so briskly in 187 1. 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 divi- dends. 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. 6o FREE TRADE CHAPTER XV. FALL IN PRICES SINCE 1874. We have already adverted to the fact that the great increase in the amount of our exports in 1872 and 1873 was more the result of advanced prices than of augmented production. Similarly the decrease in the amount of our exports since then has been far more the result of diminished prices than of diminished supply. We will endeavour to verify and as nearly as possible measure this decline in values. We append a table of the comparative quantities and values of the leading articles of export for the years 1872 and 1878 respectively, these years being the highest and lowest points of our exportation since 1868. It will show, among other interesting inferences, that the amount exported in 1878 represents nearly as many tons, yards, &c., of goods, as the larger amount exported in 1872. TABLE. In Millions and Tenths of Millions ; that is, 00,000's omitted. Articles Exported. Quantities IN 1872. QlJANTITIHS IN 1878. Amounts IN 1872. Amounts IN 1878. Alkali cwts. Bags and Sacks doz. Coal, Coke, &c tons Cotton Yarn lbs. Cotton Goods yds. Iron and Steel tons Linen Goods yds. Linen Yam lbs. "Woollen Yarn lbs. Worsted Stuffs yds. 4.5 3-7 13.2 212.3 3.538. 3.4 245. 31.2 39.7 345. 5.6 5.2 15-5 250-5 3,618. 1 2.3 161. 18.S 31.2 192.6 £ 1.6 10.4 16.7 63-s 8.2 2.1 6.1 20.9 £ 2. 1.6 7.3 13. 48. 18.4 4-9 1.2 3-9 7.4 4,436. 4,300-5 168. 107.7 i AND ENGLISH COMMERCE. 6i It appears from the above, supposing that the important articles named afford a fairly approximative index to the rest, that if the quantities exported in 1878 had been at the same prices as ruled in 1872, the amount thereof would have been ;£"! 62,900,000 instead of the actual amount, ;^i 07, 700,000; consequently the general fall of prices must have been in that proportion, viz., 34 per cent. ; of course, the decline was lighter in some articles, and heavier in others, but that must have been the average percentage. On the other hand, the prices we paid in 1878 for our imports was also much reduced, though not in the same proportion, because in them the previous rise had not been great. By a table, which will be found in next page, of the comparative quantities and values of the leading articles of import for the years 1872 and 1878 respectively, it will be seen that the average decline since the former year in the prices of those articles is about 22 per cent. For, taking the leading articles selected as a criterion for the rest, if the quantities imported in 1878 had been worth the same prices as those which ruled in 1872, the amount thereof would have been ^^285,500,000, instead of the ;^2 2 2, 200,000 that they actually did amount to. Consequently the general fall of prices must have been in that proportion, viz., 22 per cent. That this fall in values is chiefly due to reaction from their sudden inflation in 187 1-2-3 i^ beyond all question, but it must be observed that the fall has been hastened and probably intensified by another cause that is working slowly and silently, but efl(iciently and continuously. We allude to the diminished, and still diminishing, production of gold, in the face of the yearly extension of its use for currency purposes. Not only are the auriferous districts of California and Australia yielding smaller quantities than formerly, but, at the same time, gold has been rapidly replacing silver as the chief circulating medium of France, Germany, and Holland; and as the bi-metallic system loses ground, the currency of Europe will consist more and more of gold, and will absorb it in greater quantities. Tending in the same V ig 69 FREE TRADE if ?i TABLE. IN MILLIONS AND TENTHS OF MILLIONS ; THAT IS, 00,OOo's OMITTED. Articles Imported. Quantities IN 187a. Quantities IN 1878. Amounts IN 187a. Amounts IN 1878. Bacon cvvts. Butter „ Cheese ,, Coffee ,, Corn : Wheat ,, Flour ,, Maize, Barley, &c. " Cotton (Raw) ,, Flax Hides Jute „ Linseed 1.8 I.I I.I i-S 42. 4.4 55-3 12.6 2. 1.4 4. 6.9 7.2 46. 5 19.9 4-9 302.9 II. 7 3-5 1.8 2. 1.3 49.8 7.8 71.6 12. 1.6 1.2 4.2 1.9 6.1 4.2 18.2 205. 5 91.4 16.5 5.3 395-5 11.3 6. 3- 5.2 26. 4.1 20.7 53.6 5- 4.9 4. 4-5 3.5 7.7 21. 1 12.8 2.6 7.7 12.7 18. 1 1.4 £ 6.7 9.9 V 27.4 6.8 24.1 33-5 3-S 3.5 3.2 4.9 3-2 3.7 20.8 131 r 22.8 1.4 Rice ,, Silk (Raw) lbs. Sugar cwts. Tea lbs. Tobacco , Wine galls. Wood & Timber . . .loads Wool lbs. Woollen Yarn ,, 730.2 912.7 228.4 222.2 direction is the fact that the greater the production, the commerce, and the wealth of the world, the larger become its circulation requirements. As the objects constituting material wealth multiply, so either the number of golden counters by which they have to be represented must be multiplied in the same proportion, or else, each counter will have to represent more of such objects than before, that is to say, prices will have to fall. 1 AND ENGLL'Uf COMMERCE. 