- s
eee eas
Capea See eae yee

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
HG

ia

G5
oO

 

 

CORNELL
UNIVERSITY
LIBRARY

 

 

 

 

 

 

 

 
a iO
ESSAYS IN FINANCE.

FIRST SERIES.

BY

ROBERT GIFFEN.

FOURTH EDITION, REVISED.

LONDON :
GEORGE BELL AND SONS, YORK STREET,
COVENT GARDEN.

1886.

©
 

LONDON:
PRINTED BY RANKEN AND CO., DRURY HOUSE,

DRURY COURT, W.C.
CONTENTS.

I.
PAGE
THE COST OF TIE FRANCO-GERMAN War OF 1870-71. 1

II.

THE DEPRECIATION OF GOLD sINcE 1848 ‘ ~ &~
: 7

IIT.
THE LIQUIDATIONS OF 1873-76 : : * . 107

IV.

WHY THE DEPRESSION OF TRADE IS SO MUCH GREATER
IN RAW MATERIAL PRODUCING COUNTRIES THAN

IN THE MANUFACTURING COUNTRIES ‘ » 183
Vv.

FOREIGN COMPETITION . : ‘ 7 . 142
VI.

THE EXCESS OF IMPORTS s < < , 1dl
CONTENTS,

VII.

RECENT ACCUMULATIONS OF CAPITAL IN THE UNITED

KINGDOM . j ; ; . :
VIII.

NOTES ON THE DEPRECIATION OF SILVER . .
TX,

MR. GLADSTONE’S WORK IN FINANCE . . ‘
Ms

TAXES ON LAND ‘ ‘ . : .
AL.

THE REDUCTION OF THE NATIONAL DEBT “ .
XII.

THE TAXATION AND REPRESENTATION OF IRELAND .

XIII

THE CASE AGAINST BIMETALLISM . . 5
XIV.
ON THE FALL OF PRICES OF COMMODITIES IN RECENT
YEARS re is a

PAGE

161

198

208

234

259

280

286

all
PREFACE.

Tue greater part of the essays in the present volume
were got ready for publication, and were actually
printed, nearly two years ago; but the publication
was unavoidably delayed. The delay enables me to
include the last two essays in the volume, but it
will be observed that one of them—“ On the Fall of
Prices of Commodities in Recent Years ”—is not in
_the place it would probably have occupied if all the
essays had been arranged for printing at one time.
It now comes last in the volume, but it would come
‘most properly in succession to the eighth essay, as
forming one of a series, beginning with the first in
the book, in which I have discussed some of the
leading features in the economic development of the

' Jast ten years. With this exception the essays of this
vi PREFACE.

series are all placed together nearly in the order of
their dates.

The remaining essays in the volume were written
on different occasions, and I have taken care to note
the date in each case, so as to explain references and
allusions which would hardly now be in place.

Several of the essays have previously been pub-
lished either as papers read before the Statistical
Society, or as contributions to reviews and news-
papers; but one or two were written for private
circulation only, and have not previously been given
to the public in any shape. The first in the volume,
on “the Cost of the Franco-German War,” was
written at the request of a banking friend, and a very
limited number of copies were printed and privately
circulated at the time it was written, viz., March,
1872. Owing to the incompleteness of the accounts
at the time it was written, it would be possible now
to state more exactly the direct cost of the Franco-
German War to the combatants; but for the purposes
of the discussion, which chiefly deals with the indirect
burdens of the war, the figures are believed to be

sufficiently avcurate.
SS.
PREFACE. vii

Looking over the volume as finally arranged, I
have not been without a desire to add some notes
referring to the course of discussion which has since
taken place on some of the subjects treated of, or to
subsequent events which have thrown additional light
on the. arguments used. But on second thoughts I
consider this unnecessary. In most of the essays,
though the subject is frequently occasional, I have
endeavoured to go back to first principles; and unless
some general interest in the subjects remained, apart
from the particular illustrations which may have
grown more or less obsolete, there would be no object
in the present republication. The only remark I
would desire to make is with reference to the third
essay, ‘The Liquidations of 1873-6.” It is obvious
that if I were now writing I should have to speak of
the liquidations, not of those years only, but of
1873-9, and have to explain more points than I could
possibly take up when writing in 1877. But I see
no reason to doubt the general soundness of the view
I have expressed on the course of the present de-
pression and its origin; although, subsequent to the

date of my writing, bad harvests and other accidents
Vili PREFACE.

have aggravated and prolonged that depression. Il
is still true that the language in which the depression
was spoken of in 1877 was unjustified by anything
which had then occurred, and much as the depres-
sion has since been aggravated, it is doubtful if that
language would yet be justified. There is absolutely
nothing in the depression itself beyond former ex-
perience, and the suffering of the masses from want of
employment and low wages has been as nothing com-

pared with their suffering in former periods.

R. GIFFEN,

44, Presproxr Roan,
Kensivaton,

October, 1879.
PREFACE TO THE FOURTH EDITION.

he,

Atmost seven years have elapsed since the first
edition of the present volume. Some of the
_ essays contained in it were written several years
before that, and with reference to passing events and
discussions. That in spite of these drawbacks the
book should still be in demand can only be ascribed,
T believe, to the fact that in selecting some essays
for republication regard was had to the permanent
interest of the subjects treated, and an endeavour
had really been made in the essays themselves, as
was remarked in the preface to the first edition, to
go back always to first principles.

In revising the volume for a new edition I have
still thought it unnecessary, as at the time of the
first edition, to continue the figures upon different
points discussed, so that readers should have
before them the very latest facts upon the subject.
If there were no permanent interest in the discussions
it would have been useless to republish the essays,
and it would be useless ‘still to reprint them; while,
in consequence of the great lapse of time, it has
become more difficult than ever to adapt the figures
to the very latest circumstances. Expressions and
phrases, and, to some extent, the tone of the discus-
ll

sion, would have to be modified to suit the new
figures, the present circumstances not being quite
the same as those to which the original discussion
made reference. The absence of any attempt of
this sort should, however, be no drawback, but should
rather be an aid to the usefulness of the volume, if
the discussions continue to be referred to. Some
of the essays, for instance the essay on “ Recent
Accumulations of Capital in the United Kingdom,”
would lose a part of their value if they did not
contain historical figures merely—figures which can
be referred to in future essays of a similar kind by
investigators of the like subjects. For the purpose
of such investigations it is essential to have on record
former investigations made at the time in the
exact form in which they were made, and without
any colouring from subsequent experience and
information. _

What I have done, then, in revising the book for
the present edition, is to make various corrections of
a minor kind, chiefiy verbal, and to introduce, where
it appeared to be expedient, a few notes calling
attention to the great difference of the circumstances
which now exist as compared with those at the time
at which the essay was written, and referring to sub-
sequent discussions in which my opinions have been
further developed. These corrections and notes, it is
hoped, will be especially useful to students who come
to the volume for the first time, and who may find it
lil
difficult to carry themselves back to the circumstances
of fifteen or twenty years ago.

As a further contribution to the same object, I
have to add one or two remarks. A majority of the
essays in the present volume contain discussions on the
principal features of the general business history of
the ten years previous to 1579 from various economic
points of view. In the Second Series of ‘“ Essays in
Finance,” which has been published during the present
year, there are also various essays which can be
characterised in a similar way: in which, in fact,
the discussion of some principal features of current
business history has been continued down to the
present time. Itis.my wish to have the two volumes
looked upon as, in reality, parts of the same work,
the one being incomplete without the other.

There is one group of essays especially which
have the character described. This group comprises,
in the present volume, the essay on “‘ The Depreciation
of Gold since 1848,” which was written as long ago
as 1872, and the essay on “ The Fall of Prices of
“Commodities in Recent Years,” which was written in
1879; and the essays of the same group comprised
in the Second Series of “Essays in Finance” are
the first two in that volume, viz, “‘ Trade Depression
and Low Prices” and “Gold Supply; the Rate of
Discount, and Prices.” In all these essays the subject
really under discussion is the course of prices for
' many years past, and the bearing of the supply of
1V
gold, and the demands for it, upon that course of
rrices. The effects themselves are discussed in the
two essays in the present volume, and in the first
essay in the Second Series, while in the second essay
of the Second Series there is a general discussion of
the question as to how it is that the supply of gold
in relation to the demands upon it has an effect upon
prices, and in what way the rise and fall of prices and.
the rise and fall in the rate of discount are connected.
The essays have been written at different times, and
the discussion is consequently under the disadvantage
that it is not quite continuous, that it is taken up on
each occasion from different points of view; but it
may be hoped that for some purposes the fact of the
discussion being concurrent with the development of
the events will have some advantages. It may be
noticed, for instance, that although there is never any
attempt at prophecy in these essays, yet the develop-
ment of events has been very much in the direction
which the study of the facts, and what seemed to be
logical reasoning upon them, led me to anticipate as
long ago as 1872 in the conclusion of the essay on
“The Depreciation of Gold since 1848.” The inter-
pretation of the facts given in the essays may be a
wrong one, but it is of use at least to show that the
interpretation is not wholly ex post facto, and that a
close study of the facts themselves enabled me, as it
did other statisticians, to anticipate the fall in prices
which has in fact occurred during the last fifteen years.
v

The discussions in another group of essays in the
present volume—namely, the essays on “Foreign
Competition ” and the ‘Excess of Imports,” as well
as “ The Liquidations of 1873-76 ”—have also been
continued, to some extent, in one or two essays in
the Second Series, namely, the essay upon “ Foreign
Manufactures and English Trade,” the essay on “The
Foreign Trade of the United States,” and the essay
on ‘The Use of Import and Export Statistics.” The
latter essays embrace a much wider field of discussion
than what is entered upon in the essays in the present
volume; but to some extent, also, the topics discussed
in the essays in the present volume are further
developed in the new series) In my own view
the discussion in the present volume is supplemented
materially by the further and more extended discus-
sions in the Second Series of essays.

One of the subjects discussed in the present
volume I was careful to avoid for many years after-
wards, namely, Bimetallism. My views are expressed
so completely in the essay in this volume on “The
Case against Bimetallism,” that if left to myself I
should hardly have cared to resume the discussion.
Quite lately, however, at the request of some friends,
I read a paper on some points in the discussion at
the Bankers’ Institute,* and I may here refer to that
essay asdeveloping the discussion in the present volume,

 

* On some Bimetallic Fallacies, Journal of the Bankers’ Institute,
June, 1886,
vi

at pages 296-7, with reference to the effect of the
legal ratio in France in keeping gold and silver steady
in price between the years 1820 and 1850. The case, .
“in my opinion, even on this head, is stated quite
sufficiently in the present volume. The facts there
stated have really not been disputed, and there is no
possibility of disputing them. Still, as a matter of
history, I thought it of interest, in returning to the
‘subject again, to put together a body of evidence
bearing upon the point, so that those interested
would be able to judge for themselves.

The subject of the essay on ‘‘The Taxation and
Representation of Ireland” is also incidentally
referred to in the new series in the essay on “The
Utility of Common Statistics” and ‘Some General
Uses of Statistical Knowledge,” and the theme is more
fully treated in an essay on “‘ The Economic Value of
Treland to Great Britain,” which was published in
the Nineteenth Century subsequently to the issue ot
the Second Series. .

It might be of interest to add a few remarks
of a general character, calling attention to some
of the great changes which have occurred in the
economic circumstances of the country during
the last ten or fifteen years, and to the effect these
changes would have in modifying the conclusions in
some of the essays, or the applications of these con-
clusions. We are plainly now, for instance, in quite
a different world from that which existed at the
vii
beginning of 1869, when the essay on “Mr. Glad-
stone’s Work in Finance” was written. Since then
Mr. Gladstone has done additional work in finance,
partly as Prime Minister, and partly as Chancellor of
the Exchequer in the first two or three years of his
second Premiership in 1880-84, but practically, owing
to the change of circumstances, it has not been
possible for Mr. Gladstone to do much more work in
finance than what is described in the essay in this
volume. Neither has the revenue been so elastic
lately as it had been up to 1869, the principal
cause of the change being, I believe, that very
appreciation of gold which is so often discussed in
these essays, nor has it been so easy to keep down the
growth of expenditure as it was before 1869, partly
for the reasons discussed in the volume, which led me
to express dissatisfaction at the way in which the whole
subject of expenditure has been treated, not merely by
Mr: Gladstone, but by English politicians generally.
The discussion of such changes might clearly now
be of great interest. The expectation of continuous
prosperity and continuous growth of revenue, which
coloured the essay on Mr. Gladstone’s work in
finance, is also expressed in the essay upon “ The
Reduction of the National Debt,” and it has not
been quite justified by recent history, at least, as
far as the expression of growth by money values is
concerned. There is a change which may not
much affect the reality of improvement, but
vill

which it would be necessary now to take notice of.
Other changes have occurred which will strike the
readers of some of the other essays. I think it
better, however, to leave the essays as they stand,
without further remark. On some future occasion,
perhaps, it may be possible to discuss generally some
of these changes in the aspect of the main economic
features of the present time as compared with a still
recent period, and the effect they have upon the
discussion of economic problems of different kinds.
Where it appears to be necessary for clearness,
the notes to the present edition are indicated by the
addendum of ‘* Edition 1886,” in italics. For con-
venience of reference, also, an index to the volume

has been added.

ROBERT GIFFEN.

44, Premproxe Roap,
KeEnsineron,
July, 1886.
ESSAYS IN FINANCE,

 

L

THE COST OF THE FRANCO-GERMAN WAR
OF 1870-71.

In the following pages an attempt will be made to answer
various questions in relation to the cost of the Franco-
German War.

The first question is the amount of the actual cost of the
war, both direct and indirect. The object will be to reply
to this question generally—that is, with as little reference
as possible to the distribution of the burden. France and
Germany have borne that burden most unequally, and
neutral countries perhaps have not wholly escaped a share
of the losses ; but it will be interesting to ascertain first of
all how much the world is really poorer. This will be the
more necessary because it is considered that the question
of the distribution of the burden raises new problems and
requires separate discussion. The burden has not only been
distributed unequally, but one country has been made to
bear more than the whole cost of carrying on the war.
2 THE COST OF THE FRANCO-GERMAN WAR.

It is expedient, perhaps, to explain what is meant by the
direct and the indirect cost. In the former will be included
the outlay of the belligerent Governments, the losses by
the destruction of property in warlike operations, the requi-
sitions levied in the invaded districts, and the like. The
object, in short, will be to include whatever direct outlay
the operations of the war have occasioned and the visible
destruction they have caused. The indirect expenses will
include every sort of material loss which is fairly traceable
to the war—the loss of income to the communities whose
pursuits are disturbed, the displacement of capital, the
destruction of valuable lives, and the like.

The second question is the loss of capital to the world in
consequence of the charge of the war. The first and second
questions, it is conceived, are entirely distinct from each
other. A war may easily cost a great deal more to the
communities which engage in it than the permanent loss of
capital which it involves. The expenditure may be defrayed
as well by the temporary privation of the community as by
abstracting capital from individual and national resources..
In part the expense of a war is always so defrayed, and
it is by not attending to the distinction that people are
astonished at the recovery of nations from a war which: has
cost overwhelming amounts.

The third question is the distribution of the burden of
the loss among the different communities affected by the
war. Itis conceived that the peculiar arrangements at the
close of the late war, by which an enormous war indemnity
“was imposed on the diminished area and population of one
of the belligerents, are worthy of separate treatment. How
much has France been made to bear and what additional
loss has been inflicted on the world by so great a burden
being thrust on a single nation? How much has Germany
THE COST OF THE FRANCO-GERMAN WAR. 3

gained by the receipt of a war indemnity far exceeding, it
will be seen, the expense which it had incurred ? 2

The fourth question will be the effect on the money
markets of the world, and especially of England, of the
financial arrangements made to meet these expenses and
losses.

I—THE DIRECT EXPENSES.

Ir is too early yet to state any precise figures as to the
actual amount even of the direct war expenditure by the
respective Governments. According to the continental plan
of dealing with budgets, an effort is made in closing the
accounts to throw upon each year every burden properly
incurred in it, and include every receipt which belongs to it,
according to the budgetary laws. The accounts are there-
fore kept open till the exact destination of each item is
properly ascertained, and it is not for two or three years
after that we have a closed account. There is likely to be
an unusual delay in making up the accounts of the war
years in France. The confusion of war creates accounts
which it would be difficult in any circumstances to adjust
and the burning of the Hotel of the Ministry of Finance
by the Communists will make the difficulty in the present
case much greater than usual. The Budget Estimates,
however, as revised to the latest date, are probably exact
enough for the purposes of the present Memorandum,
which need not go much into detail.

To, deal with the case of France first The first item in.
the direct expenditure is that of the Central Government.
The amount under this head will probably be about
4 THE COST OF THE FRANCO-GERMAN WAR.

Extra War Credits to Sept. 4, 18°70 ....sceeeeeeees ., £28, 000,000
” + from Sept. 4, to Dec. 31, 1870* 38,520, °000
an in Rectified Budget of 1871 «26,058,000
Estimated expense of maintaining German troops
in France in 1871 f.........+6+ Sasa vchGoaeeven aijeasee 9,025,000

—

£101,603,000

 

In addition we should include the expense of maintaining
the German troops in France subsequent to 1871, viz., for
two years and a quarter; the cost of rebuilding fortresses,
re-equipping troops, and the like, which are all to be
carried to a special account for liquidation of the cost of
“yepairing the misfortunes of the war.”t M. Thiers
estimated the probable amount of this liquidation in his
Message of 7th December last at £16,000,000, but no
proper details have yet been’ presented, and subsequent
unofficial statements represent it as already £20,000,000.
In any case, if we carry the above figure of £101,000,000
.up to £120,000,000, we shall probably be about the mark
as far as concerns the direct cost of the war to the French
Government.

Some doubt may be entertained as to whether the expense
of rebuilding fortresses and re-supplying the army with war

* Speech of M. Thiers, June 20, 1871. Rapport sur l’ensemble de
la Situation Financiére de la France, par M. de la Bouillerie, au nom
de la Commission au Budget, It appears that £3,680,000 of the
credits opened in 1870 were carried over to 1871, but the amount is
apparently not included in the estimates set down for 1871. In any
case it will be safe to retain the original figure, to provide against
under-estimates,

+ Rectified Budget of 1871, p. xxv. The actual expense would not.
be so great as this, as the evacuation was accelerated, but how much
less there is no means of computing. Any excess will be a set-off
against under-estimates, which are almost certain to be very large.

} M. Thiers’ Message, December 7, 1871.
THE CUSL UF THE FRANUU-GEKMAN WAR, a

material should be included among the direct war. expenses,
but it is believed the proper course is to include these sums.
A certain supply of fortresses and war material being
considered necessary in peace to provide against the chances
of war in general, any deduction from the stock in a
particular war is a part of the direct cost of that war.
And the value of this deduction is best represented by the
cost of making up the deficiency. In the present case, the
cost to France of the captured fortresses is probably greater
than the expense to be incurred for providing makeshifts;
but what France has lost Germany has gained, and we shall
only have to deal with this point when we try to make an
estimate of the burden on France alone.

It will be remarked, perhaps, that the deficits of France
for 1870 and 1871 and subsequent years are or will be
greater than the above figures, taken in connection with the
payments for the indemnity, would imply, but a part of
these deficits arises from the failure of revenue, which must
be dealt with in a different manner. The Germans, as we
shall see, get some of it, and, otherwise, what the Govern-
ment lost by the non-payment of taxes ‘the French people
individually considered gained. It is a set-off against the
individual losses we shall afterwards have to reckon.

So much then for the direct cost of the war incurred
by the Central Government. There remains to add the
-amount of requisitions levied by the invading army, the
expenditure incurred locally, and generally the direct
destruction of property in the war, so far as not provided
for in the above items charged on the Central Government.
These matters can only be roughly dealt with. The pages
of the Journal Officiel for many months have been largely
filled with Projets de Lot giving the Communes borrowing
powers to cover their war expenditure. Years must elapse,
6 THE COST OF THE FRANCO-GERMAN WAR.

probably, before the account on these heads can be com-
plete.

Some facts, however, can be ascertained. In September
last the Minister of the Interior, in a report to the President,
stated the extent of the losses of the kind referred to,
according to documents collected by cantonal commissions
appointed ad hoc. It appears that the amount of the claims
in the thirty-four departments invaded, excluding Paris, is
-£32,844,000, composed as follows :—

War contributions... ... see see wee eee £1,562,000
Taxes levied by the Geenane. ses ose ee eee 1,965,000
Requisitions “... 0... se ese eee 18,118,000

Destruction of property By fire andl other causes 5,640,000
Securities, articles of furniture, and other objects
carried off without requisition eo vee eee =—-:10,564,060

Total 20. see cee ned tee wee wee ave £32,844,000

 

To this total, however—assuming the items for the
present to be correct—we must add the following items :—
(1.) One-tenth additional for the losses sustained by the
‘inhabitants of Alsace and Lorraine. These provinces were
the seat of war quite as much as the other occupied territory
of France which was not annexed to Germany. They were
not perhaps the seat of military operations for so long a ©
period, since they were treated as virtually annexed after
the fall of Metz, but they had to bear the brunt of much of
the active part of the war, including the siege of Strasburg.
No account of the individual losses appears to have been
drawn up, such as the French Government has compiled for
the territory which remained to it; but the German Govern-
ment has been obliged to vote considerable amounts for
indemnity to the inhabitants who have suffered, and doubt-
less much will remain which will never be compensated by
THE COST OF THE FRANCO-GERMAN WAR. 7

the Government. As the population of the annexed
territory is about 1,600,000, and that of the remaining
- departments of France invaded about 18,000,000 it is plain
that about one-tenth of the expenses incurred by the latter
is not too small an amount to assign to the former.

(2.) We must add the war contribution levied in Paris
at the conclusion of the armistice, and the war expenses and
other losses which Paris had to endure. According to the
report of M. Leon Say proposing the new loan for Paris last
August, the municipality was altogether about £16,000,000
the worse for the siege and insurrection. ,

The war contribution was... «we wee we ~£8,000,000
The loss of revenue Was... 11.0 6... eee vee = 4,000,000*
The miscellaneous additional expenses were ... 4,000,000

Total... sce see tee nae ene ove £16,000,000

Deducting from the above amount the item of £4,000,000
for loss of revenue which falls to be dealt with differently,
like the loss of the State revenue, we obtain a total of
£12,000,000 as the Paris losses by the events of the war,
exclusive of its share in the direct national expenditure.
According to M. Say’s report the above sum does not include
the cost which must be incurred in rebuilding the Hétel de
Ville, so that £12,000,000 is rather under than above the
mark.

We have thus to add to the above total of £120,000,000,
which represents the direct expenditure of the French.
Government on the war and its consequences, a sum of
about £50,000,000, viz. :—

* The revenue of Paris is about £6,000,000 a year, and the city
was besieged or in insurrection about seven months, while for other
two months communications were much interrupted.
8 THE COST OF THE FRANCO-GERMAN WAR.

Requisitions and other losses in the 34 invaded

departments, as above... 1. eee vee eve £32,844,000
Estimated losses of similar nature in Alsace and
Lorraine... . wee sae 8,284,000

War contributions on Paris, and other expenses 12,000,000
Total direct losses and expenditure by local
authorities and individuals in France .., £48,128,000 ~
Less amount voted by French Government
on 6th September last, and included in
above estimates ot national expenditure 4,040,000

Net total 0.0.0.0 ese see eee vee £44,088,000

 

One or two remarks may be made in explanation of
these items. One is, that the item ot £10,564,000 for
securities and articles carried away by the Germans “ with-
out requisition ” is in all probability excessive. This is the
sort of claim which is apt to be exaggerated greatly, because
disproof will be very difficult, and the claimants will be
tempted to make the most of the existing prejudice in
France against the Germans. The value of the articles for
which regular requisition-papers were given by the German
authorities is also, in all probability, exaggerated. It will
be of little use, however, making any estimate of what the
exaggeration amounts to, and deducting the sum from the
total above set out. An error of this sort may fairly be
set against the extreme probability of under-estimates in
other directions which will not appear till the accounts are
finally closed.

Another doubt which will be suggested relates to the
apparent smallness of the items for the levies of the German
armies during the war. Exclusive of the fine on Paris, it
will be seen that the total amount received by the German
armies from the occupied provinces was not more than
between £16,000,000 and £17.000.000. viz. :—
THE COST OF THE FRANCO-GEKMAN WAR. 9

War contributions... ... se oss eee see wee £1,562,000
Taxes levied by"Germans ... 0 1. see cee oes 1,965,000
Requisitions ...0 0.0... ss. eee eee nee vee 18,113,000

Motel: sg... cake hag saw! ahs aes a STON, O00

And it is not quite certain that the total is so large, for the
value of the requisitions, as we have already explained, is
doubtful. Even if we add something for the plunder on
account of which the French have sent in claims to their
_ Government for £10,000,000, and allow also for the levies
in Alsace and Lorraine, the money value to the German
Government of the privilege of living on the enemy during
the war would probably not be more than £20,000,000 or
£25,000,000—only a fourth or a fifth of the war credits of
the French Government itself. The expense of maintaining
an invading army, according to this view, is not the most _
formidable item in the bill of war losses which a nation has
to sustain. “Nor is the fact to be wondered at, though
contrary to the popular impression. After all, the invaders,
unless they occupy large and wealthy cities—and this was
not the case in France—can hardly impose on the country
they invade more than the expense of their living. Clothing
and munitions of war must all be secured beforehand or at:
home, and it is difficult to impose money fines which could
be immediately useful when credit is suspended, however
wealthy a country maybe. The great bulk of the wealth is
fixed in objects which cannot be carried away at all, or in
objects which cannot be carried away quickly and sold, so as
to be converted to the invader’s use. He must take therefore,
even for his own convenience, only what he can consume at
once. A prolonged occupation, with military operations
suspended in the occupied districts, would enable the
conqueror to impose heavier tributes, but such an occupation
is only occasionally possible during a war.
10 THE COST OF THE FRANCO-GERMAN WAR.

Besides all this, there was a considerable local expendi-
ture throughout France in departments not occupied by the
enemy in mobilising the National Guard. But the amounts
have been reimbursed by the State, and are included in the
above war credits.

There are two heads of loss, however, about which
perhaps, there may be some doubt. The first of these is the
damage caused to roads and bridges throughout the invaded
departments. According to an official report made by a
Commission of the Assembly, dated May 21, 1871, these
losses appear to have been :—

Damage to Communal roads ... 1... ss. eee ee ~=£400,000
5 Departmental roads... «4. «. « 360,000
3 Imperial roads... ose vee eee wee = 866,000

Total) sae de Gee! Gwe ane an’. cade Gas 21,126,000

 

These losses, however, are probably included in the figures
already submitted—the account for liquidating the cost of
the war including large votes to the communes and depart-
ments, and the budgets including additional votes to the
-Ministry of Public Works for urgent repairs. The total
‘amount is too small to make any material difference in the
estimate of the total cost of the war.

The second doubtful item is the damage done to the
railways, but it is not likely to have exceeded in amount the
damage to the roads, the length of the railways endangered
being much less than that of the roads. As a matter
of fact, the railways were not much cut up, but were freely
used by the Germans through the war. The rolling stock
was injured or carried away by the Germans, but the rolling
stock of all the railways in France can hardly be worth
£20,000,000, and even if it was damaged 5 per cent.—a
most liberal allowance—the loss would be under a million.
THE COST OF THE FRANCO-GERMAN WAR. 11

The omission of any estimate for this head of loss, therefore,
should it prove not to be included in the above figures, will not
alter materially the totals with which we shall have to deal.

We may put the direct losses in France therefore at about
£164,000,000, viz., £120,000,000 directly expended by
the Government, and £44,088,000 expended or lost by de-
struction of property in the provinces. It remains to inquire
what expense was incurred by Germany of a similar nature.

And first as to the Government expenditure. The
amount, it is believed, cannot exceed between £40,000,000
and £50,000,000. We have been unable to obtain any
exact figures, but a few considerations may satisfy us that
£50,000,000 will be an approximately correct amount
‘to take.

In the first place, this is about the amount of the sums
which Germany had to borrow for the actual conduct of the
war, and as the indemnity was not afterwards appropriated
to defray the war expenditure, and there were no other
‘extraordinary resources, the loans must be nearly the
measure of the outlay of the German Governments. So far
as can be ascertained, the new loans and adinons:t to the
floating debt were :—

North Germany—
First issue of Treasury Bills ... 0 ... coo ove £5,000,000

 

 

First issue of Treasury Bonds... ... «+. + — 7,500,000
Second ditto ditto see eee eee vee 7,500,000
Funded loan, ss. se tee eevee ee eee 15,000,000
£35,000,000

Bavaria ...  . Bele Seas Seer ee, Tats 5,000,000
Smaller German States ae <cleear ages (SRN Cane 5,000,000
£45,000,000

Prussian war treasure exhausted see eee vee = 4,000,000

 

Total... soe ceo cee te eee tee ve £49,500,000
12° THE COST OF THE FRANCO-GERMAN WAR.

This was all the money which it was necessary for Germany
to provide during the progress of the war. To err on the
safe side, however, we may put the amount at £60,000,000,
to allow for arrears left over.*

The direct expenditure for the war thus cost Germany,
in the first instance, about £60,000,000, against
£164,000,000, which we have seen was the cost to -
France. Such is the difference made to a country, first,
by being unprepared, and so having to spend more hastily ;
and second, by being the seat of war, when war is carried
on in conformity with the rules which the Germans have _
followed. In any case, it is expensive to be the seat of war,
but France was caught unprepared every way, and would
have had to pay far more dearly than its opponent, even if
there had been no indemnity to follow.

The other direct losses of Germany—viz., the losses of
individuals—seem hardly worth considering. The only
losses of the kind appear to have been the captures of
German ships by French cruisers, but the captures were only
80 in number, and the total outlay thus occasioned, as well
as for ships detained, appears to have been only £450,000.t
The amount is absolutely insignificant compared with the
figures with which we are dealing. Claims have also been
made by German shipowners on account of ships lying idle,
but they belong to the department of indirect losses, with
which we have yet to deal.

Another direct loss which would also be sustained by the

* The actual outlay according to the latest German accounts is put
at rather more than £90,000,000, but this sum includes many indirect
items, so that the above estimate is really near the mark. See
Preussischen Jahrbuch fiir 1875.

_T Berlin correspondent of the Times June 8, 1871.
THE COST OF THE FRANCO-GERMAN WAR. 13

Germans is the difference between the real value of articles

requisitioned by the Government in mobilising the army
and the price which the Government pays for them. But
there are no data for estimating this loss, which could not
however be large.

There is one other item which we must discuss before
leaving this part of our subject. We may fairly include
as part of the direct cost of the war the capital of the
new pensions which the losses of the war occasion. They
are part of the pay of the soldiers, and are directly caused
by the war, although they are only paid in subsequent
years. We must charge as part of the direct cost there-
fore a capital sum sufficient to provide the pensions. No
very exact amount can be stated for two reasons: (1) the
annual amount of the additional pensions will probably not
be ascertainable for a year or two; and (2) there are hardly
any data for calculating the capital value. Still the item
is worth mentioning. In the French Budget for 1872
the additional military pensions charged amount to

£150,000, which at twenty years’ purchase would repre-
sent a capital of £3,000,000, and it is not unlikely that
before the accounts of the war are closed the amount will
be about double, say £5,000,000 altogether. The cost to
Germany will be at least as great, though no similar figure
can be mentioned, as one of the uses of the French indemnity
to the Germans has been the establishment for the first
time of a military pension fund. It is impossible to say,
_ then, what the cost of the pensions caused by the war will
“be. But as the war was not more murderous for Germany
than France, but rather less murderous, and the scale of
living has not been so high in Germany, we shall probably
* not be under the mark in estimating the cost of the war

ot Bowe ane nnbn an tha anat af tha
14 THE COST OF THE FRANCO-GERMAN WAR,

like pensions to France. We have thus an additional sum
of £10,000,090 to add to the direct cost of the war—
£5,000,000 to each country.

The whole account up to this point will stand :—

Direct Cost TO FRANCE.
War credits and expenses of re-
equipment, &c. see vee eee £120,000,000
Fines, requisitions, and destruc-
tion of property (less
£4,000,000 reckoned in war
credits) ...0 2. 0 we 44,000,000
Capital value of war pensions ... 5,000,000
Direcr Cost TO GERMANY.
War credits, &c., less requisitions
levied in France... .. ... £60,000,000
Capital value of war pensions ... 5,000,000
= — 65,000,000

 

£169,000,000

 

 

Total Direct Expenditure ... ... .... £234,000,000

Such was the direct cost of the war to both Governments,
so far as we can ascertain it. The two countries would
have been “ out” of this sum, and no more, had they been
able to carry on their war operations without a stoppage of
industry and production, and by hiring soldiers from
distant countries with which they had no other relations.
Looked at in this way, as the Finance Minister of a despotic
country might be disposed to view it, war cannot be
considered a very expensive game. For this sum of
£234,000,000 the Governments of two great nations
carried on unremitting hostilities against each other,
employing altogether two and a-half millions of men fora
period of nearly eight months. That is, it cost them both
nearly £30,000,000 a month. At this rate, war is cheap.
The aggregate annual income of the people of the two
countries is probably about £1,200,000,000, so that the
THE COST OF THE FRANCO-GERMAN WAR. 15

direct cost of war at this rate for a twelvemonth would have
been a little over a third of the national income. Both
countries therefore, so far as mere expenditure on warlike
operations is concerned, and if the expense were divided
_ equally, could have gone on fighting for an indefinitely
longer period without exhausting their material resources.
This is a somewhat different view from the popular one
about the expense of modern warfare, but there is no doubt
about the facts, and the conclusion is in agreement with
what might be expected from the strength of modern
industry. It is the natural result of the introduction of
machinery and the great accumulation of wealth, that great
communities should be capable of extravagance for
lengthened periods without approaching exhaustion, a
feat which was hardly possible before the age of mechanical
invention. Of course they would impoverish themselves in
time, but the margin before exhaustion comes, comparing
modern societies with the old, appears to have been
increased.*

IL—THE INDIRECT EXPENSES AND LOSSES.

WE now come to more difficult ground. So far we have
had tolerable data before us—the figures of budgets and
official reports and the public borrowings of the belligerent
Governments. But when we come to the indirect expense

“* The contributions to various charitable associations in relief of
“the wounded and other victims of the war are also a part of the direct
cost; but compared with the other items here dealt with it would be
of no moment to reckon them, even if exact data were procurable,
But the relief societies were so numerous and scattered, and so large
a part of the contributions was in kind, that there are practically no
- data for an estimate.
16 THE COST OF THE FRANCO-GERMAN WAR.

of a war we have no such guide.. We know that it is
quite as real a matter—that in any business the loss which
a man has to undergo in withdrawing capital from some
other undertaking to embark in it is fairly reckoned as
part of the cost of the new business. If he is making ten
per cent. elsewhere, and makes fifteen in the new business,
his net gain by the change is five per cent. If his new
business is wholly profitless, he loses ten per cent. Still
worse, if he abandons the idea of profit altogether and
expends his capital in extravagance, he is poorer not only
by the loss of income for a time, but by the whole capital
he wastes. This last is the case of a nation engaged in war
to a greater or less extent—especially in war as now
conducted by European nations, who abstract from indus-
trial pursuits enormous masses of the civil population. The
community not only takes to spending, but part of its
former income ceases. The expenditure and loss of income
make up the bill which its extravagance really costs. But
this loss of income in the case of great communities is
difficult to ascertain. How far industry is suspended, and
how far the war is the cause of it, are both very difficult
questions to answer. And there are more serious difficulties
behind. In the present conditions of modern industry, a
nation whose pursuits are disturbed cannot fall back exactly
into the old groove. When it settles down again it may
have to engage to some extent in less productive industries
than those which were formerly open to it. The difference
‘ between the old and the new profit is not only difficult to
ascertain, but it is impossible of course to state the loss
in capital which is equivalent to the loss of annual profit.
On these points therefore, in relation to the present war,
we shall only offer the roughest possible estimate.

To take the case of France first. The main point is
THE COST OF THE FRANCO-GERMAN WAR. 17

the loss of national income, and one measure of the loss,
it is conceived, will be the falling off of the national
revenue. In proportion to the losses of the taxpayer, he
would be able to pay fewer taxes, so that the national
revenue would probably suffer in the same degree as the
ageregate income of the nation. And as the national
revenue and the falling off it sustained in the years of war
are both ascertainable amounts, while the aggregate
income of the nation is an approximately calculable amount,
it will be possible to state in this manner what the
deficiency on the aggregate income may come to. The
figure to be thus obtained will obviously be a very rough
one. Many parts of the French national revenue would
not fluctuate with the prosperity or adversity of the
people. The direct taxes on land, for instance, are in the
nature of fixed charges, not varying with the income of
those who pay them, but collected almost to the full
- amount, irrespective of individual profits or losses. A bad
year will no doubt cause an unusual amount of “ dégréve-
ments” to relieve the very poor, but the bulk of the tax
will be unaffected. Much the same may be said of the
other direct taxes, which are all fixed on arbitrary bases
similar to the direct tax on land. On the other hand, other
parts of the revenue might fall off to an amount much
greater in proportion than the diminution of the aggre-
gate income which was the cause of the failure. The
attempt of individuals not to trench on their capital, but
‘to square their expenditure with their diminished income,
might cause such an economy of luxuries as very seriously
to diminish the amounts raised from optional taxation—
the taxation, that is, which people regulate for themselves
by the consumption of taxable articles. The business of
transfer may also be ‘suspended to a much greater extent
c
18 THE COST OF THE FRANCO-GERMAN WAR.

than the business of production, and so cause a dispropor=-

tionate loss of revenue arising from charges on transactions.
On the whole, however, when itis considered that as
regards all moderate charges on articles of consumption a
very slight reduction of the national revenue would imply
very large economies on the part of the taxpayer, the tax
being‘ only a small part of the cost, and when it is also
considered that the direct taxes which are not optional in|
their nature are only a fourth part of the State revenue of
France, so that the fixed revenue, unaffected by the adverse
fortune of the nation, is the least important—it may be
assumed as most probable that the aggregate income of the
people will have fallen off in excess of the proportion to
which the national revenue has fallen off. To assume a
loss of aggregate income in proportion only to the loss of
national revenue will give us a minimum and not a
maximum estimate.

Now what has been the loss of national revenue to
France through the war? The French official estimates
are as follows :—

Loss of revenue in 1870 —., ose nee oe wee £11,400,000
Do. do in 1871  ... 1. se eee eee 13,480,000

 

Total —... nee ene cee nue cee wee one £24,880,000

Such is the calculated loss for a period of eighteen months,
but two deductions must be made for our present purpose,
as we are dealing only with the loss occasioned by the
interruption of business through the war. We must deduct,
in the first place, the loss occasioned by the Germans
collecting the taxes instead of the French authorities, the
amount so collected, as above stated, being £1,960,900.
The taxes were in fact paid, though the French Govern-
ment did not get them. And we must deduct in the same
THE COST OF THE FRANCO-GERMAN WAR. 19

way the loss of revenue occasioned by the transfer of
Alsace and Lorraine to Germany. This loss also was not
caused by the deficiency of income of the French taxpayers.
As the annual loss appears to be about £2,452,000,* the
loss for eighteen months would be £3,676,000, which falls
to be deducted along with the amount of the taxes actually
levied by the Germans from the above total of £24,880,000.
The net loss of revenue to France therefore due to the
interruption of business, withdrawal of civilians from indus-
trial pursuits, and the like, would be as follows :—

Total loss of revenue in eighteen months as above £24,880,000
Deduct taxes levied by Germans ... £1,960,000.
» loss of revenue by transfer of
Alsace and Lorraine to Ger- /
MANY «6 ve wee eee vee 3,676,000
5,636,000

Net loss by interruption of business, &c. ... ...£19,244,000
This is at the rate of £12,800,000 per annum, and as the

annual revenue of France before the war, as fixed in the
Budget for 1871, was £75,200,000, the proportion of

* Annual loss of Revenue to France by transfer of Alsace and
Lorraine to Germany [compiled from Budget of 1872].

Land tax os. see ese ed ee ... £219,000
Personal and furniture tax.. 1... ss. eee vee eee = 74,000
. Door and window tax... 2.0.6. coe vee eee ene = 71,000
Patent tax (estimate) ... 0 66. ee eee vee ee wee 114,000
Mainmast tax bai (eh Goce cous Nahee lltem stat ctu . 28,000:
Registration of stamp duties... 01.0 ve ue ee 619,000
Customs and salt duties... 6. 1s. eee vee vee = 296,000
Miscellaneous indirect tax ... 1. see see eee eee = 840,000
Postal revente 0. see eevee ie tee tee nee 120,000
Produce of forest esse eee tee tee eee eee = 80,000

 

Total ic. cee nue tee cee ree tee ae = £2,452,000
c 2
20 THE COST OF THE FRANCO-GERMAN WAR.

revenue lost by stoppage of industry is as nearly as
possible 17 per cent.—the loss running for a period of
eighteen months. ,

We have only, then, to apply this measure to the
aggregate income of France for a similar period, to see what
individual loss the war has occasioned. Various estimates
have been given of that income, but taking the most
moderate estimate. of £600,000,000 yearly, the loss in
eighteen months, at the rate of 17 per cent., would be
£153,000,000.

To this ought perhaps to be added the probable loss of
income in years subsequent to 1871, before the routine of
industry is fully re-established; but this would be too
hypothetical an inquiry, and belongs rather to the question
as to what has been the permanent loss of capital to France
through the war.

Is there any way, however, of testing whether the
French people on the average would only lose a fifth of
their income for eighteen months, including a period of
nearly eight months when both war and insurrection had
been over, and much of the ordinary avocations of the
people had been resumed? Let us consider for a moment
in detail how far French industry would be affected.

It may be considered as certain, to begin with, that
agricultural operations would not be very much interfered
with. To a certain extent the season of the war was
favourable to an agricultural country. The summer was
far advanced when it began, and the autumn was well over
before the levies whose absence would have seriously
hindered agriculture were called out. Peace was finally
concluded again before the end of February, in time to let
the greater part of the levies return for the labours of the
spring and summer. In this way the harvest of 1870 was
THE COST OF THE FRANCO-GERMAN WAR. 21

gathered in somehow, notwithstanding the outbreak of war,
and the harvest of 1871 could not have been much.
diminished by the want of preliminary cultivation. Even
in the occupied districts the harvest of 1870 would not be
lost, nor would the preparations for the crops of 1871 be
much interfered with. As regards the harvest of 1870, the
change which was made by the invasion was that the
German armies to a large extent reaped it instead of the
French farmers, or it was destroyed by the operations of the
war. But the losses of this sort have already been counted,
under the head of direct losses,* and ought not to be
counted twice over. As regards the preparations for 1871,
the occupied districts stand in much the same position as
the unoccupied, peace having been concluded in time to let
the bulk of the labours of the season be proceeded with, and:
the occupation in no way preventing the return of the
farmers to their work.- There is no reason to believe that
even in the occupied districts there was any material
suspension of agricultural industry beyond what took place
in other parts of France. ,
How much, then, would the suspension come to even on
an extreme calculation—on the basis, that is, of all labour
being stopped in proportion to the withdrawal of agricul-
_ tural labourers for the numerous levies that were raised ?
Agriculture is unlike manufacturing in this respect, that its
existence from day to day does not depend on the freedom
of credit and perfect freedom of communication. These -
things are in the end important, but they can be borne for
months without more than the most passing damage, if the
farmer ultimately gets a market for what he does not
consume himself, and the facilities of credit and free

*See p. 7.
22 THE COST OF THE FRANCO-GERMAN WAR.

communication are again opened up. The loss, then, could
hardly be greater than in proportion to the withdrawal of
hands, and the withdrawal could hardly be more than about
one-twelfth of the whole. The agricultural population of
France is about three-fifths of the whole, or about
22,000,000, of whom about 5,400,000 would be adult males
engaged in the actual work of production. Possibly we
ought to include the estimate of a large amount for female
labour and for the labour of grown-up children, but our case
is quite strong enough as to the small effect which the
withdrawal of the levies would have on agricultural industry
if we take the usual supply of labour at only 5,400,000
hands. The total new levies for the war being about’
800,000, the proportion from the agricultural districts would
be 480,000, which is almost exactly one-twelfth of the above
total of 5,400,000 labourers. Assuming, therefore, that the
diminution of agricultural labours for one year was one-
twelfth—which is a strong assumption, as the labourers were
only away for eight months, and that not for the best part
of the season—we may estimate very quickly the loss of
income that would be occasioned. The “net annual
value” of the rural property of France is £106,000,000,*
which, according to the usual mode of reckoning, shows a
production of three times that amount, or £318,000,000.
One-twelfth of this sum would be £26,500,000, which would
be the maximum loss of agricultural income—apart from
eames paid in requisitions and fines—occasioned to
France in| the war of 1870-1871. For the reasons above
stated, hawever, the loss, it is believed, could not be so
much," It is no doubt true that in exceptional districts, to

YO

*See Reports on Land Tenure in different countries in Europe, and
Mr. Goschen's Report on Local Taxation,
ee THE COST OF THE FRANCO-GERMAN WAR. 23
which the services of the Peasant Farmers’ Seed Fund

- were so useful, there was a great hindrance to production
in the want of seed, owing to the thoroughness of
the Prussian perquisitions; but in the absence of all
reports as to large areas of land being left uncultivated,
we may conclude that this cause exerted an almost
inappreciable influence in comparison with the extent
of French agriculture. Except in isolated cases, the
war left the French agriculturists wealthy enough to resume
their pursuits, and purchase seed and stock—the requisitions
in the invaded districts, £13,000,000, and the destruction of
property, £5,600,000, being, after all, barely 6 per cent. of
the agricultural production of the whole of France for one
year, and barely 12 per cent. of the production of the
invaded districts.

We may set down, then, about £26,500,000 as the.
maximum loss of agricultural income. Reckoning in the
same way the manufacturing loss, viz., in proportion to the
withdrawal of labour, or ‘about one-twelfth of the total
production, we should have to add to this sum about—
£23,500,000, making the total loss of income by this mode.
of reckoning £50,000,000.* But the loss of manufacturing
income would of course be greater, manufactures being so
much more sensitive than agriculture to the disturbance of
invasion. Without credit and without the means of
communication, manufacturing establishments must be
closed. Neither purchases nor sales except to a limited
amount are made with ready money, and even if they could
be made, war and invasion would prevent the conveyance

* We estimate the manufacturing production at £282,000,000,
making up, with the above sum of £318,000,000 allowed for agri-
cultural production, the total of £600,000,000, which we have taken
as the aggregate income of the French people.
24 THE COST OF THE FRANCO-GERMAN WAR.

of raw material and manufactured articles to and from
distant spots which is essential to the life of any large
trade. No doubt there are many industries which will go
on as usual, the dealing from day to day in the necessaries
of life going on nearly to as great an extent as before, and
generally all retail commerce, as was the case in Paris
during the siege, being more or less active. In the
unoccupied districts, too, manufacturing enterprise would
only be partially suspended, though it would, on the whole
be much less profitable than before; and the Germans, it is
known, managed to prevent the complete suspension of
business not only in Alsace, but in such advanced towns in
their occupation as Rheims and Rouen. If we estimate
that outside the invaded districts, including Paris, business
was one-fourth suspended for eight months of war, and that
where the invasion extended it was three-fourths suspended
for the same period, the estimate would hardly seem to be
the least under the reality. But this would only make the
loss of manufacturing income about £93,000,000, viz. :—
One-fourth of manufacturing income in un-
occupied districts (£140,000,000 aaa
for eight months diaso hs ities se nee oe £23, 333, 000
Three-fourths of iubnatbotaving income in

occupied districts (£140,000,000 annually *)
for eight months tee ese eee eee wee vee 70,000,000

 

Total tes 08 ee ee nae, cee eee £93,533, 000

Adding this sum to the above total of £26,500,000 allowed
for the loss of agricultural income, we obtain as the figure

* Practically about one-half of France in population was occupied
or besieged by the German troops, and the districts thus dealt with
included Paris, Rouen, Rheims, Nancy, and other important towns,
Paris itself being by far the most important manufacturing city in
France. We assume, then, that half the manufacturing production
was in the occupied and half in the unoccupied districts,
THE COST OF THE FRANCO-GERMAN WAR. 25

for the total loss £119,833,000, which is about £30,000,000
less than the sum we arrived at above by drawing what
appears to us 4 legitimate inference from the diminution of
national revenue. If we remember, however, that the
suspension of manufacturing enterprise would continue
for some-months in 1871 after the war was over, and that:
in the present mode of computation we have only been
dealing with a period of eight months, whereas the former
estimate applied to the whole of 1870 and 1871, it will
be recognised that the results of the two methods of compu-
tation very nearly correspond. So far as we can judge,
£150,000,000 will be about the mark.

There is one circumstance which may, perhaps, throw
doubt on this conclusion, unless explained. The exports and
imports of France have not diminished as we should expect
them to do with the diminution of manufacturing pro-
duction. The exports and imports of the last three years
compare as follows :—

IMPORTS FOR CONSUMPTION,
1871. . 1870. 1869,
1000 frs. 1000 frs. 1000 frs,
Articles of food... ... 983,677 ... 720,844 ... 693,828
Raw materials and

natural productions 1,862,296 ... 1,679,988 ... 2,030,618
Manufactures ... ... 814,591 ... 218,560 ... 264,616
Other articles ... ... 232,685 ... 161,918 ... 164,009

Total ... ... 38,893,249 ... 2,781,870 ... 8,153,071 ©
EXports OF FrencH PRODUCTIONS,
Manufactures ... ... 1,620,911 ... 1,562,429 .., 1,756,320

Articles of food, raw

materials, and natu-

ral productions ... 1,110,522 ... 1,181,848 .. 1,185,667
Other articles ... ... 134,180 .. 115,850... 132,954

 

—

Total ... . 2,865,613 ... 2,860,127... 3,074,941
26 THE COST OF THE FRANCO-GERMAN WAR.

These are not the figures of a trade which has diminished ;
it is rather an increasing trade. But the explanation is very
simple. One is, that great internal losses would be likely to
cause a large export for realisation, while after the war was
quite over the imports would at first increase largely, in
order to replenish stores and warehouses and set many
establishments going. Another explanation of the increased
external trade is also to be found in the fact that two
provinces between which and the rest of France there was
formerly a most intimate home trade have, for the first

time, become external; so that what was formerly home ™

trade is now reckoned as foreign. In reality, the figures
prove a falling-off of business, though the exact amount
cannot be stated, and may not correspond exactly to
the exact diminution of manufacturing production in
France in the years of war.

So much for the loss of income sustained by Frenchmen
during the war. But not only does the suspension of
business by war and invasion cause a loss of present
income to a community, it entails a permanent depreciation
of producing power, that is, of the annual income which
the community is capable of earning—on which some
estimate ought also to be placed. It is certain that some
such depreciation is certain to occur. The connections of
great establishments are destroyed, the staff is broken up,
many labourers have been killed or injured, the business
which is resumed after a war, at any rate after so prolonged
an interruption of its usual course as French commerce
sustained, is never precisely the same as it was before the
war. Of course any estimate of the present capital value of
an annual loss of income of this kind must be very wide
indeed. Fortunately there is one French tax which appears
to supply data for such an estimate. We refer to the Trade
THE COST OF THE FRANCO-GERMAN WAR. 27

Licence Tax, which applies a varying scale to nearly every
class of merchants and traders, according to the size of the
towns in which they reside and the nature of business they
pursue. Any great convulsion in business diminishing
the amount of its profits must seriously affect the tax:
many traders will be declassed; others will be driven from
business altogether and occupy the place of labourers or
assistants to larger capitalists; there will be a great deal of
migration, during which capital will be locked up, or at
least will be less productive. There will also be a great
deal of emigration which will have the same effect, even if
the emigrants, as will probably happen, should ultimately
return. All the changes will cause the licence tax to be less
productive, though perhaps the diminution may not go
quite so far in proportion as the diminution in the earning
power of the community. The scale of the tax remaining
the same, and most people refusing to change their business
even if they make less out of it than before, the result will
be that the tax will yield nearly the same as before in
proportion to the numbers affected, but those who pay it
may all be somewhat poorer. Insufficient as the test is,
however, it is the only one we have got, and it is perhaps
better than none. The way to apply it will be to calculate
what the annual loss of the business income of France will
be if it suffers in the same proportion as the licence tax,
and then multiply the sum so obtained by the number of
years’ purchase we may consider the income to be worth.
According to the Budget of 1872, the loss on the
“principal” of the licence tax due to the general effects of
the war is between 3 and 4 percent. The total deficiency,
as compared with the estimate for 1871, which was made
before the war, is £168,800, equal to 7 per. cent on a total
yield of £2,462,000; but of this deficiency, about £80,000,
28 THE COST OF THE FRANCO-GERMAN WAR.

or 3°3 per cent., is caused by the transfer of Alsace and
Lorraine to Germany. ‘There remains, therefore, only
£88,000 which can be ascribed to the general effects of the
war, and the per-centage of this loss is about 3°7, or say
4 per cent. If this test is fairly applicable, then we may
assume that France has lost about one twenty-fifth part
of its earning power in business in consequence of the war—
that is, one twenty-fifth part of the above annual sum of
£280,000,000 which we have reckoned as the income
of the French people, independently of their agriculture,
or an annual loss of £11,200,000. How many years’
purchase must we reckon to ascertain the equivalent capital
value of this loss? This point must plainly be left a good
deal to conjecture, but the equivalent, we should think, will
be at the very least ten years’ purchase, making the loss
£112,000,000. The value of businesses reckoned by
multiples of the annual income yielded varies indefinitely,
and perhaps ten years’ purchase would be too high an
average in. such a country as England, where profits are
large in consequence of the large amounts which traders
are able to borrow in addition to the capital they them-
selves embark; but in a country like France, where there
is far less credit, and business capital, amount for amount,
is consequently less profitable, ten years’ purchase is pro-
bably rather too little than too much. At any rate, it
does not appear extravagant to reckon that a war like last
year, and the invasion which followed, besides the immediate
loss of income and heavier taxes which they entailed, should
have cost the business men of France the equivalent of
£142,000,000, or £11,200,000 per annum. There must
have been a large loss of some kind on this head, and we
do not see how it can be reckoned at less.

Probably the agricultural income of France may have
THE COST OF THE FRANCO-GERMAN WAR. 29

permanently suffered in the same way, but it can hardly
have suffered much, being almost independent of the credit
and connections which make the life of business. A long-
enduring war would have injured agriculture greatly,
especially the culture of the grape, through the loss of
markets and the displacement by competing vine districts,
but a single winter’s war could have no such effect.

We have still one more head of indirect loss to consider,
viz.: the loss of life and the invaliding of wounded and
sick. But we must pass these over very slightly, as losses
on which no pecuniary value can properly be placed. We
subjoin a calculation of what the capital value of the lives
affected by death or invaliding in the French Army may

 

 

come to :—
Estimate of money value of lives destroyed or injured in French
Army :— ;
80,000* killed ...... bbue Aisa coe Shee? Sh 30,000
30, ‘000* totally dqalided ,. ate vee res 30,000
90,000, * about one-eighth jagalded, on ihe average 10,000
Complete lives destroyed (say) BE was? eee! Svs 70,000
Average earning power, £40 perannum ww wwe £40
Total annualloss ... .. see eee vee £2,800,000
Present value of annuity of £10 on single life at bee
of 25, and reckoning 5 per cent. (Carlisle Tables) £15

Estimated capital value of lives lost or invalided £42,000,000

 

The total is £42,000,000, and we doubt if the loss or injury
of life in an economic sense could be more. Still the caleu-
lation must only be taken for what it is worth, an imperfect

* According to these figures, our estimate of the total killed and
wounded in the French armies, is 150,000, but there are few official
data, and we have been obliged to make the best estimate we can from
scattered and contradictory notices in books on the campaign. The
German losses, reckoned in the same way, were about 100,000.
30 THE COST OF THE FRANCO-GERMAN WAR.

way of representing in money the material loss which is
certainly occasioned by the destruction of human life. In
addition we should probably reckon that the loss and injury
of life among civilians produced a similar loss. In Paris
alone it is reckoned that the additional deaths due to the
war were as follows in 1870 and 1871 :—

Deaths in 1870 6... cee. ene, tee nue tee ee wee 78,581
Ditto. VTL ave ae! ew ge en ae ena ONS

 

: 173,526
Less average mortality of two years... ... eo ee 90,000

 

Total due to war ... 1... see ee cee eee ee |S 83,526

There must have been great injury to life beyond this ©
where the additional mortality is so large. Throughout the
country and in the numerous besieged places there would be
a similar loss of civilian life by privations, but considering
that Paris was exceptionally tried, and that the above total
of 83,000 would include the deaths of the soldiers in Paris,
it would, perhaps, be unsafe to put the total deaths through-
out France owing to the war at more than 200,000. And
of these one-half would be aged, of hardly any economic
value compared with the young, whose expectation of life
‘is at its highest.* Taking the loss of civilian life, therefore,
as the basis of the preceding calculation at 100,000
units, the present capital value would be £60,000,000,
which will fall to be added to the above £42,000,000
of Army loss—in all £102,000,000. We repeat,

* Since this was written the fact of an unusual mortality having

been occasioned directly and indirectly by the war, has been confirmed
by the Census Returns of 1872.
THE COST OF THE FRANCO-GERMAN WAR. 3h

however, that this calculation is only given pour mémoire,
and to render a little more definite the conception
of the losses which are involved in war. It should be
remembered, besides, that part of the losses on this account
—so far at least as they affect the surviving community—
must have been reckoned under the previous head, there
being nothing to distinguish the failure of the licence tax
through the death or invaliding of the licencees from the
failure which is due to more general causes. In any
general sum of the expenses of the war it would be improper
to include both items to the full amount if they could be
exactly ascertained.

The indirect losses of the French, therefore, in the war
omitting any direct estimate for the value of lives lost or
injured, may be summarized as follows :—

*1, Loss of income in 1870-71 ... ... ... ... £150,000,000
2.. Loss of permanent business, equal to... ... 112,000,000

Total Indirect Loss (say) ... se. ee ove ~=£262,000,000

We come, then, to the German losses of a similar nature,
which may be very shortly. dealt with. ‘Che principal
causes of the great loss which France has sustained did not
affect Germany. These causes, as we have seen, were not so
much the abstraction of labourers from their employments,
as the suspension of business through invasion. The loss of
life in Germany was, moreover, confined to the Army, the
privations of civilians, at least, being of the most insignifi-
cant kind compared with French privations. The indirect
loss of Germany may therefore be summed up in the loss by
abstraction of labourers, equal to estimated loss of France
as above, or about £50,000,000; the loss by deaths and
invaliding of soldiers, which we mention pour mémoire,
82 THE COST OF THE FRANCO-GERMAN WAR.

“would be about two-thirds of the estimated loss of France as
above, or about £30,000,000.

We do not think it would be of any use reckoning
anything beyond this for the suspension of business in
Germany. Business, in fact, went on pretty much as usual.
Though the German ports were blockaded, the ports of
Belgium and Holland were open, and Germany retained
all its land communications unimpaired. Loss, therefore,
could hardly arise except to a quite inappreciable extent,
for which it would not be worth while to make allowance..
There is the more reason for this, too, because it is more
than doubtful whether the loss by the abstraction of labour
is not over-estimated, the labour having been abstracted, as
we have already explained, at the season least injurious to
-agricultural pursuits. So far as any loss of the kind could
be traced in its effect on German revenues, we have no data
to go upon, the receipts of the various Governments having
gone on increasing as if there had been no war.*

We may end our inquiry into the indirect losses at this
point. No doubt other countries besides France and
Germany were made to suffer—England especially; but
the amount of the injury, even if not compensated by some
indirect gains consequent on English manufactures
temporarily or permanently displacing those of the belli-
gerents, is lost in the enormous magnitude of the business
over which the loss would be spread.

* Something should perhaps be added for the indirect manufac-
turing losses of Alsace and Lorraine, but business there was not
nearly so long disturbed as in the non-ceded districts of France, and
the above allowance for German indirect losses is believed to be

liberal enough in any case to cover those of the newly-acquired
province,
THE COST OF THE FRANCO-GERMAN WAR. 33

1II—GENERAL SUMMARY OF THE COST OF
THE WAR.

_Havine thus gone through the various items of expense and
-loss consequent on the war, we may see what the whole
amounts to. The totals are as follows :—

FRANCE,

Credits for carrying on war, re-equipment, é

and the like... ... 0... see tee | oe £120,000,000
Requisitions and fines levied by Germans :

and destruction of property in the war. 44,000,000
Capital value of war pensions ... ... ... 5,000,000
Indirect losses, omitting estimate for loss

Of life 1.0.0 6c. cee nee nee cee nee vee 262.000,000

‘Total for France... se see tee tee tee vee ££31,000,000

 

 

GERMANY.
Credits for carrying on war and for re-
equipment ... «0... see eee vee ~£60,000,000
Capital value of war pensions eae “denn ate 5,000,000
Indirect losses, omitting estimate for loss of :
Mfe ack ee ase as we ove 80,000,000
Total for Germany... 2. see eee eee eee eee 115,000,000
Grand total of cost of war... ss. see eee eee £546,000,000

At this rate war is not so very cheap as it appeared when
we looked only at the direct expenditure. It cost the two
belligerents in seven or eight months about half their gross
income, and such figures imply a very large exhaustion of
stored-up capital. Even at this rate, however, it would
no doubt have taken a long time to exhaust the material

resources of France and Germany.
: D
384 : THE COST OF THE FRANCO-GERMAN WAR.

IV.—THE PERMANENT LOSS OF CAPITAL.

Ur to this point we have been discussing the mere cost of
the war, without any reference to the funds out of which it
was to be defrayed. As we have already explained, the
two questions are entirely distinct in theory. A very costly
war may result in little or no permanent loss of capital, the
belligerent nations paying the expense entirely out of their
income, and likewise saving out of their income enough
capital to compensate those indirect causes of subsequent,
annual loss which we have discussed at so much length.
On the other hand, a very cheap war may prove burdensome
from the mode of dealing with its finance. A nation may
go on living as usual, and the capital burden will then prove
very heavy. What usually happens, in fact, is the sub-
mission by the generation which carries on a war to the
quasi-necessity of bearing a large part of the cost. The
Governments, to secure credit for borrowing, if for no other
purpose, must go as far as they prudently can in imposing
taxes. Individuals who suffer loss of income have often no
capital which they can trench upon, and will they nill they,
must adjust their expenditure to their income. Those who
have capital will try every possible expedient to keep it from
diminishing. It is in this way that war, as a rule, is so
quickly recovered from. A large part of the cost figures
only as so much privation of those who carry it on.

Going over the items constituting the above total of
£546,000,000 seriatim, we believe it will be found that a
very large part indeed is not a permanent loss of capital, but
is exclusively a loss endured at the time by the various
victims of the war. Taking first the French expenditure,
the principal item which became a permanent loss appears
THE COST OF THE FRANCO-GERMAN WAR. 35

to be the direct expenditure by the Government, amounting
to £120,000,000. No part of the extra war expenditure
either of 1870 or 1871 was provided out of revenue. As
regards 1870, the case stands thus :—

BupGeET oF 1870.
Amount of peace expenditure ... ... w. «0. £72,440,000
_- War expenditure 4... soo oe ene 62,840,000

 

 

Total expenditure ee ss vee vee £135,280,000
Estimated receipts, exclusive of Joana vee eee 61,040,000

Deficit 02. 1.5 cee cae cee tee cee wee «= £74,240,000

The receipts were thus insufficient to meet the current peace
expenditure, much less defray any portion of the war
expenditure.

As regards 1871, the account will stand :—

BupGet oF 1871,
Rectified amount of peace expenditure ... ... £70,840,000
Amount of war expenditure 0... 6. eee wee 35,082,000
£105,922,000

Estimated receipts, exclusive of loans ... oe. 66,800,000

 

 

Watts ahha: gk Ga wee Sa: ew, EO ORION

Here, again, the estimated receipts are insufficient for the
current peace expenditure.

The whole war expenditure of the two years has thus
been defrayed by borrowing, and constitutes a permanent
burden on the country.

The second important item is the sum of £44,000,000
for fines and requisitions, but a large part of this amount, if
not the whole, will probably be defrayed out of revenue.
This would be the case with the French taxes levied by the

D2
36 THE COST OF THE FRANCO-GERMAN WAR.

Germans, and a large part of the requisitions, losses by fire
and war, and the alleged plunder of the Germans, would be
dealt with in a similar manner by the individuals concerned.
They make claims for reimbursement against their Govern-
ment, but in the meantime they have charged the expense
‘to revenue, and not to capital. How much has gone to the
‘one account and how much to the other it would be
impossible to say, and to divide the amount equally between
the two heads where there are absolutely no data will
perhaps be the safest plan. On the other hand, the Parisian
contributions of £12,000,000 have certainly been charged
against capital. The whole item of £44,000,000 may
therefore be distributed as follows :—

CHARGED AGAINST CAPITAL.
Parisian contributions cee vee ~£12,000,000
One-half of remaining items ... 15,064,000
: —— £27,064,000

 

CHARGED AGAINST REVENUE,
Taxes levied by Germans ... ... £1,960,000
One-half of remaining items .., 15,064,000

 

17,024,000

Total as above — ssn nun ee nue tee eee £44,088,000 _

 

The direct expenditure of Germany, £60,000,000, was
also defrayed entirely by loans, or by contributions of the
French indemnity, which were entirely supplied out of special
loans raised by the French Government.

The remaining item of £10,000,000 which we have
mentioned as the capital value of the new war pensions is
also a capital charge.

We come, then, to the indirect expenditure. The loss of
income through the suspension of business was substantially
a charge on the income of individuals. Many people, as we
THE COST OF THE FRANCO-GERMAN WAR. 3F

have explained, had no capital to fall back upon, and the
- unwillingness of owners of capital to trench upon it is also
quite intelligible. In fact, all accounts from France agree
in the statement that nothing could exceed the desperate
pinching of the people during the progress of the war.
' Some capital, however, must have been lost through this
‘loss of income, in consequence of savings which would
otherwise have taken place not having been made. All
the usual savings would not be prevented, the pinching
being most unequally distributed, but say two-thirds were
prevented. We should then have a loss of capital due to
‘this cause amounting to about £60,000,000, the annual
savings of France being at least £60,000,000, if not more,
so that the usual savings for eighteen months would be
£50,000,000.

On the other hand, while Frenchmen individually may
have pinched to the extent of the £150,000,000 which
we have estimated as their loss of income, they increased the
burdens of the State by not paying taxes enough to meet the
usual peace expenditure. The difference on this head in
1870 was £11,000,000, and in 1871, £4,000,000—a total of
£15,000,000 falling to be added to the amount of savings
prevented. We must also deal in the same way with
£4,000,000 of Paris revenue lost, making the total charge
to capital £79,000,000.

The second item of indirect loss, amounting to
_ £112,000,000, is also a charge on capital, representing
a permanent deficiency of earning power.

As regards German indirect expenditure, it may be
considered that in the circumstances it has nearly all been
borne by income. £50,000,000 is not a very large
deficiency, and would be easily covered by the privations
of those concerned, while the saving of other classes in the
38 THE COST OF THE FRANCO-GERMAN WAR.

actual circumstances of the war may have gone on as usual.
We may divide the amount equally, however, between
capital and revenue.

' Summarizing the account just given, the whole war
waste, exclusive of the value of destroyed or injured lives,
will have been borne by capital and revenue as follows :—

FRANCE,
: Capital. Revenue.
Direct war expenditure of France ... £120,000,000 © sss
Requisitions, fines, &. ... 4... 27,062,000 £17,022,000
War pensions of France ... ...  «. 5,000,000 sees
French loss of present income... ... 79,000,000 71,000,000
Capital value of depreciation of
French earning power ... ... ... 112,000,000 saseoe
GERMANY.
Direct war expenditure of Germany 60,000,000 senses
German indirect losses... ... ... 25,000,000 25,000,000 -

War pensions of Germany ... ... 5,000,000 see

 

 

Total for France and Germany... £433,062,000 £113,022,000

Four-fifths of a total expenditure of £546,000,000 which we
consider to be the expenditure, exclusive of lives destroyed,
may thus be considered a capital charge upon the resources
of the communities concerned. Ht is probably equal to
about five years’ savings of France and Germany combined.

The distribution is, of course, very unequal, the capital
loss to France being £343,000,000, and to Germany only
£90,000,000; and the revenue loss to France being
£88,000,000 against £25,000,000 primarily paid by ;
Germany. But this and other inequalities in distributing
the burden, we reserve for further discussion.

We need state very briefly the conclusions from these
facts. Even a loss of capital of £400,000,000 cannot be
THE COST OF THE FRANCO-GERMAN WAR. 39

considered a very serious drain on the resources of two such
countries as France and Germany. Four years’ saving will
very soon be made up, say in two or three years, for one-
fourth of the loss consists of savings prevented during the
period of the war, viz.:—

French savings prevented ... 1... 0. ess eee £79.000,000
German, % tes aes aes, Gar ew 25,000,000

“MBotal a> aah Sse! Ghee and. ac oes NOE, 000,000

 

so that there is only £300,000,000 of actually stored-up
capital wasted, and requiring to be made good by subsequent
thrift. In three years, then, the people of the two countries
should be as well off as they were before the war, if no other
circumstances had to be considered. The war would still
have injured them and thrown them back. Although in
three years’ time they might have been as comfortable as
they were before the war, they would not have been exactly
as if the war had not happened, because the intermediate
savings which now make good a past loss would wholly or
in part have been added to the previous wealth. Probably
at some early date they might have caught up their lost
ground in the race by more energetic saving, so that there
would have been little permanent loss of capital after all.
Such saving would of course increase the amount. of the
‘losses of the war which would have been charged to the
revenue of the existing generation, but the effect in
diminishing the permanent loss of capital is all that we
are now considering.

Nor could the loss of permanent capital be thought very
severe if it.had fallen on the two nations in the proportions
originally defrayed by them. To Germany the loss would
only have been £90,000,000, viz. :—
40 THE COST OF THE FRANCO-GERMAN WAR.

£60,000,000 for direct expenses.
5,000,000 for war pensions.
25,000,000 for indirect expenses.

 

£90,000,000 in all,

—which is no very great amount, probably about one and
a-balf years’ savings. To France the loss would have been
four times as great, viz. :—

£120,000,000 direct Government expenses.
5,000,000 war pensions,
27,000,000 requisitions, &c. 5
79,000,000 present income charged to capital.
112,000,000 depreciation of earning power.

 

£343.000,000

—or about one-half more than if the amount had been
equally divided, and equal perhaps to five years’ savings
instead of three. France therefore might have been
expected to take two years more to recover than if that
equal division had taken place. That is to say, it would
have been five years after the war instead of three before
the lost ground was recovered. No doubt the means of
saving would be diminished by the interest which must be
paid on the lost capital, but the former rate of saving, as we
have already explained, will, for other causes, be increased
rather than diminished.

We have still, however, to look at the subject from
another point of view. The arrangements at the peace
have complicated the question by shifting the burden, and
perhaps more than the burden, on to the shoulders of only
one of the belligerents. What changes have thus been made
THE COST OF THE FRANCO-GERMAN WAR. 41

in the effects of the war losses, both as respects the total
charge, and as respects the permanent loss of capital which
each has to bear ?

