Popular Science Monthly/Volume 31/July 1887/The Economic Disturbances Since 1873 I

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Popular Science Monthly Volume 31 July 1887  (1887) 
The Economic Disturbances Since 1873 I by David Ames Wells




JULY, 1887.




THE existence of a most curious and, in many respects, unprecedented disturbance and depression of trade, commerce, and industry, which, first manifesting itself in a marked degree in 1873, has prevailed with fluctuations of intensity up to the present date of writing (1887), is an economic and social phenomenon that has been everywhere recognized. Its most noteworthy peculiarity has been its universality; affecting nations that have been involved in war as well as those which have maintained peace; those which have a stable currency, based on gold, and those which have an unstable currency, based on promises which have not been kept; those which live under a system of free exchange of commodities, and those whose exchanges are more or less restricted. It has been grievous in old communities like England and Germany, and equally so in Australia, South Africa, and California, which represent the new; it has been a calamity exceeding heavy to be borne, alike by the inhabitants of sterile Newfoundland and Labrador, and of the sunny, fruitful sugar-islands of the West Indies; and it has not enriched those at the centers of the world's exchanges, whose gains are ordinarily the greatest when business is most fluctuating and uncertain.[1]

One of the leading economists and financiers of France, M. Leroy Beaulieu, claims that the suffering has been greatest in his country, humiliated in war, shorn of her territory, and paying the maximum of taxation; but not a few stand ready to contest that claim in behalf of the United States, rejoicing in the maintenance of her national strength and dominion, and richer than ever in national resources.

Commenting upon the phenomena of the industrial depression subsequent to the early months of 1882, the Director of the United States National Bureau of Labor, in his report for 1886, considers the nations involved, in respect to their relations to each other and to severity of experience, to stand in the following order: Great Britain, the United States, Germany, France, Belgium. The investigations of the director also indicated a conclusion (of the greatest importance in the consideration of causes); namely, that the maximum of economic disturbance has been experienced in those countries in which the employment of machinery, the efficiency of labor, the cost and the standard of living, and the extent of popular education are the greatest; and the minimum in countries, like Austria, Italy, China, Mexico, South America, etc., where the opposite conditions prevail. These conclusions, which are concurred in by nearly all other investigators, apply, however, more especially to the years prior to 1883, as since then "depression" has manifested itself with marked intensity in such countries as Russia, Japan, Zanzibar, Uruguay, and Roumania.

The business of retail distribution generally—owing, probably, to the extreme cheapness of commodities—does not, moreover, appear to have been less profitable than usual during the so-called period of depression; in contradistinction to the business of production, which has been generally unprofitable.

It is also universally admitted that the years immediately precedent to 1873—i.e., from 1869 to 1872—constituted a period of most extraordinary and almost universal inflation of prices, credits, and business; which, in turn, has been attributed to a variety or sequence of influences; such as excessive speculation; excessive and injudicious construction of railroads in the United States, Central Europe, and Russia (1867–'73); the opening of the Suez Canal (1869); the Franco-German War (1870–71); and the payment of the enormous war indemnity of fifty-five hundred million francs (eleven hundred million dollars) which Germany exacted from France (1871–'73). The

contemporary comments of two English journals, of recognized authority, on the course of events in 1872, constitute also an important contribution to our information on this subject. Under date of March, 1873, the London "Economist," in its review of the commercial history of the preceding year, says:

Of all events of the year (1872) the profound economic changes generated by the rise of prices and wages in this country, in Central and Western Europe, and in the United States, have been the most full of moment.

And the "London Engineer," under date of February, 1873, thus further comments on the situation:

The progress of events during 1872 will not soon be forgotten by engineers. The position assumed by the working-classes, and the unprecedented demand for iron and machinery, combined to raise the cost of all the principal materials of construction to a point absolutely without parallel, if we bear in mind that the advance of prices was not localized, but universal, and that the duration of the rise was not limited to a few months or weeks, but, having extended already over a period of some months, shows little sign at this moment of any sensible abatement. In 1872 scarcely a single step in advance was made in the science or practice of mechanical engineering. No one had time to invent, or improve, or try new things. The workingman is setting spurs to his employers with no gentle touch, and already we find that every master with capital at stake is considering how best he can dispense with the men who give him so much trouble. Of course, the general answer always assumes the same shape—use a tool whenever it is possible instead of a man.

The period of economic disturbance which commenced in 1873 appears to have first manifested itself almost simultaneously in Germany and the United States in the latter half of that year. In the former country the great and successful results of the war with France had stimulated every department of thought and action among its people into intense activity. The war indemnity, which had been exacted of France, had been used in part to pay off the debt obligations of the Government, and ready capital became so abundant that banking institutions of note almost begged for the opportunity to place loans, at rates as low as one per cent, with manufacturers, for the purpose of enlarging their establishments. As a legitimate result, the whole country projected and engaged in all manner of new industrial and financial undertakings. In Prussia alone six hundred and eighty-seven new joint-stock companies were founded during the year 1872 and the first six months of 1873, with an aggregate capital of $481,045,000. Such a state of things, as is now obvious, was most unnatural, and could not continue; and the reaction and disaster came with great suddenness, as has been already stated, in the fall of 1873, but without anticipation on the part of the multitude. Great fortunes rapidly melted away, industry became paralyzed, and the whole of Germany passed at once from a condition of apparently great prosperity to a depth of financial, industrial, and commercial depression that had never been equaled.