63 , For a time, the increasing demand for gold was amply met by copious supplies from California and Australia. Indeed at one period it was thought that there would be a great excess of supply, and speculations were rife as to the extent to which prices might be expected to rise in con- sequence. But, for S9me years past, the yield of the gold- fields has fallen off, and has not kept pace with the increased demand for gold. If this disi)arity should continue, and a fortiori^ if it should become greater, there must necessarily ensue a corresponding fall in the money-c([uivalent, or price, of all commodities. Were it not for two incidental cir- cumstances, this general fall of prices would be of little importance, as commodities would still retain the same relative, or exchangeable value, and the wealth of the world would remain unaltered. But these two circumstances, which are as follows, introduce some rather complex elements into the subject. I. The recipients of fixed incomes, such as interest on loan investments, &c., will have to receive the same nominal sum, whatever rise may take place in the value of money, and, in proportion to such rise, will they be receiving more than the real amount contemplated when those liabilities to them were originally contracted. Such variations are of small consequence as long as they keep within a limited range. There have constantly been some fluctuations in the value of money, but these have never gone beyond certain bounds, and the oscillations have sometimes moved in one direction, sometimes in the other. But should the supply of gold persistently continue inadequate to the deniaiifl (and it must be remembered that, besides what is , cd in the arts, the actual wear and tear, by abrasion, &c., and loss by shipwreck, hoarding, ticC, amount to many »''!ions per annum), the aggregate deficiency year after year must be productive of serious changes in the relations between the payers and the receivers of fixed annual sums ; between the governments throughout the world and their creditors, ti.c holders of stock. If the time should come when gold shall have so increased in yalue as to acquire I 64 FREE TRADE m -.1 I •■I 11 ■ $ twice the purchasing power which it now possesses, England, for instance, will find herself in a, very peculiar position. The yearly interest of her own debt, if then nominally the same, will in reality be twice as costly and onerous as it now is ; while, on the other hand, the ;^5 0,000,000, or there- abouts, which the British public now receive yearly from abroad for interest, &c., on foreign investments will, if then paid, be equivalent to ;^i 00,000,000 of money at its present value ; or. as the sum would be received in imports at half the present range of prices, foreign nations will have to send to England twice the quantity of commodities which they now send, in payment of the same nominal sum. 2. A tendency to lower prices is generally adverse to the revival of trade. Capital and credit, the two wheels on which commerce revolves, and without which it drags, keep aloof from falling markets, and distrust the security of property that is declining in money value. It is when prices are rising that capital and credit freely come forward and accelerate the rise. They like to connect themseVes with prosperity, and it is their recklessness in assisting it that often pushes it beyond the mark; just as, when the reaction comes, the wild rush of alarm with which they tear them- selves away aggravates the panic from which they seek to fly. It is best for the interests of trade that prices should remain as steady as possible, or, at all events, should be free from other fluctuations than those to which it is inherently liable. But unless the increasing circulation requirements be met by an increasing supply of the medium of circulation, the divergence will materially affect the stability of prices, independently of all other causes. The disturbing influence which a very deficient gold supply would exercise may, let us hope, be av^erted by increased production, and even if not, it is only by degrees, and in the course of years, that its effects would be felt to any severe extent. We thought it right, however, when treating of the fall of prices, to advert to a cause which although only a subordinate one for the present, is likely, as time advances, to become more and more powerful. i! » AND ENGLISH COMMERCE. 