V.—THE INDEMNITY AND CESSION OF TERRITORY
AND THEIR RESULTS,

ToERE are two ways in which the incidence of -the
burdens of the war was changed by the terms of the peace,
One of these—the money indemnity—is very easily de-_
scribed. In addition to all their other burdens and losses,
the French people were made to pay to Germany a sum of
five milliards of francs, or two hundred millions sterling.
Germany had so much less to pay, and France had so much
more. And there are no qualifications or deductions to be
made. The value of the Alsace and Lorraine Railways,
amounting to £13,000,000, was indeed deducted, but only
as between the Governments of France and Germany. As
they belonged to a French company which had other lines
in French territory, and had close connections with the

_ French Government, Germany preferred to buy them, and

instead of doing so by an actual payment in cash, deducted
the value from the money indemnity it had to receive. But
the French Government in turn had to come under
obligations to the Railway Company for the amount. It

‘bought the railways at a stipulated price, and transferred
“them to Germany at the price of £13,000,000, in place of

paying Germany so much money. This was no real

- deduction from the total indemnity of £200,000,080 which

was stipulated to be paid. Nor are any deductions, at least

- none worth speaking of, to be made on account of delay
42 THE COST OF THE FRANCO-GERMAN WAR.

in the terms of payment. The stipulations of the Treaty
are precise—£40,000,000 to be paid within a year, and the
remaining £160,000,000 within three years after ratification,
but of this latter amount £120,000,000 is to bear interest at
5 per cent. from the date of the Treaty till payment. Any
deductions, therefore, to be made for delay in payment apply
only to a sum of £80,000,000, and of this sum £40,000,000
was in any case to be paid within a year, while the
guarantees for paying the remainder were so stringent that
the French Government in fact took care to pay the whole
£80,000,000 by the beginning of March in the present year
[1872]. The haste of payment caused the French to pay a
good deal on account of commissions to bankers and loss
by exchange, and these are a set-off against any advantage
gainéd by having to pay no interest from the Ist of March,
1871, to the time of payment. France has thus had to pay
to Germany £200,000,000 net.

The other mode in which the incidence of the war losses
and expenses was changed, and the burden shifted from one
belligerent to the other, may require a little explanation.
This was the cession of the greater part of Alsace and
Lorraine to Germany, viz., the departments of Haut-Rhin,
Bas-Rhin, Moselle, and parts of Meurthe and the Vosges.
The territory in question was ceded without any deduction
for the value of the public property it contained, or for the
share of the French debt estimated to belong to it, or for its
estimated value as a source of revenue. The effect of this
arrangement necessarily was to increase the burden of the
charges of the French State on the diminished territory and
people. The diminished France was also less able to bear
any increase of debt and taxes. It may be said, perhaps,
that France was additionally burdened by no deduction
being made for the debt, but nothing more, as. the other
THE COST OF THE FRANCO-GERMAN WAR. 43

expenses of government ought to be proportioned to the
smaller area; but this is a narrow way of looking at the
burdens of a great Power. A change of one or two millions
in its people either way leaves it in pretty much the same
position as it was before as regards its international duties
and dangers. Itisstill practically the same unit, and most of
its expenditure must be determined without any reference to
the increase or loss of territory. The cession of territory,
therefore, is a real loss, and its acquisition a real gain,
without any drawback in either case so far as the material
resources and taxpaying powers are concerned. France lost
and Germany gained in a most distinct and measurable
degree by the transfer of the two provinces from the one to
the other.

The loss, measured by population, is about the one-and-
twentieth part of France. According to the census of 1866,
the population then was 38,067,000, and the cession would
reduce the number by 1,597,000. As the debt of France
after the war is close upon £1,000,000,000, it would follow
that the diminished France has, in fact, been burdened with
an additional debt of about £50,000,000 beyond what it
would have to bear if the provinces had not been ceded.
And the total addition to its burdens would be more than
double that, as the interest of the debt is only about half
the annual State expenditure which the French people have
to meet.

There appears to be a more exact way of looking at the
matter, however, and that is by comparing the revenue-
yielding power of the ceded provinces with that of the rest
of France. The comparison is not difficult to arrive at.
The State revenue of France before the war was as nearly as _
possible £75,000,000, of which, as we have seen, the amount
yielded by Alsace and Lorraine was £2,400,000. The
44 THE COST OF THE FRANCO-GERMAN WAR.

ceded provinces, therefore, were hardly equal in econom
vigour to the one-and-twentieth part of France, and the
share may be more fitly stated at the thirtieth part. Sti
the deduction of a thirtieth would represent a very conside
able sum, and the share of the increased debt alone would |
upwards of £33,000,000. Double that amount, as abov
would make the French loss of capital by the cessic
£66,000,000. Perhaps the following will be the mo
accurate way of arriving at an estimate. The revem
ceded at twenty years’ purchase—which is not an excessi\
estimate for a country which has to borrow at 5 per cen
and upwards—would represent a capital of £48,000,000, ln
as France has had to increase its revenue one-third, we me
consider that Alsace and Lorraine could have paid at lea
one-third more, or £3,200,000, making the equivale
capital at twenty years’ purchase £64,000,000. We me
consider, therefore, the loss ‘of Alsace and Lorraine -
France as equivalent to a loss of £64,000,000. In 1]
case of any ordinary cession, half of this sum would at lea
bave been allowed as the share of the debt, and the provin
was at least worth half as much again,

Some small allowance ought perhaps to have been mac
for the diminished expense of collecting the revenue and tl
diminution of one or two other charges, but suppose a tent
to be allowed—and this would far more than cover tl
saving in collecting the revenue—the capital loss to France «
account of the cession would still remain about £60,000,00
Per contra, however, we ought to have added as part of tl
French loss the value of national property in the tv
provinces. The public buildings, fortresses, and simil
property represent very large sums, and we cannot be f

wrong therefore in retaining £64,000,000 as the figure f
the total loss.
TYE AL Uk

THE COST OF THE FRANCO-GERMAN WAR. 45

Such, then, has been the result of the arrangements for
the peace. Germany gets £264,000,000 to set against her
outlay and losses, and France has £264,000,000 more to
pay. To both countries the change makes an enormous
difference in the final accounts of the war.

To begin with Germany, the curious fact will be that the
war in-a material sense has yielded a profit instead of a loss.
Her losses, as we have seen, were only about £145,000,000
(viz., £60,000,000 direct outlay of Government, £5,000,000
for new pensions, £50,000,000 for loss of income and
capital, and £30,000,000 for loss of life). The war having
brought in £264,000,000, she is a gainer of the enormous
amount of £119,000,000. This is putting her loss in the

most extreme form. Omitting, however, the very excep-

tional item for loss of life, the losses and outlay of the
surviving community can only be put at £115,000,000, and

_as they have got £264,000,000, the net gain by the war is’

£149,000,000, or, in round numbers, ONE HUNDRED AND
FIFTY MILLIONS STERLING.

The result is still more striking if we consider only the
permanent loss of capital. Germany, as we have seen, lost
permanently, that is spent out of capital instead of out of
revenue, only about £90,000,000. The above £264,000,000, .
however, is all capital, so that Germany begins the world
again after the war with £174,000,000 to the good. What-
ever justice or injustice there may have been in exacting an
indemnity from France, there need be no disguising the
fact that the indemnity not only makes good losses, but
actually enriches Germany. It is about as much to the
Germans as two years’ arduous savings, if not more, and
no such windfall, it may be safely said, ever fell to the lot
of any community as the result of seven months’ war. To
be quite just, we must, of course, recognise that the gain by
46 THE COST OF THE FRANCO-GERMAN WAR.

such a cession as Alsace and Lorraine is very apt to be los:
to the nation, the Government taking care to spend the
additional money it gets, and not remit the taxation of it
subjects in proportion. Even the gain by the indemnity
will be less than a similar accession of capital by industrial
savings would be, because it will be received by the Govern-
ment, and not by individuals. But after all deductions, nc
such money can come into any State without adding to the
general means, and enriching every single member of the
community. The prospect of such an indemnity more than
justifies the eager expectation with which the Germans have
discussed its payment.

What Germany has gained France has lost, and as
regards France, the net resuilé must be to swell its already
gigantic losses to an enormous total. The whole cost
primarily borne, excluding the doubtful estimate for the
value of the lives lost or injured, was £431,000,000, viz. :—

Direct expenses of Government toe see eve ~=£120,000,000

Requisitions, fines, &. kak kee cee ee 44,000,000
War pensions... wees - kt, Gove Shee aes 5,000,000
Loss of income, 1870- m1 dah Babe, oy see eee 150,000,000

Depreciation of French earning power ee see 112,000,000

Total... tes ase eee oes £431,000,000

To which we must now add,—

For indemnity... ... . ... £200,000,000
For ceded territory... 22. os 64,000,000

————  £264,000,000

Total ... tee cee ee eee eee nee «= 695,000,000

making in all the formidable sum of £695,000,000, or, in
round numbers, SEVEN HUNDRED MILLIONS sTERLING. ‘Lhis
is of itself very nearly as much as the English National
Debt, and very much more than the National Debt of
THE COST OF THE FRANCO-GERMAN WAR. . 47

France before the war. Excluding any direct estimate for
lives lost and injured, this is the total loss strictly falling
upon the surviving French community, and either borne by
them out of their current income, or paid by capital on
which they will have to suffer a loss of interest in future.
The amount is truly enormous,—more than one year’s
aggregate income of the people, and six times as much as
. the entire annual revenue of the State, both for national and
local purposes.

The permanent loss of capital is almost equally serious.
The amount so lost, apart from the indemnity and cession
of territory, was about £340,000,000, and the losses now
being dealt with being entirely from capital, the total
permanent loss of capital will amount to £600,000,000.
While Germany therefore starts in the world about
£174,000,000 richer by the war, France is rather more than
£600,000,000 poorer. In this case there is no doubt about
the effect of the loss of territory. . Whether the Germans
gain by it individually or not, it is certain that every
Frenchman loses. The three millions of revenue which the
ceded provinces could have been made to yield are missed in
the French budgets, and their absence aggravates materially
the difficulty of the search for new taxes—in other words,
compels the French Government to impose indefinitely more
disagreeable burdens on the diminished population than
‘would otherwise have been required.

We can now obtain a comprehensive view of what the war
has really cost the French. Divided among a population of
36,500,000, the total of £695,000,000 represents a sum of
£19. per head, or, taking the average French family as four
"persons, a sum of £76 per family. This was the entire cost
of the war payable out of revenue and capital, but nearly
an eighth was paid out of revenue, and the remainder,
48 THE COST OF THE FRANCO-GERMAN WAR.

£603,000,000, which is the burden upon capital, represents
a sum of £16 10s. per head. The English National Debt at
this moment is £26 per head, so that in one short war the
French have lost tliree-fifths as much capital per head as the
individual share of the English people in that debt which has
hitherto been regarded as the most gigantic and oppressive
burden upon the resources of a nation.

In comparison with the aggregate annual income of the
French people, the loss is, roughly speaking, about one
year’s income, and estimating the annual savings at about
£60,000,000, must be about ten times the amount of these
savings. In ordinary circumstances, therefore, it would take
nearly ten years for France to recover lost ground. With-
out the loss of territory and without an indemnity to pay,
the French had lost as much as would probably have taken
five years to recover, but the indemnity and the cession very
nearly double the wound. For reasoris already suggested,
' the period of recovery may, in fact, be less—will probably
be very much less—but the natural effect of the loss is to
put France about eight years behind in its industrial career:

The greater part of the capital loss, it should be under-
stood, falls upon France collectively, that is, upon the
_ French State. Of the above total of £603,000,000, only
two items will finally be borne by individuals, viz. :—

Current loss of income borne by individuals ... £60,000,000* ©
Other indirect losses 2. 1. eee vee nee eee 112,000,000

 

Total... 1. eee cee ee tee vee ae, £172,000,000

* The aggrégate loss of income was estimated above at £150,000 000,
and the amount charged to capital was £79,000,000, viz., £60,000,000
of individual savings prevented, and £19,000,000 charged to the State
and to Paris by the payment of taxes being diminished, so that the
revenue in 1870-71 was insufficient for the ordinary peace expenditure
by £15,000,000.
THE COST OF THE FRANCO-GERMAN WAR. 49

leaving £431,000,000 to become a charge upon the State.
This sum is made up as follows :—

Direct expenses of the war ... 0 2. oe see «s£120,000,000

War pensions ... 1... see vee see eee tee vee =: 5,000,000
Requisitions, &,  ... eee uke nee eee eee vee 27,000,000
Indemnity... 2.0 16. ese see vee we we eee 200,000,000
Cession of territory ... tee eee ave 64,000,000

Loss of individual income in ‘187 0- 11 thrown on
State by diminished payment of taxes ... ... 15,000,000

Totalsc,. Gai. see, FG. Gee. Gb abe acB4S1, 000,000

And the charge upon the State may be increased, and
that upon individuals diminished, should the State finally
repay not only as much of the requisitions as we have assumed
to be charged to capital in private accounts, but the whole
amount. That the charge is in no way exaggerated will be
readily seen, if we compare the actual cash transactions of
the French Exchequer during the last few months with the
obligations which are still impending, and it we also inquire
into the amount of the annual burden which will now fall
upon the State. The accounts of the Exchequer will

stand :—

In the budget of 1870 the ee of fe

exclusive of loans, WaS «see vee tee wee £74,240,000
In the budget of 1871 it was... ... ws ove = 89,122,000
The indemnity paid in 1871, deducting value of

Alsace and Lorraine Railways. was... ... ... 47,000,000

Total actually borrowed ... ... .. ---£160,362,000

To this we must add obligations outstanding at end of 187), and
the capital value of annual charges incurred without actual borrowing,
viz. :—

E
50 THE COST OF THE FRANCO-GERMAN WAR.

Indemnity remaining due after 1871 (three and

ahalf milliards) ... .. vee eee oe £140,000,000
Value of Alsace and Paening "Railways see eee =: 18,000,000
New war pensions .. es. eee ee eee eee eee 5,000,000
Requisitions, &. ... see eee eee tee ee nee 27,000,000
Ceded territory... se eee vee 64,000,000
Amount of special budget for liquidating arrears

Of War we. see cee cee eee nee eee eee eee 20,000,000

Total 10. ose nun nee cee eee ene vee 429,362,000

At 5 per cent. the amount would involve an additional
annual burden of about £21,000,000, and we find that, in
fact, if the charge is less, it is due to a species of forced
borrowing from the Bank of France at less than the market
rate of interest. The French Government affirms that its
agreement with the Bank is no injustice to the shareholders,
the monopoly of an extended note-issue enabling the Bank
to lend cheaper, but if the monopoly is worth much to
the Bank, it would have been worth much to the State,
and the transaction is, in fact, a sale by the Govern-
ment of a certain privilege for the difference between the
rate of interest which it does pay and what it would have to
pay borrowing at the market rate. The additions to the
annual charge of the debt traceable to the war as shown in
the budget of 1872 are as follows :—

Interest on loan of £80,000,000 (in 1871)... ... £5,556,000

Ms i" 30,000,000 (in 1870)... ... 1,584,000
x » 10,000,000 (in 1870) ... ... 600,000
9 », from Bank « 867,000
» payable to Kastern of France Thaleay for

Alsace Railways ... ve ee 650,000
»  -payable to Germany on £120, 000, 000 of

indemnity at 5 percent. .., ... ... 6,000,000

New military pensions... 14. ss. ase eee eee 148,000

 

 

Total new debt charges in budget... ..- +--£14,905,000
THE COST OF THE FRANCO-GERMAN WAR. 51
Add,—

Alsace and Lorraine revenues lost... 04. se «« £3,200,000
Difference between interest paid to Bank and

interest payable at 5 percent. ... 0... .. ae 2,633,000
Interest on requisitions, &c. (£27,000,000) ... ... 1,350,000
Five per cent, interest on £20,000,000 for apecial

budget to liquidate war-arrears ... ... .. «.. 1,000,000

Total annual charge... ... 1.5 eo 0  ..£23,088,000

 

The whole charge before the war for “debt and dota-
tions ”’ was £22,300,000, so that it is no exaggeration to say
the annual burden has been really doubled by the war and
its consequences to France. The whole additional charge
which yet appears in the budget is £14,900,000, but more
than £3,000,000 must be added for loss of the revenues
of Alsace and Lorraine, and even if we add nothing for the
interest under-paid to the Bank, there are still two sums
amounting together to over £2,000,000 in suspense, which
the State must undertake to pay before it can fully dis-
charge all the arrears of the war. If it does not pay the
£27,000,000 for requisitions claimed—only a part of the
total claim—the charge on individuals and local authorities
wili be increased, but it can in no way escape the burden of
£20,000,000 for liquidating the arrears of the war.

The amount is of course an unprecedented addition to
the annual burdens of a people by the events of one
calamitous year. Taking it at £22,000,000, it amounts to
i2s. 3d. per head annually upon each inhabitant of France,
or about 49s. per family. It is nearly equal to the annual
charge for interest on the National Debt of England, for
though the whole annual charg> which appears in our

budgets is £27,000,000, yet the interest at 3 per cent. on
£800,000,000—and we do not pay so much as 8 per cent.

————————— 2

 
§2 THE COST OF THE FRANCO-GERMAN WAR.

on the whole of it—is only £24,000,000, the difference
between that amount and the actual charge being, in fact,
an annual appropriation to repay the capital of the debt.
In one year, then, France has added to her annual State
burdens, besides the loss of individual capital, as much as
the entire charge of our accumulated debt.

Whatever way we look at the matter, then, we cannot
but be impressed with the enormous magnitude of the loss
which France has sustained. The war itself was not so very
costly if both nations had but divided equally the actual
outlay of the Governments, and fought their battles on
some debateable land without incurring the terrible losses of
an invasion. But France was in fact invaded, had to bear
the losses incidental to that state, had to pay, as the war
went on, a large part of its invaders’ costs, and in the end
had to pay an indemnity and suffer a loss of territory which
nearly doubled its losses. The loss of capital and the
addition to the national debt are enormous, while several
years must elapse before France, at the ordinary rate of
progress, is even at the point of industrial prosperity which
she had attained before the war. _

A remark or two may be allowed on one or two points
suggested by these facts. Will Germany, in fact, really
gain much by the indemnity and additional territory in &
material point of view? ‘The capital is really a loss to
France, and the Germans ought to gain, but will they really
do so? If they do not, the transaction will be a net
loss to the world, as well as a special loss to France.
To some extent it must be so. The money is taken
from individuals and goes into the hands of a Government,
and this is a disadvantageous change. Even if the German
Government uses the bulk of what it receives in paying
off the national debts of Germany, so that the money
TIE COST OF THE FRANCO-GERMAN WAR. 53

comes back to individuals again, it will have been a long
time ¢n transitu—consequeutly, for a long time in a condition
of impaired efficiency. ‘The operation is, therefore, a net
loss to the world, and Germany will be far from gaining all
that France will lose. We need not add that if the German
Government should devote the money to any extravagance
—to some fancied Imperial necessity or caprice—the loss
will be very serious indeed. The operation will have all the
effect of a great loan for a pernicious purpose, and it will
make no difference that the Government which borrows is
not the Government which ultimately receives the money.
So far as matters have yet gone, however, the indemnity
appears to be fairly well used in an economic sense, though
it is producing some effects which it is difficult to trace.
The chief good uses are the establishment of a gold currency
for Germany, the repayment of German debts, and as a
result of these the reduction of German taxes. By all these
operations the money which the German Government has
got is being put to useful ends, though it cannot be said it is
so useful as it would have beenif it had never been trans-
ferred at all. Another purpose which the money has been
made to serve is of a more doubtful kind. The German
Government having large surplus funds in hand has become
a lender on a great scale, and is the means of supplying
German speculators and traders, and through them
speculators and traders in England and throughout the
‘world, with stores of cheap money. The money which
Germany pours into the market competes with the ordinary
loanable capital, and has prolonged the period of very
cheap money which set in with 1867. Is the effect of this
diversion of capital in the end to be good or bad?

Probably it makes trade more prosperous for a time than it
' would otherwise be, so that one result of the French
54 THE COST OF THE FRANCO-GERMAN WAR.

indemnity is to give a bonus to the trade of England,
because England attracts the surplus money of the world,
but it would be hazardous to say that an effect so artificially
produced will in the end prove a benefit at all. ‘Trade and
speculation get to depend on the artificial stimulant, and the
crash that may come on its withdrawal, of which there was
a foretaste last autumn, may more than destroy all the
unusual profits it has created.

The second point to be noticed is the probability of
France recovering with unexpected speed. At its estimated
past rate of saving we have been inclined to give it ten years
to recover, and to save £60,000,000 effectually each year it
must really save £20,000,000 more than it did before, for
there is so much more taxation to pay. But all the chances
are that the past rate of saving will be greatly increased.
The anxiety of each individual in a nation which is
habitually thrifty will assuredly be to make up for the
storm which has passed over them by the most desperate
industry and saving. They will seek ina year or two not
only to recover lost ground, but to place themselves at the
point of prosperity which they had looked forward to reach
at a given period of their lives. Jt would not be at all sur-
prising if the phenomenon to be witnessed in France for the
next year or two were the multiplication of the national
wealth by the doubling or trebling of the former savings ol
the people. A few years’ savings of only £100,000,000
would go a long way to fill up the chasm which has been
made in the national resources; and a single bountiful
harvest at such a time would be greedily made use of tc
repair the waste which is still fresh in every one’s remem:
brance. France is very far indeed from being exhausted
though taxes are now difficult to find. A revenue which ha:
augmented a million annually for many years is sure t
THE COST OF TILE FRANCO-GERMAN WAR. 55

have immense elasticity. The existing taxes must soon pro-
vide for all needs, if only the fatal habit of deficits in time
of peace is scrupulously shunned.

VI—THE FINANCE OF THE WAR AND THE
MONEY MARKET.

Our fourth question was the effect of the war losses and
expenses and the financial arrangements made to meet them
on the money markets of the world. Hitherto we have been
dealing only with the economic aspect of the war in its most
general form—with the effect of losses and expenses which all
belligerent communities are liable to feel, whether they possess
the elaborate machinery of the modern money market or not.
We have now to inquire how that machinery is affected or
disturbed by war, and in what special way the last war
operated and may still operate. Properly speaking this
might have been a branch of the other parts of the inquiry, ©
the losses or gains which arise to the world from war
through its influence on the money market being an
addition to or a set-off against all the other losses which are
otherwise traceable to it, but it is conceived that it would
have been inconvenient to deal with the subject in this
manner. The losses or gains at the best would be quite
incalculable, and the nature of war influences on “ money ”
is in reality so intricate and important a topic as to justify
separate treatment.

The common opinion—and in the usual case perhaps the
true opinion—about the effect of war on money is very
simple. War, it is understood, makes money dear. It
ereates a new and heavy demand on the circulating capital
of the world, and must enhance the value of that capital.
56 THE COST OF THE FRANCO-GERMAN WAR.

But this opinion carries us a very little way in studying the
effects of the last war. The phenomena we meet are various.
First came a spasm of dear money just at the outbreak of
the war; then a long period of cheap money, lasting all
through the war and for some months after it; then another
spasm of rather dear money, and again a prolonged period
of cheapness. At present it would be hazardous to say that
it now tends in any way to make money perceptibly dearer,
It may be said that after minor fluctuations economic
theory will come right in the end, but the circumstances are
perhaps enough to raise a doubt of the universal applica-
bility of the theory. It is plain that in a war like the last
it will be more practical to understand the laws of variation
‘from the usual result than to rest contented with the know-
ledge of what the usual result may be.

To understand the matter thoroughly, it is submitted,
the money market must be looked at in two different aspects.
There is first of all its singular liability to momentary and
superficial disturbance. The money markets of the world
are now so much interconnected as to make practically but
one market, with London for the centre, and the organisation
of this central market is of the most delicate sort. It is so
contrived, by means of a hierarchy of banks and discount
houses centring in the Bank of England, that in ordinary
times the money it contains is made to go as far as possible,
but when anything goes wrong the strain is very severe.
The complete abstraction of any considerable amount, though
it may be small in comparison with the aggregate trans-
actions of the market, may disturb largely the current ;
relations of supply and demand, and its effect will be
multiplied tenfold by the sensitiveness of all concerned and
the precautions they are induced to take. The natural
structure of the market is such that this liability to
THE COST OF THE FRANCO-GERMAN WAR. 57

disturbance must always be great; but, as if to intensify
the evil, the natural means by which a sudden demand
could be tided over and alarm allayed has been artificially
destroyed. The expansion of the note-issues of great banks,
when there is a sudden demand for money and the credit of
the note is not shaken, is the obvious method of meeting a
sudden strain, but Peel’s Act forbids the exercise of any
such power in London by the bank which has the monopoly
of issue. Now that the inelasticity of the Act has become
familiar, each sudden disturbance is liable to be increased
in severity by the knowledge of all concerned that the
natural remedy for it cannot lawfully be used. The second
aspect of the market is the more general and important one
of steady and periodic change, according as the supply of
circulating capital exceeds or falls short of the demands
of borrowers in the market. We must make a broad
distinction between these two different aspects of the market
in studying the effects upon it of war or of any other cause
which produces large financial operations.

As respects the first aspect of the market, we do not think
there can be any doubt as to the probable effect of a great
war, It can hardly fail to cause the most serious spasmodic
disturbance and a short period of dear money. Many of its
demands are likely to be of extreme urgency, and the
precautions which its outbreak and some of its incidents
necessitate on the part of all who have money engagements
to meet are also likely to be extreme. There is something
formidable in the very name of war. But the dear money
thus produced is only temporary and occasional, unless
‘ perhaps the temporary panic should be converted into a
prolonged convulsion, a ben which may be sometimes
very threatening.

The effect of war on the money market, looked at in its
58 THE COST OF THE FRANCO-GERMAN WAR.

second aspect, does not appear to be so clear. No doubt war
absorbs capital, and the natural tendency of such an absorp-
tion, whether resulting from war or any other extravagance,
should be scarcity of capital, for which accordingly higher
rates would be charged. But when we examine the matter
carefully we find that the effect of the absorption of capital is
one of circumstances and degree. Much will depend on the
amount of the war requirements, and great as these often
are, we should not forget the magnitude of the market out of
which the supplies have to come. Though the market may
be so delicate as to quiver to a sudden demand of insignificant
amount compared with its total business, its real resources are
enormous, and if time is only given the most extravagant
expenditures may be supplied without a shock. For such a
purpose, it may be repeated, all the markets are one. Even
if France and Germany had been unable to launch their
loans in London, they would still have supplied themselves’
from the common resources of the European markets,
French and German securities would have been sold abroad
that Frenchmen and Germans might subscribe to their own
loans, and as regards any effect on the money market, this is
almost an equivalent process to having a loan subscribed in
London. The question of circumstances is even more
important. According as the war comes at a period when
the current savings of the chief industrial communities are
small or great, its effects will be serious or the reverse. If
savings are abundant, the expenditure may be met out of
surpluses which it might otherwise be difficult to employ.
What is perhaps still more important, there is one secondary
effect of war which in the actual circumstances of modern
industrial societies will always help to counteract the
tendency to dearer money which is the direct consequence
of the war expenditure itself. This secondary effect is the
THE COST OF THE FRANCO-GERMAN WAR. 59

diffused. apprehensiveness and limitation of enterprise which
war on a great scale between two leading members of the
society of nations invariably produces. As thus viewed, war
provides the capital for its own sustenance by checking the
employment of capital in other directions. It may be quite
true, perhaps, that all the while the belligerent communities
gradually get poorer, but this process appears to be really
consistent after all with an easy money market. So long
as capital is found for war by withdrawing it from other
pursuits, the effect on the borrowing and lending markets
will be ni. People will have less to borrow and lend, but
the supply will be adjusted to the demand, and the rates
will not be dearer. It would be the tendency of a prolonged
war, of course, for the demand to outrun the process of
diversion from other pursuits, but until that process is
outrun, money will not grow dearer. The point is that war,
to cause dear money, must not merely produce a great
demand—it must produce a certain excess in the whole
demand for capital, whatever causes may be operating at
the time to increase the supply or to diminish other
demands.

The pbenomena of the war and its after-effects, up to
the present date, suggest and confirm these views. And
jirst, as to the influence of war in causing spasmodic
disturbance. The first monetary spasm in the war, in July,
1870, was clearly due to the precautions forced upon people
who had money engagements to meet. War was declared
upon the 15th of July. On the 21st the Bank of England
rate was raised from 3 to 34 per cent.; on the 23rd, to 4; on
the 28th, to5; and on the 4th of August, to 6—the rate
having thus been doubled in little more than a fortnight.
All happened long before the great spending and borrowing
on account of the war began, and the cause was notorious
60 THE COST OF THE FRANCO-GERMAN WAR.

and palpable. As the Economist* at the time explained, we
were “ receiving securities from borrowers on the Continent,
“who think that money is more easily procured in London
“than elsewhere. These borrowers are mostly persons
“under heavy liabilities, and they send for cash in time of
“ danger because they feel that at any moment they may be
“asked for cash themselves.” At the same time, foreign
bankers having bills on London sent them in for payment,
and did not take fresh bills, the same end of providing
themselves being thereby secured. The demand for gold
was also increased in London by the Bank of France
exercising its option of paying in silver. In other words,
the crisis in London was intensified by the precautions of
the Bank of France, which undoubtedly would have taken
another form had not this been open to it. We see, then,
in a moment, how war produces a spasm of dearness without
any of the expenditure which will ultimately act on the
market having even begun. Of course, the demand once
begun, was increased by the precautions of people at home,
and so the effect was great and immediate. But a disturb-
ance of this sort is very soon over. A week ‘after the rate
was at 6, it wasreduced to 53; a week later, viz., on August
18th, it was reduced to 44; on August 25th, to 4; on
September Ist, to 34; and finally, on September 15th, to
8 per cent., the Bank all through having followed the open
market somewhat tardily, but the whole period, nevertheless,
commencing on July 21st, and terminating on September
15th, having lasted less than two months. Taking it that
the crisis was really over when the rate was reduced to 43
on August 18th, the disturbance had, in fact, only lasted a
month.

© Economist, 23rd July, 1870,
THE COST OF THE FRANCO-GERMAN WAR. 61

The second disturbance was in no way more prolonged,
and though it arose in a somewhat different way, was
distinctly traceable to a cause characteristic of the war.
The Germans in the autumn of 1871 were receiving
payment of a large part of their war indemnity. Besides
the fine of £8,000,000 on Paris stipulated in the armistice,
and the other fines and taxes levied in the occupied districts
of France subsequent to the peace preliminaries on 26th
of February, 1871, estimated according to the table in the
Appendix to amount to £450,000—

Viz.: Contributions ...  ... 2, see vee ee wee £59,000
Direct taxes... 6c. eee ee ee wee we 285,000
Indirect taxes ... 1... seo coe eee ee eee 106,000

 

£450,000

besides likewise the sums paid by the French Government
for the expense of the German army of occupation, which
must have amounted at least to five or six millions more—
the Germans in 1871 received altogether from France and on
account of the indemnity alone the large sum of £47,000,000
in cash or bills. This amount was paid, with the exception of
a sum of £5,000,000, between the 27th of June, when the
£80,000,000 loan was subscribed and the first days of
September, in the following form :*—

Cash paid at Berlin... us. uss ses ve ee eee £316,000

Commercial bills... uk cena eee wee eee 82,915,000
Notes of Bank of France ere tee eee eee eee 5,000,000
French gold... ose nua cee nee tee wee vee = 4,860,000
5-franc pieces ... 0 61.0 ee eee cee nee ee eee 2,021,000
Bills of foreign bankS ogg kkk cee cee ee tee 272,000
German Money ... 6s. eee eee ee tee tee eee = 1,831,000

Total!) acc ess las ee ee OSes) es IS ee

 

* Budget of 1872, Introduction, pp. xxviii-xxix.
62 THE COST OF THE FRANCO-GERMAN WAR.

A large part of the bills fell due in London, and the amount
representing them had been transferred to the credit of the
German Government by September, while other bills were —
to come due in November following. Accordingly, the
German Government, having previously received large sums
in cash which it had locked up, was an unusually large
creditor of Lombard Street at the most difficult period of
the year, and wanting gold for the purposes of a new
German coinage, suddenly exercised its power. The effect
was almost instantaneous. The gold in the Bank and the
Reserve rapidly fell off, and the rate was as quickly raised,
as the following table shows :—

BULtion. Reserve. Rate or Discount,

September 14 .., £24,159,000 ... £14,424,000 ... 2 per cent.
+ 21... 23,497,000 .... 13,711,000 ... 3
» . 28 sx 21,090,000 2 11,077,000 ...4
October 5... ... 20,215,000 ... 8,920,000 .. — 4,
» 12... .. 19,178,000 ... 8,064,900 ... 5* ,,

»

The high rate in this case was maintained for five weeks—a
longer period than in the crisis of July and August, 1870,
but the Bank had only followed more tardily than before
the movement in the open market. The spasm was in
reality equally superficial and almost equally soon over. In
this case it did not, as in the former one, arise from the acts
of individuals acting in view of the war, and it may be said
that it would not have occurred if the German Government
had been careful to avoid it, but it is one of the incidents of
such large operations that the market is exposed to the
caprice or mistake of the operating Governments. Precisely
the same consequence might have followed upon the acts of

* The rale was really raised to 5 per cent. on October 7, five days
before the usual weekly court, when the rate is changed,
THE COST OF THE FRANCO-GERMAN WAR. 63

a, Government in suddenly calling up or discounting the
instalments of a large loan.

While we speak of such disturbances as superficial, it
would be a mistake to underrate their consequences and
dangers. The chief sufferers in 1870 and 1871 were bankers
and the Stock Exchange, principally the latter, but no such
disturbance can take place even on the Stock Exchange
without much private loss and hardship to people who are
not “speculators.” It is easy to conceive besides, that crises
thus beginning might have very wide effects, one crash lead-
ing to another all through the world of finance and trade,
and there is no warrant that a future disturbance may not
have such effects, though the conditions necessary for its
development did not exist in 1870 or 1871.

The present war, therefore, has acted as we may usually
expect wars to do, in the production of spasmodic disturb-
ance. As regards the other mode in which war produces
dear money—and that not temporarily, but for a long period
—viz., by the absorption cf capital—it will follow, from what
we have said, that in the late war there have been counter-
acting circumstances. Speaking of the money markets of
Europe generally, money has been cheap and not dear for a
long period indeed, notwithstanding all the borrowing which
the war has occasioned. In France, no doubt, the rate has
been rather high, the Bank of France rate having risen to
6 per cent. at the commencement of the war, and been main-
tained at that figure till the 27th of February last, a period
of rather more than eighteen months. But France is the
only part of Europe where money has been dear, and the
rate there cannot be considered very high, when it is con-
sidered that the brunt of all the borrowing we have described
had to be borne originally by one country alone. It is doubt-
ful, moreover, whether so high a rate could have been main-
64 | THE CosT OF THE FRANCO-GERMAN WAR.

tained in France so long but for the artificial nature of its
currency and banking system, which have impeded the free
influx of money from the adjacent markets. Had France
been more en rapport with the rest of Europe it would have
been more quickly relieved from sources so numerous as
hardly to have felt the drain. Even with this exception,
then, we are entitled to say that money has been cheap in
Europe, notwithstanding the war, and France is daily
becoming less and less an exception.

We should say, then, that in fact there were several
circumstances present to an unexampled degree during the
late war, which counteracted the usual tendency of wars to
produce a period of permanently dear money. The war
broke out, in the first place, ata time of the most unprece-
dented prosperity—at the very flow of a most prosperous
tide, and before the usual following of high prices and infla-
tion had come to check the profits. The money markets of
Europe were therefore well prepared to meet the unusual
demand. Whether they could have met it. without sensibly
dearer money had everything else gone on as usual may be’
doubted, but the war, in fact, diffused a most unusual
amount of apprehensiveness, and if it did not prevent tke
continuance and expansion of ordinary trade, at least
it checked numberless new ventures of a speculative kind.
There is no doubt, however, that in France ordinary
trade was checked to a large extent, that being, as we
have seen, one of the main causes of the French in-
direct losses. Great as the loss thus caused was, one
result must have been that the French Government would
have fewer competitors in the home loan market for means to
carry on its struggle. A third cause of the abundance of
capital was the extended issues of paper money in France.

It is doubtful whether the diminution of the demand for ~
THE COST OF THE FRANCO-GERMAN WAR. 65

capital in France by the suspension of business would not
have been counteracted by the new demand which would
spring up in consequence of the old capital becoming of
diminished effectiveness through the destruction of the
machinery of credit; but if such a demand arose to any
extent, it was in turn compensated by the large issues of
paper. We shall not of course be understood to mean that
capital was created by this process. What is true is that
paper money economises capital, and its issue has all the
effect for the moment of an increase of capital, whatever bad
results may afterwards ensue. Jn these four ways, then—
the occurrence of the war at a prosperous period in Europe,
the diffused apprehensiveness it produced, the suspension of
trade in France, and the extension of the Bank of France
note issue—the natural tendency of war to cause dear money
by absorbing capital was counteracted, and perhaps more
than counteracted. We have perhaps had cheaper money
longer than we would otherwise have had, if there had been
no war.

The effect in England has perhaps been greater than in
the belligerent countries in this way, that besides all our
own savings diverted from new enterprise by the diffused
apprehensiveness of the time, the disposition has grown
among foreign bankers and governments to accumulate
spare money in London. London is the most convenient
place for them to put their reserves, the war illustrated in a
most powerful manner its special security, and one of the
very steps by which the French Government made its
borrowing easier—the issue of inconvertible paper—also
tended to increase the exchange business of London, and
consequently the foreign surpluses accumulated there. Paris
had formerly been a rival of London as an exchange centre,
but with inconvertible paper it could no longer compete.

: Ki
66 THE COST OF THE FRANCO-GERMAN WAR.

This has certainly been a cause of cheaper money. Had
Paris and London continued to-compete, more money would
have been required by their aggregate business than is now
required. The concentration of business in one centre only
cannot but produce an economy of the instruments for
carrying it on. The Paris money, moreover, is now used by
a more efficient mechanism than it was used by in Paris,
the agencies of the London money market being altogether
superior. A certain amount of money has in this way been
taken into a new channel where the same amount of money
does more work than in the old channel. In every
way, then, the foreign money goes farther than ever it
did before.

Within the last three or four months there has been
an additional counteracting circumstance. The German
Government, instead of spending the money which is the
usual destination of the proceeds of war loans, and instead
of locking up the money as it did at one time, which had a
still more disastrous effect than even extravagant expendi-
ture, has taken to lending out a large part—how much is
not known—of the funds which it has received. The
aggregate loanable capital of the world is thus artificially
increased by the finance arrangements in progress. Had
the German Government employed all the surplus money
to repay debt, the effect would have been less, because there
is always a tendency for free circulating capital to become |
fixed. By the process of lending out, however, the money
is kept more in hand, and competes with the ordinary supply
of loanable capital in the world.

How powerful all these counteracting ‘ifincnbes must
have been is shown by the large amount of the French and
German borrowings since July, 1870. The Governments
alone have borrowed :-—
THE COST OF THE FRANCO-GERMAN WAR. 67

Germany... eee wee ee £50,000,000

 

 

 

 

 

less repaid ... ... ... ... 20,000,000

— £30,000,000

France :— .

- 1870 Imperial loan... .... £30,000,000
1870 Morgan loan ..._—~—«...._—:10,000,000
1871 loan... .. «80,000,000
From Bank of Brauce., . «+ 60,000,000
180,000,000

"City of Parisloan .... 4. :14,000,000 .

. — 194,000,000

Total borrowed ... .. 0 1. ee. cee ~£224,000,000

Money has not been cheap, therefore, because war did not
require much spending and borrowing. Large sums have,
in fact, been taken out of the market, though plainly not
larger than could easily have been met out of the current
savings of France, Germany, and England, if ay new
enterprise was sensibly checked.

Something else has been taken out of the money market
by the private borrowings of French merchants and
manufacturers, but probably no large amount. Such
demands would necessarily be limited by the deficient credit
of the sufferers. The chief way, again, in which these
losses would be replaced would be by the sale of securities,
and it is noticeable that many French securities are now
cheaper than just at the close of the war; but this may
partly be due to the diminution in apparent value of the
property represented by these securities. In any case, it is
clear that the sale of securities has not checked to any
material extent a general rise in the value of such property
on all the exchanges of Europe. As that rise is due to the

competition of accumulated savings for investment, it is
F 2
68 _ THE COST OF THE FRANCO-GERMAN WAR.

clear that the private borrowings of Frenchmen have not -
sensibly aggravated—any more than the public borrowings
—the general demand for capital.

- The war of 1870-71, therefore, so far as it has gone,
though it has illustrated the usual tendency of wars to cause
disturbance in the money market, has hardly illustrated
their tendency to cause permanently dearer money by the
destruction of capital. It has illustrated, on the contrary,
the strength of the counteracting influences which sometimes
exist. There is nothing in the facts, however, to prove that
these counteracting influences are always likely to exist.
War will always cause diffused apprehensiveness, and
invasion will suspend trade, and probably extended issues of
paper will produce for a moment a new economy of capital,
but the coincidence of a period of great prosperity through-
out the world is not always to be looked for. Nor is it
likely that the money borrowed will be often lent out in
consequence of its being borrowed by one Government and
ultimately received by another. Such a very favourable
conjuncture for cheap money during and after a war is not
certain to occur again. As we have already remarked, too,
the war was. not prolonged enough to test what the
destruction of capital would lead to, or the tendency of war
to outrun the process of diverting capital from other employ-
ments, and so make it in excessive demand. All that can
be said is, that in certain given circumstances a great
Turopean war, which involved spending and borrowing to
the amount of over £200,000,000 in about a twelvemonth,
did not produce dear money. In. the circumstances

- described, and with the means which the society of nations
now possesses, this scale of expenditure was not large enough
for such an effect to be produced.

But the account is not yet over; France has not yet
. THE COST OF THE FRANCO-GERMAN WAR. 69

borrowed all she wants; Germany has not received all she
is to get; we do not yet see how Germany will dispose of
what she does get. What effects may we yet expect from
the financial operations to be completed ?

On one point we think—viz., the possibility of spasmodic
disturbance—there can be very little doubt. The German
Government is still the holder of large sums at call or at
short notice. In addition to the £47,000,000 indemnity
money it got last year, besides smaller sums, it has just got
£26,000,000 more, and so far as is known it has spent only
a part of the money, not more than about twenty or twenty-
five millions, in repaying debt, and not more than ten
millions besides-in miscellaneous purposes. We do not
reckon what it keeps for the new gold coinage, for the coins
will not be issued without a full equivalent being received, so
that their issue will not lessen its power like a real expense.
Germany has thus about £40,000,000 still at its disposition,
which it may use for any object or any caprice it pleases.
The absolute disposition’ of so enormous an amount, is
almost a new power for any Government to possess, and
increases, we fear, the liability of the money market to
accidents. A Government which has the instalments of a
loan to receive has great command over the market, but the
German Government is in a superior position, having lent out .
the money on its own terms, retaining a large part of it at
call or very short notice, and having in any case the power
of rediscounting, by which it could convert the whole—or
far more than enough to disturb the money market—into
cash at a moment’s notice.

The German Government has moreover £120,000, 000
still to receive, and the French Government must not only
borrow that, but considerable amounts besides. Experience
justifies us in believing that there is a liability to accident in
70 THE COST OF THE FRANCO-GERMAN WAR.

these operations, however anxious the Governments con.
cerned may be to avoid them. What the state of matters
will be when the German Government has got the command
of the whole, in addition to all its previous command of the
market, we forbear to speculate. Even after paying off all
the debts of Germany, except the railway loans, which are
profitable investments—with this exception not more than
£150,000,000—the German Government will have a large
surplus, and it is not certain that it will pay off all the debts.
It may prefer rather to lend out the funds, and have
control of them, and so avoid the necessity of ever borrowing
again. Even if it does pay off the debts, it will have
annual accruing surpluses, by which it will still possess
control over large amounts. There is thus no visible end to
the possibility of catastrophic action on the part of the
German Government on the money markets of Europe.
Nothing short of a great war or revolution can change this
disagreeable condition, under which monetary business must
now be carried on.

As regards the other class of effects, it appears at first
sight not improbable that the course of the market may be
pretty much what it has hitherto been. The larger part of
the actual borrowing is over, and surprising as this fact may
seem, considering what the French losses have been, and that
the borrowing of France has only been £194,000,000, it is
not difficult of explanation. A great many of the losses,
though real enough, do not affect the money market at all.
The loss sustained, for instance, by the cession of Alsace and
Lorraine requires no loan operation. It takes the shape of
a new rent-charge upon the resources of France—for the
retention of an old charge upon a diminished property has
precisely the same kind of effect as the imposition of a
new charge upon a property which is not diminished—but
THE COST OF THE FRANCO-GERMAN WAR. 71

though the loss is a real one and will diminish in future the
aggregate net income of Frenchmen, it has not the effect .
‘of the destruction of so much capital, whieh had to be
taken out of the money markets where it was used. The
same remark applies to the loss caused by the creation of
new war pensions. The losses endured at the time and
charged upon the annual income are also settled, and cannot
now affect the money market. The individual loss of
capital, and the loss represented by the depreciation of *
‘annual earning power, will also have a smaller effect than
would be supposed from their apparent amount. So far as
they consist of savings prevented, the world is poorer by a
capital which would otherwise have existed; but the under-
takings which the capital would have supported—that is, the
demands upon the capital—have diminished too. The loss
by depreciated earning-power would only be partially miti-
gated by loans, and it implies, moreover, the diminished
credit of the borrowers, so that the. effective demand on the
_ aggregate capital of the world is far from being in propor-
tion to the loss.) The whole market is smaller, but the
supply is adjusted to the demand. In. this way, then, it
happens that the larger part of the borrowing is over. The
amount borrowed, even deducting: what Germany has
repaid, and not including private borrowings, has been
£224,000,000, and, so far as cun be seen, France will be
clear, if it only borrows about £120,000,000 to pay off the
indemnity, and £40,000,000 more to liquidate arrears. It
is probable, too, that most of the private borrowings have
already taken place, the earliest opportunity having been
‘seized to restore establishments and.resume business as com-
pletely as diminished means would permit.
Tt has also to be remembered that the greater part of the
future borrowings will not be for purposes of expenditure,
72 THE COST OF THE FRANCO-GERMAN WAR.

but only to transfer capital from one set of people to another.
The money taken from the money market will be given to
the German Government, and will not be spent, but used as
capital. We have already shown that this will give the
German Government very great power, but at present we
have nothing to du with that point. It does not alter the
fact that loans which are to be so used will not only not
exhaust the resources of the money market, but by keeping
in it funds which might otherwise have been sunk in some
fixed form may even enlarge its resources. So far, then,
there is some likelihood that the future finance operations of
the war may help very little to cause dear money.

Another circumstance which points in the same direction
is this. We shall continue in all probability to hald the
‘private foreign money which comes to us in connection with
our increased exchange business. France in any case could
only get back its share in that business with difficulty, but
the first condition of its even attempting to get it back—the
restoration of a bullion basis for its currency—is not likely
to be fulfilled for an indefinite time. .

On the other hand, other circumstances which were very
powerful during the last eighteen months have changed.
‘There is now much less diffused apprehensiveness than there
was. There is some apprehensiveness still, for foreign money
partly comes to or remains in England for security, but the
apprehensiveness is indefinitely less than when war was-
actually raging or.only just concluded. The current savings
of the world are also probably less than when the war of
1870 broke out or than they were during its continuance.
We have now come to a period of high prices, and on all
sides the complaint of manufacturers and traders is that
their profits are very much less than they were. It may
happen that even a smaller demand on account of tho
THE COST OF THE FRANCO-GERMAN WAR. 73

war than what has hitherto been so easily met may tell
very much on the market. It may come into competition
with other increasing demands, and hasten a period of
dear money. The point is that the finance of the war
is only one element out of many in determining the
future of the money market, and while some of the special
circums‘ances which have hitherto counteracted the natural
tendency of war to turn the balance in favour of dear
money are still in operation, some very important circum-
stances which acted in the same direction are changed.

On the whole, we should be inclined to say that the most
important circumstances are changed. The most important
single influence on money is undoubtedly the annual savings
of England, and the savings have been diminished while the
employment for new capital has increased. This change is
the more likely to operate because the other special circum-
stances which have counteracted the tendency of war to make
money dear —the increased supply of foreign money in
London and the practice of the German Government to
make loans—are likely to have been most powerful at first. .
The current demand gets adjusted to the new supply and
other capital is displaced, and then the more permanent
causes which govern the market return in nearly full force.
The approach of a period of dear money may possibly have
been retarded on the whole by the aggregate effects of the
war, but the retarding influences are probably played out,
and the future can hardly be the same as the past.

We must again repeat, however, that the possible action
of the German Government is apparently the most important
question for the future. Its power of spasmodic disturbance
is obvious, and we may further point out that the more its
practice of making loans has been discounted, so that the
market has got to depend on this extraordinary supply, the
74 THE COST OF THE FRANCO-GERMAN WAR.

greater its power will be. It may not only cause a spas-
modic disturbance of unprecedented severity, but by with-
drawing its supplies it may induce in a moment what may
prove to be a prolonged change from cheap to dear money.
It is not likely so to act, but its motives will be purely
political, and no one can guess at all the circumstances and
motives which from time to time may determine it to act.

VILZ—CONCLUSIONS.

The principal conclusions arrived at in the preceding
pages are the following :—

First.—The direct expenditure in conducting the war
amounted to TWO HUNDRED AND THIRTY-FOUR MILLIONS
STERLING, of which the amount primarily spent by France
was ONE HUNDRED AND SIXTY-NINE MILLIONS STERLING, and
by Germany, SIXTY-FIVE MILLIONS STERLING. The items
are :—

SPENT BY FRANCE,

Extra war credits of French Government,

including special budget of £20,000,000

for liquidating war arrears ... ... ... £120,000,000
Fines and requisitions levied in occupied

districts; destruction of property, &c.,

less £4,000,000 voted by Government

included in war credits ... ... ... ... 44,000,000
Capital value of war pensions created... 5,000,000

£169,000,000

SPENT BY GERMANY. :

War credits, including maintenance of
French prisoners, &¢. ... 4. oe oe ~£60,000,000
Capital value of war pensions created... 5,000,000

 

 

65,000,000

Foran Direct EXPENDITURE ww. ww. eee oe £234,000,000
THE COST OF THE FRANCO-GERMAN WAR. 75

The above includes every cash outlay in actually conducting
the war by the respective belligerent Governments, and the
loss of property occasioned to the inhabitants of the invaded
districts. | :
- Sxconp.—The indirect losses occasioned by the war
to the communities of France and Germany respectively,
amounted to THREE HUNDRED AND TWELVE MILLIONS STER-
LING—Yiz., TWO HUNDRED AND SIXTY-TWO MILLIons suffered
by. France, and FIrTy MILLIons suffered by Germany. The
items are :-— .

SUFFERED BY FRANCE,

Estimated loss of income in 1870-71 by
suspension of trade and abstraction of
labourers from employment ... ... ... £150,000,000
Estimated loss of permanent business or
depreciation of annual earning power... 112,000,000
———— £262,000,000

SUFFERED BY GERMANY,
Estimated loss of income in 1870-71 by

suspension of trade and abstraction of
labourers from employment ...  ... 0 6. ee nee ae 50,000,000

 

Petal ai2.~.de wie Risks Glek, “Gal! BO che vee aah VEST GOONOnD

_ This statement of indirect losses is of course an estimate.
The basis as regards the loss of income is, in France, that
the loss may be taken to have been in the same proportion
to the aggregate income of the people as the loss of the
State Revenue in 1870-71 was tothe whole of that revenue ;
and in Germany, that the proportion of the annual income
of the labourers withdrawn for war to the whole income of
the people would be the maximum amount of the loss, as
trade was very little interrupted. As regards the deprecia-
tion of annual earning power in France, the data for
76 THE COST OF THE ERANCO-GERMAN WAR,

calculation are obtained by taking the per-centage of loss
on the patent-licence tax the first year after the war, and
reckoning that the annual loss of trade income would be in
proportion. As the yield of taxes in Germany has not
diminished, it is assumed that after-effects of the war of the
kind which have been felt in France have not been felt in
Germany.

Turrp.—The total cost and loss of the war thus
reckoned ig FIVE HUNDRED AND FORTY-SIX MILLIONS
STERLING, the particulars being :—~

France. Germany. Total. |
Direct .,. £169,000,000 ... £65,000,000 ... £234,000,000
Indirect... 262,000,000 ... 50,000,000 ... 312,000,000

 

 

Total ... £431,000,000 -£115,000,000 — £546,000,000

Fourrua.—No estimate is made in the above calculation
for the loss of life or injury thereto in the war. It is
believed that no proper estimate can be made of such losses,
and so far as they are felt by the surviving community, they
would be shown among the other items of indirect loss. A
calculation is given, however, for what it is worth, showing
that the loss and injury to life in France might. be
represented by a sum of £102,000,000, and in Germany by |
a sum of £30,000,000. - The reason. of the much larger
figure for France compared with Germany is that Germany
lost no civilian life, but in France, which suffered greatly by —
the siege of Paris and otherwise, this cause of loss accounts
for sixty out of the above one hundred and two millions.
The loss of soldiers’ lives was also one-third greater on the
French than on the German side, the total on that head alone
being £42,000,000 against the German £30,000,000. These
estimates, however, are only given en passant, and are not
used in subsequent calculations respecting the war losses.
THE COST OF THE FRANCO-GERMAN WAR. V7

Frrru.—The above losses have been principally defrayed
out of capital—that is, have increased the indebtedness of the
belligerent communities—but a considerable part has been
dealt with at the time and paid out of revenue. The
distribution of the items is as follows :—

FRANCE.
Charged on Charged on
Capital. Revenue.

Direct war expenditure of France .., £120,000,000 a...
Requisitions, fines, &. ... 6. «.. =: 27,062,000 £17,022,000
War pensions of France... wee 5,000,000 a...
French loss of present income ... ... 79,000,000 71,000,000
Capital value of depreciation of French

earning power... «. ... 4. eo 112,000,000 ease

GERMANY,
Direct war expenditure of Germany 60,000,000  ......
German indirect losses «ws... «.. = -25,000,000 —- 25,000,000
War pensions of Germany... ...  «.. 5,000,000 wae

 

 

Total for France and Germany... £433,062,000 £113,022,000

Thus the amount charged to capital is FOUR HUNDRED AND
THIRTY-THREE MILLIONS, and to revenue ONE HUNDRED AND
- THIRTEEN MILLIoNS; the amount primarily charged to capital
by France being £343,000,000, and to revenue £88,000,000,
the corresponding charges primarily made by Germany
being £90,0U0,000 and £25,000,000.

SrxtH. — The above losses are not considered very
serious, compared with the aggregate income of the com-
munities concerned. Estimating that aggregate for each
at about £600,000,000 annually, the direct outlay is only
about one-fourth of that income, the total cost—omitting
any estimate for loss of life—about one-half, and the loss of
78 THE COST OF THE FRANCO-GERMAN WAR.

permanent capital about one-third. Such losses should be
easily recovered from, especially when it is recollected that
£104,000,000, or one-fourth of the permanent loss of capital,
does not represent any waste from accumulated stores, but
merely an amount of annual savings prevented which would
otherwise have been made. The waste from past accumula-
tion is under three hundred and thirty millions sterling.

~The cost, no doubt, had been unequally distributed even
in the primary outlay—the primary loss of capital to France ..
being £343,000,000 against £88,000,000 lost to Germany.
Still, even as thus unequally distributed, the loss might have
been quickly recovered from. But—

SeventH.—The changes made at the peace have im-
mensely increased the burdens of France, and even made
Germany a gainer. France has had to pay to Germany
an indemnity of £200,000,000 in moncy without any
deduction, and the cession of Alsace and Lorraine is
equivalent to a transfer of £64,000,000. The loss of France
has therefore been increased by £264,090,000, while the loss .,
of Germany, as the indemnity is so much in excess of all the
war had cost it, is turned-into a gain.

Omitting any estimate for loss of life, Germany’s final
account for the war will stand :—

Indemnity and territory received ... ... ... £264,000,000

Less total direct and indirect expenditure .... 115 000,000
Net gain onsen seg nee vee vee wee | -£149,000,000

Looking only at the permanent loss of capital, however, the
gain of Germany is greater, because part of the war cost was
charged to revenue, and the indemnity comes in as capital. —
The capital account will stand :—
THE COST OF THE FRANCO-GERMAN WAR. 7

indemnity and territory received ... ... ... £264,000,000
Spent out of capital ...0 ... kore ae 90,000,000

Net capital gain of Germany by the war... £174,000,000

On the other hand, the final account of ‘Francs will
stand :— .

TotTaL Cost oF Wark.

 

Direct expenditure... ee we... ~£169,000,000
Indirect 9 ie kas a we vee = 262,000,000
£431,000,000

Indemnity and cession of territory .... ... ... 264,000,000
Total cost to France ... ..- - vse vee £695,000,000

CaPiITaL Cost oF War.

Amount of first outlay charged to capital ... £343,000,000
Indemnity and cession of territory ... ... ... 264,000,000
Net capital loss to France by the war ... £607,000,000

The result is that while Germany gains oNE HUNDRED
AND FIFTY MILLIONS on the whole, and oNE HUNDRED AND
SEVENTY-FOUR MILLIONS in permanent capital, France loses
‘ nearly SEVEN HUNDRED MILLIons on the whole, and rather
more than six HUNDRED MILLIONS in permanent capital.

Eicuru.—The magnitude of the loss to France is illus-
trated in various ways. The total of £700,000,000 represents
the sum of £19 per head among a population of 36,500,000,
or about £76 per family. The capital loss of £600,000,000
is £16 10s. per head, or £66 per family, the English National
Debt being £26 per head: the French in a few months of
war have lost three-fifths as much capital per head as the
individual share of the English in their famous Debt. The
80 THE COST OF THE FRANCO-GERMAN WAR.

total addition to the Debt of France is over £400,000,000,

and the annual charge, allowing for the loss of Alsace and»
Lorraine revenues, and making a proper allowance for

interest on the amount borrowed from the Bank of France, .
is virtually increased £23,000,000. This is about as much

as the annual charge for interest on the English Debt.

Nintu.—The opinion is, however, expressed that
France must recover quickly, though the new burden is
* equal to ten years’ annual savings. The thrift of the people
will be increased; an effort will. be made individually to
recover lost ground. A single bountiful harvest at such a
time would go a long way to fill up the void created by
these immense losses.

As regards Germany, a ae is expressed whether the
Germans will gain so much as France loses, the capital of
the indemnity being transferred from individuals to the
German Government, who cannot use it so profitably as
individuals. It is doubted whether the ‘practice of lending
out large sums, though a preferable course to locking them
up, will not in the end be injurious.

Tentu.—The financial operations incidental to these
great losses and expenses seriously affect the money market.
They have been a fruitful cause, in the first place, of
spasmodic disturbance. The outbreak of war caused a
monetary panic in July, 1870, by the anxiety of people who
had money engagements to meet to provide against the
chances of war, and there was another monetary crash in
September, 1871, owing to the sudden withdrawal by the
-German Government of. the money it had to receive. The
war thus illustrates the tendency of wars in general to cause
‘spasmodic disturbance in a market so delicately organised as
that of London now is. And the liability to spasmodic dis-
turbance continues, as the financial operations will not be
THE COST OF THE FRANCO-GERMAN WAR. 81

complete till Germany receives £120,000,000, and France

borrows £40,000,000 more for miscellaneous purposes. The

German Government has also complete control of the
“market, in consequence of the large amount of its loans.

A second tendency of war is to make money permanently
dearer by destroying capital. But the effect of this cause
has hitherto been counteracted, although the actual finance
has been on a large scale, by the prosperity of the period
when war broke out, the diffused apprehensiveness it |
generated, the partial suspension of trade in France, the
accumulation of foreign money in London, which has risen
to increased importance as an exchange centre, and the
practice of the German Government latterly to lend out
large sums from what it received. It is conceived, however,
that as we are now entering on a less prosperous period, the
war demands, although of smaller amount, may be more

_ felt, and will help to accelerate a period of dearer money.
Some of the counteracting circumstances have exhausted
their first effects, and the market is left to the operation
of the usual permanent influences. The fact that we are
coming to a less prosperous period is in this view the most
important, and ensures that the financial operations to be
completed will have a maximum effect.—[March, 1872.]
II.

THE DEPRECIATION OF GOLD SINCE 1848.

Havine made a somewhat extended inquiry into the facts
of the supply and distribution of gold since 1848,* we
propose to comment directly on these facts in connection
with the alleged depreciation of gold. Such an inquiry is
probably not susceptible of any perfectly satisfactory con-
clusion. The common notion is that, as the supply of gold
has enormously increased in the last quarter of a century,
therefore there must have been a general rise in prices, and
the sovereign will no longer go as far as formerly. And
this easy belief has found a plausible confirmation in the
conspicuous rise of prices, especially in a few conspicuous
articles, which has just occurred. The very notion of a fall
in the value of gold was likely to strixe the imagination and
produce belief; and the notion that a sovereign will not go
as far as formerly is also one to which men are prone,
although the real difficulty in a period when the scale of
living is rising may be to make a sovereign go farther than
it formerly did. But those who are acquainted with such
inquiries will see at once that the common notion, though
easily enough accounted for, is unconnected with any valid
evidence. It is not a mere increase of supply which tends
to cause a fall of value, but an increase of supply in excess
of the demand. And supply and demand themselves are not
mere accidents. In the long run supply is ultimately de-
peudent on real causes operating on producers and mer-

* This paper was written in 1872, as the sequel to a series of
articles on the supply and distribution of gold from 1848 to date.
THE DEPRECIATION OF GOLD SINCE 1848. 83

chants, and the effective demand changes with every change
of price. The inquiry, therefore, if exhaustively carried out,
would be resolved into an inquiry into the whole causes
affecting the supply and demand for gold. It is opvious
again that a mere rise of prices even of a large number of
articles in a particular year or years proves nothing. Rises
of price are known to have proceeded in past times from
many other causes besides additions to the supply of money.
Before it can be asserted that gold has depreciated in con-
sequence of the gold discoveries, the other causes of a rise of
price must be excluded, and a general rise, covering a mass
of retail as well as of wholesale articles, and extending over —
a long period, must be established. But evidence on such
points is nearly impossible. Invention is continually at
work, diminishing the cost of production, and even pro-
ducing wholly new articles, so that a group of articles
representing fairly the general stock of goods in the world at
one time would not so represent the general stock at an
earlier or later time. A general change of prices, therefore,
between two points of time would not be easily proved, and
the work is ten times more complicated when the comparison
is made over long periods. In making the inquiry, there-
fore, we are far from hoping to arrive at any complete results.
Instead of rushing at the popular conclusion or its opposite,
we should be quite satisfied if the facts yield some results,
however incomplete, on which dependence can be placed.
There are two ways in which the fact of depreciation, or
non-depreciation, may be approximately tested. The first
is to compare the prices of as large groups of articles as pos-
sible, impartially selected, to ascertain whether there is an
average rise, comparing one long period with others. If
there is such a rise, the presumption will be that there has
been a depreciation of gold—that its value in relation to
G2
84 THE DEPRECIATION OF GOLD SINCE 1848.

other commodities has diminished, no matter what the cause
may have been. But the comparison, for the reasons already
stated, will be incomplete. In consequence of the increasing
complexity of production, a group of articles which fairly
represented the world’s stock ten or twenty years ago, is now
an unfair representation, and it will be necessary to inquire,
if possible, on which side the inaccuracy of the mode of com-
parison would produce error. The second test, for which the
facts we have collected will be most useful, will be to see
whether the gold money of the nations using it has in-
creased in greater proportions than their population and
trade. Other things being the same, it follows from a
general rise of prices that a greater quantity of metal must
be employed in circulation to do the same work as before.
If other commodities are unchanged, and population and
business are the same, then if a sovereign is reduced to the
value of half-a-sovereign, double the number of sovereigns
will be required to make the same payments. And any
similar reduction of value must be accompanied by a similar
increase of quantity. No doubt the qualification that other
things must be the same is very important, but it appears to
be not altogether impossible to ascertain whether the re-
quirements of a community for a gold circulation in propor-
tion to the population have or have not changed, so that if
they have not we should be able to affirm that a general rise
in prices must have involved an addition to the circulation
disproportionate to the increase of population and of trade.
The existence or non-existence of such an addition in a given
case, when other elements of difficulty can be excluded,
would be determinative of a general rise of prices. Both
methods of inquiry are necessarily incomplete, and it will be
interesting to see how far they corroborate or confirm each
other.
TUE DEPRECIATION GF GOLD sincE 1848. 85

I.

_ We bave to inquire, first, then as to the fact of a general
rise of prices, selecting as large a group of articles as pos-
sible. This part of the inquiry is almost done to our hand.
Mr. Jevons, in the inquiry which he made in 1868, grouped
together a large number of articles, whose prices he com-
pared from year to year between 1851 and 1862 with the
average of 1845-50, the last industrial cycle of expansion and
depression which occurred before the gold discoveries; and a
similar comparison of prices has been carried out in the
Annual Commercial History of the Economist. In both cases
the superficial result brought out is undoubtedly a general
rise of price. Mr. Jevons, amongst other things, compared
39 articles, both separately and in the following groups :—
“1, silver; 2-7, metals; 13, timber; 8-9, oils; 10-12,
“tallow; 16-18, cotton; 19-21, wool, &e.; 23-28, corn;
“ 29-31, hay, &e. ; 82-35, meat; 36-39, sugar, &e.; 14-15,
“dyes; 22, hemp omitted;”’ and the result of his inquiry
was that the average ratio of prices each year, 1845-62 to
the average prices of 1545-50, was as follows :—

 

 

1845-50. 1851-60. 1861-62.
1845... ... 104.4 1851... ... 92.4 1861... ... 115.1
1846... ... 105.4 1852... ... 93.8 1862... .. 118.4
1847... ... 1108 1853... ... 111.8 :
1848... 2. 94.1 1854... ... 120.7 Average... 114.3
1849 ... 4... 89.6 1855 . ... 117.6
1850... ... 92.1 1856... ... 122.5

1857 ... ... 128.8
Average ... 99.6 1858... ... 114.2
1859... ... 116.0
1860... ... 117.9

 

Average... 113.62
86 THE DEPRECIATION OF GOLD sINCE 1848.

From these, and other figures of a like sort, Mr. Jevons
drew the conclusion that the average prices of the first
industrial cycle after 1850 were upwards of 10 per cent.
above the average before 1850, each portion of the curve
in the latter period being higher than the corresponding
portion of the curve in. the earlier period. Not only this,
but the level of price in 1861 and 1862, when prices were
at a minimum point of the new cycle then beginning, was
14 per cent. above the average of 1844-50. Hence the
conclusion that-there had been a general rise in prices, or,
in other words, a depreciation of gold.

The history since 1862 is given in the Commercial
History of the Economist, but although the articles referred
to are nearly the same,* the figures are not the average of
each year, but the prices at the beginning of the year only.t
They confirm, however, Mr. Jevons’s figures previous to
1862, and show a great rise in price immediately afterwards,
such as Mr. Jevons predicted. The rise is shown in the
table we quote from, by an index number, forming the
ageregate of the ratios of the articles to the average price
of 1844-50; but besides the index number we subjoin the
average ratio for all the articles in the form given by
Mr. Jevons :—

* Viz. :—-Coffee, sugar, tea, tobacco, wheat, butcher’s meat, cotton,
raw silk, flax and hemp, sheep’s wool, indigo, oils, timber, tallow,
leather, copper, iron, lead, tin, cotton-wool; Pernambuco only—
cotton-yarn, cotton-cloth.

+ For the purpose of an inquiry like this, a set of prices at a given
date in each year is practically almost as good as the average of the
year. The object is to compare the average of one period of years
with that of auother period, and it is most improbable that in each
year prices at the given date would vary materially from the average
of the year owing to some abnormal cause,
THE DEPRECIATION OF GOLD siIncE 1848. 87

Average Average
Total Ratio to Prices Ratio
Index No. of 1844-50. of Periods.
1845-50)... ww «62200 0 ww 1002~SC—iws iw 100
1851—Jan.1 ow. 2298 104.2
1853—July 1 vision eee OOO weer van LORS | 114.9"
1857— ,, wer ae 2996 ae ase 1862
1858—Jan.1 ... ... 2612 ... 2. 118.7
186!1— ,, Fon. whos M2! ses. Soe, AO
1862— ,, te! Goats BTS Cee ete DIET
1863— ,, say aaa BH9Z> ose cae 5857
1864— ,, giy fat, “SHE: geac aed TF2EL
1865— ,, wie sede OOTOS ce ven, 16225
1866— ,, ve ee §=8564 2. 0. 162.0 we. «6140.1
1867— ,, sec, ae BORE nee ga TA
TORB «res vase ORR” aks cS
1869— ,, wee gg (2606 sey) eee 121.1
1870— ,, sy se DORI dew Gav BORD
1871— ,, aes cus 2090 ea aes L177
1872— ,, vee eee 2835 128.9

Making every allowance for the difference in the data, the
fact of a much greater increase of prices between 1861-70
than between 1851-60, as shown by Mr. Jevons, is apparent.
We may take it as certain that in the first decade after
1830, prices generally rose upwards of 10 per cent. above
the average of the preceding period, and that in the second
decade there was a further rise, which cannot, however, be
deduced from exactly the same data. The second set of
figures gives apparently a higher series of ratios all through
than the figures compiled on the method of Mr. Jevons, the
excess being about 10 per cent. Deducting this excess from
the above average of 140 per cent. in the decade 1861-70,
we arrive at 130 as the probable ratio of the wholesale prices
of that period to the period before 1850. According to this,
the depreciation of gold had amounted, in two decades, to
something like 30 per cent.

* This figure is the average of the whole period deduced from Mr,
Jevons's statistics.
88 THE DEPRECIATION OF GOLD SINCE 1848.

So far, therefore, a depreciation of gold is made out, but
there are two important objections to the conclusions from
the above figures. One relates to the extent of the depre-
ciation which is due to the gold discoveries, and is, therefore,
assumed to be more or less permanent. ‘Textile fabrics, and
the raw material of them, enter very largely into the table
which is given in the Commercial History of the Economist,
the ratios for such articles comprising a third of the ratios
included in the index number. But textile fabrics were the
subject of a most exceptional rise of price in the years of the
American War. Tobacco also rose in price from the same
cause in the 1861-70 decade. The great rise between 1861
and 1870, therefore, was due largely to an exceptional cause,
and the consequent depreciation of gold, on the average, was
thus to some extent temporary.

The second objection to the figures is of a more general
nature, and suggests an important qualification. The prices
dealt with are wholesale prices, and mainly the prices of
leading articles of raw material or of provisions. The
prices of manufactured articles are almost. wholly excluded,
although the number and value of transactions in articles,
after they leave the manu/acturer’s hands and are on their
way to the consumer, probably far exceeds the number and
value of similar transactions in the raw material. The distri-
bution of a manufacture—say, woollen or silk fabrics—must,
from the nature of the business, be a more complicated
process than the growth and collection of the raw material for
the purposes of manufacture. Omitting the prices of such
articles, therefore, the tables omit the most important half of
prices which require to be dealt with before a perfectly
geueral rise can be ascertained. We admit, of course, that
it would be quite impossible to compare the prices of an
immense miscellany of manufactured articles, although a
THE DEPRECIATION OF GOLD sINcE 1848. 89

rough comparison can be made of the prices of a few raw
materials, but the significance of the necessary omission
ought not to be overlooked. As Mr. Jevons remarked in his
volume, the whole tendency of industry since the gold dis-
coveries has been towards the diminution of the cost of
manufacturing and distribution—a circumstance which itself
has increased the demand for the raw material. In omit-
ting, therefore, the prices of manufactured articles, the
effect has probably been to make the general rise of prices,
which would argue a depreciation of gold, appear greater
than it really has been, or even to exhibit the appearance of
a general rise when no such rise had in fact occurred. That
this is no mere quibble is shown very forcibly by some
ficures in the tables themselves. The Commercial History
of the Economist happens to contains columns for the prices
of cotton-cloth as well as for raw cotton, and the smaller rise
of price in the manufacture compared with the rise of the
raw material is very curious. We give the entire ratios :—

Cotton. Cotton-cloth.
1845-50 ug cee eee wee 100 wee wee «1000
W5i—Jane 1 cs. des. es BO wee, ees ae, ae ELS
(ssa Sly i yu nee ers SOs. awe cae! ae. OG
1857— ,, wee Gad Ser 9B cies: “aie te! ae, SETS:
1858—Janm. 1 asi eee ee TB eee ace eee ae 98
1861— ,, ge Sug are 86D Soe Wem cere aes. 125
1862— ,, Mie he agers AAO ecg <tc atest, aint 12
1863— ,, die. Gere, ade ABIL dice 38k eee. ae 2222
1864— ,, de gar ie BOO? gee eas cae Goss “278
TSG Hb. axes ais UBO8 eee asd SERCO
1866— ,, Ba dies! Upset SBBBr a Be: cles: tasihe a eee
1867— ,, hoe Gene, uy DOT meal Ree, Gites 230 CLUS
1868— ,, bintn “se “wea OO: ate sete ase. GLI
1869— ,, Ae. tedden IOS ad Ae ss Az, EIST
1870— ,, de, lee abe MATES dep ete. cee “eee DGD
1871— ,, hon -Aiohnariotee CATS. “ats. sees. Aipede.lsagee 98
yp OUy Le eee oe 123° ee wee dss, es TT

1872—Jan. 1 ve eee eee UAL ee tee ee ee 128
90 THE DEPRECIATION OF GOLD SINCE 1848.