In the United States the phenomena antecedent to the crisis were enumerated at the time to be, "a rise of prices, great prosperity, large profits, high wages and strikes for higher; large importations, a railway mania, expanded credit, over-trading, over-building, and high living." The crisis began on the 17th of September, 1873, by the failure of a comparatively unimportant railway company—the New York and Oswego Midland. On the 18th, the banking-house of Jay Cooke & Co. failed. On the 19th, nineteen other banking-houses failed. Then followed a succession of bankruptcies, until in four years the mercantile failures had aggregated $775,865,000; and on January 1, 1875, the amount of American railway bonds in default amounted to $789,367,655.

The period of economic disturbance which thus began in Germany and the United States soon extended to France and Belgium; and thereafter, but with varying degrees of severity, to Great Britain (i.e., in the latter months of the succeeding year), to the other states of Europe, and ultimately to the commercial portions of almost every country. The testimony before the British Parliamentary Commission (1885–'86), however, shows that the depression in Great Britain was not at once universal; but that, on the contrary, production, employment, and profits, at such great manufacturing centers as Birmingham and Huddersfield, were above the average until 1875.

By many writers on this subject, the depression and disturbance of industry, which commenced in 1873, are regarded as having terminated in 1878–'79; but all are agreed that they recommenced, with somewhat modified conditions, and even with increased severity, in 1882–'83. A full consideration of the larger evidence which is now (1887) available would, however, seem to lead to the conclusion that there really was no termination of the abnormal course of events, the marked and definite commencement of which is assigned to 1873, but that what has been regarded as a "termination" was only an "interruption," occasioned by extraordinary causes, varying locally, and by no means universal. Thus, a failure during the years 1879, 1880, and 1881, of the cereal crops of Europe and most other countries of the world, with the exception of the United States—a failure for which, in respect to duration and extent, there had been no parallel in four centuries—occasioned a remarkable demand on the latter country for all the food-products it could supply at extraordinary prices—the exportations of wheat rising from 40,000,000 bushels in 1877 to 122,000,000 in 1879, 153,000,000 in 1880, and 150,000,000 in 1881; while the corresponding values of the amount exported rose from $47,000,000 in 1877 to $130,000,000 in 1879, $190,000,000 in 1880, and $167,000,000 in 1881. There was also a corresponding increase in the quantity and value of the American exports of other cereals, and also of most meat products and provisions.[2] Such a demand at extraordinary prices for crops, beyond the average in quantity and quality, brought temporary prosperity to American producers, and induced great industrial and commercial activity throughout the United States; and although the crops of other countries were notably far below the average, yet the great advance in prices undoubtedly went far to alleviate the distress of the foreign agriculturist, even if it did not in some cases actually better his condition, and increase his purchasing power of other than food-products. The extent to which the American producer availed himself of his increased purchasing power during the years under consideration is indicated by the increase which occurred in the importation of foreign merchandise on the part of the United States, namely, from $437,051,000 in 1878 to $667,954,000 in 1880, and $722,639,000 in 1882. Such an increase represented payment in part for American exports ($110,575,000 in gold and silver being imported in addition in 1881), and a corresponding demand for the products of foreign industries—the special effect on British industry being characterized by a statement from one of the witnesses before the Royal Commission (a representative of one of the districts of Liverpool), that "the depression continued until 1880, when there occurred an American boom, which temporarily lifted prices and induced activity." The testimony of other witnesses was, however, to the effect that in many branches of British industry there was no improvement of condition either in 1878, 1880, or in any subsequent year; the Commission itself reporting (in December, 1886) that there was a general agreement among those whom it consulted, that the depression under consideration, "so far as Great Britain was concerned, dates from about the year 1875, and, with the exception of a short period enjoyed by certain branches of trade in the years 1880 to 1883, it has proceeded with tolerable uniformity, and has affected the trade and industry of the country generally, especially those branches connected with agriculture." The Commission further reports that the information received by them leads to the conclusion that "in Belgium, France, Russia, Scandinavia, Spain, and the United States," the depression has been "almost identical in its leading features with that existing in the United Kingdom."

In Germany and Belgium the reaction experienced in 1879, it is admitted, did not extend beyond 1882.