65 CHAPTER XVI. COMPETITION IN NEUTRAL MARKETS. In 1872 our exports amounted to ;^3 14,000,000. In 1877 they had sunk to ;^2 5 2,000,000. To what extent was that decline in our exports due to the successful competition in neutral markets of our foreign rivals ? An interesting and important question, which the detailed information afforded us by the Board of Trade returns will enable us to solve without difficulty. On examination, we find that the deficiency of ;^62,ooo,ooo in the exports of 1877 as com- pared with those of 1872, is entirely made up of the decline of our exports to six only out of the 56 countries enu- merated in table at p. 50, with which we trade. Here are the figures, the accuracy of which are beyond alL dispute. )n, I by to len lich as Exports in Millions and Tenths of Millions (00,000'S OMIlTEl)). 1 In 1872. i In 1877. Deficiency. £ £ c To Russia 9-S 6.2 Zl To Germany 43.1 28.9 14.2 To Holland 243 16. 8-3 To the United States 45-9 19.9 26. To Egypt 7-3 2.3 5. To South American Republics, viz., Columbia, Uruguay, Peru 8.4 3.4 5. 138.5 76.7 ! 61.8 66 FREE TRADE \f'i. - ! S i ii Our total Exports in 1872 were/"3i4,» if I) *> >» From the above it will be seen : — 1. That average prices rose to a higher point in 1865 than in 1872. This was chiefly owing to the enhanced value of cotton goods in 1865, arising from the scarcity and dearness of the raw material in America. 2. That prices in 1878 sank to a lower point than in any other of the years given, and are 8 per cent, below the average of those of 1 86 1, which was a year of great com- mercial embarrassment and stagnation. * Thus, supposing the average prices of 1861 to be represented by the figure 1,000, the higher or lower figures appended to the other years indicate the relative rise or fall in the average prices of those years as compared with 1861. Hence 1865 shows the highest and 1878 the lowest prices of the series. I86I 1,000. M 1865 1.593- „ 1867 1.305- „ 1870 1,283. ,* 1872 1,396. 1876 1,023. 1878 923.* I, 76 FREE TRADE i^ The latter is a fact of peculiar significance, and we shall shortly advert to it more fully. But it is necessary, in order to take an accurate survey of the course which the average prices of all commodities have taken for some years past, to turn to our imports, and examine into the fluctuations of price that have taken place in that branch of our trade. On the plan of the table given at page 62 of the com- parative quantities and values of certain articles of import, I have constructed a series of others by which I have arrived at a number which represents the comparative average price of all the articles of import comprised in that table for each year. The articles which I have selected as bases of calculation are 21 in number, out of about 100 which appear in the Board of Trade list, but they are by far the largest and most important, for they constitute nearly two-thirds of the entire amount of the imports, leaving only one-third to be represented by the remaining 79 articles. These, it may be assumed, fluctuate in nearly the same lines as the larger items, and if there are any small devia- tions in one direction or the other, they are pretty sure, in obedience to the law of averages, to neutralise each other. The following are the results which these investigations have yielded. Given that the average prices of our imports for the year 1861 shall be represented by the figure 1,000, then The average price of imports for 1861 is indicated by 1,000 1867 „ 935 1870 „ 887 1872 ,, 871 1876 „ 745 1878 ,, 678 From these remarkable deductions let us draw a few inferences : — I. While our exports have generally ruled at higher (sometimes much higher) prices than those of the year 1 86 1, the prices of our imports have since that year been continuously declining. AND ENGLISH COMMERCE, 77 2. While the articles we sell now (end of 1878) command within 8 per cent, of the prices of i86r, the articles we buy are 32 per cent, cheaper than they were at that period. 3. The articles of which the prices remain nearly the same as in 1861 (those we export) consist in great measure of manufactures. The articles of which the prices have fallen largely since 1861 (those we import) consist almost exclusively of raw materials and agricultural produce. 4. For the same quantity of our exported goods for which we got ;^i,ooo in 1861, we got ;^i,396 in 1872. For the same quantity of imported goods for which we paid ;^i,ooo in 1861, we only paid £,^']\ in 1872. Thus the brisk trade of the latter year did not raise the prices of foreign commodities, but only, for a time, checked the rapidity of their fall. 5. The prices of our export goods which had in 1872 advanced 39 1 per cent, from those of 1861, fell in 1878 to 7§ per cent, below those of 1861. This is a fall of 47^ per cent., taking i86r as the standard, and is equivalent to a fall of 34 per cent, on the increased prices of 1872. On the other hand, the prices of our foreign importations, which in 1872 had fallen 13 per cent, below those of 1861, fell in 1878 to 32 per cent, below them, which is equivalent to a fall of 22 per cent, on the diminished prices of 1872. In other words, the fall on our goods of 34 per cent, between 1872 and 1878 was upon a great rise; that on foreign goods of 22 per cent, during the same period was upon prices already reduced. 