Foreign Trade and the Money Market

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Foreign Trade and the Money Market  (1903) 
by Felix Schuster

FOREIGN TRADE[1] AND THE MONEY MARKET.


By FELIX SCHUSTER.


[Read before the Institute of Bankers on Wednesday, December 16th, 1903, and reprinted by kind permission of the Council.][2]


Introductory.

In bringing the subject of Foreign Trade and the Money Market before the Institute of Bankers at the present juncture, I am fully conscious of the responsibility such a course involves. For it is quite impossible to separate this subject from the great question which is now agitating the country. It is not, however, my object tonight to go fully into the fiscal problem; and even if I felt competent to do so time would not admit of it; neither can I pretend to be deeply versed in all the doctrines of political economy, either old or new, but there is one thing which experience has taught me, and that is that there are certain economic laws which act with inexorable force, like any of the laws of nature; their action is sometimes delayed, sometimes obscured by other factors which, for the time being, may be more immediately effective, but ultimately these laws do make themselves felt; they govern the action of individuals, although they may be unconscious of the fact, and it behoves us to study these laws closely when endeavouring to forecast the developments of the future. Not being, then, prepared to fully discuss either the fiscal question or other problems of political economy, what can be my claim for addressing you to-night 1 It is simply this, I want a talk with you, as a man of business with men of business. We may be called upon, no one knows when, to give our votes on this question, one of the gravest, most momentous, and most difficult on which the electors of the United Kingdom have had to decide for many generations. And on us men of business a very grave responsibility falls, for we surely ought to be the guides of public opinion in such a matter. That brings me to my first difficulty, viz., the absolute lack of preparation from which the average busy man must inevitably be suffering.

A question is suddenly brought before us for decision, which, rightly or wrongly, may involve a complete reversal of all the traditions under which the last two generations have been brought up. I hold that we should judge it entirely on its own merits; we must, as far as we can, rid ourselves of anything like prejudice or preconceived ideas, or submission of our own judgment to that of others with whom on questions of politics we may have been associated.

That, I think, is the plain duty of every man of business; but, in order to form such an independent opinion, in order to rely on our own judgment and not on that of others, have we the necessary material at hand? Probably most men in this room have already formed an opinion or have a pronounced tendency one way or another, but I ask you, can you honestly say that you have, each of you, each man for himself, gone into all the various bearings of this most intricate subject? I for one may at once admit that I have, as you no doubt will discover subsequently, certain convictions which lead me in one direction, convictions not based on the reflections of the last few months, but on watching with close attention for a. number of years the development of our commerce, and the underlying causes which have governed it. I confess that the material at my command does not furnish me with such absolute proofs on many points as I could wish to place before you, and such absolute proofs are what I have been looking for in the many speeches on both sides which I have read during the last few months. Others I feel must be in the same position as I am. I should like to have a whole year's study; I should like to go fully into the history of every one of our great industries, and judge them each, not separately, but as component parts of a great whole, to compare them with similar industries in foreign countries, and to give full consideration to all the surrounding circumstances, and the probabilities of the future. I feel, moreover, that the time is singularly inopportune for such an enquiry, because the effects of a great war are, and must be, still an active force in our trade as it is in our money market. The disturbance, the dislocation which that war has produced has not yet passed away, and what may be called a normal course has not been attained.


As to Necessity for Enquiry.

We are told that there has been an enquiry. The only official evidence produced by that enquiry has been presented in a most admirable Blue Book, which is deserving of the closest study, but which is confined mainly to statistics, most valuable, no doubt, but which, like all statistics, are open to various interpretations, unless they are considered in conjunction with all the causes and conditions of which the figures are the outcome. Beyond this we know nothing of an official enquiry; we have had pamphlets and speeches innumerable, some of them of great ability, and containing much valuable information. These have, however, for the most part, to be regarded as the pleadings of advocates; and not as the summing up by an impartial judge; yet the jury are to be asked for their verdict. Who is to be that impartial judge; and is there one to be found? Do you think that this is a question which ought to be made the battle-cry between various political parties! Is it too late even now for men of business to make an endeavour to have this question removed from the political arena, and without reference to party. To have this problem decided at the hustings without further enquiry, appears to me as if a great question of law, involving the very highest considerations, were to be decided, not by the Lord Chancellor, but at the polling booths; yet the consequences of a mistaken judgment must be. far-reaching indeed. We have had, and we have, Royal Commissions on a number of different subjects—I believe there are over a dozen of them now sitting—and amongst them several, such as that on the Food Supply in time of War and on the Coal Supply, which are very closely connected with the Fiscal Problem; and yet there has been no Royal Commission on this, the gravest and most complicated of them all. It has been said that no men of unbiassed minds and who have not already formed their opinions could be found to serve on such a Commission; I do not believe it. There are many who will be only too glad to have all the evidence placed before them, and to judge accordingly. No one, however strong his convictions may be, could possibly object to have his case thoroughly examined in all its bearings; in fact, the stronger your convictions are, the readier you must be to submit your case to an impartial tribunal of experts: and not only has there been no Royal Commission, the subject has not even been debated in Parliament, and yet an appeal to the country is looked upon as imminent in many quarters. Though the question may be primarily regarded as a matter of business, it involves, of course, even higher considerations. The unity of the empire is, we are told, dependent on it; but if that unity is to be brought, about and based on business considerations, the question must be dealt with on business lines and in such a way as to produce, not conflict, but harmony. I venture to say that the Imperial sentiment is nowhere stronger than it is in the City of London, and that nowhere is the business community more ready to make sacrifices in order to promote the unity of the Empire; but it is strange that, as far as I have seen, in all the arguments that have been used on both sides, the interests of this great City of London have hardly been touched upon; yet it can rightly claim that the services it renders to the nation, both as regards its contribution to the general prosperity and the employment it finds for millions of workers, are equal, if I not superior to those of any other centre of industry, and these surely ought to be taken into consideration in a general enquiry. We are, it is admitted, the financial centre of the world; this is more than a phrase, it is a fact. Our position has indeed been assailed, but so far without effect. I wonder how many politicians realise what it means; I wonder whether even we, here in the City of London, fully realise it. I need not give to you bankers of London any banking statistics, but I append a table (p. 34) showing the growth of the banking deposits in the United Kingdom, which indicates the truly marvellous progress that has been made during the last 50 years, a progress which not only shows increasing prosperity throughout the country, but which itself must have been of immeasurable benefit to all our industries; yet this progress of banking, and the benefits it brings to the nation, like the progress of, and benefits derived from, the other of the great commercial assets of the United Kingdom—our great merchant fleet and all that it means—are left entirely out of sight. They do not appear in the tables of imports and exports, on which so many arguments are based. These interests and many allied to them are those which do not manufacture, but they are productive, they render services, and thus contribute to what are termed "invisible exports"; a term on which something will have to be said in connection with our balance of trade. I should like to see a history written of the trade of London, and to many of us it would be a revelation. The total shipping that now enters the Port of London amounts to over ⅕th part of the total shipping of the United Kingdom; the value of the commodities imported into the Port of London amounts to about ⅓rd of the total value of our imports; the value of the exports is over ¼th of the total value of the exports of the United Kingdom. Think of the vastness of the carrying and distributing trade that these figures imply, and of the employment of our working population that must follow in its train. This brings me, after an unduly long preface, to the real subject matter of my paper, Foreign Trade and the Money Market.