In France the condition of agricultural and other laborers continued so deplorable that the French Chamber of Deputies appointed a special commission of inquiry in 1884 with a view to devising measures for relief; while in Great Britain the condition of trade and industry has uninterruptedly been regarded, since 1882–'83, with great anxiety. There is a very general agreement of opinion in England and on the Continent of Europe that the years 1879, 1885, and 1886 were the worst that have been experienced in the period commencing with 1873. In England, France, and Germany, the increase or decrease in exports is popularly regarded as an indication of the condition of business, and assuming 100 to represent the exports for 1883, the decline in the value of the exports of these several countries since that year may be represented as follows: England, 1883, 100; 1884, 92·2; 1885, 88·5, a falling off in two years of 11·2 per cent. The record of France is better—1883, 100; 1884, 93·1; 1885, 92·3, a falling off of 7·7 per cent; while Germany falls behind both countries: 1882, 100; 1883, 98; 1884, 89; 1885, 87·5, a falling off of 12·5 per cent.

One point of interest which is here specially worthy of note from its bearing on the discussion of causes, is that the recurrence of the period of depression in 1882, after the favorable reaction which occurred to a greater or less extent in 1879, was quiet and gradual, as if matters were naturally again assuming a normal condition, and was not preceded or accompanied by any marked financial or commercial disturbances. On the contrary, the money markets of the world remained "easy," and were characterized, as they have ever since been, by a plethora of capital seeking investment and a low rate of interest; so that the economic disturbance since 1882 has been mainly in the nature of a depression of industry, with a renewed and remarkable decline of prices; with absolutely no decline, but rather an increase in the volume of trade, and certainly no falling off in production, as compared with the figures of 1880 and 1881, which years in the United States, and to some extent in other countries, were regarded as prosperous.

The following presentation, chronologically arranged, of brief extracts from various publications since 1872–'73, will further assist to a recollection and comprehension of the course of events since that period, and also exhibit the opinions which have been expressed at different times, respecting the "influence," "causes," and duration of the so-called "depression of trade and industry," by those who, by position or investigation, have assumed to speak with more or less of authority on the subject. And, with this intent, attention is first asked to the following retrospect of the curious experience of the iron and steel industry of the United States, as exhibited by quotations from the reports of the American Iron and Steel Association from 1873 to 1887:

1873. The year 1872 opened with an increased demand for iron in nearly all civilized countries. Prices advanced rapidly in all markets. The supply was unequal to the demand, although production was everywhere stimulated. In the United States forty new blast-furnaces were erected, and the erection of others was undertaken. The rapidity with which iron rose in price in the United States is shown by the circumstance that No. 1 pig-iron, which sold for $30.50 per ton at Philadelphia, in January, 1871, sold for $37.50 in January, 1872, and $53 in September of the same year.—Report of the American Iron and Steel Association, November, 1873.

1874. The reaction (in the world's demand for iron) in 1874 has been as general and decided as the advance in 1872 was unexpected and bewildering. It has been felt most severely in the United States; but in the United Kingdom, and in France and Germany, the iron industry has been so much depressed, all through the year, that many iron-works have been closed, and many others have been employed but a part of the time. The testimony of statistics, and of all calm observers, shows that prostration is greater at the close of 1874 than it was at the close of 1873, and that the general distress is greater. At least a million of skilled and unskilled working-men and working-women in this country are out of employment to-day, because there is no work for them to do.—Report, December 31, 1874.

1877. Since 1873 each year has shown a decrease in the production of pig-iron in the United States, as compared with the preceding year, the percentage of decrease being as follows: 1874, six per cent; 1875, fifteen per cent; 1876, eight per cent. This is a very great shrinkage, and indicates, with concurrent low prices, a very great depression in the pig-iron industry of the country. If the rate of decrease which marked the period from 1873 to 1876 were to be continued, the production of pig-iron in the United States would entirely cease in 1884, less than eight years from the present time, and our furnace-stacks would only be useful as observatories for the study of astronomy. But our pig-iron industry is not destined to come to such an untimely end, for we see that the heavy percentage of decrease which had characterized the year 1875 was not continued in 1876. It seems plain that the production of pig-iron commenced last year to rally from the effects of the panic of 1873.—Report, June, 1887.

1878. The year 1877 witnessed an increased demand for some of our iron and steel products, as compared with 1876; neutralized, however, so far as producers were concerned, by a very marked decrease in prices. Nor did low prices form the only unfavorable feature of the iron trade of 1877. More than one half of the furnaces, and many of the rolling-mills, were idle the whole year. Prices were so low as to warrant the opinion that they could be no lower. Hence, mainly, the increased consumption of iron in that year.—Report, July, 1878.

1879. In nearly all the branches of the domestic iron and steel industries there has been an increased production in 1878 over 1877; but this increase in production has been accompanied by a decrease in prices. At no time in the history of the country have prices for iron and steel been as low as they were in 1878, excepting in colonial days, when the price of pig-iron was lower.—Report, May 6, 1879.