6. The alteration that has steadily been going on in the relative, or exchangeable, values of the two great classes of commodities, viz., the agricultural and the manufactured, is very suggestive, and leads to some interesting considera- tions, for which, however, we cannot find place here. It is easy enough to trace the course which the price of each separate article takes from year to year be- cause you have to deal with single factors ; but the result is of no use in an inquiry as to the march of prices I I i 78 FJiEE TRADE generally. The difficulty is to trace the course from year to year of the total average price of all commodities. Not only is their variety immense, but their relative quantities must also entci into the calculation. In the table which follows we have averaged the price-exponents of our exports and of our imports, making due allowance for the relative quantities of each. It will therefore show the relative average prices of one year to another of the entire volume of commodities that constitute the import and export trade of the United Kingdom, assuming that the leading articles (in value and bulk) fairly represent the rest. Indeed, as our trade embraces nearly every article of any importance which the world produces, and as the variations in price that occur in our markets are rapidly responded to in every part of the globe, our table may be said, in a rough way, to represent the relative average prices of all the world's commodities. Given that the average prices of all the articles both of export and import for the year 1861 shall be represented by the figure 1,000, then The average price of all articles for 1861 is indicated by 1,000. 1867 ,, 1,102. 1870 ,, 1,064. 1872 ,, 1,118. 1876 „ 858. 1878 776. We arrive, then, at the conclusion that since 1861 the average price of commodities, after rising for some years, has again fallen, and is now 22^^ per cent, below the average of that year, and ,3oJ per cent, below the high figure which it liad reached in .872. If a reaction from the high prices of 1872-1873 had been the sole origin of the existing depression of trade, we must by this time have more than reached the turning-point, for prices have receded much beyond the level from which they started. But another cause is at work. We have already adverted to the influence exercised over prices by the decreased production of gold, and the increased volume of ' i:* AND ENGLISH COMMERCE. 79 commodities which gold has to represent. The combined operation of these two agencies, while it has no effect on exchangeable value, has i)roduced, is producing, and will continue to produce, a reduction more or less rapid in the money value of commodities. The strain on gold is the heavier on account of the demonetisation of silver in some countries, so that gold has to do additional work. But this is far tjo large a subject to be treated in a cursory manner, and is fully entitled to a separate and careful inquiry. At all events, we have seen that, from whatever combina- tion of causes, prices have descended to a lower level than mere reaction warranted, and that the fall since 1861 has been considerably greater on foreign goods than on those of our own production. 8o FREE TRADE m m m i! i CHAPTER XIX. THE INCREASED EXCESS IN THE AMOUNT OF OUR IMPORTS OVER THAT OF OUR EXPORTS. That we import foreign goods to an amount largely in excess of that of our exports, and that this excess has, of late years, been far greater than it ever was before, are notorious facts which have attracted general attention. The prevailing notion among a large portion of the community is, that this state of things is an evil, and many persons consider that it betokens the decline of our trade and the diminution of our wealth. " Foreign countries," say they, "resort to every device to curtail and pare down their purchases from us, while we go on purchasing enormously and increasingly from them. It is not our goods but our money that the foreigner wants in exchange for his goods ; and the increasing excess of our purchases over our sales is the measure of our decadence." That this view of the matter is utterly erroneous, and that it is only a reproduction of the old exploded fallacies about the " balance of trade,'^ is susceptible of easy proof. As the shortest way, we pro- pose to establish the following propositions, which lead to precisely opposite conclusions : — 1. This excess of imports does not cause our money to flow out of the country. 2. It is ♦^he sign, not of our decay, but of our wealth. 3. All prosperous nations import more than they export, and 7nce versdy an excess of exports nearly always indicates an indebted or a declining countr3^ Before gohig further into the matter, let us see what have been the actual relative values of our exports and imports for a series of years past. It will be found that they are considerably less divergent from each other than would m AND ENGLISH COMMERCE. 