London, the Financial Centre of the World.

As I have already said, the fact of our being the recognised financial centre is beyond doubt. That this is so is a matter of the very greatest moment, for it will be admitted that the prosperity of the whole of the United Kingdom must, in a great measure, depend on our being able to maintain that position. A bill of exchange on London is the recognised medium of settling international transactions, which is made use of in all parts of the world. I really think you must have lived, or at least travelled, in foreign countries, to realise to what extent this bill on London enters into daily commercial life in all foreign countries. Not only in the banks abroad but in the offices of most leading merchants, the dealing in such bills is of constant occurrence; and the names of London bankers and merchants are as well known in the important commercial towns all over the world as amongst ourselves. It is quite true that a certain number of bills are drawn on Germany, or France, or Belgium for goods shipped there from transatlantic countries, but the number of such bills is comparatively small, and they are only used in connection with trade between those respective countries, and not as international mediums of exchange. As regards shipments of goods to the United Kingdom, the shipper almost invariably obtains payment for those goods by selling his bill on London to the local bank; but not only that, in most cases he would prefer, when he sends goods to any part of the Continent of Europe, or to the United States, to draw a bill on London against them, leaving the purchaser to settle with the London banker. In using the term banker, I include, of course, the large number of so-called merchant bankers who make a speciality of this kind of business. Thus the China merchant who sells tea to Russia or Germany, or silks to the United States, will probably obtain payment through the medium of the London Money Market, and equally the German merchant who sends his goods out to China. It is needless to multiply instances; they may be found amongst almost every article of trade; the coffee that is shipped from Brazil into France or Italy, the cotton from New Orleans to Poland, sulphur from Sicily to the United States, and agricultural machinery from the United States to the River Plate, all these trades find their Clearing House in Lombard Street. This applies not only to goods, but to securities also. If a Dutch capitalist invests his money in an American railway, he will probably complete the purchase by a payment in London; and when the United States paid Spain for Cuba, it was through London that the transaction was settled, and the same, of course, applies to the Chinese payment to Japan at the close of the war. The fact of our being the only free market for gold, and also the credit and high standing of our bankers and merchants, have contributed largely to our attaining and keeping our position as the financial centre of the world. But this cannot be the only reason, nor even the main reason, for this position. The banker who buys a bill on London, say, in Valparaiso, does not buy it because he wants the gold; but he knows that, if he has no other use for the bill, he can obtain gold for it, though probably at a small loss to himself; he buys it because he knows he always finds a ready market for it, he can always sell it to a merchant, in his own place or in some other country, who requires it, in order to pay for goods or services rendered to him here, or to some Government that has to remit it for payment of interest. There is an absolutely free market, because there is always a supply, and there is always a demand, and that really in every part of the world. For as the seller of foreign goods to Great Britain obtains payment by means of this bill on London, so the purchaser of British goods abroad settles his indebtedness by the same means.

But it is owing to our having first established a trade with all these countries, a trade more important than each carries on with other countries, that ours has become the supreme money market. It has been said that trade follows the flag, but more surely can it be said that banking follows trade, and if our trade for any reason whatsoever were to be restricted, were to be confined within narrower channels, then with absolute certainty others to whom this trade would fall would also oust us from our supreme Position in the International Money Market. What a disturbance of that position would mean it is almost impossible to conceive; but in bringing this point to your notice, and asserting for it a paramount claim in the consideration of the fiscal question, I am confident you will agree that I am not pleading in the interests of a special class, for I feel sure that all of us bankers would put the great interests of the country before our own; and as our prosperity is dependent on that of the nation, so again every one of our industries, and our whole trade, and the employment of our working population is, in the United Kingdom more than any other country, dependent on the unimpaired maintenance of our banking system, and that again is largely dependent on our position as the bankers of the world.

It is indeed a great responsibility we carry on our shoulders; it is not beyond the mark to say that on the greatness of our banking resources, the greatness and development of our industries must depend. That the present system of unrestricted trade must increase these resources, as it must also increase the national income through our shipping trade is, to my mind, beyond question. The part played by this bill on London in maintaining stability in our money market, the part it has played, and is still playing, in settling the vast expenditure of the war, is known to you all, but I doubt if it is at all realised throughout the country. London banker hardly ever invest in bills on foreign centres; the rate of discount may be 3 per cent. here, and 4 per cent. in Berlin, yet it does not occur to us to invest our money in bills on Berlin; but take the opposite case; you have money here at 4 per cent. and 3 per cent. in Berlin or Paris, you at once have a flow of investment into those bills, it is the Berlin banker who discounts, as it were, instead of the London banker, and hence the demand on our market is lessened. It is only when our rate recedes again below that of the market where the bill is held that it will come over here for discount. Thus this bill on London, this bill, the origin of which is based in most cases on purely commercial transactions, performs a most important function in equalising the value of money prevailing in the various centres, and preventing large demands for export of gold. I will not attempt an estimate of the amount of the bills so held abroad at the present moment; the figure has been estimated at anything from 50 to 100 millions sterling. In any case it is a very large figure, and means temporary indebtedness to other nations which has prevented calls on our gold reserves, and in consequence higher rates for money and disturbance of trade.

But in addition to the amount of foreign money thus employed in these bills of exchange, our vast foreign trade must result in the temporary employment here of the proceeds either of these bills or of goods sold in our market, to be used in the purchase of goods here, for investment, or for safe-keeping in time of trouble, and must greatly add to our available resources. So great are the banking operations consequent on this trade that hardly a year passes without one or more of the foreign banks establishing their own agencies in our midst, not always to the unmixed delight of their older established competitors, but yet I believe for the common good; for they bring as much as they take; they are evidence that we are supreme in the banking world; they play an important part in the adjustment of the money market, and also, I believe, in promoting that friendly and harmonious understanding amongst the nations, which always follows more intimate commercial intercourse.