1880. Near the close of 1878 it became evident that the business depression which had succeeded the panic of 1873 was slowly disappearing, and that a general revival of prosperity was at hand. The country had been favored with good crops, and short harvests abroad has caused a demand for agricultural surplus. In the spring months of 1879 the managers of the leading railroads of the country, being assured of a continued increase of their business through the unfavorable outlook for the European harvests, simultaneously began to give out orders for materials containing iron and steel. In the closing months of 1879 excitement and speculation took the place of the gloom and discouragement with which the American iron-trade had heen so familiar scarce one year before, and the business of buying and selling iron became close neighbor to that of gambling in stocks.—Report, May, 1880.

No. 1 pig-iron, which sold for $53 per ton at Philadelphia in September, 1872, sold for $24 in 1874, $21.25 in 1876, $16.50 in 1878, $41 in February, 1880; $25 in May, 1880; $26 in 1882, $18.50 in 1884, $17.75 in 1885, and $18.50 in 1886.

1882. The year 1881 was the most prosperous year American iron and steel manufacturers have ever known.—Report, June, 1882. 1883. The extraordinary activity in our iron and steel industries, which commenced in 1879, culminated early in 1882. The reaction was not sudden, but was so gradual and tranquil that for some time it excited no apprehension. In November and December the market was greatly depressed. At the beginning of December, 1881, the average price of steel rails at the (American) mills was $60 per ton, but in December, 1882, the average price was only $39.[3] In all the fluctuations of iron and steel that have taken place in this country, we know of none so sweeping as this decline in the price of steel rails, if we except in 1879 and 1880, and many of these were entirely speculative.—Report, May, 1883.

The cause of this serious reaction was attributed, in the same report, in great measure to the circumstance that "we had increased our capacity for the production of most forms of iron and steel much faster than the consumptive wants of the country had increased."

1884. Since the publication of the last annual report, in May, 1883, the unsatisfactory condition of the American iron-trade, as it then existed, has not improved. It has steadily grown worse.—Report, May, 1884. 1887. The year 1886 was one of the most active years the American iron-trade has ever experienced. The improvement in demand which had commenced in the latter part of 1885 was well maintained throughout the whole of 1886. The production of the year in all the leading branches of the trade was much the largest in our history. The remote causes of the revival in the prosperity of the American iron-trade which began in the last half of 1885, and still continues, may be difficult to discover; but one influential immediate cause is directly traceable to the meeting of the Bessemer steel-rail manufacturers in August, 1885, at which meeting a restriction of production for one year to avoid the evils of over-production and ruinous prices was agreed upon. This action was almost immediately followed by beneficial results to the iron-trade of the whole country, and to many other branches of domestic industry. We do not forget that the revival in railroad-building which commenced in the late months of 1885, and has continued to the present time (1887), has been the influence which most stimulated the demand for iron and steel; but it was the action of the Bessemer steel-rail manufacturers which put a check to the demoralization of prices which prevailed prior to their meeting, and stimulated the managers of existing railroads to hasten their arrangements for contemplated repairs and equipments. An incident of our industrial history for 1886 was the large number of strikes among workingmen. More American workingmen were voluntarily out of employment in that year than in any previous year.—Report for April, 1887.

The following extracts from published statements and opinions are more general in their nature, but not less instructive:

1876. Our country is now passing through a period of unusual depression, both in its industries and its business. The present depressed condition of business and of financial affairs exists over all countries having a high civilization.—Facts and Observations addressed to the Committee on Finance of the Mutual Life-Insurance Company of New York, July, 1876. Printed for the Private Convenience of the Trustees.

1870. The inquiry has been sufficiently broad to enable them (the committee), to point out with a considerable degree of accuracy the causes which have immediately operated to produce the present depression in the commerce of the country, and in some branches of its manufacturing and mining industries. These causes are quite beyond legislative control in this country.—Report of Select Committee of the House of Commons, Dominion of Canada, 1876.

1877. Hard times! For four years this sober pass-word has gained in gravity of import. For a time it was panic; but suppositions of speedy recovery have given place to a conviction of underlying facts that these hard times are more than a panic; that the existing depression of trade and dearth of employment are not, in popular apprehension, exaggerated, but are the serious results of causes more permanent in their nature than is generally considered.—Hard Times, by Franklin W. Smith, Boston, 1877, James R. Osgood & Co.

Congress of the United States, House of Representatives, June 17, 1878.

1878. Mr. Thompson submitted the following resolution, which was agreed to:

Whereas, labor and the productive interests of the country are greatly depressed, and suffering severely from causes not yet fully understood, etc.: Therefore,

Resolved, That a committee of seven members of this House be appointed, whose duty it shall be to inquire into and ascertain the causes of general business depression, etc., and report at the next session.

