The British Revulsion^[421]

The British commercial revulsion seems to have worn through-out its immense development the three distinct forms of a pressure on the money and produce markets of London and Liverpool, a bank panic in Scotland, and an industrial breakdown in the manufacturing districts. The facts were stated at length in our pages on Friday[a], in the form of copious extracts from the British journals, but their importance and prospective consequences require a still further exposition.

Though, as we anticipated in a former article[b], the Government was finally compelled to suspend the Bank Act of 1844, this was not done till after the Bank had bravely swamped a host of its customers in the endeavor to save itself. But finally, on the evening of Nov. 11, the chiefs of the Bank held a war council, which resulted in an appeal to the Government for help, which was answered by the suspension of the provisions of the Act. This ordinance of the Ministry will at once be submitted to Parliament for approval, that body having been convoked to meet at the close of the month. The effect of the suspension must be one of comparative relief, as we have previously shown. It does away with an artificial stringency, which the Act adds to the natural stringency of the money market in times of commercial revulsion.[422]

In the progress of the present crisis the Bank had five times raised its rate of discount, in the vain hope of checking the rush of the current which was sweeping all away. On the 8th ult. the rate was advanced to 6 per cent; on the 12th to 7; on the 22d to 8; on the 5th inst. to 9; and on the 9th to 10[c]. The rapidity of this movement offers a remarkable contrast to that which attended the crisis of 1847. Then the minimum rate of discount was raised to 5 per cent in April; to 5½ in July; and to 8, its highest point, on the 23d of October. Thence it sank to 7 per cent on Nov. 20; to 6 on Dec. 4; and to 5 on Dec. 25. The five years next following form an epoch of continual decline in the rate, as regular, indeed, as if guided by a sliding scale. Thus, on June 26, 1852, it had reached its lowest point—being 2 per cent. The next five years, from 1852 to 1857, exhibit an opposite movement. On January 8, 1853, the rate stood at 2½ per cent; on October 1, 1853, it was 5 per cent, whence, through many successive variations, at last it has attained its present elevation. So far, the oscillations of the rate of interest during the period of ten years now concluded have exhibited only the phenomena usual to the recurring phases of modern commerce. These phases are, briefly, an utter contraction of credit in the year of panic, followed by a gradual expansion, which reaches its maximum when the rate of interest sinks to its lowest point; then again a movement in the opposite direction, that of gradual contraction, which reaches its highest point when the interest has risen to its maximum, and the year of panic has again set in. Yet, on a closer examination, there will be discovered in the second part of the present period some phenomena which broadly distinguish it from all its predecessors. During the years of prosperity from 1844 till 1847, the rate of interest in London fluctuated between 3 and 4 per cent, so that the whole period was one of comparatively cheap credit. When the rate of interest reached 5 per cent, on April 10, 1847, the crisis had already set in and its universal explosion was, by a series of stratagems, put off for a few months only. On the other hand, the rate of interest which on May 6, 1854, had already mounted to 5½ per cent, went down again successively to 5 per cent, 4½ per cent, 4 per cent, and 3½ per cent at which latter figure it continued to stand from June 16, 1855, to September 8, 1855. Then it ran again through the identical variations in the opposite direction, increasing to 4 per cent, 4½ per cent, 5 per cent, until, in October, 1855, it had reached the very point from which it had started in May, 1854, namely, 5½ per cent. Two weeks later, on October 20, 1855, it rose to 6 per cent for short bills, and to 7 per cent for long ones. But again a reaction set in. During the course of 1856 it went down and up until in October, 1856, it had anew reached 6 and 7 per cent, the points from which it had started in the October of the previous year. On November 15, 1856, it rose to 7 per cent, but with irregular and often interrupted fluctuations of decline, which brought it for three months as low as 5½ per cent. It did not recover the original hight of 7 per cent till October 12 of the present year, when the American crisis had begun to bear upon England. From that moment its movement of increase was rapid and constant, resulting at last in an almost complete stoppage of discount.