It is quite clear to my mind that the effect of our large foreign trade has been distinctly in the direction of lowering the value of money in our market, and consequently an undoubted aid to our industries. In fact, I believe that to it is, in a great measure, due the fact that until quite recently our Money Market has been the cheapest in the world, though of course, other causes have contributed. I need hardly insist, before a meeting of bankers, on the very great importance to the whole of our commerce of low rates for money. Cheap capital, indeed, is an absolutely essential element in every industry, perhaps the most essential; that is universally recognised, but I do not think it is realised to what extent ability to supply capital must help our export trade. So long as our money market remains the cheapest in the world—I look upon the present abnormal position as merely temporary—so long shall we be able to take from foreign nations and our own Colonies the loans they may have to place for the development of their own countries; and the increase of our export trade to these countries will follow as a natural result. When the railways of the United States and of Argentina were built, mostly with British capital, we also sent the material to build them with. When the Japanese indemnity was paid over here, the proceeds went to Japan in the shape of warships, built in our yards.


Balance of Trade

The importance of our remaining the principal market for foreign investments of all kinds cannot be overrated, and I shall refer to this point again when we come to consider the question of balance of trade, perhaps the most difficult question we have to deal with to-night, and one of the most important, in considering Foreign Trade and the Money Market. For it is only through the action of the money market that this balance of trade adjusts itself. I must admit that I have, for some years past, looked upon the rapidly-growing adverse balance with a certain feeling of uneasiness. I subjoin a table taken from the official figures showing the movement of trade, subdivided under various headings (starting from 1885, because the income from foreign investments before that year was made out on a different system).

"table of figures around imports and exports from United Kingdom from 1885 to 1902"
It will be seen that the excess of imports of merchandise over exports has risen from £100,000,000 in 1885, and only £80,000,000 in 1886, to £179,000,000 in 1902. I cannot absolutely subscribe to the theory that every import of goods must of necessity imply an export of goods. It must imply an export of something, which may be an export of earning-power, either by the sale of foreign investments hitherto held here, or by foreign capital being invested in our home securities. About such processes there are absolutely no statistics, and we can only judge from observation of the facts that come before us. It has been asserted by some that if paid for by sales of investments, part of the excess of imports has been paid for out of capital; but this theory is entirely misleading. For the proceeds of such sales of investments, if not re-invested abroad, or of foreign capital invested here, are employed at home, and become, perhaps not immediately, but eventually, productive; the capital does not disappear, but the interest on that capital, instead of coming to us from abroad, accrues at home, and to that extent there is a diminution of what are termed "invisible" exports, though not of capital. I do not say that this process has already become effective; in fact, the official figures point to an opposite conclusion; but there is a possibility of it, and the point requires constant attention. The other modes of payment for the excess of imports are, of course, well known to you all. In the first place, the difference is much greater in appearance than in reality, because of the difference in values, the imports being charged at their value on arrival here, while the exports represent their value in this country, not the price at which the goods are eventually sold—the stated values are nett—and the profits of our merchants should be deducted from the value of the imports, and added to that of our exports respectively.

Then there are the earnings of our carrying trade, shipowners and underwriters, and, as pointed out in the Blue Book, not only on the carriage of our own imports and exports, but also on the carriage of goods between foreign countries, or between British Colonies; and, again, there is the income from foreign investments, both of which are included in the term "invisible exports" or services rendered, of which there are a. great number not mentioned in the Blue Book, and regarding the extent of which no statistics are to be obtained. The income accruing from these services, such as banking and trading commissions, insurance premiums, and all the profits of our indirect trade, viz., trade not touching our shores at all, must amount to very large figures indeed. I think the excess of imports over exports may be taken to be the measure of our prosperity, so long as our earning power through invisible exports is not decreased thereby.

But we must not assume simply because we do not send gold out of the country that imports of goods are, of necessity, paid for by goods. Exports of gold are prevented through the action of the money market, and, through such action, eventually, the balance must be adjusted. The process is somewhat complicated, and it shows how the actions of a great number of individuals are governed by a universal law. The day are gone when the merchant adventurer sent out his ships, laden with merchandise, which were to bring home to him the produce of distant lands. There are, of course, a number of merchants who, having their own establishments in foreign parts, do both an import and an export business, balancing their own transactions without many bills of exchange passing; but, on the whole, trade is now much more specialised, there are importers and exporters, and their transactions are entirely independent of each other. The merchant abroad who sells his goods here does not know, nor does he care whether any goods go out in exchange; he obtains payment, as we have seen, in a bill of exchange, which does not necessarily imply an export of gold, but which gives the holder of such bills the power of withdrawing gold from here if he so chooses. Thus we have, at certain seasons, such as the present, withdrawals of gold, which can be directly traced to our imports of wheat and cotton from the United States or Egypt, or the Argentine Republic. Such exports of gold may necessitate the raising of our money rates to a level above that of other countries in order not to further deplete our stock of the precious metal; thus foreign money is attracted until such time when we can lower our rates again, through having in our turn received payment in gold for goods shipped to other countries, or for services rendered them. A prolonged period of rates prevailing here at a higher level than in other centres has an additional effect; investment stocks go down; in countries that have taken the gold from us, or have the power to take gold, the opposite takes place, money becomes cheaper and investment stocks rise, the consequence is that the home investor in, say, American railway bonds, finds the return to him is less than the return on a home investment, and he will be induced to sell; and that is exactly what has taken place with regard to the United States, and, to a very large extent, a few years ago. It is only now that there are symptoms of a reversal of that tendency. It is quite clear that the amount of interest we have now to receive from the United States must be considerably reduced as compared with, say, 15 years ago; but it is most satisfactory to find from the returns that our investments in other foreign parts must have increased to an extent which more than counterbalances this reduction.

The Blue Book gives us an approximate balance sheet. It estimates the annual excess value of imports over exports (decennial average) at 161 millions, from which has to be deducted the excess of bullion, six millions, total 155 millions. It makes up this amount by an estimated earning power of our carrying trade at 90 millions, and of interest on foreign investments of 62½ millions; the latter amount, however, is only that apparent from the official returns, and is in all probability very considerably larger, having been estimated by Sir Robert Giffen as coming up to fully 90 millions, so that the adverse balance is more than made up. There is some doubt as to the figure of 90 millions due to us for freight; this is one of the points which only a Royal Commission could clear up. On the other hand, profits on the purchase and sale of goods which do not touch our shores at all, of the large fire and life insurance business which our companies carry on abroad, and other similar services, are not included in the returns of exports and imports; these items must reach a very large total. The Liverpool cotton merchant, who buys his cotton in New Orleans and sells it, say, at Havre or Bremen, the Mincing Lane merchant, who sends coffee from Brazil to Italy, supplies no statistics of such transactions, which form a very large proportion of our general trade, and the profits on which must be added to our "invisible" exports. Then there are the earnings of all the banks which have branches either in the colonies or in foreign countries, and not only the dividends they pay, but also the interest they allow to their customers on deposits taken here. These banks are registered as English banks, and their income swells the general income tax ret1u'ns, although, strictly speaking, it is interest on foreign investments. On the other side, income receivable by foreigners from capital invested in the United Kingdom should really be added to our imports; but the total cannot as yet be very large. It must also be remembered, in considering our income tax returns, that foreigners are charged income tax on their investments in home securities; such interest appears to swell our national income, although it is really a charge on it.