1878. Commercial depression is the universal cry—a commercial depression probably unprecedented in duration in the annals of trade, except under the disturbing action of prolonged war. . . . Ample evidence abounds on all sides to show its extent and severity in England. Have other countries bowed their heads in suffering under the commercial depression? Let America be the first to speak. In 1873 she experienced a shock of the most formidable kind. She has not recovered from the shock at this very hour. Let us visit Germany—Germany the conqueror in a great war, and the exactor of an unheard-of indemnity. What do we find in that country? Worse commercial weather at this hour than in any other. Nowhere are louder complaints uttered of the stagnation of trade. Austria and Hungary repeat the cry, but in a somewhat lower voice. And so we come round to France, the people whose well-being has been so visited with the most violent assaults. Her losses and sufferings have surpassed those endured by any other nation. Yet the deep, heavy pressure of her commercial paralysis has weighed upon her the least oppressive of all. Such a depression, spread over so many countries, inflicting such continuous distress, and lasting for so long a period of time, the history of trade has probably never before exhibited.—Bonamy Price, Contemporary Review, 1878.

1879. The prevailing depression in business from which this country has suffered for six years, and from which nearly every country in Europe is suffering still, has probably furnished support to a greater number of conflicting economical theories than any other occurrence of ancient or modern times. . . . The result, we need hardly say, has not been to raise the reputation of political economy as a science. In fact, it has never seemed so little of a science as during the past five years, owing to the extraordinary array of proof and illustration which the holders of the most widely divergent views have been able to produce.—The Nation (New York), May, 1879.

1879. We have just passed through a period of depression, of which, though it came in perfect agreement with all past experiences, was complicated by such an exceptional conglomeration of untoward circumstances, and protracted to such a weary length, that men seemed to lose faith in the revival which was almost certain to come sooner or later, and began to ask whether the commercial supremacy of this country was not permanently undermined. And now, with the new decade, the revival is really here.—The Recent Repression of Trade, being the Oxford Cobden Prize Essay for 1879, by Walter E. Smith, London, Trübner & Co., 1880.

1881. The industrial depression is generally thought to have commenced in the closing months of 1874, and it increased in intensity throughout 1876 and 1877.—Professor Henry Fawcett, "Free Trade and Protection," London, 1881.

1885. The present depression of trade is remarkable, not so much for its intensity or for its extent in both of which respects it has been equaled or surpassed on previous occasions but for its persistence during the long period of eleven years. The industrial depression is generally thought to have commenced in the closing months of 1874; and, during every succeeding year, it has continued to be felt with more or less severity, and its remarkable persistence has been commented on by politicians and public writers. Usually, a period of depression is quickly followed by one of comparative prosperity. Such a reaction has been again and again predicted in this case, but, up to the present time, there are no satisfactory indications that the evil days are passing away. It is evident, therefore, that we are suffering in an altogether exceptional manner; that the disease of the social organism is due to causes which have not been in action on former occasions, and that the remedial agencies which have been effective on former occasions have now failed us.—Bad Times, an Essay on the Present Repression of Trade, by Alfred Russel Wallace, London, October, 1885.

The following are notable extracts from the testimony presented to the Royal (British) Commission, appointed August, 1885, to inquire into the depression of trade and industry, and embodied in their reports submitted to Parliament in 1885–'86:

1885. At the present time, a general depression of trade and industry is stated to exist throughout Italy. While, however, depression is general, it does not act uniformly on all industries.—Testimony of Ellis Colnaghi, Her Majesty's Consul-General at Florence, October 8, 1885.

The depression began full ten years ago, and still continues.Testimony of the Linen Merchants' Association of Belfast, Ireland, November, 1885.

The origin of the depression from which we suffer, and which is at the lowest point yet reached, seems to be a reaction from the coal-famine period of 1872–74, and which was perhaps due to the inflation consequent on the Franco-German War in 1870. The progress of depression has been irregular, but with a persistent downward tendency since 1874. The present tendency is still downward.—Testimony of the North of England Iron Manufacturers' Association, September, 1885.

The depression has been increasing in intensity during the last four years. It was probably never greater than at present at this season of the year.—Testimony of the British Paper-Makers' Association, September, 1885.

Trade began to be depressed in 1876, and has continued so till the year 1883, with intermittent spurts of improvement. But from the end of 1883 the depression has become increasingly acute.—Testimony of North Staffordshire Chamber of Commerce, October 21, 1885.

As a proof of the deplorable state this trade [woolen-yarn spinning, Huddersfield, England] has been in for the last ten or fifteen years, we most respectfully beg to inform you, we hold the list of fifty firms of spinners who have been ruined and brought into the bankruptcy court during that period. Another proof of the very serious state of trade here is to be found in the depreciated value of carding and spinning machinery. Good machines, and for all practical purposes equal to new, if brought into the market will only realize some thirty or forty per cent of their cost price. Mill property is also in a similar position.—Report of the Huddersfield (England) Chamber of Commerce, October, 1885.

1886. Out of the total number of establishments, such as factories, mines, etc., existing in the country [the United States], about eight per cent were absolutely idle during the year ending July 1, 1885, and perhaps five per cent more were idle a part of such time; or, for a just estimate, seven and a half per cent of the whole number of such establishments were idle, or equivalent to idle, during the year named. . . . Making allowance for the persons engaged in other occupations, 998,839 constituted "the best estimate" of the possibly unemployed in the United States during the year ending July 1, 1885 (many of the unemployed, those who under prosperous times would be fully employed, and who during the time mentioned were seeking employment), that it has been possible for the Bureau to make. . . . A million people out of employment, crippling all dependent upon them, means a loss to the consumptive power of the country of at least $1,000,000 per day, or a crippling of the trade of the country of over $300,000,000 per annum.—Report on Industrial Depression, United States Bureau of Labor, 1886.