8i to to appear from a prima facie view of tlie annual returns of the Board of Trade. As for the imports, we must, for the reasons given at page 49, deduct 11 per cent, from the official returns, in order to arrive at the actual amount which the foreign seller has to receive from us in payment of his goods.* As for the exports, the official returns do not, as they do in the case of the imports, include the freight, insurantXN v^c. But two-thirds of the goods we export are, iind haw been for many years, conveyed to their destination in British ships. The total tonnage that in 1878 cleared %ith cargoes fiom British ports to foreign countries was 17,544,000 tons. Of this tonnage the proportion of British was 12.050,000 tons, of ("oreign of all nations 5,494,000. In at h '\ i ^ 1 i."* ' ■ ■ V 1, I' i- 1 t 1' 1 ll-ii n 83 > o H P< O di 1^ W o . (4 ^ Pi o ^ 00 O w u H Pi O O 1/1 X.I o 1/1 J! o. X 6 V o W Pi fl c « 1>4 O' 4.^ 4J o si* o X s H O W pa FI!F£ TRADE 'la S? M ro « vo vO vo N W •-< I-" N 00 00 00 On O 00 O ro s? NOO ** O'^^l^fO^T-OMVOOO '^■O rOvO m 'O s? N M -rfvo >o CO r^ ^^c/^ co i-" ro m n 1-1 c^ onoo , O vo r^ f^ CN 00 QO r>. tJ- in ir^ 1-1 00 ri i>. ri to '"I '^00 '-" >-< CT^OO to >0 Tf M N N fl rO M C< N N N 1) o * S S:? row N vriw fOi/^rOroO u-)<0 O On fO T^ w <0 OnO m '^'t^ Tfovo j^ON— roM ro<'">tnr< P-O'53 S? Tftnr^O O M O fi N fO\o o< •-< i-i >-< « ro O OS Vo >H N Tj-t^t^c^i~^ONONO '■'^tnr^t>*t->ii->.ON^ ^C4 M « M N N W N N c«-)rorororOfOrororo !3 iM N f^ •^ tovo t^oo ON O « N ro Tf tnvo r^oo OOOOOOOOOOOOOCOOOOOOOOQOOOOOOOOOOOOO AND ENGLISH COMMERCE. 83 ;j^32 2,ooo,ooo, of which ^^23 1,000,000 represents the excess on the last four years alone, viz., 1S75, 1876, 1877, and 1878. Now the question is, did we, or did we not, pay for this ;^322, 000,000 excess of importations in specie? Or for what part of it did we pay in specie? Or, finally, did we pay in specie for any part of it whatever? There is no difficulty at all in solving this question, for we have an exact record of all the specie and bullion we received from, and sent to, foreign countries during the period referred to. We open those valuable returns of the Board of Trade, which substi- tute for idle rhetoric the arbitrament of cold, stern, immu- table figures, and we find as follows : — Table of Exports and Imports of Gold and Silver Bullion and Specie from and into the United Kingdom for the Following Years (in Thou- sands of Pounds). Vkak. Exports. Imports. £> £ 1861 20, 8 1 1 18,747 1862 29,326 31,656 1863 26,544 30,031 1864 23,132 27,728 1865 15,092 21,462 1866 22,639 34,287 1867 14.324 28,821 1868 20,220 24,853 1869 16,377 20,501 1870 18,920 29,456 1871 33-760 38,140 1872 30,336 29,608 1873 28,899 33.599 1874 22,584 30,379 1H75 27,628 33.265 1876 29,464 37.054 1877 39.798 37. 163 1878 26,687 32,421 446,541 539.171 Showing an excess of imports of ;^92,63O,O00. M P |F(,;",. ' 11 84 FREE TIRADE These figures are decisive. Far from our having sent out any specie whatever in payment for the ;;^3 2 2,000,000 ex- cess of imports during the eighteen years referred to, we actually received from abroad during that period an excess of specie amounting to ;j{^9 2, 630,000 ! This sum gives an average of ;^5,ooo,ooo per annum, which is about what it is calculated that we require annually to supply the demand for art purposes, to replace wear and tear, and to meet the increase in circulation. Let us look at it in another way. During the four years 187 1, 1872, 1873, and 1874, we exported more than \ve im- ported by ^28,000,000 ; during the four years 1875, 1876, 1877, and 1878, we imported more than we exported by ^231,000,000. Now if international balances were paid in specie, it would follow that we must have received from abroad gold in far larger quantities than usual during the first of those two periods ; and sent away large quantities of gold during the second. But what do we find to be the fact ? If any one will make the calculation from the figures in the table just given, he will oee that during the first period, the balance of specie received over the specie sent was ;^i6,i47,ooo, while during the second it was ^16,326,000. That is to say, during the four years that we exported largely, we received ;^i 80,000 less specie from abroad than we did during the four years that we imported ;^23 1,000, 000 in excess of our exports. Is it possible to show more clearly and conclusively that we do not pay in specie for the excess of our imports over our exports ? In fact, as we have shown before, no large international payments are ever made in specie. The stock of it in each country (except at places of production) is totally inadequate to such a purpose. When in 1871 to 1873 ^ve undertook to send large sums abroad as loans to foreign countries, they went not in specie, but in the shape of increased ex- ports. France, after 187 1, had an enormous indemnity to pay to Germany. What part of it was paid in specie ? The merest fraction. In the Econotnht of March 15th, 1873, there appeared a statement to the following effect : — that AND ENGLISH COMMERCE. 