In addition to these items, which by enquiry could possibly be ascertained, there are the transactions of private firms who may transfer capital from one country to another, and about these no information can ever be obtained. The only outward indication we can have whether there is an undue excess of imports must be in the foreign exchanges, and if these are constantly adverse, without special reasons, and the value of money were to become permanently higher here than in other centres, then there would be reason to fear that our invisible exports are not sufficient. What would follow then? Either we should gradually be turning from a creditor country into a debtor country, and the official publications certainly do not warrant such an assumption at the present moment, or the higher value of money would act detrimentally on all our industries and trade generally, our purchasing power would decrease, which would directly lead to a reduction of imports, the home demand would slacken, and wages and prices generally would fall, and the surplus production of our factories, failing a market at home, would have to be exported. Thus, through the pressure of hard times, the balance would gradually be restored. This is the process, though by no means a desirable one, by which an excess of imports, if really undue, must right itself; but it would mean hard times and much distress. To arrive, however, at the conclusion that such a situation has already arisen, or appears likely to arise, does not seem in the least warranted by any evidence as yet before us. What does seem evident is that of late years the margin is not so large as it was in former years, or in other words, that we are not at the present moment in the position of placing as much capital for investment abroad as was the case previously. The importance of such investments, as already mentioned, cannot be overrated. It has been stated in some public speeches, that the working-man cannot live on foreign investments, but the fact of our having them enables him to buy his food and other necessaries at a very much lower cost; and, as shown before, we pay for such investments by exports, and they thus directly contribute to provide employment. The very fact of our money market during the last few years not having been conducive to the issuing of foreign loans seems to me in a great measure to account for the growth of our exports not being equal in proportion to that of our imports. That the exports have grown most satisfactorily is undeniable, for, taking even the year 1872, about which so much has been said, as a basis, we find the total exports of that year 315 millions, of 1902, 849 millions; but according to 1872 prices, as shown by Sauerbeck's index numbers, the value of 1902 exports would amount to 551 millions instead of 849 millions, showing an increase of 75 per cent. against an increase in the population of 81 per cent. I mention this to prove that exports have grown, though imports have grown in much greater proportion. I think everyone will agree that it is most desirable that there should be greater elasticity and expansion in our exports; the difficulty is to find the true reason for this comparative lack of expansion and the true remedy for improving it.

Special Causes affecting the Direction of Trade

The history of the past few years will, I think, show that there have been very special reasons why exports should have fallen off, and why imports should have risen. As stated above, foreign exchanges are the only indication we have whether there is an undue excess of imports; the tendency of the foreign exchanges £nds its best expression in the average market rates of discount; so long as that rate is lower here than in other monetary centres, it is clear that the foreign exchanges have not been against us. The following is a table showing the average market rate in London, Paris, and Berlin, since 1885, and the imports of gold from South Africa:—


Average Market Rate of Discount Gold Bullion and
Specie imported
from British
South Africa
London. Paris. Berlin. 000's omitted
£
 1885  2.04 2.46 2.91 543
 1886 2.05 2.23 2.15 271  
 1887 2.36 2.42 2.32 231
 1888 2.38 2.75 2.12 847
 1889 2.70 2.65 2.70 1,442
 1890 3.68 2.64 3.75 1,877
 1891 2.50 2.58 3.00 2,490
 1892 1.47 1.88 1.78 4,300
 1893 2.10 2.22 3.18 5,325
 1894 0.97 1.77 1.73 7,364
 1895 0.80 1.59 2.01 8,354
 1896 0.80 1.75 3.05 8,003
 1897 1.79 1.81 3.09 13,621
 1898 2.59 2.07 3.57 16,769
 1899 3.25 2.71 4.47 15,015
 1900 3.66 3.13 4.56 379
 1901 3.l6 2.44 8.04 1,962
 1902 2.97 2.37 2.19 7,947

It will be seen that with the exception of the year 1890, the year of the Baring crisis, it was not till 1898 that our rate was above that of Paris, and not till 1901 that our rate was above that of Berlin. Until 1898 our rate was very materially below that of both places.

The year 1885 was a year of very great commercial depression and of stagnant trade; the year was chiefly remarkable because it is the first during which South African gold came to be shipped in appreciable amounts. Depression continued during 1886, when there were "unemployed" riots in London. It is curious to observe that this lack of employment became manifest during the year when the imports amounted only to 350 millions, the lowest figure since 1871, the year of the Franco-German War. Towards the end of the year confidence began to return. In 1887 there was renewed activity, and a slight rise in prices. This improvement continued in 1888, when foreign Governments, especially South American, borrowed largely. Our exports in that year rose 10 millions. There was still greater activity in 1889, and the total of new capital issues, which had amounted to 78 millions in 1885, rose from 160 millions in 1888, to 207 millions, nearly all for colonial or foreign railways and undertakings. That year is also memorable because of the conversion of the National Debt. Exports, which had been 188 millions in 1885, rose to 218 millions, and to 228 millions in 1890, the year of the Baring collapse, from which date a remarkable reaction naturally took place. In 1891 financial troubles in South America brought about a total change of feeling with regard to foreign investments, and the new capital issues fell to 105 millions in that year, to 81 millions in 1892, to 49 millions in 1898. From 1891 onwards there is a rapid and material fall in our exports, which continued till 1895; during that period, which we bankers remember so well as one of excessively cheap money, when all foreign enterprise was under a cloud, the seeds were sown for the very large municipal borrowings which at present give rise to so much serious reflection. The indebtedness of local authorities in the United Kingdom rose from 265 millions in 1894 to 376 millions in 1901, an increase in seven years of 111 millions. The distrust of investors in foreign securities was increased in 1893 by the Australian banking crisis, and in subsequent years by the currency troubles in the United States. American capitalists sent money over here to keep it safe on a gold basis, and it is not surprising that a considerable advance took place in gilt-edged securities, and great activity in South African mining shares, in which a large amount of capital was invested. In 1895 peace was concluded between China and Japan, and the large war indemnity was paid to the Bank of England, raising the stock of gold to unprecedented figures. The demand for home securities increased, and record prices were reached. In 1896 new capital applied for again rose to 153 millions. The demand was not so much for foreign or colonial securities, but mainly for home investments and industrial undertakings of all sorts. The company promoter was hard at work, and in many cases not for the benefit of the community at large or of the industries which he took in hand. We have thus a distinct change in the channels of investment; we deliberately turned away from foreign and colonial enterprises, in favour of investments in the home markets, and to that may be directly due part of the lack of expansion in our exports, which would have followed naturally had we placed the capital abroad, and also the increase in our imports for the home industries, which receive much of their material from abroad.