1886. It may be remembered that about twelve months ago there were evidences of an improved feeling in the English iron-trade. This was caused by the news of improvement in America; but this better feeling soon passed away, and was succeeded by even a deeper depression and lower prices. . . . On examining the Board of Trade returns, it is disappointing to find that any improvement in our exports is confined almost exclusively to the United States, and that many of our principal customers have been taking less than formerly. This, however, may be explained by the depression which has hung over other countries in common with our own.—London Statist, November, 1886.

1886. The present crisis has a much more general character than any of the crises which have preceded it; because it is a part of an abrupt transformation in the production and circulation of the whole world. For the same reason, it is destined to last longer.—M. Leroy Beaulieu, Revue des Deux Mondes, 1886.

1887. It is pretty well known that the late revival in the English iron-trade was largely, if not exclusively, due to an increased demand from the United States, which set in during the latter part of 1886, there being no increase in our exports to other countries.—London Economist, April, 1887.

The octroi receipts of the city of Paris from taxes levied at the gates on articles of food, coal, and building materials, which are the barometer of trade in the metropolis, contrast unfavorably with last year.—Ibid.

It is of interest to note how few, relatively, of the staples, raw materials or finished products, have left the year 1886 with any special gain in price as compared with one year or with two years ago, and it is even mere striking to enumerate the list of those which show actually no gain at all, or a loss in price.—Bradstreet's Journal, January, 1887.

Wheat, oats, sugar, butter, tobacco, and petroleum were lower in price at the close of 1886 than at the close of 1885. Corn, oats, pork, lard, and cotton were lower at the close of 1886 than at the begining of 1885.—Ibid.

The tables of the London "Economist" also represent but a very slight gain in the index number representing the combined prices of twenty-two leading commodities on the English market for the quarter ending March 31, 1887, as compared with the corresponding quarter from the three preceding years, "the gains being mostly articles not of first-class importance."

It is almost unnecessary to say that a subject of such transcendent importance, and affecting so intimately the material interests alike of nations and individuals, has naturally attracted a great and continually increasing attention throughout the whole civilized world, entailing at least one notable result, namely, that of a large and varied contribution to existing economic literature. Thus, State commissions for inquiring into the phenomena under consideration have been instituted by Great Britain, the United States, France, Italy, and the Dominion of Canada, all of which have taken evidence and reported more or less voluminously; the report of the Royal British Commission (1885-'86), comprising five folio volumes of an aggregate of about 1,800 pages; and that of Italy (1886), fifteen volumes with appendices; while the books, pamphlets, magazine articles, and reviews on the same subject, including investigations and discussions on collateral matters regarded as elements or results of the economic problem (such as the wide-spread ferment and discontent of labor, and the changes in the monetary functions of gold and silver), which have emanated from individuals or commissions, have been sufficiently numerous to constitute, if collected, a not inconsiderable library.

In all these investigations and discussions, the chief objective has been the recognition or determination of causes; and most naturally and legitimately, inasmuch as it is clear that only through such recognitions and determinations can the atmosphere of mystery which to a certain extent envelops the phenomena under consideration be dispelled, and the way prepared for an intelligent discussion of remedies. And on this point the opinions or conclusions expressed have been widely and most curiously different. Nearly all investigators are agreed that the wide-spread and long-continued "depression of business" is referable not to one but a variety of causes, which have been more or less influential; and among such causes the following are generally regarded as having been especially potential: "Over-production"; "the scarcity and appreciation of gold," or "the depreciation of silver, through its demonetization"; "restrictions of the free course of commerce" through protective tariffs on the one hand, and excessive and unnatural competition occasioned by excessive foreign imports contingent on the absence of "fair" trade or protection on the other; heavy national losses, occasioned by destructive wars, especially the Franco-Prussian War; the continuation of excessive war expenditures; the failure of crops; the unproductiveness of foreign loans or investments; excessive speculation and reaction from great inflations; strikes and interruption of production consequent on trades-unions and other organizations of labor; the concentration of capital in few hands, and a consequent antagonizing influence to the equitable diffusion of wealth; "excessive expenditures for alcoholic beverages," and a "general improvidence of the working-classes." In the investigations undertaken by committees of Congress in the United States, the causes assigned by the various witnesses who testified before them were comprised under no less than one hundred and eighty heads; and an almost equal diversity of opinion was manifested by the witnesses who appeared before the Royal (British) Commission.[4] The special causes to which a majority of the Commission itself attached any great degree of importance, stated in the order presented by them, are as follows: 1. Changes in the distribution of wealth—i.e., in Great Britain; 2. Natural tendency to diminution in the rate of profit consequent on the progressive accumulation of capital; 3. Over-production; 4. Impairment of agricultural industry consequent on bad seasons, and the competition of the products of other soils which can be cultivated under more favorable conditions; 5. Foreign tariffs and bounties and the restrictive commercial policies of foreign countries; 6. The working of the British Limited Liability Act. In addition to these special causes, others of a general character were mentioned; such as "the more limited possibilities of new sources of demand throughout the world, and the larger amount of capital seeking employment"; "the serious fall in prices"; "the appreciation of the standard of value" so far as connected with the fall of prices and foreign competition. A respectable minority of the commission also included, in the list of principal causes, the effect of British legislation, regulating the hours and conditions of labor on the cost of production as compared with other countries; and the discriminations given by British railways to foreign producers in the conveyance of goods.