In some years, it will be observed, the rise in the raw
material is indeed enormous, compared with the rise in the
manufacture, and the difference goes to show that a table
dealing mainly with raw materials would err on the side of
showing a greater general rise than what had really occurred.

Another objection to the completeness of tables dealing
with principal commodities only, and one indicating an
error of the same sort, viz., an excess in the estimated rise of
price, is supplied by Mr. Jevons’s statements respecting
“ minor articles.” To supplement his conclusions he made
a table comprising, in addition to the 39 chief articles dealt
with in his principal table, 79 minor articles, and worked
out the rise of price in 1860-62 over the average of 1844-50.
The result was that the 79 minor articles showed a much
smaller per-centage of increase than the 39 chief articles.
Mr. Jevons states :—

“ Doing this separately for the 39 chief and the 79 minor articles, I
find that the prices of the former have, on an average, risen between
1845-50 and 1860-2 in the ratio of 100 to 116.2, which is equivalent to
a depreciation of gold in the ratio of 100 to 86.0, or by 14.0 per cent.
The minor commodities, however, give a somewhat different result.
In taking the mean, I have treated those which are bracketed together
in the last column as having the importance only of a single commo-
dity, so that only the mean of the ratios bracketed entered into the
general average. We thus find there are 64 independent minor
articles, of which the prices have, on the averages, risen between
1845-50 and 1860-2 in the ratio 100 to 106.76, which would indicate a
depreciation of gold in the ratio of 100 to 93.66, or by 6.34 per cent.,
not half the change shown by the chief commodities,”

The conclusion would therefore be, that the more miscel-
laneous the comparison can be made the smaller would be
the general rise shown. Coupling this with the omission of
manufactured articles, we obtain sufficient grounds for think-
ing that the general rise of price exhibited in the above
THE DEPRECIATION OF GOLD sINCcE 1848. 91

figures is the maximum and not the minimum average.
Taking into account such changes in price as have been
caused by the invention of the Bessemer process for making
steel, we should be inclined to doubt whether it could be
proved that the general purchasing power of the sovereign
has much diminished since 1850. <A table of the articles in
_ which its power was likely most to be felt shows an average
depreciation of about 30 per cent., but the real general
depreciation, if any, must have been very much less.

It will have been noticed, perhaps, that we do not take
into account at all the extraordinary rise of prices this year.
That rise has been most sudden, and has undoubtedly raised
almost every price except those of cotton and wool tem-
porarily above the level of 1861-70. But we have yet to see,
when this is absorbed in a group of years, what the average
rise will prove to be. So far as can be judged, the present
decade will not show any rise above the average level of
1861-70. It was a great point with Mr. Jevons, when he
wrote in 1863, that the level of price then established, at the
minimum point of an industria] cycle, was considerably
above the level at the corresponding point in 1851. But it
is evident from the above figures that prices in 1868-71,
when they were again at a minimum point, had fallen back
to the level of 1861-2. The probability is then that the
curve will not rise higher, and we may assume that there
has been no further depreciation of gold since 1862.*

* This was the conclusion in 1872. Since that date the index
numbers in the Commercial History of the Economist, on the 1st of
January in each year, have been:—

1872 ... January 1 .,. 2835 1875 ... January 1... 2778
1873... 55 vee 2947 1876... 4, ee Q7T11
1874 ... ” wee 2891 1877 ... ” « 2715

‘When these are compared with the table on page $7, the conclusion in the
text is fully confirmed for the period subsequent to 1872.— Eaition 1879.
See also * Essavs in Finance,” Second Series, p. 19.—LEuition 1886.
92 THE DEPRECIATION OF GOLD SINCE 1848.

If,

WE have now to deal \vith the second test which we pro-
posed to apply in considering the question of a depreciation
of gold since 1848. The direct test of prices, as we pointed
out, is in various ways defective. Even after making the
best comparison possible between two industrial cycles, the
question will remain whether the groups of articles selected
for comparison in respect of prices are fairly representative
of the whole stock of commodities. In point of fact, as we
have since shown, there is reason to believe that the group of
articles selected for comparison being mainly wholesale
articles was likely to cause error on the side of showing an
excessive rise of price, although the selection was as im-
partial as possible. At the same time it would be difficult,
if not impossible, to compare anything but the prices of
wholesale articles, retail commodities being too various and
changing to permit of any such comparison. The object of
our second test, then, is to supplement and correct the first.
It may be assumed, we say, that other things being equal—
that is, no change occurring in the conditions which make
coin be used—the circulation of coin in a country will vary
in exact proportion to the growth of population and industry.
If the population has grown in a certain proportion without
being, man for man, more industrious, the coinage remain-
ing of the same value would increase in exactly that propor-
tion. Ifthe population had also become more industrious, so
that, man for man, transactions and payments were in-
creased, then, besides the increase of coinage in proportion
to the population, there would be an increase in proportiot
to the accelerated activity of business, and hence too in
would follow—this being the most important inference ‘for
our present purpose—that if the coinage depreciated in
THE DEPRECIATION OF GOLD sIncE 1848. 93

value it would increase in nominal amount in greater pro-
portion than the increase of population and industry com-
bined. The excess of such increase would be a measure of
the depreciation which had occurred, and would corroborate
or correct the inferences drawn directly from the rise of
prices, which, for the reasons above given, must necessarily
be incomplete.

The most important — perhaps the only important—
country for which a comparison need be made is England.
As the most developed country commercially at the time of
the gold discoveries, English prices are more likely than
almost any other to show the effect of a general depre-
ciation of the measure of value. Is it possible, however, to
make any real comparison of the growth of population,
industry, and currency in England? The common notion
is that it is not possible, the gradual perfection of the Clear-
ing House arrangements having, it is supposed, economised
currency in the interval since {850. But a little considera-
tion, we think, will show that there are really some data to
go upon. In England there are in fact two standard cur-
rencies — the sovereigns, which are in the pockets of the
people and are used as small change, and the Bank of Eng-
land notes, which are used for large payments. The
economy of the Clearing House arrangements, it is con-
ceived, applies only to the latter currency. So far as the
use of sovereigns is concerned, the necessities and habits of
the people are unchanged. Deposit banking was quite as
much developed in 1850, in proportion to the population, as
itis now. What the Clearing House has accomplished is
not anything which applies to the mass of the people
in their use of sovereigns, but only something which
applies to the arrangements among bankers themselves
in which notes only are used. We may assume, then,
94 THE DEPRECIATION OF GOLD: SINCE 1848.

that every increase of population and business since 1850
must have involved a proportionate expansion of the
sovereign circulation, and that it is only an expapsion
beyond that proportion which can be considered as indi-
cating a depreciation of gold. ,

What we have to compare, then, is the increase of
population and industry in England since 1850 with the
increase of the sovereign circulation. The increase of popu-
lation is easily ascertained. As we showed in an article on
the coinage,* the population of the United Kingdom
increased between 1848 and 1871 from 28,000,000 to
32,000,000, or 14.3 per cent. In such a comparison, how-
ever, we ought to look at the narrower England. Scotland
and Ireland do not use a gold currency, and the increase of
the circulation of sovereigns in the United Kingdom is,
therefore, practically an increase of the circulation in Eng-
land proper. And the increase of population in England
and Wales since 1850 has been very much greater than the
average increase in the United Kingdom.

 

 

In 1871 the eames WAS nce ee nee tee wee = 22,704,000
In 1851 it was... ... see tse eee eee one: 17,927,000
Increase in 20 years www wwe wee 4,777,000

—which is at the rate of 26.6 per cent., or about 1.3 per
cent. per annum.

Such has been the increase of population, and the
increase of industry has been in much greater proportion.
The annual income assessed to the income-tax increased in
England between 1848 and 1868 as follows :—

* See Economist, June 29, 1872.
THE DEPRECIATION OF GOLD SINCE 1848. 95

Amount in 1868 2.00 0... ase nee vee) £365,366,000
Amount in 1848 ... ..  . wee vee vee =: 229,868,000
Increase in 20 years ...0 4. ee see vee £185,498,000

—which is at the rate of about 60 per cent., or 3 per cent.
per annum. And this is probably the minimum increase of
business. As we showed in the article above referred to,
our staple industries have increased enormously. The pro-
duction of coal, between 1856 and 1869 only, rose 60 per
cent., and of iron 53 per cent., while the development of the
export trade, as respects the quantities of all our manu-
factures, was truly prodigious. We are within the mark,
then, in assuming as the basis of comparison with the
‘increase in the coinage, that population since 1850 has
increased at the rate of 1.3 per cent. per annum, and
industry and wealth at the rate of about 38 per cent. per
annum. The population is one-fourth more numerous than
before 1850, and, man for man, their industry is nearly
twice as productive as it was then. For these reasons their
small change should have greatly increased, even without
a depreciation of value; and if there has been depreciation,
the increase should have been enormous.

But what has the increase been? Here we are beset by
new difficulties. The amount of the circulation at any given
time can only be approximately stated. It is conceived,
however, that if a minimum amount at an early date can Le
compared with a maximum amount at a later date, the full
éxpansion of the circulation will be more than accounted for,
the proportion of increase being made to appear greater than
it really has been. This will be a safe figure to compare
with the increase of population and industry, so far at least
96 THE DEPRECIATION OF GOLD since 1848.

that any inference of a depreciation of gold will be quite as
strongly, if not more strongly, supported than the facts
would fairly warrant.

The gross addition to the circulation since 1850 has been
about £50,000,000. As we showed in our article of August
81st, the addition to the coinage since 1857, deducting light
coin withdrawn, and the exports of English coin, has been
£27,576,000 ; between 1848 and 1857 the total addition, as
reckoned in Tooke’s “ Uistory of Prices,” was £22,000,000
—the two sums making together almost exactly £50,000,000.
But this is undoubtedly far in excess of the real addition.
Mr. Jevons, in 1868, in his Paper on the Gold Coinage read
before the Statistical Society, pointed out that there was an
excess in the statement of the gold coinage upon a mere
computation of the addition in the above manner, amounting
to about £14,000,C00. And he gave other reasons for
believing that there was a much larger melting of coined
money than was commonly supposed. Deducting a million
more for sovereigns melted since 1868, we arrive at the sum
of £15,009,000 as a moderate deduction from the above
addition of £50,000,000 to the coinage since 1848, the real
maximum addition to the minimum coinage before 1850,
whatever we may take it to be, being thus only £35,000,000.

Now the coinage before 1850 could hardly be less than
£60,000,000. There are no data for estimating the amount
exactly, but the igure may be arrived at indirectly. Mr.
Newmarch, for instance, estimated that the gold coinage in
circulation in 1844 was 46,000,000, and allowing only
2,000,000 for subsequent additions, which has been the
average for many years, this would bring the total in
1850 to the sum named. The actual new coinage in the
interval was £27,000,000. Another mode of verification
yields the same conclusion. Mr. Jevons, in 1868, ascer-
THE DEPRECIATION OF GOLD SINCE 1848. YT

tained that there were 44,000 sovereigns coined before 1850
out of every 100,000 then in circulation. This figure being
then £80,000,000, the conclusion is that in 1868 there were
still £35,000,000 of the coinage before 1850 in circulation.
But meanwhile there had been withdrawn in light coin
at least £10,000,000, and there would also be some with-
drawals for export, besides losses through melting, wear and
tear, and the like which would easily sum up to £15,000,000,
the difference to be accounted for. There is a high
probability, therefore, that the coinage at 1850 could not be
much under £60,000,000, if at all under that amount.

The increase in the coinage has therefore been :—

Amount in 1871 (minimum)... «.. «ave £95,000,000
Amount in 1850 (maximum) ... .. «=e 60,000,000

Increase ... ss. eee ove vee eee tee cee £35,000,000

 

—which is at the rate of 58.3 per cent., or rather less than
3 per cent. per annum. Comparing this with the increase
of population alone, which was 25 per cent. in 20 years, it
would appear that there is an excess of 33 per cent. in the
expansion of the circulation, which, according to this mode
of verification, would be the limit of the depreciation of
gold. As compared, however, with the increase of wealth
and industry, there is no excess, the production of the staple
raw materials of manufacture, coal and iron, having been at -
as great a rate between 1856 and 1869 alone, while the
development of our export trade has been truly prodigious.
We may safely say, then, that if there has been a great
depreciation of gold since 1848—that is to say, anything
over 10 or 15 per cent.—there has been no such expansion

of the small change circulation as we should have expected
H
98 THE DEPRECIATION OF GOLD sINCE 1848.

to follow that depreciation. As a corroboration of the direct
evidence from prices formerly given, to the effect that the rise
of prices has been little more than 10 per cent., if any, the
facts now brought out are clearly worth something, although |
it would be foolish to dogmatise on such points. The data
are imperfect, but so far as they go they clearly point to a
very limited depreciation of gold as the past consequence of
the gold discoveries.

The question will arise on these facts whether the
economists were right or wrong who predicted manifold
economic changes as the result of the depreciation of gold
following on the gold discoveries. The conclusion must be,
we think, that so far as the facts have yet gone, the
speculation indulged in was exaggerated. A depreciation
of 10 or 15 per cent. in the measure of value spread over a
quarter of a century is hardly of a kind to produce any
social disruption. At the worst it is a 10 per cent. income
tax, and though a 10 per cent. income tax would be all but
intolerable when levied directly, experience has fully shown
that a much heavier per-centage can be levied on com-
munities indirectly without the victims being individually
conscious of the process. This would be the modifying
consideration in regard to fixed incomes, and, of course, as
regards the other transactions of life, the change would be
quite imperceptible. The fluctuations of prices in commerce
are so large, that this gradual change diffused over a
lengthened period would be wholly imperceptible, and
would in no way alter the basis of contracts, or the effect
of the continual adjustments of wages. In justice to the
economists, however, it should be remembered—and the
point is also important as a corrective of the popular ideas—
that the condition of the expected depreciation has not been
fulfilled. MM. Chevalier’s estimate of the probable annual
THE DEPRECIATION OF GOLD SINCE 1848. 99

production of gold was £35,000,000, and he thought it
might be £42,000,000; Mr. MacCulloch’s estimate was
£39,000,000. As we have seen, however, the annual
production has for many years been only about £20,000,000
per annum, which is very little in excess of M. Chevalier’s
estimate of the total annual consumption, viz., £17,850,000.
The material fact of production having thus differed so
materially from the hypothesis on which the theory of a
great depreciation, amounting to 50 per cent., was built, it
is not surprising at all that the economists were out in their
estimate of the depreciation. But there could be no better
illustration of the error of the popular habit of assuming,
with little proof, a permanent rise of prices, and then
assigning the gold discoveries as the cause, with the assured
conviction that this is all done in accordance with economic
authority. The calculations which have helped the growth
of this popular conviction were not positive but hypothetical,
and the subsequent facts having contradicted the hypothesis,
the calculations fall to the ground.

Ii.

Tue last question to be discussed in connection with the
gold statistics we have lately collected, is the probable
course of the future movement and its effect on prices. The
past effect, as we have seen, is of a moderate description,
not exceeding about 10 per cent. in the central wholesale
markets of the world, where the effect of any change in the
value of gold is most easily distinguished from other causes in
the fluctuations of prices. It is urged, however, on one side
that the causes of the depreciation of gold are only beginning
H 2
100 THE DEPRECIATION OF GoLD sINCE 1848.

to operate, that future supplies coming upon an overstocked
market will have an immense influence; and on the other
side that there are rather signs of a falling off in pro-
duction, and that, considering the growing demands of
the world, an appreciation of the standard is more likely
than any further decline in value. What light is thrown
on these opposing views by the facts which we have been
investigating P

At the outset, we may say we have no intention of
making any distinct prophecy. What the actual demand of
the future will be, and what will be the actual supply, and
in what way any tendency to fluctuations in value will be
corrected by a check to production on one side or a
diminished demand on the other, are all questions on which
there are perhaps no sufficient data in existence for a sure
opinion. The experience of the past twenty years should
moreover counsel the utmost modesty of prediction. No one
in 1850 would have predicted that of the immense new
supply of gold then coming into the world one-fifth would
be absorbed by India and the Hast, and nearly two-fifths
more by a single European country—viz., France, which
would practically substitute a gold currency for a silver one.
No one would have predicted, moreover, that the United
States would substitute paper for gold. Yet all these facts
were more or less essential in 1850 in calculating the ratio
of the demand to the then future supply of gold. Any pre-
diction of the future is equally liable to be upset by unex-
pected incidents. All we shall do, therefore, is to point out
the relation of the current supply to the current demand,
and on what side the probable great changes that will affect
the value of gold are likely to be.

According to the figures which we published in our
general article on “The Production and Movement of
THE DEPRECIATION ©” GOLD siNCE 1848. 101

Gold since 1848,’* the current supply may be taken as
£20,000,000. There may be some production besides in
outlying countries, but this figure of £20,000,000 represents
the amount which comes into the general bullion movement
of the world. And this annual amount has also been a toler-
ably steady one for more than ten years. In the five years
between 1852 and 1856 the annual production was as high
as £29,000,000, and in the following five years the average
was still as high as £25,000,000, but since 1862 the average
has been £20,000,000, with £22,000,000 on the one side
and £19,000,000 on the other as the extremes of variation.
The condition of production may, of course, change very
quickly, but so steady a supply for a long period seems to
argue that the industry is being carried on under stable
conditions, and that about £20,000,000 may be relied on
while the demand continues what it is.

The question of the current demand is a more intricate
one. The whole history of the market in past times shows
the powerful influence of extraordinary demands. kBut for
the demand for India, and the demand for France, there
would not have been sufficient outlets for all the new sup-
plies of gold, aggravated as they were by the substitution of
paper for gold in the United States. At the present
moment, besides, the course of the market is likely to be
governed as much as ever by extraordinary changes in the
demand. Germany and Scandinavia are substituting a gold
for a silver coinage on the one side, and France is substitu-
ting paper for gold, though its policy may change at any
moment. The Indian demand, which was formerly so
great, has also of late years fallen off, though it would be
rash to assume that under no circumstances will it again

* See Economist, Vol. XXX, p. 954.
102 THE DEPRECIATION OF GOLD sINcE 1848.

revive.* But omitting the question of these great movements
for a little, there appears to be an ascertainable current
demand of no small magnitude. (1.) England absorbs on
the average about £5,000,000 a-year—about £2,000,000
for coinage, and the remainder for the arts and other pur-
poses. (2.) There is a demand of about £1,000,000 per
annum for South America. Our exports to Brazil and other
South American States in the ten years ending 1871 were
almost exactly £10,000,000,f and this demand being for
English sovereigns is apparently a steady demand.
(3.) The annual consumption of Spain, Portugal, &c.,
appears to be about £800,000.t (4.) The annual absorp-
tion by India, though not so great as it was in 1862-66,
appears still to exceed £4,000,000. In the five years ending
1871 the amount absorbed was £21,458,000, or over
£4,000,000 annually, the extremes of variation being
£2,283,000 on the one side, and £5,592,000 on the other.§
Even before 1850, it must be remembered, India was an
absorbent of gold to the extent of about a million-and-a-half
annually, and it is not surprising that its great growth
during the last twenty years should enable it to increase its
demands. (5.) There is a s'eady Australian demand of
uncertain amount, but probably nearly equal to the annual
minimum coinage of the Sydney mint, or about £1,200,000
a-year. All these demands are comparatively stable, and
have practically existed for ten years without any traceable
permanent change in the level of prices, no further rise or
full, as we have seen, having occurred since 1862. They
sum up as follows :—

-* Tt has since revived to some extent.— Edition 1886.
t See Table XI, Economist, p. 957, Vol. XXX. } Ibid.
§ Economist, Vol. XXX., p. 1430, Table II.
THE DEFRECIATION OF GOLD SINCE 1848, 103

 

(1.) English consumption... 0. uw ~£5,000,000
(2.) South American ditto ... 0... 0 4.0 0... 1,000,000
(3.) Portugal, Spain, &c., ditto 2.0. 800,000
(4.) Indian ditto 2. 6. ee ee 4,000,000
(5.) Australian ditto 0... ae 1,200,000

Total current annual consumption... ... £12,000,000

The figure is perhaps not quite complete, as there are
no doubt many other miscellaneous demands not easily
traceable; but increase such demands as we may, the
conclusion is plain that a current annual demand ol
£12,000,000, or thereabouts, would not take up a pro-
duction of £20,000,000. If there were nothing else to be
considered, the probability as regards gold movements of
the next few years would be the accumulation of gold upon
the commercial markets of the world, and a somewhat rapid
inflation of prices, accompanied by a real and permanent
change in the standard of value.

As we have seen, however, the extraordinary demands
are most important in this question, and wa have now to ask
how far the annual excess of £8,000,000 in the current
supply over the current demand will meet the extraordinary
demands which seem in prospect. On this point we shall
be inclined to say that there will not be enough for these
extraordinary demands without a great increase of pro-
duction during the next few years. The first known
demand is very urgent and of great magnitude, viz., the
demand for Germany. The Germans have decided to have
a gold currency, and in round numbers this means that
within the next few years Germany must obtain between
£60,000,000 and £80,000,000 of gold. Germany is very
much in the economical condition of France, and is now a
good deal more populous, but France in twenty years took
104 THE DEPRECIATION OF GOLD sIncE 1848.

up about £200,000,000 of gold. To assume that Germany
will use up half the amount in half the time is no extrava-
gant supposition, especially as the German Government to
begin with has extraordinary means at command, and being
richer now than France was in 1850, will require more at
once than France then required. Last year, in fact, Ger-
many, it is now known, coined about £21,000,000, and she
proposes to coin £18,000,000 in the current year; and the
scale of coinage is not above her needs, and will probably
remain high for the next two or three years. In this single
extraordinary demand, therefore, there is far more than
enough to absorb the excess of current production over the
ordinary current demand which we have above described.
In addition, the known demands for the Scandinavian
countries will absorb a good deal, though it is hardly worth
reckoning them when so overwhelming a demand as that for
Germany is impending. .

The next great point as regards the future is the possi-
bility of a resumption of specie payments by the two great
“paper” countries—France and the United States—whose
standard previous to inconvertible paper was practically
gold. This resumption of specie payments will not cause so
serious a demand as that for Germany, because gold in both
instances has undoubtedly been hoarded, and will come out
of its hiding-places as soon as it is once more legal tender.
But the United States at least has grown immensely since
1868, when inconvertible paper was introduced, and the
presumption is, that the old hoards would not be sufficient
for the new work they would have to do. To resume specie
payments the United States must begin by a considerable
coinage, and some additional coinage will probably also be
required for a similar purpose in France. Here, then, we
have the elements of another extraordinary demand besides
THE DEPRECIATION OF GOLD sINCE 1848. 105

that for Germany during the next few years; and we do not
think the contingency should be disregarded. The inappre-
ciable premium on gold in France is itself an indication that
the evil of inconvertible paper is being kept within bounds,
and always keeps the probability of a resumption of specie
payments within sight. And the financial and political
authorities of France will both be equally desirous that
specie payments should be resumed at the earliest possible
moment. In the United States, again, there is a growing
opinion in favour of specie payments, and though the gold
premium there is a serious matter, as it is not in France, the
United States has ever shown a boldness and thoroughness
in expedients which is foreign to the usages of the old
world, and the fact of a high premium on gold is, therefore,
a less barrier to the resumption of specie payments in the
United States than it would be anywhere else. If the
public mind in America is once made up to have specie
payments, a somewhat revolutionary and decided action is
quite as likely as not.

Our conclusion, therefore, is that the better probability
of the next few years is an excessive demand for gold com-
pared with the current supply. We have a regular annual
demand for £12,000,000 or upwards, leaving an excess of
£8,000,000 for any extraordinary demands; but one known
demand of this sort seems likely to take far more than this
excess for several years to come, and there are heavy con-
tingent demands which it is needful to keep in mind.
What the result will be it would be needless to speculate.
Compensation will, perhaps, be found in a greater economy
of existing stocks and a reduction of current demands,
as well as in a pressure to produce more, which may have
some result. But if the extraordinary demands continue,
and if little can be made of the last expedients suggested,
&

106 THE DEPRECIATION OF GOLD sINCE 1848.

we should rather expect within the next decade that gold
will rise in value, instead of continuing the fall which was
arrested in 1862—in other words, that the general range of
prices is rather more likely to fall during the next ten years
than it is to rise. We must again repeat, however, that the
point is one on which we have no pretension to dogmatise.—

[December, 1872.]
ill.

THE LIQUIDATIONS OF 1873—76,

Waar are the characteristic marks of the great depression
of trade during the last three or four years? It is now
ascertained that such depressions are periodical. They
recur at tolerably regular intervals, following in the wake
of equally regular periods of great prosperity in trade, when
everybody makes profits or seems to make them. The
alternation has no doubt its roots in human nature, which
lends itself to an ebb and flow, an action and reaction, in
affairs. The depressions, like the periods of prosperity
coming before them, have also many features in common.
Just as the prosperity is shown by the prevalence of good
credit, an active money market, and a high range of prices
for both securities and commodities, so the depression is
marked by a low range of prices, heavy failures, bad credit,
and consequently a sluggish money market. But each
depression has likewise its own special features and inci-
dents. The crisis in which it begins, or which it produces,
indicates some special development of trade at the time, or
some special disease in it—the favourite business of a
country changing from time to time, and a constant tendency
existing to go to an extreme with the momentary fashion.
We propose, then, to inquire what are these special features
in the recent depression ; this proceeding being likely, it is
obvious, to be more instructive than a mere examination and
108 THE LIQuipaTIoNs oF 1873-76.

record of those features which most depressions have in
common. There is an additional reason for this course.
An impression prevails that the present stagnation of trade
is unprecedented in intensity and duration, and that it is
likely to be permanent. A similar impression has often
been found to prevail at such times, and it will be interesting
to inquire whether it is uow, for once, well founded, or
whether in reality the depression is not much less than those
to which trade has often been subject, and is not as likely as
any other to terminate in a new period of prosperity.

 

L

EnpEavourine to answer the question we have put, what
we are first struck with, in a general survey of the last three
or four years, is the universality of the depression. Almost
every civilised country has been affected. The beginning
was in 1873, with the great Vienna panic and crash in May
of that year—a crash which was accompanied by immense
agitation throughout Germany and in England, and the
occurrence of incidents on almost every European Bourse >
which only stopped short of panic. Next came a great
panic and crash in the autumn of 1873 in the United States,
perhaps the greatest event of the kind to which that country,
though it has had many great panics, has ever been subject.
This was accompanied by a renewal of agitation in England,
as well as generally on the Continent, as the rates of discount
in November 1878 significantly prove. At that date the
minimum bank rate of discount was in London no less than
nine per cent., the maximum being two and three per cent.
higher; the minimum in Paris and Brussels was seven ner
THE LIQUIPATIONS OF 1873-76. 109

cent.; in Berlin and Frankfort, five per cent.; Vienna, five
per cent.; and Amsterdam six and a-half per cent. The
following year was comparatively quiet, but it was marked
by great monetary disturbances in South America, and by a
great fall in prices both at home, on the Continent, and in
the United States. In 1875 came renewed disturbances in
South America, a renewal of agitation in the United States
and Germany, and then the Im Thurn, Aberdare, Collie,
Sanderson, and other failures, constituting the commercial
crisis of that year in England. This was in turn succeeded
by a great collapse in foreign loans, which had been heralded
and partly rehearsed in 1873, on the occasion of the bank-
ruptcy of Spain, and of which the conspicuous incident now
was the non-payment of the Turkish debt interest. To all
these events succeeded renewed depression and stagnation in
trade at home, as well as on the Continent, the crisis in
Russia in 1876 being very marked, and the whole continuing
till it seemed to have a fresh cause in the apprehension and
actual outbreak of the present war. Thus the depression
has been widespread and general, Italy, Spain, and France
perhaps escaping with little hurt, but Austria, Germany,
Russia, the United States, and the South American countries
having all been in deep distress.

This universality, on a comparison with former periods
of crisis, may be in fact apparent only, arising from the
greatly increased facilities of observation at the present day.
There never was a time, probably, since commerce was
sufficiently advanced in more countries than one to admit of
crises, in which the commercial misfortunes of one country
did not react on countries with which it did business. At
such periods as 1825, 1837-39, 1857-58, 1861-62, and
1866-68, it is undoubtedly the case that thé crisis in
England has been accompanied by more or less severe crises
110 THE LIQUIDATIONS OF 1878-76.

elsewhere—France, America, England, Holland, and the

German towns on the Elbe, having shared each other’s

fortunes more or less during the whole period. Now the

crisis is felt to be more extended, because we are imme-

diately informed of the events in most distant places, because

we see at once the association of failures at centres remote

from each other, because we also see at once the effect in one

place of the call upon it to render assistance at another

disturbed centre of business. But it is also true that

commercial relations are themselves far more extended than

was the case before railways and telegraphs; that there are

wide regions—in the United States, for instance—which

could not have been the subject of crisis twenty or thirty

years ago, because they were unpeopled; that such countries
as Austria and Russia bave lately shared more largely than

before in industrial development; and that Germany has

also advanced farther in the path which makes it possible for

it to be the subject of a commercial crisis. There is conse-

quently a real reason for the greater extension of the

commercial depression of the last three years as compared

with anything before witnessed, while it is equally true that
steam and telegraphs, by facilitating communication, have

destroyed the natural barriers between the different com-

munities of the commercial world. The London money
market appears to be the great equaliser of markets, because

it receives the shock of every important business event
throughout the world, and transmits the shock of what
it feels to every other centre. But whatever the nature of
the connection, it is certain that there is a connection

between commercial crises in different parts of the world,
and that the wider range of business increases the possible
area of disaster when once disaster has set in.
TNE LIQUIDATIONS oF 1873-76. lil

I,

Tue next important characteristic of the depression, and,
perhaps, the most important characteristic of all, appears to
be that the conspicuous industry which has failed is that of
the “exploitation” of new countries with little surplus
capital, and whose business is mainly that of producing raw
materials and food for export, by old countries which have
large surplus capital, and are largely engaged in manu-
facturing ; in other words, the investment in new countries by
the capitalists of old countries. Much bad business is brought
to light in every depression; but it is the peculiarity of the
commercial cycle, as we have noticed, that there is a change
from time to time in the favourite business, so that every
period has its special trade development, and special trade
disease. The favourite business for many years before 1873 had
become that of foreign investment, and now the depression
occurs where there was the greatest expansion. Direct evidence
in such matters is difficult: it would hardly be possible to
measure precisely the extent of the various descriptions of
disaster which combine to make a crisis; but there are many
facts and circumstances which can leave little doubt in the
mind that the direct evidence, if it could be obtained, would
wholly confirm the conclusion stated.

The order of events in the crisis affords of itself a very
striking confirmation of the assumption. The difficulties
commenced in the countries more or less farmed by the
capital of England and other old countries; whose indus-
tries are nourished by public loans from England, and by the
investment of private English capitalists within their terri-
tories, principally in the form of English iron and manu-
factures. The crisis in Austria, which was the first in the
whole series, was a crisis in a country answering this
112 THE LIQUIDATIONS oF 1873-76.

description to some extent. To the United States, where
the next great crash occurred, the description is still more
applicable. The South American countries, whose prolonged
suffering was the special feature of 1874, are almost a domain
of England; and Russia, too, is largely “developed” by
English capital. Some of these countries, especially Austria
aud Russia, have not been exclusively dependent on English
capital. They have also benefited by the accumulation of
capital in Holland, Belgium, and France, which had been
drawn largely to Germany before 1873, through the French
indemnity, and had overflowed thence into Austria and
Russia; but the indemnity payments, though they helped
to precipitate and aggravate the crisis in Austria, did not
alter the power of that crisis to react on England. No
doubt, in 1878, as already noticed, the collapse of the
foreign loan financing had been foreshadowed; but the
anticipatory events of that year were in themselves com-
paratively unimportant, so that down to 1875 what chiefly
happened was a succession of monetary and commercial
crises In countries dependent on England, but from which
England by comparison escaped. In 1875 these crises were
succeeded by a crisis in England itself of very great inten-
sity, naturally leading to a renewal of crisis and distress
elsewhere, though not of actual panic, and the whole cul-
minating in the financial disorders of the foreign loan
collapses, which will probably form, in after years, the
most conspicuous feature of the whole series of liquidations.
There appears to have been a natural order, therefore, in the
successive crises to which the countries dependent ‘on Eng-
land have been subjected, leading to a crisis in England
itself, and finally to a financial as well as a commercial
collapse.

We have next to adduce in evidence the fact of the great
THE LIQUIDATIONS OF 1873-76, - 113

expansion of the business of investment in foreign countries
previous to the depression. The great multiplication of
foreign loans in the period is now familiar. Not to speak
of Turkish and other loans, which were so largely mere
borrowings to pay interest, there was a loan of £32,000,000
for Egypt, after there had been large loans in 1868 and
1870; Chili in the same time (1867—73) borrowed
£5,250,000; Peru, £24,000,000; Brazil, £10,000,000 ;
Kussia, £77,000,000; and Hungary, £22,000,000 —
exclusive of minor borrowings by guaranteed companies
and otherwise. These were the nominal amounts of the
loans, and the real money or money’s worth ever trans-
mitted to those countries in respect of them must have been
much less; but, making all deductions, they indicate an
immense direct credit opened up in this country in favour of
the States named. The minor borrowings we have referred
to were equally important, if not more important, and,
especially in the case of the United States, the aggregate of
small loans for railways and other purposes was immense.
All this direct borrowing likewise implied a great invest-
ment of capital privately in foreign countries. Merchants
and traders-were induced to set up establishments abroad to
facilitate the business which the loans brought into existence,
and accommodate the wants of emigrants to the new fields
of industry. The result was a luxuriant industrial growth
in the new countries by means of this vast direct and
indirect credit which old countries were giving. Thus in
the United States, immediately before 1873, the length of
the whole railway system had been doubled in seven years ;
in Russia almost the entire system of 12,000 miles has
been created since 1868; in Austria there had been an
increase from 2200 miles in 1865, to over 6000 miles in
1873; and in South America, Brazil, the River Plate
I
114 THE LIQUIDATIONS OF 1878-76.

Republics, Chili, and Peru, had all been endowed with
railways in a very few years—the loans for these countries
above enumerated, and especially the above loan of
£24,000,000 for Peru, being avowedly all for railways.
And never was there a more rapid development of the
foreign trade of the United Kingdom. ‘The total import
and export trade, which was £500,986,000 in 1867, had
risen in 1878, or in six years only, to £682,292,000, or 36
per cent.; and the trade per head from £16 1s. 3d. to
£21 4s. 9d., or 82 per cent. The exports of British produce
alone, to take the two extreme years, had risen from
£179,678,000 in 1868 to £256,257,000 in 1872, or 42 per
cent. in four years, the increase per head being in the same
period from £5 17s. 4d. to £8 1s., or 37 per cent All this’
had followed a rapid rise in previous years ; for the panic of
1866 was chiefly the collapse of a home company mania, and
had not brought with it discredit of foreign loans, or a col-
lapse of the business of lending to foreign countries. And
in one or two trades the increase of business was even
greater than the general increase. Thus the quantity
of our iron and steel exports rose from 2,042,000 tons _
in 1868 to 38,888,000 tons in 1872, or 66 per cent. in
four years; while there was simultaneously a rise of
price which made the increase in values immense, not
only in these, but in other articles where there was no
such increase of quantity. It is sometimes said that the
burst of trade which culminated in:1872-3 was largly due to
the extra demand for our manufactures created by the
Franco-German War. This war checked manufacturing on
the Continent for nearly a twelvemonth, besides causing a
war demand for certain of our manufactures. But the com-
parison we have made is of a year when the war was long
over, with a year quite before the war, while the most con-
THE LIQUIDATIONS oF 1873-76. 115

spicuous instance of increase in our exports was in iron and
steel, which was clearly in connection with increased railway
_ construction abroad. The expansion of our foreign trade
was thus manifestly in connection with the general expan-
sion of our foreign investment business, and not the result
of the accidental or temporary causes which have been
assigned.

That there has been a most disproportionate stoppage of
the foreign investment business, which would go far to
account for the present depression, is also very obvious. I
do not refer so much to the notorious stoppage of the issues
of foreign loans, small and great: after every great crisis
new issues of almost every kind come to a standstill, as
. frequent experience has shown. It was so after 1866, and
has been so after similar years of crisis, although I doubt if -
foreign issues, as ‘distinguished from home enterprises, have
ever been so completely stopped as they are now. Quite
apart from this, we have unmistakable evidence of the
decline in foreign investment business in the financial and
industrial embarrassments in new countries, of which, as I
write, the great railway strikes in the United States furnish
a: new illustration. There has also been a diminution of
singular magnitude in our export trade. That trade has
frequently fallen off in times of general depression, but
never to such an extent as has lately been witnessed. The
diminution altogether in the exports of home produce and
manufactures has been from £256,257,000 in 1872 to
£200,639,000 in 1876, the change being partly due as usual,
and perhaps rather more than usual, to a fall in price, but
only partially to that cause. There has not since the free
trade period been such a decline in our foreign trade, just as
there had been no previous example of so great an expan-

sion. The decline has also been mainly in the exports to
12
116 THE LIQUIDATIONS OF 1873-76.

such countries as the United States, which had been our
great borrowers—the falling off to the United States alone
being from £40,737,000 in 1872 to £16,834,000 in 1876,
this latter figure being the lowest since 1864. It has also
been mainly in such articles as iron and steel; the exports
of which diminished from 3,383,000 tons and £35,996,000
in value in 1872, to 2,224,000 tons and £20,787,000 in value
in 1876; while the exports to the United States alone fell —
from 975,000 tons in 1872 to only 160,000 tons in 1876.
The recent diminution in our export trade is therefore not
only unusual, but it is a diminution of the exports to new
countries, and a diminution of those articles which we send
abroad for the purpose of new works in such countries. So
great a change in one great branch of our business would go
far to account for the general depression now prevailing,
which is thus once more traced to the failure of our foreign
investments.

_ The embarrassments in the new countries were also
connected with the excessive development of their capa-
bilities which had been attempted. A very considerable
amount of the railway and other speculation during
the last few years, has been proved to have been wholly
in anticipation of the wants of the world, the evidence
of this being an over-production of raw materials and
food, the characteristic products of the new countries.
Of this over-production the most significant sign was
the low price of wheat in 1875, notwithstanding the bad
harvest of that year in several countries. There had
previously been complaint of low prices in the United States
—in 1873, for instance—and of inability to “keep back ”-
crops. Similar complaints had also been received from
- Russia in 1874. Even in 1876 the price of wheat was slow
in rising in the autumn, notwithstanding a generally bad
THE LIQUIDATIONS oF 1873-76. 117

harvest, and the extreme war rise the following spring was
only maintained a few days. In other words, the assump-
tion as regards wheat that new countries might be settled
indefinitely has proved to be erroneous. The result of what
appears to be excessive cultivation is an unremunerative
price, which leaves merely agricultural communities in dis-
tress, and disturbs their whole system of industry. It has
been the same with other raw materials, such as cotton,
although perhaps not to the same extent. But in general
the business of producing raw materials and food had been
overdone, and the crises in Austria and the United States
in 1873, followed as they have since been by the similar
crises in ‘South America and Russia, were evidence that the
power to support the financing of the previous two or three .
years, which was based on the business of investment in new
countries, had ceased.

The uglier features of the collapse of foreign loans also
furnish evidence of the characteristic mark of the crisis with
which we have been dealing. In addition to the issue of
loans, which involved the investment of capital in a fixed

form to an extravagant extent, so that immediate loss and
- ruin could not but ensue, there had taken place in a few
years before 1872 frequent issues of loans for foreign countries
so called, which were only disguises to plunder the public.
We refer to the loans for Honduras, Paraguay, San
Domingo, and Costa Rica, which were investigated by the
Foreign Loans Committee, and to a numerous class of which
these were perhaps the most flagrant specimens. Theso
were simply issues by knots of speculators, usually on the
plea that they were for some public work—to which a small
portion of the money raised was perhaps, in fact, devoted—
but really with the design, as carried out by those concerned,
to pay themselves large sums in commissions and otherwise,
118 THE LIQUIDATIONS oF 1873-76.

so long as the public could be got to believe in such things,
by the payment of interest out of the funds they had them-
selves advanced. All this was very natural. The peculiarity
of the time being the development of foreign countries by
loans, it was only natural that the illegitimate financing of
the time should also consist of so-called loans. As there had
been bogus companies in the days of the company mania, so
now there were bogus loans.

These are all circumstances tending to show how much
the bad business brought to light in the recent depression
was connected with the business of investment in new
countries, and its accessories, which had previously just
received so great an expansion. As we have already
remarked, there was much bad business besides. In the set
of failures connected with that of Messrs. Collie, what seemed
to be shown especially was a peculiar disorder in the trade
with India, the result, it is probable, of the undue invest-
ment of capital in that trade at a date as far back as the
cotton mania in 1863 and 1864. But the bad business of
' foreign investment and financing has certainly been far the
most prominent.

III.

A tuirp distinguishing mark of the crisis appears to be
the singular lightness of its effects on English industry and
wages. As has been hinted already, such is not the common
impression regarding it. On the contrary, the depression of
trade is spoken of in common speech as something entirely
unprecedented both in intensity and duration. But a careful
examination must prove that, as far as matters have yet
gone, the common impression is wrong, and the facts are
entirely the other way.
THE LIQUIDATIONS oF 1873-76. 119

The common impression appears to be due to a misin-
terpretation of two undoubted facts: first, the evident
magnitude of the financial collapse in foreign loans, which
has been productive of great social distress among the classes
who have most ample opportunities of proclaiming their
grievances; and next, the magnitude of the decline of the
foreign trade of the country, which is identified with a
decline in its whole trade. But it is easy to see that there
is a misinterpretation. The magnitude of the financial
collapse is, of course, very serious. The novelty of the
deception of the public by bogus loans has increased the
evil as compared with the evil of a company mania, whilo
the opportunities of fraud were really more favourable to
the conspirators than in the manufacture of bubble com-
panies. A State loan sounds more respectable than a
company issue. On the whole, the securities of States for
a long period had also answered better than the shares of
companies, and although also in former years many State
loans had proved the source of loss to English investors—
several South American States, Greece, Spain, and one or
two States of the American Union, having all proved
defaulters—yet there had been no flagrant instances of loans
which were merely cloaks to let promoters and financiers
have commissions. The agents and institutions connected
with States also controlled larger resources than had been
controlled by the financiers of companies. The inability of
investors, therefore, to form a good judgment on the invest-
ments submitted to them, their disposition to rely on market
price, and other extraneous or irrelevant circumstances, was
never experimented on so widely, or with more unfortunate
results. Hence the magnitude of the bad business and the
ensuing collapse. In the loans for Turkey, Egypt, and Peru
alone, the depreciation of securities within a year after the
120 THE LIQUIDATIONS OF 1873-76.

Turkish collapse amounted to about £150,000,000, while
there is a total destruction or suspension of income from
tainted securities exceeding £20,000,000 a-year. But, great
as this collapse is, it has probably affected very little the
accumulation or real wealth of the country. Many people
feel themselves poorer than they were before, but the
community as a whole is not really poorer by the pricking |
of all these bladders. A certain number of people are
simply prevented from continuing any longer the process -
of living on their capital, for that was what they were doing

when they were spending the so-called interest paid them,

which was really only a return of what they had themselves

advanced. But the whole of the so-called interest was not

so spent, a great deal of it, as is the case with the interest

of every description of investment, being reinvested, and in

this way the collapse really changes nothing, except to let

many people know that their accumulations were imaginary.

The direct economic effect is consequently ni, although the

social effects.and individual disasters are of the most serious

kind. The depression of trade attending a financial collapse

ought not, therefore, to be measured by the seeming magni-

tude of the financial collapse itself, which last may be very

great without the ordinary industry of a country being

seriously checked.

As regards the second fact which is misinterpreted—viz.,
the decline of the foreign trade—the common impression
only requires to be challenged to prove its unsoundness.
We have probably a larger proportion of foreign trade than
any other great nation. Our workmen and capitalists have
gradually come to exchange a larger proportion of the’
. products of their industry for foreign products than any
other people. But even yet we are very far from exchanging
more than a small part of what we produce. Our whole
THE LIQUIDATIONS OF 1878-76. 121

agriculture is for home consumption; our coal and iron
mining, our cotton and wool spinning and weaving, our
manufactures generally, are also mainly for home consumers.
A decline in our foreign trade, therefore, is only a decline in
a branch of our whole trade, and should by no means be
identified with a general depression in business. The recent
decline in the foreign trade, moreover, is almost entirely a
decline in “optional” business. It is a decline in our
exports of such articles as we have: been in the habit of
exporting as a means of investing our capital abroad.
When we stop such exports, certain branches of home
industry, which have been fitted to this peculiar trade,
suffer; but the capital which would otherwise ‘have been
sent abroad, and the means of producing that capital, are
not destroyed. In the course of time, if the taste for foreign
investment does not revive, the capital and labour employed
in making articles for export will be turned to the production
of articles for consumption and investment at home. Instead
of merely looking at the foreign trade, then, we should look
at our aggregate trade in such times of depression, and not
suffer our opinions to be distorted by one or two conspicuous
facts.
Coming to the subject in this way, we do not see how
it can be doubted that the recent depression, although it
is very protracted, is as yet singularly light in degree.
Our imports of the chief articles of popular consumption, to
begin with, have not diminished, but increased. Indeed, one
of the favourite complaints about the depression of trade is
the old ery of the excess of imports over exports, which is
certainly greater than usual, because our investments in new
countries have ceased for a time, but which is the permanent
characteristic of English trade. It is quite certain, however,
that. no country sends us any goods on credit; it is
122 THE LIQUIDATIONS OF 1873-76.

Engiand which always gives. credit in the trade of the
world. Whatever increase of imports there may be, then, is
a sign of real ability to pay for them, and pro tanto of the
undiminished prosperity of the country. To the same effect,
we have the fact of an ¢ncrease of railway traffic year after
year during the depression. The increase in 1874 and
1876, and again in 1877, has been small; but in 1875, the
very year of the great commercial and financial collapse, it
was considerable. Evidence in the same sense is also
supplied by the non-increase of pauperism all through the
depression, and by the steady augmentation of the national
revenue, until the present year, and by the increase of the
savings-bank deposits. The non-increase of pauperism is
no doubt partly due to our improved administration, but no
improvement of administration could have prevented such an
increase of paupers and decline of revenue as followed the
panics of 1847, 1857, and 1866, not to speak of the awful
convulsions and distress which marked the depression of
trade in still earlier periods. To any one who has even
glanced at the economic history of England during the
present century, the common talk now about the “unusual”
depression of our trade appears simply ludicrous. The
people who indulge in it have simply never thought of
what depression of trade is. There has probably never been
a great commercial crisis in England which caused so little
suffering to the mass of the nation.

When we think of the matter a little, it seems reason-
able enough also that the depression should be a mild one.
Severe as the crisis has been, we were lucky enough to
escape an actual panic, with the shock to credit and other
lamentable incidents which a panic invariably produces. It
is probable also that we were really befriended by the
peculiar events in the money market in connection with the
THE LIQUIDATIONS OF 1873-76. 123

German coinage. The withdrawals of gold for Cermany
had the effect of anticipating the stringency in the money
market which a period of great expansion ends in. The
expansion was thus hindered from reaching the extreme it
would otherwise have reached, and the reaction is less
severe. Some good judges are of opinion that we have to
thank yet another cause—the high normal wages of our
workmen, and their independence of abundant harvests and
cheap wheat, as compared with what was formerly the case,
so that all our staple industries are steadier than they were.
But I should doubt the effect of this cause without greater
experience than we have yet had. Workmen will suffer, it
is to be feared, in a way in which they have not lately
suffered, if another time of expansion such as there was in
1872 should reach its full term, and industry be subjected
to the strain of the inevitable reaction. But without this
cause, the actual facts of the absence of a panic during all
this depression, and of the successive stringencies in the
money market which checked the exuberant growth of 1872
and 1873, appear quite sufficient to account for the com-
parative mildness of the effects of the depression we are
witnessing.

IV.

Tue marks of the present depression which we have
enumerated are thus its universality, its origin in the
breaking down of the bad business of foreign investment,
and its mildness in the United Kingdom as compared with
former periods of depression. Is there anything in these
peculiarities, or in any other circumstances of the depression,
to lead us to anticipate that it will be unusually protracted
124 © THE LIQUIDATIONS OF 1873-76.

or that its effects will be permanent? Is the depression, in
other words, the beginning of anything unusual or unpre-
cedented ?

To put the questions thus explicitly is perhaps to answer
them. Although there is much vague talk about existing
depression—which is really based on an assumption that it is
something utterly unheard of and must be lasting—it is not-
so easy to assert explicitly what is so confidently assumed.
To suppose the permanence of almost any depression would,
in fact, be to suppose a change in human nature itself.
Universal dulness and poverty are, in fact, contradictions in
terms, unless it is supposed that all people will voluntarily
be idle when they have the strongest motives to work.
Whatever awkwardness there may be in the distribution of
labour and capital at certain times, the power to produce
and the wish to consume ensure that with the means of
production unimpaired—and there is no allegation that the
means of production in the present case are impaired—
production will go on and increase with the increase of
population and with every species of chemical and me-
chanical improvement. It is thus morally certain that if
at any time the industrial machine, as a whole, is partially
disused and times are dull, a period of full employment and
prosperity will return.

And short of the depression being permanent, its effects
will not, we think, be worse than usual, if indeed the worst
is not already past. The disorder has been very general
throughout the world, because, industrially, the world is
getting to be more and more one country; but there is
manifestly nothing in the extent of a depression to alter its
character or the power of the communities affected to
recover. So far as England is concerned, moreover, all
that has happened is that a particular part of our trade
THE LIQUIDATIONS OF 1873-76. 125

—our exports of domestic produce and manufactures—is
momentarily weak, just as in former times the home trade
dependent on railway contractors or bubble companies was
weak. Our new investments in a particular direction have
failed, but that is all. There is clearly no reason in this for
any prolonged stoppage or diminished use of the industrial
machine for all: the miscellaneous purposes of life, although
it will only be by degrees that new outlets for our surplus
capital can be found. All the reasons assigned to account
for the lightness of the depression until now—the absence of
panic, the fact that the collapse is so much a merely finan-
cial one, and the circumstance that the expansion previous to
the depression was arrested in its natural development—are
‘also reasons why it should not be more protracted than usual.
Some new mischief may of course arise, but there is nothing
on the face of the facts, according to all former experience,
to lead us to expect an aggravation of the present evils.
Nor do the special causes sometimes assigned for expect-
ing an unusual degree and continuance of depression appear
to be entitled to much weight. The British workman, it is
said, drives business away by his misconduct and his de-
mands for excessive wages. Foreign nations are increasing
their manufactures of the very articles of which England,
till lately, had a monopoly. Every import of a foreign
manufacture into England, at a time like this, gives occasion
for a new exclamation that English industry is threatened.
The changes are constantly rung upon such facts as the
increased capacity of the United States for the production
and manufacture of iron ; the importation of certain descrip-
tions of American cotton manufactures into England; the
appearance of Belgian and German manufactures in our
markets at a cheaper price than the articles can be made by
ourselves. But those who use this language appear to fail
126 THE LIQUIDATIONS OF 1873-76

altogether in measuring the extent of the mischief they
point out. A great deal of the apparent. competition of
foreign manufactures is due to the search for a market
which occurs in every time of depression, and which
furnishes no sure indication whatever of any real change
in the currents of trade. All we know for certain is
that on the other side the complaints abroad of the competi-
tion of English manufactures are loudest at such a time, and
that facts as to foreign competition, similar to those now
alleged, have been brought forward in every time of depres-
sion for the last half century, without any serious permanent
result on English trade being traceable. That trade, on the
contrary, as, for example, after the year 1869, when a
great noise, was made about similar facts, always makes a
more rapid advance than ever after each depression. No
one can dispute, indeed, that English workmen are often
foolish for their own interest, or that some English trades
have diminished, and others may yet diminish or may
become stationary, while foreign trades of the same kind
increase. Still the question here is of the general pros-
perity, and it is easy to recognise the strength of the
influences which are likely, and, we believe, are certain to
limit the evils feared, as, in fact, they always have limited
them. Our workmen do, in fact, succeed in getting higher |
wages, as a rule, than foreign workmen; they do not migrate,
and pauperism does not, on an average of years, increase—
all signs that manufacturing, as a whole, whatever may
happen to particular trades, increases in England. It is
because there is so much more profitable manufacturing here
than elsewhere that our workmen can enforce the higher
wages. As we certainly cannot expect that foreign
countries should manufacture nothing at all, but’ must
rather desire their manufacturing to increase, there is really
THE LIQUIDATIONS OF 1873-76. 127

nothing in all that is said.of foreign competition to concern
us in an inquiry as to the permanence of the present
depression.

The fallacy in the use of these alleged facts as to foreign
competition consists, indeed, very largely in the forget-
fulness of other facts which are equally material: that our
foreign trade itself is not everything to us, but is, after all,
only a fraction of our whole business; that long before
competition can diminish that trade materially it must
produce a fall of wages, while wages abroad will rise if
foreign trade increases; ‘and that although foreign countries
increase their manufactures, we are not necessarily ruined—
probably we are greatly gainers. To.take what seems as
formidable a case of possible competition with us as any
that is threatened—viz., the increase of the American iron
and coal industries under natural conditions. It seems
probable enough that in course of time these industries will
be very largely developed in the United States. Tho
people have natural aptitude and skill, and other advan-
tages, and they may produce iron manufactures cheaper
than they can buy them abroad. In time they may
export them to other countries. But how is England neces-
sarily the poorer for that, and how much? We may come
to export a smaller quantity of our iron manufactures to the
United States than in the years before 1872; but at most
we shall only lose the profit on so much trade, not the whole
value of what we sold to the United States, which was, in
comparison with our whole trade, by no means a large sum.
Nor shall we even lose the whole profit. We can only lose
the difference of profit between what was derived from that
trade and the return on the less profitable trade, into which
a portion of our capital and labour are diverted. Possibly,
also, the growth of the world may be such that the expansion
128 THE LIQUIDATIONS OF 1873- “16.

of the American cuca will not be eats of, but will
be coincident with a similar expansion of our own—there
may be room for both of us. In that case there would be
no reduction of the profits on our own trade at all, although
America had become an exporter of iron manufactures. Ex
hypothesi, the increase of the Americar iron trade would also
mean that America becomes richer, and consequently a
better customer to the world generally for other things—
thus causing an increase of the general prosperity in which,
with our extended and various trade, we could not but
participate. Worse things may thus happen to us than a
natural extension of the American iron trade; andif it is
extended by protection only, it can of course do us still less
harm. There is something essentially unsound, therefore,
in the continual references to the increase of manufacturing
xbroad. Our concern should rather be to have that manu-
facturing increase. To anticipate that the world outside
England is to be merely agricultural or mining, is to
anticipate the maintenance throughout the world: of the
least productive forms of applying human industry, and of
low purchasing power among other countries. What man
kind require for the greater efficiency of their labour is that
the proportion of people employed in agriculture and mining
should diminish, and more and more attention should be

given to other forms of industry. How England should : : |

grow poorer as this transformation is being effected, it is
difficult to imagine. It appears to be as clear as any pro-
position, that the general increase of production, leading to
still greater varieties and subdivisions of manufacturing
than those which now obtain, must benefit most of all the
countries like England, which have got the start of others,
and possess all the best manufacturing appliances. *

We should fully expect then, when the liquidations

* See “ Essays in Finance,” Second Series, pp. 240-274,— Edition 1886,
THE LIQUIDATIONS OF 1873-76, 129

which have been in progress are over, to see once more a
great revival of prosperity. Still more, according to all
former experience, the prosperity to come must be even
greater than anything yet seen. Ever since 1844 there has
been an ascending scale in the rate of our industrial
advance. The years after 1848-49 were more prosperous
than any before, but the prosperity of 1863-65 exceeded that
of 1850-53 just as the prosperity of 1870-73 exceeded that
of 1863-65. In like manner the next period of prosperity
will probably exhibit a fuller development than 1870-73,
and for a similar reason—viz., that the productive capacity —
of mankind in civilised nations, in proportion to their
numbers, is annually increasing—being capable of almost
indefinite increase. More railways and more machinery,
the improved knowledge of chemical and other arts, imply
that one year with another, in proportion to their popu-
lation, civilised communities can produce more real wealth
than they did before. Depression comes at times, because
mistakes have been made, and the wrong things are
produced; but when the mistakes are corrected, or some
new favourable influence operates, such as a good harvest,
the tide flows again, industrial communities work up to
their full power, and they are all richer than before.
Possibly the workmen at a given place may take out their
share of the increased production in the privilege of working
fewer hours; but the prosperity is there, however it may
be enjoyed. The great extension of railways throughout
the world in anticipation of real wants, which was the
- mistake of the period of inflation, should, now that the
mistake has been paid for, contribute to a more rapid
advance of general prosperity than would take place if the
world had fewer railways.

There has naturally been much talk during these

Kk
130 THE LIQUIDATIONS OF 1878-76.

liquidations of the commercial and financial dishonesty
brought to light. At every such period there is an endless
discussion of such matters, as if the worst evils of every
crisis arose out of dishonest acts, and the practical questions
were how such acts are to be prevented in future. But
while recognising the importance of such discussions in their
own place, I doubt if they are as profitable and instructive
as those who engage in them suppose. Improvement in
morality is necessarily a slow process, and in so complex a
world as that of modern business the efficacy of any external
aids to prevent dishonest or quasi-dishonest practices, or an
abuse of credit in some form or other, may be doubted. It
would no doubt be important to discuss the immoralities
disclosed during a period of crisis, provided a great
deterioration of character had become manifest; but I
should not look for a change of this sort in so short a time
as that which elapses between different crises, and at any
rate there was no such change manifest in the last crisis.
There was nothing very novel in character after all in the
Collie frauds, or in the financial swindling which has
occurred. The Collie accommodation bills were no better
and no worse than the accommodation bills in the leather
trade discovered in 1857, or the similar discoveries in other
crises. At times, when trade becomes unprosperous, it is
inevitable that bills will deteriorate in quality through
the desperate efforts of people to carry on after they have
become insolvent. The point where insolvency is passed
must be difficult to discern for many houses which depend
on borrowed money, and which engage incessantly in large
speculations. Probably before the fact of irretrievable
insolvency is fairly recognised by a house like Collie’s, and
desperate expedients to avert bankruptcy increase in number
and frequency, enormous mischief has been done, and
THE LIQUIDATIONS OF 1873-76. | 131

1ous losses to the people who have trusted them aro
vidable. The chief practical lesson to be learnt from
failures is really a detail of practice—the revelation to
reat joint-stock banks of a defect in their system which
d be easily curable, and the cure of which would
ate the effects of catastrophes like that of Messrs. Collie.
financing of foreign loans was also no better and no
' than the financing of companies, or the construction
ntractors’ railways in past times. ‘There are reasons in
ature of times of prosperity for the creation of pinch-
securities, and the details and particular form of
ity chosen are not of permanent interest. If the class
omoters is checked in one way, they will invent new
ods and new fields of deception, still keeping within
ind of any laws that may be contrived. Since 1866
have been few companies with large amounts of
led capital, the special evil of the pre-1866 period; but
stivity formerly witnessed in this field has been equally
ous, as we all see now, in the field of foreign loans.
exposures of the Foreign Loans Committee in 1875
so effectually stopped these, that it has already become
essary to consider the particular recommendations they

Probably promoters will now go into a totally
nt field, which I am disposed to think may be the
on of trusts or trust companies to “amalgamate ”’
ties, and so distribute the risks. The principle seems
ating : more than one of the numerous trusts now in
nce have been fairly successful: we may accordingly
t an extension of the principle by which investors will
ce more encouraged in the impossible experiment of
ig a high interest safely. But trust companies are
‘as dangerous as limited companies with much uncalled
J, or foreign loans, though in a different way. They
1382 THE L1IQUIDATIONS OF 1873-76,

amalgamate securities and distribute risks, it is true, but
they add the great risk of a new set of intermediaries
between the investor and his investment. In addition to
his former risks, the latter, when he belongs to a trust, runs
the risk of employing an adventurer or a thief to select
and keep the securities. The danger is manifest. But if
promoters do not go into trusts, or trusts do not “take,” we
may be certain they. will try something else which will
probably be found to answer, so great and so enduring is
the infatuation of the public; and the mischief will he done
before effectual warning can be given.—[1877.]
IV.

" THE DEPRESSION OF TRADE IS SO
TUCH GREATER IN RAW MATERIAL
*RODUCING COUNTRIES THAN IN THE
TANUFACTURING COUNTRIES.

“IME ago, in noticing the annual report of the American
ary to the Treasury, we drew attention to the fact of
eater severity of the recent, and still existing, trade
sion in America, as compared with what we have
enced at the same time in England. The Secretary’s
ics showed that the revenue of the country had fallen
greatly as to prove a serious diminution of consumption
‘the masses, whereas the consumption of articles in
1 use has, in this country, steadily increased, notwith-
ag all the complaints of dull trade. There has
se been, as is well known, a serious falling off in the
y traffic of the United States; emigration thereto last
1874) was little more than half what it was in 1873; *
2amboat companies engaged in the American trade
een in great difficulties, many of them running at a
© savings of all being diminished, and a few going
yuidation. In France and Germany, as we pointed
.e depression had also been more severe than with
es, and we threw out the suggestion that to all
ance the business of food-production throughout the
had been overdone. ‘The colonisation of the Far

.e decline went on for several years after this date, no recovery
slantial kind taking place till 1879.—LEuition 1886,
134 THE DEPRESSION OF TRADE

West of America, and other agricultural regions, and the
investment of capital in new works to develop them,
had been prosecuted in advance of the actual require-
ments of the world, and hence their peculiar sufferings.
This view, we must still believe, was correct as far as it
went, but the prominence lately given to the commercial
and financial distress existing, not only in the United
States, but throughout almost the entire American con-
tinent, suggests that there may be room for even a more
general explanation. The South American States, at least,
are not grain-growing countries like the United States, but
are mainly occupied in producing other descriptions of raw
material—wool, hides, sugar, copper, guano, coffee, and
various other raw produce. How is it then that the
depression there has been as severe as in the United States,
if not more severe? and what common explanation of the
phenomenon, coupled with the fact that manufacturing
countries have suffered less, can be given ?

Let us see, first, how the facts stand, and what the scale
of the phenomenon is. The group of South American States
is really most important to us from the extent of our trade
connections with them, and the investments that have been
made in their securities. The population and revenue of
the five more important States which may be noticed are as
follows :— ,

Population. Revenue.
Brazil see vee 10,000,000 ... «2 «2 ~£10,000,000
Argentine Republic... 2,000,000 ... 1. + 4,000,000
Peru... ow. 4 © 2,500,000 1... we we 5,000,000.
Chili... ... 0 0.0... 2,000,000 2. wo 3,000,000
Uruguay ... ... ae 800,000 ... see wee 1,250,000

Total 4... 17,800,000 £23,250,000

 

 
IN RAW MATERIAL PRODUCING COUNTRIES. 135

United, these countries would form a group as important
materially as Prussia was before its conquest of North
Germany, and, adding the smaller or less known countries,

_we may take the population at twenty-five millions, and the
revenue at nearly thirty millions. Actually our imports and
exports to those countries are as follows :—

Imports. Exports, , - Total.
Brazil ... ... «.. £7,020,000 ... £7,689,000  ... £14,709,000
Argentine Republic... 1,252,000 .... 3,183,000 ... 4,385,000
“Peru... 0. «4,490,000 ... 1,595,000 ... 6,085,000
Chili... .. 1... 4,693,000 ... 2,737,000 ... 7,430,000
Uruguay ... ... «.. 1,445,000 ... 1,214,000 ... 2,659,000

 

Total ... ... £18,900,000  £16,368,000  — £35,268,000

Roughly stated, our foreign trade with the chief South
American countries is nearly forty millions a-year, about
two-fifths of our annual trade with the United States, and
about a fifteenth part of our entire foreign trade. The
extension to this wide region of the same severe distress
which has been noticed in the United States cannot but
interest us extremely.

The facts as to the severity of distress can also be stated
simply. Brazil, which is the more important State, has
perhaps been the least sufferer, but the financial crisis in Rio
during the last two or three months has been so severe that,
according to the authority of the correspondent of our con-
temporary, the Economiste Francais, the banks there had
_almost ceased discounting. Writing recently, also, Mr.
Consul Lennon-Hunt, in his report to the Foreign Office,
gives a gloomy picture of the state of the country, quoting
long extracts from memorials on behalf of the agricultural
interests to the Government, which assert that the cultiva-
tion of cotton, sugar, coffee, &c., is in danger of “ annihila-
tion,” and that there is a fearful and terrible crisis.
136 THE DEPRESSION OF TRADE

As regards the Argentine Republic, the accounts by the
last mail need only be referred to. “The money market of
“ Buenos Ayres,” says the Standard of that city, “was never
“worse than at present. Several failures have occurred
“amongst the native dealers: in nearly all cases the English
“and German importing houses figure as creditors, and some
“for large amounts. The private banks have stopped dis-
“ counting ; and, in fact, since the beginning of the present
“ crisis, say April, 1873, money has not been tighter than
“ at present.” With the exception of Estancia lands, every
species of property had also fallen 380 to 40 per cent. ;
exchange was “ difficult to pass,’ there being few takers,
. and money extraordinarily dear; the business in exports
was greatly checked; and, “in fact, everything is difficult
“in the River Plate to-day.” The Argentine Republic,
as our readers know, has also received a large immigration
during the last few years, nearly 40,000 a-year, its im-
portance as an immigrant-receiving country having become
only second to that of the United States; but, as in the
United States, this movement of population is checked.
This year the arrivals from Europe hardly reach 500 per
month, against from 7000 to 8000 per month in former
years. Previous issues of the same paper state that early
in the year considerable numbers of emigrants who had
arrived were going off to Brazil, or back to Europe.

As regards Peru, we have commented so lately on the
financial distress existing there that we need only call atten-
tion to one or two points. As in the United States, the
Peruvian Customs Revenue has largely fallen off.

The receipts in 1873 were... 6s. ees ase ace £1,698,000
*5 ASH: gy ete ede, Sa ae ie 1,423,000

Deorease ... ccs oss toe nae ven tn aes £275,000
IN RAW MATERIAL PRODUCING COUNTRIES. 137

~—which is a decrease of nearly 20 per cent. There had
been, no doubt, a very sudden rise in Peruvian Customs
just before, but the falling off is none the less serious
as indicating a great fluctuation in the condition of the ©
country. 7 ,

_ As regards Chili exceptionally, there is less to remark,
Chili having been free from some of the errors which
aggravated the depression among its neighbours.

Finally, as respects Uruguay, the facts of numerous
failures, including that of one of the principal banks, of the
Government issue of inconvertible paper, and of the repu-
diation of the home debt, show a state of crisis so severe
that nothing more need be said. Perhaps no commercial
“community has ever passed through a worse crisis than that
of Uruguay during the last few months.

There can be no doubt then of the facts, or of the still
greater severity of the depression in South America, as
compared with the United States; and it is difficult not to
suppose that the causes of a condition of things so general
are very like. ‘They are all in much the same stage of
economic development—new countries whose industry .is
mainly agricultural or mineral, and it would be very
singular if it were purely the result of accident that the
effects now witnessed are similar. No doubt, at first sight,
_ a special explanation might be given in each case. Thus

Brazil, like the United States, suffers from the error of an
inconvertible and fluctuating paper currency, and from
duties on its exports; Peru has the same difficulty of incon-
_vertible paper, with the addition of a mistaken Government
speculation in railroad-making, by which the special wealth
of the country in guano has been wasted; in Montevideo
the Government has long been in great financial difficulties ;
and the Argentine Republic also suffered of late from an
138 THE DEPRESSION OF TRADE

insurrection which was easily suppressed, but which, as far
as it had any material effect at all, would tend to injure the
material prosperity of the country. But these special causes
do not explain everything, and, in part, obviously arise out of
_the working of the more general causes which we think the
most important.
Among these we should be inclined to reckon, first, the
- greater liability of raw material to be produced occasionally
in excess of the demand, than is the case with manufactures.
Manufacturing—the preparation of the raw material for
the consumer—is steadily carried on all the year round,
and may thus be kept on a level with the consumption.
If trade is bad, the manufacture can be almost instantly
checked, or the weaker manufacturers gradually retire. If
trade becomes good, the workmen and machinery have
full employment, perhaps a little overtime is worked, while
new capital and labourers are gradually attracted into trade.
But the production of raw material is less elastic. Crops
must be prepared long beforehand; and the harvests, from
the nature of the case, must thus be produced without any
adjustment to the temporary condition of manufacturing
industry. Hence, in part, the great fluctuations in raw
produce; if demand springs up it cannot be immediately met,
and if demand falls off, the produce is on offer all the same,
and the producer must take what price he can get. And if
we look at the history of these countries for a few years
we see that their great prosperity does, in fact, coincide with
years of high prices for raw material, which have stimulated
production long after the demand which caused the high
prices had itself been checked by them. South America
was prosperous to a degree in 1872 and 1873, but the prices
of almost all the staple articles have since fallen, and there
is universal distress.
IN RAW MATERIAL PRODUCING COUNTRIES. 139

There is also another difficulty in connection with the
adjustment of the production of raw material to the demand
—at- least as regards agricultural produce. The farmer’s
operations are a “bet with the weather,” and the return is
thus liable to additional fluctuations. The supply may fall
off from this cause at the very time the demand is increasing,
or vice versd ; and thus the natural difficulty of adjusting
supply to demand, arising from the necessity of working
by seasons is aggravated. —

The second cause to notice is, the usually defective con-
dition of economic knowledge in such countries. They
make mistakes which ought to ruin them, and prosperity has
more deceptive and misleading power than elsewhere besides
being intrinsically less stable. Thus Brazil, as already men-
tioned, raises export duties on its principal products. Peru,
again, has indulged a fancy for railroad-making, at frightful
cost, with the immediate consequence of causing a factitious
prosperity while the construction of the railways was in pro-
gress, to be changed for the present adversity when the
railways made at such great cost are found unproductive,
when the surplus of revenue from guano available for the
ordinary purposes of Government has disappeared, and given
place to a large deficit, and when the special expenditure,
which made the late factitious prosperity, must be per force
suspended. There has also been a rather hasty extension of
public works in almost all the other countries, with the
exception, so far as we can judge, of both Chili and the
Argentine Republic. A great over-importation of articles
of luxury beginning in the prosperous period is also uni-
versally complained of, just as the complaint has been made
in the United States. Almost all the countries besides have
high and Protectionist tariffs; they all inherit some of the
evils of inconvertible paper, while Brazil, Peru, and Uruguay
140 THE DEPRESSION OF TRADE

are affected with the actual disease at the present moment,
in varying degrees of intensity. It is no matter for surprise
that the conduct of the most fluctuating sort of industry
should be rendered occasionally disastrous by such blunders.

A third cause appears to be, the scarcity of capital in new
countries, and their dependence upon the older countries for
the current supply necessary to that continuous development,
which is a condition of their prosperity. Hence in a time of
pressure, when capitalists call in instead of extending their
advances, such countries are badly off. Their industry is
organised with a view to continuous colonisation; roads are
built, shops and stores set up, and various other appliances
introduced in sparse localities, to accommodate a population
and a continued investment of capital which do not come.
Hence when railways are stopped midway, and the advances
from the home capitalists are directly or indirectly with-
drawn, the weaker parts of the industrial body are paralysed.
The withdrawal often takes the form of the refusal, or
inability, of the home investor to take up the bonds of
private companies in such countries, or even the State loans,
at the former rate on which all concerned had counted ; but
probably also, there is a great check given at the same time
by the increased prudence of private capitalists. All things -
combine to give such countries a “bad time” when their
straits would otherwise be greatest. When the raw material
they produce is lowest in price, and they are reaping the
penalty of all their economical mistakes, the supply of new
capital, on which they usually depend so much, is withdrawn.