Towards the end of 1896 the memorable Presidential election in the United States took place, when that nation decided in favour of a gold standard; the harvests in that country had been abundant, while there had been partial failures in Australasia, Russia, and the Argentine. These circumstances are of importance to our enquiry, for they explain the partial stagnation of exports to these last-named countries; as regards the United States, the desire to settle their currency troubles led to immediate exports of gold from here, and from that time also dates the important movement, which has since taken place, of Americans buying back their securities from European markets, a movement partly caused by distrust on our side in consequence of these currency troubles, but principally by returning confidence in the United States and the remarkable revival of their industrial and commercial development, assisted by a continuous series of abundant harvests. It was assisted also, no doubt, by the new Dingley Tariff, introduced in 1897, which certainly caused a diminution in our exports to the United States, whereas at the same time a variety of other causes, such as the plague and famine in India, the disturbed condition of China, drought in Australia, rinderpest in South Africa, added to the political unrest there, and the consequent unsatisfactory condition of the gold-mining industry, political disturbances in the South American states, and war between Turkey and Greece, contributed to closing some of our best markets, or at least greatly affected our exports to them.

The year 1898 brought a revival, which showed itself in the returns for 1899 marking a rise in our exports from 294 millions to 330 millions. In those years the output of every branch of the engineering and shipbuilding trades, and iron and steel manufactures, exceeded all records, but unfortunately the engineering, and subsequently the dock strike, lost us a great deal of business which would otherwise have come here. The year 1899 promised better still, and was a year of all-round activity and prosperity; the output of the above-mentioned trades and others again surpassed previous records, and our exports for 1900 show a further increase of 24 millions, raising them to 354 millions. It must be observed that the result of great activity often only shows itself in the returns for the following year. But the end of 1899 is the date of the outbreak of the South African war, and that war must naturally have had such a disturbing effect on the whole of our trade that no conclusion can possibly be drawn from the variations place since that period. It is evident that the purchases of war material of all sorts must have swelled our imports to a very large degree, that Government purchases abroad of foodstuffs, animals, and a variety of articles which were shipped direct to South Africa without appearing in our trade returns, must have naturally turned all the exchanges against us, and that all this vast expenditure resulted in keeping the value of money at a higher level here than in other centres. Until the outbreak of the war, there is nothing in the indications of the exchanges to warrant the assumption that our commercial condition had resulted in affecting our position as the cheapest money market, which is so essential for the maintenance of our supremacy as the bankers of the world. But I think the above-mentioned facts show that special and exceptional reasons closed our most important markets, or at least greatly impeded our exports to them. We declined to lend our money to foreign countries, and thus prevented their purchases from us; by far the greatest part of our savings were invested at home, mostly in loans to local authorities, and that in itself led to a very important increase in our imports; it stimulated the building trade, the development of electrical works and undertakings, and a great:deal of the material had to be imported, if only for the reason that our factories at home were not in a position to supply the demand. Again and again one heard in those days of large and important orders for railway material, for engines, wagons, bridges, having had to be declined, and having to be placed abroad, simply because our manufacturers required a period of two years or more before they could execute them. If anyone in those days remarked, as I confess I did myself, that our exports were not as expansive as they might be, and that a great part of the business which then went to foreign countries might as well have been supplied at home, the invariable answer was that our manufacturers were so full of orders that they did not know where to turn. This applies mainly to the iron industry, but the textile industry also shows continuous progress from 1897 till 1901, in spite of the above-mentioned adverse circumstances.

The present year so far already indicates a distinct improvement, the first eleven months showing an increase in exports of £7,000,000, and that in spite of the Money Market still being under the influence of our huge war debt, a great part of which has not been funded, but remains as a floating debt largely held by foreigners. Considering the absence of the shipments of gold from South Africa, which before the war had reached nearly 17 millions, and which even now are only about half that amount, it is only surprising that the value of money was not more affected; but even now it can, I think, be said that on the whole our investments in foreign securities are again increasing and not decreasing. The condition of South Africa, which as yet is far from satisfactory, must gradually improve.

A large amount of capital invested there is still unproductive; when this state of affairs comes to an end, as it must before so very long, a new stimulus will be given to trade, and the Blue Book just published, containing Mr. Birchenough's Report on the Prospects of British Trade in South Africa, affords ample proof of the possibilities and opportunities for such trade, if only we know how to avail ourselves of them.

This short history will, I hope, to some extent account for the variations in our trade, and give the reasons why our export trade of late has not been so expansive; and I hope I have proved that we are the financial centre of the world because we are the centre of its commerce, though it is impossible to enumerate the great variety of commodities to which this term applies, nor is there time to refer in detail to our great entrepot trade; the last column in the table on page 11, which refers only to goods transhipped in bond shows how this has grown, a trade which is entirely due to our open ports and absence of restrictions; for not only the actual duties that are payable but also all the formalities and delays connected with Custom Houses are instrumental in turning trade away. I hope I have further shown that imports, far from taking away employment, are the means of providing employment for large numbers, and that the fewer the restrictions, the larger our general commerce, and the greater our prosperity must be.


Gold Reserves.

Before leaving this part of the subject, I must briefly refer to one intimately connected with it, viz., the sudden demands on our small gold reserves, which our enormous trade may bring about, a point to which, as you are aware, I have been constantly calling attention for a number of years, beginning at a time when the reserve at the Bank of England was nearly twice as large as it is now. It seems to me almost an absurd position that the export of a comparatively small amount of gold, say £500,000, should put our whole money market into a tremor. We ought to be able to spare at least £5,000,000 without influencing money rates very much. To go more fully into this question would be outside the scope of this paper, although it forms part of the question of Foreign Trade and the Money Market; but I think that the time has come when a conclusion will have to be arrived at, on whom the responsibility is to be laid for keeping the gold reserve in the country at an adequate level. I do not think we bankers ought to be called upon alone to assume that responsibility, but we should co-operate with the Bank of England towards that end. But even the Bank of England has, at present, no such specific duty imposed upon it, although it is the Bank of the Government, endowed with special privileges. But, as I said nearly three years ago, "the time cannot be far distant when a revision of Peel's Act will become necessary, and it implies no disrespect to the framers of that Act which, on the whole, has worked so well, or to those who have administered it so efficiently and conscientiously, to maintain that new conditions have arisen, to which our system should be adapted."


Preferential Treatment: Protection

From the many attacks which, somewhat unexpectedly, have been directed against our whole commercial system during the last few months, three distinct policies have emerged, viz.: (1) Preferential treatment; (2) Retaliation; (3) Protection. To go into these fully is, as I have stated, not my intention, and I am anxious to avoid anything like political controversy; yet there are various points which have material bearing on the subject matter of this paper. It appears to me that in considering the question we must keep certain recognised facts, facts admitted by all sides, constantly before us. No matter what our opinions may be of the results of the policy decided upon 60 years ago, we have to deal with present conditions; we have a large and growing population which is, and must be, dependent on a large proportion of its food supplies and raw materials for its manufactures, having to be imported from abroad. A comparison with a country like, say, the United States, which produces both its food and raw materials at home, must be therefore entirely misleading; the problems to be solved are of a different nature altogether. We are compelled to import in order to End for our population both subsistence and employment; to pay for such imports we have to render services to foreign countries, either by sending them our own goods, or by finding them capital or means of transport, or in such other ways as our position as the clearing house of the world may induce them to require work done for them here.

