Popular Science Monthly/Volume 35/September 1889/Recent Economic Changes
|←A Study from Life|| Popular Science Monthly Volume 35 September 1889 (1889)
Recent Economic Changes
By David Ames Wells
|The Surface Tension of Liquids→|
By Hon. DAVID A. WELLS.
THE readers of "The Popular Science Monthly" will remember the interesting series of papers communicated to its pages during the years 1887 and 1888 by Mr. David A. Wells; in which were traced out, and exhibited in something like regular order, the causes and extent of the wonderful industrial and social changes and accompanying disturbances which have especially characterized the last fifteen or twenty years of the world's history. It is safe to say that no economic papers have been published in recent years, on either side of the Atlantic, that attracted more attention or were read by so many persons with such interest and profit.
It affords us pleasure now to state that, since their original RECENT ECONOMIC CHANGES. 585
publication in this journal, these papers liave been in great part rewritten by the author, and in all revised and brought up to the latest date ; and are now nearly ready for publication in book form by Messrs. D. Appleton & Co., under the title of " Recent Economic Changes, and their Effect on the Production and Dis- tribution of Wealth and the Well-being of Society."
From advanced sheets we are enabled to lay before our readers the following illustrations of the quality of the new material that Mr. Wells has incorporated in his forthcoming volume. — Editor.
ON THE ORIGIN AND SEQUENCE OF TRUSTS.
It was formerly a general assumption that, when price no longer equaled the cost of production and a fair profit on capital, production would be restricted or suspended ; that the less favored producers would be crowded out, and by the relief thus afforded to the market normal prices would be again restored. But this doctrine is no longer applicable to the modern methods of produc- tion. Those engaged in great industrial enterprises, whether they form joint-stock companies or are simply wealthy individuals, are invested with such economic powers that none of them can be easily pushed to the wall, inasmuch as they can continue to work under conditions that would not permit a small producer to exist. Examples are familiar of joint-stock companies that have made no profit and paid no dividends for years, and yet continue active operations. The shareholders are content if the plant is kept up and the working capital preserved intact, and, even when this is not done, they prefer to submit to assessments, or issue prefer- ence shares and take them up themselves rather than go into liquidation, with the chance of losing their whole capital. An- other feature of such a condition of things is, that the war of com- petition in which such industrial enterprises are usually engaged is mainly carried on by a greater and greater extension of the mar- ket supply of their products. An illustration of this is afforded in the recent history of the production of copper. When in 1885 the United States produced and put on to the market seventy-four thousand tons, as against forty thousand tons in 1883, the world's prices of copper greatly declined. A large number of the smaller producers were compelled to suspend operations, or were entirely crushed; but the great Spanish and other im^portant mines en- deavored " to offset the diminution of profit on the unit of quan- tity " by increasing their production ; and thus the price of cop- per continued to decline until it reached a lower figure than ever before known in history.
Under such circumstances industrial over-production — mani- festing itself in excessive competition to effect sales, and a reduc- tion of prices below the cost of production — may become chronic ;
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and tliere appears to be no otlier means of avoiding such, results than that the great producers should come to some understanding among themselves as to the prices they will ask ; which in turn naturally implies agreements as to the extent to which they will produce. Up to this point of procedure no exception on the part of society can well be taken. But such an agreement, once per- fected and carried out, admits of an almost entire control of prices and the establishment of monopolies, in the management of which the rights of the public may be wholly ignored. Society has practically abandoned — and from the very necessity of the case has got to abandon, unless it proposes to war against progress and civilization — the prohibition of industrial concentrations and com- binations. The world demands abundance of commodities, and demands them cheaply ; and experience shows that it can have them only by the employment of great capital upon the most ex- tensive scale. The problem, therefore, which society under this condition of affairs has presented to it for solution is a difl5cult one, and twofold in its nature. To the producer the question of importance is. How can competition be restricted to an extent sufficient to prevent its injurious excesses ? To the consumer. How can combination bo restricted so as to secure its advantages and at the same time curb its abuses ?
Another cause of the so-called over-production is undoubtedly due to an agency which has never before in the history of the world been operative to the extent that it is at present. With the great increase of wealth that has followed the increased control over the forces of nature and their utilization for production and distribution, there has come a desire to convert this wealth into the form of negotiable securities paying dividends or interest with regularity, and on the recipiency of which the owner can live without personal exertion or risk of the principal. Hence a stimulus for the undertaking of new enterprises which can cre- ate and market such securities; and these enterprises, whether in the nature of new railroad, manufacturing, or mining cor- porations, once developed, must go on producing and selling their products or services with or without a profit in order to meet their obligations and command a share of previously exist- ing trade. Production elsewhere, as a consequence, is interfered with, displaced, and in not a few cases, by reason of better condi- tions, permanently undersold. And the general result is appro- priately recognized by the term " over-production."