In these three ways, then, we think the countries
producing raw material are apt to suffer more than manu-
facturing countries in a time of depression. If improvement
is to come at all, new countries must seek to compensate
their natural liability to great commercial fluctuations, by a
IN RAW MATERIAL PRODUCING COUNTRIES. 141

more prudent rate of expansion, and by a more careful study
of the lessons of political economy, the neglect of which may
be less injurious to them than to an older country, but is still
very injurious. The South American countries, like the
United States, will of course recover, but they will do so the
more quickly by recognising the nature of their disadvan-
- tages, and remembering the peculiar instability of their
periods of greatest prosperity —[1875. ]
V.
FOREIGN COMPETITION.

A PHENOMENON is being repeated at the present time which
is often witnessed in times of depression of trade. The cry
is raised that trade is being destroyed by foreign competition. -
Every bale of goods or ton of ironwork which comes from
a foreign country into England “ata lower price than the
“same articles could be produced at home” is made the
text of a discourse on the decline of English manufacturing.
The multiplication abroad of manufactories of those articles
which we produce for export is made the text of similar
discourses. ‘ See,” it is said, “how some nations which
“‘ were formerly our customers are manufacturing for them-
“ selves, and how other nations are going to the shops of
“ rivals like the United States, France, and Germany, who
“ are gaining upon us every day in the race.” There is an
essential fallacy in the whole argument, for the alleged
facts, even, if they were true, would not prove that foreign
competition causes our manufacturing industry to decline,
although it may be coincident with that decline. It is
notorious, indeed, that everywhere abroad, and not least
in Germany and the United States, manufacturing industry
is depressed as much as it is here, so that our agitators really
mean that English manufacturing causes that of Germany
to fall off and German manufacturing that of ‘England,
whereas the natural inference would be that a common effect
must have a common cause, and that it is something else
than competition which makes foreign and English manu-
FOREIGN COMPETITION. 143

facturing be simultaneously depressed. But, apart from
direct arguments as to the causes of the present depression
in trade, we think it may be useful to inquire into the
meaning of the words so freely employed. What would
happen if English manufacturing were “ declining” to any
material extent and foreign manufacturing beginning to
take its place? What would be the loss of income or
_ transfer of labour and capital involved? If people were
- accustomed to measure their words in such discussions, or
realise to themselves what they mean, a good deal of loose
talk would be prevented, and a juster and more practical
view formed of the economic incidents of the hour.

To take first the question of our foreign export trade.
How much of the national income is really derived from
that trade? To judge by the common language of the
agitators we refer to, England would be nothing without
its exports to foreign nations. Almost our whole trade and
industry, it seems to be thought, would be at an end; an
extensive emigration would be necessary; we should be a
ruined nation. But, apart from questions as to the mutual
conveniences of our exchanges with foreign nations, from
whom we get much we cannot produce at home, and to
whom we also send much they cannot produce at all, and
much they cannot produce so easily as what they send us
—conveniences which are such that the total extinction of
our foreign export trade is inconceivable —we believe it may
be affirmed that the possible loss of income from the entire
loss of our foreign trade would be a most measurable and by
no means a fatal injury. It may be calculated that the
earnings of the people of the United Kingdom approximate
at the present moment £1,200,000,000 sterling a-year, if
they do not exceed that amount. Mr. Dudley Baxter, in
his well-known book on the “ National Income,” published
144 FORGIGN COMPETITION.

in 1868, computed that in the previous year the aggregate
income of the people was £814,000,000, and there is ample
reason to believe both that he was fairly accurate and careful
in his calculations, into which the element of conjecture
enters comparatively little, and that since he wrote the
numbers, wealth, and resources of the people have increased
at.a wonderful rate. In these estimates there is one central
fact about which there is no dispute—the amount of income
assessed to income-tax; and we know that income has
increased over 40 per cent. in the last ten years of which
we have an account. In the year ended the 5th of April
1865, the gross amount of annual value assessed to income-tax
was £396,000,000 sterling, and in 1875 the corresponding
amount was £571,000,000. This is an increase of very nearly
44 per cent. in ten years, and shows with what rapid strides
the country has progressed. In 1865, again, the amount
charged to income-tax, as distinguished from the gross
annual value, was £349,000,000 sterling, while in 1875 the
corresponding figure is £498,000,000 sterling, the increase
being at the rate of 43 per cent. Taking into account the
increase of exemptions and abatements from the income-tax,
which has been a characteristic of our recent finance, we can
well believe that the real increase of net income must have
been more, and must have exceeded the proportionate
increase of gross income. That the net incomes chargeable
to income-tax, if the exemptions were the same now as in
1865, would considerably exceed £500,000,000, there can
be no doubt; and altogether, allowing as well for the —
incomes under Schedule D which escape assessment through
incomplete returns, we can hardly err in placing the net
incomes of the income-tax paying classes at somewhat
about £600,000,000 sterling. But the income thus arrived
at does not include the large incomes in the aggregate of
FOREIGN COMPETITION. 145

the wages-receiving classes, or the incomes of many in the
upper and middle classes which are under the income-tax
limits; and this remainder can hardly be taken as less than
another £600,000,000. What with the increase of population
and the great rise of wages which has occurred since 1867,
there is no reason to believe that the proportion of the
aggregate income of the country to what pays income-tax is
less now than it was when Mr. Dudley Baxter wrote, and
this proportion would give about £1,200,000,000 sterling as
the aggregate. There is thus some sanction beyond mere
conjecture for putting the aggregate income of the country

at the latter figure.
Now, to come to our present question—How much of
this income is derived from our foreign exports? We
perceive at once that instead of these exports being our
main business, it may be doubted if they contribute more
than an eighth or so much to the total. Last year, which
we take to be a more normal year for prices than such years
as 1872 and 1873, when our exports seemed so much aug-
mented, we exported goods of British and Irish produce to
the value of £200,000,000 sterling. But this amount was
not in reality exclusively British and Irish produce. It
included the value of an immense amount of raw material
imported from abroad which we had worked up—where we
had added to, but had not created the whole value. It
included, for instance, in cotton, yarn, and piece goods,
about 970,000,000 lbs. of raw material, worth, say,
£25,000,000 at the average price of the cotton imported
in the same year. It included, again, in woollen yarn and
manufactures, about.140, 000,000 Ibs. or more of raw material,
worth, say, £10,000,000 at ‘the average price of the wool
imported in the same year. Altogether, deducting for the
‘value of raw material in these exports which had previously

L
146 ¥YOREIGN COMPETITION.

been obtained from abroad, we doubt if we can estimate the
probable maximum amount of the net income directly derived
from our exports as more than £140,000,000. In addition,
there are, no doubt, indirect benefits in the connection
between our trade and shipping interests which are difficult
to estimate, but no large sum important for such an inquiry
as the present would fall to be added in that way to
the amount. Comparing, then, £140,000,000 with
£1,200,000,000, it is at once seen that the labour and
capital engaged in foreign manufacturing is only a fraction
of our whole industry. England might still be a great and
prosperous country—not so great and prosperous as it is
now, but still great and prosperous—even if the whole of
that fraction were to be at once swept away. But even if we
were to lose our entire foreign custom, the whole of the
income from what we send to foreigners would not be lost.
The machines and tools used n manufacturing and the
labourers would remain, and some use could be made of
them. Only the difference between what would be earned
in that use and what we now get from abroad in return
would be lost. The precise net loss would be difficult to
state; but it would be something much less than
£140,000,000, and perhaps not a tenth or a twelfth of the
aggregate income of £1,200,000,000. It is evident that no
such loss would be fatal to a great country. It would
make us no worse, probably, than the reimposition of
the taxes which have been remitted during the last
twenty years, and would be a less calamity, in proportion,
than the economic losses of the Franco-German War to
France, which was much less fitted beforehand than we
are to stand such a calamity. / Probably it could all be
made up by the community sacrificing only a portion of
that additional leisure which it has acquired during the
FOREIGN COMPETITION. 147

last thirty years, in addition to the increase of money,
“wages, and profits.

But there is, of course, no question of losing our whole
foreign custom at one fell swoop. What people have in their
minds is that we are threatened with the loss of a con-
siderable part of our export trade. They should be asked,
then, to define what they mean by a considerable part. Is
it a half, a fourth, a fifth, or what ? Of course, as we reduce
the amount, the ridiculous smallness of it, compared with
our whole industry, becomes apparent. The loss of a fifth
of our foreign export trade would only be the loss at most of
a fortieth or fiftieth part of our whole income, which a very
little additional industry would make good. Looking at the
matter in this way, besides, there is one conspicuous illustra-
tion that a considerable breach in the foreign trade is not
fatal to our whole industry. In 1863-65 England suffered
from the cotton famine, which came upon us quite suddenly.
But, saddening and distressing as the results of that famine
were, the distress was merely local; the country, as a whole,
prospered, and probably the distress in Lancashire would
have been less but for the common expectation of a more
rapid turning of ‘the tide than what actually occurred. The
diversion of labour and capital to other pursuits was
retarded by the belief that the loss of trade was only to be
temporary..

On the other hand, while our foreign export trade is

small in proportion to our gigantic industry as a whole, it is.

large enough to make it a very difficult matter for any

foreign competitors to displace us materially. The capital

sunk in producing annually £140,000,000 of value must be

immense—at least several hundred millions. But even

£100,000,000 would not be easily found in the whole

civilissd world outside of England for the erection of new
L2
148 FOREIGN COMPETITION.

works to compete with our manufactories. The annual
accumulations of France are computed at £60,000,000
a-year, and of Germany at £40,000,000; and the accumu-
lations of the United States must also be very large. But
the accumulations are not free savings, to be directed into
any enterprise. -They are largely used in building houses,
in furniture, in improving land under the direction of its
owners, and in other ways, so that it is only a small surplus
which is annually available for new enterprise. We see,
therefore, what an effort of imagination is required when the
displacement of England as a manufacturer for export is
talked of. Even if she could be displaced at once from her
whole export trade, the loss would be much less than is
sometimes thought; but the amount of capital required to
displace us even partially is so great that it must take many
years for our competitors to accumulate any such amount.
The displacement of labour, we believe, would be an equally
serious matter; for workmen are not made in a day, and
many more skilled workmen must be trained abroad if they
are to undertake any serious part of the labour which is
now performed in England. There is even a more serious
difficulty, we believe, in the way of quickly-increased foreign
competition. It is the complexity, variety, and minute
subdivision necessary in great manufacturing enterprise
which make displacement almost inconceivable. No ©
workshop is complete in itself; we doubt if any manu-
- facturing town is complete; England is one vast workshop,
fitted with complete appliances of every sort, with a capa-
bility of turning on great force in any given direction,
unexampled and not even approached elsewhere. But,
apart from this complexity, we are content to call attention
to the mere amount of the capital involved in any question
of a material transfer of our foreign export trade.
FOREIGN COMPETITION, 149

We come, then, to the question of our home trade.
Foreign nations, we are told, are not only going to do with-
out us and cease altogether to be our customers; they are to
send goods here and cut up our home manufactures. But
our remarks in the last paragraph apply with tenfold force
to the question of such a foreign invasion. If foreign
nations are likely to find it difficult to procure capital which
would enable them to take away a material part of our
foreign export trade, how are they to find capital to make
any impression on our vast manufacturing industry for home
consumers? Here it is a question, not of hundreds, but of
thousands of millions of capital, and of a transfer of labour

~ which fairly takes one’s breath away. In this respect
foreign nations would have to begin at the beginning. Of
our whole imports in 1876, amounting to £375,000,000, little
more than £40,000,000 were of manufactured goods, and
these included a great deal which we could hardly make
for ourselves at home, even if our workmen were not
otherwise employed; while the manufacturing in them,
representing wages and profits—z.e., exclusive of the value
of raw material, which we should have to buy in any case—
would only be a part of the total. How are foreign nations
to add seriously to this relatively insignificant sum, at least
within any reasonable limit of time to which we can look
forward? If they are to displace any considerable part of
our home trade, the work must be one of generations, and it
_is not to be lightly associated with a few isolated augmen-
tations of imports of Belgian iron or American cotton goods.
We trust we shall not be misunderstood. We have not
a word to say against efforts to keep the public informed of
the prices of foreign manufactures and the nature of their
competition with our own manufactures at points where
there is competition. There is enough indolence and
150 FUREIGN COMPETITION.

routine and mismanagement even in English manufacturing
to make it desirable in every way to have the stimulus of
foreign competition applied. But when the decline and
ruin of our whole manufacturing, or even any material part
of it, are talked of, people should know what they mean.
If they did know, they would not, as sensible men, confuse
their minds with notions which are just as sensible and
relevant, and no more, as the familiar illustration of
Tenterden Steeple being the cause of Goodwin Sands.
Hiarm is done in the end by all such confusion of ideas,
including the harm in the present case of distracting atten-
tion from the obvious causes of the depression of our foreign
trade.—[1877.]
VI.
THE EXCESS OF IMPORTS.

We have shown in the previous essay how little “ Foreign
“Competition” has to do with the existing depression in
trade—what displacement of labour and -capital would be
apparent if foreign manufacturing was really taking the place
of our own. The curious inability to measure economic facts,
to assign an arithmetical value to the phrases so freely used,
which we noticed in that essay as the origin of the con-
fused talk about foreign competition, is equally manifest in
another attempt which is made to explain the present
depression. We are told that the nation is living on its
capital. The excess of imports over exports, it is said, is so,
great that, after making all allowance for the difference in
the modes of valuing imports and exports, and for the sums
due to the nation for freights and interest of capital invested
abroad, there remains a considerable margin, which is only
brought to us in exchange for securities which we sell, or
for capital invested abroad which we are otherwise calling
in. The conclusion is forthwith drawn that we are living
on our capital; that this sale of securities or calling in of
capital means the exchange of that capital for consumable
commodities which come home to be consumed, and the
consumption of which leaves the nation so much poorer than
before. The result, it is further said, will be a stringent
money market, a tendency for bullion to leave us, and other
evils, until enforced economy again puts matters to- rights.
No economist will deny that saving is the way at all times
to become rich, and, as in the case of foreign competition,
© 152 THE EXCESS OF 1MPORTS.

we are at one with the practical conclusion drawn ; but, as
in that case also, we must censure the arguments supporting
it. The excess of imports certainly in no way proves that
the nation is living on its capital: On the contrary, even in
a time like the present, there is a steady accumulation in
progress. All that is effected by the vague talk in an_
opposite sense is the diffusion of a false belief which tends to
paralyse our industrial energies and to produce, so far, the
very evils which are feared.
‘Before the nation, as a whole, can be “living on its
“ capital,” it must have ceased to accumulate, and be selling
out on balance what it possesses. If it is parting with
capital in one direction and accumulating in another, we
must set the one operation against the other, and see where
the balance lies. The moment we do this we perceive what
large conclusions the people are committed to who talk
about the nation as consuming its capital. The usual
accumulations of capital in England cannot be reckoned at
less than £200,000,000 a-year.* Annually there is a vast
expenditure in improving land, in new buildings, in railway
- works, in new plant and machinery for every species of
industry, in new furniture for dwelling-houses, in street
and other improvements by local authorities, in additions in
some form or another to the various descriptions of fixed
capital which an old country possesses. In all these direc-
tions the annual outlay in the United Kingdom must come
to, at least, the amount stated. We know from the
income-tax returns that the annual value of house property
alone in the ten years ending 1875, rose from £69,000,000 ~
to £95,000,000 sterling, an increase of no less than
£26,000,000 sterling, representing an increased capital value,

* Sce the following essay for an elaborate discussion of this question.
THE EXCESS OF IMPORTS. 153

at fifteen years’ purchase only, of nearly £400,000,000,
or £40,000,000 a-year. In the same period the annual
value of land increased from £62,000,000 to £67,000,000,
or £5,000,000 sterling, which represents, at thirty years’ —
purchase, an increased capital value of £150,000,000
sterling, or £15,000,000 a-year. The railway capital,
at the same time, according to the railway returns,
increased from £455,000,000 to £630,000,000, or
£175,000,000; that is, at the rate of £17,500,000
yearly. The mines, canals, gasworks, quarries, iron-
works, and “other profits” also show, in the same period,
an increase of £17,000,000 in the annual value assessed
to the income-tax, which represents, at a moderate estimate,
an annual addition of about £20,000,000 a-year to the
capital of the country. The sums thus enumerated amount
to nearly £100,0U0,000 sterling, and they include nothing
for the investment of capital in many other forms of busi-
ness, though we know from Schedule D. that business in
these forms has increased even more rapidly than the
descriptions of property above enumerated. Exclusive of
the above, the increase of Schedule D. between 1865 and
1875 amounts to £114,000,000; and the increase of capital *
to correspond, whatever way we reckon the capital value of
the increased income, must be immense. The amounts
enumerated also include nothing for furniture and works of
art—the contents of houses —although the annual additions
to these are probably not far short of the annual additions
to the dwellings themselves. The estimate, therefore, of
£200,000,000 as the annual savings of the United Kingdom
is by no means an extravagant one; and, to come to our
present argument, this annual accumulation must cease and
we must be selling out from our stock before we can be said.
as a nation to be living on our capital. It must not merely
154 THE EXCESS OF IMPORTS.

be shown that we are parting with some of our capital.
That may only mean that we are changing our investments
—that we have exchanged as a nation our interest in some
American railway, or part of our interest in the securities
of the American Government, for an addition to our railway
system at home, or for some other home investment.- The
operations must be looked at as a.whole, and not merely a
fragmentary part of them considered.

But looking at the matter in this way, we perceive at
once that even in a year like the present there must be in
some directions an immense saving in progress. As regards
house building, we know that at the present time it is as
active, or more active, than at any time during the past ten
years; that the accumulation in this direction is probably.
now at a maximum and not ata minimum. As regards land
we also know that the work of reclamation and improvement
is constantly in progress, In Great Britain the addition to
the cultivated area in the present year, apart from improve-
ments in land formerly cultivated, amounts to 160,000 acres. ~
As regards railways it is impossible yet to state the capital
outlay for the present year; but last year about £20,000,000
were spent in new railway works (although the complaints
of dulness were as rife last year as they are now), and we
gather from the accounts of the principal companies for the
first half of the present year that the outlay has continued.
Indeed, it is constantly urged by some that railway
dividends are endangered by the continuous and unceasing
outlay of new capital. We have fewer data as to the other
kinds of property until the income-tax returns for the current
year are made‘up and published, and possibly in ironworks
and in other ways, there is less new outlay at present than
there is immediately after very prosperous years; but it is
quite certain that in the aggregate here, too, a considerable
THE EXCESS OF IMPURTS. 155

saving is in progress. It is well understood in business that
times of dulness are the best for increasing and improving
plant, substituting improved machinery for what is old and
wearing out, and generally making arrangements for the —
steady progress of the staple trades of the country which are
constantly increasing with the equally steady increase of
population. Such is the division of labour also that, if the
investment of new capital were reduced to any material
extent below the average, the effect would be instantly seen
in vast masses of labourers out of employment, and a great
increase of pauperism; whereas there is nothing of that sort
yet visible which may not be accounted for by a very small
diminution of the ordinary annual investment of new
capital. But, not to include uncertain data of any kind,
it is evident from the prosperity of the building trades, and
from the known outlay on land and railways which we have
referred to, that the accumulation in 1877 in some directions
must at least be about £100,000,000 sterling, and we doubt
if it really falls much short of twice that amount. To
prove that we are living on our capital, therefore, it must
be shown that a sum equal to between £100,000,000 and
£200,000,000 and more is wasted or spent in some other
direction. Those who point to the excess of imports as a
proof that this is the direction in which the nation is living
on its capital must be taken to mean that the excess of
imports, after making all deductions for freights aud other
charges, and for what comes to us as interest of our foreign
capital, is over £100,000,000 perhaps over £200,000,000
sterling. Unless the excess is as great as this, all that
it could show would be that the country is changing its
investments—that it is diminishing the investment of
capital abroad, and increasing the investment at home;
but on balance it is investing and not spending.
156 THE. EXCESS OF IMPORTS.

There is no contention, however, that the excess of .
imports is‘ anything like so great as has been stated.
During the last six years the nominal excess has been :—

Total Excess of
Imports Exports Imports
(in Millions). (in Millions). (in Millions).

Wil ww we | £331 vee eee £284 ine sae. “EAT
A872). ese aes 355 ies) laste 315 Perey 40
1873: ste. see 371 asl: aes 311 eee 60
1874 ewes 370 vie ee 298 . 72
1875 kan oes 873 wes ee 282 . 91

1876 ase ae 875 pee tae 257 see one 118

And from these figures, to show the true excess, great
deductions must be made, as every authority allows and the
most ordinary common-sense will show. The difference in
valuation through the exports being valued minus the
freight and charges to the place of destination, and the
imports belng valued plus the freight and charges from
the place of despatch, must amount to many millions. The
interest on our foreign investments must also be many
millions, no good authority that we know of making the
annual sum less than £30,000,000, and the more correct sum
being probably twice that figure.* Without going into
minute estimates we may point out—what indeed lies
obviously on the surface—that the years 1871, 1872,
and 1873 were years in which the nation was largely
investing capital abroad; that the nominal excess of
imports in those years, therefore, amounting to between
£40,000,000 and £60,000,000 annually, was a balance we
remained entitled to after crediting foreign nations in the
account with the. amount of our new investments abroad ;
and that the excess of imports in subsequent years can only

* Or thrice that figure. See next essay. And see the essay on “ Tha

Use of Import and Export Statistics,” pp. 132-239 of « Essays in
Finance,” Second Series.
THE EXCESS OF IMPORTS. 157

show a sale of securities or calling-in of capital to the extent
of the difference between the excess now apparent, and the
nominal excess of those years plus the capital we then in-
vested abroad. In other words the maximum sale of
securities or calling-in of capital in any one year since 1873
must be less than the difference between the excess of imports
in that year and the subsequent excesses—viz. :—Excess of
imports in 1874, less £60,000,000, the excess of 1873,
£12,060,000 ; excess of imports in 1875, less excess of 1873,
£31,000,000 ; excess of imports in 1876, less excess of 1873,
£58,000,000. These are the limits within which we can
have been selling securities or calling in capital from abroad,
even if the excess of imports in former years had not arisen
after crediting the foreigner with the loans we were making,
but the deduction to be made in the computation on account
- of that credit must be very large. Looking at the amount
of foreign issues of every sort in 1871-73, we think it would
be a moderate estimate to put down our new foreign invest-
ments in those years at not less than £50,000,000 or
£60,000,000 sterling annually, in which case the above
figures would show that there is yet no calling-in of capital
in progress—that having ceased to lend to foreign nations
we now ascertain what the normal state of trade is between
us and them. Even if we made a less deduction, if we
considered that we were exporting only £20,000,000 or
£30,000,000 of capital annually in 1871-73, it would only
be since the beginning of last year we can have been calling
in capital on balance, and the amount so ealled in is not
more than between £30,000,000 and £40,000,000 sterling
annually. This is all the “living on our capital” which
can be in question, and it is obviously very much less than
the new investments at home which have been simul-
taneously in progress. In other words there is no proof at
158 THE EXCESS OF IMPORTS,

all in the figures, turn them how we may, that the nation is
living on its capital. It is doubtful whether they even show
any considerable sale of securities or calling-in of capital at
all, but the maximum possible amount of the securities scold
or capital called in falls greatly short of the accumulations
simultaneously being made at home. What is more, the
figures, large as they are, are ludicrously small compared
with the whole mass of English capital. Our savings in
the last ten years, at the rate of £200,000,000 a-year, which
is a minimum estimate, would amount to £2,000,000,000
sterling. Even if we were losing £40,000,000 of capital for
a year or two, therefore, the annual loss would not be moro
than two per cent. of the additions to our capital during the
previous ten years—a fact which would be serious in many
ways, but still very far short of showing the ruin of the
country, or of showing a loss which could not be quickly
made up. ‘To put the matter another way, we should be
losing a sum for a year or two equal to a fifth part of our
average annual accumulations. But we are not “losing”
even this two per cent. on our previous ten years’ accumula-

- tions, or fifth part of our average annual savings; we are not
living to that extent upon our capital. We are only sub-
stituting pro tanto an investment at home for an investment
abroad, and we are making besides large accumulations at
home.

To what extent are we really parting with our foreign
securities or calling in our foreign investments, and what
will be the effect on the money market? We should
recommend very great caution before the conclusion is
accepted that the nation as a whole has been diminishing
its investments abroad to any material extent permanently.
It must be remembered that there is a considerable amount
of cosmopolitan capital which is freely moved, and that the
THE EXCESS OF IMPORTS. 159

circumstances of the last two or three years have tended
to cause a transfer of a part of this fund from England to
‘foreign nations. The produce of our agriculture has been
below the average, and to that extent the annual income of
the nation has been less. It has been necessary to increase
suddenly our imports of food from abroad. Trade in the
United States has also become more active than it was,
requiring consequently the supply of more capital. The
foreign credit on England is thus temporarily increased,
and to meet the circumstances a part of the cosmopolitan
- fund is transferred from England for employment elsewhere,
which can readily be done by the transfer of securitivs.
But the amounts passing are insignificant compared with
the whole capital of the United Kingdom, or of the foreign
nations to which a part of this movable fund passes
temporarily. Special sales of securities to the extent of
two or three millions would be large operations for the
exchanges, but they would not be considered large in a
question of a nation like England losing its capital. Nor
is the transfer necessarily permanent. A good harvest next
year would diminish the foreign credit on England, or trade
may improve with us causing a demand for more capital and
the re-transfer here of a part of the cosmopolitan fund.
The movements to and fro of this floating capital aro
obviously important to exchange dealers, but the country
losing it is not, therefore, “living on its capital,” and the
conntries receiving it are not acquiring capital permanently
to the detriment of others. In addition, during the last
year or two the nation may have parted with some of its
foreign securities permanently, sales being induced by the
great discredit of foreign issues; but apart from the evidence
already given it must be plain to those who will reflect that,
as a rule, the sales by the “ public” in England during the
160 THE EXCESS OF IMPORTS.

last year or two were not sales to foreigners, but they were
sales to a speculative class in London, who were ruined by
the purchases, and who still retain the’ securities for what
they are worth. If, indeed, there had been a larger transfer
abroad of securities not now yielding any interest it might
have been better for us, and it would certainly have been
advantageous to exchange them for the means to invest at
home.

We should not look, therefore, for any unusual effects on
the Money Market or other mischief in consequence of the
large nominal excess of imports over exports. If there is a
momentary balance against us in consequence of our bad
harvests it is being adjusted. most naturally by a transfer of
securities, which is probably only temporary, and we have
plenty of means for adjusting similar balances for a long
time tocome. The situation is no doubt such that money
tends to be dearer with us than it would have been if our
harvests had been good; but all experience has shown that
the cosmopolitan fund moves readily, and a moderate
increase of our rates for money, as, indeed, is proved by the
experience of the last two months, will suffice to retain
capital in Lombard Street, though, as yet, the rates have
not been raised to a point at which a strong influx of bullion
will occur. The money market is much more likely to be
affected by a demand for bullion for the United States and
Germany, the former to resume specie payments, and the
latter to continue its new coinage operations. But the .
stringencies which may thus arise are not to be traced to
causes of a very different order, and which would have
deeper and more far-reaching effects if they were really in
operation as supposed.—[1877.]
VII.

RECENT ACCUMULATIONS OF CAPITAL IN
THE UNITED KINGDOM.*

THE members of this Society will readily understand that
the subject of this paper is not one on which very exact
statements are possible. It would only be by a careful
inventory of the national wealth made on a specified date by
competent valuers, with all the appliances of a national
census and ordnance survey at their command, that a near
approximation to an absolutely correct account could be
obtained; and it would only be by comparing two such
statements at different dates that we could get a similarly
exact account of the increase or decrease in a given period.
That any such valuation is ever likely to be made in any
country may well be doubted. The minuteness of inquiry
which would be needed to avoid cross entries, the obstacles
presented by the difficulty of finding sufficiently numerous
and competent valuers, and by the opposition of individual
owners of property, the doubt which would always exist
about even the best valuation, owing to the frequency and
magnitude of the mistakes which are discovered when
valuations are brought to the test of actual sales, are all
reasons against the attempt at any such valuation. ven if
such valuations were made at given dates, comparisons
between the valuations at two different dates would be
Liable to be thrown out by changes in the interval in the

* Read before the Statistical Society, 15th January, 1878.
M
162 RECENT ACCUMULATIONS OF CAPITAL

level of prices through the increase and decrease of money,
changes in the instruments and forms of credit, which alter
the effectiveness of the same amount of money, and changes
in the amount of credit itself, apart from the instruments it
uses. In the United States, for instance, it would be very
important, in comparing the valuations of 1860 and 1870, to
allow for the depreciation of the standard in the interval,
through the large increase of paper money. These are all
reasons for being content with approximations only in such
a question, and for treating the whole subject with the
utmost care and caution. They must also be my excuse in
part for avoiding anything like elaboration and minute
treatment of certain points. My object is not to treat the
subject exhaustively, but rather to bring together and
continue certain well-known data which have been made use
of in similar inquiries previously, and which will justify some
broad conclusions, although a great deal must be left in doubt.
The uses of such an inquiry, if conclusions sufficiently
trustworthy are obtainable, are obvious enough. It is one
of the means of taking stock of national progress or the
reverse. We compare at different times the numbers of the
population and the amounts of crime and pauperism in a
country as some test of its moral progress; or the numbers
of the population and particulars of certain home and foreign
trades, or of the consumption of certain articles, as a test of
material progress. In the same way we may compare the
population at different times with the accumulated wealth
or the rate of increase of population with the rate of increase
of wealth as a test of progress, partly moral and partly
material. The particular advantage of this last comparison
will also be that it answers directly some important public
questions as to what the margin of taxation is in a country,
and whether and how much it is increasing or diminishing.
IN THE UNITED KINGDOM. 163

There are other questions, as we shall see, on which such
inquiries throw light, but the direct information to be
expected as to the increase or decrease of wealth, and as to
national resources and burdens, may be kept primarily in view.

THE PRESENT VALUATION OF THE UNITED
KINGDOM.

Brrore estimating what the recent accumulations have»
been, it will be expedient to have some view of what the
existing capital or property is. We can then compare this
sum with similar estimates at former periods, and the rate
of increase apparent with such indirect evidence as we may
procure as to what the rate of increase must have been.

The most convenient basis for such a proceeding appears
now to be the income-tax assessments. This is the
plan adopted in 1863, by a writer in the Economist (seo
Economist, December, 1863), who is believed to be an
eminent member of this Society, and whose contributions on
this head have, at any rate, obtained wide circulation and
acceptance. The method is to discriminate as far as
possible in these returns the different sources of income,
capitalise these at a suitable number of years’ purchase, and
then make an allowance or conjecture for the capital of the
income not liable to income-tax or which otherwise escapes
assessment, and for capital which is not treated in the
income-tax returns as income yielding. The result, up toa o
point, if we proceed with care, is apparently trustworthy
enough. We are quite sure in the first place of the
existence of the income returned, whatever balance
unreturned there may be; we can be tolerably safe also in
not assigning too high a number of years’ purchase to the
particular descriptions of property ; we can arrive in this

M 2
164 RECENT ACCUMULATIONS OF CAPITAL

way at a minimum sum, which cannot be more than the
actual property in the country, though it may be much
under the true amount. The conjecture as to the
remainder may also be of such a kind as to command some
confidence in its not being excessive.

Proceeding in this way, we find that the gross annual
value of the income-tax assessments in the year ended 31st
March, 1875, the latest year for which we have particulars,
was £571,000,000. The details under each schedule
for the United Kingdom since 1858, when Ireland
was subjected to the income-tax, and for Great Britain
previous to that date, will be found in one of the tables in
the Appendix;* but for the present purpose we must
discriminate even more minutely than by schedules.
Schedules A and D in particular require to be analysed.
Various returns of the Inland Revenue Department have of
late years enabled us to do this as to “lands ” and “ houses’
under Schedule A, and “ mines,” “ironworks,” “railways,”
“canals,” “ gasworks,” “quarries,” and what are called
“other profits,” under Schedule J). These returns are also
summarised in one of the tables in the Appendix to this paper.*
Still more a return, printed in the 19th Report of the Inland
Revenue Department (Appendix, p. xviii), gives a more
minute classification of Schedule D. Using these sources of
information, I have drawn up a table, showing the amount

99 66

of income in the property and income-tax returns, which is
presumably derived from capital, the number of years’
purchase in each case at which it appears safe to capitalise
the income, and the approximate. amount of capital thus
deduced, adding an estimate for the remaining property and
capital of the country :—

{ have not reprinted the tables here. ‘hey will be found in the
Statistical Society’s Journal for March, 1878.
IN THE UNITED KINGDOM. 165

A.—Amount of Income in Income-Tax Returns, derived from
Capital, Number of Years’ Purchase at which the same may
be Capitalised, and Approximate Amount of Capital, together
with Estimate of remaining Income and Capital in the Country.

[000s omitted in amount columns. ]

 

Years’

 

Income. Pur- Capital.
chase,

Under Schedule A— £ £
Lands: iis owes de Gna. Cee G80 66,911, 30 2,007,330,
Houses ... 0 6. cee cee tee eee] = 94 638, 15 | 1,419,570,
Other profits... 0.0 cee eee eee 883, 30 26,490,

Schedule B—
(Farmers’ profits) ... 4. se. +| 66,752, 10 667,520,

Schedule C— :
(Public funds less home funds) ...). 20,767, 25 519,175,

Under Schedule D—

Qiarries 3s5: eas ess eee! ake vee g16, 4 3,664,
Mines: sic. ate are eee ae wes] 4 108, 4 56,432,
Tronworks — .4. een eee tee te 7,261, 4 29,044,
Gasworks eae) “ites | Siguak! cafes sea 2,630, 20 2,600,
Waterworks ...0 1... ee eee wee 1,869, 20 37,380,
Canals, 8&6. asa, sec ase as eee 1,007, 20 20,140,
Fishings ... 0... 0.00 ee vee tes 207, 20 4,140,
Market tolls, &e. 10.0 wee eee wee 842, 20 16,840,
Other public companies sel 25,647, 15 384.705,
Foreign and colonial securities, &c. 6,836, 15 102,540,
Railways in United Kingdom ... 26,215, 25 65553755

3 out of a 2 1,330, | .20 26,600,
Interest paid out of rates, &e. ... 2,647, 25 66,175,
Other profits ... at 1,120, 20 22,400,

Trades and professions—one-
fifth of total income of 35,000, 15 525,000,
£175,000,000 2.0 ee ee

 

Total under income tax ...| 377,586, _— 6,643,120,
Trades and professions omitted, 20 per cent
of amount assessed, or £35,000,000, of which f 7,000, 15 105,000,
one-fifth is... 1c. eee cee eee eee tte nee
Income of non-income-tax paying ones 68.668) 5 en
derived from capital os. es wee nee ne
Foreign investments not ie seneres Cor D... 40,000, 10 400,000,
Movable property not yie g income, et a nx,
furniture of houses, &c., works of art, &. 700,000
Government and local property, say... _ _ 400,000,

484,586, = 8,548,120,

 

 

 

 
166 RECENT ACCUMULATIONS OF CAPITAL

The first point I would observe upon in explanation of
this table, is the proportion between the income returned to
the income-tax and the amount here capitalised. The
income assessed, as has heen stated, is £571,000,000, and
the amount now capitalised is £378,000,000. ‘The difference
is £183,000,000, and is accounted for (1) by the large
amount of the income from trades and professions under
Schedule D which is not capitalised. The total income is
£175,000,000, and the amount capitalised is £35,000,000, or
only one-fifth, leaving £140,000,000 which is not considered
to be derived from capital; (2) by the deduction from
Schedule C of the amount of the permanent charge of our
own national debt in 1875-76, viz., £21,737,000 ; and (8)
by the omission of Schedule E, amounting to £32,540,000.
These three sums make up the £183,000,000 of difference
between the total income assessed to the income-tax and the
amount which is treated as derived from capital. As
regards the first of these deductions, I have been guided by
the practice of Mr. Dudley Baxter, whose great loss to the
study of statistics we have still to regret. In his paper on
“* National Income,” which was read exactly ten years ago
to-night to this Society, he stated:—“Trades and pro-
“ fessions require working capital, the interest on which, in
“the opinion of competent judges, amounts to one-fifth of
“their gross income.” Perhaps we should credit “trades
“and professions” with a larger working capital, but I
should be willing in such a matter to be guided by so
high an authority, while I have been desirous at every
point to avoid too high an estimate.

As regards the second deduction, it will only be proper,
I think, that in such a computation as this, we should not
reckon the national debt twice over, and that would be the
effect of our capitalising the whole of Schedule C. The
IN THE UNITED KINGDOM. 167

national debt is a mortgage upon the aggregate fortune of
the country. As we may assume it to be practically all
held at home, we may reckon up our whole estate without
deducting the debt, whereas we should have to deduct it if
it were held by foreigners; but while we do not deduct the
debt from the total of our estate, neither can we add it
without falling into error.

As regards the third deduction, the whole of Section E,
there can bo little question. Schedule E consists co nomine
of salaries, pensions, and annuities, and is not earned by
capital. Perhaps we should deduct the capital value of
pensions and annuities on the same principle that we omit
the capital value of the interest of the debt; but as
pensions and annuities are payments in the nature of
salaries, though for past not present services, it would
perhaps be unfair to treat them as dead weight and a
mortgage on the national resources. The amount in any
‘ease would not much affect the aggregate income, which
would still be very large.

The next point I would draw attention to is the number
of years’ purchase of the principal items of income. I do
not think anything need be said in explanation of the
estimate for the largest item of all, viz., thirty years’
purchase as the rate for capitalising land. Some may think
that even a greater number of years’ purchase might have
been employed; but we must again carefully guard against
excessive figures.

The estimate for houses, again, will be considered, I
trust, very moderate. The same number of years’ purchase
was employed for some calculations in the last census report,
although other authorities have reckoned twenty years’
purchase. I should say that at the present time twenty
years’ purchase would not be too high, though I hesitate
168 RECENT ACCUMULATIONS OF CAPITAL

to take so high a number of years, especially as the figures
are to be used in comparison with former periods, when
house property may not at all times have commanded so
great a number of years’ purchase as it does now. At
any rate, by taking a low number of years, we avoid difficult
questions about deductions for repairs and the like, and, in
a question of accumulation, the difference between the cost
price of building houses and the sums at which we capitalise
the income from them.

The next large item, that of farmers’ profits, is taken at
ten years’ purchase only. The resulting total is rather less
than £700,000,000, which again is less than the value of the
three years’ gross produce of our agriculture, which is esti-.
mated, I believe, by the best authorities at £250,000,000
annually. Whether this figure is sufficient for farming
capital as distinguished from that of the landlord, it- will be
for those well acquainted with the subject to judge. I have
been desirous again to take a low figure. :

Coming to the next item, Schedule ©, here again I
believe there will be no question of the propriety of twenty-
five years’ purchase. Looking at the price of Indian
securities and Colonial Government loans, the income from
which, no doubt, forms a large part of Schedule C, exclusive
of home funds, we can hardly be far wrong in reckoning —
that the capital invested in these securities brings in on the’
average about 4 per cent.

Of the remaining items little need be said. The esti-
mates of twenty-five years’ purchase for railways, twenty
years’ purchase for gasworks and waterworks, four years?
purchase for mines, ironworks, and the like, can in no case,
I should think, be thought excessive. The same with the
estimate of fifteen years’ purchase for miscellaneous public
companies, which would include banks, telegraph companies,
IN THE UNITED KINGDOM. 169

insurance companies, and the like; and with the estimate of
fifteen years’ purchase for that small portion of the income

.of trades and professions which is considered to be derived

from capital. By speaking of a fifth of trade and pro-
fessional income as being interest on capital, we, in fact,
imply that only a usual or legal rate of interest is considered
to be derived from capital, and the remainder of the income
is due to professional exertions. In this view we should
capitalise the trade and professional income derived from
capital at perhaps twenty years’ purchase, and we are
therefore moderate in capitalising at fifteen years’ purchase
only.

There will be more doubt, perhaps, about the last five

- items, where we have not the advantage of working from

the income-tax assessments, and which I have put in a
smaller type than the rest of the table to distinguish the
difference of basis in the estimate. But we cannot avoid
making an estimate of some kind in these cases. The first
case, that of trade and professional incomes, not returned
under Schedule D, which I estimate to be 20 per cent. of
what is returned, is, unfortunately, as we all know from the
Inland Revenue Reports, a “true bill.” In this category a
certain amount of income liable to be taxed, does escape the

officials of the Inland Revenue Department. The loss in
_ this way has been estimated as high as one-third; Mr.

Dudley Baxter reckoned it at 16 per cent., from which the
present estimate of 20 per cent. does not vary materially.
I have capitalised this income at the same number of
years’ purchase as the similar income returned under
Schedule D.

The next item, that of the income of the classes who are
not charged to income-tax derived from capital, is neces-
sarily very conjectural. Mr. Dudley Baxter considered this
170 RECENT ACCUMULATIONS OF CAPITAL

capital so small that it might be disregarded. Perhaps this
would be going too far, considering the large amounts which
must be invested in workmen’s tools, and also the large number
of small retail dealers there are throughout the country,
the costermongers, greengrocers, and the like, who have all
some capital, but who cannot be got hold of by tax
collectors, or whose incomes are really under the minimum.
Taking the income of the non-income-tax paying classes at
about £600,000,000, which is about the amount, if we apply
Mr. Dudley Baxter’s method of estimating the nation’s
income at the present time, I have reckoned a tenth as
derived from capital, and capitalised at five years’ purchase
only. The sum thus obtained is again a small one in
comparison with the aggregate.

The next item, that of foreign investments, not included
in Schedules C and D, will perhaps excite more question.
I have put the income thus omitted at £40,000,000 and —
capitalised it at ten years’ purchase only, which I believe
to be under-estimated. That there is something omitted is
evident from the small amount of income from foreign
investments which is dealt with in Schedules C and D.
The sums are :—

[000’s omitted.]

Schedule C, less home funds... ... 1. 0. 4. £20,767,
Foreign and colonial securities and possessions,
and other profits (Cases 4 and 5 under rules in 6,836.
Schedule D to Act 5 and 6 Vict., cap. 35)

Railways out of United Kingdom ... ... mn «. —: 1,330,

 

Mol. ier: Sax: Gees GS ae: Ae ROG OS,

Now, it is impossible to believe that this £29,000,000 is
the total income derived from the investment of British
capital abroad. One-has only to go over a stock and share
list, like that of the Znvestor’s Manual, jot down the capita.
IN THE UNITED KINGDOM. 171

of the foreign issues brought out in this country, and which
are wholly or mainly held here, to perceive that there is
something wrong. We have also to consider that there
is a large British capital invested abroad privately, through
mercantile houses having dependent houses abroad, through
‘insurance companies doing business abroad, through Anglo-
colonial banks receiving deposits here and -investing them
abroad. Ina table in the Appendix* I have attempted a
computation of the income from the visible part of this great
capital. The result is that we cannot put at less than
£65,000,000 the income so derived, leaving out of account
altogether the investments of private capital, which we know
to be very large. In what way the income-tax authorities
are to get at the income which now escapes them, it would
be out of place here to consider, but apart from the evidence
above adduced, I believe I shall be confirmed by those who
know the city, in the opinion that much income comes home
from abroad which is not returned to the income-tax
authorities. These estimates fully warrant me in setting
’ down £40,000,000 as the foreign income omitted from the
income-tax returns.

The next item on the list, that of movable property not
yielding income, such as pictures, works of art, furniture of
houses, old china, &c, is put at the capital sum of
£700,000,000, which is half the amount of the capitalised
value of houses. Porter estimates a third for this item in
his “ Progress of the Nation,” but considering the material
advance since his time, I do not think we can be far wrong
in placing the contents of houses at something like half the
value of the houses themselves. In any case, if we valued
the houses at twenty years’ purchase, as some authorities do,
one-third of the capital sum so arrived at would come to

* See note on p. 164.
172 RECENT ACCUMULATIONS OF CAPITAL

about the figure here stated. My own impression is, that
the figure is under the mark, although I have stated it in |
preference to using a larger figure, in order to have former
precedent in my favour.

The last item of all, that of the value of property
belonging to Government and local authorities, is neces-
sarily very speculative. There is no property, how-
ever, which ought more properly to come into such a
valuation. It is the property of the community which is
enjoyed in common, and the possession of which has often
been bought out of taxes. It includes the value of the land
of dockyards and other Government establishments, the
plant employed in them, the public buildings and furniture,
and the waterworks, gasworks, public parks, embankments,
and other possessions of local authorities. The difficulty of
valuation arises, however, from the circumstance that we
have no statement even of the area of the lands possessed by
local bodies, or of what isin Government possession. But
the item must be very large. Apart from the local income
from property, which is probably included in the income-tax
returns, there is an income from harbour dues and the like
sources which is really a species of property, and there are
large possessions which are devoted to some useful purpose,
though not yielding a revenue. The municipal debts still
outstanding amount to about £100,000,000 in England and
Wales alone, and this is represented by an equivalent outlay
for improvements in the localities. We thus arrive at a sum
of between £200,000,000 and £300,000,000 as the value of
local property ; and Government property, although Crown
lands only bring in £350,000 a-year, must be something
over £100,000,000. It would be useless to attempt detail on
a matter like this.

In this way the total capital of the people of the United
IN THE UNITED KINGDOM. 1738

Kingdom may be reckoned as a minimum at £8,500,000,006
sterling. This is the capitalised value of the income derived
from capital, using as far as possible the data of the income-
tax returns as the basis of the estimate, and with the addition
of an estimate of the amount of capital in use not yielding
an income. It isa bewildering figure, about eleven times the
amount of our national debt, which may thus be reckoned
with all soberness as a fleabite. Nearly £7,500,000,000
out of this amount besides must be reckoned as income-
yielding, only the remaining £1,000,000,000 being set
down as the value of movable property or the direct
property of imperial or local authorities, which does not
yield any individual revenue. The suggestion may perhaps
be made that to some extent these are only figures in an
account—that the capital outlay on the soil, plant,
machinery, factories, and houses of the United Kingdom,
or on the circulating capital of our industry, would
not come to so much. But in reply I would say that
while there is no evidence one way or the other as to what
the outlay has been, while we shal] never know what it has
cost from generation to generation, to give us all this
inheritance, there is some justification for thinking that the
values are stable and not transitory. They represent an
estate on which 34,000,000 of people have facilities for
production and distribution, which must be equal all in all
to the facilities existing anywhere else, because they are
constantly tried in the furnace of free trade, and are not
sustained by any adventitious means. If certain properties
have acquired what is called a monopoly value, it is because
actual workers are able to pay the corresponding rent out of
their first earnings, and have ample wages and profit
besides. In such matters the property of a great country,
like a factory or business, must be valucd as that of a going
174 RECENT ACCUMULATIONS OF CAPITAL

.

concern, and the monopoly value which certain things
acquire only enters into the question of the distribution of
the estate and its income.

It would be additionally satisfactory if we could compare
these figures with an account of the actual accumulations,
year by year, in the shape of a statement of the capital outlay
by public companies in adding to their stock and plant; the
actual expenditure on new buildings, ships, and the like;
the annual investments abroad, and so on. On some points
I have made a few notes of this kind which satisfy me that
in this way also very large totals would be brought out.
But the obvious difficulty with the method would be that
the outlay by private individuals cannot be got at by means
of it at all, and this outlay represents the greater part of the
increase of capital in the country. At the same time the
statement, if it could be given, would be subject to great
deductions on account of the improvident investment of
capital, as in foreign loans, whereby the savings are not
really accumulated, but wasted. The method pursued in the
present paper seems accordingly the safest and the likeliest
to yield a moderate result, although it is liable to the
observation that some property may increase in income-
yielding capacity from decade to decade, and its capitalised
value will proportionally increase, without any actual accu-
mulation.

THE GROWTH OF CAPITAL.

Our special business to-night is not, however, with the
actual capital at the present time, but with the recent
accumulations, though a statement of the present amount
appeared to be a necessary preliminary. It is evident
almost at the outset that the growth must have been very —
rapid. If we look at the income-tax returns, we perceive
1N THE UNITED KINGDOM. 175

that the gross income assessed rose in Great Britain from
£115,000,000 at the beginning of the century, to
£130,000,000 in 1815, £251,000,000 in 1843, and
£262,000,000 in 1853; and then, in the United Kingdom,
from £308,000,000 in 1855, to £396,000,000 in 1865, and
£571,000,000 in 1875. If the capital of that portion of the
income derived from capital has only progressed at the same
rate, the annual increase of capital all through, and especially
of recent years, must have been enormous. The increase in
the income assessed between 1865 and 1875 amounts to
£175,000,000, which is equal to 44 per cent. of the income
assessed in 1865. Leaving out altogether the capital not
yielding income, and dealing only with the capital yielding
income, a similar increase of capital, assuming the present
amount to be what we have stated, would give us, for 1865,
a total capital of about +£5,200,000,000, on which the
increase at 44 per cent. would be £2,288,000,000, or, in
round figures, £230,000,000 per annum. If our estimate is
moderate, and any cause would justify a higher figure for
the present capital, then the increase between 1865 and
1875 would be even more than we state. But the increase
on each description of capital may not have been uniform,
and we must look a little into detail to see what kinds of
income, and therefore what kinds of capital, have increased.
Comparing 1865 with the present time in this way, we
are met by the difficulty that we have not the full details
we now have as to the various schedules, especially
Schedules A and D. We can compare certain particulars,
however, as far back as 1862, which is one reason amongst
others why I have selected a ten years’ period only as the
principal subject of comparison. In this manner we get a
table for 1865 similar to what we have above compiled for
the present time :—
176 _RECENT ACCUMULATIONS OF CAPITAL

B.—Amount of Income in Income-Tax Returns derived jrom Capital
in 1865, and Approximate Amount of Capital, assuming the
same Number of Years’ Purchase as in Table A; together with
Estimate of remaining Income and Capital in the Country.

[000’s omitted.]

 

 

 

Income. Capital.
Under Schedule A— £ £
Tiands: co aca ew west ae a ous] CO 2U12T, 1,863,810
Houses ... 0 see cee eee vee eee eee] 68,757, 1,031,355
Schedule B—
(Farmers? profits)... .4. + os e+|  56,181,* 620,000,
Schedule C—
(Public funds less home funds)... ... 8,426, 210,650,
Under Schedule D—
Mines ise. wes: eee des. ane oder ams 4,829, 19,316,
Tronworks —..,0 eee se tee wee vee 1,798, 7,192,
Railways... .0. see se ee a ks 16,576, 414,400,
Canals... as 2 900, 18,000,
Gasworks oc. eee wee wee we 1,849, 36,980,
Quarries... ava ves aus sins wee we 590, 2,360,
Other profits... 16.0 see eee eee nee 8,012,T 55,000,f
Other income-tax income detailed in 9
Table A—estimate...  ... 42,000, 660,000, f
Total under income-tax  ... ... ...{ 267,045, 4,939,063,
Trades and professions omitted, one-fifth of about
£100,000,000, of Which one-fifth is... ss... ese 5,050, 751000,
Income of non-income-tax paying classes derived
from capital; SAY .c;. 53: ave, cGe aah Fee es oes 40,000, PEL Ty
Foreign investments not in Schedules Cand D... ... 10,000, 100,000,
Movable property not yielding income, e.g., furni-
ture of houses, works of art, &C. 1.0 ese cee ae i > a 500,000,
Government and local property, say... 1. ee we _— 300,000,
322,045, 6,114,063,

 

 

 

* This is the amount stated in 1865. Previous to 1875 only the net
amount was entered in the returns for Ireland, and in working out the
capital an allowance has been inade for the difference this made in
1875, about £6,000,000.

+ These include the other profits of Schedule A, and waterworks,
fish:ngs, market tolls, &c., in Table A.

{ In these two cases where we have not the same detail as in 1875,
the capital is assumed to bear the same proportion to the income in
1865 as in 1875.
IN THE UNITED KINGDOM.

177

In this way, following for 1865 the method of estimating
we have used for the present time, we arrive at a sum of

£6,113,000,000 as the total capital of that period: —

The estimate at present being .. ... «. £8,500,000,000
That of 1965, pay ss. seo con sea ons ace 6,100,000,000

The increase ig... .. os .. 2,400,000,000

which corresponds nearly with the increase of 44 per cent. in
the income-tax returns themselves. The national estate has
thus improved in the ten years at the rate of £240,000,000

per annum.

The following table compares the details of the increase :—

C.—Approximate Account of Capital or Property in United Kingdom

in 1865 and 1875 compared,

 

_ 1865. 1875.

Increase in 1875,

 

 

 

 

 

Amount. | Per Cent.
Mins, Mins. Mins.
Lands 50 0. eee eee vee eee] 1,864, 2,007, 143, 8
Housed" Gain a2 au eae sell 031, 1,420, 389, 38
Farmers’ profits... ‘ "620, 668, 48, 8
Public funds less home funds .. 211, 519, 808, 146
Mines 0.0 see ce tee ete oe 19, 56, 37, 195
Tronworks .., 0s ve weno 7, 29, 22, 314
Railways 11.0 see ae ee wee 414, 655, 241, 58
“Canals... ws vee sae seh. 18, 20, 2, II
Gasworks 14. 6. eee eee nes 37, 53 16, 43
Quarries ... ose nee wee tee 2, 4 2, 100
Other profits ... ... any 55, 84, 29, 53
Otherincome tax, income prin-
cipally trades and rete | 659, 1,128, 469, 71
sions, and public companies
4,938, 6,643, | 1,706, 35
Trades and professions omitted... .. es 75, 105, 30,
Income from capital of non-income-tax 200, 300, 100, 50
paying classes..
Foreign “investments noti in Schedules. [| 100, | 4205 300,
Movable property not yielding income . 500, 700, 200, : 4°
Government and local property, say... 300, 400, 100, 33°
6,113, 8,548, 2,436, 40

 

 

 

 
178 RECENT ACCUMULATIONS OF CAPITAL

Generally, I believe, it will be admitted these details
correspond with what we should expect to find. The small
increase in lands and farmers’ profits is what we should
expect to find from the comparative stationariness of agricul-
tural industry, while there is a comparatively large increase
in railways, somewhat above the average, and an enormous
increase in mines and ironworks, corresponding to the rapid
development of iron and coal mining under the influence of
the inflated prices of 1871-73. In the latter case probably
part of the increase may be due to improved valuations, but
it is in this direction certainly we should have looked for a
great increase. So far as it goes, also, the increase of
“Public Funds,” Schedule C, is in correspondence with the
fact of immense public loans to foreign countries in recent
years, though it does not indicate, we believe, the full
amount of the increased lending to foreign countries, which
we have endeavoured to allow for otherwise. The item
which will perhaps excite most surprise is the increase of
“other income-tax income, principally trades and pro-
“fessions, and public companies.” The estimated increase
amounts to £469,000,000, on a total of £659,000,000 in
1865, or 71 per cent. It would have been very interesting -
if it had been possible to give as full details for 1865 as for -
1875, and thus show how much of the increase is due to
“public companies,” and how much to “trades and pro-
“‘fessions.” It is obvious, at all events, that great as the
increase is, and in whatever way it has occurred, one of the
conspicuous facts of the income-tax returns is the rapid
increase of Schedule D, and principally of this part of it, in
recent years. We can well believe that no such increase of
income could have occurred without a corresponding or even
greater increase of capital. Here, too, I believe city opinion
will confirm me in the statement that something like this is
IN THE UNITED KINGDOM, ; - 179

what we should have expected to find. I have often heard
it remarked at least, in explanation of the scarcity of bills
in Lombard Street, that the trading classes were believed as
a rule to have become richer of late years than they were in
proportion. They have had more capital, and so did not
require to borrow. Probably enough, therefore, the increase
of capital corresponding to trades and professions—that is, of
stock-in-tradé and tenants’ fixtures mainly—has been even
larger than the increase of the income itself.

Having formed this estimate as to the increase of pro-
perty during the last decennial period, it may be useful to
corroborate it by an examination of the results that would
be yielded by different methods. The comparison seems to
bring out the very great moderation of the present
method. I have already referred to the calculations
of the writer in-the Economist in 1863, who also took
for his basis the income-tax returns, and whose contri-
butions to the inquiry from time to time must always be
consulted by those who wish to study the subject thoroughly.
Our figures are certainly much lower than his method
would have furnished us. He states (see Economist, 12th
December, 1863):—‘“‘ Considering, however, the large
‘‘ omissions and under-statements of all income-tax statistics,
“and also remembering that the figures before us wholly
“omit the sub-tax incomes, we have, after taking some
‘trouble, arrived at the conclusion that if we multiply by
_ “twenty, or, what is the same thing, capitalise at twenty
“ years’ purchase, or at the rate of 5 per cent. per annum,
“the total average annual increase shown in Tuble A” (a
table summarising the various schedules of the income-
tax), “we shall not overstate, but the contrary, the annual
“savings of the United Kingdom during the five years in
“review.” Applying the same method now, we find that

nN 2
180 . RECENT ACCUMULATIONS OF CAPITAL

the increase in all the schedules of the income-tax between .
1865 and 1875, is from £396,000,000 to £571,000,000, or
£175,000,000 in the ten years, that is £17,500,000 per
annum. Capitalising this at twenty years’ purchase, we get
a total increase of £3,500,000,000 in the ten years, or
£350,000,000 per annum, which is certainly a much larger
figure than has been arrived at by the method used to-night.
There igs no doubt that since the period to which the
Economist referred, viz., 1855-60, a good deal has been done
to improve the income-tax valuations. Even before 1865,
as-appears from the report of that year, a good deal had
been done to stop the notorious leakages. But making all
the new allowances we should make for changed circum-
stances, the method of 1863 must have brought out
considerably higher figures. J am inclined to believe that the
estimate to-night errs, if anything, on the side of moderation,
and perhaps this confirmation I have brought may convince
those who may have been startled at first by the great
magnitude of the figures with which we are dealing, that
these figures are really not excessive, but moderate.

There is yet a different way of estimating the accumula-
tions of the country, viz., from the Legacy Duty Returns.
Mr. Porter, in his “ Progress of the Nation,” makes especial ~
use.of these figures. He prints a long table (pp. 492—93,
edition 1851) showing the amount of property which had
been subjected to legacy duty in Great Britain in each year
since the commencement down to 1848. This table I have
reprinted and continued in the Appendix,* both as regards
Great Britain and the United Kingdom, with the exception
of ten years between 1849 and 1857 inclusive, in which it
appears the Inland Revenue Department has not published
the data it has since supplied. With these data Mr. Porter

® Bee note on p. 164. .
IN THE UNITED KINGDOM. 181

estimated that in 1841 the personal property in the country
might be reckoned at £2,000,000,000, and in 1845 at
£2,200,000,000; and comparing these sums with the corre-
sponding amounts of property passing at death in the years
mentioned, viz., £41,000,000 and £44,000,000, it would
appear that he reckoned the personal property in the
country, as from forty-five to fifty times the amount annually
subject to legacy duty. Multiplying by forty-five only the
annual average of two years, 1865-66 and 1875-76, we should
arrive at the following sums as the amount of personal
property at these dates, and the increase in the interval :—

Capital Estimates in 1865 and 1875 deduced from the Property

subject to Legacy Duty.
(000’s omitted.)

 

 

 

 

 

Average Property Calculated Total Amount
subject to Duty. of Personal Property.
£  £
1875 ses soe eves eae eee ee] 104,686, * 4,710,870,
TS6O gee? iia asa! “age rcass) (59 73,216, 3,294,720,
Increase... 61. eee wee 31.470, 1,416,150,

 

In other words, in personal property alone there was
an increase of £142,000,000 per annum, according to this
method, between 1865 and 1875. But this increase would
not include any property subject to succession duty, the
increase in which, adopting a similar method of calculation,
and allowing for the difference that only the life interest of
the succession is subject to duty, would be as follows :—

Capital Estimates in 1865 and 1875 deduced from the Property
subject to Succession Duty.

(000’s omitted.) Calculated Total Amount
of Real Property.
1875 co see see cee ee tee eee nee £3,150,720,

1865 oc. cee eee ce tee tee cee eee 2,213,550,
. Increase .6e vee cee teen 937,170,
182 RECENT ACCUMULATIONS OF CAPITAL

Adding this last sum to the above figure for personal
property, we get an- estimated total accumulation between
1865 and 1875 of £235,000,000 per annum, which corre-
sponds very closely, it will be observed, with the total arrived
at by the method used to-night.

Whatever may be thought, therefore, of the estimates
which have been made, they are fortified in some degree by
the authority of former inquirers. Large as the totals
appear at first sight, every one who looks into the subject is
satisfied that very large figures must be dealt with. It
_ necessary, we might derive additional confirmation from a
comparison of the increase of railway traffic, increase of the
tonnage of shipping entered and cleared, increase of iron
and coal production, increase of imports of raw material for
manufactures, increase of consumption and revenue, and
other data, all showing an enormous progress, which implies,
when rightly inquired into, a corresponding increase of
property. But the facts, though interesting, might lead
us away from the main point, which need not be further
illustrated.

COMPARATIVE GROWTH IN FORMER PERIODS.

The question will be asked—How does the increase in
recent years compare with the increase in former periods ?
The reply must be that whether we take the returns of the
income-tax, or of the legacy duty, or the estimates of
property deduced from them, the increase of late years has
been much more rapid than at any previous period of the
century. The total assessment to the income-tax in Great
Britain appears to have been about £140,000,000 at the
ciose of our great wars at the beginning of the century. It
is stated to be £130,000,000 for 1813 in the accompanying |
IN THE UNITED KINGDOM, 183

table in the Appendix,* and Mr. Dudley Baxter gives the
figure of £146,000,000 for 1814-15. Few good data unfor-
tunately have been preserved for that period, and there is
an additional difficulty in comparing with later times in the
differences in the minimum subject to duty. But assuming
£140,000,000, we find that this compares with a total of
£251,000,000 in 1843, when we have again got income-tax
data—the increase in the interval of thirty years being
£111,000,000, or about 80 per cent. In other words, the
annual increase in this long period was rather less than
£4,000,000, and about 22 per cent. per annum. Between
1843 and 1853 the increase was from £251,000,000 to
£262,000,000, or £11,000,000 in ten years, that is little
more than £1,000,000 per annum, which is even a lower rate
of increase than between 1813 and 18438. In the next
decade, which we take for the United Kingdom between
1855 and 1865, Ireland having been subjected to the
income-tax in 1853, the increase is from £308,000,000 to
£395,000,000, or £87,000,000, and about 28 per cent. in
the ten years. This shows a very different state of things
from what had existed in the first half of the century; but
great as the increase is, it is still less than what we have
been dealing with between 1865 and 1875, in which
period, as we have seen, the income assessed to income-tax
has increased £176,000,000, or 44 per cent.

If we look at the returns of the legacy duty we arrive at
the same conclusion of a very slow progress in the first half
of the century and afterwards a progress at a rapid and
accelerating rate. Mr. Porter tells us that in the early
years of the century the returns are uncertain, but taking
the average of two years at the end of each date since 1820,
we get the following comparison :—

* See note on p. 164,
184 RECENT ACCUMULATIONS OF CAPITAL

Property subject to
Legacy Duty.

TRO0 ee see sty ee es a ee OL OOO
E30 ius dae. ven nvm aan ame cone 20 283,000
T3410 Gog aus aus aww: ee ee ae «= 124,000
WEG ace aks ae es wk awe ee «= ASSL 000
$EE0: exceed wet be See ae om (8S, TOLD

Thus the increase between 1820 and 1840 was
£11,000,000, .or about 386 per cent., that is, about
£550,000, or rather less than 2 per cent. per annum. The
increase between 1840 and 1848 was only about £2,700,000,
showing a still slower rate of increase than between 1820
and 1840, corresponding to the indication of the income-tax ©
returns between 1843 and 1853. But the increase between
1848 and 1860 is £15,200,C00, or over £1,200,000 per
annum, and at the rate of 34 per cent. in the twelve years,
or 8 per cent. per annum. Since 1860, as we have seen,
the increase in the decade we have dealt with in the United |
Kingdom has been at the rate of over 43 per cent. Thus
‘there is a great start forward just after 1850, both in the
income-tax returns and amount of property subject to legacy
duty. We have no data for the succession duty in the early
part of the century, as it was only imposed in 1853; but
since 1859, when we begin to have data, it has progressed
with great rapidity, and with greater rapidity in the later
than in the earlier years.

It may be interesting to exhibit these facts still more
directly for our present purpose, by comparing Mr. Porter’s
estimates of “personal property” at different dates in the
century with those which can now be made. He gives the
following table id Great Britain at p. 600 of his * Buetee
of the Nation :
IN THE UNITED KINGDOM. 185

- Years, (000,000’s omitted.) Personal Property.
MENA. G35 tess ue Jae gen. van ee sea SLO
DSU) glee yee: eee ee ere’ <3Nsi a: Seg! HOO,
PSOE > set iasks “ire “Hk Mise ake SS “Ge ig TE OO),
LEE Coat. ayo Gis tases! ey. can Rak waa CEOs
BARES is eae hin hee ame ae ay ok CRUDE
1841 OUR GES) We Sah She Ga. eae Stews! aie 2,000,

NBAS Fis. sade ved Gage Theat. owes ee aoa HRS 2,200,

The highest sum reached is thus £2,200,000,000,
whereas the total for 1875-76, as we have seen, on the same
method of valuation, is nearly £5,000,000,000, of which
nearly £1,500,000,000 was the increase between 1865 and
1875 alone. In other words, the increase in the last decade
exceeded the whole personal property of the country in
1814, and was three-fourths of the amount of that property,
even as late as 1841. So great has been the change in the
material condition of the country in recent years.

The totals would not be greatly modified by the considera-
tion of the important question in such matters, that of a change
in the level of prices at different dates. It is possible—I should
almost say probable—that part of the slow increase between
1815 or 1820 and 1840, and even to as late a date as 1850, was
due to a gradual appreciation of the standard of value. Part -
of the great increase up to 1860 may also be ascribed to a
rise in the level of prices consequent on the Californian and
Australian goid discoveries, which seem to have reached their
maximum effect in the first decade. But there can be no such
explanation of the improvement since 1805, which has been
coincident with events in the money market, significant rather
of an appreciation than a depreciation of the standard. There
is nothing, therefore, to qualify our sense of the extraordinary
accumulation of property in recent years, and which we can
only ascribe to the accumulated effects of mechanical and
chemical discoveries, so that year by year the industrial
machine is more and more productive in proportion to the
labourers employed. ,
186 RECENT ACCUMULATIONS OF CAPITAL

COMPARISON WITH OTHER COUNTRIES.

It would more than exhaust the limits of a single paper
to go into the question of a comparison of our national
position, as regards capital, with that of any other country.
But such a comparison would be most instructive. In
France, for instance, property has increased immensely
during the present century. So with Germany and the
United States. The latter country, as I have stated,
possesses the data of regular valuations at every Census, and
the gross figures thus arrived at since 1791 are as follows :—

Statement showing the Population and Wealth of the United States
by Decades, from 1790 to 1860; Decennial Percentage
Increase of Population; Decennial Percentage Increase of
National Wealth; and Average Property to each Person.

 

 

Decennial Decennial | Decennial | Average
Year. Population. Percentage Increase Percentage Percentage’ Property to
of Wealth, Increase of Increase of each
Population, | Wealth. Person,
s Per cnt. | Per cnt. $
1790 3,929,827 750,000,000 —_— _ 187°00
(estimated)
1800 5,305,937 1,072,000,000 35°02 43-0 202°13
(estimated) .
1810 7,239,814 1,500,000,000 36°43 89:0 207°20
(estimated) :
1820 9,638,191 1,882,000,000 33°13 25°4 | 195'00
(estimated ) .
1830 | 12,866,020 2,653,000,000 33°49 41:0 | 206:00
(estimated)
1840 | 17,069,453 3,764,000,000 32°67 41:7 220°00
(official)
1850 | 23,191,876 7, 135,780,000 35°87 89:6 | 307°67
(official)
1860 | 31,500,000 | 16,159,000,000 35°59 | 126-42 | S10'00
(official)
1870 38, 558,000 39, 069,000,000 22°00 86°13 776'96*
(vticial)

 

 

 

 

 

 

* But allowance ought to be made here for the depreciation of the
dollar between 1860 and 1870, [If I were writing now I should have
further observations to make on the American estimates of property.
The subject has been farther illustrated by the Census of 1880. But I
must reserve such observations for another occasion. — Edi:ton 1886.]
IN THE UNITED KINGDOM. 187

Here again, as with ourselves, the increase has been
much smaller between the beginning of the century and
1840, than it has been since, and it is especially noticeable
that what increase of property there was in the earlier
period only corresponded to the increase of population. |
The increase between 1860 and 1870 is at a less rate than
in the previous decade, contrary to our experience in this
country, but the difference is no doubt mainly due to the
civil war in the United States. The contrast would have
been more striking but for the depreciation of currency
between 1860 and 1870. The total United States’ property
in 1870, it will be observed, was a good deal less than our
own total at the present time, £6,000,000,000 sterling,
against £8,500,000,000 sterling, while the amount per head,
owing to the larger population, must be much smaller. But
there would be a great increase in the United States between
1870 and 1875, and in any case the total is a very large one,
and is so far confirmatory of the large figures of our own
estimates.

 

CONCLUDING OBSERVATIONS.

What is the bearing of the facts brought out on what
was stated at the outset as the main object of such inquiry ?
—that is, the degree of improvement (if any) in the
material welfare of the community in consequence of these
accumulations of capital, and the addition to the margin
of taxation. It is evident, from the mere statement of the
percentages of increase, that the improvement in both
respects must be great. Since 1855 at least, the increase
of property must have been 30 per cent. in the first decade,
and during the second decade the increase must have been
44 per cent. so that the addition to the capital of
188 RECENT ACCUMULATIONS OF CAPITAL

the community in that time has been immensely greater
in proportion than the increase in its numbers. The
increase of population has been about 1 per cent. per
annum, but property has increased 3 to 4 per cent.
and upwards. Whether the property so increased is pro-
ductive or unproductive, the resources of the community as
a whole must have been greatly enlarged. They have more
to enjoy, even if the means of increasing production have
not increased proportionately with other property. But
that reproductive capital has increased quite in proportion,
if not more in proportion, is, however, very obvious. The
railways, mines, ironworks, and stock-in-trade of trades and
professions are precisely those descriptions of property, with
only slight exceptions, in which there has been the largest
proportionate increase of property. As regards the question
of the margin of taxation, the figures are absolutely
astounding. The apparent increase of capital between 1865
and 1875 alone is £2,400,000,000 sterling—that is, about
three times the amount of the national debt. That is to
say, the community has acquired in ten years three times
the amount of its debt. It could pay the debt three times
over, and still be as rich as at the beginning of the decade.
Allowing that to keep things in equilibrium there ought to
be an increase of capital pari passu with the increase of
population, the increase of capital in the ten years
(1865-75) merely to keep the community as rich as it was,
would only have been a little over £600,000,000. Deducting
this from the £2 ,400, 000,000 of actual i Increase, we have
still a sum of £1,800,000,000, or two and a half times the
national debt, which the nation could afford to pay, and
still be as rich individually as it was ten years ago,

The following figures will, perhaps, bring out the com-
parison still more clearly :—
IN THE UNITED KINGDOM, 189

 

 

 

 

 

Amount of Property. Amount per Head
(In millions.) of Population.
£ £
1875 110 see 0s coe one oes 8,500, 260
AS65408! Sase! Gases eee! ees 6,100, 204
2,400, = 56 =
Tneredes, { 39% per cent. 27 per cent.

 

Allowing for the increase of population, there is still an
increase of over one-fourth, or 27 per cent., in the capital of
the community in the decade. The nation might lose a
fourth of its property, and still be as rich and prosperous as
it was ten years before. Thus, whether we compare. the
increase of property per head, or the increase in reation to
the national debt, the facts are equally striking.