As countries advance in civilisation, they advance gradually from the purely agricultural to the manufacturing and commercial stage of development; we cannot expect countries like Germany or the United States to allow their own natural resources to remain undeveloped. Competition was therefore bound to arise when, after the Civil War in the United States and the Franco-German War, these countries had consolidated their national existence. That competition we have to meet, not only in the countries mentioned, but in all countries where we meet them on equal terms; to meet such competition we must be able to produce more cheaply and a better article than others do, and we must safeguard our position as the world's bankers and carriers, as well as the position of our manufacturers. These seem the aims towards which we must work if we wish to keep our population fully employed and raise their standard of living. Whether any of the above-mentioned policies, the three new policies, or a system of trade with the fewest possible restrictions is best calculated to bring about that end is the great problem that has to be solved.

The three policies are often mentioned together as if they could be carried on simultaneously; in reality they appear to be inconsistent with, in fact antagonistic to, one another. The duties to be imposed which are best adapted to a preferential tariff are not suitable to retaliation; and preferential treatment and protection cannot, in the end, work together. Our imports from the Colonies being mainly either raw materials, which it is not suggested should be subject to duties, or foodstuffs, preferential treatment must mean a tax on food, and food must become dearer, for this is the very essence of the scheme; if it did not, the Colonies could not derive any possible advantage from it. On the first introduction of such a scheme, the home producer would unquestionably benefit by the rise in price, until the Colonies are enabled to increase their production through the acquired stimulus, when they would begin to gain, and if the scheme be successful in bringing about what is claimed for it, viz., the diversion of trade now carried on with foreign countries to our Colonies, then the home producer must again lose what the latter gain; in fact, in the end he will be worse off, because all the incidental expenditure, and the plant and machinery acquired under the temporary stimulus of higher prices will be wasted when Colonial imports attain such proportion as will secure the Colonies a benefit. Another consideration is suggested, viz., that the foreign producer will pay the duty that may be imposed: this is a consideration which, before an audience of men of business I need only mention in order to dismiss. Men of business know only too well how much any charge, however slight, must ultimately raise the cost of the article to the consumer.

But what would follow from the carrying out of such a scheme is that, whereas we have now competition between a number of different sources of supply which keeps prices down, the inevitable consequence of a preferential tariff on food-stuffs would be the absence of all competition, our being restricted to one source only, and it is to be expected that prices would consequently rise to an extent greater than the duty to be imposed. What the dangers would be if our food supplies were to be derived from one source only must be apparent to all business men. It is manifest how such a market would lend itself to manipulation, and, worse still, what would happen if bad seasons should occur. We have an object-lesson before us now in the shortage of the cotton crop in the United States, which may have a most serious influence on our cotton industries. What would happen if a shortage in the crops were to occur in Canada? We could not then rapidly fall back on the various foreign markets which now supply us, for all the machinery of trade, shipping, and other matters, are easily destroyed, but are not quickly regained. What would happen in time of war if we had only one Colonial source of supply? These are matters on which our naval experts will also have a word to say, quite apart from the question of price.

The more you restrict your markets, the more rapid must be the fluctuation in price, but, in any case, it is an essential part of the scheme that the price of food must rise; if our working population is to be enabled to maintain their standard of living, wages must rise, although I am more than doubtful whether eventually this will happen. If wages rise the cost of all our productions must rise, especially if, as is suggested, part of the scheme is taxation of foreign manufactures, which will further raise prices and increase the cost of living to our wage-earners and to the whole of our population. If then the cost of our manufactures be increased, our exports to neutral markets must decrease, and our own Colonies would derive no benefits from the scheme because they would have to pay more for our manufactures than at present; their own protectionist system would only be still more stimulated to the further exclusion of our own goods; thus our exports to Colonial markets would also not be likely to increase; I cannot therefore perceive any advantage from the scheme, either for the Colonies or for ourselves, but only greater cost of living and fewer chances of employment. Is not the best we could do for the Colonies, the maintenance of our pre-eminent position as the centre of the world's commerce, and, as the clearing house of the world, of our ability to supply them with cheap capital, cheap manufactures, rapid and economical means of communication? To be of benefit to them it is essential we should retain our own strength, which consists in carrying on a world-wide trade with the fewest possible restrictions, and cur efforts must be mainly directed, while maintaining our ports open, to do our utmost to increase our exports. Can we afford to risk our trade with foreign countries, which still amounts to 75 per cent. of the whole! Can we afford to restrict our trade within narrower channels, having regard to our great shipping industry, which carries so much of the trade of the world? Our shipping would indeed be doubly hit; through taxes which would raise the cost of living the cost of ship-building would be materially increased, and, owing to protective tariffs, there would be fewer goods to carry. It must be remembered that foreign countries are still our best customers, and I found it to be a surprise to many that, according to the figures of the Blue Book, our exports of manufactures to Germany last year still exceeded our imports of manufactures from that country by £1,000,000.

Are the Colonies willing, are they in a position to give us as wide a market as we have now, and as we can hope to attain, if only a proper effort be made, in the many markets that are open to us on equal terms with other nations? I can only refer incidentally to the difficulties of putting the preferential scheme into operation—American corn is shipped viâ Canada during certain seasons of the year, and Canadian corn is shipped through the United States when Canadian ports are closed—and also to the loss of freedom it would cause in making commercial treaties, both to the Colonies themselves and to the United Kingdom, as well as to the difficulty in differentiating between the various Colonies and treating them all fairly. Is it not possible that the Imperial tie would be loosened rather than strengthened through a constant bargaining over duties and tariffs? Then the effect on the British exchequer will also have to be considered, for the effect on the British taxpayer must be greater than the gain to the exchequer, and the more effective the scheme becomes, the smaller the gain to the exchequer.

Our own agricultural interest at home is one with which we must all feel the deepest sympathy, both from the point of view of the 'economic loss caused by land being absolutely unproductive, and of the population being driven from the land into the towns; but the latter is a symptom which occurs under modern conditions, even in the most protected countries, and opinions vary greatly amongst agriculturists themselves, whether they would not lose much more than gain under a system of protection. Danish farmers certainly have resisted all attempts to impose a protective system, and have found a solution in cooperation and economy in bringing their produce to the market, a policy under which they appear to be thriving.