Furthermore, in anticipation of such consequences, the tend- ency and the interest of every successful manufacturing com- bination are to put the prices of its products down to a figure where it will not pay for speculators to form new competitive stock companies to be bought off or crushed by it. For, if it did
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keep up liigli iDrofit-assuring prices, one of two things would eventually happen : either new factories would be started ; or the inventive spirit of the age would devise cheaper methods of j)ro- duction, or some substitute for the product they furnished, and so ruin the first combination beyond the possibility of redemp- tion. And hence we have he'.'e another permanent agency, an- tagonistic to the maintenance of high and remunerative prices.
CURIOUS CHANGES IN PRICES.
The record of extreme changes in prices, by reason of circum- stances that are acknowledged to have been purely exceptional, is also most instructive, and removes not a few commodities from the domain of any controverted economic theory respecting mone- tary influences.
The price of manufactured Mediterranean coral — the trade in which is extensive — has been greatly depressed in recent years by reason of the discovery of new banks of coral on the coast of Sicily, from which the raw material has been obtained most cheaply, and in large excess of demand. The consequent decline in prices has, however, opened new markets in Africa, where the natives now purchase coral ornaments in place of beads of Vene- tian and German manufacture.
Few commodities have fluctuated more violently in price in recent years, or more strikingly illustrate the degree to which supply and demand predominate over all other agencies in deter- mining price, than the vegetable product /lops. In 1881 there was an almost universal crop failure, and the highest grade of English hops (East Kent) commanded 700s. per cwt. In 188G the German Hop-Growers' Association estimated the quantity grown through- out the world at 93,340 tons, and the annual consumption at only 83,200 tons, so that there was an excess of production over con- sumption for that year of nearly 10,000 tons. As might have been expected, there was a notable decline in the world's prices for hops, and the same quality of English hops which commanded 7005. per cwt. in 1882 sold for 745. in 1887, and in June, 1888, for 68s. Later in the year, with unfavorable harvest reports, the price advanced to 147s.
The recent price experience of diamonds is in the highest de- gree interesting. Diamonds were first discovered in South Africa about the year 1868, and a business of searching (mining) for them immediately sprang up. At the outset the mining was conducted by individuals, but, in consequence of the expense, the work grad- ually and necessarily passed into the control of joint-stock com- panies with command of large capital ; and it was not until 1880 that operations on a great scale were undertaken. The result of
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tliis improved system, conjoined with underground mining, was such an increase in the output of diamonds that an oversupply to the market and a serious reduction in price became imminent; and the period of 1883-'84 was, in fact, one of falling prices and intense competition among the various producing companies, dur- ing which the leading companies paid little or nothing to their shareholders, and some entirely suspended operations.* Continued disaster was, however, finally arrested through a practical con- solidation of all the companies for the purpose of controlling product and prices; and a revival in demand having occurred about the same time, average prices were advanced between 1885 and 1887 from 205. bd. per carat to 235. 7id
The value of the diamonds exported from South Africa since the first discovery of the mines, or from 1868 to 1887, is believed to have been between £40,000,000 and £45,000,000 ($200,000,000 to $225,000,000), of which about £15,500,000 ($77,500,000) represents the value of the output from 1883 to 1887. Very curiously, this large export of value — nearly all in the first instance to England — seems to find no distinctive place in the columns of British im- ports, although they have served in a large measure to enable South Africa to pay for her imports of British and other foreign products. If the export of diamonds from South Africa to Eu- rope has aggregated £45,000,000 ($225,000,000) in the rough, the process of cutting may bo regarded as having increased their mar- ket value full one hundred per cent, or to £90,000,000 (or $437,- 000,000) — a greater value than the yield of the world during the two preceding centuries. The aggregate weight of the entire dia- mond product of the South African mines up to 1887 is estimated at 38,000,000 carats, or over seven and a half tons.
Of this immense product there is good reason for believing that a very large proportion found a market in the United States. According to the customs returns, the value of the unset dia- monds which were imported into the United States, and paid duty, from 1877 to 1887 inclusive, was in excess of $50,000,000 ; and it can ha,rdly be doubted that an equal or larger import in the form of unset stones and jewelry escaped during the same period the cognizance of the revenue officials. The value of the present annual import of precious stones not set — mainly diamonds — is about $10,000,000. In 1868 the annual value of a corresponding import was about $1,000,000. These data, imperfect as they are,
- The " Kirabcrly Central Company" — the leading organization — which from 1880 to
1883 increased its dividend from ten to thirty per cent, paid nothing to its shareholders during 1884 and 1885, and at the close of 1886 was only able to declare a dividend of five per cent. The other great diamond-mining company, the " De Beers," was more fortunate, and paid for 1884 to 18SC an average of about eight and a half per cent; but most of the companies paid nothing during the same period, and some entirely suspended mining.