Incidentally the figures as to income we have been using
as the basis of these calculations about property, afford
additional evidence as to this increase of the margin of
taxation. The capital yielding income by Table A, 1875,
is £484,586,000; by Table B, 1865, it is £322,045,000;
showing an increase of £162,541,000. Deducting 10 per
cent. for the increase of population, there still remains an
excess increase of income from capital beyond the increase
of population, amounting to £130,000,000. This means
that taxation to an immense amount could be imposed, and
yet the share taken by the Government of the earnings of
the community from capital alone would still leave the
community per head as much as it possessed in 1865. If
there has been anything like a similar increase in the
earnings of the community in wages and salaries, the real
margin of taxation must have increased very much more.
It is no doubt quite true that the Chancellor of the
Exchequer could not deal with the matter in this arith-
190 RECENT ACCUMULATIONS OF CAPITAL

metical manner. The practical margin of taxation for him
to deal with must be very much less. The increase of
wealth and wages has brought an increase of the scale
of living, which would make a diminution of the profit of
the community from capital to the level of ten years ago
be greatly resented. A tax just imposed is also by many
degrees more burdensome and injurious to industry than
one which has long been in existence. But the magnitude
of the arithmetical increase of the margin proves that the
increase which could be practically dealt with as a resource
in time of need must be very large.

If we carry the comparison a little farther back, say for
half a century, as some of the figures we have used would
suggest, we cannot but be impressed with the marvellous
change which has come over the country. We emerged from
the great wars at the beginning of the century with a debt of
£900,000,009 sterling, which was practically a burden upon
the people of Great Britain, amounting to between a third
‘and a-half of their capital. Mr. Porter, as we have
seen, estimates the personal property at that time at
£1,200,000,000, and the real property, the income from
Schedule A being under £40,000,000, would be little over
£1,000,000,000 more. In other words there was a debt
of £200,090,000, against an estate of say £2,200,000,000.
Reckoning per head of the population, the debt was about
£70, and the property about £170. Now the property of
the United Kingdom is £8,500,000,000, or £251 per head,
and the debt has sunk to about a tenth part of the latter
sum, or £25 per head. According to this reckoning also,
the income from capital in 1815 was probably not more
than £90,000,000, on which the charge of the debt was
about one-third; now the income from capital ig
£445,000,000, on which the interest charge of the debt,
IN THE UNITED KINGDOM. * 191

amounting to £21,000,000, is only one twenty-second part.
_ Apart from any proportionate increase of the earnings of
the people per head, such great changes have passed over
the resources and burdens of the people within a period so
short that the burden itself is still not unfrequently talked
of, by a kind of tradition, in the language of the time when
it was really crushing. Had we a national debt corre-
sponding to what existed fifty years ago, it would be over
£3,000,000,000, and not under £800,000,000; and the
interest charge would be above £100,000,000, instead of
£21,000,000 a-year.

Before I conclude, I may notice one or two points on
which observation may have been expected. One is the
distribution of this great increase of wealth. In one
respect, as regards the three divisions of the United
Kingdom, it has perhaps been unnecessary to do so, while
it would be difficult to find sufficient details, owing to the
large amounts of income which are earned in one part of the
country and which pay income-tax in another. The great
increase both in amount and per head of population is
undoubtedly in England, although the income-tax returns
show clearly enough that both Ireland* and Scotland now
progress very rapidly. In another aspect, viz, as to
whether capital is being more diffused, or is accumulating

_in fewer hands, I am afraid the data are not sufficiently
good for any sure conclusions. There are certain means
for comparing the number of assessments under Schedule D,
at different amounts of income, which would appear to show
that the number of large incomes is increasing more quickly
than the increase of population or the increase of wealth.
But the fact of the rich class becoming a little more
numerous, would not prove that as a whole the number

* This has hardly been the case of late yearsin Ireland, Edition 1886,

~~
192 RECENT ACCUMULATIONS OF CAPITAL

of people possessed of moderate capital and the average
amount they possessed are increasing or diminishing, while
the increasing number of ‘company assessments under
Schedule D, makes the number of assessments altogether
useless for comparison, as we have no information whatever
respecting the number of individual shareholders in the
different companies, the average amount of each individual
interest, and the interests of the holders in Schedules A, B,
and C. For these reasons mainly, and also partly for want
of time, I have not inquired into this part of the subject;
the problem could only be attacked in a most indirect
manner.*

Another question which has been raised of late, is
whether the nation is now spending its capital. The figures
to-night may at least be taken to prove, I think, that if the
nation has begun to spend its capital, instead of saving
capital, the process is a very new one. So far as our -
researches carry us, the fact we have to deal with is, that
the rate of saving has been far greater of late than at any
previous period during the present century ; that the saving
all through has been at an increasing rate. The figures
~ would also show that the only fact alleged in proof that we
are living on our capital is insufficient to make out the case.
The allegation is that the excess of imports is now so great
as to show that we are calling in our capital from abroad.
But apart from the incidental evidence which has been
before us to-night, as t¢ the great amount of lending in
former years, which entitles us to the receipt in each year
of an enormous income from foreign countries, so that the
excess of imports would need to be much larger than it is to
prove any material calling in of capital from abroad; it
must also be apparent that if the nation is calling in some
fraction of its foreign investment, it is not therefore stopping

* See discussions on this head in “Essays in Finance,” Second
Series, pp. 398 et seq, Edition 1886.
IN THE UNITED KINGDOM. 193

its savings or diminishing its capital. The foreign invest-
ments, though they were very large in the years before
1875, were by no means the chief part of the national
accumulations. Our main savings were at home. Before
the nation can be said to be living on its capital, it must be
shown that not only is capital being called in from abroad,
but that more is so called in than what is being simul- .
taneously invested at home. I have not seen this point
considered by any of those who have made the suggestion
that the nation is living on its capital.

And this brings me to the next question, on which
perhaps some observation may have been expected, viz.,
whether in point of fact the nation is saving at home in
years like the present. In what sort of years are the
accumulations, such as those we have been dealing with
between 1865 and 1875, the greatest, and in what years are
they at a minimum or suspended, or is the process nearly
uniform? I am afraid it is impossible to answer this
question in anything like a complete manner. The assess-
ments to Schedule A of the income-tax have not hitherto
been made annually, but at intervals of years. We cannot
tell, therefore, from these data what the increase is in a
particular year. The assessments of trade profits under
Schedule D again may be made on the average of three
years’ profits, which throws out all possible comparison of
annual increases. But we have good reason to believe that
in no year is the accumulation absolutely at an end; and
that in many directions it is even more active in dull years
than it is at other times. We know, for instance, that the
capital outlay on railways is incessant; that during the last
two or three years of depression, and even now, the nation
is saving in railways very nearly as much as the annual
inoome of the capital invested in them. In agriculture,

0
194 RECENT ACCUMULATIUNS OF CAPITAL

again, there is a constant annual reclamation of land in
“progress, besides an incessant outlay on the older cultivated
area. The house-building trades again are as active at the
present time, and have been for the last year or two as busy,
as for many years previous, showing the absence of any
stoppage to accumulation in this direction. We may antici-
pate from what has happened before, that the enormous
increase in mines and ironworks, which was one of the
special features of the accumulation between 1865 and 1875,
is checked; that the next income-tax returns will not
improbably exhibit a falling off on these heads.* But in
general the building of houses, railway construction, the
extension of factories and warehouses, and the increase of
machinery, goes on in dull as well as good times. We all
know how Lancashire went on adding to its cotton spinning
and weaving power even during the cotton famine, and a
similar extension of manufacturing power, we may be sure, ©
is going on at the present time. So far as one can judge,
the only direction in addition to that of mines and iron-
works in which saving is now checked, as compared with
the period of which we have been treating, is in foreign
investment. From the nature of the case, every other
species of accumulation is in progress as before. The truth
is, that owing to the division of labour, there must be a vast
disorganisation of industry, not a mere temporary falling off
from a former inflation, before accumulation can be wholly
checked. A. certain portion of the community is told off,
as it were, to create the accumulations, and if the accumu-
lations were not made, we should see in the building trades,
in railway construction, in shipbuilding, and numerous

* The twentieth report of the Inland Revenue, which was published
after this paper was read at the Statistical Suciety, exhibited, as here

anticipated, a falliug off on these heads. [Of course there have been
many changes since then,—Euition 1$86.]
IN THE UNITED KINGDOM. 195

other directions, a widespread stoppage of works, and
masses of unemployed labourers, far exceeding anything
witnessed even in those terrible times of depression which
were frequent before the free trade period, when industry
was partially disorganised, and pauperism assumed most
threatening dimensions. In the absence of the effects which
would follow, we must assume that the cause is not present,
that there is no stoppage of accumulation ; but that accumu-
lation, on the contrary, goes on at present in most directions —
at an average annual rate, or at a rate greater than the
average. ;

It is a different question altogether whether there is any
ground for anticipating a permanent change in the extent
-of our accumulations at an early date. What appears to me
most striking is the apparent indestructibility of most of our
capital. The drainage and other improvements of land, the
roads, railways and canals, the houses, the improvements
of towns, the machinery and plant set up in every direction,
are all forms of fixed capital, which are there to be used, if
the willingness to work and enjoy all this vast estate only
exists. Unless a species of paralysis seizes our workmen
and capitalists, I do not see what hindrances there are to
this vast industrial machine being used, whether to make
for ourselves, or to make wherewithal to buy from other
countries the surplus they may have to exchange with us.
A great deal is said at the present moment which is sub-
stantially to the effect that workmen and capitalists are
paralysed, but looking at the matter scientifically, and from
a point outside as it were, the balance of probability must be
held to be that the higgling of the market, as has always
happened before, will result in a working compromise, and
that industry will be resumed, and go on, after much
individual losses, but without, in the aggregate, any loss or

0 2
196 RECENT ACCUMULATIONS OF CAPITAL.

destruction of capital. It is said again, that our coal and
iron will soon be exhausted, and that our whole position is
based upon cheap coal and iron; but, in reply, we may
observe that in the above valuation of our capital the value
of mines and ironworks has been reckoned at only a few
years’ purchase; a few years’ industry would replace to us_
the capital value, and all our other capital—our improved
soil, our dwelling houses, our machinery, our roads, and
much more—would remain. Looking at our capital as a
whole, I think it is a strong thing to say that because many
years hence we shall not possess as a nation a certain
particular form of capital, therefore the other forms of
capital will not remain to be used and enjoyed. Against all
considerations of this nature, we may perhaps set the
continual progress in invention which is being made, and
which seems to benefit most the nations with accumulated
capital. If the steam engine is improved, so that two
pounds of coal can do what three pounds did before, then it
is the nation which has most steam machinery which is
clearly the greatest gainer. So with other inventions. It
will be the fault of the English people if their progress
is not in future even more rapid than it has been in the
past.
VIII.
NOTES ON THE DEPRECIATION OF SILVER.*

I propose to say very little as to the causes of the depre-
ciation of silver. There is now a very general agreement
that these causes are the demonetisation of silver by
Germany, the restriction of silver coinage by the Latin
Convention, the increased supply from the American mines,
and the diminished: absorbing power of India, -whether
temporary or permanent, through the increase of the
indebtedness of India to England. The combination of
these causes, it is generally agreed, has brought about the
recent fall in silver, although opinions may differ greatly as
to the extent to which each cause has influenced the result.
The only question on this head which it may be necessary
to discuss for a moment appears to be the extent of the
depreciation. Has it reached its probable limits for the
present or for a considerable period? Is a recovery or a
still further decline the more probable contingency? Are
the causes which have brought about the fall adequate to
produce a further depreciation or not? In reply I propose
to assume for the purposes of this paper that a speedy
further depreciation, resembling the late fall from about
58d. to the present price of 52d. per oz., is not to be counted
upon. It is the nature of such changes of prices to happen
- suddenly. When attention is aroused to great causes of

* A paper read at the Social Science Congress at Liverpool,
October, 1876.
198 NOTES ON THE DEPRECIATION OF SILVER.

change in operation, and a fall or rise has begun, the
market disposition is to discount the entire change at once,
and even by going beyond the mark produce a considerable
reaction, such as appears to have occurred in silver in its
recovery from 47d. to the present point. That no further
catastrophe is impending is also probable from the fact that
no further demonetisations of silver comparable in import-
ance with those of Germany and the Latin Convention are
immediately threatened. The principle expounded by Mr.
Newniarch in the fifth and. sixth volumes of Tooke and
Newmarch’s “ History of Prices,” when dealing with the
Australian gold discoveries, accordingly comes into play.
The fall causes a deficiency in existing coinages of silver for
the work they have to perform. Say they amount in the
aggregate to £300,000,000, then a fall of 10 per cent. in the
value of silver reduces them to £270,000,000; and as
£300,000,000 is required, there will be a deficiency of
£30,000,000 to be supplied. This is in addition to the
~ usual annual supply which the general increase of popula-
tion and wealth renders necessary. Without making any
elaborate calculation of what is the amount of the existing
silver coinages throughout the world, it is certain that a
very considerable deficiency will now have to be made good,
and the demand thus caused will arrest for a time at least,
and in the absence of any more demonetisations, the further
depreciation of silver. It must also be kept in mind, what
Mr. Newmarch points out, that the bulk to be operated
upon increases with each step in the depreciation, and the.
increased supply is the more easily absorbed.

What then are the effects of this great depreciation ?
The most important, I believe, are summed up in .this—that
in countries having a silver standard the usual effects of a
depreciation of the standard will be produced. In other
NOTES ON THE DEPRECIATION OF SILVER. 199

words, these countries will sooner or later experience a
general rise of prices, probably with the usual accompani-
ment of speculation and stimulated trade. The weight of
the national debts of such countries, so far as contracted in
silver, will also be diminished. On the other side creditors
will have less to receive, though debtors have less to pay
than was contracted for, and thus many individuals will
lose; the wages-receiving classes in such countries will also
suffer at first by a real fall in wages; and the annuitant
classes generally will be straitened. These have un-
doubtedly been the effects of the Australian gold discoveries
and the consequent depreciation in gold which then occurred,
although the immediate fall in wages and other evils have
been neutralised or lost sight of in an advance of wages due
to other causes, and in a vast industrial progress which was
no doubt partly stimulated at one time by the gold dis-
coveries themselves. It is quite possible that there is as yet
hardly any trace of these effects in India and other silver
countries, but the experience of such changes in past times
is sufficient to prove that the effects will follow.

Such will be the effect of the depreciation on: the
countries which use silver as money. As regards the use of
silver for other purposes than money, the depreciation means
the supply of an article valued by mankind at a cheaper
price. I need hardly say that such a lowering of price is in
itself an undoubted advantage to mankind. The owners of
existing stocks of silver will no doubt be relatively poorer,
but this is the natural effect of any cheapening of com-
modities, and is not considered an evil.

And if these were the only effects of the depreciation of
silver to be considered it would not be possible to affirm that
on the whole the depreciation of silver is an evil. No doubt
many individuals will suffer, but many also will gain; and
200 NOTES ON YHE DEPRECIATION OF SILVER. ©

it cannot be affirmed, I think, that there is any balance of
evil for the community. The cheapening of the commodity
as a commodity is an advantage, and the depreciation of
the currency is of mixed consequences, some of them
undoubtedly good. It may be said that all fluctuations of
the standard of value’ are presumably of bad effect, but I
doubt if economic science is sufficiently advanced to enable
us to say so. In point of fact all standards do change in
value from period to period. Gold itself has undergone
extensive changes during the present century, and, as is
now well known—Mr. Jevons’s demonstrations will be
familiar to many here—prices are subject to a fluctuation of
10 or 25 per cent. in every credit cycle from the mere
change in the state of credit alone. When credit is good
all prices rise, that is, the standard depreciates in value; and
the present fluctuation in silver does not go beyond the
limits of an ordinary change caused by the varying state of
credit. The truth seems to be that it is very important
for nations to have a standard of value, even though it
fluctuates from period to period; and a fluctuation of 10 per
cent. and upwards is of so ordinary occurrence that when
one occurs from an extraordinary cause, we cannot treat it
as itself extraordinary or presumably as productive of extra-
ordinary evil. ;

The question then remains whether there is any
peculiarity in the depreciation of silver, different from any
other depreciation or change in a standard of value, to
account for the loud outcry it occasions and the call for
heroic remedies. The answer here is also obvious—that
there happens to be a large class, including to some extent
_ the Governments of silver-using countries, who are losers by
the change. They are among the creditors who have less to
receive, while the loss is made obvious to them, because they
NOTES ON THE DEPRECIATION OF SILVER. 201

have to make payments in gold, or have otherwise to
convert the silver they receive into gold, and are thus made
to ascertain that the silver they receive is less effectual as
compared with gold than it was. If there were no exchange
operations the outcry would perhaps be less, but as matters
stand it is quite intelligible that an immediate apparent loss
of rather more than 10 per cent. should be greatly resented.
A classification may be made of the complaints. They are
not made by the great masses of the silver countries—say
by the masses of Russia, Austria, Hungary, or India, who
are indeed as yet hardly aware of the depreciation—but
chiefly, I think, by two or three classes only. Ist. The
Civil Service of India, which is paid in rupees, but has
remittances to make to England in gold. Generally all
European employés in India dependent on fixed salaries are
in the same case, though salaries in private employment are,
of course, not so fixed as in Government service, and the
evil in their case may be more evanescent. 2nd. The
Indian Government, as having been a large borrower in
gold, and being largely indebted in gold for pensions and
otherwise, is a heavy loser by the exchange, and the loss for
the moment destroys: the narrow margin which Indian
financiers have to go upon. I do not hear of any other
great Government which is in precisely the same difficulty,
except perhaps Russia, which has large sums in gold to pay
annually, though its foreign debt is not so large in pro-
portion as that of India, and it has no foreign pensions to
meet, as India has. Austria and Hungary have also
borrowed a little in gold, but not so much in proportion.
‘In as far as they have borrowed they have all a palpable
loss by exchange to meet, and minor countries using silver,
and‘which have borrowed in gold, are doubtless in the same
"predicament. Lastly, there are the traders with silver.
202 NOTES ON THE DEPRECIATION OF SILVER.

countries, who either make temporary or permanent invest-
ments in those countries, and who have thus remittances to
make home. The losses thus caused have undoubtedly been
great. Traders have been exposed to heavy loss on many
transactions, though if silver remains steady this cause of
loss should cease to affect them. Trade is also hindered by
the greater difficulty of making exchanges between gold
and silver, where there is no longer a fixed relation between
the two metals, this hindrance being of the same nature as
that experienced in the trade with countries which have an
inconvertible paper money. Bankers and insurance com-
panies, again, who have money out in the silver countries,
have been forced to endure a great depreciation in their
silver assets, which must be recognised when the amounts
are converted into gold. It is in this way that the outery
about the silver depreciation has arisen. The Governments
of certain silver countries, principally India, happen to have —
unusually large engagements in gold to meet; the Civil
Service of one Government, that of India, is also specially
concerned; and there is a large class in certain gold
countries, principally England, which has investments in
the silver countries, and has thus to face a great loss.

The losses are undoubtedly great, but Iam inclined to
think there is also a great deal of exaggeration about them.
Passing over the loss of the civil servants of India, which is
most serious and unequivocal, I should be inclined to say
that as regards traders there is either no loss which does not
come within the ordinary chances of trade or which has ‘not
at any rate been written off by this time, while the increased
difficulty of exchange with silver countries is of a kind
which has often been encountered; and as regards Govern-
ments that their real sources of revenue are not affected —
that if silver is depreciated they must soon be able to raise
NOTES ON THE DEPRECIATION OF SILVER. 203

an increased nominal revenue in silver, and that in this way
their temporary deficits will be adjusted. As regards trade,
then, the loss by exchange, apart from the excessive fluctua-
tions, amounts to about 10 per cent. in the current year,
and this, I maintain, is no more than an ordinary trade
fluctuation, against which traders ought to provide. They
go into business expecting to meet large gains and losses,
and such a fluctuation is one of the chances. Probably the
bankers who suffer will have found the fluctuation more out
of the way of what they usually calculate on; but the lesson
after all only brings home to them their liability to a trade
risk when they really engage in trade. Startled as they are
by the fluctuation in silver, they ought to remember that
such fluctuations are natural in every standard, that they
have occurred before both in gold and silver, and that their
reliance on a permanent equilibrium between the two was
really irrational and the fruit of long habit during a period
- in which a comparative equilibrium has been maintained by
- the artificial regulations of the double-currency countries,
assisted by a singular combination of events. Now that
they are undeceived, bankers and others residing in gold-
using countries, and proposing to invest in silver-using
countries, will know that they have an additional risk to
provide for. Investment may be checked a little in con-
sequence, but that should be the sum-total of the evil to the
community of peoples generally, from the losses which
bankers and others have sustained. As to the increased ~
difficulty of exchange, which is a permanent hindrance to
trade, the circumstance that the difficulty is of a familiar
kind should prevent us exaggerating it. When we have
seen what fluctuations the exchange with the United States,
for instance, has been exposed to by inconvertible paper,
without the trade coming to an end, we can hardly be
204 NOTES ON THE DEPRECIATION OF SILVER.

afraid of similar difficulties in connection with silver, where
the play of supply and demand will in time be able to
adjust the price, and consequently the level of exchange. If
the exchange, even with inconvertible paper money, tends
to become tolerably stable, we may anticipate a like stability,
-as a rule, for the exchange with silver countries, as soon as
the causes of the present unusual movement have ceased to
operate. As regards the deficits of Governments which have
to pay interest and charges on their debt in gold, or have -
“other remittances to make in gold while they receive
revenue in silver, it is quite plain that when prices within
such countries have adjusted themselves to the depreciation
they will, in the absence of any special difficulties, be as able
as before to make their gold payments. They will have
more silver to give in exchange for the same quantity of
gold ; but then they will be receiving more silver. As they
will have a real gain at the same time on their home debt,
payable in silver, it cannot be said that the temporary
embarrassment occasioned while prices are being adjusted
to the depreciation is so very serious a matter to them as it
appears at first sight. Special difficulties in the way of the
Government being able to raise an increased silver revenue
are no doubt alleged in the case of India; but India is not
the only case to be considered, and the presumption is that,
if there are such special difficulties, they must interfere with
and embarrass Indian finance in other ways, and should be
grappled with accordingly.

We come then to the question of the remedies applicable
to such evils as the depreciation of silver may cause. If the
view I have taken is correct, the case is plainly not one for
heroic remedies. The depreciation itself could hardly be
considered an evil—on the contrary, it is probably a bene-
ficent change—apart from the special losses which the Civil
NOTES ON THE DEPRECIATION OF SILVER 205

Service and pensioners of silver-using countries sustain, and
the temporary financial embarrassment of a country like
India, which happens to owe largely in gold. There is
especially no need for such a heroic remedy as that of the
further demonetisation of silver. It is quite natural that the
classes in gold-using countries who suffer by the depreciation
of silver should advocate the adoption of a gold standard in
silver countries. They assume that the rate of conversion
between gold and silver would probably be fixed in such a
way as to put them back where they were before the recent
fall, while, if the greater use of gold should have for result
an appreciation of that metal, they at least would not be
losers. But, as far as the people of the silver-using countries
are concerned, what good are they to get by such a change,
or what motive have they for it? The silver currency is
presumably good enough for them, for that is what they
have, and there must be many countries where silver is even
more suitable than gold as a medium of exchange and
standard of value. It is certainly rather strange to suggest

_to them to give up the silver which they have and take
gold, at the very time gold is dear to buy, and the proposed
demonetisation would make it still dearer. If the silver —
countries were self-governing, it may perhaps be doubted
whether so strange a remedy, which could only have for
effect the increase of their burdens to save losses to distant
creditors, would ever have been thought of.

I believe there is equally no occasion for the heroic
remedy of bi-metallism, in defence of which you will shortly
have an opportunity of listening to a most distinguished
advocate now present.* The depreciation of silver, it is
alleged, is so great an evil that the only thing to be done

° M. Cernuschi,
206 NOTES ON THE DEPRECIATION OF SILVER.

is to try the plan of establishing, by common consent of all
civilised countries, the perpetual interchangeability of the
two metals. But if the evil is not so very great after all, if
the fluctuation in silver is only an ordinary affair, such as
frequently occurs with every standard of value, we have
certainly a reason for not trying so colossal an experiment
as that which bi-metallists suggest. I confess I have great
doubts what the exact result of such an experiment would
be. Itis assumed that the two metals would permanently
be kept in circulation at the ratio of fifteen and a-half to one.
But that is only an assumption, and I should rather antici-
pate confusion from the one metal or the other being at a
premium. But the mere fact that it would be a colossal
experiment is an argument against it so long as we are not
compelled to adopt heroic remedies. It may be said that a
system of dual currency has been successful in France and
other countries, but the answer is, that although France and
other countries have managed to work the system in the
midst of other countries, some having silver exclusively, and
others exclusively gold, the position would be entirely
different when the metals would be universally interchange-
able. France and such countries with a dual currency
have, in fact, never had the two metals practically in use
together, but have facilitated exchanges between the gold
and silver countries by adopting the one or the other
currency alternately. This they have done at great loss to
their creditor classes, who have several times over been paid
with a depreciated metal, and at great profit to the exchange
dealers who have conducted the extensive operations of
exchange. But, because a double currency has been prac-
ticable under these conditions, it does not follow that it
would be universally practicable.

Leaving such heroic remedies alone, therefore, the only
NOTES ON THE DEPRECIATION OF SILVER. 207

other remedies which come within view are those applicable
to the special difficulties of the pensioners or employés of
silver countries, and the Governments of such countries
which have large gold paymouts to make. Regarding the
former the simplest way of meeting the difficulty will be the
best. When the depreciation is well established a good case
will have been made out for increasing the nominal salaries
of those who are paid in silver. The increase will cause no
real additional burden to such silver countries, because silver
will have become more abundant, and a larger revenue will
have been received. And as regards the financial embarrass-
ment of such Governments through their large gold pay-
ments, there is nothing for it but the assurance which
economic science certainly gives, that the embarrassment
can only be temporary; that in time the nominal revenue
will increase in proportion to the depreciation, and thus
matters will be adjusted. It will perhaps be said that the
-case of India is quite peculiar; that the land tax has been
settled in perpetuity or for long periods; that this is half
the revenue, and that it is supremely difficult, therefore, to
increase the national resources. But if this is so, as I have
already hinted, is not the evil of Indian finance so deep-
rooted that, quite apart from this silver difficulty, measures
should be devised to enlarge and strengthen the sources of
income? The answer to such a question must be in the
affirmative, and the fall in silver may, therefore, do good,
by forcing on Indian financiers the more earnest considera-
tion of their financial problems,
IX.
MR. GLADSTONE’S WORK IN FINANCE.®

Tuere is a universal agreement of opinion that Mr.
Gladstone’s strength is finance. Those who dispute his
capacity in other respects allow that figures steady him, and
his achievements in this field have been the principal boast
of his admirers. Until lately, indeed, it might be said,
there was little else to boast of ; Mr. Gladstone’s career had
been otherwise mainly interesting as a psychological study,
exhibiting the process by which a peculiar mind, starting
with a false appreciation of the tendencies of the time, and |
imbued with notions of a theological cast, has gradually -
harmonised itself with these tendencies, and discarded
theological conceptions in the domain of politics. Because,
then, Mr. Gladstone is so prominent, and his repute is so
largely due to success in one department of politics, an
inquiry into what his work here has been, without em-
bracing his whole career, may be more than justified. This
would be the case altogether apart from his recent accession
to the premiership. No doubt the past history of any
premier, the predilections he has manifested, and his
success, or supposed success, in a particular department, are
hkely to throw light on his future policy. But it is enough
to know that Mr. Gladstone, as a prominent party leader,
is mainly praised for his finance—has his achievements here
put forward as a main reason for supporting him. This
fact alone proves that the work is considered of a vitally

* Written in 1868,
MR. GLADSTONE’S WORK IN FINANCE. 209

important character, intimately concerned with the business
of politicians in the present time. By studying Mr.
Gladstone’s finance we are likely to get light on some of
the most important problems which our public men have to
solve—unless it should prove, what we find is not the case,
that great achievements in finance, of the kind so much
praised, are no longer possible. It will be said, perhaps,
that the subject is familiar enough—Mr. Gladstone and his
financial deeds have been in all the papers these many years.
But common as is the talk of Mr. Gladstone’s finance, it
may be doubted how far it is really known. A generation
has grown up which knows not Mr. Gladstone directly, or
the work that he has done—to whom his great budgets are
matters of history quite as much as the Reform Bill of 1822,
or the dreary politics which preceded it from 1815 down-
wards. ‘There are plenty of men among us who have lived
through the whole period, but the last events are almost as
_ unknown as the first to those who were at school during the
Crimean War, or have graduated since 1860, but who will
henceforth have their share in the politics of the future.
On this account it may be useful to resume questions and
arguments which may to some be stale and commonplace,
and mark out the outlines of a period trom which the present
has been developed. Perhaps those who are older may not
wholly lose by looking broadly at the past. A deliberate
retrospect may remove or modify the partial impressions of
the hour—may show what was essential and permanent,
what are probably, therefore, the strongest influences in the
times which are beginning.

The talk is of finance, but the fact which meets us at the
threshold is the secondary place of what passes by that name
in the financial record of this country during recent years—
that is to say, since 1842. The ordinary understanding of a

p
210 MR. GLADSTONE’S WORK IN FINANCE.

financier’s duty—and usually the correct understanding—is,
that he is to find ways and means for expenditure, and
maintain the credit of his Government. With the expendi-
ture itself it is not supposed he has much to do, except that
having to furnish the means he is expected to criticise it
closely, and reduce the bill if he can. What he must know
is the way to borrow cheaply, or to raise a revenue with the
minimum of resistance. The unpardonable sin is not the
infliction or maintenance of bad taxes, but the failure to find
the money. The history of States, as a rule, has shown
Governments spending up to the limit of their means, the
limit of what could be screwed out of their subjects; and
books on taxation bear curious witness to the anxiety of the
problem—how to find a new instrument of raising the wind.
There is nothing, says Adam Smith, which Governments
have been so ready to borrow of each other as a new tax.
The most important financial exploits on record have like-
wise been those of financiers, such as the younger Pitt, in
the conduct of a great war. To keep the stream of expendi-
ture flowing, without totally exhausting the nation, and to
devise a new expedient with every fresh strain on the
national resources, were the tasks that had procured most
renown. But the problems of recent years have been of a
different order—a different exercise of ingenuity has been
required. The conditions have been wholly changed. The
experiment of free trade, so much recommended as it was in
order to improve the revenue, had other relations as
important, or more important, to the general welfare of tho
country. Whether the experiment was worth trying for the
good of the country, and how to find the means of trying it,
became the financier’s questions. But the necessity of
looking so much more to the general welfare of the country
is not the only change. What must besides be taken into
MR. GLADSTONE’S WORK IN FINANCE. 211

account is the marvellous and unprecedented increase of the
national wealth in the course of a very few years—an
increase which apparently has not yet approached a
permanent check. The aggregate income of the nation has
probably been doubled within the last thirty years; the
taxable income of the country must have increased in much
greater proportion. ‘To maintain in such circumstances an
equilibrium between State income and expenditure became
so easy a task that, if that were all, a financier might fold
his hands. But the overflow of means beyond all former
precedent, as soon as it began to be felt, could not but
impose new duties. Among these a financier of the old
school would hardly have thought of aught else but the
wholesale reduction of taxation, and the improvement of the
national credit by the diminution of debt, or the accumula-
tion of a “reserve” —the steps which are suggested at the
close of a great war, when the diminution of the demands on
the Exchequer produces a similar abundance. But much
else was to be thought of. The signal growth of wealth if
it had preceded, instead of succeeding, the commencement of
free-trade legislation, should itself have suggested the revisal
of a scheme of taxation handed down from other times.
Happening, as it did, it furnished another reason for carry-
ing on the work begun, for making the revision complete,
and thus enlarging the cause which had assisted so much in
producing this very effect. All the reasons for continuing
the experiment were reinforced by the initial success.
Whether at the time the idea of that success was not much
exaggerated is not now in question. In other circum-
stances commerce and industry might not have flourished as
they actually did after free-trade measures; there might
have been an advance to prosperity, although not the same
brilliant prosperity, without any such measures at all. Still
P2
212 MR. GLADSTONE'S WORK IN FINANCE,

the proofs are abundant that this new legislation had been a
large part of the battle. Before 1842 the condition of the
country was alarming, in a way we cannot easily imagine.
Successive deficits in the revenue were but a feeble index to
the complaints of suffering which arose from every quarter.
The country was standing still, with a vast gulf between the
rich and the poor, and political discontent assuming the
most threatening forms. The visible beginning of a change
was the free-trade experiment—the abolition of the burdens
which those concerned at the time felt to be hindering their
business. If other forces, such as railways and steam-ships,
came into play, and intensified the apparent effect, it is still
true that there was an effect to be intensified, and that poli-
ticians had some excuse if they ascribed, perhaps, more than
its fair share of the cause to what their own hands had
wrought. It could not be a question, at least, that the work
should be carried on which had assisted so beneficial an end—
one of the effects being the supply of more means with which
to carry it on. What remained for financiers to consider was
the order of the subsequent steps, and how far the process
should be carried.

The change suggested another problem of equal import- ~
ance—the assistance to be given by finance in ameliorating
the condition of the masses of the community. The whole
tendency of the time is to bring this problem directly before
statesmen and Parliaments; but the new increase of wealth,
by raising the masses a little, by putting them on a better
vantage-ground, by opening out for them new and unex-
pected vistas, has perhaps been more effectual than any
other single cause. The conception of a vast manufacturing
community, well fed, and housed, and clothed, living in
comfort—what would even have been thought affluence only
a century ago—was hardly thought possible till people wit-
MR. GLADSTONE’S WORK IN FINANCE. 213

nessed the growth of such a community almost before their
eyes. But once made a possible, almost an actual, fact, the
expediency of consulting this people’s welfare, of giving
them more chances, of making life richer and more enjoyable
for them, became much less problematical than it had seemed
even to very good men. Statesmen came under new obliga-
tions, and the idea forced on financiers, almost unconsciously,
was that, instead of benefiting the masses merely by un-.
doing still further an antique legislation, they could also add
to their means by reducing the taxes which pressed on them.
To distribute the accumulated wealth of the country more
evenly, to cause it to be shared more and more largely by
the mass—especially those who are just struggling out of the
borders of pauperism—are objects of paramount importance,
which might be worth, if need were, the weighting of the’
balance of taxation in favour of the poor. Whether their
condition could not yet more be improved by the appropria-
tion of the new wealth to the development for the general
interest of the ‘monopolies of civilisation”? — whether
financiers should not be prepared to find means for this sort
of expenditure—is equally a question which presses. To
urge this earnestly may appear to some to be devotion to a not
very high aim, but not to those who know what “ wealth” for
the poor means. Command of the means of enjoyment is, in
truth, the beginning of civilisation. The roughest navvies
may gain little by the sudden possession of high wages, but
the second generation of a highly-paid labouring class de-
velors new tastes and gifts. Recent history has furnished too
many illustrations of the fact to make it any longer doubtful.
The increase of wealth in the possession of the mass of the
community is therefore an aim of first importance. If a
financier can accomplish it by reducing taxation, or by other
- means in his power, all his energies should be hent to the task.
214 MR. GLADSTONE’S WORK IN FINANCE.

What share, then, had Mr. Gladstone in the financial
tasks of the period ? in what direction will his future in-
fluence be bent? are the questions we have to answer.
Glancing backwards, it is not difficult to see that all the
problems stated have been solved, or many steps made
towards solving them; and, whatever the criticism of detail,
the respective merits of the financiers of the time can almost
be measured by the bulk of their contributions to the work.
Tried in this manner, Mr. Gladstone’s contributions are con-
fessedly the largest of the whole twenty-six years since 1842.
All that is characteristic in the last sixteen is exclusively his.
There have been other Chancellors of the Exchequer—Sir
George Lewis, Mr. Disraeli, and Mr. Ward Hunt—but, as
fortune or management would have it, they have contributed
almost nothing among them to the work of the period. Mr.
Disraeli’s insignificant contribution in the budget of 1867
is literally almost the only thing which Mr. Gladstone
cannot claim. It is obvious, too, that a very large share of
the work has been got into these sixteen years. Of the four
great stages into which the whole period may be divided,
two at least are included in the later time. To Sir Robert
Peel belongs the first step in 1842, and the second step in
1845; but the stages of 1853 and 1860 were marked with
equal distinctness, and were hardly of less importance. To
take the test of the amount of taxation reduced, it appears
that, in the years 1842-52, the balance of remission was
£7,000,000, while in 1853-66 the balance is £13,000,000.
This, too, was in spite of the fact that the expenditure
in the former period was only between £50,000,000 and
£52,000,000; whereas in the latter period it has been
between £65,000,000 and £70,000,000. The proportionate
merit of Mr. Gladstone is not so great as the figures show,
because all our figures are now bigger, and the taxes
MR. GLADSTONE’S WORK IN FINANCE. 215

reduced would not have been so productive, when they
came to be reduced, but for Sir Robert Peel. They are
proof, nevertheless, that a great deal was done; and when
the details are looked at, the conclusion is not less unfavour-
able. To the first period necessarily belongs the redress of
the worst evils in the old system—the abolition of export
duties, of import duties on the raw material of manufacture,
and of certain oppressive excise duties, such as that on glass;
above all, the destruction of the corn laws, with the reduction
of duties on other articles of food. Still, how incomplete the
work would have been without Mr. Gladstone’s contribution.
There were no export duties left for him to touch, but every
other feature of Sir Robert Peel’s work is found in his. The
abolition of the excise on soap and on paper released two
home industries of the first magnitude, and were quite as
important measures in that kind as the repeal of the duty
on glass. Mr. Gladstone, again, first reduced yet further
the customs duties on articles of food, and finally abolished
every duty of that kind, with the single exception of the
shilling duty on corn. Sir Robert Peel, besides, only began
the total abolition of duties, his main steps being merely to
make reductions. Mr. Gladstone has swept the tariff clear,
leaving only certain charges on great articles of consump-
tion, with supporting duties on a few articles besides.

This is a fair account, so far, of the difference between
the two periods—without any design, it may be added, to
disparage the work of the first period for the sake of
eulogising Mr. Gladstone. The measures of 1842 and
1845 have the merit of novelty, which, in a matter of this
kind, far outweighs every other. They broke the spell of
the old system, and gave the country, as it were, life from
the dead: any fresh additions to that life are hardly to be
compared Still it is also just to see how large the additions
216 MR, GLADSTONE’S WORK IN FINANCE.

were. Their full effect is hardly perceived, because they
came in the midst of abounding prosperity; yet without
them the new era would show fewer signs of an economic
revolution. The occasional fits of languor would probably
have been far more severe. Mr. Gladstone’s share, however,
appears the more important, if we consider that the later
problems were almost exclusively his. They were all raised,
more or less, in the earlier period. Even then the success of
free trade had suggested the continuance of the work;
Mr. Gladstone was only one of many on whom the
experiment made a deep impression. ven then the idea
of relieving the burden of taxation so as to ameliorate
directly the lot of the masses by taking less out of
their pockets, as well as by lightening the springs of
industry, had come into view. But the main work in that
period before 1853 still was the relief of industry—the
continuance of the free-trade experiment through its earlier
stages. Mr. Gladstone, on the contrary, had to pursue the
task through all the later and less obvious stages ; while, as
he completed the task, the relief of the tax-paying masses
came directly in his path. His work, on the whole, was one
of greater complexity; and where the indications were less
sure, the personal merit of success was proportionately
greater. Mistake in development was more easy than at
the first start, when things were so bad that you could
hardly shake off anything without doing infinite good. By
the necessity of the case, too, he has had rather less popular
support. He has not had the popular clamour to carry him
through, which made some of the steps so easy to Sir Robert
Peel after the first had been taken. He has been compelled
to create an artificial intelligence, an artificial agitation, to
supply the place of feelings his predecessor had at command.
Add only one more difference. The one lever with which
MR. GLADSTONE’S WORK IN FINANCE. 217

Sir Robert Peel wrought was the income-tax, to replace the
revenue sacrificed until the natural process of recovery.
Mr. Gladstone has devised more than one subsidiary aid,
like the extension of the succession duty to real and settled
property, and the increase of the spirit duties—processes
which leave in his favour, as we have stated, the balance of
remitted taxes, but which made a good deal easier the various
steps in his progress. Of the same order of work, in a
financial view, is the vigorous warfare he has waged from
the beginning to the end of his career against the growth of
expenditure—a warfare not required in the same degree
before the Crimean time.

Little more need be said, perhaps, to show the extent of
Mr. Gladstone’s share in the finance of the period. But the
fact that his period required so much management may need
some explanation. It may not be plain at first sight that
the questions were very difficult. There is a popular
impression that the progressive increase in the revenue is
the whole secret-—when financiers have surpluses to give
away, it is thought they cannot go far wrong. To remove
the impression, let us watch what the history has been, how
little would have turned the scale.

In 1853 it was far from certain whether the mere work
of relieving industry would be carried any further. The
country already was feeling itself more prosperous, and
although various taxes, such as the advertisement duty,
were the subject of agitation, although the general sentiment
was in this direction, yet there was no such strong body of
opinion as would have forced things in the direction which
Mr. Gladstone selected. On the other hand, there were
various powerful circumstances tending to an opposite
course. Thanks to its own demerits, and perhaps also to

the ingenuity with which public men, not excepting Mr.
218 MR. GLADSTONE’S WORK IN FINANCE.

Gladstone, had committed themselves to its condemnation,
the income-tax was almost as good as doomed. The work
bargained for when it was imposed had long since been
performed, and the first thing desired was to be free of the
burden. Proposals to renew it were unpopular; and just
before, a committee which had been appointed to consider
its reconstruction had been unable to agree, while collecting
a mass of evidence to prove its inequalities. At the same
time, all the interests which had been deprived of protection
were clamorous. The agricultural interest especially was
eagerly demanding the transfer of local charges to the
Consolidated Fund, and would have welcomed, above all
things, a reduction of the malt tax as a concession to its
claims. A popular proposal talked of was a re-adjustment
of the house tax, which had been substituted for the window
duty, so as to make it fall on a lower class of houses. Thus
it was quite possible in the circumstances of that time that,
but for good guidance, these interests would have been heard
above everything—that the income-tax would have been
sacrificed gradually, without securing any more relief to
trade (excepting the trade in malt), and that in a house duty
the lower middle classes and the working classes would have
had imposed on them a drawback on the reduction of the
tea duty, which was the only boon suggested for their
benefit. All the while, too, though this could not be
foreseen, the national expenditure was destined to rise to an
unwonted height, partly in a great war, partly in the
military excitement which that war nursed into new life
all over Europe. Had no decisive remissions been made
in 1853, had not the way to do so been discovered notwith-
standing every obstacle, it is altogether doubtful when
they would have been made—what agitations and con-
troversies would have been necessary to effect them when
MR. GLADSTONE’S WORK IN FINANCE. 219

the country, in the actual course of events, was pushing on
to new conquests.

That the remissions took place—to the extent in money
of more than £5,000,000—may be held in these circum-
stances to show that the financier who had the management
of them had a true insight into the situation. The impression
is more than confirmed by an examination of the budget of
1853. The budget was a surprise to the Chancellor’s
contemporaries; but looked at closely, it rests upon the firm
discernment of two points which ought to have been as clear
to every one as they were to him, but were not, in fact, so
clear. The first is the great value ‘of the work of having set
trade free. In their very prosperity people had forgotten it,
so that the willingness to pay the price of the income-tax
had died out. Mr. Gladstone only urged that what was
good in 1842 and 1845 must be good in 1853, though the
sharpness of the stimulus in the earlier years no longer
existed. Such a position suggested as a natural corollary
the continuance of the income-tax for the sake of further
remissions—the great point at which Mr Gladstone aimed.
Although expenditure had not increased in the ten years as
it afterwards did, it had still increased so far that the abolition
of the income-tax was not so easily manageable as it was
calculated it would have been. Its reduction could only take
place gradually; and it was easy to argue that as the tax
must at any rate remain, they might as well keep it at a
higher amount than was absolutely necessary, and associate
it with further remissions. This was the vital point of the
budget, and made the subsidiary points more easy to handle,
though, looking at the whole as a piece of persuasion, hardly
anything was unimportant. The controversy about the
inequalities of the income-tax was especially placed in an
entirely new light. These inequalities were to be no worse
220 MR. GLADSTONE’S WORK IN FINANCE.

than they had been, and as the practical difficulties in the
way of its reconstruction were endless, and it was still to be
only temporary and to do for the country the old work, there
were good practical reasons for enduring it somewhat longer.
It was, perhaps, more effective to remind people that, after
all, those who were most hardly dealt with by the tax, who
would have cause to grumble most, had really been direct
gainers in money by the new legislation, as well as by the
general improvement of the national industry. This was
the Minister’s justification for extending the tax to incomes
under £150, by which its amount and effectiveness would be
increased. The argument was special and narrow, but it
reminded people in the most telling way of the nature of the
new régime, and taught them not to calculate too nicely the
price they were called on to pay. The idea of calling in
new aids to help in the work—mainly, the extension of the
succession duty to real and settled property-—was even more
exclusively Mr. Gladstone’s. A like proposal had not ‘been
made since the days of Mr. Pitt. Though it has not realised
what was expected at the time, it has gradually become
profitable, and has yielded assistance in the task of remission
which is not to be despised. It was like the discovery of a
national estate, which had been appropriated to their own
use by the individuals of a favoured class, and it secured to
the country for all purposes a source of revenue peculiarly
unobjectionable. By directing attention to new sources of
income, Mr. Gladstone undoubtedly solved the problem of
meeting the high expenditure of the years that were to come,
without stopping the work of reform. Without such aids
we should, perhaps, have been paying to this day a shilling
income-tax, without the remissions which were contained in
the latest budgets of the series.

The features of personal effort in the next great
MR. GLADSTONE’S WORK IN BINANCE. 221

stage, that of 1860-66, are perhaps more difficult to make
out. The start would seem to have been made amid the
loud din of party wrangling about comparatively small
points—objections to proceeding in the way of free trade by
means of treaties; clamour about Coventry distress; and the
woes of paper-makers subjected to foreign competition, while
foreign nations were allowed to maintain their export duties
on rags, so denying them perfectly free access to the raw
material. It may well seem, in the midst of such wrangling,
that there was no real controversy, and no real difficulty—
that only some minor points of procedure had to be adjusted,
so that no one financier could claim any particular credit.
The perplexities of 1853, it is plain, had likewise come to an
end. The agricultural and other interests were less clamorous,
having survived the deluge, and found themselves more pros-
perous than before. The inequalities of the income-tax were
less talked about, either because of the circumstance so well
known to economists, that taxes, the longer they continue,
tend to adjust themselves; or because, being richer, people
felt less the pinching of the tax. But the situation, when
looked at, discloses great difficulties, which made the selection
of the right path hardly a bit more easy than it had been in
1853. The danger caused by public indifference to the work
of reform was now very marked. They were disposed to
approve and acclaim another characteristic budget, but their
hearts were not so set upon it as to compel Ministers to
introduce such budgets, or make an Opposition forbearing
and careful. Perhaps they thought themselves, in their
prosperity, almost sure of such work. But the great danger
of all, which threatened an indefinite postponement of the
whole work, was undoubtedly the growth of expenditure.
Between 1853 and 1860 the annual charge for the supply
services had actually increased by the sum of £14,000,000—
222 MR. GLADSTONE’S WORK IN FINANCE.

had increased, as Mr. Gladstone explained, at the rate of
58 per cent., while the wealth of the country had only
increased at the rate of 164 per cent. And there was no
repugnance in the public mind towards almost any expendi-
ture: that the country was rich, and could afford what it
really wanted, was the new formula coming into vogue.
With such a condition of things, then, in 1860, the
budgets of finance ministers were not likely, as a matter of
course, to be progressive. The temptation must have been
strong, with Palmerston in power, to let things. slide.
People would have been quite satisfied with a little effort to
reduce the income-tax and the war duties on tea and sugar,
which had not yet been repealed, and thereend. Here, then,
was Mr. Gladstone’s personal mark upon the time. He
would not have it that the work should stop; but in spite of
high expenditure, and the indifference of popular feeling,
proposed changes of the very greatest magnitude—in fact,
proposed almost at once to finish the work of the period.
To carry out the French Treaty was itself a large work,
involving the sacrifice of a considerable revenue by the
lowering of the wine duties, but to add on to it the repeal of
the paper duty, and of all duties on articles on food, except
the shilling duty on corn, and the clearing away from the
tariff of all the small burdens, was to show a new sense of
the importance of the task. Mr. Gladstone, in short, was
not satisfied with a small effort, but desired a remission
which people would perceive, which would tell on commerce
and industry. That he was right in his aim will surely not
be doubted after the event; nor should it be doubted that
by thus presenting the question, by showing the possibility
of a great achievement, he created a new interest in the
work which would not have been felt in piecemeal reductions.
Good judges say that the French Treaty was enough; that
MR. GLADSTONE’S WORK IN FINANCE. 223

the inauguration of free trade on the Continent was suffi-
cient to mark a single great budget; and there was probably
ample work, in passing it, in explaining how the treaty
might yet be a free-trade one, although in form more suited
to the days of protection—a topic, by the way, with which
Mr. Gladstone had long before been familiarised when Sir
Robert Peel’s Government was vainly negotiating a very ©
similar treaty. But, judging by the event, it is difficult not
to feel that the larger the work, the more beneficial it was
likely to be in proportion, and that the excitement of interest
required the very strongest stimulants. Perhaps in no other
way could the income-tax have been maintained at a high
figure, or a vantage-ground obtained for fighting expendi-
ture, which last is perhaps the cardinal feature of Mr.
Gladstene’s latest policy. As it happened, his failure in this
warfare made it very convenient, financially, that his repeal
of the paper duty was checked for a year by the action of the
House of Lords; but any further failure would have been
disastrous, and the following series of budgets would have
been utterly impossible. The figures have lately been dis-
cussed ad nauseam, but it is not possible to go outside the
fact, that but for the reduction of expenditure from
£69,502,000 in 1860, and £72,792,000 in 1861, to
£65,914,000 in 1866, the whole process of that time—the
gradual diminution of the income-tax and tea duties, and
smaller reliefs to industry, the clearing off of the remnants
of the great work—must have come to an end. In the
latter years, it seems plain, Mr. Gladstone was preparing
another great coup: the income-tax was left at the manage-
able rate of 4d. in the pound, while the revenue for the year
1866-67 showed a surplus of about £2,700,000 on an expen-
diture of £66,780,000. Had the same management con-
tinued, the year 1867 might well have been the era of
224 MR. GLADSTONE’S WORK IN FINANCE.

another great budget, in which the alternative would have
been, more distinctly than at any period since 1842, the
laying of the income-tax on the shelf—but this time a light
income-tax—or the continuance, if there was room for it, of
the work of invigorating the industry of the country, and
ameliorating the lot of its masses. This was the fruit of
keeping expenditure down, whatever damage, in the shape of
insecurity or inefficient services, may have been the conse-
quence. In a financial view the success was complete
enough, and it was got by following a path which was far
from patent.

Mr. Gladstone, in another way, has shown in this later
period his discernment of what is required by proposing to
tax the charities—a measure which, in addition to its other
merits, would have added to the fund by which the general
work of remission might be carried on. He failed to carry
it as he had carried the succession duty on real property in
1853. The attempt, nevertheless, proved how strenuously
he was fighting for the sake of those measures of finance by
which the country has prospered so much.

It hardly comes within my plan to criticise in detail Mr.
Gladstone’s qualities as a financier; but before glancing at
the work of the future, and the probable direction of his
influence, it may be useful to look at him personally, and
point out in one or two important particulars his strength
and his weakness. What is the main secret of his splendid
success ? As far as reputation goes, I believe the impression
is that even in finance, what has made him successful and
popular is his oratorical power. People look to his budget
speeches, remember their startling effects, have been moved
by stirring speeches and comparisons to take an interest in
subjects which, as usually treated, are repugnant. But for
his oratorical art, it is hardly to be questioned, he would not
MR. GLADSTONE’S WORK IN FINANCE. 225

have created that artificial intelligence which was essential to
success. Looking back on the whole series of his speeches,
however, it is not this power which strikes the reader most.
One is sure to find, indeed, not a few faults in taste, and
very often a defective exposition. In his last budget speech,
for instance, an impressive stutement as to the danger of a
load of debt, and our duty to discharge it before the
exhaustion of the coal-fields, is merely the preface to a
scheme on the paltriest scale by which this duty was to be
discharged. Defects of this kind are apt to spoil the appre-
ciation of harangues which can hardly be understood without
a feeling of the whole circumstances, not afterwards easy to
supply. But what begins to be clear is something not so
obvious to those who listened to the speeches at the time—
who had almost forgotten one before they heard another.
This is the continuity of the orator’s own mind, his firm
grasp of certain leading ideas of which every new speech is
only an application. We see this conspicuously in his notion
about checking expenditure. There is hardly one of his
great financial efforts in which he does not recur to the
theme—his whole financial theory being plainly coloured
with a passion against the waste of money, with which
experience has taught him to identify almost any Govern-
ment expenditure. The cry, he has lately said, is always
for more efficiency ; but he had found that when any money
was granted, the cry was as loud as ever. Perbaps more
conspicuous still is his impression of the power of trve trade.
The salient fact he got hold of from the first was the multi-
plication of the means of employment by taking off arti-
ficial restrictions. Long before his first great budget, .
while he was at the Board of Trade under Sir Robert Peel’s
Government, we find him making numerous proposals, of
which this was the theme; as, for instance, in a remark-
Q
226 MR. GLADSTONE’S WORK IN FINANCE.

able speech on abolishing the prohibition of the export of
machinery. Even in defending the corn laws he assumes
that the prospect of increased employment for the people is
an irrefragable reason for their abolition—only they must
beware of giving too great a shock to old arrangements, and |
suddenly throwing people out of work. The changes are
rung on these phrases almost to the last. The invigoration
of trade and commerce, the lightening of the springs of
industry, are much in his mind even when proposing the
reduction of tea duties, by which money. would be put
directly into the pockets of the poor. If Mr. Gladstone has
changed his financial opinions at all, it is on such a matter
as the income-tax. It has been a gradual or cyclical change.
As the experiment proceeded, he has come to appreciate
more and more its merits as an engine of fiscal reform,
though, perhaps, also, the cireumstances have changed—the
increased expenditure upsetting all the calculations by which
the tax would have been temporary, and yet every existing
benefit secured. Change of this kind is plainly not incon-
sistent with the utmost firmness and continuity which
characterise a sure-judging mind. To this quality I would
attribute in the highest degree Mr. Gladstone’s success. The
power to persuade others was a valuable gift, but in scientific
questions—and finance is scientific, or it is nothing—it is
essential to be right in fact. Mr. Gladstone understood at a
very early period, and in all its thoroughness, the meaning
of the work to be done, and hence the steadiness of his aim.
At the same time, in other matters besides the income-tax,
he has not been insensible to the teaching of events. He did
not anticipate the overflow of prosperity which has marked
the time. Free-trade measures, it should not be forgotten,
were rather promoted at first to keep England from decay-
ing altogether. But as the prosperity advanced. he has
MR. GLADSTONE’S WORK IN FINANCE, 227

continued to enlarge on the duty and necessity of ameliora-
ting the lot of the masses—of keeping this, likewise, as an
aim constantly to be cherished. That this sure-judging.
mind is commonplace and average in its sympathies, always
looking at the things as they can be presented to a popular
audience, such as Parliament really is, narrows its range of
action very much, but that is only saying that the defect is
inherent in the very qualities by which the success has been
gained.

Were this the only great quality in Mr. Gladstone as a
financier, there would be some cause to wonder at the excuse
he has given for applying to his finance the epithets, adven-
turous and crotchety. It is a remarkable alliance with love
of subtlety and detail, and with abounding activity and
energy, which has introduced into Gladstonian budgets
those brilliant devices from which common people are apt to
revolt. But Mr. Gladstone, with all his foundation of com-
monplaceness and steady popular judgment, would yet have
been very little in finance without his love of detail and
wonderful knowledge of expedients. To a very large extent
this only means that he has the enthusiasm of his occupation.
People succeed in nothing unless they give their days and
nights to it, and Mr. Gladstone has given to finance the
sweat and toil of many years of his life. By dint of much
study he has acquired a genuine love of the niceties of the
malt tax credits, the alcoholic test in the wine duties, the
effect of an extra Sunday in a year diminishing, and an
extra day in leap year increasing, the amount of revenue,
and the infinitely complex problems which are bound up
with sugar. He had a real intellectual pleasure in inventing
and explaining that intricate operation B in the Terminable
- Annuities Bill of three years ago. The singularity is, that
people rather like in him an exposition of minute detail

oo

Qn
228 MR. GLADSTONE’S WORK IN FINANCE,

which hardly another financier could make tolerable. The

net result is, that he is what may be termed rusé in finance
—never without resource at any crisis. The abundance
of expedients, and his audacity, have damaged him in the -
past, but would hardly have done so if full justice had been
done to the solid qualities in which, after all, they had
their root.

Mr. Gladstone, nevertheless, has committed many
financial sins. Trying so many ingenious schemes, he
could not but fail in some; as he failed with the plan for con-
verting the debt, and so reducing the interest, in his budget
of 1853, and as he failed on a smaller scale with the stamp on ~
shipping forms, which he expected to parallel his successful
penny stamp on receipts. Perhaps, too, he owes to the want
of pliancy in his nature a certain capacity of provoking and
stimulating opposition, The proposal to tax the charities in
1863 was pushed on with too much haste and vehemence;
not even Mr. Gladstone could bring all the world to see at -
once the force of that logie by which the conclusion in his
own mind was slowly built up. On one occasion, too—in
1860—his haste and vehemence led him to make arrange-
ments which would have landed him in a huge deficit, and
possibly damaged irretrievably his financial repute. The
primary duty of financiers, though it has been dwarfed by
other considerations, cannot wholly sink into abeyance, and
a great gulf between expenditure and income would not have —
been forgiven. In fairness, however, it must be allowed,
Mr. Gladstone was at least conscious of the risk, and was
only more passionately bent than others on the remissions he
was effecting. As we could hardly have had the work done
at all without him, the error is comparatively venial. It is,
perhaps, a graver fault that on the question of expenditure
nis teaching and preaching have been too one-sided. Hae
MR. GLADSTONE’S WORK 1N FINANCE. 229

has taken a somewhat narrow view, with the obstinacy of
his nature, and harped upon that—very effectively, no
doubt, but not with the effect a fuller exposition would have
had. It is not the whole truth about expenditure that it
is to be discussed as a natural evil, which financiers must
‘league themselves with such allies as they can get to keep
under. Nor can any certain measure of expenditure be
found in a comparison between one period and another.
In addition to what he has done beyond pointing out the
importance of a nation setting a scale for itself, and com-
paring always the price it pays in taxation with what it gets
in money spent, Mr. Gladstone would have done well to
examine directly the services to which the money is applied.
The exposure of inefficiency and waste, of the multitude of
useless objects which are sought after, would have been worth
a great many speeches in the air, which left behind a vague
doubt whether there was not something right on the other
side—whether, with all its inconveniences, the high expendi-
ture had not some excuse. Direct teaching by the highest
financial authorities on the principles of military and naval
expenditure is really a good deal required; and Mr. Glad-
stone, if some critics are-right, might only too easily have
shown how all the efficiency talked of, or even more real
efficiency, might have been gained at less cost.

Imperfect as this survey has been, it may not be |
impossible to derive from it some clue to the future. The
general features of the situation, it will be evident, are sub-
stantially the same. If we have no longer to do with the
extension of a free-trade policy, our revenue being derived
from no protective duties, and our tariff being so contrived
as to yield a large revenue with the least possible injury to
trade, and the least trouble to the taxpayer, we have still
the main condition of all—the rapid increase in the national —
230 MR. GLADSTONE’S WORK IN FINANCE.

wealth and the elasticity of the revenue. The present tem-
porary arrest of our progress—if, indeed, there has been any
real arrest—does not alter the general set of the current,
which begins once more to flow in the old direction. We
may fairly count on the revival of prosperity for an indefinite
period to come, just because labour grows daily more intelli-
gent and effective, and mechanical agencies are continually

multiplied. A financier may safely count on a return to

nearly the old average of £1,750,000 increase in the year.

Such a fact must furnish ever-new opportunities of great

budgets, and would have furnished an opportunity two years

since had there been any one to seize it, or had the country

not been occupied with other matters. The opportunity may.
at once be made by reducing expenditure to the level at

which it stood when that opportunity arose, and trusting to

the immediate revival of the revenue. But without any such

effort—by merely keeping things as they are, or reducing a

very little—any Government may easily have the chance of.
continuing the work. Is it worth continuing? or are there

any counter-schemes to make the finance of the new period

altogether novel ?

Looking at the past, there is hardly a doubt as to what
the action of financiers should be, or as to the line of action
Mr. Gladstone would recommend. There is still much in a
financier’s power towards ameliorating the lot of the masses.
The duty on corn, the taxes on locomotion, not a few of the
stamp duties, the fire insurance tax, the tea and sugar duties,
are all burdens whose abolition would benefit the country,
and for the most part put money directly into the pockets of
the poor.* So long as taxes of this kind remain, and the
wealth of the country grows as it has done, it will be the

* The taxes here referred to have almost all been abolished since
1869, [The tea duty is almost the only duty here mentioned that now -
remains, and its rate for years has been 6d, per lb, only.— Edition 1886 ]
MR. GLADSTONE’S WORK IN FINANCE. 231

business of financiers to give people the benefit of the facts.
That taxation may rapidly be made much less burdensome
than it is should be the guide of their action. The objection
may be urged that people would really gain more by a more
judicious expenditure—as on education and other things
which are now starved. But sudden expenditure on a large
scale, even for the best of objects, is not likely to be pro-
ductive—is not likely in this country to be tried; so that
finance ministers may remain at ease notwithstanding this
contingency. They need not apprehend any expense to
swamp their budgets if there is any decent management,
. procuring for the country all the real benefit it can gain.
The most extravagant could hardly pretend that the new
things wanted will cost the country an increasing amount of
nearly £2,000,000 a-year, which would be necessary to
keep pace with the increasing growth of revenue. Others,
however, will say that attention should exclusively be given,
for a long time to come, to the diminution of the debt. But
this purpose ought surely to be compatible with very large
remissions of taxation, as it was, in point of fact, during
Mr. Gladstone’s last period. To divide the work would be a
very fair arrangement, applying equal sums to the remission
of taxation and the reduction of debt—an arrangement
which has this advantage, that every diminution of the debt
lessens the annual charge, and so increases the surpluses that
future Chancellors of the Exchequer may expect to give
away. How much may be done in this direction is perhaps
not well understood. But two facts may set it in a proper
light. One is that during the last fifty years the capital of
the debt has been reduced by £100,000,000. During the
next fifty, if we only have a similar period of broken peace,
we should, if we do as well as the last two generations,
‘yeduce the debt by £300,000,000. Our taxable income is
232 MR. GLADSTONE’S WORK IN FINANCE.

three times greater than it was in 1815, and we should be -
capable of thrice the effort. The other fact is, what might
have been during the last sixteen years if the growth of
expenditure had been checked with firmer hand. Long
before this the free breakfast-table, which Mr. Bright has
imagined, might have been enjoyed, and the capital of the
debt still farther reduced.. If we choose to stand still, and
devote all our surpluses with accumulations to paying off
debt, we might accomplish as much in the next ten as we
have done in the last fifty years. Of course, all this must be
written barring accidents, but it proves the measure of the
nation’s ability ; and, much as may be allowed beforehand
for accidents, it is hardly wise to forget a high aim altogether,
merely because an undefined worst may happen. The facts
show, however, that even a great disaster—a war on the
largest scale—might occur without arresting for a long time
the work of financial reform. It is surely, then, the more
allowable to look forward to a better future for our masses,
for better conditions of existence so far as the State can make
them better, than these now enjoy. Not only might there
be a free breakfast-table, but, better still, it should be possible
in a very near future to make England a free port, except
for spirits and tobacco, without entertaining any grand
scheme of direct taxation. Of course so much will not be
done without raising the question of equalising taxation
upon the various classes of the community—a question which
the working classes will not lose by having raised ; but if it
is possible to do so much, the worst difficulties of the question
may be evaded. With the income-tax at a vanishing point, if -
not quite abolished, the richest classes could hardly complain
of others gaining rather more than they do by the whole-

sale remissions of taxation which common prosperity a
made possible.
MR. GLADSTONE’S WORK IN FINANCE. 233

Of course the financial work of the next few years will
include much more than this. The succession duty may
be further extended, the charities taxed, and many more
expedients tried. There aro points without number for
financial ingenuity, and in a Government of his own, Mr.
Gladstone may be expected to aid with all the suggestions
his experience and study have. furnished. Above all is the
question of extending the principle which has been called in
to sanction the purchase of the telegraphs. Here, too,
much might be said to show how well disposed Mr.
Gladstone will be to venture farther in this direction—to
acquire the railway monopoly, and work it for the benefit
of the whole community.* This will be the introduction of
some novelty in finance, as the State may lose or gain,
financially, by the experiment, though the community can
only gain; but it does not seriously affect the prospect of
direct financial benefit through the continuance of the work
of reform in its recent groove-—[1869. |

* How far the country has ever been from any measure like the
purchase of the railways by the State, which was at one time so popular,
need not now be pointed out. I should not myself be so decidedly in
favour of such a scheme as I once was, but the present state of the
- railway question is as unsatisfactory as it ever was, and either purchase
or an analogous measure must be held to be still on the cards. I leave
the sentence in the text as I wrote it as an indication of opinion at the
time.— Edition 1886.
X.
TAXES ON LAND.*

A curious and instructive collision has just occurred ©
between a bold and comprehensive project in the application
of political economy, and one of those traditional cries in
English politics which originate in some class interest, or in
circumstances quite different from those which now exist,
and yet colour strangely the discussion of practical reforms.
I refer to the proposals of the Land Tenuro Reform Asso-
ciation on the one side, and the agitation against local rates,
or rather against the burdens on land, on the other. There
could not be a wider divergence of ideas and aims than
what is here discovered. The Association addresses itself
directly to one of the gravest questions which can come
before an old and crowded community—the question,
namely, how the ownership and occupation of its narrow
area should be regulated. It challenges the complete
applicability here of the rule of absolute ownership which
is found expedient as regards other property, and proposes,
among other restrictions, that individuals who are allowed
to have exclusive: possession of any part of the national soil
should be specially taxed. In this way, it is argued, the-
whole community may benefit in some degree from the
competition which is inevitable when a large population is
crowded into narrow room. ‘The proposal has at least the
merit of coming down from philosophy to practice, and
raises in a suitable manner a question of the first importance

* Written in 1871,
TAXES ON LAND. 235

in a democratic society, where the political power is in the
hands of masses who are not the possessors of the soil. The
opposing cry—that the possessors of land, or that land
itself, are already unjustly burdened—is of a very different
kind. It has long occupied a principal place in the party
politics of England, though perhaps it was nevec louder or
more persistent than it is now. But it is based upon no
great. principle. Apparently it began when all taxation
was heavy, and when the possessors of land, from their
political influence, had a peculiar power of making them-
selves heard; and it has descended to our own day, partly
from habit and partly from keen self-interest, the promised
gain to a class from any material change being, as we shall
see, very great. But whatever its history, it springs
evidently from the lowest practical side of politics—the
exact opposite of the rival agitation. In discussing, as I
now propose to do, the question on which this collision of
opinion occurs, it will probably be useful to keep in mind
the contrast which is here presented. Some good may
be done by bringing scientific principles-to bear on the
traditional cry against rates, and by confronting the
philosophical principles of Mr. Mill, and of the Association
whose programme he expounds, with the practical facts and
difficulties of English finance.

L

It will be convenient to examine, first, the traditional
ery. While a good deal has been said and written on the
economic theory by which the proposals of the Association
are supported, the means of reducing it to practice have
only been discussed in the most general terms. If we begin
_ 286 TAXES ON LAND.

with a question in the practice of English taxation in this
matter, we shall obtain a near view of the field to which
the theory must be applied. On the other hand, the indi-
genous discussion, as it may be termed, is most confused;
and progress will be difficult till the confusion is cleared up.

The confusion is at the very beginning. It is difficult
to get an exact statement of the grievance of which so much
is made. The common mode of speech is something like
this :—that land, or real property, has to bear more burdens,
in proportion to its value, than any other kind of property.
Lord Salisbury, Sir Massey Lopes, and a hundred others,
have rung the changes on this theme during the last few
months; and I have read not a few laborious estimates of the |
personal property in the country, and the burdens upon it,
got up for comparison with the more accurately ascertained
facts as to real property and its burdens. But what is
meant by real property bearing burdens is found on
examination to be far from clear. The case is sometimes
argued as if the burdens were in the nature of an income-
tax upon the owners of property, and the rate of the tax is
contrasted with the rate which falls on incomes from
personal property, or on incomes which are not from pro-
perty at all; but at other times there is evidently somo
vague notion that property, as such, should be equally
taxed, and that the rule is broken iu the case of land.
Confused as the statement is, we must take it as it comes,
and inquire into the principles it assumes.

Whichever alternative we take, it must strike every
student of finance that the principle laid down does not
make out the case, even if the facts are as supposed. In
either case it is a misapplication of the real doctrine of
equality in taxation which political economy lays down.
Taking the first alternative, that it is the owners of real
TAXES ON LAND. 237

property who pay a larger income-tax than others, it is no
doubt true that each taxpayer should contribute according
to his ability? Jbut it would not follow that a special
income-tax on a certain class would offend against the
maxim. If this were so our present income-tax would be
grossly unjust, for the masses of incomes are exempt.
Theoretically, however, it is obviously quite possible that
to produce the final result it may be necessary to tax some
sort of incomes exclusively, or more than any other sort.
Say, for instance, in a country where a large part of the
taxation is raised by duties on articles of general consump-
tion, and is therefore borne by the masses of the people,
and another large part by an income-tax which in con-
junction with the other taxes falls with peculiar weight on
the lower middle class—clearly, in such a community there
might be some reason for a third set of taxes designed to
fall on the classes more or less exempt from the other two
branches of taxation. And if these classes possessed almost
exclusively some special kind of property, a tax on that
property, supposing it could be made to fall on its owners,
would be the very thing to redress an existing inequality.
I am only supposing a hypothetical case; but it is enough
to show that inequality of burdens on different kinds of
property is no part of the theory of taxation. v

If we take the other alternative, which makes no assump-
tion that taxes upon a particular sort of property fall upon
the incomes of the owners, the theory of the grievance will
even appear absurd. How can it be supposed that there is
any principle of political economy, when one sort of pro-
perty is taxed, requiring all property to be taxed alike? Ex
hypothesi, the ultimate incidence of the tax is not upon the
owners of it, and before deciding to tax all property equally
it would be necessary for a legislator both to weigh the
238 TAXES ON LAND.

immediate effects of his measures and the object he wishes to
arrive at. In point of fact, the considerations which induce
a legislator to impose or retain special taxes on property will
induce him to tax some kinds and let others be exempt. As
with taxes on the profits of a particular trade, with which a
tax on property may be classed, his object will either be to
impose some charge on the general consumer, in which case
the tax will fall to be dealt with as one of the many taxes on
consumption, or he will select some trade in which the limi-
tation of the area of profit—the tax not being charged to the
consumer —will produce the minimum of inconvenience to the
whole community. The particular tax will not be unjust per
se, but its injustice will be determined by the nature of its
ultimate incidence, and the extent of its hindrance to busi-
ness as compared with other taxes. Such considerations have
hardly been touched on by those who complain of unequal
taxes on property, but they are essential to the question
when the so-called burdens on property are not of the
nature of an income-tax upon its owners.

What has been said may be enough to prove the great
imperfections in the statement of the grievance under dis-
cussion. It may be useful to note, however, that in the
actual circumstances of England, on the principles suggested,
there is a violent presumption in favour of existing taxes on
property or profits. They are not likely to be objectionable
on any of the grounds suggested. The reason is that they
are the last of a heavy burden of a similar kind, and the fact
that they are the last is so far a proof that they have been
distributed—that if the persons who pay them suffered at
one time, they have long since been compensated. Any
long-continuing tax on profits tends to adjust itself, but in
the case of England during the last thirty years the adjust-
ment has been favoured by the remarkable growth of the
TAXES ON LAND. 239

country under the stimulus of the removal of other taxes.
The limitation of the profit area caused by the tax has been
more than made up by the general progress. Unless, then,
there is some overwhelming objection, or some greater good
to the whole community would result, such as comes, for
instance, from a larger reduction of Customs duties, it would
even be inequitable to remove these old taxes. To do so
would be simply to make a present of a capital sum to the
followers of some particular industry or the owners of some
particular property. They have already shared to the
full in the general prosperity of the community caused by
the lightening of taxation, and now they would obtain in
addition the capital value of the tax which they do not
really pay, since its burden has been transferred.