The danger of all protective systems, as far as we can learn from experience, is that, once established, it is most difficult to get away from them, and that they have a constant tendency to grow. The result must be to lead to higher prices all round, and, consequently, to general loss, and higher prices must mean diminution in our exports, which we wish to increase. What protection means, further, is the bringing of commercial questions into the political arena, of tariffs and bounties being made the battle-cries of contending parties, of instability and insecurity in all commercial transactions, and rapid fluctuations and variations in prices, bringing loss to the many and large gains to the few, of the growth of Kartels, and trusts, of which modern industrial life in protected countries affords so many illustrations. Germany and the United States are pointed out as countries which have prospered under a system of protection. Go to Germany or to the United States and talk with the best informed and you may hear a different tale; look at the condition of life of the working classes in Germany, and not only of the working classes, but of the vast number of people with moderate incomes, and you will find lower wages, lower salaries, longer hours of work, dearer food, dearer house-rent, and you will then have your explanation of the vast increase in the socialist vote apparent at every election. I hear from a prominent German banker that Germany is watching our discussion over this fiscal question with intentional silence on the part of the Press, but with secret joy, and hope that a change in our fiscal system will take place, and that as soon as we put restrictions and impediments in the way of trade they will secure a large slice of it, and will be able to compete with us in neutral markets with all the more success. In Germany there are many who would be only too glad to reduce all these restrictions, and to relieve the people from the burdens they impose; and the same tendency prevails quite as markedly and perhaps even more so in the United States. Some months ago I referred to a conversation I had in 1901 with the late President McKinley, in the course of which he expressed his opinion that his own tariff had done its work, and that gradually but inevitably the American tariff would be reduced. I further stated that this was an opinion which was gaining ground more and more amongst the American people. From the way in which a great part of the American Press noticed my remarks. and challenged them, I am led to conclude that there was more ground for them than they desired to admit, and I have since had ample confirmation of the prevalence of this movement from Americans in all stations of life. In the face of these possibilities, of the tendency and desire of protectionist countries to remove obstacles in the way of trade which they know hinder them, is it wise for us, unless absolute proof were given of the necessity for doing so, to reverse a policy, during the continuance of which we have admittedly been prosperous! An American of large business experience summed up the situation in these words: "You are going to hoist the white flag just as relief is in sight."


Need for Scientific and Technical Education, and Improved Methods.

I am not one of those who maintain that all is for the best, that our manufacturers have done as well as they should have done, that our exports are as expansive as they should be, and as they might be; but unless absolute proof to the contrary were given to me, I cannot see that the remedies which are suggested can bring about the desired result. Is it not our business methods that have to be adapted to modern conditions? When Germany commenced to expand, and to carefully nurse her industries, the first thing she did was to adopt the gold standard, to create the Imperial Bank, and put it on a basis which enabled it to powerfully assist in the commercial development of the country, and to reform her system of weights and measures; she adopted the metric system, and this step alone assisted her materially in her export trade. Of German scientific methods, as adapted to her industries, I cannot do more than make a passing mention, but it is well known that the applications of science to industry, and not tariffs, enabled her to wrest many trades away from us which we ought to have retained. I give at the end of this paper quotations from remarks by Sir Henry Roscoe, Lord Kelvin and Sir Norman Lockyer, men prominent in the scientific field on this point. And from other eminent scientific experts I have obtained information which I regret space does not admit of doing justice to on the present occasion, and the clearest evidence that it is not so much due to the lack of means of obtaining the very best scientific training that so many of our industries have fallen behind, but to the unwillingness of employers to avail themselves of the services of scientific experts. The student on leaving college, fully equipped, has the greatest difficulty in obtaining employment in our industrial establishments, where a system of apprenticeship based on the payment of premiums prevails. In the United States and Germany, industrial establishments are constantly on the look-out for the most promising students as they leave the university.

The possible and necessary improvements in the methods of carrying on our trade, and making it attractive to those whom we wish to be our customers might well form the subject of a separate paper, but nothing could be more emphatic on this point than the Blue Book published in 1898, called Foreign Trade Competition, and embodying the opinion of H.M. Diplomatic and Consular Officers on British trade methods. It is interesting and melancholy reading. I wonder what the circulation of this Report has amounted to, and whether its lessons have gone home. There is also a useful publication, issued weekly, at the price of one penny, by the Board of Trade called the Board of Trade Journal, which gives most useful information about Foreign and Colonial Trade. I am informed, on very good authority, that the demand for this journal from Germany is much greater than the home demand. Space only prevents me from enlarging on this topic, but, from personal experience, I could tell many a tale of trade being positively driven away through mere neglect and carelessness; also, of trade that had been lost, being actually recovered where the need for effort had been recognised and met. The company promoter has much to answer for; for it must be admitted that in many cases where private firms have been turned into limited companies, the personal interest previously taken by the partners, the pride of a business handed down from father to son, have disappeared. Where the personal element disappears, no undertaking is likely to prosper. There has been, during the last decade preceding the years of the war, a desire to grow rich too rapidly, and the slow but sure methods, constant attention and careful watching of opportunities, have, perhaps, been left too much out of sight.


"Dumping": Retaliation.

Two points I have not yet touched upon; dumping, and retaliation. Dumping is the sale to a foreign purchaser by the producer in a protected country of an article below the cost of production, which he is enabled to effect by obtaining from the consumer in his own country the enhanced price which protection makes it possible for him to charge. This is certainly an undesirable and injurious proceeding, injurious principally to the consumers in the protected countries. Some of our own industries are certainly exposed to loss through the sales of these results of over-production, just as they are exposed to loss through over-production on the part of home competitors. It is difficult to know how to meet the evil, and it is one which must correct itself, for the total of such sales below cost price can only be a small proportion of the total output; and it will only occur when the producing country is passing through a period of depression, so that the home demand is not equal to the output. Such periods of depression occur, as we all know, from time to time; and it is certain that some of our industries have derived considerable benefit, through being able to procure some of their raw material below the actual cost of production. They have thus often been able even to sell the manufactured article to the very country which has given us better terms than their own countrymen; and the feeling in protected countries against this system is so strong that it does not appear likely that it will be permitted to continue very long. If we were to take steps to prevent these imports, the country determined on dumping would dump their goods elsewhere, that is, on neutral ground, and thus compete with us to an equal extent without our having had at least the incidental advantage of making use of the cheap material so to be obtained. The system is a bad one, but while it lasts, we may as well get as much good out of it as circumstances admit. Something, by the way, has also been heard about Colonial dumping, which is rendered possible through a system of bounties prevailing in some of them, and I do not know if it has been suggested that this also should be dealt with.

As to retaliation, it is impossible to express any opinion without precise definition of what that term means; it is entirely a matter of application and degree. No Government would be worthy of the name that did not make every legitimate effort to minimise, as far as possible without injury to ourselves, the effect of hostile tariffs and to negotiate commercial treaties in such a way as to bring about that result. But in making such effort regard must be had to the question whether the injury resulting from new duties is not greater than any advantage derived from them.