It would seem as if one could not acquaint himself to any considerable extent with the great body of literature on this subject of the recent depression of trade, without becoming impressed with the tendency of many writers and investigators of repute, and of most of the persons who have given testimony before the commissions of different countries, to greatly magnify the influence of purely local causes. "The real and deep-seated cause of all our distress," says the "Oxford Prize Essay" for 1879, "is this: the whole world has been consuming more than it has produced, and is consequently in a state of impoverishment, and can not buy our wares."

Nearly all British writers dwell upon the immense losses to British farming capital, contingent upon deficient crops since 1875, and the decline in the value and use of arable land in the United Kingdom, and concurrent decline in the price of agricultural produce, due to foreign competitive supplies, as prime factors in accounting for trade depression; while, throughout much of the testimony given before the British Commission by British manufacturers and merchants, the injurious influence of hostile foreign tariffs on the exports of British manufactures, and the competition of foreign manufactures in the British home market, are continually referred to as having been especially productive of industrial disturbance. In France, the principal assigned causes are, excessive speculation prior to 1878, followed by bad crops; the great falling off in the production of wine through the destruction of vineyards by the phylloxera; a serious depression of the silk-trade industry; the disappearance of sardines and other fish from the coast of Brittany; excessive taxation; excessive increase in manufactured products; and restricted markets due to the competition of foreign nations paying less wages. In Italy a succession of bad crops, a disease among the silk-worms, and a stagnation of the silk industry, are prominently cited; while in Denmark, bad harvests, a disturbed state of internal politics, an alteration in the metallism of the country in 1873, and general over-production of manufactured products, are popularly assigned as sufficient causes.

Excessive taxation upon trade and industry, as a leading cause of trade depression, has also found strong advocacy, and the evidence brought forward is certainly impressive. The present annual burden of taxation in Europe for military purposes at the present time is estimated at about £170,000,000 ($850,000,000). In France, the complaints as to the pressure of taxation on industry are universal. The imperial taxation in 1884 was reported at £120,000,000 ($600,000,000) on a population of 37,000,000. Local taxation in France is also very heavy, the octroi duties for Paris alone for the year 1884 having amounted to 139,000,000 francs ($27,800,000), in addition to which were other heavy municipal taxes, as, for example, on carriages, horses, cabs, dogs, market-stalls, funerals, clubs, canals, the keeping of shops, and other commodities and occupations.—Testimony of J. A. Crowe, British Commission.

In Italy, according to the British consul-general at Florence (British Commission), the income-tax in 1884 was above thirteen per cent, and the land-tax in some instances as high as twenty-five per cent upon the gross rental. These are independent of local taxation, included in which is the octroi, which is also described as "very onerous, and, not being confined to articles of food only, have raised a quantity of small internal barriers, which, in a minor degree, replace the customs barriers of the several small states into which the country was formerly divided."

In respect to Great Britain, the British Commission, as the result of their investigations into this matter, says: "Of the fact of the increase, especially of local taxation, there is no doubt. At the same time it will probably be found that, relatively to the population and wealth of the country, the burden of taxation is now far lighter than in any previous periods."

The published opinions of certain persons of note on the subject are also worthy of attention. Mr. Alfred Russel Wallace, in his book entitled "Bad Times," London, 1885, expresses the opinion that among the most efficient causes for the current depression of trade are "wars and excessive armaments, loans to despots or for war purposes, and the accumulation of vast wealth by individuals."

Dr. Wirth, of Vienna, finds a like explanation in the excessive conversion, or rather perversion, of private wealth for public purposes. Dr. Engel, of Berlin, regards the millions wasted in war by France and Germany, from 1870 to 1871, and continued and prospective expenditures for like purposes, as culminating causes of almost universal business calamities; while, in the opinion of Professor Thorold Rogers, the scarcity and consequent dearness of gold have been the factors of chief importance.