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afford some indication of the rapid increase in wealtli in recent years among the people of the United States.
AVe have, therefore, in this experience, the phenomenon of the strangely persistent value of a comparatively useless gem, during a period when the prices of most other commodities were dimin- ishing by leaps and bounds, as well as the extraordinary concur- rent absorbent power of the world for a greatly increased product. But the demand for diamonds latterly is thought not to have kept pace with their increasing production ; and it is said that the stock of diamonds in the hands of dealers in 1888 was fully twenty-five per cent in excess of their requirements. To meet and neutralize the influence of this condition of affairs, the South African dia- mond-mining companies have limited production, which for the time has advanced prices. But the tendency obviously is for dia- monds to decline in value ; and the wonder, indeed, is that this has not happened at an earlier date. " One thing, furthermore, seems certain, and that is, that when the breakdown of speculation and prices does occur, the consequences will be singular and far-reach- ing. For it is to be remembered that for the most part the use of diamonds is a mere whim of fashion, that may change at any time. There is no way of stimulating the demand for them, ex- cept by lowering prices, and, of course, if prices were materially reduced, the wealthy votaries of fashion would inevitably cease to wear diamonds, and would take up some other form of per- sonal adornment."* The price experience of diamonds in the near future promises, therefore, to be even more interesting than it has been in the recent past.
In the United States during recent years there has been a re- markable decline in the price of hides and in certain descriptions of leather ; " Buenos Ayres " hides having sold in May, 1889, at the lowest figures for thirty years, while the leather trade generally has been depressed and unsatisfactory. The agency occasioning the first result is ascribed to the great increase in the supply of domestic hides consequent upon a notable extension of the Ameri- can (Western) cattle industry ; and, in the case of the second, to an over-production and decline in demand for upper-leather, in consequence of a change in fashion, whereby lighter grades of foot-wear have supplemented the use of " leg-boots."
CHANGES OF INDUSTRIAL CONDITIONS IN TROPICAL COUNTRIES.
The improvements in recent years in the production of sugar from the beet, and the artificial encouragement of this industry in the continental states of Europe through the payment of large bounties, have in turn compelled the large producers of cane-sugars in the tropics to entirely abandon their old methods of working,
- London " Economist."
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and reorganize this industry on a most gigantic scale as a condi- tion of continued existence. Thus, for example, although the business of cane-sugar production was commenced more than three hundred years ago on the island of Cuba, the grinding of the cane by animal or " wind " power, and the boiling and granu- lating by ancient, slow, and wasteful methods, were everywhere kept up until within a very recent period, as they still are by small planters in every tropical country. But at the present time, upon the great plantations of Cuba and some other countries, the cane is conveyed from the fields by a system of railroads to manufactur- ing centers, which are really huge factories, with all the charac- teristics of factory life about them, and with the former home or rural idea connected with this industry completely eliminated. In these factories, where the first cost of the machinery plant often represents as large a sum as $200,000 to 8250,000, with an equally large annual outlay for labor and other expenses, all grades of sugar from the " crude " to the " partially refined " are manufactured at a cost that once would not have been deemed possible. In Dakota and Manitoba the employment on single wheat estates of a hundred reapers and an aggregate of three hun- dred laborers for a season has been regarded as something un- precedented in agricultural industry ; but on one sugar estate in Cuba — " El Balboa " — from fifteen hundred to two thousand hands, invariably negroes, are employed, who work under severe disci- pline, in watches or relays, during the grinding season, by day and night, the same as in the large iron-mills and furnaces of the United States and Europe. At the same time there are few village communities where a like number of people experience the same care and surveillance. The male workers occupy quarters walled and barricaded from the women, and the women from the men. There are in every village an infirmary, a lying-in hospital, a phy- sician, an apothecary, a chapel, and priest. At night and morning mass is said in chapel, and the crowds are always large. There is of a Sunday less restraint, though ceaseless espionage is never remitted. On these days and in parts of holidays there are rude mirth, ruder music, and much dancing. This picture is given somSwhat in detail, because it illustrates how all-pervading and tremendous are the forces that are modifying society everywhere, in civilized, partially civilized, and even barbarous countries, con- jointly with the new conditions of production and consumption.
��The English Society for Promoting the Growth of Industrial Villages has been formed to counteract the tendency of workingraen to huddle themselves in the slums of cities, and to encourage suburban settlements. Its report cites, in illus- tration of the practical working of this thought^ the example of a manufacturing firm in London, which has placed many of its hands in the country, and sends out material to them to be returned manufactured, paying them full wages.