8s the French Government had just completed a payment to Germany of ^^94,600,000, and that the various items of which the payment consisted were as follows : — French gold and silver ... , ;^6,400,ooo Bank-notes, French and German ... ... 8,200,000 Bills of Exchange on Belgium and Holland... 16,000,000 Germany ... ... 40,000,000 »> M England .. 24,000,000 ;^94,6oo,ooo The Economist adds that the ^^80,000,000 on Holland, Germany, and England represent the excess of commodities which France has furnished in order to meet the ransom ; and that, meanwhile, the bullion in the Bank of France has been maintained at ^30,000,000. Thus the circulation; requirements of France were not interfered with by this- enormous payment, and even the ;j{^6,ooo,ooo of gold and silver paid were probably the produce of the hoards that had been accumulating in the old stockings and under the hearthstones of the frugal and industrious French peasantry, and that had not before been in circulation. We dwell the more on this topic because it is a very common notion that the balances due from nation to nation are paid in specie, and it is this radical error chiefly that leads protectionists to aim at selling as largely as possible and buying as sparingly as possible, in the delusive hope of getting the difterence in specie. The futility of such an aim is at once apparent, when it is clearly seen that specie is not the medium through wliich the balance is maintained between exports and imports, or tlirough which heavy pay- ments, from whatever cause, are made by one country to another. We undertook next to show that our large excess of im- ports over exports is "the sign, not of our decay, but of our wealth." ;1 ; ■ : ^ i f n' :■ I : i f^-- I « m 86 /•;?££' TRADE That England, or ratlier that individual Englishmen (using that term generically for the inhabitants of the United King- dom) have yearly to receive from almost every foreign country large sums of money for interest, dividends, &c., on loans, shares, and other investments, everybody is aware, but what the aggregate amount is that has thus to be annually transmitted to this country, is a mere matter of conjecture, and has been variously estimated at any sum between ;^3o,ooo,ooo and ;^7o,ooo,ooo sterling. Mr. E. Seyd in 1876 estimated the indebtedness of other countries to this at ;^i, 1 00,000,000 with an annual interest of ;;^.|o,ooo,ooo to ;£"5o,ooo,ooo. Professor Fawcett, in his recent work on *' Free Trade and Protection," says that " it has been calcu- lated by competent authorities that the balance annually due to England as interest on capital invested in India and America alone is about ;^3o,ooo,ooo," which seems high, considering that it refers to only two countries. We have taken considerable pains to collect all available data on which to found a conclusion, but even these still leave a considerable margin for mere conjecture. If any one will consult Wetenhall's official " London Daily Stock and Share List," he will see a classified enumeration of the various foreign securities in sterling money for which London is the central, and, in some cases, the only market. Besides these, there are a vast number of others which are in foreign currency, and of which the chief markets are abroad. After analysing these, calculating the yearly return yielded by each, and estimating as closely as possible the portion thereof which has annually to be remitted to England, including the amount which India has to send each year in payment of that portion of her government expenditure that is defrayed here, we find the total to reach the sum of ;^55,7oo,ooo. On the next page is a detailed statement of the various classes of securities of which the total is made up. It therefore appears that we are the recipients of an income from abroad of about ;^5 6,000,000 per annum, in addition to which, if we take into account the repayment of some small part of some few loans which takes place every AND ENGLISH COMMERCE. 87 and lich the bt of an very w H 555 Id s H CO > O >— c pi c o C/3 o U3 Q ^; o (^ b O CO p < w O H H •J < SI ►J 5 J o < HI ca o H < h O H o 00 o "^ LO fO o^ ro ON <"0 CS O l~-» TJ- M M M »-« o 5-^ ^•° s-^ s-5 5-? S-? >.'; O O >oio O O "^ Clio 00 00 w txiO 00 t^ rf tJ- r- O On On 00 i-i ir^ Tj- t^ M Cn O f OJ ,^ -3 O ^^ W s G o .2 ■4-1 o ,0 rt 1 ■4-* (L> >% « rt ^ ^ T^ « ^ n c3 <^ ir. U rt T3 a 3 ■«-* Tri iS s f2 1> !* O rt o "> _■ (/I *^ AND KSCLISH COMMERCE. 