There can be no objection, besides, to special taxes on ~
real property, on the ground of their hindrance to trade.
Land-owning is so simple a business, that it is divorced from
the very notion of trade, and considered a special occupation
for trustees and widows and orphans. So simple a business ~
can hardly be checked by a few plain conditions. The
objection of hindrance to trade is also compensated by the
consideration that the business itself is in the nature of a
monopoly. The abolition of brewers’ licences was objected
to for this among other reasons, that the business had become
practically a. monopoly in a few hands; to abolish the licences
would have been to put money in the pockets of a few without
any real chance of its reaching the public. The passenger
duty on railways is defended for a similarreason. The duty,
it is said, is only a way by which the State reserves to itself
the share of a monopoly. This may be wrong as regards
railways, but the principle of the reasoning is obviously
sound. Now land-owning is, beyond all other callings, in
the nature of a monopoly. The-whole quantity in a par-
240 TAXES ON LAND.

ticular country cannot be increased, and there are besides

hundreds of specially favoured spots. As regards land, = =

therefore, that condition exists in the highest degree of
force, which makes it probable that any abolition of a tax on
profits would not benefit the community.

We are thus a long way from the proposition so confi-
dently assumed, that all property should be taxed alike,
There are many questions affecting the regulation of special
taxes on property of a very different order. We may look,
then, at the particular taxes which form the gravamen of the
complaint, and see what portion, if any, offend against the
true principle of equality in taxation, by pressing unduly on

some classes of income, and which of them, on other grounds,

are liable to objection.
The maximum taxation which can form the subject of this
inquiry appears to be, from Mr. Goschen’s recent report :—

Stamp duties on deeds ces cee eee wee wee = £1,033,000
Probate and succession duties ...0 ... ccc eve 715,000
Land tax geet Gage uel ee See de ess es 1,082,000
HHOUBE HAR: ave cays eee “Gees ae ae eel cade 1,062,000

Rates seo eee due ave See Sas ove ne 16,783,000

£20,675,000

Besides these there is the income-tax, which the owners
of real property pay like all others; but this is not an ex-
ceptional impost on income, and the only question here is of
exceptional burdens. ;

The total of taxation affecting real property looks very .
formidable. In fact, it is nearly one-third of the entire
taxation of the country, imperial and local, and amounts to
a charge of about 8s. per pound on the estimated annual
value of the property in the country.* But the moment we

* Viz, £143,000,000,
TAXES ON LAND. , 241

examine the items, we find how little reason there is to sup-
pose that the burden is of the nature of an income-tax on
the owners of real property, or that any part is of such a
nature as to raise an overwhelming objection against it.

1. The stamp duties on deeds may very well be left out.
The heaviest of them is a half per cent. ad valorem charge
on the sale of property, a charge which is borne by many —
kinds of other property as well; and even a half per cent
charge is a hardly perceptible tax. It is sunk in charges of
much greater magnitude, which always take place at sales.
In any case, the incidence of stamp duties is so peculiar, that
it cannot be said to affect a class so much as individuals of a
class, and these unevenly amongst each other, in comparison
with the amount of the duties. Where they are not defensible
as a minute charge on transactions, like the receipt and cheque
stamps, as [ think they may perhaps be now in the case of
real property, though it was not always so, there would be
a case for their reduction, so as to make them minute enough
for the purpose. In that case they would cease to be taxes
_ which could be set off against others in a question of com-
parative taxation. It would. be a mistake, however, in the
meantime, to make their existence a ground Amienisring
with some other impost. :

2. The probate and succession duties appear to me also
to be a tax sui generis, with which no others properly come -
into comparison. I have to discuss them afterwards; but
the distinguishing peculiarity is apparent. They are charges
upon a very special extension of the ordinary rights of pro-
perty, its bequest or descent after death—an extension which
necessitates the direct intervention of the State; and as such,
the burden which they constitute cannot properly be weighed
with burdens of a different nature. - If it is discussed as a
charge upon a particular description of property, the difficulty

: R
242 TAXES ON LAND.

at once arises that it is most unequal and severe. Some
owners escape with hardly a charge, while others, who own
no more, have much to pay. The only plea by which it can
be defended, therefore, is that the Acts in respect of which it
is levied—the authorisations given by the State to the trans-
mission of property from the dead to the living—furnish
occasion for a wholly exceptional charge. In any case, so
far as the probate and succession duties are a tax upon real
property generally, it will not be denied that they are more
moderate than the corresponding imposts upon other property
and its owners.

3. The land tax, which is next on the list, should equally
cause but little controversy. It is persistently claimed as a
burden upon land or landowners; but this will not bear scru-
tiny when we inquire out of whose income the tax is paid, or
what way it causes pressure, so that its reduction or abolition
would be a benefit to the community. Asa fixed charge
upon land for generations, it is now past all controversy a
rent-charge. In many instances it has long since been re-
deemed, the property having subsequently changed hands;
in others, inheritors of property have acquired it under the
burden, and have calculated their income minus the tax, while
purchasers, in buying, invariably allow for it. To reduce it
now would be to present the landowners of England with a
capital sum of nearly £30,000,000. Their estates, relieved
of the burden, would become at once so much more valuable,
and if they did not sell, they would pocket an additional
income which they never inherited or paid for.

There remain the house duty and the rates—still a
formidable amount, if they are considered to fall on the in-
comes of real property owners, or as forming an objectionable
tax on profits, notwithstanding that the burden is shifted to
the consumer. We may class them shortly as rates, the only
TAXES ON LAND. 243

difference being that the house duty is a fixed rate limited
to certain descriptions of property, whereas the rates apply
more or less to all real property, though in fluctuating pro-
portions. But what is the incidence of these rates? Are
they, in the first place, an income-tax on the owners of real
property? There is one very short answer to this question.
If they were an income-tax there is none more outrageously
unjust. Most properties, we are told, are incumbered, often
heavily incumbered, and the residuary owner, as we may call
him, the man who would benefit by a reduction of the rates,
has often but a barren interest. Measuring the rates with
his income from the property, they might be ten or fifteen
shillings in the pound. Is it possible to believe that the
owners of real property are subjected to any such income-
tax? The inequality in itself suggests that the incidence
of the tax is different—that the burden is on the property
and not on the individuals who have incomes from it.

The question remains, however, whether the rates are
on other grounds objectionable. And here it should be
noticed that it is by no means unanimously admitted that
they are burdens on the profits of land-owning at all. A
large party maintains that to no inconsiderable extent they
really are passed on to the consumers—in the country
districts, farmers, who pass it on as a deduction from their
farming profits; and in towns, the class of occupiers, who
both pay it and ultimately bear it. But granting that this
transference does not take place to any material extent—
a view, I am willing to admit, which I am disposed to agree
with—granting that in consequence the whole or most of
the charge falls on the profits of owners, are the circum-
stances such that they have any cause for complaint? The
answer is that in the lowest view the business is one which
has increased enormously, stimulated by other changes in

Rr 2
244 TAXES ON LAND.

taxation, and that being a monoply, as land-owning
confessedly is, the magnitude of the charge, even if it has
been an increasing one, makes nothing against its propriety.
Look only for a moment at what the increase of business
has been. In 1815 the annual value of real property—in
other words, the annual return of the business—was
£58,000,000; in 1853 it was £35,000,000; in 1868 it was
£148,000,000.* At the same time the rates have barely
doubled in the last thirty years, and have not doubled if we
take an earlier date for comparison.

The improvement it may be said has arisen through the
investment of capital, but this statement cuts two ways. If.
it means anything at all, it would mean that the charge -
upon the profits of the business checks investment, but
nothing of the sort is alleged. The fact that investment
has continued is thus a proof that the burden, whatever it is,
has still left a large enough margin of profit to induce a
resort to this species of business. It is certain, however,-
that a large part of the improvement is due to the
increasing value of advantageous sites, an unearned increase
of value such as Mr. Mill speaks of, and therefore a kind
of profit which the State may restrict with least harm.

The increase of the annual value of house property in the
country since 1815 has been £54,000,000, or 356 per cent.,
although the population has barely doubled. If we
estimate that only a fifth of this amount is for extra
ground rents—that is, rentals in excess of the value uf the
area occupied for agricultural purposes—we shall probably
be far under the mark. And this is not the only unesrned

increase of value. Against the large amount of ‘rates
* In 1884 it was £193,000.000.—Edition 1886.

{ Rates increased from £20, 000 ,000 to £31,000,000 between 1868
and 1883.—Edition 1886.
TAXES ON LAND. 245

therefore is to be set an unearned increase of value which
altogether will be of equal amount, and double, perhaps
treble, what the increase of rates has been.

Nor does the case as to profit end here. The increase
of rental value does not measure the actual increase of
profit with which the rating-charge should be compared.
It is probably the case that as respects the bulk of property
in area, the increase of rental measures the whole increase
of value; but there is one kind of property, that in the
suburbs of large towns not taken up for building, extending
in the case of London in all directions but the east over an
area of about eighty miles diameter, where the increase
of rental is no measure at all of the increased value. The
position of the property is in effect discounted, and it is no
exaggeration to say that its real selling value is now
double what it would have been ten or fifteen years ago
. upon the same rental. It would be useless to put any
figure estimate upon this increase of value, but it must be
remembered as a set-off against “increasing” rates.

The question might well be left upon these broad
facts, and these general principles stated, but there are other
facts about the rates which affect the question of the
business profits on which they are a charge. When
we look into them we discover that the increase has been
far from uniform geographically, or in respect of the class _
_of property affected. The increase has in fact been confined
to that class of property in which the investment of capital
has taken place to the largest extent, while as respects
the remainder of the property, there has either been a
diminution of the burden or no material increase. The
inference is, that while the rates where they have increased

~. have not checked investment, there is an immense mass
246 TAXES ON LAND.

of property which has augmented in value without any
proportionate charge upon its profits. The facts speak
for themselves. First of all, of the above sum of
£16,783,000 of rates proper,* there are upwards of
£4,000,000 of comparatively recent rates which not only
form a charge upon the property in which the investment
of capital has taken place, but were mainly intended
for the improvement of that property. The remainder,
£12,689,000, is very little more in amount than similar
rates have been during the present century, and the rate
per pound is less.
-In 1817 the rates were £10,000,000, or per £ 3s, 103d,

1826 A 9,500000, 4, 38. 8d,
1841 . 8,000,000, 4, 28. 7d.
1852 a 8,700,000, 4, 28. 7d.
1868 bs 12,689,000, ,, 2s. 62d,

Thus, as respects a large part of the real property in
the country, it is incorrect, strictly speaking, to talk of the
increase of rates.t

The second fact is, that at time when real property was
different in its constituents from what it is now, there
was an enormous diminution of the burden, precedent to the
subsequent rise in proportion to the value. .

 

 

In 1826—The rates were see eee wee wee ee = £9500 000

House duty .. ose eee see dee eee 1,182,000

Window duty... 0 6. cence cue wee 1,167,000

£11 849,000

In 1843—The rates were see eee tee nee ves «© £8,000 000
House:duty se eee) ase “aaa Give, 9 Be Nil.

Window duty... 0 4. ue one vee = -'1,436,000

£9,436,000

__. * This is for England only. The figures on p. 244 are for the United
Kingdom.— LEuttion 1886.

t This is still true, although rates (for England only) are now about
£25,000,000 annually, The bulk of the increase has been in improve-
meut rates,— Edition 1886,
TAXES ON LAND. - 247

showing an actual diminution of about £2,500,000, repre
senting a capital sum of about £75,000,000 in the charges
upon the property then existing—-a burden which has never
since been reimposed, as the rates, including house duty,
have only risen in proportion with the augmentation of rent.
The relief to the old property has been permanent.

It is thus evident, that while so much has been heard of
the increase of rates, the actual fact is entirely different.
The increase, such as it was, has been limited in extent, and
conceals an actual diminution in the amounts levied upon
part of the property which has since never been made good.
To complete the statement, we need only ask ourselves what
the effect would be of any such reduction of rates as the
principles of the anti-rate agitators point to. Consequences
are very often a test of principles, the logical result proving
the groundlessness of the plea. And this appears to be the
case in the present matter. Grant that certain rates* are
thrown on the Consolidated Fund, as the most eager
reasoners of the party contend, or that they are reduced one
half, which would be the effect of throwing them rateably
on all the schedules of the income-tax, what would be the
result? It is not difficult to see that in the former case
some people would have £11,000,000 a-year, and in the
latter case £5,500,000 a-year more than they had before.
Possibly it would not all go to the so-called owners of pro
perty, for the occupiers would gain where they are dealt
with on tenant-right principles; but it may be treated prac
tically as a bonus to owners, and, as such, it is of magnificent
dimensions. In the one case, at thirty years’ purchase only,
it represents a capital of £330,000,000, and in the other of
half that amount—all to be transferred to a single class by a

* Viz, poor and police rates, amounting to about £11,000,000.
248 TAXES ON LAND.

few lines in an Act of Parliament! To state such a result
is to make the argument absurd. Unless it is to be con-
tended that the State keeps out of the pockets of the class
some £300,000,000 which they ought to have now, there is
no call to give the money. And if the State inflicts such a
wrong, the sooner it pays back what it has exacted, with
interest, the better.

 

i,

Having thus examined the case against existing burdens
on land, I turn to the second part of my subject—the claims
urged by the Land Tenure Reform Association for securing
to the State a share of the unearned increase of value. The
inquiry, however, should have prepared the way for looking
at the question from the Association’s point of view. It has
been seen that upon the general theory of taxation special
burdens on this particular description of property are not
unreasonable, that they are not without analogy in taxes
upon trade profits, which no one thinks of altering on the
ground that “other property” escapes the burden, or
that they are a special income-tax on the people in the
trade. It has also been shown that, if taxes on profits are
justifiable in any case, the circumstances of land-owning are
such as to reduce the hardship of the owners to a minimum
when their profits are taxed. The business is a monopoly,
and simple in the highest degree, and nowhere else can be
found more favouring conditions for a tax upon profits. We
are thus prepared for the inquiry, whether so peculiar a busi-
ness could not be made to bear a larger burden; and for the
theory of the Association, that while it is only on grounds
of expediency the State permits individual property in land
at all, there is no reason of expediency against its limiting
TAXES ON LAND. 249

that right of individual property by a large reservation in its
own favour. If there is any reason in this theory at all, the
facts stated will have suggested the magnitude of the value
in which the State may claim a share. The augmenting.
value, on which it is urged the State would have had the first
claim under a proper financial system, must have amounted,
in the last thirty years, to hundreds of millions sterling.
Now in theory, so far as I can see, there is absolutely
nothing to be urged, and nothing has, in fact, been urged,
against the principle of the Association. The soil of the
nation ¢s primarily the property of the whole nation—the
common inheritance of all, regarding which the State, ac-
cording to its lights, cannot help laying down rules from
time to time for the common advantage. There is no
other final authority, and if the action of that authority is
to be limited by so-called rights, if on cause shown it may
not destine the whole land, or any part of it, to any use it
pleases, then we have this anomaly—that the most vital
necessity of national existence is to be held, not under the
direction of the State, but subject to some arbitrary limi-
tations in favour of individuals or classes, based on a
superstition of right. In point of fact, as well as theory, no
such limitation has ever been admitted by English law.
Year after year the national Parliament exercises in
innumerable cases the right of diverting some part of the
“common inheritance” from one use to another. If it so
acts in part and detail, it has clearly a right to take a
wider range and exercise its discretion upon the whole or a
large part of the soil of the country. The only question
would be whether the particular cena or uses pros
posed to it are wise.
And whatever regulations may be objected to, it seems
to me that, assuming private property in land to be retained
250 TAXES ON LAND.

as the rule, the imposition of special charges on it, which
will be in the nature of mining royalties, or a reserved
rent-charge, or like the casualties under feudal tenures, will
be about as innocent a way of limiting the privilege, inter-
fering as little as possible with the individual enjoyment as
could well be desired. It leaves untouched the right of
exclusive possession, which is the main thing coveted, and
merely keeps to the State a charge, which exactly resembles
many other charges by which the privilege of absolute:
possession is limited. Of course the mode of the reservation
will be an important matter; but theoretically there is no
reason against reserving something.

It may be added that the more progressive a community,
the more likely it is that any proper reservation will be
little felt as a burden. By the hypothesis, it is in such
communities that competition will cause an immense
unearned increase of rent and of capital value. There will
be a large margin for ground rents of every description, and
the State ground rent will be no more felt than the others.
So free from hardship will the charge in fact be, that just
as the commuted tithe rent-charge and the land tax are no
longer felt as burdens by the present possessors of land, the ~
whole charge of the State, when it is carefully studied, will
be acknowledged as equally light.

But what form should the charge of the State assume,
and how much in the present condition of things, as
respects property, business, and population, should the
State endeavour to obtain? Clearly, if the phenomena of
the last thirty years are about to be repeated—and there is
‘a reasonable chance that they will be, for there is no sign of
check to the growth of population or the increase of
machinery and inventions—it is much to be wished that a
better system should, if possible, be at work than has
TAXES ON LAND. 251

hitherto existed for securing to the nation a portion of the
augmenting value of its soil. The problem, however, is
excessively difficult, and I doubt very much whether Mr.
Mill’s own suggestion, which must be first considered, will
be found, as a general measure, to answer the purpose. It
is in effect a proposal to go straight to the end in view—
that the State should inquire at prescribed intervals what is
the augmenting rental of land, and make a charge upon the
owners of some definite portion of that augmentation. If
there is no increase of rental due to general causes, there
will be no increase of tax, and owners who object will have
the opportunity of surrendering their estate on what Mr.
Mill’s enemies must admit will be full compensation. One
objection to this proposal is that it is almost wholly novel
in European countries, at least where the art of taxation has
been most carefully studied, and is least of all fitted for a
-country in the circumstances of England. Mr. Mill has
apparently in view the ideal of the foncier taxes on the
Continent, in which the process is for the State at a certain
date to impose a lump charge on the whole land of the
country in proportion to its estimated value, and then
apportion this charge among the various localities and parts
of soil in the country, by -a carefully arranged cadastre
‘But there is nothing more tedious in fact than the com- —
‘pletion of a cadastre, or unequal when it is completed.
Even in France, which has set the example in these foncier
taxes, the new cadastre, which was commenced forty years
ago, was only completed the other day, and while it was
being put into operation the value of the whole land
subject to it was changing. .It is hardly possible to
imagine that even if in England, we could give that
attention to the nice adjustment of competing qualities
of land or property, which could alone make the basis of
252. TAXES ON LAND.

French direct taxes endurable, we should be content to
await the slow development of a pretentiously perfect, but
really imperfect, cadastre for a period of forty years. It isa
still more fatal objection that such taxes do not appear to
draw. It is officially estimated in France that the annual
value of real property has increased since 1821 from _
£64,000,000 to £160,000,000, which is quite comparable
with the increase in England. But while the rates have
risen in England from about £10,000,000 to £17,000,000, the
special land tax of France has only risen from £11,720,000
to £12,280,000, including the additional hundredths im-
posed for local purposes, as well as the “principal” of the
tax. The special tax of England is thus more elastic and
effective than the special tax of France, which is proposed as
a model. Besides, if these objections could be got over, if it
could be shown that an improved cadastre is easily possible,
and is capable of frequent renewal, there would remain the
objection that. such a tax, so imposed, might interfere with
the enjoyment of private property in an inexpedient manner.
It would be very difficult to reassure individuals against the
operations of the tax assessors. Every few years they would
foresee a demand of an indefinite amount, depending on
many points of taste and opinion, and they would only have
the alternative of paying or surrendering their property to
the State. Careful as Mr. Mill is to suggest safeguards, the
essential nature of the transaction would be such as to
destroy confidence in the continuity of private right in some
particular plot of land. The apprehensions might in the
main be unfounded, but their existence would be a public
calamity, unless the theory is admitted that the abolition of
private property would be beneficial, which in some localities
it might be.

Turning from this suggestion, I think there is much to
TAXES ON LAND. : 253

be said in favour of our present special taxes on land, im-
perfect as we have shown them to be. They have permitted
the growth of an immense mass of value in the hands of
individuals only, and at a very recent date there was a
sudden reduction of the burden, by which a small class
received a considerable gain. But with all their imperfec-
tions they have the merit of elasticity. They are set apart
for the discharge of certain branches of expenditure; and, .
without fluctuating so widely as to disturb property rights,
they may be increased materially, and so reserve for the
State some portion, however insignificant it may be, of the
augmenting value of property. This is no small merit,
especially when compared with the model of the continental

- land taxes, which have no such capacity of expansion. It is

an additional convenience that, as the branches of expendi-
ture which are thrown specially on this property are local,
local administration and local taxation can be associated.
In this view rates are, in fact, a happy English invention,
by which different and unconnected advantages are obtained
in a rough practical fashion, and as it is a familiar system,
we have another obvious reason for trying to make the most
of it. Could not something more be made of it? It will
be of some use perhaps if the discussion of the principles on
which the burden is imposed makes it clear that no injustice
is now committed—that the support of a certain burden of
expenditure is a condition of the enjoyment of the property
which the State may properly impose. Every one knows
the condition beforehand, and as it is quite a calculable
one, notwithstanding the loud talk of the increase of
rates, and the addition of new rates, there is no
inexpediency in it as a too heavy restriction on tho
enjoyment of private property in Jand. But the discussion,
I think, may do more,‘ and justify the imposition of new
254 TAXES ON LAND.

charges which are convenient for local administration. As
the tendency of the functions of local government is to
increase, and the additional expense has not yet proved
commensurate with the increase of the value of property, we
have a security in the recognition of this principle, both
for the reservation to the State of a part of that value—
though, I fear, a most inadequate part—and for the safety
of private property against any great disturbance. If I
might venture to make a suggestion, there is one new charge
which escapes notice, and which might very properly be
treated as a branch of local expenditure: the army for home
defence ought to be locally maintained. For many reasons
if is important that a good deal of local management and
self-government should be associated with the organisation
of our militia and volunteers, and the charges might very
properly fall on the rates. This would not only relieve the
Imperial army estimates of a heterogeneous charge, but by
really associating localities with the work, would contribute
much to the strength and vitality of our home system of
defence. There is another way in which something more
could be made of the present system. Under the haphazard
methods and want of principle which have hitherto prevailed
the local rates have gradually been relieved of a large por-
tion of the burden which properly falls upon them. On one
pretext or another, the Imperial Exchequer has been drawn
on for “grants,” amounting annually in England to a
million and a quarter, by which the growth of the local’
burden has been retarded—or, in other words, the individual
landowner has been permitted to retain a larger share than
otherwise he would retain of the augmenting value of land.
Good reasons, I think, have been furnished for putting a
stop to this system, if rates continue to be the form of our
especial tax. The proper course would now be to institute
TAXES ON LAND. 255

a mode of discontinuing the grants by degrees, according to
a defined scale, and so reimpose on property a burden which
it has escaped. v

But while the system of rates is preserved and amended,
as the principal agency for securing to the State a share in
the national soil, there is another mode in which it seems to

. me a smaller advantage of the sime sort may be gained,

equally without disturbing the security of private property
in land. I have already referred to the probate and suc-
cession duties, pointing out the confusion of thought which
leads to the share of them derived from land being added,
in with taxes of different kinds, so as to present a large
total of burdens on land.- But the rationale of these taxes |
is so important a part of the art of taxation that, even apart -
from the suggestion I intend making, I may be excused :
from returning to the subject and showing how the special oe
nature of these taxes makes it improper to classify them
with the burdens on property. 5
Their distinguishing feature, as has been already said, 3
is that they are a charge for a special intervention of the State ;
—for the authority it gives to the transmission of property
from the dead to the living. It is common to consider the §
bequest and descent of property as mere extensions of the =
- right of private property, but they are not so historically *
or practically. The reasons which make private property %
expedient during life do not apply with the same force
to the transmission of it at death. It would be difficult to
conceive of a large society existing without absolute es
ship in the fruits of individual industry, but so long as
people are secure in what they earn themselves a very severe
strain may be put on the rules for disposing of it at death
without endangering the existence of society. Instead of ~
the absolute right of bequest and the unincumbered descent
256 TAXES ON LAND.

of property to individuals when there is no bequest, being
an ordinance of nature as of natural right, they are in fact
very peculiarly the creations of the State, and have been
modified in all civilised countries to suit its varying policy. ©
For these reasons a special tax on successions has an un- —
doubted justification. The State being their author, and
having, strictly speaking, the power and right to absorb
them altogether, a power which it would be infinitely less
inexpedient to exercise than would be its similar power in
regard to private property—the special tax becomes vir-
tually a charge for a concession which the State grants,
and which it might conceivably withhold, or at least very
seriously curtail. Viewed in any other light, it appears to me
wholly indefensible, for though it would no doubt fall on the
payer at a convenient time for payment, its pressure on
individuals would be most unequal, and it would thus offend ~
against a cardinal maxim of taxation.

Regarding it as a charge upon a concession however, we
may recognise in the State a capacity for varying it which |
would not exist in the case of an ordinary tax. It may take
into account, in adjusting the so-called tax, the whole policy
of the law of succession and bequest, and the nature of the
property itself. The principles to guide it seem hardly to
admit of discussion. The tax must not be so severe as to check |
accumulation, or be severely felt, so as to cause individual
suffering even when accumulation is not checked. Subject
to these restrictions the State should simply. take by a suc-
cession duty what it can. It follows that its charge should
be most moderate where the transmission resembles most a
continuance of the enjoyment of private property, or is the
transmission of property which the deceased person has
acquired by his own industry, and in acquiring which he ~
may be supposed to have been influenced by the prospect of
TAXES ON LAND. 257

regulating the succession; and should be most severe in the
contrary case, where the transmission is to strangers, or where
the property has been inherited. Unless these points are kept
in mind the State will not be able to levy so large an amount
as would otherwise be possible for it. To make the charge
uniform would simply be to limit it to the minimum possible
in those cases where the succession of the dependents of a
deceased person, whose income dies with them, gives the tax .
the appearance of a charge not upon inheritance, but im-
poverishment. It would be quite consistent with the principle
of the tax, however, to look at the composition of the property
bequeathed ; to say that as the possession of a certain kind
of property over which the State had primary rights was
keenly competed for, one condition of its enjoyment should
be a special liability to taxes on successions. No person could
complain, for there are abundant modes of investment besides
land, and those who wished to have an unrestricted privilege
of bequest could invest in other property. Even a charge of
five per cent., however, would probably present no inducement
to people to keep away from land. It is very seldom that an
entire fortune is thus invested (it would be sheer folly so to
invest it), and the total charge on the succession, though it
is five per cent. on a portion of it, might not be much higher
than it is. I need not add that if there is any reason in this
view of succession duties, the singular arrangement by which
land now pays least of all is more than indefensible ; it is a
gross neglect of the State to secure a due to which it is most
fairly entitled. The arrangement is another instance of tlic
perversity of discussions about the incidence of taxes according

‘to the historical method in England. An illogical mode of
comparison has not only enabled the owners of land to secure
for ‘themselves an augmenting value in which the State might
well have had a larger share, but has enabled a class which

8
258 TAXES ON LAND.

enjoys a valuable monopoly to escape payment on its succes-
sions of the charges which other classes of the community,
enjoying no monopoly, have to bear.

After all, it may well be doubted whether by any process
that would not be worse than the disease, anything but a
small fraction of the augmenting value of land will ever be
secured for the State. At the past rate of increase, the real
property of England, which is now worth about £150,000,000
a-year, will be worth £240,000,000 in another thirty years.
And a large part of this additional £100,000,000, perhaps the
half of it or more, will not be owing to any investment of
capital in improvements, but to increasing monopoly value.
At the past rate of increase, however, our rates will be under
£30,000,000, so that, at the outside, there will not be an
additional burden of £15,000,000 to set against an additional
value of £100,000,000, while much of that additional burden
wll also have fallen, not on the property generally, but
on the profits of the improvements. There is little hope of
touching this immense augmentation. But this is hardly a
result to be rejoiced over by the defenders of private property
in land. If they were wise in their generation it should be
their aim to show that the present system, besides any indirect
advantages to the community it may have, is also directly
beneficial to the State, because it provides a large fund for
the support of national charges. Looking forward to the
great increase of value which is inevitable, they should
rather, of all others, be anxious to secure a large appro-
priation to the State, as some compensation to the masses for
the privilege of exclusive possession which they enjoy. The
divorce of the people of England from the soil would be
more, and not less, defensible than it is if it could be shown
that private property in it was so regulated as to relieve tho
general taxpayer of his burdens. [1871.]
XI,
THE REDUCTION OF THE NATIONAL DEBT."

Ir is probable that the question so formally put last session
to the country, whether we shall now begin in earnest to
reduce our debt, will not be lost sight of. Not that after
all there was much absolute novelty in the arguments, so far
as they were sound, urged by Mr. Gladstone and Mr. Mill.
On general principles the propriety of doing something to
reduce the incubus of the debt had long been acknow-
ledged, and the one argument of novelty introduced—the
approaching exhaustion of our coal supplies—was by no-
means generally accepted, and was not effectually impressed
on the popular mind. We may in time become educated as
a nation up to the point of forecasting and providing for
contingencies that may fall out after the lapse of a century
or more; but at present public men do not feel sure of their
ground, when such elements are mixed up in discussion.
The speeches of last session, however, recalled the nation to
a sense of the duty ‘which for years had been neglected,
at first perhaps deliberately and wisely, but latterly simply
because we had got out of the habit of regarding our debt.
It was necessary no doubt at one time to give up all
thought of reducing or abolishing the debt and concentrate
every energy on the amendment of our revenue laws; but
the discussions of last session reminded the nation of the
facts it had apparently forgotten,—that the amendment
of our laws had been secured, and that the country had so

* Written in 1867,
82
260 THE REDUCTION OF THE NATIONAL DEBT.

progressed in a single generation that what was difficult, or
perhaps impossible, thirty or forty years ago had become
easy of accomplishment.

One of the effects of the revived attention to the subject
is the proposal of various schemes of more or less ingenuity,
which may be generally described as modes of gaining the
object without the nation being conscious of the process.
It seems to be taken for granted that the nation cannot
openly be pledged to perseverance in the work, or even
roused up to a considerable effort. A contrivance ac-
cordingly is sought for by which ina good frame of mind
the nation may be seduced into making a small sacrifice,
sufficient to set agoing a self-acting machinery, which will
afterwards be beyond its meddling. The nation is thus
to be saved from its debt in spite of itself. Such was the
character of Mr. Gladstone’s own proposal last session. The
conversion of the Savings Bank Debt into a terminable
annuity was essentially a proposal to absorb so much of the
annual revenue for the purposes of a sinking fund, which
would have gone on operating almost without the obser-
vation of Parliament or the country. Year after year the
Chancellor of the Exchequer would have come down to
the House with a constantly increasing charge in the budget
for terminable annuities, and it would have been treated
like the other charge for the debt as an item of first
necessity. It seemed rather inconsistent first to rouse the
country to a sense of its duty, and then propose a measure
which assumed that the country required to be cheated into
perseverance; but Mr. Gladstone saved himself from
self-stultification by pleading that his proposal was not all
he had in view, and that to pay off by terminable annuities
was an excellent method of distributing the burden. The
scheme it may be added, so far as the House was to be
THE REDUCTION OF THE NATIONAL DEBT. 261

committed to it, was certainly a small one, as it would only
have vleared away at the outside about £62,500,000 of the
debt nominally in twenty years, but not really so, for some
of the annuities were to run on till 1905.

The same characteristics of smallness of effort and with-
drawal of national observation from the process, after it is -
started, apply to two other schemes which have lately been
heard of. One of these is a scheme, said to have been
under the consideration of the Government, for making the
nation the holder of railway debentures. It is thought that
by the Government’s borrowing from the public it may be
able to re-lend to railways on debenture bonds so as to make
a profit, which may form an accumulating fund for the reduc-
tion of the national debt. Government, we are told, can
borrow from the public at 8} per cent. or thereabouts, while
between 44 and 5 per cent. will be obtainable from the rail-
way companies. An incidental advantage of the scheme, it
is contemplated, will be the security of the public against
over-issues of debentures by railway companies, and the right
of inspection and control which Government as lender
will obtain ; but without noticing these advantages, and some
practical objections also urged, we may consider it evident
that no great impression on the debt is likely to be produced.
It would be a good many years before the profits of the busi- —
ness, however large it might be, would suffice to purchase a
large amount of consols. ‘The total amount outstanding in
- debentures in 1855 could have been little more than
£97,821,090, known to be outstanding on twenty-six of the
principal railways, and supposing Government to gain a dif-
ference of one per cent. by transactions on the whole of that
amount, the sum available against the debt would only be about
£970,000 per annum. It would be impossible, however, for
Government to obtain so large a business at once. It will be
262 THE REDUCTION OF THE NATIONAL DEBT.

several years before existing debentures fall due, and not till
then can Government step in between the public and railways
and insist on becoming the only lender. It will also require
to be considered whether so great a difference as one per ‘cent.
will be obtainable when Government goes more frequently
than at present into the loan market. But, small or not, the
scheme will be, more completely even than Mr. Gladstone’s
last session, withdrawn from the annual notice of the country
in the ordinary course of finance. A department once con-
stituted for the management of the business must obtain at
the outset the necessary borrowing powers, and may then go
on borrowing and lending, the country taking no part in the
effort, and only watching as an outside spectator the gradual
diminution of debt or the accumulation against it of a valu-
able property.

The remaining scheme is that of Mr. R. Dudley Baxter,
and was stated by him in a paper read to the Statistical
Society, afterwards supplemented by a letter to the Times.
It is perhaps of greater magnitude than either of the others,
but still a partial effort. . Mr. Baxter proposes to appropriate
the amount of the railway duty—about £450,000, but likely .
soon to be £500,000 per annum—as the nucleus of a novel
sinking fund. This appropriation and the accumulations,
instead of being invested in the debt itself, like sinking funds
which have failed, he proposes to invest in ordinary or pre-
ference stock of railways, yielding at least a -dividend of 4
per cent. By so doing he calculates that at the end of 72
years the nation will be possessed of about £200,000,000 of
railway stock, the annual revenue of which, at no more than
4 per cent., will be equal to the interest on £250,000,000 of
consols. This looks a large sum, but then the process will
take seventy-two years. Mr. Gladstone’s scheme of last year,
if prolonged for the same period, would probably have been
THE REDUCTION OF THE NATIONAL DEBT. 263

more effective, for, while the sum started with was the same,
one of the complaints against it was that the more debt there
was paid off the more the annual charge on the country
increased ; and this would have gone on till the whole debt
had undergone the process of conversion into terminable
annuities. By Mr. Baxter’s plan, however, nothing more
than the proceeds of the railway duty is to be appropriated
annually, and once begun the process is to go on, “not easily
touched by a Finance Minister.’

These two schemes have been assailed a good deal on
practical grounds. There is an instinctive disbelief in the
ability of a Government department to make a profit.
Very likely it is thought loans will be made to, and stock
bought in, insolvent concerns. Government as one among
a number of debenture or stockholders will be exposed to
the clamour of private interests, and compelled to endure
losses. Insufficient care will be taken against depreciation
in ordinary circumstances, and a new invention may be
discovered superseding railways. The risks to be run are
far greater than the gain to be made. Although Mr.
Baxter may fight a good battle with his objectors on some
of these grounds, urging that railways may be simply
managed like a post-office, and that the business is therefore
not beyond the ability of a good department, yet there is
perhaps no getting over the last difficulty, that the gain
must be small. His scheme cannot be considered by itself,
but falls to be compared with a simpler scheme, for which
only the same annual appropriation is required. Now
£500,000 annually invested in the 3 per Cents., the interest
on the cancelled debt being annually added to the
appropriation, would yield very nearly the same result.
Mr. Baxter can only urge that his process is withdrawn
from annual Parliamentary meddling, which a simpler
264 THE REDUCTION OF THE NATIONAL DEBT.

scheme would be exposed to, but this questionable
advantage is won at the risks which have been stated.
We do not insist, however, on these objections. What we
wish to point out is, that none of these schemes are big
enough to satisfy the appeals which have been addressed to
the national conscience, or the real necessities of the case.
Mr. Gladstone, as we have seen, admits that even after his
scheme has been adopted more remains to be done; and it
cannot surely be argued that to pay off about a fourth of
the debt in seventy-two years, as Mr. Baxter suggests, will
sufficiently discharge our duty. Schemes which are only
to become very effective a generation or two hence are too
much like sportive efforts to provide for a remote event,
only half expected to occur, like the exhaustion of our
coal-fields. For all practical purposes, a reduction of the
debt, if it is to be worth anything at all, if it is to be
an object worth rousing the nation for, must be on a con-
siderable scale, and immediate. The practical reason for
removing a large portion of the burden is to strengthen the
State financially. We are wasting our resources if the debt
is left unpaid, while we could pay off a large portion
without crippling the development of commerce or industry.

The first question of all then in considering what we are
to do with the debt is the extent of our ability—a subject
perhaps not sufficiently adverted to. It has been very much
the fashion to assume that the British taxpayer will not
submit to be taxed to pay off the debt, but in such cases the
debt must continue the despair of financiers. It ought to be
assumed, however, that taxation will be submitted to, pro-
vided a good case can be made out. It is a fallacy to sup-
pose that all the money which is lost to the State by the
neglect to impose taxes which might be imposed “ fructifies
in the pockets of the people.” Up to a certain point it is no
THE REDUCTION OF THE NATIONAL DEBT. 265

doubt most profitable to remit taxes, the savings of individuals
far exceeding the waste from the additional amount left in
their hands, but beyond that point the greater part of the
remissions made is consumed, and it is then a waste of national
resources to remit—a waste which becomes most culpable
when an important national object is simultaneously neg-
lected.

There are two modes of considering what revenue could
now be raised if occasion called for it—one is to look at the
progress in wealth we have made, and the other at the actual
progress in regard to revenue itself. There are no statistics
estimating from time to time the property of the country,”
but some of the facts usually held to indicate that we are four
or five times richer than we were fifty years ago, consequently

able to raise a much larger revenue, are familiar enough, and
_ may be briefly glanced at to illustrate the remarks we have
to make on our revenue. We may first take into account the
fact that the population of the United Kingdom, which,
-taking the average of 1813, 1814, and 1815 was 19,341,000,
had grown in 1864 to 29,391,000. This fact would of itself
indicate our ability now to pay half as many taxes again as
were paid in those years, even supposing the average wealth
of the people per head had not increased. The amount of
taxes paid then averaged £70,697,000 per annum, so that if
‘we were proportionately taxed the revenue would now be
£106,000,000. That the average wealth of the people per
head is much greater is indicated by several statistical facts
which may be allowed to bring together. First, there is the
enormous increase in exports and imports. In 1814, 1815
and 1816 the average exports of British and Irish produce,
allowing for the depreciation of paper money, were
£37,001,365 ; the average in the three years ending 1845
had mounted up to £56,991,000; but in 1865 the total was
* This was written more than ten years prior to the previous essay

on “Recent Accumulations of Capital in the United Kingdom,” with
3 red,
266 THE REDUCTION OF THE NATIONAL DEBT.

no less than £165,835,725. There has been a similar rise
in the imports, and although the statistics are not completed,
it is known from the Board of Trade returns that this year
is likely to be ahead of all its predecessors. The shipping
statistics are also very significant. The shipping belonging
to the country amounted in the three years ending 1816 to
21,338, with a tonnage of 2,441,878; the number in 1865
was 28,787, with a tonnage of 5,760,309. The tonnage,
which is the important matter, has thus been more than
doubled, a very striking increase looking to the great number
of steam, which have displaced sailing, vessels, and the
greater work thus done now by a smaller quantity of shipping.
This is corroborated by the returns of clearances outwards
and inwards. Excluding the home coasting trade, which
does not appear in the returns before 1861, but including the
trade between Great Britain and Ireland, the number of
ships, which in the three years ending 1816 cleared outwards
and inwards, averaged 62,182, with a tonnage of 6,771,705
per year; but the number of ships in 1865 was 161,114, with a
tonnage of 37,639,146—thus showing, according to the
tonnage, a growth of commerce to between five and six times
its proportions at the close of the great war. Indeed, we
may know without any statistics how much the steam engine
and other inventions have multiplied wealth. We have
stated the effect in the matter of shipping. In the same
way the introduction of railways it was calculated saved to
some towns in the reduced price of coals alone as much as
the whole rental, and Mr. Baxter estimates that in 1864
the expense of conveying the traffic which passed over our
railways was £72,000,000 less than it would have been
according to the old rates of conveyance—an annual saving
of more than the whole amount of our taxes, and equal to
the amount of the taxes in 1315.
THE REDUCTION OF THE NATIONAL DEBT. 267

There are one or two facts illustrating more directly
the increase of our wealth. According to a Parliamentary
Return in 1852, the yield in Great Britain of the income
and property tax at the 10 per cent. rate was in 1815
£15,642,000, which would show property assessable of the
anuual value of £156,000,000, or allowing for the depre-
ciation of paper about £120,000,000. In 1864-5 the
annual value chargeable in Great Britain was about
£307,000,000—an increase of more than one and a-half
times since 1815. It has to be taken into account besides
that the classes whose wealth has increased most are
probably not the number, comparatively small, who pay
income-tax, but the great masses of the people, among
whom the general average of comfort has notoriously
advanced, so that the general wealth may have increased
in much greater ratio than the portion affected by the
income-tax. The returns as to the legacy duty show
very similar results. Mr. Porter, only allowing 10 per
cent. for depreciated values, calculates that the capital
subject to legacy duty in 1814 was £24,569,100. In 1845
the capital was £45,999,000, very nearly double, and in
1855, the latest date to which we have seen a return, the
amount was £62,601,000, an addition of one and a-half
times to the amount of 1814. Assuming that the rate
of progress between 1845 and 1855 has since been.
maintained, the return for the present time would rather
more than treble the amount of 1814. If then our foreign
trade has multiplied five or six times since 1815; if,
as there is good reason to believe, our home trade has
increased in like proportion ; and, last of all, if certain kinds
of property—probably not those in which greatest progress
has been made—have trebled, or nearly trebled in value, it
is surely no extravagant supposition that the average wealth
268 THE REDUCTION OF THE NATIONAL DEBT.

of the country has progressed at the lowest of these rates
Consequently the country must be now three times richer
than it was in 1814, and able to bear three times the
taxation.

Keeping these facts in mind we may inquire how they
corroborate inferences which would be justifiable looking
at the progress of the revenue alone. According to the
official returns the net amount of taxes remitted in Great
Britain and Ireland from 1815 to the present time, including
the large remission which took place in 1815, owing to the
close of the war, and the remissions of 1865-6 as well as of
the current financial year only now operating, amounted to
the enormous sum of £57,765,000, within £13,000,000 of the
total annual produce of the taxes in the last three years of
the war. Of course the total looks bigger, because some
of the taxes were remitted when the country had attained
a higher degree of prosperity. compared with 1815, and
the yield of each tax was consequently greater. But
this statement, if we allow that all our taxes were recently
remitted, is still a striking proof of prosperity. The gross
return of the taxes was last year £67,812,000, nearly as
much as at the close of the war, and if all the remissions had
been recent, the inference would be that our taxpaying
power is double what it was, since we have remitted nearly
as much as we raise. But the truth is a large amount of
the above total was remitted long ago, as an inspection of
the following table will show :—
THE REDUCTION OF THE NATIONAL DEBT.

269

Table showing annually and quinquennially the remissions of taxation
tn the United Kingdom since 1815.

 

Remitted.

Imposed.

Net Annual Quinquennial

 

Remission, | Remussion,
£ £ £ | £
1815 (separately) | 14,586,327 | 701,538 | 18,884,789 13,884,789
1816 to 1820inclusive = £ £ £
1816 3,502,717 | 320,058 | 38,182,659
1817 36,495 7,991 28,504
1818 9504 1,356 8,148
1819 730,846 | 2,971,902 |—2,241,056
1820 4,000 | 119,602 | —115,602
4,283,562 | 3,420,909 862,653
1821 to 1825 inclusive £ £ £
1821 20,005 42,642 | —22.637
1822 2,590,405 a 2,590,405
1823 4,050,250 18,596 | 4,031,654
1824 1,704,724 45,605 | 1,659,119
1825 3,639,551 43,000 | 3,596,551
12,004,935 | 149,843 11,885,092
1826 to 1830 inclusive £ £ £
1826 1,973,612 | 888,725 | 1,584,887
1827 84,038 21,402 62,636
1828 51,998 1,963 50,035
1829 126,406 a 126,406
1830 4,093,955 | 696,004 | 3,397,951
6,330,009 | 1,108,094 5,221,915
1€31 to 1835 inclusive £ £ £
1831 1,623,536 | 627,586 995,950
1832 774,288 | 44,526 729,762
1833 1,532,128 — 1,532,128
1834 2,064,516 | 198,394] 1,866,122
1835 176,877 15 176,802
6,171,345 | 870,581 5,800,764
1836 to 1840 inclusive £ £ £ :
1836 989,786 3,991 985,795,
1837 234 100 134!
1838 289 1,733 —1,444l
1839 63,418 pais 63,418
1840 1,258,959 | 2,155,673 | -— 896,714
2,312,686 | 2,161,497 | 161,189.

 

 

 

 

 

 

 

 

 

 

 

 

 

 
270

THE REDUCTION

OF THE NATIONAL DEBT.

Table showing annually and quinquennially the remissions of taxation
in the United Kingdom since 1815.—(Continued.)

 

 

 

 

 

 

 

 

 

 

 

 

 

Romitted. | Imposed. | Ronson |SRentecen tt
1S41 to 1845 inclusive £ £ £ £
1841 27,170 — 27,170
1842 1,587,366 | 5,629,989 ;—4,042,623
1843 411,521 — 411,521
1844 458,390 = 458,390
1845 4,536,561 | 23,720 | 4,512,841
7,021,008 | 5,653,709 1,367,299
1846 to 1850 inclusive £ £ £
1846 1,151,790 2,000 | 1,149,790
1847 844,886 _ 344 886
1848 585,968 84 585,884
1849 388,798 _— 388,798
1850 1,310,151 a 1,310,151
8,781,593 2,084 3,779,509
1851 to 1855 inclusive £ £ £
1851 2,679,864 600,000 2,079,864
1852 95.928 = 95,928
1853 3,247,474 | 3,356,383 | —108,909
1854 1,284,107 | 9,954,643 |—8,670.536
1855 812,960 | 5,225,907 |—4/912,947
7,620,333 [19,136,933 —11,516,600
1856 to 1860 inclusive £ — £ £
1856 2,203,475 _— 2,203,475
1857 10,753,582 92 | 10,753,490
1858 2,100,000 | 456,780 | 1,643'220
1859 — 4,340,000 |—4,340,000
1860 3,085,931 | 3,030,904 55,027
18,142,988 | 7,827,776 10,315,212
1861 to 1866 inclusive £ £ | £ i
1861 2,689,588 80,000 2,609,558;
1862 353,671 | 252500 | 101-171
1863 4,646,319 | 30,811 | 4.615.508
1864 8,354,384 | 119,000 | 3/235,384
1865-6—6-7| 5.982000 Bei 5,982,000
17,025,932 | 482,311 16,543 G21

 

 

 

Total Remissions ,,, 57,765,042
THE REDUCTION OF THE NATIONAL DEBT. 271

From this table it appears that the war income-tax
yielding £14,000,000 was remitted in 1815, and between
that and 1845 the further net reductions were £25,000,000,
a total of £39,000,000 out of £57,700,000 of remissions for
the whole period since 1815. The greater part of the
remissions besides took place before 1835—only about
£1,500,000 being due to the decade between 1835 and 1845.
A good many of the subsequent reductions again—about
£6,000,000—took place before 1853: the enormous sum of
£27,000,000 remitted since 1856 falling to be diminished by
the heavy taxes imposed in 1854 and 1855, so thatthe net
remissions since 1853, during the last and most prosperous
years of our finance, only amount to about £13,000,000 of
the total £57,700,000. We subjoin separate tables showing
what has been done since 1846 :—

Taxes imposed and remitted from 1846 to 1858 melusive.

 

 

 

 

 

 

Remitted. Imposed.
£ £

1846 1,151,790 2,000
1847 344,886 oe
1848 585,968 =
1849 388,798 —
1850 1,310,151 =

1851 2,679,864 600,000
1852 95,928 —

1853 3,247,474 8,356,383

9,804,859 3,958,467

Total remissions... 1... see ee ~£9,804,859

yy DEW tAKCS os, eevee wee wee 8,958,467

 

 

Net remissions from 1846 to 1853... £5,846,392

 
272 THE REDUCTION OF THE NATIONAL DEBT.

Taxes imposed and remitted from 1854 to 1866-7 inclusive.

 

 

 

 

 

 

Remitted. Imposed.
£ £
1854 1,284,107 9,954,643
1855 312.960 5,225,907
1856 2,203,475 =
1857 10,753,582 92
1858 2,100,000 456,780
1839 oat 4,340,000
1860 3,085,931 3,030,904
1861 2,689,558 80,000
1862 353,671 ; 252,500
1863 4,646,319 30.811
1864 3,354,384 119,000
1865-6 5,420,000 d _
1866-7 - 562,000 sa
36,765,987 23,490,637
Total remissions...) 1... see see ose £36,765, 987
yo DEWtAXES vee nee vee vee 23,490,637

 

Net remissions from 1854 to 1866-7... £13,275,350

 

On the whole, looking to the fact that more than one-
half of the remissions took place before 1835, and four-
sevenths before 1845, by which time the country was only
one-half more prosperous than in 1815, and to the fact that
so much of the subsequent remissions took place in the years
immediately succeeding 1845, it seems fair to assume that
our present revenue is raised from less than one-third of the
taxes pressing on the country fifty years ago. In other
words, we may assume that the produce of the. remitted
taxes would, one with another, be three times the total
amount, but say £150,000,000—three times £50,000,000
only—so as not to overshoot the mark. This conclusion
-THE REDUCTION OF THE NATIONAL DEBT. 273

quite corresponds with the other facts as to the progress of
the national wealth, the trebling of which has taken place
principally since 1845, when the bulk of the taxes had been
taken off. The sum of £150,000,000 sterling added to the
present revenue would give a total of £220,000,000, which
could be raised as easily as £70,000,000 half a century ago.
It is most probable, however, that the pressure would not be
as great as the burden on our ancestors. Our estimate is
rather under the mark; and, besides, the art of taxation—
the art of distributing taxes so as to yield a large return at
little expense and in the least galling manner to the tax-
payer—is better understood now. As to the taxation at
the close of the war again, although opinions differ, Mr.
McCulloch and others have held that it did not throw back
the cocatry in material progress, or impoverish the people,
so that the levy of £220,000,000 now represents an effort it
would be possible to make without diminishing our present
prosperity.

The fair inference from this comparison between our
present burdens and those our ancestors have borne is that
by making no sacrifice for a great national object, such as
paying off the National Debt, we are as a nation somewhat
basely skulking our obligations. Our ancestors wisely or
unwisely became involved in a war which was converted
into a terrible struggle for existence, and bravely did their
part. It seems a small thing that in these piping times of
peace we should clear away the burden which they fairly
threw upon the future, and prepare for our posterity the
opportunity of making sacrifices of a different nature —
perhaps give them the essential means of carrying on another
struggle without overwhelming the country by what would
be an additional, but ought only to be a new, debt. There
is obviously no urgent necessity to restore the war burdens

T
a74 THE REDUCTION OF TIIE NATIONAL DEBT.

of fifty years ago, by-which at no greater sacrifice than the
Americans are at present making, we could pay off our debt
in four or five years. But short of reimposing these war
burdens, which would yield £220,000,000, a great deal could
be done. The enormous difference between that sum and
the existing revenue is almost positive proof that a good
deal of what the tax-gatherer leaves in the pockets of the
people is simply wasted. A little turn of the financial screw
would diminish in no degree the annual savings of capital,
though it might to an imperceptible extent diminish the
consumption and perhaps the enjoyments of the people. It
is when compared with our ability that the schemes we have
referred to look so small. They put off for two or three
generations the performance of part of a task which the
present generation has the means of wholly doing itself.
They are small even compared with the scale of reduction
which has been going on for the last fifty years. According
to the details given by Mr. Gladstone in his last budget
speech, the capital sum of the debt in 1815 was £902,264,000,
and the annual charge we may add was £31,576,009. The
capital sum of the debt at the beginning of the present
financial year, as stated by Mr. Gladstone in the same
speech, was £799,000,000, a reduction of £103,000,000
since 1815; while the annual charge, including a small
additional sum for the payment of terminable annuities, was
only £26,140,000, a reduction of £5,436,000 on the annual
burden—greater in proportion than the reduction in the
capital sum of the debt. We may have no opportunity of
reducing the annual charge, but at this rate, as regards the
capital sum, assuming that the country is no more than
three times richer to start from than in 1815, we ought in
fifty years hence to have reduced the debt by £300,000,000
—-that is, three times the amount of the reduction in the last
THE REDUCTION OF THE NATIONAL DEBT. 275

fifty years. This beats any of the proposals we have
quoted, but it does not follow that we should limit our future
reductions to this extent. While our absolute wealth has
increased greatly, our relative ability to pay must have
augmented in a higher ratio. Much of what was done in
the last fifty years was done out of comparative poverty,
and as we grow wealthier the payments are more and more
out of our superfluity.

There is another fact in our present financial condition
which shows the ease with which the debt may be attacked,
while it indicates, perhaps, the most appropriate mode in
which the attack may be made. We should prefer a “little
” merely for the principle of the
thing; but even no turn of the screw at all, only a resolute
determination to have no more remissions, would make an
enormous difference. The important fact is the rapid growth
of the revenue, which, in a series of years, may be as safely
counted on as an average harvest. Mr. Gladstone, in his

turn of the financial screw

‘last budget speech, asserted that one year with another the

revenue increases at the rate of £1,780,000 annually. It is
not unlikely that, according to his practice, Mr. Gladstone
rather under-estimated. At any rate, to take the six years
from 1860, according to a Parliamentary return which corre-
sponds with the figures we have given above, the net reductions
effected, excluding those of the present year, amounted to no
less a sum than £16,250,000. In these six years, however,
the revenue only fell, in round numbers, from £71,000,000
in 1860 to £67,800,000, which is a loss of £3,200,000.
In other words, while we have remitted £16,000,000 of
taxes, we have only lost £3,000,000, and the difference—
£18,000,000—which we have recovered represents a growth
of over £2,000,000 per annum. It may be objected that

there is always an extra recovery in what is left of

 Q

a
276 THE REDUCTION OF THE NATIONAL DEBT,

a diminished tax, but against this we may fairly set the
fact that every reduction diminishes the area on which
increase takes place, and that some of the remissions have
been total abolitions of certain taxes. Assuming then that
this rate of growth continues, and that there are no reduc-
tions meanwhile, what will be the result to the revenue?
Why, in five years hence, counting only £2,000,000 per
annum as the growth, instead of raising £68,000,000, we
shall be raising £78,000,000 yearly ; and five years after, or
ten years hence, the revenue will have reached the enormous
total of £88,000,000.* ‘With such a growth of revenue, how
long would it take to extinguish the national debt, if we
keep our expenditure at the present rate? The answer is
that in the first ten years we shall have paid off £110,000,000,
not including any additional sums which will be at our dis-
posal from year to year, on account of the diminishing annual
burden of the debt, although the payment at par of
£110,000,000 in ten years will give us an addition of
£3,300,000 to the annual surplus. In other ten years—
that is, in twenty years from this—more than half the debt
will have been paid off, the surplus at the end of that period
being rather more then £50,000,000 a year, which would
speedily wipe out the remainder of the debt. The process
might be accelerated by paying off at less than par, which
could probably be done to a partial extent. :

The obvious objections are that there is every chance
expenditure will keep pace with revenue, and that there is no
security the revenue will grow. As for the growth of
expenditure, however, it may be urged that there is no
necessity, if we are in earnest about the debt, for taking
expenditure into account. Let it be understood that every

* These figures were fully justified by the subsequent actual growth

of revenue for a good many years, Recently the progress has been
sumewhat slower. See preface.— Edition 1886,
TILE REDUCTION OF THE NATIONAL DEBT. 277

increase in expenditure is to be met by new taxes till the
great national object is attained, and expenditure would not
interfere with the experiment. That it had to be met by
new taxes would be a powerful incentive to economy. It is
not the case, however, that expenditure must grow as quickly
as revenue. It has hitherto kept pace with revenue, because
we have been constantly remitting taxes, and so allowed its
natural growth to overtake us. The case would be far other-
wise if we stepped the process of remitting taxes. Taking
the last twelve years, and comparing 1854 with 1866, the
expenditure we find has increased from £55,600,000 to
£65,400,000, about £11,000,000 in twelve years, or £916,000
yerannum. Tven with an expenditure growing at the rate
of £916,000 per annum, we could still do a good deal to the
debt with a revenue growing at the rate of £2,000,000.
But that it is po:sible to keep the expenditure comparatively
stationary is shown by the experience of the last six years.
Starting from an expenditure of £69,000,000 and more in
1860, the amount in the following year being £73,000,000,
we have come down to a total of about £66,000,000 or
£67,000,000. We refuse then to admit as at all inevitable
that expenditure in the ordinary course of things will
increace greatly. But a war, it will be said, will bowleverser
everything. No doubt it will. But there is this also to be
said, that every year, so long as we avoid war, we shall be
strengthening ourselves for war when it does come. If we
sccure peace for no more than ten years, and owe then
£110,000,000 less than now, we shall have this comfort—
that borrowing then £110,000,000 will only replace us
exactly where we were ten years before. The capital of
the debt, instead of rising at a bound to £900,000,000, would
only rise to its present level. For State purposes, in short,
we shall be £110,000,000 richer, the savings of the country
O78 THE REDUCTION OF THE NATIONAL DEBT.

having meanwhile not been trenched upon to produce this
result. By stopping the process of paying off debt we shall
also have at once a large surplus revenue for warlike expendi-
ture without any new taxes. The contingency of war, there-
fore, only strengthens the argument for trying the experiment.
We have also to consider that there is a very fair chance we
shall escape war till the experiment is completed. The years
of peace since 1815 have only been broken by the Crimean
episode, so far as we are concerned ; and it does not follow
that we shall be dragged into war by any one of the
numerous difficulties which may arise. Difficulties have
always been cropping up, yet we got off without war for forty ~
years from 1815. Europe has been more disturbed perhaps
since the Crimean episode; the danger of war is more
chronic; but the acute agony of 1831 or 1848 was more
likely to involve us than the present status quo of overgrown
armaments. Reckoning up chances, we may also fairly
include the chance of the Napoleonic era passing away, and
with that the restoration of Parliamentary power in Europe,
and a general imitation of our peaceful example.

We need say very little as to the other objection we
recognise as obvious—the chances of our revenue not growing.
Of course, if it does not grow the debt will not be paid off in
the way suggested; but we submit that the chances are so
great the experiment may be worth trying. It is the general
opinion, we believe, among statisticians and economists, those
who have studied the material progress of the world since the
invention of the steam-engine, that the prosperity of this
country and of the world will continue, and at an accele-
rated rate. The multiplication of machinery becomes yearly
more and more rapid, and the material resources in the
course of development are comparatively untouched. The
markets for our manufactures are increasing indefinitely.
TILE REDUCTION OF THE NATIONAL DEBT. 279

Even in the fact that our capitalists are sending capital
abroad, investing it in great undertakings in all parts of the
world, supposed by some to indicate the slipping away of
our own trade, there is no real danger for our prosperity. It
is merely evidence that as the world gets more knit together
capital is becoming cosmopolitan. The effect of our capital
going abroad is only to lay the whole world under contribu-
tion to the British Exchequer. There is not a country in the
world which does not already yield its quota of profit, assess-
able to the income-tax of the United Kingdom. Again, ths
arguments of those who expect the exhaustion of our coal
proceed on the supposition that our industry and pro-perity
will maintain their past rates of progression. Our only fear is
of the argument which has been employed, that if we are to
be so much wealthier in future, we may postpone till then all
thought of the debt. The answer to such an argument is
that immediate effort is certainly the safest course; we
cannot foretell what necessities may be imposed on the
future.

It is not a large sacrifice we have suggested. Only the
stoppage of our past indulgences in the way of remissions
of taxation—perhaps the imposition of a trifling tax or two,
say the addition of a penny or twopence to the income-tax
—if additional expenditure becomes imperatively necessary.
Will the desire which has sprung up for reducing the debt
stand this slight test? Is it genuine, like the charity of the
Quaker who felt for a poor man five pounds, and asked his
neighbours, who were expending sentiment profusely, how
much they felt? Perhaps some prominent financier in
Parliament will very soon apply the test, with what success
remains to be seen. [1867.]
XII.

THE TAXATION AND REPRESENTATION OF .
IRELAND.*

Tre House of Commons was occupied on Monday and Tues-
day with two subjects which are not at first sight connected,
but between which a real connection of some interest may
in our opinion be established. We refer to the debate on
Monday on the alleged disproportionate taxation of Ireland,
and to the debate on Tuesday on Mr. Trevelyan’s motion as
to the electoral system as far as the question of redistributing
seats is concerned. These two debates suggest to us that
whatever difficulties there may be about a redistribution of
seats within each particular division of the United Kingdom,
there-can be little question of the expediency of a redistribu-
tion of seats between these divisions themselves. The Irish
members complain that Ireland is unduly taxed, but England
and Scotland may complain that Ireland is unduly repre-
sented, and use in support of their complaint the very
arguments as to taxation in Ireland which Irish members
employ to prove that Ireland should pay less to the Imperial
Exchequer. There ought clearly to be some proportion
between the representation of different communities in a
common Parliament and the wealth and population of these
communities; there is an unstable political equilibrium .
wherever the poorer and weaker communities have a dispro-
portionate share in dictating the general policy, and so voting
the burdens which their richer and stronger associates have

* Written and published as an article of the Economist in 1876,
THE TAXATION AND REPRESENTATION OF IRELAND. 281

to bear; and as Ireland now has, and has always had,
a larger representation in the Imperial Parliament than the
Troportion of the taxes it paid would give it, the argument
that it should pay a still less a fortiori implies that it should
also be less represented. Until lately this argument was
partly counterbalanced by the large proportion of the popula-
tion of Ireland to that of Great Britain, but year by year the
claim of Ireland on this ground has become weaker, till now
it has no existence.

The facts can be stated very shortly. Ireland sends to
the Imperial Parliament 105 members out of 658, or almost
exactly 16 per cent., as compared with 553 members, or 84
per cent., representing Great Britain. As regards taxation,
therefore, assuming an exact proportion between it and
representation, Ireland would not be unjustly burdened if it
contributed 16 per cent. of the Imperial revenue. But its
contributions in 1874-5, the last year mentioned in the
return obtained by Mr. Mitchell-Henry for the purpose of
the debate, were only in the proportion of 10°6 per cent.
Of a total of £74,986,397, which was the revenue of 1874-5,
Great Britain and Ireland contributed as follows :—

Per Cent.

£ of Total.
Great Biitain .......... 67,016316 .... 894
Tieland, ..cecesiness woes t 7970051 .... 106
Total s,s s¢s4005 74,986,387 .... 100-0

The inhabitants of Great Britain may surely ask with some
fairness that there shall be no complaints of Irish taxation
until Ireland pays taxes in some more exact proportion to
the number of representatives it has—that is, 16 per cent.,
instead of 10°6 per cent., of the total Imperial revenue. If
it did so its contribution would have been in 1874-5, not
£7,970,000, but £11,998,000, or 50 per cent. more.
252 TILE TAXATION AND REPRES! NTATION OF IRELAND.

We fear it would be hopeless to tax [retand in propoz-
tion to its present representation, but the inequality could
be redressed by reducing the representation. In that cae
Ireland would only elect 10°6 per cent. of the members of
Parliament, instead of 16 per cent., or 70 members instead of
105. And matters would be still worse for Ireland in this
respect if the Irish members had their way, and Irish taxa-
tion were reduced as they say it should be. Great Britain,
we are told, would pay £200,000,000 if it were taxed as
Treland is. In other words, Great Britain is affirmed to be
twenty-five times richer than Ireland. But if representation
were to be adjusted accordingly, Ireland would only elect
1-25th of the members of the Imperial Parliament, or 23
instead of 105. As far as it goes, this argument for dimi-
nished taxation is also an argument for enormously dimi-
nished representation.

We come then to the facts as to the relative population
of Ireland and Great Britain, on which the claim of Ireland
to a larger representation than one in proportion to the share
of taxes it pays may be based. At the time of the Union,
and for many years after, it was certainly intelligible that
the magnitude of the population of Ireland should be a set-off
to its poverty in a question of representation in a common
Parliament with Great Britain. In 1821, which is the first
year for which we have good data, the population of Great
Lritain and Ireland were respectively :—

 

 

 

Per Cent.
Numbers. of Toral.
Gyedt: Britain. ic cccsccsscavesve 14,391,631... 679
Tela ciewasciensetahaovieeveesd 6,801,827 ...... 32°1
Total ccsuasswscakce 21,198,458 4... 100-0

In other words, Ireland was about a third of the United
Kingdom as respects population, and in consequence its claim
THE TAXATION AND REPRESENTATION OF IRELAND, 283

to have a larger share of representation than the proportion
of its wealth and taxation to that of Great Britain would
have given it had some foundation. Ireland with such re-
lative numbers, whatever their condition, was a large unit
to which much less than a sixth of the representation could
not reasonably have been assigned. And this proportion
continued during the two following census periods. In 1831
and 1841 the proportions of Great Britain and Ireland in the
total population of the United Kingdom were :—

-—Great Britain-— -——-Ireland——\

Total Per Cent. : Per Cent.
Year, Population, Numbers. of Total. Numbers. of Total.
1831......00. 24,306,719 ... 16,531,318 ... 68:1 ... 7,767,401 ... 31°9

1841....4.... 26,916,991 ... 18,720,394 ... 69°6 ... 8,196,597 ... 80-4

But since 1841 a great change has taken place. The
following twenty years were the period of the Irish exodus,
and although of late the population of Ireland has remained
stationary, or has only diminished very slowly, the station-
ariness has been coincident with a rapid increase in the
population of Great Britain, which is constantly altering the
proportion. The effect is seen if we compare the population
for the last three census years, and also for 1875. The
figures are :—

Population of Irelund and Grent Britain compared at various Dates
since 1851.

-——Great Britain——, ——-Ireland——+

Total Per Cent. Per Cent.
Year. Population. Numbers. of Total. Numbers, of Total.
1851*...... 27,435,000 ... 20883000 ... 762 ... 6,552,000 ... 238
1861 ...... 28,974,362 ... 23,185 947 ... 80-0 ... 5 788,415 ... 200
1871 ...... 31,513.442 .,. 26,126,734 ... 82:9 ... 5,386,708 ... 17-1
1875 ...... 32,737,405 ... 27,439,673 ... 83-9 ... 5,297,732 ... 16-1

Thus the proportion of the population of Ireland, which

“Part estimated for Sevtland.
284 THE TAXATION AND REPRESENTATION OF IRELAND.

was thirty per eent. of that of the United Kingdom as late as
1841, had fallen in 1851 to 23°8 per cent., and in 1871 to
17-1 per cent. only, while since the latter year it has gradu-
ally come to be still lower, or 16°1 per cent. It is thus quite
manifest that Ireland has lost the claim it once had, on the
score of its great population, to a larger share of representa-
tion than its wealth and taxation would give it. If existing
taxation were to be the test, the argument for reducing the
representation of Ireland in the Imperial Parliament from
105 members to 70, which is the proportion existing taxation
would give it, as we have above seen, and for proportionally
raising the representation of Great Britain, would now be
irresistible.

We are not using these arguments in a controversial
spirit, and as a fu guwogue to the Irish members in their
demand for lessened taxation.. The excessive representation
of Ireland in the Imperial Parliament is a substantial mischief
to the whole United Kingdom. It gives undue influence to
one of the elements in the Union the least in harmony with
those which really preponderate, and consequently impedes
and thwarts the naturally stronger forces of the nation in
their development. On Ireland itself the effect is most per-
nicious, because the scale of Irish affairs is artificially altered
from the natural one. Because Ireland has such tremendous
power to force its affairs on Imperial notice, the Irish people
are encouraged in the belief that their local affairs really
compare in importance with those of Great Britain, whereas
Ireland is now only a fragment, and relatively a diminishing
fragment, of the State in which it is absorbed, and whose
fortunes more and more it must inevitably share. Even for
obtaining attention to peculiar legislation for Ireland a
smaller number of representatives would be better than the
present, because their weakness on the one hand would tend
TUE TAXATION AND REPRESENTATION OF IRELAND. 285

to unite them and give them strength for all reasonable ends,
while diminishing on the other hand the natural distrust of
Ireland and Irish members in Great Britain, which is cer-
ta‘nly stimulated at present by the artificial weight of the
Trish vote. “We are not much in favour of electoral changes
so soon after the Reform Act of 1867, but a reduction of the
Irish representation, and an increase of that of Great Britain,
constitute a question apart which should be dealt with at no
distant date. ,
XIII.
THE CASE AGAINST BIMETALLISM.

Tue fall of silver during the last few years has produced
a large crop of that dismal currency literature which has
brought almost all writing on currency into disrepute. The
distinguishing feature of this literature is the constant
assumption that some small defect in a currency which has
all the recognised essentials of a good money—a basis in one
or other of the precious metals, identity of the standard coins
with a certain weight of that metal, and secucty for free
coinage with only a small seignorage, or with no seignorage
at all—may be productive of monstrous evils; or that a
emall manipulation of the currency, even at the. risk of
violating one of the essentials, may have some vague and
indefinite advantage. It would be useless to enumerate the
various schemes, of which the most prominent has perhaps
been the proposal generally known as Colonel. Smith’s, to
raise or restore the rupee coinage of India to a level in value
with gold. They are sufficiently answered by the common
sense of the monetary world, which demands, in this
question, merely that a Government should authorise a
coinage having the essentials above described, arrange for
the coins being legal tender and receivable in taxes, and for
the rest leave the matter alone. But there is one theory or
system which has to a certain extent commanded more
respectful attention than the others, viz., the theory which is
THE CASE AGAINST BIMETALLISM. 287

known by the name of bimetallism. In its best form this
theory is not open to the charge of artificiality, and of being
inconsistent with free miutage, to the degree that some of
the other schemes are open to the charge. The idea is that
a State, instead of having the basis of its money in one of
the precious metals only, should declare money obligations
to be solvable by either of the two metals, silver and gold,
in prescribed quantities, still permitting free coinage. The
theory, therefore, has gained adherence even from people who
have little enough sympathy with the way in which currency
writers exaggerate the possible evils of slight derangements
in the currency, and look for impossible advantages from
currency changes. I wish, then, to put together some
observations on this bimetallist question, and account, if
‘possible, for the dislike of bimetallic theories which is enter-
tained as a rule by those who have carefully studied the
English monetary system. Bimetallists are often treated,
like other currency prophets, as inventing or grossly exag-
gerating the evils produced by the choice of monometallic
systems in preference to theirs, and as aiming at benefits
which cannot possibly be derived from any currency change.
_ Is there real cause for this dislike or for the contumelious
treatment which bimetallist advocates, who comprise among
their number not afew men of real eminence as economists
and statisticians, not infrequently receive ?