But side by side with all the theories that the "depression" has been occasioned by the destruction or non-production of vast amounts of property by wars, bad harvests, strikes, loss of capital by employment in worthless enterprises, the conversion of an undue amount of circulating capital into fixed capital, and extravagant consumption, should be placed the facts, that statistics not only fail to reveal the existence of any great degree of scarcity anywhere, but, on the contrary, prove that those countries in which depression has been and is most severely felt are the very ones in which desirable commodities of every description—railroads, ships, houses, live-stock, food, clothing, fuel, and luxuries—have year by year been accumulating with the greatest rapidity, and offered for use or consumption at rates unprecedented for cheapness. If lack of capital, furthermore, by destruction or perversion had been the cause, the rate of profit on the use of capital would have been higher; but the fact is, that the rate of profit on even the most promising kinds of capital during recent years has been everywhere exceptionally low.

Another notable tendency among investigators is to assign to clearly secondary causes or results, positions of primary importance. Thus (general) over-production,[5] or an amount of production of commodities in excess of demand at remunerative prices, finds greater favor as an agency of current economic disturbance than any other. But surely all nations and people could not, with one accord and almost concurrently, have entered upon a course of unprofitable production without being impelled by an agency so universal and so irresistible as to almost become invested with the character of a natural law; and hence over-production obviously, in any broad inquiry, must be accepted as a result rather than a cause. And so, also, in respect to "metallism" and the enactment of laws restrictive of commerce; for no one can seriously suppose that silver has been demonetized or tariffs enacted inadvertently, or at the whim and caprice of individuals, with a view of occasioning either domestic or international economic disturbances; but, on the contrary, the only reasonable supposition is, that antecedent conditions or agencies have prompted to action in both cases, by inducing a belief that measures of the kind specified were in the nature of safeguards against threatened economic evils, or as helps to, at least, local prosperity. And as crop failures, the ravages of insects, the diseases of animals, the disappearance of fish, and maladministration of government, are local and not necessarily permanent, they must all clearly, in any investigation, be regarded as secondary and not primary agencies. In short, the general recognition, by all investigators, that the striking characteristic of the economic disturbance that has prevailed since 1873 is its universality, of necessity compels a recognition of the fact that the agency which was mainly instrumental in producing it could not have been local, and must have been universal in its influence and action. And the question of interest which next presents itself is, can any such agency, thus operative and thus potential, be recognized? Let us inquire.

Professor Ferdinand Cohn, in a paper on "Vital Questions," considers that we have half solved the riddle of life, inasmuch as we have grasped its mechanism and the physical and chemical forces that set it in motion. But as we still have to face other phenomena and active forces, the full solution of the problem is yet far deferred.

  1. The poverty in Australia, in 1885, was reported to be more extreme than at any former period in the history of the colonies; multitudes at Adelaide, South Australia, surrounding the Government House and clamoring for food—the causes of distress assigned being failure of the harvest, drought, and general commercial depression.
    "The close of the year 1884 brought with it little, if any, improvement, in the material condition of South Africa. Commercial disasters may not have been so frequent as during the previous year, but this may be explained by the fact that trade has reached so low a level that very little room existed for further failures. No new enterprises have been set on foot, and the suspension of many of the public works has tended to further reduce the commercial prosperity of the country. Consumption has been upon the lowest possible scale, retrenchment universal, and want of employment, and even of food, among the laboring-classes, a grave public difficulty."—United States Consul Siler, Report to State Department, 1885.
    January, 1885. "The price of mackerel in 1884 (Boston) was lower than at any time since 1849; and, in the case of codfish, the lowest since 1838.
    "The price obtainable for sugar at Barbadoes entails a loss to the producer in excess of one pound per ton"—Barbadoes Agricultural Reporter, February, 1887.
  2. No. 1 spring wheat, which commanded $1.05 per bushel in the New York market on the 1st January, 1878, was quoted at $1.60 at a corresponding date in 1879; and at $1.39 in 1881. The corresponding advance in corn was from 45 cents per bushel in 1878 to 63 cents in 1879, and 70 cents in 1881; while the advance in mess-pork was from $7.05 per barrel in 1878 to $12.6212 in 1879, and $17 in 1881.
  3. The average price of Bessemer steel rails, which commanded $39 per ton at American mills in December, 1882, declined to $25 in 1885.
  4. The Birmingham Chamber of Commerce attributed it in great part to German and Belgian competition, to foreign import duties on home-manufactured goods exported abroad, and exorbitant railway rates; the Hartlepool Chamber to foreign competition; Manchester, the same; Leeds, "to foreign tariffs"; Liverpool, to a loss in a once large re-export trade in cotton; Wolverhampton, to changes in the hours of labor resulting from the operation of the Factory, Workshop, and Education Acts, and the action of the various trades-unions.
  5. No term has been used more loosely in the discussion of this subject of trade depression than that of "over-production." The idea that there can be such a thing as a general production of useful or desirable commodities in excess of what is wanted is an absurdity; but there may be, as above stated, an amount of production in excess of demand at remunerative prices, or, what is substantially the same thing, an excess of capacity for production; or the term may be properly used to indicate a check on the distribution of products consequent on the existence of such conditions.