97 it e. \t id >y ir, CHAPTER XXI. THE EFFECT ON TRADE OF POLITICAL COMPLICATIONS AND OF LOSSES ON THE DEBTS OF DEFAULTING STATES. P The depression in trade, of which we have been tracing the main causes, was no doubt in some degree enhanced by the fear lest the political complications connected with the Eastern Question might drag us into war. Indeed, the evil effects of war on trade are chiefly felt just before its commencement from uncertainty, and just after its close from reaction. Actual hostilities occasion a large expendi- ture on the part of Government, and a stimulus is given to a variety of trades. Hence a brisk demand for labour and corresponding animation among the retail dealers. Money is rapidly circulated, and for a time the industrial and mercan- tile classes enjoy a factitious and artificial prosperity. But at the close of a war a reaction sets in very much akin to that which followed the *' leaps and bounds " of our commerce in 1872-3, and stagnation and distress ensue. Thus it was, after the cermination of the long war with Napoleon in 181 5, that the country underwent a crisis more severe than any that she has since sustained. Hundreds of thousands were thrown out of employ and were driven to desperation. Incendiary fires, attempts at plunder, and *' bread or blood" riots spread alarm throughout the country during the years 1816 and -1817. Again, the close of the war with Russia in 1856 was succeeded by a severe panic in 1857. Numerous failures occurred, and the aggregate liabilities of the failed houses were computed to amount to ;^45,ooo,ooo. Govern- ment had to interfere, and saved commerce from a dead- lock by empowering the Bank to extend its issues beyond their legal limits. o ][ 98 FREE TRADE We do not think, however, that political apprehensions exercised much influence on the recent state of trade — certainly less than resulted from the losses sustained by the British investing public through the non-payment of dividends by several indebted states. Not only did there ensue the immediate loss of the interest that was due, but also the fear that the capital itself was endangered. Neither individual nor national suspensions are often followed by a resumption of payments. When a country once forfeits its credit by the non-payment of its dividends, it loses one great incentive to the punctual performance of its engage- ments, viz., the hope of contracting fresh loans. These losses were, pro tanto^ a diminution of the available capital of the country, and thus they contributed in a certain measure to the general depression. Fortunately the bulk of them fell on wealthy persons, to whom they brought disappointment, but not rum. One compensating eflect attended them. The faith of English capitalists in the solvency and morality of foreign governments was thoroughly shaken. Very few fresh investments have been made abroad the last few years, and the savings of the country, roughly estimated at from ;£i8o,ooo,ooo to ;£'22o,ooo,ooo per annum, have mostly remained at home to accumulate into the unprecedentedly large sum that now lies nearly idle, and is eagerly seeking fresh fields for profitable employment. AND ENGUSH COMMERCE. 99 CHAPTER XXII. SUMMING UP. We have in the course of these pages endeavoured, among other things, to show : — 1. That the amounts due by a country, or to a country, whether for an excess of imports or of exports, or in settle- ment of a debt, are paid, not in bullion or specie, but in goods. 2. That for every export of goods, except what is sent to pay a previous debt, there must be an import of goods to the same amount, and vice versd. So that to restrict imports is, to that extent, to restrict exports, and to diminish foreign trade. 3. That free trade is the only system under which capital and labour find their most natural and profitable fields for employment. 4. That the protective system transfers capital and labour from natural and profitable into forced and unprofitable employments, artificially raises the cost of commodities, forfeits the advantages accruing from the division of labour, reduces foreign trade, and tends to isolate a country from the rest of the world. 5. That the reciprocity or retaliatory system, were it practicable (and it is not), would be fraught with all the evils of protection, of which it is the reproduction under a different name. 6. That the sudden increase of our exports in 187 1 and 100 JfREE TRADE 1872 was caused by the exceptionally large sums which, at that period, we sent abroad by way of loans to divers foreign countries and other foreign investments. 7. That on the cessation of that exceptional state of things, a reaction took place, and the amount of our foreign trade has been decreasing since 1874. 8. That while the mon^ value of our foreign trade (com- bined exports and imports) has declined, the bulk or volume of the goods which we have sent out and received in, has undergone no diminution. 