It will be expedicnt to begin with a short account of the
bimetallist arguments. Up to a certain point monometallists
and bimetallists—at least the more able of the latter—are
really agreed. They hold to the common-sense doctrine of
currency already referred to—that it is not an arbitrary thing
to be regulated at will, hut that a Government fulfils its duty
in selecting one or two of the metals as money, receiving all
that is brought to them, impressing upon them certain
288 THE CASE AGAINST BIMETALLISM.

stamps denoting their weight and fineness, and declaring
them receivable for taxes, if not legal tender in release of all
obligations expressed in money. Where they part company
is on the point whether a Government should have one metal
only, or two or more metals, for its standard. Monometallists
affirm that there should only be one, and even that there caw
only be one; bimetallists that there may be two, the law
establishing the indifferent employment of certain prescribed
quantities of one or the other, and that it is desirable two and
not one should be so used. In support of the view, bi-
metallists maintain that legalising the use of both metals as
a standard will procure certain advantages which are not
procurable with one metal only. Such a regulation, it is
said, would have the effect, first of all, of keeping more money
in use than would otherwise be the case. Money would be
more abundant than with one metal only, and abundant
money is good for trade.* It is no doubt admitted now that
unless all Governments and communities have the same money
regulations, the legalisation of the use of both metals will
not have the effect of keeping both in use at one time in a
particular State. On the contrary, the debtor will always
pay in the metal which it is easiest for him to obtain; a very
slight fraction of difference in procuring the prescribed
quantity of the one, as compared with the prescribed quantity
of the other, will drive the dearer metal out of use. But any
inconvenience arising from this alteration, it is said, is amply

compensated for by the greater ubundance of money generally .

*Sce Wolowski’s “ L’Or et l’Argent,” pp. 331-2, where M. Wolowski
quotes Count Daru’s argument for the famous Jaw of 1803, giving France
the system of bimetallic money, which it retained till within the last
few years, Daru says: ‘‘ En 1éduisant l’or 4 n’étre qu’une marchandise,
on diminuerait la masse du numéraire, on génerait le commerce,” &c.,
&e. And this language is still of the essence of the bimetullist
argument,
THE CASE AGAINST BIMETALLISM. 289

in which all countries participate.* Another alleged superi-
ority in the use of the two metals as compared with the use of
one only, is the increased facility of exchange between different
countries. The legal ratio of use, it is said, tends in fact to
keep the metals nearly at the corresponding relative value,
_ 9 that exchanges between countries not bimetallic themselves,
but some of them having gold and others having silver,
became almost as steady, through the help of the bimetallic
regulations of other countries, as if only one metal were
universally in use. This facility would be enhanced by
several nations becoming bimetallic, and still more by all
nations adopting that system. This is the general theory of
bimetallismm, and it is supported by practical arguments from
present circumstances. The depression of trade of the last
few years is by some held to be accounted for by the scarcity
of money due to the demonetisation of silver, and greater
pressure upon gold; and by the confusion introduced into
the exchanges by France (which has played the réde of inter-
mediary between gold and silver countries during the present
century) abandoning its bimetallic regulations. By others
who do not go so far, the actual evils of the last few years,
especially through the derangement of the exchanges, are said
to be so great as to require a special remedy such as bimetallism
would give. Finally, it is held by some ardent enthusiasts
in the cause that there is a providence in the matter; that
not only have two metals adapted for use as money been
provided, but that a certain ratio—viz., 153 to 1—tends

* This is the modern account of the argument. But, so far as I can
judge, the authors of the French bimetallist law, as of former bimetallic
experiments, really hoped to retain both gold and silver in use in their
own country. They thought they had found a ratio from which the
metals would not vary for a long period, and in the original draft of the
law a revisal of the ratio was contemplated. See Wolowski, ‘ L’Or et
PArgent,” p, 295, ,
: U
290 THE CASE AGAINST BIMETALLISM.

naturally to be established between them. A bimetallic law —
fixing this ratio of 154 to 1 merely confirms an ordinance of
nature! Such is a fair account, I believe, of the bimetallic
argument, and the last point in it, I may observe, is not in-
serted by way of caricature, but in order not to leave out
any principal argument on which leading bimetallists lay
stress.

What we have to inquire into, then, are the objections of
monometallists to this argument. Js there any real foun- —
dation for the superiority to monometallism alleged? and are
there no counter-considerations?. How far is bimetallism
even a practicable scheme? I would begin by saying that
the whole onus of proof is on bimetallism. Not only is the
opposite system installed, but that system has the merit of
simplicity. No one can say that if only one metal had been ~
in existence suitable for use as standard money, the world
would have been badly off because there were not two. The
controversy is also a comparatively modern one. What
Governments had to debate before the present century was
not any real choice between one and several metals for use as
standard money, but how to get a sound metallic currency of
any sort. ‘Their difficulties were the temptation to make a
profit for themselves at the expense of their subjects by
debasing the coin or “raising its denomination” (which
comes to the same thing), and the natural difficulty of
keeping the bullion contents cf a coinage up to the nominal
value assigned to it. It is only since 1696 in England, and ~
since the beginning of the present century elsewhere, that
Governments have learnt the wisdom of resisting the tempta-
tion to debase—if even yet the lesson has been perfectly
learnt; and the effectual method of meeting the difficulty
caused by wear and tear is of equally recent discovery. The
alleged advantages of bimetallism therefore are supple-
THE CASE AGAINST BIMETALLISM, 291

mentary only to the primary advantages aimed at by a good
currency. A people afflicted with debased coins, whether the
debasement was due to natural or artificial causes, would
plainly be only too glad to get a good metallic currency of
any sort. This of itself is almost enough to prove that there
is a fundamental exaggeration in the bimetallist argument.
Why is there so much importance attached to matters which
could not have been thought of when nations were struggling
with the real difficulties of coinage ?

Even when these real difficulties existed, it may be
remarked, though the social misery and nuisance were
intolerable, and there was some hindrance to trade, it was
possible for countries to make great advances in material
prosperity. Speaking of the seventeenth century, when, as
we shall see, the country was afilicted with debased and
constantly changing coinage, and when there was besides
a long period of civil war and confusion, Lord Liverpool,
who was above all statesmen alive to the evils of a bad
currency, remarks: “It is certain, however, that during
the whole of this period, when our coins were in so great
a state of confusion, the commerce of the kingdom was
progressively improving, and the balance of tiade was
almost always in favour of this country.”* It seems
impossible, therefore, that bimetallic money can be so
necessary to the world as is alleged, when countries got on
so well as they did with money so inferior, that the question
between bimetallism and monometallism could not arise,
attention being absorbed in more serious matters.

But let us examine directly what the argument comes to.
One of the two points of superiority alleged may, I think,
be passed over as hardly counting, or rather as counting

* Lord Lirerpool on the ‘‘ Cuins of the Realm,” p. 120.
x c u Zz
292 TIIE CASE AGAINST BIMETALLISM.

against those who use it as an argument for bimetallism.
This is the allegation that bimetallism increases the quantity
of money in use as compared with the opposite system. It
cannot be true that it will have that advantage necessarily—
that is, if there is any advantage in the matter. Clearly as
much gold and silver may be in use as money throughout
the world, if some nations have gold and others silver, as
if some or all were bimetallic. The quantity of money in
use might be diminished by all nations becoming mono-
metallic, and using the same metal; and were this to be
done suddenly, great evils might ensue. I believe evil has
ensued from the haste to introduce gold in place of silver
in some countries, which prevailed ten or fifteen years ago
under the influence of eager advocates of a universal gold
money. But this diminution of the money in use is
obviously not a necessary consequence of monometallism,
It would be rather the result of an injudicious application
of the principle which the nations of the world are not now
likely to be guilty of.

And the argument turns against bimetallists in this way,
that by attaching such great importance to keeping money
abundant, they ally themselves with the most vicious of
currency theorists. It is not true that the quantity of
money, apart from the possibly mischievous effects of any
sudden change, socially and otherwise, can affect materially
the real wealth and welfare of an industrial community. It _
is a mere truism to say that while it may be useful to the
world for other purposes to have gold and silver more easily
obtained than they are, yet, so far as their use as money
is concerned, they would be equally serviceable if they were
only half as abundant. The bimetallist argument is accord-
ingly tainted, and this accounts very much, I believe, for
the extreme disgust and dislike of the theory which
THE CASE AGAINST BIMETALLISM. 293

economists and statesmen have shown. The prophets
who prophesy that the world is to be enriched by abundant
money are the detestation of men of sense.
Has not the scarcity and appreciation of gold, it may be
rejoined, something to do with the present depression of
trade? To this I would reply that the depression is
mainly traceable to many other well-known causes of such
- phenomena, so that the scarcity of gold can only have been
a contributory cause. In any case, moreover, the temporary
effects of a change in the supply or demand for a particular
kind of money, causing a general change in the level of
prices, are not to be confounded with the permanent effects
of scarce or abundant money. At the new level of prices
established, the scarcity and abundance of money may
become what they were before. However much, therefore,
the scarcity of gold may have contributed to the recent fall
of prices, and through that to the depression of trade, it does
not follow that the effect will be continued, or that trade will
be permanently contracted. A less number of gold and
silver pieces at low prices will serve for the same exchanges
as a larger number at higher prices. It may be added that
it was never proposed by the great English writers on
currency—Locke, Harris, Lord Liverpool—to prevent the
fluctuations of one of the precious metals in reference to
itself at different periods. If other fluctuations were got rid
of, those in the metal itself were not reckoned as of great
importance, while they were considered to be inevitable. It
may be said, perhaps, that abundant money is of more
consequence now than it was a century or two ago, because
the effect of any given quantity of money is now multiplied
by our system of credit. But I fail to see how the con-
stitution of our system of credit makes any difference adverse
to the conclusion of Lord Liverpool and the old authorities.
294 THE CASE AGAINST BIMETALLISM.

Rather we have now a constant demonstration that moderate
changes in the quantity of money in use, unless they are
suddenly made, are not material. In consequence of changes
in credit alone, the serviceableness of the same quantity of —
money varies indefinitely in comparatively short periods;
the scale of prices is in constant oscillation ; no conceivable
changes in the quantity of money itself could at all have the
effects which are constantly being produced by changes in
credit alone.

To come to the other alleged superiority of bimetallism,
the facility of exchange, we find there is again a good deal
of exaggeration. The benefits of great facility of exchange
may themselves be readily exaggerated. We may look only
how trade has been carried on with inconvertible paper
countries, and with enormous fluctuations in exchange. The
fluctuations are no doubt an evil, and a serious one, but in a
question of the relative advantages of two systems of money,
we must see exactly how great the evil is. Even serious,
evils may have to be endured, because relatively they are un-
important compared with the great objects proposed in a
sound currency. Moreover, the question of exchanges con-
cerns only the foreign trade of the countries affected, that
trade being at most a fraction of their whole trade. What-
ever injury great fluctuations of exchange may inflict, they
can only do so by hindering the development of a part of the
whole trade of a country—even in this country perhaps only
a sixth or an eighth part of its trade. Naturally, and in the
long run too, it results from the nature of gold and silver as
money, and the magnitude of the stocks in existence, that —
exchanges between countries using gold and silver will be
steady without bimetallism. There may be rapid fluctuations
at particular periods, as there have been lately, and as there
were in 1850, when great changes in the supply of particular
THE CASE AGAINST BIMETALLISM. 295

metals and in the demand for them occur. But such great
changes, unless all nations lose their senses, are not likely to
be of frequent occurrence, and in ordinary times exchange
will be steady. The reason is that as neither gold nor silver
is likely to change greatly with reference to commodities in
general, this being the cause of their selection for use as
money, they are not likely to change with reference to each
other. Accordingly we find that in past times, without
bimetallism, exchanges have been steady for long periods
together. I would refer especially to the course of exchange
between France and England from about 1820 to 1850.
During all that period France was practically a silver-using
country. Silver being cheaper than the legal rate, and
tending to become cheaper still, had expelled gold from
circulation, till, in 1848, the Bank of France had hardly
any gold left in its till. French bimetallism, therefore, could
not have prevented a further fall in silver. “Ten years
ago,” says M. Leon Faucher, writing in 1852, “every one ©
was frightened at the prospect of the depreciation of silver.”
But notwithstanding this inoperativeness of bimetallism, the
price of silver and rate of exchange between France and
England remained almost as steady as they have done since,
although bimetallism afterwards came into operation through
gold becoming cheaper than the legal ratio fixed, and the
bimetallic countries having a great quantity of silver to be
exchanged for it. Thus fluctuations in exchange are neither
so formidable to trade as they are frequently represented, nor
are the exchanges so likely to be unsteady as a rule without
bimetallism, as its advocates have been in the fashion of
maintaining.

The fluctuations with bimetallism may also be consider-
able. Bimetallism of some sort was the attempted practice
of the world for centuries, but this did not prevent great
296 THE CASE AGAINST BIMETALLISM.

fluctuations in exchanges or the price of silver. Lord Liver-
pool, writing in 1805, says—

‘‘The price of silver in dollars has varied in twenty-two years, that
is, from the end of the year 1774 to the 31st of December, 1797, 11317
per cent., and even in the course of one year, that is the year 1797, no
less than 93 per cent. The variation in the price of silver bullion
appears to have been still greater, by another account, with which I
have been favoured, by the late Mr. Garbett, an eminent merchant and
manufacturer at Birmingham ; it there appears that the silver purchased
by him, as a refiner, with bank notes, varied, according to his calculation,
in the course of ten years, to 1793, more than 191 per cent., and in one

‘ year only more than 132 per cent.”*

Apart from its bearing on the particular point in hand, this
quotation may, perhaps, be useful in convincing people that
great fluctuations in silver or in exchange with silver-using
countries, are not so novel as they have lately been assumed
to be.

What, then, is the increased steadiness of exchange which
bimetallism can give? And of what advantage will it really
be? The answer to the first question appears to be that, in
certain circumstances, in some countries, bimetallic regula-
tions would help to steady the exchanges. When a change
in the relative value of the two metals is occurring in the
direction of making the less valuable the more valuable, and
when the bimetallic country possesses the metal which is
becoming appreciated, bimetallism may help to steady the
exchanges. The metal becoming cheaper pours into the
country to be exchanged for the metal becoming dearer, and
so the rise in the latter and fall in the tormer are arrested. Of
this the world had a conspicuous illustration after the Aus-
tralian and Californian gold discoveries. Silver, from being
cheaper, became dearer than what was fixed by the legal
ratio between silver and gold in France; and as France had
much silver to be exchanged for gold, the rise in silver and

* Lord Liverpool on the “ Coins of the Realm,” p. 150,
THE CASE AGAINS£ BIMETALLISM. 297

fall in gold relatively to each other were arrested. Gold was
poured into France and exchanged for silver, the process
continuing for many years. More lately an opposite process
was beginning, silver, as it lately fell, being sent back to
France in exchange for gold, when a stop was put to the
proceeding by France suspending the free mintage of silver.
But it is only in such transition periods that bimetallism can
have any effect. Suppose a change, not in the direction of
making the cheaper metal dearer than the other, but in the
direction of making it cheaper still (the chances of the one
event. being exactly equal to the chances of the other),
bimetallism, it is plain, can have no influence of any sort.
It is powerless to arrest the fall, because the bimetallic
country has already got the cheaper metal, and has none of
the metal which is becoming dearer to exchange. As
already mentioned, this was precisely the case in France for
many years before 1850. If silver had become abundant
then as now, as there was at one time, it appears from the
above-quoted statement of M. Leon Faucher, reason to think
it would be, there was no gold in France to be exchanged
for it to arrest the fall. It is not true, then, that bimetallism
has a general effect in steadying the exchanges. A country
which adopts it must expect that it will only operate in that
way in certain special circumstances, and those circumstances
may never occur.

It may be said, perhaps, that if many countries were

bimetallic, the steadying effect would be greater. But this ~

is clearly not the case. If all bimetallic countries had the
same ratio, and the cheaper metal tended to become still
cheaper, they would simply be as one country. The fact
of their being many would give them no more power over
the exchanges than if they were one country, and their
power would be precisely that of monometallic countries.
298 TIIE CASE AGAINST BIMETALLISM.

Of course, if all countries were bimetallic, supposing that to
be a possible arrangement, exchanges would be steadier, just
as they would be if all were monometallic upon the same
basis. So much may be granted on this head to the
bimetallist argument.

But what would be the advantage of this increased
steadiness of exchange? As we have seen, the exchanges
in any case are likely to be fairly steady ; great fluctuations,
when they do occur, are not so harmful to trade as they are
often supposed to be, while foreign trade, after all, is only
a fraction of the business of great countries. In any case,
unless there is universal bimetallism, bimetallism will only
help to steady the exchanges in certain circumstances, and
will have no effect in other circumstances which are just
as likely to occur. - Can the increase of steadiness which
bimetallism may give, therefore, be worth any great price,
so long as there is no universal bimetallism? Is universal
bimetallism worth aiming at for the sake of mere steadiness
of the exchanges? I cannot but think that, when really
looked at, the alleged superiority of bimetallism in this
respect, as in regard to its promise of more abundant money,
amounts to very little.

But what of the great evils sustained by the Indian
Government through the fluctuations of silver and the
exchanges P by Anglo-Indians who receive salaries in India
and have to remit in gold? and by banks, insurance com-
panies, and others who have invested in Indian securities ?
Is it not desirable, to obviate these evils, that bimetallism
should be made. to operate as far as possible—that is, in the
circumstances when it will steady the exchanges—and that
there should also be univerzal bimetallism? To this I
would reply that, so far as the Indian Government is
concerned, and the Indian community generally, the evils
THE CASE AGAINST BIMETALLISM. 299

of the fluctuations which have occurred have been enormously
exaggerated, The difficulty of the Indian Government and
people, so far as it is a real one—that is, so far as the
changes between silver and gold impose any additional real
burden on the Indian community, which can only be if gold
has appreciated — will not be affected at all by India
becoming bimetallic. The Indian Government would receive
silver just as they now receive it, and this would not help
them with the increased real burden of their gold payments.
England might help India by becoming bimetallic, and so
arresting the rise in gold or fall in silver, because England
has much gold to exchange for silver; but this would be
gratuitously altering our monetary system for the sake of
a temporary advantage to India. If gold, on the other
hand, has not appreciated, and silver has really depreciated,
the difficulty even of the Indian Government can only bo
transitory, pending the adjustment of all prices and pay-
ments in India. As to Anglo-Indians who receive salaries
in silver and have to remit in gold, their case is no doubt
a hard one, though to some extent the hardship is exag-
gerated. They are not worse off than annuitants were in
this country after the gold discoveries, when all prices rose
and their salaries or annuities did not. Here, again, to
introduce bimetallism would be to make a permanent
alteration in a monetary system to meet a temporary evil.
Much the same may be said of the question of investments
_ by banks, insurance companies, and others in silver
securities. They have suffered a temporary loss at a time
of great fluctuation, and at the present moment there is a
difference of about three-cighths in the rate per cent. which
the Indian Government has to pay on its rupee compared
with its sterling loans, showing the premium which inves-
tors here charge for the additional risk of an investment

a:

|
300 THE CASE AGAINST BIMETALLISM,

in a silver security compared with a gold security. But

| as the exchanges become steadier even this premium will,
no doubt, diminish. It cannot be said that the flow of
capital from gold to silver countries is seriously checked by
the want of bimetallism.

Yet another advantage is alleged for bimetallism, viz.,
that the standard of value set up by it will probably be more
stable from period to period than a standard of one metal
only. And on the doctrine of chances it would seem there
is, perhaps, some foundation for this statement. There is
some probability that the chances of one metal fluctuating in
value in reference to itself from period to period, will be
partly compensated in a double standard system by the
chances of the two metals not fluctuating in the same direc-
tion. But in this matter, it seems to me, the doctrine of
chances is not a sufficient guide for action. The preponderant
probability, on one side or the other, is not very great—it
appears something like two to one in favour of bimetallism ;
whereas, for a guide to action, the probability should be so
great as to amount almost to certainty. The assumption on
which the doctrine of chances is appealed to is, moreover, not
quite warranted. In real life, it may be assumed, nations
will not be constant in their monetary arrangements. In the
future, as in the past, changes of price, political aspirations,
the love of imitation, and hundreds of other motives, will
induce one nation to change gold for silver, or silver for gold, .
or to give up bimetallism for one or the other metal. The
result may well be that, after a long lapse of years, the
change of one metal in value in reference to itself will be no
greater than the change in the combination of the two. In
any case the differences over long periods in the relative
stability of monometallic and bimetallic standards of value
hardly seem an object worth any great concern to a State.
THE CASE AGAINST BIMETALLISM. 801

So much for the negative criticism of the alleged superio-
rities of bimetallism to the opposite system. But there is
another side to the criticism. May there not be positive
_ defects in the bimetallic proposal, which would counterbalance
even greater advantages than any that seem to be promised ?

As far as what may be called particular bimetallism
is concerned—that is, the bimetallism of one or two countries
only, as distinguished from universal bimetallism—there can
be little dispute, I believe, of the existence of such great
defects. For particular States to be bimetallic is, in fact, to
condemn themselves to the misery and nuisance of constant
alterations of the money in use. M. Wolowski argues that
this is a minor matter, alleging that a country like France
suffers nothing by constantly changing its money in use;
but history is against him. Since he wrote, France has shown
its practical fear of the consequences of bimetallism by sus-
pending its silver coinage, and this was only in accordance
with the previous experience of other countries. Lord Liver-
pool dwells upon this misery at certain periods in English
history, as one of the reasons which decided him against a
double standard. Those who have any curiosity in the matter
may be referred to Lord Liverpool’s treatise (p. 57 e¢ seq.),
but the following summary may give some idea of his
argument :—

“The evils resulting from the fluctuations in the relative prices of
these metals do not appear to have shown themselves in any great
extent, or at least to have been the subject of general complaint, till the
reign of James I. At this last period these evils were felt in a most
alarming degree... .. In the first years of the reign of this monarch,
the complaints of the exportation of the gold coin, on account of the luw
value at which gold was then estimated at the Esglish Mint, compared
with the value at which silver was then estimated, were great and
incessant. To remedy this evil, King James raised the value of gold in
bis coins by successive proclamations, but he at last raised it beyond the
jue proportion ; so that during the remainder of his reign, and the whule
302 THE CASE AGAINST BIMETALLISM.

of the reign of Charles I., the silver coins were in their turn exported, and
a very small quantity of these last remained in circulation. The com-
plaints of the want of silver coins were then as great as the complaints
of the want of gold coins had been before. During a short period in the
middle of the seventeenth century, the relative prices at which the
precious metals were estimated at the Mint in our cvins, appear to have
been in a sort of equilibrium, or to have maintained a due proportion
with the prices at which they respectively sold in the market. But in
the fifteenth year of the reign of Charles II., that is, in the year 1663,
when a new estimate was made of the relative value of gold to silver at
the English Mint, that of gold was underrated. .... A general coinage
took place by the advice of Parliament in the reign of King William III.
After this recoinage the gold coins passed in payment at a higher value
than that at which they were still rated in the Mint indentures, or than
the relative value of gold to silver at the time would justify ; not, how-
ever, by authority of Government, but by the general consent of the
people. The consequence was that the new silver coins began im-
mediately to be melted down and exported, notwithstanding the very
great charge which the public had incurred in recoining them. A very
considerable part, in the course of not more than seventeen years, had
disappeared, and there was found to be a want of them in circulation.
The same deficiency in the number, as well as the weight of the silver
coins, has remained to the present day, to the great inconvenience of
your Majesty’s people. From the beginning of the reign of James I. to
the period of which I am now speaking, gold and silver coins were
alternately exported, for the reasons just stated, to the great detriment
of the public, as often as individuals could profit thereby.” *

These were the practical reasons given at the beginning
of this century for adopting a single rather than a double
standard, and the mere statement, confirmed as it has been
by the subsequent experience of France, is enough. No |
country will endure the misery and nuisance of the incessant
change, and M. Wolowski’s allegation to the contrary is
singularly unfortunate. In England especially there is a
special reason against the alternation in its expense. There
is no seignorage on the standard coin at the English Mint,
a feature of importance in our monetary system. Whether
it is good or bad, it would have to be abandoned in a

* Lord Liverpool on the ‘‘ Cuins of the Realm,” pp. 117, 118,
THE CASE AGAINST BIMETALLISM. 303

bimetallic system. It could not be proposed that the expense
of an incessant recoinage should be thrown on the country.

To some extent the misery inflicted by these alternations
appears to arise from their depriving the people of the
peculiar sort of money they want, so that bimetallism really
thwarts the natural inclination of communities in choosing
their money. It is a procrustean rule under which the State
forces, or attempts to force, an overrated metal into use, so
that a country wishing to have gold may be made to take
silver, and vice versd. That nations have their wishes in
such matters is not only proved incidentally by the continual
outcries in England in the seventeenth century, but by
numberless facts, such as the difficulty Germany now ex-
periences in keeping the gold it has acquired at so much
expense and disturbance to the money market, the refusal of
California to take greenbacks in the American Civil War,
the liking of the Americans and of almost all English-
speaking communities for gold rather than silver, the diffi-
culty of floating a note-circulation in India, the preference
in Scotland and Ireland for £1 notes to sovereigns, and
other phenomena of a similar kind. The most significant
event of the sort, however, was perhaps that adoption of gold
by England after 1696 in place of a new silver coinage by
the free choice of the people without its being legal tender,
described in the above quotation from Lord Liverpool.
Those who talk of legislation being able to constitute a
demand for money, and being all that is necessary to do so,
may be referred to such facts as these. Bimetallism, pro-
ceeding on the same assumption, also stands condemned by
the facts.

It may be urged that now it cannot matter toa nation
which metal it employs for a standard, because the real
standard is now bullion only, and all the coins in use are
304 THE CASE AGAINST BIMETALLISM.

substantially token coins, used only for small change,
whether they are of gold or silver. Mr. Lowe’s scheme, as
described in the Fortnightly Review of last month,* also
assumed that standard coins of gold could be dispensed with.
But it may be doubted if, even in England, we have yet got
to the stage of wholly dispensing with coins in use of the
standard metal. For travelling, and for settling minor
balances between countries, gold coins and not gold bullion
only are still useful, as silver coins or silver bullion would
not be. Apart from this, the greater convenience of gold for
storage and for the handling of banks and other institutions
which have to deal in it, would make it naturally to be
preferred by the richer countries; and, whatever may be the
case here, it is quite certain that many nations are still in
a state to require coins of the standard metal in use, and
particularly the silver-using countries. So far as such pre-
ferences still exist, bimetallism would tend to thwart them.
It would at times create in a country which naturally likes
silver, a premium on the export of that metal; and at other
times, in countries which preferred gold, a premium on its
export. This would be obviously a daily and hourly draw-
‘ back to bimetallism, if any country thinks of adopting it, to
be set against the possible advantages it may confer. It will
be answered that under universal bimetallism nations will
be able to use whichever metal they want, and to what
extent they want; but so far as they do so, and do not use
both equally, bimetallism will be inoperative. If they are
‘not to have both metals in use as standard money, they
might as well be monometallist at once.

Having mentioned these drawbacks, we need not dwell
on others. It is plain that bimetallism, if it does any good,
will have many counterbalancing disadvantages, whether it

* July, 1879.
THE CASE AGAINST BIMETALLISM. 805°

is particular or universal. But the catalogue is far from
exhausted. For instance, the difficulty of making such sub-
sidiary arrangements as the exemption of standard money
from seignorage, now so conveniently made in a mono-
metallic system, would soon be felt. There would also be
an obvious difficulty, under particular bimetallism at least,
in finding a means of bullion remittance as compared with
the present system. In remitting now to a country where
gold is used, any one at need can draw a cheque ox his
bankers and get the gold he wants. Under bimetallism he
might be offered silver, and consequently have to purchase
gold in the market. Under universal bimetallism the
difficulty would be the same. Gold and silver ex hypothest
would be equally available in paying debts, but money is not
wanted exclusively to pay debts with; a particular sort of
money is wanted for special purposes, and all choice of this
sort would be at an end. In effect, also, the use of either
silver and gold in prescribed quantities in paying debts,
though it avoids in appearance the fixing of a legal ratio,
does fix a ratio in reality. It alters the demand for gold
and silver from what it would be if communities merely
selected the money they wanted according to their
convenience, and pro tanto diverts and hinders the natural
development of the industry of working the precious metals.
It is not to be assumed certainly that this interference with
natural taste will be more successful with gold and silver
than it has been with other commodities. But passing over
all this catalogue of objections, let me only urge that, as
a practical measure, proposed to a country like England,
bimetallism will be objectionable, because it is an alteration
of a system rooted in our habits, to which we have become
accustomed as the air we breathe, and which we have
acquired with much cost and effort after long experience,
x

:

\
806° THE CASE AGAINST BIMETALLISM.

of many bad systems. Even if the other advantages of
bimetallism very much outweighed those of the opposite
system—and the exact contrary is the case—would not
the mere trouble of alteration be an overwhelming dis-
advantage? The old authorities on English currency might
be invoked to bring even stronger arguments. The em-
phatic protests of Locke and others against any alteration
of a standard once chosen, as necessarily involving injustice
and a violation of contracts, are not to be forgotten, though
it is not necessary to our argument here to dwell upon them.

Finally, it remains to be urged that bimetallism,
admitting the balance of advantages to be in its favour,
and that all other objections are got over, is not practicable
in any proper sense of the word. Of course theoretically
any particular Government adopting bimetallism, and willing
to force its subjects to endure the nuisance and misery of
incessant changes in their money, which always occur when
bimetallism is really operative, may introduce a bimetallic
law. But to have such a law is not to have the two metals
actually in use, which is the object aimed at, or to obtain
for a country most of the other alleged advantages of
bimetallism. The advantages it procures will be for others,
and sooner or later, therefore, any single country trying
bimetallism will abandon it, as France has so lately done.
Nations are not philanthropic to the extent of sacrificing
themselves for the good of others. A group of nations
trying bimetallism will experience the same results and
follow the same course. The only chance for bimetallists
then is the possibility of their scheme of universal
bimetallism being tried. But can any one dream of such a
consummation? Who is to draw the treaty? What power
of persuasion will bring all countries and governments to
accept this gospel? ‘The initiative must clearly come from
THE CASE AGAINST BIMETALLISM: 807

a

the great Governments, those of England, France, Germany, _
Austria, Russia, and the United States. But only a ~
dreamer could imagine such Governments agreeing on the
principle, on the ratio to be fixed, and on all the subsidiary
arrangements necessary; and then uniting to persuade
their smaller neighbours, the dissent of almost any of whom
would be fatal. So strong has this objection seemed that,
for no other reason, Mr. Bagehot and other monometallists
have steadily declined to discuss bimetallism. The reluc-
tance is surely not to be wondered at. Even if there were
no other difficulty in the way of universal agreement, there
is one which would probably be fatal—the risk of particular
countries over-issuing paper. The Latin Convention has
been a practical failure as regards Italy for this reason, so
that universal bimetallism to be really effective must regulate
paper as well as coin issues. If it does not, the world will
be no more bimetallic than it is now.

What may be urged more strongly, however, on the
score of the impracticability of universal bimetallism, is the
probability that great mercantile communities may have a
mind of their own in the matter, and may not accept
bimetallic money. It is amazing to see how the discussion
is carried on, as if a Government had only to issue its fiat,
and bimetallism would come into use. Enough facts have
been stated in this paper to show that mercantile com-
munities themselves exercise choice in this matter, as
England did after 1696; and that bimetallic legislation
would not necessarily be followed by corresponding practice.
Have bimetallists then any reason to believe that England, |
which freely chose gold in place of silver in 1696, would \
now reverse its choice, now when it is so much richer and so
much more a centre of international payments than it was
two centuries ago? Have they reason to believe that the

x2
5

508 THE CASE AGAINST BIMETALLISM.

Californians who rejected greenbacks would submit to take
any money the Legislature chose to give them ; or that the
New York banks would reconsider their late decision not to
accept any of the silver coins which Government had just
issued as full legal tender? ‘These and other questions
must be answered in the affirmative, and with conclusive
facts in support of them, before bimetallism can be talked
of as a practical scheme. And no one who knows the
business world of London will fancy that, as regards this
country, the question would be answered in the affirmative.
Leading exchange brokers and bullion dealers have bi-
metallist leanings; they would like if bimetallism could be
introduced into any country. There is a half-notion at this
moment among some merchants, especially in the Eastern
trade, that as bimetallism has so much said for it, it might
be tried, though it may be doubted how far this notion
would stand the test of actual experiment; but so far as I
can judge of City feeling in general, the attempt to force
bimetallism on the mercantile and banking world of this
country would produce an instant revolt. The slightest
approach to “actuality”? which bimetallic theories may
attain, would soon bring out the real strength of the feeling
or prejudice in favour of the present system which exists
throughout the City.

The case against bimetallism thus appears to my mind
overwhelmingly strong, and the dislike manifested towards it
seems accounted for. Its boasted superiority over the single:
etandard consists in the promise of abundant money, which
it does not and cannot fulfil, and which its advocates give in
a way that taints their entire argument with unsoundness ;
in the promise of greater steadiness in the exchanges which
it will only keep in certain circumstances, while it does not
ically matter whether the promise is kept or not, as the
TILE CASE AGALUNST BIMETALLISM. 309

exchanges in any event will usually be fairly steady ; and in
the promise of greater stability in the standard of value from
period to period, which it may fulfil in certain circumstances,
but where, again, the alleged advantage seems really im-
material. Ou the other hand, whether particular or universal,
the system will be attended with no small inconveniences,
such as incessant change of the money in use, and interference
with the natural taste of communities in the choice of their
money, which have formerly caused great outcries; and in
England it would have the undoubted evil of altering a long-
established and excellent system, which is based on experience
and has answered in every particular the ends of its de-iguers.
Bimetallism, moreover, is really impracticable. If one or
two or even more natiuns try it, they do not succeed in
getting the two metals in use, and it is not even conceivable
that all should agree to try it. Moreover, whatever Govern-
ments may say, it does not follow that great mercantile
communities will be obedient, and the chance of their pre-
ferring monometallism is an element of difficulty to be
reckoned with. Such a scheme does not seem entitled to
any favour. As founded on the assertion of vague and in-
definite evils, which cannot exist in a community possessing
a sound metallic currency, as promising vague and indefinite
advautages, and as utterly and hopelessly impracticable, even
if it should be tried, it seems really liable to all the dislike
which sober business men entertain towards flighty currency
projects. Matters in its favour are not mended by the talk,
which I have not thought it worth while to discuss, about the
ratio of 154 to 1 being the result of providential arrange-
ment. If bimetallists are sometimes reviled as lunatics, and
economists like Mr. Bagehot can hardly be brought to over-
eome their disgust at the argument for bimetallism, so as to
turn aside even to discuss it, they are surely not without
310 THE CASE AGAINST BIMETALLISM.

excuse. Mathematicians do not st»p to argue with squarers
of the circle, or with reasoners that the earth is flat.

One more remark by. way of supplement. A former
controversy on this subject arose out of the suggestions for an
international money, which were so common ten or fifteen
years ago. ‘Those who attach great importance to the world
haying such a money, will regret that the case against
bimetallism is so strong, as it is only in such a scheme they
can at present see a way to theirend. To attempt to reach
it by means of the opposite system implies an extensive de-
monetisation of one metal or the other, which is not to be
thought of at present. But the idea of an international
money, in the present stage of the world’s ec.nomic progress,
is really premature. Nations generally are not yet so closely
interconnected as to make it worth while that all should
have the same money, to which there are many other obstacles
—such as over-issues of inconvertible paper—as well as the
differences between gold and silver. We may well leave
future generations, therefore, to deal with this question, con-
tent to do the best we can with the monetary arrangements
in our power. As the need for international money increases,
the means for introducing it may also be prepared, as they
would be prepared, for instance, by the gradual introduction
in all countries of the use of gold for large payments, the
general use of silver in token coinage only, the increasing
wealth of the world causing a great increase of the demand
for token coinage, and the extension of economising expe-
dients, so as to lighten the strain upon the dearer and
standard metal. An international money upon a mono-
metallic basis is thus a possibility of the future, and there

is no need for precipitating matters by impracticable
schemes.—[1879.]
XIV,

ON THE FALL OF PRICES OF COMMODITIES
IN RECENT YEARS.*

TuErE is a general agreement that during the last few
years there has been a heavy fall in prices. The fall in
cotton and iron, and the various manufactures of cotton and
iron, is notorious, and for the rest the losses in trade, in
almost every description of business, have been such as to
leave no doubt of a fall in price. It is usually a fall in price
which cripples the weaker borrowers, and causes bad debts,
and this makes a beginning of losses by which stronger
borrowers are in turn crippled, farther falls in prices ensue,
and more bad debts and losses are produced. When we
see so many failures as are now declared, therefore, we may
be quite sure that they are preceded and accompanied by
a heavy fall in prices. But the question for statisticians in
such a matter is not the fact of a general fall, but whether
it can be measured and compared with other facts of a similar
kind, and whether there is anything to show the fall to be
of a more or less permanent character, and not merely a
temporary fluctuation which will be corrected by an im-
mediate rebound; in other words, whether the average of
two or three years, including the present, will or will not

* Read before the Statistical Society, 21st January, 1879. The
tables referred to in the paper are not reprinted here, but will be found
in the Statistical Society's Journal of March, 1879.
312 ON THE FALL OF PRICES

exhibit a decline when a comparison is made with a date
two or three years back. Looking at the matter in this
more definite way, I have come to the conclusion that not
only is there a decline of prices at the present time from the
high level established a few years ago, but that this decline
is more serious than the downward fluctuation of prices
usually exhibited in dull times, and that it may be partly
of a permanent character unless some great change in the
conditions of business should occur at an early date. I think
this can be shown without difficulty with the help of some
well-known figures which have been published lately, and
which I propose to analyse and sum up, after which I shall
proceed to discuss the causes of this apparently serious decline
in prices, and some of the probable consequences.

1—THE EXTENT OF THE FALL.

To take the matters in the rough first: we may see what
the general fall of prices has been by which the popular
impression has been created. or this purpose I have made
use of tables of prices of certain leading wholesale com-
modities which I prepared for a series of articles commencing
in 1874 and continued for several years. From these tables
I have extracted the prices on the Ist of January, in
each year, carrying them back for the sake of comparison
to the Ist of January, 1873, which was the period, as
we shall see, of maximum inflation during the late
prosperous period, and bringing them down to the Ist of
January of the present year. The result is seen in the first
table of the appendix to this paper, which certainly gives
the impression of a tremendous fall, continued as regards
almozt every article from the time the table begins. Thug
OF COMMODITIES IN RECENT YEARS, 313

Scotch piz iron, which is the first on the list, falls from 127s.
to 107s. 6d. the following year, and then to 80s., 64s. 8d.,
57s. 6d., 51s. 6d., and 43s., the fall in the end amounting
to no less than 66 per cent. of the original price. In Straits
tin the fall is from £142 per ton in January, 1873, to £120
the following January, and then to £94, £82, £75 10s,
£66, and £61, the fall in the end amounting to 57 per cent.
of the original price. To pass from the metals to the
raw materials of the textile manufactures, we find the fall in
cotton to be from 10d. per lb. in January, 1873, to 84d. in
the following Janua’y, and then to 74d., 7d., 6Zd., 64d., and
53d., the fall in the end amounting to 46 per cent. of the
original price. In wool the fall is from £23 per pack in
January, 1873, to £19 15s. in January, 1874, and then to
£18 5s, £17 10s, £16 10s., £15 10s., and £13, the fall in
the end amounting to 43 per cent. of the original price.
The fall is not quite continuous in all cases. In wheat, for
instance, although the fall in the end is from 55s. 11d. to
39s. 7d. per quarter, or equal to 29 per cent. of the original
price, we find the price in January, 1874, to have been higher
than in January, 1873, while in 1877 and 1878 the price was
nearly as high as in 1873. But in a good many instances
at least there is a continuous and steady decline, and in
some instances of intermediate reaction, as in the case of
sugar, the recovery appears to have been for a short period
only. As regards sugar itself, the price of 22s. in January,
1877, stands out isolated among the years of low price on
either side. Altogether there are sufficient instances of a
continuous decline, and of other instances where the inter-
mediate recovery was very brief, to justify us in speaking
of the whole table as showing not only a heavy, but for the
most part a continuous, fall in the prices of commodities,
which commenced in January, 1874, and has lasted to the
314 ON THE FALL OF PRICES

present time. Of course this must be on the assumption
applicable to all such tables, that the articles are really re-
presentative of the wholesale markets. Short as the table is,
however, I believe the articles ure fairly selected, and they
have at least this advantage, that they were selected in
the beginning of 1874, with a view to recording current
prices in a convenient and easily handled form, and have
not been put together ex post facto for the purposes of the
present paper.

To show how heavy the fall is, comparing simply
January, 1873, with January, 1879, I have made up the
following table :—

Prices of Leading Wholesale Commodities in January, 1873 and 1879,
compared,

 

Fall in 1879.

 

 

January, | January, Proportion
1873. 1879. Amount. eeoreie
1873.
Scotch pig iron ....... eee. per ton) 1275. 43s. 84s. 66
Coals: scccsrerecsiosnsessinaiees 7 308. 19s, IIs. 387
Copper, Chili bars....... me 5 gil. 57k 344, 37
Straits tin ........ceceeeeees a5 1421 612. 811. 57

Wheat, Gazette average. per qr.' 55s. 11d. | 39s. 7d. | 16s. ql. 29
» & Nee yee | per bshl.| $1°70 $1:10 | $0 60* 35

 

Flour, town made ...... per sack] 47s 6d. 37s tos. 6d, 22

» New York price. perb Jl. $7°5 $370 | $3 80* bl
Beef, inferior ............ per 8 lbs} 3s rod | 2s 10d. Is. 26

») prime. small ...... 3 gs. 34 | 4s. 9d. 6d. 10
Cotton, mid. upland ... perth.) rod. 53rd. Aad. 46
Wo ollisecieinasene.costete sesiavt per pack] 23/. 131. Iol, 43
Sugar, Manilla Musca... per cwt.| 215. 6d. | 16s 5s. 6d, 26
Cuffee Ceylon, good ord. ,, 80s. 65s. 5s 19
Pepper, black, Malabar. per lb.) 7d. 44d aad. 39
Saltpetre, fureign......... per cwt.| 29s 19s, 10s. 34

 

 

 

 

* The fall in the latter of these two cases appears to have heen
affected by the appreciation of the paper money in the United States,
OF COMMODITIES IN RECENT YEARS. 315

A table like this speaks for itself, and fully justifies the
popular impression of a great and general decline in the
prices of commodities. J think it even strengthens the
impression. We should hardly have suspected beforehand
that prices of wholesale articles not selected with a view
to make out a case, but impartially chosen years ago as
representative of the markets, would exhibit a fall in the
last six years, ranging from 66 per cent. in the most
extreme, to 10 per cent. in the least extreme case, and
ranging, with three exceptions only, between 26 and 66
per cent. So great a change would seem to make it
probable both that unusual causes have been at work, and
that unusual effects have been produced.

We come then to the question which we stated at the
outset, viz., whether the primd facie impression is correct,
and the fall is anything more than what has happened before,
in the change from a period of inflation to a period of
depression. To help in a solution of this question, I have
availed myself of a table which was drawn up and is
continued annually in a well-known “ Commercial History
and Review,” by a distinguished Member of this Society,
whom it is not necessary for me to name. In this table (see
Appendix Table II.) a certain value, 100, is assigned to
each group of a considerable number of articles in respect
of the average prices of these articles in the years 1845-50,
the value of all of these together forming the index number
2200. The prop rtionate results in each year or period of
years since the above date are then deduced, the sum of
‘ 100 being added to when the price has risen and subtracted
from when the price has fallen, and the results for each
year being added giving a new index number. ‘The net
result now is the following series of index numbers, the one
for January of the presont year being my own addition,
316 ON THE FALL OF PRICES

and being subject of course to the correction of the author
of the table when he continues his work :—

Date. Index Number.
1845-50 Average six years... we eee eee 2200
To Ast July eee eee eee ee eee 2996
58 1st January so aie: odes othe eet WOR
65 ‘ dds Kew. Ses. ase ee 3575
66 mS fen eee “eee dee See! 3564
67 < soe Rie REED Gee awe - GOZH’
68 ‘7 jes). ceo yeay caver -eee> 32082
69 ¥ wie Wee hee Gast Ge 32606
70 9 Stay inna. ae ee 5. 72089
"71 + Sas agen Bea bee avs ZEOO
712 3 ees: “BEG wee Bel. sane 2835
73 Y See ay dese bse! ene 2047,
"14 ss ee ee eee wes aur, 28QE
"15 7 wie ah owe. ak ane 2778.
"76 es ioe. Hee - aie 488 2711
"TT a eel, Aeon ge “eapce ga APTS
18 <3 seid Mehl ute. See Guar’ 255A:
"19 - a) (Sin! ade Ges ge eo 7

According to this, comparing January, 1878, with the
present time, we have a change in the index numbers from
2947 to 2227, which is equal to a fall of 24 per cent. on
the average. It appears, however, that between 1865 and
1871 there was a still greater fall, the change in the index
number between these dates being from 8575 to 2590, or
equal to 27 per cent. Great as the fall in recent years has
been, therefore, it would appear that on striking an average
it is more than paralleled by what happened in the im-
mediately preceding period of depression. The explanation,
I believe, is that in 1865 the index number was excessively
raised by an exceptional circumstance, the great rise in
cotton and cotton goods owing to the American War; but,
apart from this exceptional circumstance throwing out the
comparison of the former period, the recent decline is

* The index number eventually published was 2202. See & Essays
in Fiuance,” Second Series, p. 19.— Evition 1886.
OF COMMODITIES IN RECENT YEARS. 817

greater than that which followed 1865. Without any such
exceptional occurrence to raise prices at first, there is finally
on the average, according to this table, a deciine of 24 per
cent. I may add, perhaps, though I should be most un-
willing to criticise the construction of the table, that it seems
to me to give an excessive weight to cotton and wool, and too
little to the metals, while coal is altogether omitted. The
result is that changes in the price of textile articles affect
the table much more than they would affect a similar table
into which the metals entered more largely. On the other
hand, considering how textile articles enter into general
consumption, the table may be more perfectly representative
of general prices than if the index number were differently
composed.

But while this table does not show that the recent
decline of prices is without a parallel, it indicates another
fact of no small importance for the present inquiry. This is,
that the closing index number approaches most nearly of
all to that of the average of 1845-50. That average is 2200,
but in all the years named, including 1857 and 1858, and
every year from 1865 inclusive, the lowest index number is
higher than that for January, 1879. The lowest of the
previous depressions following 1865 was 2590, but the
figure now touched is 2227 only. Even therefore if the
fall from the highest point of the previous inflation is now
less than it was after 1865, we have still to consider that
the inflation from which there is now a fall was not aggra-
vated as that of 1865 was by a cotton famine, and that
the descent is now to the lowest level of prices which appears
to have been touched since 1850. In other words, we seem
to have been getting back in our years of depression to the
average prices of the period just before the Australian and
Californian gold discover.es began to tell on the markets
318 ON THE FALL OF PRICES

of the world. This does not mean of course that prices are
getting back to that average; we seem yet to be a certain
way from that point; only that in our years of depression
we touch a point much more nearly approaching that
average than we did in the years 1868 and 1869.

Passing from these figures, I come to certain tables
which were prepared last summer by my friend Mr. Arthur
Ellis, one of the young Members of this Society, and who
has already been a credit to us. As a supplement to the
Statist of 9th June last, he published a long essay on the
“Money Value of Food and Raw Materials,’ in which he
compared the prices of 1859, 1869, 1873, 1876, and the
first quarter of 1878, using for that purpose a new species
of index number, based upon the relative amounts of
articles imported, with certain additions for articles pro-
duced at home. The principal results of this procedure
are exhibited in two tables, which are reprinted in the
Appendix (sce Appendix III.), and of which we have the
net effect in the following short table in the body of |
the article :—

 

Relative Cost in

 

 

 

 

 

 

Index
Meee) aay, | TO | aaze. || gaze. | 1878
Standard, Be
Foods......... 53 49°780 | 53-000 | 60:230 | 56-010 | 6o'550
Materials ...) 47 | 41-790 | 47-000 | 54°830 | 40-600 | 37-925
Aggrezat : ,
Be sas \ 100 91°570 j 10 YU0 | 115060 | 96610 | 98-475

 

 

 

 

 

In other words, taking 1869 as the standard, we find
that in 1873 the average prices of food and raw materials
according to this mode uf computation had risen about 15
OF COMMODITIES IN RECENT YEARS. 319

per cent., but in 1876 they had fallen rather more than
3 per cent. compared with 1869, and in the beginning of 1878
were 13 per cent. below the 1869 level. Considering the
great fall of prices which has occurred since these tables
were prepared, they may be considered to confirm fully
what has been deduced from the above figures, that there
has been a fall to a lower level during the present depression
that what was established after the inflation of 1865. Even
at the beginning of last year prices were lower than they
had been in 1869, and there has been a great and general
fall of prices since the beginning of last year.

A noteworthy point in this table is the circumstance that
the fall is almost exclusively in raw materials. Since the
table was prepared, however, there has been a great fall in
articles of food, which are now at a low level of price like
other things.

I have yet another set of figures, which you will perhaps
allow me to refer to befure I leave this question of the
extent of the fall of prices in recent years. In a report
which I have lately prepared for the Board of Trade, on
the prices of our exports, copies of which are just being
circulated, I have first of all shown in detail the prices of
the various articles of our export trade, as deduced from
the declared quantities and values in each year from 1861
to 1877, and I have then endeavoured to show the average
rise or fall in price, taking 1861 as the basis, by the above
method of an index number, using the actual proportions
of the value of the exports of each article to the whole
value exported in calculating the average rise or fall of
price. The result, I find, is that in the under-mentioned
years, assuming 73:1 as the index number, that being the
proportion of the value of the enumerated articles of export
to the whole export values, the following additions or
820 _ ON THE FALL OF PRICES

deductions would fall to be made according to the average
changes of prices as compared with 1861 :—

TS6S— ‘sis aoe | Gaw? “ae See Gen ee R27 E
WBS) voce Bede Geage koe, eddie ates esse 820260
168 gee aes aoe ee eee ee tes SE 99D.
TS sin aes See WH nee Gee awe, SP 8-O
MTG cease Rew See ees Ge eee ee CSE PZ.
TT deen ae (Mba he eae. Gees ee, DIO".

Here, again, without allowing for the great fall of prices
in 1878, we find an indication that prices are now at a
much lower level than they were after the depression of
1865. In 1868 the index number is still 9:99 above the
level of 1861, but in 1877 it is already 2°04 below that
level, while in 1878 there has been a fall below 1877.
Curiously enough also it would again appear that in 1865
prices rose to a higher level in a time of inflation than they
have since touched. The fall now is from a lower height
than the fall after 1865, though a much lower depth has
been reached. Of course this table only deals with exports,
but in that respect it is supplementary and confirmatory of
the above tables of Mr. Hllis’s as to food and raw materials,
which are mainly based upon the imports.

The general effect of all these figures may now be
summed up. First, it has been shown by a general table
of prices at the beginning of each year, from 1873 to 1879
inclusive, that there has been a general and remarkable
fall in the prices of wholesale commodities in the period,
this fall having also been to a large extent continuous,
and amounting in the end, with three exceptions only, to
between 26 and 66 per cent. Second, it would appear
from a comparison of prices by means of the index number
in the “ Commercial History and Review,” that the average
fall between 1873 and 1879 is 24 per cent., and that the
level of price now established is lower thau anything
OF COMMODITIES IN RECENT YEARS, $21

recorded since 1850 in the tables referred to, these tables
comprising the years 1857 and 1858, and each year since
1865 inclusive; further, that although the fall between
1865 and 1871 appears greater by this index number than
between 1873 and the present time, yet there is a special
explanation of this, and there is reason to believe the
present fall to be unusually great. Third, it has been
shown by certain tables of Mr. Ellis’s that as regard food
and raw materials, prices at the beginning of 1878 were
lower than in 1869, one of the years of depression following
1865, while prices are now considerably lower than at the
beginning of 1878. Fourth, it has been shown as regards
the prices of exports, that the average in 1877 was con-
siderably lower than in 1868, while the fall to the present
level was from a lower height in 1873 than the previous
fall in 1868-70 from the height of 1865. Allowing for
the further fall of prices in 1878, we are confirmed in -the
belief that prices are now unusually low, and that the facts
shown by the first index number cited rather understate
than overstate the change. In other words, it is ascertained,
by the concurrent testimony of all the facts examined, that
prices of commodities are unusually low, though one of the
sets of the figures would seem to throw doubt on the idea
that the fall from the height of an inflated period to the
present depth is unusually great. The preponderance of
evidence seems, however, to be that there is an unusual
fall, although it began from a lower level than what had
been established in the previous inflated period. I have
not attempted, however, to measure exactly what the
extra depreciation is, though I should be inclined to put
it at between 10 and 20 per cent. below the prices of
1868-71. In these matters great exactness is impossible ;

without waiting to aim at great exactness, I have thought it
¥
222 ON THE FALL OF FRICES

would be useful to bring the rough facts together, pending
the more elaborate efforts which I trust some of our
Members—perhaps Mr. Jevons—may be induced to attempt.

JI—THE CAUSES OF THE FALL. —

To a certain extent there is no doubt or mystery about
the causes of so general a fall of price. They are the samo
as the often recognised causes of similar downward move-
ments. When trade is good a state of things is created in
which a downward movement of prices is sooner or later in-
evitable. A great stimulus has been given to production in
certain favourite industries; capital has been employed in
creating new establishments, or in extending fixed works and
plant ; labourers have flocked into the trade, attracted by the
high wages; at a point the demand is found to be below the
supply, the prices of the manufactured article become
unremunerative, and in time the raw material and labour
employed in the trade are at a discount. The fall is pre-
cipitated moreover by the inability of speculative holders of
stocks to hold on in face of falling markets. At each new
atage of the decline new sales become necessary, till there is
apparently no limit to the fall, just as before there seemed no
limit to the rise. By sympathy almost all markets come to
be affected, the low prices in one market attracting capital
to it, and so weakening other markets, while speculators who
are hit in one department of trade seek to cover their losses
by sales of some commodity or stock which has not de-
preciated. This is the ordinary explanation of a general fall
in prices; and the only feature in the late decline it would
not explain would be the long continuation of that decline,
and its renewal from time to time when many circumstances
appeared to combine in favour of a new upward movement.
OF COMMODITIES IN RECENT YEARS. 323

This feature is, however, quite consistent with the usual
course of a general fall of prices, though it has seldom, per-
haps, been so prominently brought out as during the recent
fall. In almost all markets there is constant action and
reaction as well as the more general tidal movement which
attracts attention when the course of prices for several years
is looked at. It depends upon minor circumstances, we
might almost say accidents, whether a given reaction will
amount to a turn of the tide or not. If these minor circum-
stances are unfavourable for a time, the definite turn of prices
upwards may be retarded, although the circumstances may
be of a kind that when trade is stronger they would have
little apparent effect. In this way it is quite possible, for
instance, that the wars and rumours of wars during the last
three years may have retarded the recovery in prices which
is sure to come sooner or later, although trade is often brisk
in time of war and amidst great political disquiet, as was the
case for instance in 1870-71 during the Franco-German War.
The great prolongation of the late decline, therefore, is not
inconsistent with what we may expect at times when there is
a general fall of prices.

We have something more to account for, however, than a
general fall of prices, viz., the lower level which haz been
reached as compared with the last period of depression.
This may be accounted for in part by the circumstance that
the rise from which the present decline has taken place was
not to so great a height as the rise which preceded the former
decline ; although a lower level has now been touched, the
recent movement may be no greater; but even if we had not
this explanation, or if it did not account for the entire descent
which has taken place, there are not wanting special circum-
stances which go far to account for this great descent, as well

as to account, if necessary, for that prolongation of the
¥ 2
382k ON THE FALL OF PRICES

decline which has been referred to. Among these circum-
stances I would notice first the extremity of the discredit in
recent years, and the piecemeal way in which the failures
and disclosures causing the discredit have occurred. It is
difficult in such matters to compare one time with another,
and probably in every time of depression there isa feeling
that things were never so bad before. I recollect perfectly
well after the 1866 panic the languid and despairing feeling
which pervaded the City for two or three years, when there was
a prolonged reign of 2 per cent., and for a time discount
houses were barely paying 10s. per cent. for deposits. A
famous article was written at that time in the Edinburgh
Review, on the strike of capital, and people blamed Lord
Clarendon: for having made matters worse than they were
ever known to be before by the explanatory circular he sent
to our representatives abroad with reference to the 1866
panic. The Overend failure had also been unprecedented,
and so people were satisfied that the depression was the
worst. But in spite of the gloominess of affairs after 1866,
it must be admitted, I think, that what came to light then
was not so calculated to cause discredit as the revelations of
the last three or four years. To that period belonged the
Overend failure, the disclosures attending the break-up of ©
acompany mania of a not very extreme type, and some
temporary difficulties of our great railway companies, whose
debentures could not for a time be floated. Within the last
four years, on the other hand, we have twice had commercial
revelations of the most discreditable kind, viz.,in 1875, when
Messrs. Im Thurn and Co., Collie and Co., Sanderson and
Co., and the Aberdare Iron Company all failed, besides many
more, and next in the present year,* when we have had such
firms as Messrs. Smith, Fleming, and Co., Messrs. Heugh,

Balfour, and Co., and Messrs. James Morton and Co., all

* ie, 1878, when the piper was written, although it was not read
till January, 1879.
OF COMMODITIES IN RECENT YEARS. 325

collapsing. Next, there has been perhaps the greatest
‘financial collapse ever known, viz., that of foreign loans,
which has not, so far as known, inflicted incurable wounds
in the banking world as the commercial revelations have
done, but which has dried up the channels of investment,
and reproduced the strike of capital so strikingly written
about ten years ago. Last of all, we have had banking
disasters quite on the scale of 1866, including, perhaps, the
most alarming, I might almost say bewildering, catastrophe
ever known in banking annals, that of the City of Glasgow
Bank. The spectacle of such colossal fraud, and of the
danger run by investors in unlimited banks, seems calculated
to create more distrust, and has, I believe, created more
distrust, than the disaster of Overend’s failure, great as that
catastrophe was. Happily there has not been a panic during
the last four or five years, although the City has more than
once been on the verge of one; but, with this exception, the
circumstances likely to cause discredit have altogether been
stronger in the last few years than they were in and after
1866. Allowing then for the illusion which present evils are
apt to create, there appears to me something in the extreme
discredit of recent years to account for the fall of prices to a
lower level than after 1866, although the real distress in
trade may be no greater. The same result would have
followed from the long continuance of discredit. If the dis-
closures which have been spread over three years had come
‘all at once, say in 1875, perhaps we should have had in that
year a greater panic than that of 1866, and the distress which
is now being felt would have followed sooner, but the re-
action might have come quicker, through the more effectual
clearing of the air. It is at any rate all but certain that in
1875 itself there was a reaction upwards, which was greatly
checked by the revelations of that year, although another
326 ON THE FALL OF PRICES

cause co-operated, viz., a succession of bad harvests, which I
shall presently mention; and again, last year there was a
general feeling that improvement had sent in, when the dis-
turbance in the money market in the autumn, culminating in
the Glasgow Bank failure, at once threw matters back. The
gradual character of the failures and revelations has thus
had something to do with the greatness of the fall in prices.
When just sufficient time has been given for speculators to
take heart, suddenly some new evil breaks out, and prices
tumble, as if from an inflated level, from the lower level at
which they had been fixed in the first effort at improvement.

The second cause I would notice as probably contributing
to the severity of the fall is the bad harvests of the three
years 1875, 1876, and 1877. It has long been an axiom of
economists that nothing so powerfully conduces to depression
in trade, and a consequent fall in prices, as a succession of
bad harvests. One bad harvest among several good ones
may not have much visible influence, but a succession of
them is recognised as a potent cause of mischief. The usual
explanation has been that the bad harvest, leading to a high
price of bread, causes direct distress among the masses of
consumers, that their purchases of staple manufactures fall off,
that the people in the trades so affected also become poor,
and so by a quick round all trades become impoverished. If
a second bad harvest follows the first, and a third the
second, these evil effects are aggravated, and affairs at. last
come to be very bad. In addition, in a country like Eng-
land, which has to import more largely from abroad when its
own harvests are deficient, the bad harvests tend to make the
exchanges adverse, raise the value of money, diminish new
investments, and so injure trade. Whatever the modus
operandi, the bad times following on bad harvests have been
too notorious for the connection to be overlooked. Now,
OF COMMODITIES IN RECENT YEARS. 227

perhaps, we are only beginning to appreciate how bad the
harvests were in this country for the three years before 1878.
The fact that the great rise in the price of wheat and bread
which was formerly considered the worst effect of a bad
harvest, and the most powerful cause of the succeeding de-
pression, has not been observed in recent years, helped to blind
business men to the actual deficiency. But the deficiency
was most serious. The wheat harvest, to begin with, was un-
doubtedly most deficient. According to Mr. Caird, taking
the average yield of the last thirty years to be 100, the yield
of 1875, 1876, and 1877 was respectively :—

TB76 sa: Aine cane Gh eas Sth aan, See 98
BOEG Mass, ait B63. Sait serge cee “cata: Stee, BO
ABET sete aes, anes See des Gad 2 de SFM

In other words, our wheat harvest was deficient by one-
fourth as compared with the average, and much moro of
course as compared with a good year for three years
_fTunning. The usual rise in wheat and bread has not
followed, owing to the very fact that the home yield is
now less important than the aggregate foreign importa-
tions, but other effects of a deficient harvest must have
ensued. Nor was there any compensation, as there often
is in England, in the yield of grass and root crops, but the
reverse. Here we cannot measure the yield in the same
way, but the diminution of the stock of cattle and sheep
in the three years ending 1877 was most marked. In
Great Britain the reduction in cattle was :—

 

 

Stock of Cattle. ae previous
1874 eis ccscueats 6,125,000 —
"TBD sevecseseees 6,013,000 112.000
16) sesevecenn 5,344,000 169,000
TU awecaaeoe . 5,698,000 146,000

 

 

 

 
328 ON THE FALL OF PRICES

—making a total reduction of 427,000 in a@ stock of
6,125,000, or about 7 per cent., in three years. In sheep
the reduction was :—

 

 

Stock of Sheep. ee Pecpions
1874 ......200e0 *30.314,000 —
15 sseessveeees| 29,167,000 1,147,000
"1G scsevievevas 28,183,000 984,000
"TT Secs aaseetes 28,161,000 20,000

 

 

 

 

 

—making a total reduction of 2,153,000 on a stock of
30,314,000, or 7 per cent., in three years, the reduction in
this instance having been almost wholly in the first two
years. Such a reduction clearly implies, I think, some
difficulty in the farming and landowning industry owing
to the diminished productiveness of the industry, although
it may be in part explained by the gradual substitution of
superior for inferior stock—the diminution in numbers
being accompanied by an improvement in weight and
quality—and in part by the substitution of permanent

pasture for other crops, the permanent pasture giving a

larger net but a smaller gross produce. These explanations
do not cover the entire ground, and something is left which
can be placed to no other account than the unproductiveness
of the industry.

Now although these bad harvests have not produced the
effect of raising the price of bread, which used formerly to
cause so much distress and depression in trade and a fall

“in general prices, with the exception of bread, business

men and economists have both perhaps, overlooked what the
result must be of such a succession of mishaps to the greatest
single industry in the country. Mr. Caird estimates the
average annual value of our crops at 260 millions, and if
OF COMMODITIES IN RECENT YEARS. 329

’ the gross produce has fallen off 10 per cent. for three years
running, the cumulative effect on our home industry may
have been very great. Instead of being able to save
largely, farmers and the rural population may only have
been able to save a little, and many, perhaps, have had to
live on their capital, changes which would tend to weaken
our whole internal trade, and diminish the fund for new
investments. In actual fact, I believe it has been a
characteristic of the money market since the spring of
1876, at which date the effect of the bad harvest of 1875
would begin to be felt, that the banks connected with the
agricultural districts have been poorer than they were. Some
have been obliged from time to time to draw upon their
spare money in London, and generally they have not been
transmitting to London the usual large sums they have
been able to send awaiting new investment. Another
consequence of the bad harvest has undoubtedly been
a less favourable foreign exchange, although it was
only in 1878 that this unfavourable exchange culmi-
nated in anything like a serious stringency in the money
market, and that stringency was much less than bad
harvests had often led to in former times, owing mainly, I
believe, to the plentifulness of floating capital throughout
the world, which enabled us to attract with comparative
ease what temporary money we required. Still there has
been a stringency which would tend directly to check trade
and lower prices a little, especially when trade was only
barely convalescent, and which has indirectly checked trade
a great deal by precipitating banking failures, and so
causing much discredit.

It will be said, perhaps, that this unfavourable exchange
was the result of the excess of imports and the wasting of
our foreign capital, of which we have heard so much during
330 ON THE FALL OF PRICES

the last few years. But so-far as the excess of imports
is due to a temporary deficiency of our harvest, I think
it hardly proper language to describe the unfavourable
exchange resulting as due to a waste of capital or to any-
thing very mysterious, when it is the common and familiar,
and also transitory effect of a common, familiar, and also
transitory cause. Everybody allows that bad harvests make
bad times, but unless bad harvests are to continue in-
definitely, of which we have had uo experience, this cause
of mischief will soon be absent; undoubtedly it has helped
to bring about the present extreme depression of prices.

A. third cause which must be mentioned is the extra-
ordinary demand for gold for the new coinage of Germany,
and for the United States on its resumption of specie pay-
ments during the last few years. It is a little difficult to
consider this point except in connection with the question
of the supply of gold, and any variation in that supply
which may have occurred, but what I desire to bring out
is that apart from a permanent diminution of the supply,
whether absolutely or in relation to the growing wants of

the world, which would necessarily have a permanent effect.

on prices, extraordinary demands like those referred to
would tend to produce a momentarily extreme fall. The
reason is that a sudden pressure on the stock of the precious
metals at a given period tends to disturb the money markets
of the countries using them; makes money dear, or creates
a steady apprehension that it may at any moment become
dear; and so by weakening the speculation in commodities
and making it really difficult for merchants and traders
to hold the stocks they would otherwise hold, contracts
business and assists a fall in prices. It is conceivable that
after such a pressure the current supply of the metals may
. again be found sufficient to meet the current demands with
OF COMMODITIES IN RECENT YEARS. 331

prices raised to their former level; but while the pressure
lasts prices are low.

Now the extraordinary demands of the last few years—
I think I may say eight years, the German lock-up having
commenced in 1871—have certainly been of a kind to
produce some momentary effect, even on the assumption
that the supply of gold, when the pressure is removed,
remains sufficient for the wants of the world with prices
at their former level. Altogether during the last six
years Germany has coined 84 millions of gold, very little
of this being re-coinage. The accumulation of gold in
the United States, again, principally during the last two
years, amounts to about 30 millions sterling,” the stock of
gold in the country above what it had for several years
previous having been increased by that amount. These
two sums amount to 114 millions, and if we allow for other
extraordinary demands, such as that for Holland, which
lias been substituting a gold for a silver money, and at
the same time make deductions for what Germany may
have recoined, we may say in round numbers that the
extraordinary demands for gold during the last eight
years have amounted to 120 millions, or 15 millions
a-year. As the annual production of gold eight years
ago was estimated at from 20 to 22 millions only, and
has since rather fallen off, as we shall presently see, it is
quite plain that these extraordinary demands can have left
very little for the ordinary wants—the wear and tear of
coinage, losses, use in fine arts, and new coinage to corre-
epond with the wants of populations increasing in numbers
and wealth. My own calculation in 1872, in a series of
articles which I then wrote,t was that for many years
previous the average requirements of the gold-using

* The whole demand for the United States was ultimately much

— larger than this —/dition 1886.
t See above p. 82 —“‘ The Depreciation of Gold since 1848,”
332 ON TUE FALL OF PRICES

countries, excluding both Germany and the United States,
which were not then in the list, had been 12 millions
annually. But if you deduct 15 millions from 20 or 22
millions, you have much less than 12 millions left, and
consequently the former state of things as regards prices
could not have been maintained during these eight years.
Now that the extraordinary demands are over, prices may
recover, but the extraordinary demands must have con-
tributed to the present adverse fluctuation.

These three causes then—the extreme and prolonged
discredit, the bad harvests, and the extraordinary demands
for gold—appear to me to have concurred in bringing prices .
of commodities to the lowest level which has been reached
at any period for many years. That they would be
sufficient to account for much of the effect which has been -
produced can hardly be disputed, and that they have existed
is beyond all doubt.

The question is infallibly gagpedted: however, whether
in addition there is not a subtler cause at work—an actual
insufficiency of the current supply of gold for the current
demands of gold-using countries. This is quite a separate
question from the effect of the extraordinary demands which
have been described, and it seems to me most important
that we should keep it separate. It is a subject infinitely
more complex and difficult to treat, and one on which even
the most skilled, I believe, would venture to give an opinion
with far more diffidence than on the effect of the extra-
ordinary demands themselves.

My own opinion is that some such cause may have been
at work, though whether its effects would have been at all
marked as yet, in the absence of the extraordinary demands,
may be doubted. The main presumptions to this effect are
—frst, the undoubted falling of of the gold supplies during
OF COMMODITIES IN RECENT YEARS. 333

the last twenty years. I have reprinted in the Appendix
(Table IV.) that portion of the table put in by Sir Hector
Hay in his examination before the silver committee which
relates to the production of gold, as containing, I believe,
the most generally accepted estimate of what the gold
production has been. The following is a summary of that
Table in quinquennial periods, with the annual average for
each period :—

Estimated Production of Gold in the Years 1852-73, in Quinquennial
Periods, with annual Averages for each Period.

 

 

Period. Total Production. Annual Average.
£ £
1852-56... .cceeeeee 149,665,000 29,933,000
5T—O1 cso cee nee 123,165,000 24,633,000
"62-66 scicavascess 113,800,000 22,760,000
OTST Vic saeete seers 108,765,000 21,753,000 -
"71-75 (4 years) 76,800,000 19,200,000

 

 

 

 

 

The dwindling of the supply in this table is very marked,
and naturally suggests that the effect on prices of the great
gold discoveries may not have been continued much beyond
1861, while lately the difference is so great that, even apart
from extraordinary demands for gold, that effect may have
been reversed. The difference of an annual yield of from
25 to 30 millions between 1852 and 1861, and an annual
yield of less than 20 millions at the present time, is palpable.
Of course the question is not settled by this consideration.
One of the effects of the great gold discoveries was to create
new markets for gold itself. Under its bimetallic régime
France replaced an enormous stock of silver by: gold, and,
becoming a gold-using country, absorbed the new supplies
to an enormous extent. India again absorbed an immense
sum, especially during the years of the cotton famine, when
her credit abroad was so suddenly and s0 enormously
334 ON THE FALL OF PRICES

augmented. Until 1866 it may be said that the market for
gold was so affected by extraordinary demands that there
was hardly time for prices to settle down into a normal
state, and the full effect of the new supplies on gold-using
countries alone was never fully tested. But it is at least
obvious that the diminished supply could not now meet
the extraordinary demands which were met by the supply
of the earlier years, even if the ordinary demands have
continued the same.

I should add that not only do the figures show an
actual falling off of supply, but there is a probability of
the supply being obtained at a greatly increased cost of
production. The nineteen millions now produced are
obtained with more effort than the thirty millions twenty
years ago. This means that if prices were to tend upwards
a check might be put upon the movement by a still farther
falling off of the gold supply. It might not pay to work
mines which are now profitable if prices all round, necessarily
including wages as well as commodities, were to rise.