There are many who hold that our foreign trade might also be improved if our whole consular system was put on a different basis, and brought into closer touch with the diplomatic service. The functions of our Consuls at the principal foreign ports appear to consist mainly in their jurisdiction over shipping matters, and the duty of furthering our commercial interests does not seem to be so clearly defined as is the case with some foreign nations. Legislation at home may also often have had the effect of hampering, instead Of promoting trade, and such legislation is, we are told, responsible for our having lagged behind somewhat both in the electrical and the motor-car industries.


Minister of Commerce

This leads me to the last point in my paper. Is it not strange that in this great commercial country there is no special Government Department to watch over the interests of commerce? We have, indeed, the Board of Trade, and it is interesting to note that when the first Committee for Trade was instituted in 1622, amongst the principles laid down for its guidance was "the importance of encouraging the home manufacture of wool by permitting free trade and lowering the Customs." But admirably as this department is carrying on its work, the duties imposed upon it are so varied and so numerous that it is almost impossible they should be dealt with under one roof; it comprises the Commercial, Labour, and Statistical Department, which has to deal with strikes, trade unions, and all labour questions, the Railway Department, the Standards Department, the Marine Department, which is concerned with all matters of shipping, including questions of safety and health, and life-saving, and the Fisheries and Harbour Department, the supervision of electric lighting, gas, water, the Finance and General Department dealing with patents, trade-marks, life insurance, joint stock companies, registration, bankruptcies, and so on. Has not the time arrived, then, for a new and important office to be created, which is to deal with all industrial matters and watch over the whole commerce of the nation, and which is to be presided over by a Secretary of State who can keep in close touch with the interests of our great industries, and whose duty it would be to ensure continuity in our commercial policy and keep it as far as possible removed from the political arena? Such a minister would have great power and influence, and is really urgently needed to represent in the Cabinet and in Parliament the great interests of the commercial community. Such a minister would, I doubt not, before any changes affecting the commercial policy of the Empire were proposed, seek the advice of experts, and take the country into his confidence and let them know what that advice is and on what evidence it is based.

Conclusion.

I conclude where I began. Is it too late even now for us bankers and merchants in the City of London to impress on Parliament, if a new departure is to be made, the necessity for full expert enquiry into the general condition of our trade and of our industries. Surely as to this we all stand on common ground, and no man of business could possibly desire a momentous change in our Fiscal Policy without the clearest evidence that the proposed alterations will bring about the results which are claimed for them. Let us safeguard what we hold; let us know where we are going; let us not take a leap in the dark; let us carefully consider before any step is taken from which there can be no going back.

BANK DEPOSITS IN THE UNITED KINGDOM.
Year. Amount. Remarks.
£
1851 250,000,000 Mr. Newmarch’s estimate, including capital and note issues.
1874 530,000,000 Mr. John Dun’s estimate.
1877 159,256,000 The Economist. Deposits of all joint stock banks publishing accounts.
1883 622,844,000 Mr. Jas. Dick’s estimate, including notes.
1883 399,484,625 The Economist. Deposits of all joint stock banks publishing accounts.
1888 470,537,865 Ditto ditto ditto.
1893 683,806,765 The Economist. Deposits of all joint stock banks publishing accounts.
1898 781,787,078 Ditto ditto ditto.
1903 884,099,552 Ditto ditto ditto.
Foreign and Colonial Banks having London offices are not included in the above totals.
Sir Norman Lockyer, in his presidential address to the members of the British Association, at Southport, on 9th September, 1903, said:—

"We are suffering because trade no longer follows the Hag as in the old days, but because trade follows the brains, and our manufacturers are too apt to be careless in securing them. In one chemical establishment in Germany 400 doctors of science, the best the universities there can turn out, have been employed in different times in late years. In the United States the most successful students in the higher teaching centres are snapped up the moment they have finished their course of training and put into charge of large concerns, so that the idea has got abroad that youth is the password of success in American industry. It has been forgotten that the latest product of the highest scientific education must necessarily be young, and that it is the training and not the age which determines his employment. In Britain, on the other hand, apprentices who can pay high premiums are too often preferred to those who are well educated, and the old rule-of-thumb processes are preferred to new developments-a conservatism too often depending upon the master’s want of knowledge. I should not be doing my duty if I did not point out that the defeat of our industries one after another, concerning which both Lord Rosebery and Mr. Chamberlain express their anxiety, is by no means the only thing we have to consider. The matter is not one which concerns our industrial classes only, for knowledge must be pursued for its own sake; and since the full life of a nation with a constantly increasing complexity, not only of industrial but of high national aims depends upon the universal prescience of the scientific spirit-in other words, brain power-our who national life is evolved." Sir H. Roscoe, in the Monthly Review, for November, 1901, wrote:—

"The want of appreciation, amounting in many cases to absolute distrust of the application of scientific method to industrial pursuits, the clinging to old habits of work, rather than embracing new opportunities, is the creeping paralysis which threatens the industrial life of the nation. This partly lies in the inherent qualities, many of them admirable ones, of our people. They are self~reliant, industrious, trustworthy, and courageous, but they are slow to move, slow to change, conservative to a fault, and therefore difficult to convince that any road can be safer or better than the one they have been accustomed to travel. In short, they are not alert though they may be bold. But this distrust of modern ideas is also, to a great extent, due (and this, perhaps, is more true of the higher than the lower ranks of society), to our past and present provision of education."

Lord Kelvin, on 12th November, 1903, at Cardiff, said that:—

"In the matter of education, he had always had the deepest sympathy with engineering on the one side and university training on the other, because engineering was giving, perhaps, the most interesting application of the science learned in the University for the benefit of mankind. He remembered with pride that the first chair of engineering of any university in the country was that founded in Glasgow. He felt that engineers all over the world had still a good deal to learn as to the real value of university training, but he did not think that in South Wales they needed reminding of that fact. Lord Kelvin contrasted the old system of apprenticeship of the engineer with modern ideas. He did not desire to make comparisons, but in the matter of education of foremen in engineering works the Germans had learnt how to give them scientific knowledge in a way in which we in England had not given it. It was necessary for the young engineer to learn the practical as well as the theoretical, and this could only be accomplished satisfactorily by the student's spending half his year at the University and half in the workshop; where he might learn to apply the scientific knowledge which he had acquired in the University. He would suggest this to the University College of South Wales, and to the members of the Engineers' Institute, and would ask employers to endeavour to make some arrangement whereby their engineering pupils might be able to do this."

  1. The term "Foreign Trade" is used as applying to trade between the United Kingdom and all other countries, including the Colonies; the word "abroad " throughout is also used in a similar sense
  2. The substance of the paper was also published in the "Monthly Review" for January, 1904.