9. That owing partly to reaction, and partly to diminished gold production, a general fall has taken place in th^: average price of all commodities, and it has been by far the heaviest on those articles which we import from abroad. The present average price of all British produce is 8 per cent., and the present average price of all foreign produce is 32 per cent., below the average price of the same two classes of commodities respectively in the year 1861. 10. That the wages of labour have also fallen, but not in full proportion to the fall that has taken place in prices generally, so that the pressure of the times has chiefly weighed on the mercantile and middle classes. IT. That the depression in trade was not confined to England, but was universal, and has been severest in the most protected countries, so that it cannot be ascribed 10 free trade. 12. That we have not suffered from foreign rivalry in neutral markets. 13. That the increased excess of our imports over our exports is the sign of our wealth, not of our decay ; and that all prosperous nations import more than they export j while, on the other hand, an excess of exports is a sure sign of indebtedness. 14. That our recent abstention from foreign investments has produced a larger accumulation in the country of un- 1[ AND BNCLISH COMMERCE, XOI to the to in ;nts un- employed floating and loanable capital than has perhaps ever been known. The conclusion to which all these considerations lead us is, that just as the free trade system enabled us to take the utmost possible advantage of the period of prosperity, so it has enabled us to meet the phase of reaction and adversity with less strain on our resources than any of the protected countries ; and that any change in, or modification of, our commercial policy would prove in the highest degree inex- pedient and disastrous. The present combination of low prices and of abundant capital warrant the expectation that before long there will be a movement towards higher values. As iipon as this occurs, business operations will become more profitable, capital will regain confidence and circulate more freely, commerce will resume its activity, and we shall enter on a fresh cycle of prosperous years. Such periodical oscillations in trade are of never-failing recurrence, and we ought by this time to be prepared for them. But instead of this, when business is brisk and flourishing, we act as if high prices and large profits were the normal condition of trade ; while, when prices fall and profits vanish and the " depression " comes on, we sink into gloom and despair, fancy that things never were so bad before, that " this time " trade is past all recovery, and we clutch at any quack nostrum as a " kill or cure " remedy. This same thing has happened every ten years on an average since the com- mencement of the century, and there is no merchant with some experience who does not remember within his own time two or three " crises," each of them being " the worst that ever before occurred." These alternations are, in regard to their frequency, duration, and intensity, subject to certain laws which it would be useful to study and bear in mind. It may safely be predicted, for instance, that a cycle of prosperous years will be of shorter or longer duration ac- cording to the steadiness or the precipitancy of the upward movement The swifter the pace at which, and the greater the height to which, prices are driven up, the greater will be the corresponding reaction, and the sooner it will occur. loa FREE TRADE AND ENGLISH COMMERCE. The more moderate the rate of progress, the longer will it be before we experience a check, and the less violent will that be when it does come. But, no doubt, the lessons which we are thus taught will soon be forgotten or unheeded, and when the time of ex- citement comes, each one of us will push and prjss on with all his might until prices reach their climax, when reaction will ensue, and another period will supervene of loss, de- pression, and gloom, similar to that through which we have been passing, and from which we hope and believe that we shall before long emerge. THE END. Cas&cll, Ptiui, Calpln & Co., Belle Saiivnge \Vork.«., LontJoii, E.C WORKS PUBLISHED FOR THE COBDEN CLUB By CASSELL, PETTER, GALPIN & CO. Essay on the Commercial Principles APPLICABLE TO CONTRACTS FOR THE HIRE OK LAND. By His Grace the Duke of Argyll, K.G. Price is. Systems of Land Tenure in Various COUNTRIES. Edited by J. W. Probyn. Price 3s. 6d. Correspondence Relative to the Budgets OF VARIOUS COUNTRIES. Edited by J. W. Probyn. Price IS. The Relations of Landlord and Tenant IN ENGLAND AND SCOTLAND. By W. E. Bear. Price Is. THE AGRICULTURAL HOLDINGS ACT, 1875. A Speech delivered in the House of COMMONS by B. Samuelson, M.P., on moving for a Select Committee to inquire into its operation. Price 6d. Free Trade and English Commerce. By Augustus Mongredien. Price 6d, Cassellf Petta-y Galpin