We come then to the question whether ordinary demands
have continued the same, to which the answer must, of
course, be that coincident with the gradually declining
supply of gold there must have been an enormous increase
of current demands. The increase of population in the
gold-using countries alone must have been nearly 50 per
cent. In the United Kingdom alone, the annual rate of
increase has been for long nearly 1 per cent. per annum,
0°83 per cent. between 1861 and 1871, which gives 28 per
cent. in thirty years, while in the Australian colonies the
rate of increase is, of course, much greater. Suppose the
world’s annual supply of gold before 1848—say six millions
sterling—was quite sufficient to maintain equilibrium then,
which I doubt, the natural increment of population,
OF COMMODITIES IN RECENT YEARS, . 885

assuming it to be no more wealthy and to use no more
coin per head than the population before 1848, would make
the present usual requirement from the gold-using com-
munities in existence before 1848 or their descendants
about 9 millions. But the wealth per head has increased
enormously. In the paper I read last year on Recent
Accumulations of Capital in the United Kingdom, the rate
of increase in the ten years ending 1875 was estimated at
27 per cent., and this rate of increase being deduced from
the actual rate of increase in the assessments to the income
tax, is not subject to the doubts which may be entertained
respecting the totals of the accumulations themselves.
Whatever the figures may be at the beginning and end
of the period, such has been the rate of increase. Not
only then must the requirements of gold-using people be
increased by 50 per cent., to allow for the natural increment
of population, but another 50 per cent. must be added for
the greater wealth per head. This would further raise the
usual requirements according to the previous 1848 standard
from the above sum of 9 millions, which allows for the
increase of population only to 134 millions. The same
conclusion is reinforced by a consideration of the quantities
of goods dealt with in our principal industries. The pro-
duction of coal in 1846, as you will see by reference to
Mr. Mundella’s paper last year, was estimated in 1846
at 36,000,000 tons; in 1876 it was 133,000,000 tons; or
about three times as much. Between 1854 and 1876, or
little more than twenty years, the production was rather
more than doubled. The production of pig iron again
has increased between 1840 and 1876 from 1,396,000 to
6,556,000 tons, or about five times in less than forty years.
The entries and clearances of ships in the foreign trade
again have increased from 13,307,000 in 1848 to 51,531,000
336 ON THE FALL OF PRICES

tons in 1877, or nearly quadrupled. The imports of raw
cotton again have increased from 6 millions ewts. in 1848
to more than 12 millions ewts. in 1877, or 100 per cent. ;
and although this seems less striking than some of the
previous figures, it is to be noticed on the other side that the
exports of cotton-piece goods have risen from 1,096,751,000
yards in 1848 to 3,838 millions in 1877, or nearly four
times. But it would be needless to multiply instances.
The peculiarity of the period has been the increase of
mechanical invention and the constant augmentation of
goods, so that the accumulation of capital above shown is
even in less proportion than the increase of the movement
in trade which the money in use has to move. It isa
moderate calculation that if only the countries which used
gold in 1848, including their colonies, were now using it,
the requirements to correspond with the increased population
and wealth would be at least three times what they were,
assuming prices to remain in equilibrium.

Nor is this all. The extension of the area of gold-using
countries since 1848, first, by the practical inclusion of
France, and next, by the more recent inclusion of Germany
and the United States, has no doubt added to the usual
demands to an extent it is unnecessary to determine exactly,
but at least by several millions. Thus while during the last
thirty years the annual yield of gold has been falling away
from its first superabundance, the current demands for the
metal have certainly been growing with marvellous rapidity.
lf there was much need twenty years ago of new channels
for the new gold supplies to prevent an enormous rise in
prices, it is at least possible that more recently the increasing
current demands have been sufficient to use up the diminish-
ing annual supply. So far as we can judge, the point of
junction of the two curves must have been at some date
OF COMMODITIES IN RECENT YEARS. 337

within the last ten years, though in such matters precision
is of course impossible. In this view the fall of prices in the
last ten years has been aggravated by a subtler cause than
the extraordinary demands for gold which have existed.
These demands have come upon a market which apparently
had no surplus to spare. They have consequently been sup-
plied very largely by a continued pressure upon existing
stocks, till an adjustment has at length been made by a con-
traction of trade and a fall in values.

It may be said,-perhaps, that the usual requirements of
gold-using countries have been changed from what they
were by the extension of the cheque and clearing-house
system, by the diminished use of gold in the arts, and by
similar means. Perhaps there is some diminished use of
gold in the arts, but, of course, the only really important
question in this matter is the use of gold in coinage, and I
should doubt if any great economy in the use of gold has
been established in the last thirty years. Excluding Germany
and the United States, which have just been added to the
number, the principal gold-using countries besides the United
Kingdom and its colonies are France, Portugal, Egypt, and
the South American countries, but it would be difficult to
show, I think, that the cheque system or any other system
of economising money has been greatly extended in those
sountries in the period. In the United Kingdom again all
the recognised expedients for economising money—especially
the cheque and clearing house system—seem to have been
fully operative thirty years ago as they arenow. The United
Kingdom was very fully “ banked” before 1850, the growth
of banks and banking business having since been no more
than in proportion to the increasing wealth of the community."
The circumstances are such, however, that a considerable
allowance may be made for the intruduction of economising

* This is true substantially, notwithstanding the fact of a great
~ jnerease of the number of bank branches in England in the last thirty

Z
338 ON THE FALL OF PRICES

expedients, without altering the fact that the current gold
requirements of the world have increased enormously since
1848, while the annual supplies which threatened an in-
calculable rise of prices have been dwindling away.

Let me add, that whatever doubt may be entertained as
to the actual meeting of the two curves of demand and
supply of gold during the last few years—apart from extra-
ordinary demands—all the facts and circumstances seem to
indicate that the meeting point must come very soon unless
the supply of gold is increased, or economising expedients
introduced and extended. At the recent rate of progress the
current demands may be expected to increase at least 20 per
cent. every ten years, so that if 20 millions annually are now
Just sufficient for all purposes, not less than 24 millions will
be required ten years hence. In another ten years the
annual requirement will be more nearly 30 millions. If we
start from a lower total now, say from 16 millions, all the
same the figure of 20 millions will soon be exceeded. And
this without leaving any margin for extraordinary demands,
which experience seems to show are never wanting, so that,
as in a budget, allowance should be made for the unforeseen
as in some sense more certain than all that is exactly forecast.
If the scarcity of gold has as yet contributed very little to
our money troubles or the fall in prices, it must at least be
about to have that effect if no great change comes. Whether
such a change is likely to come in the shape of an increased ©
gold supply it will be for geologists and mineralogists
to judge, but it is not reassuring to see how little
comes practically of the recent gold discoveries in India,
and the re-discovery in Midian. Whether on the other
hand change may come in the shape of economising
expedients will be a point of no little interest for bankers
and all other business men, and for legislators, Considering
OF COMMODITIES IN RECENT YEARS. 339

the slowness with which such expedients become effective:
when they are first introduced, and the perfection to

which they have been brought in countries like England

where they are introduced, I feel great doubts whether much

relief can come in this way. On the whole, I see no other

outlet from the situation than in the gradual adjustment of
prices to the relatively smaller and smaller supply of gold, °
which must result from the increasing numbers and wealth

of the populations of gold-using countries.

TI—WAHAT THE FALL EXPLAINS, AND ITS
CONSEQUENCES.

The fact of a fall of prices such as has been described
. explains a good many things, while the consequences of it,
or, to speak more correctly, perhaps, of the more permanent
of the causes which have contributed to it, must be far-
reaching. There are one or two topics of importance in this
connection on which I have a few brief remarks to offer.
First, we have a sufficient explanation in the fall of prices
of much of the falling off in trade, especially our foreign
trade, which is the occasion of so much alarmist writing.
There is a constant assertion by some writers of two
alleged facts, one, that our foreign trade is diminishing,
the other, that foreign countries are gaining as we lose,
from which the inference is that the decline of our trade
is to be accounted for by the successful competition of
foreigners. Indeed, it is sometimes said that the foreigner
is taking the bread out of the mouths of our manufacturers
and the men whom they employ. I have never seen this
_view supported by any careful examination of what the
growth of the trade of foreign countries really is, or by a
consideration of what goes on in our trade generally, and
z2
340 ON THE FALL OF PRICES

not merely in particular trades which may be affected here
and there by the pressure of foreign competitors; but the
question of the fall of prices appears to open up a new
view. What if there is no falling off, or no material
falling off, of our trade at all, so that all this writing about
our decaying trade, and the gain of foreigners at our
expense, is only so much writing in the air? It is clear
that an average fall of 20 or 30 per cent. in prices must
make all the difference in the world. We are not left to
conjecture in the matter. The exports of British and Irish
produce show a falling off in total value between 1873 and
1877 of about 22 per cent.

 

 

 

£
- The exports in 1873 were” 255,165,000
a MED ys, 198,893,000
Reduction ...........c0cc00e 56,272,000

which is almost exactly in the proportion stated. But we
have already seen that while the index number of 73-1
falls to be increased in 1873, when a comparison is made
with 1861 prices, by the sum of 20°60, the index number
falls to be decreased in 1877 by 2°04, so that there has
been an average fall of price between 1873 and 1877 of
more than 20 per cent.* There is nothing in the figures
then to imply that the quantities of the articles exported
M/ in 1877 were less than in 1873. To throw farther light
on the point, I extract from the report to the Board of
Trade already referred to, a table in which the prices of
the articles of export enumerated in the statistical abstract,
according to their declared values in 1873, have been
applied to the quantities exported in 1877. The result is,
that: while the aggregate declared value of these enumerated
articles in 1877 was £147,801,000, their aggregate value

* And exclusive, of course, of the additional full in 1878,
OF COMMODITIES IN RECENT YEARS. 341

‘at the prices of 1873 would have been £191,530,000, which
is within a million of the aggregate value of the exports of
the same articles in 1873. There are variations in the quanti-
ties of the articles, some increasing, and others diminishing
between 1873 and 1877, but the upshot is that if the
prices of 1873 had been maintained all round in 1877, the
returns as far as the enumerated articles are concerned, and
presumably as regards the remaining articles of trade where
the entries are mostly by value only, would have exhibited
no decline at all.

It cannot be maintained of course that a fall of values
only is immaterial. Profits depend on price, and this is an
especially important consideration in the foreign export
trade as regards articles exclusively or mainly of British
origin, and where a large part of the value is not con-
stituted by the cost of the raw material previously imported.
Our trade may consequently be less profitable, though the
quantity we turn out has not diminished. But other countries

- woust suffer by the fall in price exactly as we do ourselves,

and the question here is not of the profitableness of the
trade at a given time, but of its extent; and as to this the
impression that our foreign trade has diminished to any
material extent during the last few years may be pro-
nounced to be absolutely without foundation. Regarding
profit, moreover, I may be allowed to say in passing, a good
deal might be urged in favour of a time like this being
really the most profitable in the end, notwithstanding all
the complaints of depression. Much of the prosperity of
years like 1873 is in reality hollow, and much of the dull-
ness of dull times is due to the fact that people are forced to
acknowledge themselves not so rich as they thought. But
this is perhaps taking us away from the matter in hand,
which is that of the volume of our trade only.
342 ON THE FALL OF PRICES

To be quite fair, it must be acknowledged that holding —
our own in such matters is not all that is necessary. If
business is to be in a real equilibrium, there should be a
steady increase in it puri passu with the increase of popula-
tion. There has been some real check then to the growth
of our foreign trade during the last five or six years. But
on the other hand, we must remember that previous to
1873 there was a marvellously rapid growth, much above
the annual average. All things considered, it is yet too
soon to complain of the check of the last five years as
indicating the beginning of a permanent retrogression.

The second point I shall advert to is the possible connec-
tion between the appreciation of gold and the depreciation
of silver. It is an obvious enough suggestion that as silver
in the markets of gold-using countries is only a commodity,
it will probably sympathise with any general movement in ©
the prices of commodities. Indeed, it has been urged by
the Calcutta Government that it is not silver which has
changed, but gold. Silver prices, they say, have not per-
ceptibly risen in the Indian markets, although gold has
risen. Whithout going into detail on this subject, which
would take up a whole paper by itself, and’ which we may
safely leave to Mr. Bourne when he comes to read his paper
on the silver question, I may be allowed to remark that very
likely gold and silver have both changed. One or two of
the causes we have described as likely to produce a general
fall in prices—the prolonged discredit and the bad harvests—
have been as applicable to silver-using as to gold-using
countries, and have surely been applicable to India and
China, with their tremendous famines and much rottenness
in their foreign trade. It was therefore possible that silver
prices should have fallen like gold prices, and the relation
between the two metals have been le!t unchanged; if silver -
OF COMMODITIES IN RECENT YEARS. 343

prices have been stationary, or have not fallen so much as gold
prices, then, as we cannot be’ sure how much the scarcity
of gold has aggravated the fall of prices here, it is difficult
to argue from the fall of silver in relation to gold that
the difference between them arises from an appreciation
of gold only. There may have been depreciation of silver
as well, even if of a temporary kind only; the events of
the last few years relating to silver—especially the sudden
sales of the stocks of German silver, and the stoppage of
silver coinage by the Latin union—being calculated to have
that effect. The wonder, perhaps, rather is that silver has
not depreciated still more. Possibly the stock in use in the
silver countries is so large that great additions can be easily
absorbed; but the change has yet to be tested, we must
remember, by a period of good business and naturally rising
prices in the silver-using countries. So far as it goes,
however, the depreciation of silver in relation to gold, what-
ever changes may have occurred in silver itself in relation
to other commodities, is not inconsistent with the supposed
change in gold in relation to such commodities.

A third point to notice is the connection between a great
fall in the prices of commodities and a fall in wages. The
‘two things are inseparably connected. First, in certain
trades—and this connection has been. specially shown of-
late years in the iron trade—the gross price of the articles
produced is so much diminished, that if the cost of labour
is unaltered the labourer will be receiving an enormously
increased share of what is produced. Say an article formerly
selling for £20, the cost for labour being one-fourth or £5,
falls in price to £10, then the £5 given to the labourer
would be 50 per cent. of the selling price. It is incredible
that so great a change could occur without the labourer
being affected, and there have been even greater changes
344 ON THE FALL OF PRICES

in the iron and coal, trades. But, second, in almost all
trades, especially those in which the cost of labour con-
stitutes a large part of the cost of production, there is
necessarily some connection, in the long run, between the
money rate of wages and the prices of the usual articles of
the labourer’s consumption, according to his standard of
living. It would take us out of our way to enter into a
controversy here about the wages fund, but it is quite
plain that the real wages paid by the capitalist to the
labourer consist mostly of commodities; if money wages
remain the same while commodities fall in price, there is an
increase of real wages. In some way or other, then, an
adjustment of money wages to reduced prices becomes
inevitable. In miscellaneous industries this may be effected
by the constant action of individual interests when changes
of employment occur; by the steady substitution of superior
for inferior workmen; by the transfers of business enabling
wages of clerks and others to be revised; and by similar
means. In more conspicuous trades, where large groups
of men are employed, there are notices of reduction on a
large scale as well as these minor instruments of effecting
a reduction. But nominal reduction must come somehow,
unless there is to be a real rise in wages. The visible
opportunity of employers is of course the -scarcity of em-
ployment and the disorganisation of industry which attend
“a great fall of prices; but employers would obviously be
unable to continue paying for any length of time really
increased wages. There is no Fortunatus’s purse which
would not quickly be exhausted in such an attempt. —

There is another subject of, perhaps, greater complexity
which seems to be suggested. If a general downward move-
ment of prices, due to a comparative scarcity of gold, has
begun, are we not on the eve of a reversal of the changes which
OF COMMODITIES IN RECENT YEARS. 845

commenced with the Australian and Californian discoveries—
changes so admirably described in Mr. Jevons’s well-known
book ? These changes were substantially a gradual lighten-
ing of debts for the benefit of the debtor class, and to the
immediate loss of annuitants and capitalists, however much
the latter might be compensated in the end by an increase,
in the nominal income of their land, houses, and other
securities. Now we may witness a gradual increase of the
burden of debts to the loss of debtors, and for the immediate
advantage of creditors, although, in the end, the latter may
lose by the relatively diminished nominal income of their
securities, following the adjustment of all prices to the new
circumstances. There can be no doubt that some such
general effect as this must follow, if it should, in fact, turn
out that a serious appreciation of gold has set in, and the
circumstances of its production and the use of economising
expedients do not change. In the end the effect in con-
tracting trade is looked forward to with some apprehension
by many of our best authorities. ;

I do not propose to dispute this conclusion here. It
would land us in an almost endless controversy 1f we were to
discuss whether a constant influx of new money, leading to a
prolonged rise in prices, does more good or harm in the long
run, than a constant failure of new supplies to meet current
demands leading to a prolonged fall in prices. A great
deal, I imagine, could be said on both sides; the rebound
from excessive inflation more than compensating perhaps
all its alleged benefits, and the additional fall in prices
due to a gradual scarcity of gold being as nothing when
compared with the falls which take place from time to
time owing to the simple failure of credit. But while
avoiding this discussion, I may at least point out that the
most serious effects of this incipient gold scarcity will
316 5 ON THE FALL OF PRICES

probably be gradual, just as the effect of the discoveries
in causing a rise of prices has been much more gradual and
confined within narrower limits than economists were in
the habit of anticipating. Particularly at the present
moment the depression may have gone so far that the
accumulating stocks of the precious metals will be sufficient
for a good while to support a considerable expansion of
trade—that it will only be later on, as prices tend to get
back to the former level, that the real pressure of the
scarcity will be felt. A year or two’s ease in the money
market following the events of last year will however be no
proof at all that the causes above described have not been
operative and will not again be operative.

IV.—CONCLUDING OBSERVATIONS.

In bringing this long paper to a close, I have only one
er two practical observations to offer. The “moral” of
much that has been said is clearly this—that if possible the
scarcity of gold which has contributed to the present fall
of prices, and may have farther serious effects in future,
should, if possible, be mitigated, and should at any rate
not be aggravated, by legislative action. I have expressed
great scepticism as to whether, in fact, secing how slow
men’s hab:ts are to change, any mitigation is probable in
the shape of expedients for economising money. But it
must be recognised that if bodies of men were amenable to
reason in currency questions, and there was really a widely-
felt belief of serious mischief impending from a gold scarcity,
some economising expedients could be tried. To give only
one illustration: I suppose few things are more unlikely
than that £1 notes, or notes for less than £5, will again be
reintroduced in England, but the introduction of such notes
OF COMMODITIES IN RECENT YEARS. 347

alone, with all suitable arrangements for their converti-
bility, would certainly go far to neutralise even such
another extraordinary demand as that for the German
coinage. The German demand for gold would itself have
been much smaller than it was, but for the banking
reform which accompanied the coinage, and part of which
reform was the cbolition of notes of small denominations.
The United States’ pressure for gold during the last few
months would also have been far more serious than it has
been, if the Government of that country had complicated
its resumption arrangements by the abandonment of all
greenbacks of from 5 to 25 dollars, and the prohibition of
bank notes for such amounts. There seems a possibility of
gaining something then by reintroducing £1 notes if the
present gold scarcity should continue. I hope I shall not
be ‘understood as advocating such a change, or as being
insensible to the weight of many practical objections which
could be urged against it if it were immediately proposed.
I am only mentioning it as a possible expedient for
economising money, and there are no doubt others. <As
regards small notes, however, it would seem that at least
any change by countries which still retain them in the
direction of their further abolition, leading to a greater
demand for the precious metal, ought to be deprecated.
Still more we ought to deprecate any change in silver-
using countries in the direction of substituting gold for
any part of the silver in use. It would be nothing short
of calamitous to business if another demand for gold like
the recent demands for Germany and the United States
were now to spring up. Even a much less demand would

prove rather a serious affair before a very long time elapsed.

 

RANKEN AND CO., PRINTERS, PRURY HOUSE, ST. MARY-LE-STRAND, LONDON, W.C,
INDEX.

—_>_———_
Accumutations of capital in the United Kingdom ., oe oe
ARGENTINE Repustic, trade of aN or se oe ve

Baxter (R. Dudley) proposes scheme to reduce national debt
BIMETALLisM, THE CasE AGAINST—

Of the many theories for dealing with the currency that have been
put forward in cunsequence of the fall in silver, bimetallism has
commanded the most respectful attention

Bimetallism isa system by which the state, instead of having the
basis of its money in one of the precious metals only, should
declare money onligations to be solvable by either of the two
metals, silver and gold, in prescribed quantities, still permitting
free coinuge .. « ee .

Short account of the bimstallist arguments a ow oe

Objections of monometallist3 2

—— examination of the argument that “bimetaliiem increases the
quantity of money in use as compared with the opposite system ..

—— examination of the argument that bimetallism atfords great
facility of exchange: fluctuations considered

— examination of the alleged advantage for bimetallism that the
standard of value set up by it will be more stable frum period to
period than a standard of one metal only

Cniticism from the point of view that there are positive defects
in the bimetallic proposal fd

Impracticability of bimetallism in one or: two countries only;
observations of Lord Liverpvol . aie

Preferences of nations fur particular forms of money

Drawbacks and further difficulties in the way of bimetallism
puinted out - ae oe .

Impracticability of the scheme in any form aa aS: ~

Summary of the case againstit ..

International money

Braz, trade of we

os os on oe on oe

CariTAL, RECENT ACCUMULATIONS OF, IN TIE Untrep Krvcnom

Difficulty of approximating to an aosvlutely correct statement 7

Data for tracin; national progress or the reverse .. wi on

Present valuation of the Uuited King iom

mide of arriving at a valuation based on the income-tax
assessments ..

— toble ot income, and number of years’ purchase at which it
may be capitalised, and estimates of remaining capital .. i

Explunations of the various calculations in the tabe

— the tutal capital of the peopie of the United Kingdom ‘Teckoned
at 8500 millions sterling as a minimum , oe .

The growth of capital .. ee oe sis <i os

—— Its recent great rapidity

— tables of amvunt of income in income-tax returns derived from
capital, and of approximate amount of capitalin 1805 and 1875
compared z oe

— the increase of profits on trades and professions 71 per “cent

corroboration by other methods, showing this statement of
increase to be a mcderate one .

— another calculation from the legacy ‘duty returns affording ‘a
corresponding estimate of accumulation

Comparative growth in former periodz; slow progress in the first
half of the century, probable eifects of the gold discoveries, &...

 

 

PAQB
161
136

262
286

287
237-90
290-340
292-4

294-9

390 .
301

301-2
303
374-6
306-8
399
310

135

16
162
103-174

163-4

165
166-172
173

171-182
175

176
173
179-80
150-2
182-3
350 INDEX.

CaPITaL, RECENT ACCUMULATIONS OF, IN THE Un1TED Kincpom— contd.

Comparison with other countries, especially with the United States,
with statement showing the increase of wealth there in decennial
prriods, 1790-1860 [and 1870] a a = cot

Concluding observations ; increase of property three to four times
that of population, and in 1855-75, three times the national debt...

— increa-e of the margin of taxation .. ad sa om as

— calculations showing the decreasing pressure of the national
debt .. a ae Ss ae bs si ‘ie

—— inquiry as to the distribution of the increase of wealth,
whether the nation is spending its capital, and whether it saves in
times of depression... ee re oe +e ee

—— apparent indestructibility of our different torms of capital ..

 

CapiraL? Are we livingon .. Se as 29 3 Be
—— loss of, in the Franco-German war a sie: ve

of the people of the United Kingdom .. 0 .
— the growth of a at fe si Bee ae
Curt, trade of .. ‘w = ae As va x ae
Coinacez, addition to, since 1850 KG ie as an ac
Commexcta revelations of the last few years, discreditable ath
Commopitres, prices of, in recent years oe ee De se
Competition, foreign .. a na o ‘ 3 ‘
CoxsotipaTsD Funp and local burdens % me + sis
Depreciation of Gold., ait i oe a be os
Depectarion of Silver as

Deprisston or Traps; why it is so much greater in raw material
. . 4 4 5 . .
producing countries than in the manufacturing countries—

Scope of the in juirv a ae al ea ory aye
South American States; their population, revenue, imports and
exports, cited as examples ae Ph oes we ae oe
Severity of the distress in Brazil, Argentine Republic, Peru, Chili,
and Uruguay . ae oo . se « sie
The causes of this distress are—

(1.) The greater liability of raw material to be produced in
exces» of the demand than is the case with manufactures
(2.) The usually defective cond:tion of economic knowledge

In new countries i ae oe aia “
(3.) The scarcity of capital in new countries, and their depen-
dence upon the older countries for the current supply

necessary to that continuous development which is a con-

dition of their prosperity fate aK “ie ee
If improvement is to cume, new countries must seek to compensate
tueir liability to cummerciat fluctuations by a more prudent rate
of expansion, and by study of the lessons of political economy

Disnovesty, commercial and financial ee as a ee
Excess of Imports is ne oe ae a 39 ss
Expres pitvrs, amount of national, during periods 1842-52 and

1853-66 is sie on sie ee oe
Exports, changes of prices in (1885-77) da a% or oe
Expurr Traps and national income ., ee os ag we

Fatt in wages, a necessity, following a great fall in prices
Fax of prices of commodities in recent yeais
Fivancz, Mr Gladstone’s work in
Frxaxce of the war 1870-1,

Financiau prospects of the future
Financine, illegitimate. . ts ss as
Foop and materials, relative cust of, 1859.78

ee oe ve we ae
ee “ae oe oe oe

PAGE

18°-7

188
189

190

r9i-4

19-6
151

34-8
173
174
137
96
B24
BLL
142
247

82
197

133-4

«134-5

135-7

138
139

140

140-1
130

151

214
320
143-8

343
SUL
208

55 70
230
117
318
INDEX, 3851

PAGE
Forrign Competition —
Examination of the statement ‘that trade is being destroyed by

foreign competition,” and exposition of the fallacy itcontains .. 142
Manufacturing industry is depressed abroad as much as here, and a

common cause should be looked for as 142-3
Inquiry as to what would happen if English m: nufacturing were

“declining ’’ and foreign manufacturing taking its place « 143
-How much of the national income is derived from export trade? .. 143-3
—— national income assumed to be about £1,200,000,000 .. 143:4

— foreign exports contribute about one-eighth of this, and the
precise loss would be perhaps not a tenth or “twelfth if we lone that

trade . ae . a se %. 145-6
— cotton famine 147
— difficulties in the way of foreign competitors : displacement of
labour and capital 7 ata oe «(147-8
Foreign competition in home trade me ae le -» 149-150
Foreicn Trapt, expansion of és i sé oe ex Tt
France, cost of the war, 1870-1, to .. : am ss +. 83

Franco- German War oF 1870- 71, tue Cost or THE—

Essay will attempt to answer the following questions, viz :—
(1.) The amount of the actual cost uf the war, both direct and
indirect t
(2.) The loss of capital to the world in consequence of the

charge of the war 2
(3.) The ‘distribution of the burden of the loss among the
different communities affected by the war 2
(4.) The effect on the money markets of the word of the
financial arrangements made to meet these losses as 3
The Direct Expenses—_

france: Direct expenditure of the central Government about
£120,000,090 .. 4

To this has to be added, for direct losses and expenditure by local
authorities and indiv iduals, about £44.000,009 .. 5-10

Germany: Direct expenditure of the central Government, about
£60,Q00,000 .. wis sia oe 11-12

Losses to individuals insignificant 12

To the cost in the case of botb countries “ES, 000, 000 must be added
as capital value of war pensions a 13-14

The Indirect Expenses and Losses—

France; Loss of national income due to the interruption of business,
withdrawal of civilians from industrial pursuits, and the like,
amounts to about £19,000,0.0, or 17 per cent. of the revenue for
eighteen months 16-20

The individual loss calculated on the same scale amounts to
£153,000 00), or 17 per cent. of the national income 20

Consideration of the extent to which industry would be affected. and
conclusion that agricultural and manufacturing incomes lust about
£150,000,000 .. 20-25

Explanation of the apparently conflicting returns of external trade 25-6

Es: imate of the permanent depreciation of producing power calculated

on the basis of the Trade License Tax at abuut £)12,000,000 ais 26-23
Calculation ot the capital value of the lives affected by death and
invaliding oe 29~32
Germany: Indirect loss caused. by abstraction of labourers from
employments about £50,000,000 . ae si 31
Calculation of loss by deaths and invaliding of soldiers 2. sta 31 2
General Summary of the Cost of the War—
France £431 ,000,000 le e . . oo aie 33
Germany £115, 000, 000... an is .- 95 ae 33

Permanent Loss of Capital—
Inquiry as to the funds out of which one cost of the war was .
detrayed as a . s . a oe 84-33
Conclusions ia we oe “ « - o 89-40
352 INDEX.

Franco-German War or 1870-71, THE Cost oF THE—contd.

The Indemnity and Cession of Territory, and their results—
Indemnity £200,000,000 .. “ ais oe te
Cession of Alsace and ‘Lorraine equal to a loss of £64,000,000 es
France loves that amount, and Germany is a net gainer to the

extent of £150),000,000.. on ata = oe oe
Total cost of the ‘yar to France now reaches £695,000,000 .. ae
Comprehensive view of what the war has cost the French, showing
thut in one year France has added to her annual State burdens,
besides thel oss ofi ndividual capita’, as much as the extire charge
of the accur.uL_ated national debt of England .. sie as
Germany willc. ot gain by the indemnity and additional territory all
that Francel oses a pd the operation is a net loss to the world...
Probabilitycf the speedy recovery of France “ ais o
The Finance ef the War and the Money Market— ; i
Effect of war on the money market considered in connection with
the two aspects of tre market—viz., its singular hability to
momentary and superficial disturbance, and the more general and
important one of steady and periodic change accurding as the
supply of circulating capital exceeds or falls shurt of the demands
ot borrowers .. 3 ae . - ee ain
‘War provides the capital for its own sustenance by checking the
employment of capital in other directions; people will have less
to burrow and led but the supply will be adjusted to the demand,
and the rates will not be dearer es Bee ur olen “
Phenonema of the war and its after effects considered in detail ..
Circumstances that counteract the tendency to dear money oie
Possibility of spasmodic disturbance of the money market by the

oe

operations of Germany as . o. . te
Other finance operations oy o “- a oe
Conclusions—
Résumé of conclusions arrived at in the essay...

Free Traps: the visible beginning of a change in fiscal burdens
Furtvxe financial prospects

ve we oe oe oe oe

Gurmany, cost of the war 1870-1 to tee
GuapsTony, Mr., nis Work 1n Finance— ;
Unrvertal agreement of opinion that Mr. Gladstone’s strength is
Dence # os oe oe oe oe oom
A generation has grown up which knows not Mr, Gladstone directly,
or the workihat he hasdone .. 2 as +e os
A fivancier’s primary duty is to find ways and means for expendi-
ture, and maintain the credit of his Government 6 aie
The financial problems of receut years have been of a different order
to those before... sa a oe Ss Ce sa
Free Trade and the marvellous increase of the national wealth had
to be taken into account ae ats + . o
The aggiegate incume of the nation has probably been doubled
within the Jast thirty years, and the taxable incume of the country
Must have increased in much greater proportion 2
Betore 1852 the condition of the country was alarming, t)

here were
successive deficits in the Revenue and complaints of sufferings
- from every quarter on ais 4 ae a3
The visible begiuning of a change was the Free Trade experiment ..
Cummand of the means of enjuyment is, in truth, the beginning of
civilisation .. Se a a #4 a sis
The increase of wealth to the mass of the community is an aim of
first importance ai ils a oe os a
The respective merits of the financiers of the time can almost be
measured by the bulk of their contributions to the work... a
Mr, Gladstone’s contributions are the largest of the whole twenty-
six yeais since 1842... ifs se a aie si
The whole period may be divided into four great stages. The first
step in 1842, and the second in 1845, belong to Sir Robert Peel.
Lhe stages of 1853 and 1860 were marked with equal distinctness , ,
The balance of taxutiun remitted during 1842-52 was £7,000,000,
while in 1853-66 it was £13,000,000 ~-

“ a. a

oe ee oon

PAGD

41-12
42-44

45

47-52

52-3
54

55-58

59
59-63
63-68

69-70
70-73

74-81
212
230

33

208
209
210
210
211
211
212
212
213
213
214
214

214
INDEX.

Guapsrone, Mn., u1s Work iy Frnance—contd.

Comparison of the work of Sir Robert Peel and Mr. Gladstone ce
‘The measures of 1842 and 1845 have the merit of novelty they broke
the spell of the old system and gave the country new life we
a one lever with which Sir Robert Peel wrought was the income=
ax. se rs ek. | 15, tas a cy as
Mr. Gladstone’s work on the whole was one of great complexity ..
His vigorous warfare against the growth of expenditure .. =
In 1853 the incume-tax was almost as good as doomed and proposals
torenewit were unpopular... ois ie che we
—— taxes to the extent, in money, of more than £5,000,000 were
remitted a 3 aa ae oS ei
Mr, Gladstone urged that what was good in 1842 and 1845 must be
goud in 1853. The continuance of the income-tax was necessary
tor further remissions of taxation ava He eg wa
~—— the extension of the succession duties was exclusively his idea.
It was like the discovery ot a national estate, a source of revenue
peculiarly unobjectionable 5 ~ at sts .
—— by pointing out new sources of income he solved the problem
of meeting the high expenditure of the years that were to come ..
The features of the next great stage, 1860-66, more difficult to make

out... oe nig si a a8 a os
The growth of expenditure was a great danger to any financial
improvements = ai On ae ct oe
Between 1853 and 1860 the annual charge for supply services had
increased by £14,000,000 ~ ae ei: re ia ai
Mr. Gladstone, in spite of high expenditure and public indifference,
proposed changes of great magnitude .. ae at oe
But for reduction of expenditure. however, from nearly 73 millions
in 1861, to 66 mi:lions in 1866, the whole process of that time must
have come to an end is a o ti ue
In the latter years it seems plain Mr. Gladstone was preparing for
another great coup 08 oes 2
His proposal to tax the charities failed .. ois oe.
His oratorical power has made him successful and popular i
His firin grasp of certain leading ideas, conspicuously his notion of
checking expenditure .. = an ate a o*
If Mr. Gladstune hus changed his financial opinions it has been a
gradual change a gs ea sid fie o*
Free Trade was promoted at first to keep England from decaying
altogether ag ois a ans in! oe ae
Mr. Gladstone is a master of financial details, and has a wonderful
knowledge of expedients ba oes
—— is never without resource at any crisis ae Se o
— his failures .. oie dae o.
Financial prospects of the future ma a es
Remission of taxation and reduction of debt equally desirable ..
What might have been during the last sixteen years if expenditure
had been checked witha firmer hand .. a os om

Guapsrone, Mr., proposal for reduction of the national debt ..
Gop, the evils of a scarcity of, might be mitigated by the issue of

one pound notes aa ae ee ie
Goup, THe DeprEcraTION oF, SINCE 1848—

A study of the consumption, supply, and distribution of gold since
1848 in connection with the alleged depreciation of gold is the
object of the essay .. oe ate ae oe

Depreciation or non-depreciation to be tested in two ways :—_

(1.) By comparing prices of as large groups of articles as
possible over long periods. ‘ 3 i

(2.) By seeing whether the gold money of the nations using it
has increased in greater proportions than their population

: and trade o ie oie sity +e, ar

First part of inquiry is as to the fact of a general rise of prices, and
relates to comparisons of prices during the period 1845-62 and
1862-72 a es oa oo eine Gat

Conclusions that during 1851-70 there had been a general rise in
prices, and that gold bad accordingly depreciated about 30 per cent.

A

353
PAGu

215
215
216
217
218
219

219

220
220
221
221
221
223

223
223
224
225
226
226
“997
223
228
230
231
233
260

346

6a

‘A
354 INDEX.

Goxp, THE DEPRECIATION OF, SINCE 1848—contd.

Objections to these conclusions, so far as the rise in prices is
attributed to the fall in gold, jead to the inference that the moro
miscellaneous the comparison of prices could be made the
smaller would be the general rise shown, and that the general rise
of prices exhibited is the maximum and not the minimum
average i home f Yost Be ne ais a be

Second part of the inquiry is based on the test that the circulation
of coin will vary with the growth of population andindustry ..

Comparison in the case of wngland of the increase ot population
and industry with the increase of the sovereign circulatiun oe

Since 1450 population has increased -at the rate of 1°3 per cent. per
annum, and industry and wealth at about 3-0 per cent. per annum

Estimated addition to the coinage since 1850 is £35,000,000, or a litule
less than 3 per cent. per annuin cis siz ois bie

If there has been a great depreciation of gold since 1848—7 e , any-
thing over 10 or 15 per cent.—there has been no such expansion
of tne small coinage circulation as would have followed that
depréciation .. ow ea . si Se sm

Conclusion of the inquiry deals with objections, by pointing out the
relation of the current supply of gold to the current demand and
on what side the probable great changes that will affect the value
of gold are likely to be.. a ‘fe ie oe

Current annual supply of gold £20,000,000 we is ae

Current demand about £12,000,0 0 até aia ate oo

Probable extraordinary demands to absorb the surplus £8,000,000 ..

Resumption of specie payments by France and the United States
would be a great point in the future es - a

Conclusion that there will be an excessive demand for gold com-
pared with the current supply, and that guld will rise in value

and the general range of prices fall ote aie a an
Harvrsts, ‘bad effects of deticient .. an im én +s
Houss Dury wa oe “% ee oe ie <a em

Imports, EXCESS OF—
Examination of the assertion that “we are living on our capital’’ ..

Annual accumulations of capital in England estimated at not —

less than £200,000,000 a year be : ba i
Annual outlay on land, buildings, railways, mines, machinery, trade
capital, &c., amounts to about the same si es
This accumulation must cease, and we must be selling out from our
stock betore we can be said as a nation to be living on our capital
Savings and outlay in 1877 ha id on te ee
Before the excess of imports can prove that we are living on capital
it must amount to between £100,000,000 and $200,00,v00 oe
Nominal excess 1871-6 examined .. se 93 ae as
Limits within which we can have been selling securities or calling
in capital oe ie a es
No proof that the nation is living on its ¢apital
Movements of cosmopolitan floating capital aie sie ‘ais
Effects of excess of imports on the money market..

Inpemntry paid by France to Germany. ao 8
Inpux Numpers, comparing rises and falls of prices, 1845-79
IntLanD, THE TAXATION AND REPRESENTATION OF—

Consideration of the complaint that Ireland is unduly taxed a
Trish representation compared with its contributions to the Imperial

revenue is oe o% ae
Irland could not be taxed in proportion to its representati at

its representation might be Tenuced re 3 = _ oe ee
Relative population of Great Britain and Ireland, 1821-75 s
On taxation basis, lrish representation should be reduced from 105 to

70 members... a ays ett ae
Ill-effects of the present state of Irish representation o. 2
Lavy taxeson ., ee oe ee oe oe oe .

Lanp Tax, the .., as eS

ae oe oe oe ee

PAGE

88-91
92
93-4
95
96-7

9-9

100
101
102-3
103-4

104-5

105-6
32

242

151
153
153

153
154-5

155
156

157
158
159
160

41-2

816

280

282
282-3

284
255

234
242
INDEX. 3595

PAGE
Liquipations or 1873 76—

What are the characteristic marks of the great depression of trade? 107

Universality of the depression .. 108-9
Intimate relationship of remote centres and the connection between

commercial crises in different parts of the world.. 110
The industry that has most conspicuously failed is the “ exploita-

tion’’ of new countries by capitalists of old countries .. Md
The crises seem to have tol'owed a regular order, and to have led

finally to a financial as well as a commercial collapse... 112
Details of the great expansion of the business. of investment in

foreign countries previous to the depression ee - ‘ 113
Expansion of foreign trade of the United Kingdom 14

Stoppage of foreigu »nve-tment business and its results on ‘trade 1] 415
Railway and other speculation shown to be in anticipation of the

wants of the world, and tb = in ye of raw

materials and food sy oe -. 116
Illegitimate financing .. 117-3
Lightness of the effects of the crisis on English industry and wages” 118
Commoa impression that the depression is unprecedented is wrong,

and is based on the magnitude (1) of the financial collapse in

foreign loans, and (2) of the decline of foreign trade, which is

identified with a decline in the whole trade of the country 119-121
Eeonomic history of England during the present century does not

justify statement that ‘present depression of trade is ‘* unusual,”

for taere has probably never been a great commercial crisis in

England that caused so little suffering to the mass of the nation.. 123
Will the de pression be unusually protracted, or its eins per-

mannt? oe ws a «. «128
Permanence not to be assumed | ty o. «124
Reasons why depression will not be worse than usual si we 124-5
Foreign competition 3 125-6

Foreign trade is only a fraction of our’ whole business, and before
competition can diminish that trade it must reduce wages;

American iron and coal industries «. 127-8
Anticipations of the extent and character of the revival of trade | . 129
Commercial and financial dishonesty - .. te site ~- 130-2

Lrverroot (Lord), Remarks on the currency oe ee +. 3)1
Manvracturzs, depression of trade in oe os ve +» 133-40

Nationay Dest, tHe RepucTION oF THE—

Discussion in Parliament of the advisability of reducing our national
debt has had the ettect of reviving attention to the subject, and has
resulted in a variety of schemes for gaining the ob ect without the
bation being conscious of the process .. ‘ is ~. 259-60
Mr. Gladstone’s proposal .. 2u0
Another proposal by which the State would become holders of rail-
way debentures and reduce its debt by the profitit would make .. 261
A third scheme proposed by Mr. h. Dudley Baxter contemplates the
appropriation of the railway duty for investment in railway stock
* which at the end of 72 years would bring in a revenue ot to the

interest ou 250 millions of consols es on : - 262
Objections 263-4
The first question in con sidering what we are to do with the debt ia

the extent of our ability 264

Two modes of considering what revenue could now be raised if occasion
called fur it; (1) to louk at the progress in wealth we have made,

and (2) at the actual progress in regard fs to revenue itself a. 265
Progress in wealth considered .. 2 ae ois «. 265-8
Progress in revenue considered ., oo .- ++ 268-73
T.uble showing remissions of taxation | since 1815. ae s+ 269-70
Table showing taxes imposed and remitted, 1846-53 “ te QTL
Ditto, 1854, 1866-7 272

By making no sacrifice to ‘Pay off the national debt we are skulking
our obligations | . oe ~ ~ 278
356 , INDEX.

 

PAGE
Nartonau Dest, tHe Repuction oF THE—contd, :
Our means of reducing the debt considered with reference to a little
turn of the financial screw” and ‘‘a resolute determination to
have no more remissions ”” Oe ora ae Bn ats a
Tendency of the revenue to grow we oo se oe eae 5
Objections: (1) growth of expenditure .. a - oe 2tte
(2) chances of revenue not growing ou ee o- —-278-9
Narrovat income, estimate of sre we weg, cee oe a
Nationa progress, data‘of .. oe se ais oe «» 162
Ox Pounp Norzs, would mitigate the evils of a scarcity of gold 346
Perc, trade of 1. 10 ve + ne 3 ia .» §=136
Porvnation, growth of aes So edie te vos 93
Prices, general rise of .. Hs ms is i se . «85-7
Prices or Commopiries rv RECENT Years, oN THE FALL or—
Serious and probably permanent character of the fall in prices . Sil

Extent of the fall; instances of its continuous gradual decline from

1873 to 1878; in iron, 66 per cent. ; in tin, 57 per cent ; in cotton, |

46 per cent. ; in wool 43 per cent. ; and in wheat, 29 percent. .. 312
— table showing heaviness of fall, by comparing January, 1873,

withJanuary, 1879... on ws age oe tee -. 814
— table of index numbers, showing comparative rises and falls

from 1845 to 1879 ts se vie ie ie -. 816
— the index number of January, 1879, shows the lowest level of

prices since 1850 ae ce as oe 3 ise 817
—- Mr. A. Ellis’s table showing relative cost of foods and materials

in 1859-78, and relative fall since 1869 ., : 818

— changes of prices in exports 1865-77. compared with 186!, showw=
ing them to be at a much lower level in 1878 than after the

depression of 1865 wie on ae aay, ax. +e 820
— summary of previous remarks as to the excessive fall in prices
1473-7), as compared with previous fall fullowing 1865... 320

Causes of the fall; general statement of them, and of such as may
account for the prolongation of the decline . ae as
— the commercial revelations of the last few years more gradual
and more discreditable than those of 1866; the collapse of foreign
loans, and catastrophe of the City of Glasgow Bank, as accounting
for the greater fall in prices than in 1866 ye a -. $29
—— the deficient harvests ‘‘one-ftourth”’ of 1875-76-77; explanation
of their bad effects, though not causing rise of prices, owing to

322

foreign importations .. a sie a as -. 826
Causes of the fall ; contemporary reduction also in stocks of cattle .
and sheep xe a et ais oe aa oe fee BAe
— injurious effects of the bad harvests on the country banks .. 329
— unfavourable foreign exchanges z 829

——- extraordinary demands for gold in Germany and the United
States. combining with a probable actual falling off inthe supply 330
— table of gold procuction, 1852-73, showing gradual reduction .. $33
— the effects of this gradual fauing off of gold production inten-
sified by an enormous contemporary increase in population, in
wealth per head (equal to 100 per cent.), and in the enlarged

production of coal, iron, cotton, ships, &c. i a -. 834
-—— the additional effect from the inclusion of France, Germany,
aud the United States among gold.standard using countries +» 836

‘What the fall explains, and its consequences ; the supposed decline
in the amount of our foreign trade explainable by a fall in prices

equivalent to the amount aie Be Aa eis -. 839
—— question as to the connection of the depreciation of silver, with
the prolonged discredit of trade «. dB4l

—— necessity of a fall in wages following a great fallin prices .. 843
—— probability of a prolonged fall in prices following an incipient

gold scarcity, as a gradual rise followed the Australian and Cali-

fornian discoveries ae a se ate . +. 844
Concluding observations; necessity for economising expedients even

by the issue of one pound notes to mitigate the evils of a scarcity

of gold ws 5 3 oie aa — -«. §=684B
INDEX.
Prosate anv Succession Durixs ie oe ar oe oo
Rartway speculation ., oe we we . +e o
Rates... Se ai ad es is ae ase
Raw Marerrat, depression of trade in ae os oo oe
Reau Property, taxation of .. ~ it aie sie abs
Repvcrion of the national debt oe Ne St Ee ai
Representation of Ireland .. ot i ie si ae
Revenue, modes of considering what could be raised ae oe
Savines and outlay in 1877... i oe ee oe oe

Sitver, Notes on THE DEPRECIATION OF—

as is a general agreement as to the causes of the depreciation of
silver .. “s wi os a aie: a a2
Effect’ of depreciation is that in countries having a silver standard
there will be general rise of prices, weight of national debts so far
as contracted in silver will be diminished, and private individuals
will suffer loss ., ss sia oe os as
Fluctuations in standard of value se <3 om ae
Nature of the outcry caused by the depreciation of silver, and
inquiry by whomitismade ., fae ais ee
Losses are exaggerated .. oe ao ne ai a
Remedies: (4) demonetisation of silver in silver-using countries, and

(b) the adoption of bimetallism —~  ., ata ss aw

Remedies applicable to special difficulties .. om = .

Sramp duties .. Ee ae as wo ai a eo
Stanparp of value, fluctuationsin .. as sip sie

Svuccessiuns to land should be liable to special tax a oe oe

TaxasBLe Income three times greater than in 1815 .. oe e
Taxation, amount of, remitted in periods 1842-52 and 1853-66 ..

Taxation, imposed and remitted oe oe oo oe oe
Taxation of Ireland .. ios ais a ee oe oe
Taxation, remissions of, 1815 to 1866 i an oo se

Taxes on Lanp—

Mill’s exposition of the programme of the Land Tenure Reform
Association, and the agitation against burdens on land considered
with a view to discussing the question on which this collision of
opinion occurs... “a ae ze sree Vaz sa

Difficulty of getting an exact statement of the grievances of those
who complain that real property has more burdens in proportion
to its value than any other kind of property .. a ae

Effect of abolishing taxes on monopolies .. =f ae ae

The character of the taxation affecting real property shows how
little reason there is to suppose that the burden is ot the nature of
an income-tax. on the owners of real property, or that any part is
of such a nature as to raise an overwhelming objection against it..

Stamp, probate, and succession duties, land tax, hvuse tax, and rates
considered = . as ie — ie ee

Improved value of real property compared with increase of rates ..

Rate-charge shou'd be compared with actual increase of profits, and
this is not measured by the rental value ee tity ial

Much property has augmented in value without any proportionate
charge upon its profits ei we is fs oa

Facts show that there has been a diminution of the burden on old
property to an extent represented by the capital sum of £75,000,000

Effect of throwing certain rates on tke Consolidated Fund would be
to confer a bonus on owners equivalent to a capital of £330,000,000

Inquiry into the meritsof the demand that a share of the unearned
increase of the value of land should go to the State ... ae

In theory nothing can be urged against the principle _ “ o-

Consideration of the various methods of carrying it out—French

. JSoncier taxes, and English special taxes on land ~ .

857

PAGB
241”

116
242
133-40
24L
259
230
265

154
197

193-9
2u0

201-9
2u2-k

205-6
207

241
240
257

232
214
271-2
280
269-70

234-5

236-8
239

241

241-3
244

245
245
246-7
247-8

248
249

250-8
358

INDEX.

Taxzs on Lanp—contd.

Good reason exists for putting an end to the system of grants in aid
: ot local burdens, and the burden should be re-imposed on property

Probate and succes~ion duties are special in their nature, and it is
improper to classify them with burdens on property

Such a tax is a charge upon a concession, and may be varied by the
State ..

Sugzestion that land should be made subject toa special liability
to taxes on successions

Probably only a small fraction of the augmenting “value of land will

ever be secured to thé State... . ai * ee

Travz, depression of ., : os
Trane, depression of, in raw materials greator than in manu-
factures he aie oe ee . ¥e oe ay
Usitep Starts, wealth of - .. oe oe . oe .
Uxueuay, trade of ig sia es i ve ss as
Vauve of land, unearned increase in .. ae On ae or
Waers, necessity of a fall in, following a great fallin prices ..
War, cost of the Franco- German oe aie oe ae we
Weatry, i increase of, in United States a6 ie ee °

 

PAGH

254-5
255
256
257
258
lu7
133

186
137

248
343
186

Rayxey & Co., Printera, Drury House, Drury Court, Strand, London, W.G
WORKS BY ROBERT GIFFEN.
eee nn
Fourth Edition Revised. Demy 8vo, Price 10s Gd.

ESSAYS IN FINANCE.

FIRST SERIES.

The Cost of the Franco-German War of 1870-71.—The Depreciation of
Gold since 1848.—The Liquidations of 1873-76.—Why the Depression of
Trade is so much greater in Raw Material Producing Countries than in the
Manufacturing Countries. Foreign Competition.—The Excess of Imports.
—Recent Accumulations of Capital in the United Kingdom. —Notes on the
Depreciation of Silver.—Mr. Gladstone’s Work in Finance.--Taxes on
Land.—The Reduction of the National Debt. —The Taxation and Representa-
tion of Ireland.—The Case against Bimetallism,—On the Fall of Prices
: of Commodities in Recent Years,

“Tt is impossible to read a page of these essays without being struck by the careful and
couscientious character of the work displayed in them. We feel that we are dealing witha
man who is giving us the fruit of honest labour. Every problem he attacks is fairly con-
sidered on every side. When figures are dealt with they are scrupulously revised. When
estimates are framed they are as exact as the most faithful evaluation of a!l the elements
of the case can furnish. Mr. Giffen thus inspires us with confilence almost as soon 1s wa
have begun to read the book, and though we should ill reward his probity by turning over
his pages carelessly, we should run little risk of being led wrong in trusting ourselves

aly to his guidance "—The Times.

 

Demy 8vo. Price 14s.

ESSAYS IN FINANCE.

SECOND SERIES,
Containing: Trade Depression—Gold Supply, the Rute of Discount and
Prices —! he Effects on ‘I'rade of the Supply of Coinage.—Bank Reserves.—
Foreign Trade of the United States.—The Use of Import and Export
Statistics. — Foreign Manufactures and English Trad+.— The Utility of
Common Statistics. —General Uses of Statistical Knowledge.—Progress of
the Working Classes in the Last Half-Century.

“Those—and they are many—who desire to know what the material condition of the
country really is at the present time will do well to study this volume.”—Ath>neum. :

“Those who are at all sceptical of the value as well as interest of statistical inquiries
may be advised to read this volume, since Mr. Giffen aims at strictly practical ends.”’—
Daily Chronicle. :

“The subjects of which Mr. Giffen treats are of the highest economic and practical
importance, and he brings to the examination of them a degree of special knowledge and
mastery of facts and figures greater, probably, than are possessed by any other iiving writer,””
—Scotsman.

 

. Demy 8vo. Price 8s. Gd.

STOCK EXCHANGE SECURITIES:

An Essay on the General Causes of Fluctuation in their Price. Enlarged
by an Appendix of Evidence given before the Royal Commission on
the Stock Exchange

“ An able and interesting book on a subject which possesses very great interest fora

i f the community.”— Times oe :
ie Mr. Giffén Thasaaade fee of his varied opportunities, and has given us avery valuable
contribution towards the solution of problems which deserve from political economists
more consideration than they have hitherto received.””— Saturday Review. :

“I would strongly recommend the perusal of this book to all those who are desirous to
invest upon a sound basis of common sense, and more particularly to that class who invest
not only in the expectation of obtaining interest upon their money, but with a view to the
value of their investments increasing.”— Truth.

“LONDON: GEORGE BELL & SONS, YORK STREET, COVENT GARDEN
STAN DARD WORKS.

ENGLISH LETTERS AND
LETTER-WRITERS OF THE 18TH
CENTURY. With Explanatory Notes by
HoOwarD WILLIAMS, M.A. _ Illustrated
with Portraits and Facsimiles. ast Series :
SwirT and Pore. Demy 8vo. ras. 6d.

SMOLLETT’S WORKS. In 1 vol.
With Memoir of the Author by THOMAS
Roscoe, a Portrait, and 21 Plates by
George Cruikshank. Royal 8vo. 1s.

SWIFT'S WORKS. In 2 vols. Con-

taining interesting and valuable Passages
not hitherto published. With Memoir of

the Author by THOMAS Roscoe. Royal
8vo, 245.
FIELDING’S WORKS. In 1 vol.

With Memoir of the Author by THOMAS
Roscor, a Portrait, and 20 Illustrations
by George Cruikshank. Royal 8vo. 14s.

FIELDING’S NOVELS. Separate
in x vol. With George Cruikshank’s zo
Illustrations. Royal 8vo. 75. 6d.

 

LAMB’S WORKS. Intvol. Witha
Memoir by Sir THOMAS NooN TALFOURD,
and a Portrait. Royal 8vo. ros. 6d.

SHAKESPEARE’S PLAYS AND
POEMS. In 1 vol. Edited by CHARLES
KNIGHT. With Glossarial Notes and
Facts connected with the Poet’s Life and
Writings, abridged from ‘ William Shake-
speare’s Biography.’ With 40 Engravings
by W. Harvey. Royal 8vo. ros. 6d.

BOSWELL’S LIFE OF JOHN-
SON, with the TOUR in the HEBRIDES
and JOHNSONIANA. Newedition. With
Notes and Appendices by Rev. ALEXANDER
NAPIER, M.A., Trin. Coll. Camb., Vicar
of Holkham, Editor of the Cambridge
Edition of the ‘Theological Works of
Barrow.’ With Steel Engravings. 5 vols.
demy 8vo. 3/.

A large-paper edition, to range with
‘Dickens’ and ‘ Thackeray,’ with the plates
on India paper. 104 copies, numbered.
5 vols. imp. 8vo. ro/. ros. net.

 

HISTORICAL

MODERN EUROPE. From the
Fall of Constantinople to the Establishment
of the German Empire, A.D. 1453-1870. By
THOMAS HENRY DyER, M.A. _ Second
Edition, revised and continued. In 5 vols.
demy 8vo. 2/. 125. 6d.

HISTORY OF ENGLAND, during
the Early and Middle Ages. By C. H.
PEARSON, M.A., Fellow of Oriel College,
Oxford. Second Edition, much enlarged.
Vol. I. 8vo. 16s. Vol. II. 8vo. 145.

HISTORICAL MAPSof ENGLAND
during the first Thirteen Centuries. With
Explanatory Essays and Indices. By C,H.
PEARSON, M.A. Imp. folio. Second Edi-
tion, 315. 6d.

MARTINEAU’S (HARRIET) HIS-
TORY OF ENGLAND from 1800-46.

With new and full Indices. 5 vols. 3s. 6d.
each,

 

WORKS.

THE LIFE OF MARY, QUEEN
OF SCOTS. By AGNES STRICKLAND.
2 vols, post 8vo. ss. each.

HUME, SMOLLETT, & HUGHES’
HISTORY OF ENGLAND. 18 vols.
{sold separately], post 8vo. 4s. each.

ENGLAND IN THE FIFTEENTH
CENTURY. By the Rev. W. DENTON,
M.A., Worcester College, Oxford. :

[/1 the Press.

HISTORY OF THE IRISH RE-
BELLION IN 1798. By W. H. Max-
WELL. With Portraits and Etchings on
Steel by George Cruikshank. Tenth Edi-
tion. 7s. 6d.

LIVES OF THE QUEENS OF
ENGLAND, from the Norman Conquest
to the Reign of Queen Anne. By AGNES
STRICKLAND. Library Edition. With Por-
traits, Autographs, and Vignettes. 8 vols.
post 8vo. 75. 6d. each. Also a Cheaper
Edition in 6 vols. 55. each.
iS)

Cc

AIISTORICAL WORKS.

THIERRY’S HISTORY OF THE

CONQUEST OF ENGLAND BY THE
NORMANS; its Causes, and its Conse-
quences in England, Scotland, Ireland, and
the Continent. Translated from the 7th
Paris edition by WILLIAM HAziirr. With
short Memoir of Thierry, Index, and Por-
traits of Thierry and William the Con-
queror. 2 vols. 35. 6d. each.

JESSE’S MEMOIRS OF THE

PRETENDERS AND THEIR ADHE-
RENTS. With Index and Portraits. Post
8vo. 55.

JESSE’S MEMOIRS OF THE

COURT OF ENGLAND DURING
THE REIGN OF THE STUARTS, in-
cluding the Protectorate. 3 vols. With
Index and 42 Portraits. 55. each.

NUGENT’S (Lorp) MEMORIALS

OF HAMPDEN, HIS PARTY AND
TIMES. With a Memoir of the Author,
copious Index, an Autograph Letter, and
Portraits. Post 8vo. 55.

CARREL’S HISTORY OF THE

COUNTER-REVOLUTION IN ENG-
LAND for the Re-establishment of Popery
under Charles II. and James II. By Ar-
MAND CARREL. Together with Fox's (Right
Hon. C. J.) History of the Reign of
James II., and Lord Lonsdale’s Memoir
of the Reign of James IT. With Portrait
of Carrel after Viardot. 35. 6d.

JAMES’S (G. P. R.) HISTORY OF

THE LIFE OF RICHARD CUR DE
LION, King of England.. With Index and
Portraits of Richard and Philip Augustus.
2 vols. 3s. 6d. each,

COXE’S MEMOIRS OF THE

DUKE OF MARLBOROUGH. With
his original Correspondence, collected from
the family records at Blenheim. Edited by
Archdn. W. Coxe, M.A., F.R.S. With
Portraits and Index. 3 vols. post 8vo.
35. 6d, each.

*,* An Atlas of the plans of Marl-
borough's campaigns, 4to. tos. 6d.

OXE’S HISTORY of the HOUSE
OF AUSTRIA, 1218-1792. By Archdn.
Coxe. With a Continuation to the Revo-
lution of 1848. To which is added Genesis,
or Details of the late Austrian Revolution.
With Portraits of Maximilian, Rhodolph,
Maria Theresa, and Francis Joseph. 4 vols.
with Indexes, 35. 6d. each.

LIFE OF THE EMPEROR KARL

THE GREAT [Charlemagne]. Translated
from the Contemporary History of Egin-
hard, with Notes and Chapters on E-gin-
hard, the Franks, Karl, and the Breaking-
up of the Empire. With a Map. By
WILLIAM GLAISTER, M.A., B.C.L., Uni-
versity College, Oxford. Crown 8vo. 45. 6d.

 

GERMANY, MENZEL’S  HIS-
TORY OF, from the Earliest Period toa
Recent Date. With Index and Portraits of
Charlemagne, Charles V., and Metternich.
3 vols. 35. 6d. each.

RUSSIA, HISTORY OF, from the
Earliest Period. Compiled from the most
authentic sources, including Karamsin,
Tooke, and Ségur. By WALTER K.
KELLY. With Index and Portraits of
Catherine, Nicholas, and Menschikoff.
2 vols. 35. 6d. each.

OCKLEY’S HISTORY OF THE
SARACENS and THEIR CONQUESTS
IN SYRIA, PERSIA, AND EGYPT.
Comprising the Lives of Mohammed and
his Successors to the Death of Abdalmelik,
the Eleventh Caliph. By Simon OCKLEY,
B.D., Professor of Arabic in the University
of Cambridge. Sixth Edition. With Por-
trait of Mohammed. 35. 6d.

CONDE’S HISTORY OF THE
DOMINION of THE ARABSIN SPAIN.
Translated from the Spanish by Mrs.
Foster. With Engraving of Abderahmen
Ben Moavia, and Index. 3 vols. 3s. 6d.
each.

MACHIAVELLI’S HISTORY OF
FLORENCE and of the Affairs of Italy,
from the Earliest Times to the Death of
Lorenzo the Magnificent; together with
the Prince, Savonarola, various Historical
Tracts, and a Memoir of Machiavelli. With
Index and Portrait. 35. 6d.

HUNGARY, its History and Revo-
lution: together with a copious Memoir of
Kossuth from authentic sources. With
Index and Portrait of Kossuth. 35. 6d.

JAMES (G.P.R.), THE LIFE and
TIME OF LOUIS XIV. With Index,
and Portraits of Louis XIV. and Mazarin.
2 vols. 35. 6d. each.

ROSCOE’S (W.) LIFE of LORENZO
DE MEDICI, called ‘The Magnificent,’ in-
cluding the Copyright Notes and Illustra-
tions, and Index. With his Poems, Letters,
&c. Tenth Edition, revised, with Memoir
of Roscoe by his Son, and Portrait of
Lorenzo (after Vasari). 35. 6d.

ROSCOE’S (W.) LIFE and PONTI-
FICATE OF LEO X., with the Copyright
Notes, Appendices of Historical Docu-
ments, the Dissertation on Lucretia Borgia.
Final Edition, revised by THOMAS ROSCOE,
with Index, and two Portraits of Roscoe,
and one of Leo X. 2 vols. 35. 6d. each.

RANKE’S HISTORY OF THE
LATIN AND TEUTONIC NATIONS.
Translated by P. A. ASHworTH, Trans-
lator of Dr. Gneist’s ‘ History of the English
Constitution.’ One Vol. 35. 6d.
 

AIISTORICAL WORKS. 3

RANKE’S HISTORY OF THE
POPES, their Church and State, and
especially of their Conflicts with Protest-
antism in the 16th and 17th Centuries. Trans-
lated by E. Foster. With Portraits of
Julius II., Innocent X., and Clement VII.
3 Vols. 35. 6d. each.

RANKE’S HISTORY OF SERVIA
AND THE SERVIAN REVOLUTION.
With an Account of the Insurrection in
Bosnia. ‘Translated by Mrs. KERR. To
which is added, The Slave Provinces of
Turkey, from the French of Cyprien
Robert and other sources. 1 vol. 35. 6d.

DECLINE OF THE ROMAN RE-
PUBLIC. From the Destruction of Car-
thage to the Consulship of Julius Caesar.
By GEORGE LONG, M.A. 5 vols. 8vo. 14s.
per vol.

‘If any one can guide us through the almost
inextricable mazes of this labyrinth, it is Mr.
Long.’ —Saturday Review.

MASON (A. J.). THE PERSECU-
TION OF DIOCLETIAN ; an Historical
Essay. By ARTHUR JAMES MASON, M.A.,
Fellow of Trinity College, Cambridge.
Demy 8vo. tos. 6d.

GIBBON’S ROMAN EMPIRE,
Complete and Unabridged, with Variorum
Notes, including, in addition to the Author's
own, those of Guizot, Wenck, Niebuhr,
Hugo, Neander, and other Scholars.
7vols. With copious Index, and two Maps
and a Portrait of Gibbon. 35. 6d. each.

GUIZOT’S HISTORY OF THE
ORIGIN OF REPRESENTATIVE GO-
VERNMENT IN EUROPE. Translated
by A. R. ScoBLe. With Index. 3s. 6d.

GUIZOT’S HISTORY OF THE
ENGLISH REVOLUTION OF 1640.
From the Accession of Charles I. to his
Death. With a Preliminary Essay on its
Causes and Success. Translated by WIL-
LIAM HazLitt. With Portrait of Charles
after Vandyke. With Index. 35. 6d.

GUIZOT’S HISTORY OF CIVIL-
ISATION, from the Fall of the Roman
Empire to the French Revolution. Trans-
lated by WILLIAM Hazuitt. With_Por-
traits of Guizot, Charlemagne, and Louis
IX. 3 vols. with Index, 35. 6d. each.

DE LOLME ON THE CONSTITU-
TION OF ENGLAND ; or an Account of
the English Government, in which it is
compared both with the Republican form
of Government and the other Monarchies
of Europe. With Life of the Author and
Notes, by JOHN MACGREGOR, M.P. 3s. 6d.

LAMARTINE’S HISTORY of THE
GIRONDISTS; or, Personal Memoirs of
the Patriots of the French Revolution, from
unpublished sources. Translated by H. T.
RybDE. With Index, and Portraits of Robes-
pierre, Madame Roland, and Charlotte
Corday. 3 vols. 35. 6d. each.

 

LAMARTINE’S HISTORY of THE
RESTORATION of MONARCHY in
FRANCE (a Sequel to his History of the
Girondists). With Index, and Portraits of
Lamartine, Talleyrand, Lafayette, Ney,
and Louis XVII. 4 vols. 3s. 6d. each.

LAMARTINE’S HISTORY of THE
FRENCH REVOLUTION OF 1848.
With Index and Frontispiece. 35. 6d.

MICHELET’S HISTORY of THE
FRENCH REVOLUTION, from _ its
earliest indications to the flight of the
King in 1791. With Index and Frontis-
piece. 35. 6d.

MIGNET’S HISTORY OF THE
FRENCH REVOLUTION, from 1789-
1814. With Index and Portrait of
Napoleon. 35. 6d.

PHILIP DE COMMINES, ME-
MOIRS OF. Containing the Histories of
Louis XI. and Charles VIII., Kings of
France, and Charles the Bold, Duke of
Burgundy. ‘Together with the Scandalous
Chronicle, or Secret History of Louis XI.,
by JEAN DE Troyes. Edited, with a Life
of De Commines and Notes, by Andrew R.
ScoBLre. With Index, and Portraits of
Charles the Bold and Louis XI. 2 vols.
35. 6d. each.

SULLY, MEMOIRS OF THE
DUKE OF, Prime Minister to Henry
the Great. Translated from the French,
with Notes, an Historical Introduction,
Index, and Portraits of Sully, Henry IV.,
Coligny, and Marie de Medicis. 4 vols.
35. 6d. each.

SCHLEGEL’S (F.) LECTURES ON
THE PHILOSOPHY OF LIFE and
THE PHILOSOPHY OF LANGUAGE.
Translated by A. J. W. Morrison. With
Index. 35. 6d.

SCHLEGEL’S (F.) LECTURES ON
THE PHILOSOPHY OF HISTORY.
Translated from the German, with a Memoir
of the Author by J. B. RopertTson. With
Index and Portrait. 35. 6d.

SCHLEGEL'S (F.) LECTURES ON
MODERN HISTORY, together with the
Lectures entitled Czcesar and Alexander,
and The Beginning of Our History. Trans-
lated by L. PurceLti and R. H. WHITE-
LOCK. With Index. 35. 6.

TYTLER’S (Pror.) THE ELE-
MENTS OF GENERAL HISTORY.
New Edition. Revised and brought down
to Christmas, 1874. Small post 8vo. 35. 6d.

A PRACTICAL SYNOPSIS OF
ENGLISH HISTORY; or, A General
Summary of Dates and Events for the use
of Schools, Families, and Candidates for
Public Examinations. By ARTHUR BOWES,
sthedition. Revised to date. Demy 8vo. 2s,

[TURN OVER,
ENGLISH
Post Svo. 5s

BEDE’S ECCLESIASTICAL HIS-
TORY, and the Anglo-Saxon Chronicle.
With Notes, Analysis, Index, and Map.
By Dr. GILEs.

CHRONICLES OF THE CRUSA-
DERS. Richard of Devizes, Geoffrey de
Vinsauf, Lord de Joinville.

FLORENCE OF WORCESTER’S
CHRONICLE, with the Two Continua-
tions: comprising Annals of English His-
tory to the Reign of Edward I.

GIRALDUS CAMBRENSIS’ HIS-
TORICAL WORKS : Topography_ of
Ireland; History of the Conquest of Ire-
Jand; Itinerary through Wales; and De-
scription of Wales. With Index. Edited
by THOMAS WRIGHT. .

HENRY OF HUNTINGDON’S
HISTORY OF THE ENGLISH, from
the Roman Invasion to Henry II. ; with the
Acts of King Stephen, &c.

INGULPH’S CHRONICLE of the
ABBEY OF CROYLAND, with the Con-
tinuations by Peter of Blois and other
Writers. By H. T. RILEY.

MATTHEW PARIS’S CHRONI-
CLE. In 5 vols. First SECTION: Roger
of Wendover'’s Flowers of English History,
from the Descent of the Saxons to A.D.
1235. Translated by Dr. GILES. 2 vols.
SECOND SECTION : From 1235-1273. With
index to the entire Work. 3 vols.

. per Volume.

 

MATTHEW of WESTMINSTER’S
FLOWERS OF HISTORY, especially
such as relate to the affairs of Britain, to
A.D. 1307. Translated by C. D. YONGE.
In 2 vols.

ORDERICUS VITALIS’ ECCLE-
SIASTICAL HISTORY OF ENGLAND
AND NORMANDY. With Chronicle of
St. Evroult. Translated, with Notes, by
T. Foresrer, M.A. In 4 vols.

ROGER DE HOVEDEN’S AN-
NALS OF ENGLISH HISTORY ; from
A.D. 732 to A.D. 1201. Edited by H. T.
RiLey. In 2 vols.

ROGER OF WENDOVER.
Matthew Paris.

SIX OLD ENGLISH CHRONI-
CLES, viz. :—Asser’s Life of Alfred, and
the Chronicles of Ethelwerd, Gildas, Nen-
nius, Geoffrey of Monmouth, and Richard.
of Cirencester.

WILLIAM OF MALMESBURY,
CHRONICLE OF THE KINGS OF
ENGLAND. Translated by SHARPE.

PAULI’S (Dr. R.) LIFE of ALFRED
THE GREAT. Translated from the Ger-
man. ‘To which is appended Alfred's.
Anglo-Saxon Version of Crosius, with a
literal Translation, and an Anglo-Saxon
Grammar and Glossary.

See

 

COOPER’S BIOGRAPHICAL DICTIONARY.

Containing

concise Notices (upwards of 15,000) of Eminent Persons of all Ages and Countries, and more
particularly of distinguished Natives of Great Britain and Ireland. By THOMPSON COOrER,
F.R.S., Editor of ‘Men of the Time,’ and Joint-Editor of ‘Athenze Cantabrigienses.”

1 vol. 8vo, 12s.

“It is an important original contribution to the literature of its class by a painstaking scholar... -
It seems in every way admirable, and fully to justify the claims on its behalf put forth by its editor.’ —

British Quarterly Review.

The mass of information which it contains, especially as regards a number of authors, more or less.

obscure, is simply astonishing.’—Sfectator.

‘ : s ‘ =
Comprises in 1210 pages, printed very closely in double columns, an enormous amount of inform-

ation.’ —£-ramtiner.

THE ONLY AUTHORIZED AND UNABRIDGED EDITION,

WEBSTER’S DICTIONARY OF THE ENGLISH LAN-
GUAGE. Including Scientific, Technical, and Biblical Words and Terms, with their Signi-
fications, Pronunciations, Alternative Spellings, Derivations, Synonyms, and numerous.
Illustrattve Quotations. In 1 volume of 1576 pages, with 3000 Illustrations. 4to. cloth,’215.

THE COMPLETE DICTIONARY contains, in addition to the above

matter, several valuable Literary Appendices, and 70 extra pages of Illustrations, grouped

and classified. In cloth, 315. 6d.

* Certainly the best practical English Dictionary extant.’—Quarterly Review, Oct. 1873.
Prospectuses, with Specimen Pages, sent post free on application,

Lonpon : GEORGE BELL & SONS, York STREET, COVENT GARDEN.
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

es Perrasa i canhae
uteri Es
ear tee
ao inn Rena oe
ieee -

a:

: A : eee oes fan eas
ery te ‘ Mera rit ea
Chr es és serine j Someta :
= ee a /

*: ef)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pees
Ae oe ee
i a oF
te
ch Bue

Bee ;
sae He rete ;
‘op nee Sentry
o ae

s
rege
‘5