In other words, during the second half of the period from 1848 to 1857, the vicissitudes in the rate of interest were intensified at more frequently recurring intervals, and from October, 1855 to October, 1857, two years of dear money elapsed, when its fluctuations were circumscribed between the limits of 5½ to 7 per cent. At the same time, in the face of this high rate of interest, production and exchange went on unabated at a pace never before thought of. On the one hand these exceptional phenomena may be traced back to the opportune arrivals of gold from Australia and the United States, which allowed the Bank of England to relax its grip at intervals; while on the other hand it is evident that the crisis was already due in October, 1855, that it was shifted off through a series of temporary convulsions, and that, consequently, its final explosion, as to the intensity of symptoms as well as the extent of contagion, will exceed every crisis ever before witnessed. The curious fact of the recurrence of the rate of 7 per cent on Oct. 20, 1855, on Oct. 4, 1856, and on Oct. 12, 1857, would go far to prove the latter proposition, if we did not know besides that, in 1854, a premonitory collapse had already taken place in this country, and that on the continent of Europe all the symptoms of panic had already repeated themselves in October, 1855 and 1856. On the whole, however, leaving these aggravating circumstances out of view, the period of 1848 to 1857 bears a striking resemblance to those of 1826 to 1836, and of 1837 to 1847.

It is true we were told that British Free Trade would change all this, but if nothing else is proved it is at least clear that the Free-Trade doctors are nothing but quacks. As in former periods, a series of good harvests has been followed by a series of bad ones. In spite of the Free-Trade panacea in England the average price of wheat and all other raw produce has ruled even higher from 1853 to 1857 than from 1820 to 1853; and, what is still more remarkable, while industry took an unprecedented start in the face of the high prices of corn, now, as if to cut off every possible subterfuge, it has suffered an unprecedented collapse in the face of a plentiful harvest.

Our readers will of course understand that this Bank of England rate of 10 per cent is merely nominal, and that the interest really paid by first-class paper in London, greatly exceeds that figure.

"The rates charged in the open market," says The Daily News, "are considerably above those of the Bank."

"The Bank of England itself," says The Morning Chronicle, "does not discount at the rate of 10 per cent, except in a very few cases—the exception, not the rule; while out of doors charges are notoriously disproportionate to the alleged quotation."

"The inability of second and third-class paper to obtain accommodation on any terms," says The Morning Herald, "is already producing immense mischief."

"In consequence of this," as says The Globe, "affairs are being brought to a deadlock; firms are falling whose assets exceed their liabilities; and there seems to be a general mercantile revolution."

What with this pressure on the money market, and with the influx of American products, all articles in the produce market have gone down. In the course of a few weeks cotton has fallen at Liverpool 20 to 25 per cent, sugar 25 per cent, corn 25 per cent, and coffee, saltpeter, tallow, leather, and the like, have followed in the wake.

"Discounts and advances upon produce," says The Morning Post, "are almost unattainable."[d]

"In Mincing Lane[423]", says The Standard, "business has been turned inside out. It is no longer possible to sell any goods except in the shape of barter, money being out of the question."

All this distress, however, would not have so soon brought the Bank of England to her knees if the Bank panic in Scotland had not occurred. At Glasgow, the fall of the Western Bank was followed by that of the City of Glasgow Bank, producing in its turn a general run of depositors among the middle class and of noteholders among the working classes, and finally resulting in riotous disturbances which induced the Lord Provost of Glasgow to obtain the aid of bayonets. The City of Glasgow Bank, which had the honor of being governed by no less a personage than the Duke of Argyll, had a paid-up capital of one million sterling, a reserved fund of £90,595, and ninety-six branches spread through the country. Its authorized issues amounted to £72,921, while those of the Western Bank of Scotland were £225,292, making together £298,213 sterling, or nearly one-tenth of the entire authorized circulating medium of Scotland. The capital of these Banks was to a great extent furnished in small sums by the agricultural population.

The Scotch panic naturally recoiled on the Bank of England; and £300,000 were taken from its vaults on Nov. 11, and £600,000 to £700,000 on the 12th, for transmission to Scotland. Other sums were also withdrawn on behalf of the Irish Banks, while large deposits were called in by the Provincial English Banks; so that the Banking Department of the Bank of England found itself driven to the very verge of bankruptcy. It is probable that for the two Scotch Banks above named the general crisis merely afforded a pretext for effecting a decent exit, they having long been rotten to the core. Still, the fact remains that the celebrated Scotch Banking system which in 1825-26, 1836-37, and in 1847 weathered the hurricanes. that swept away the English and Irish Banks, for the first time, under the auspices of Peel's Bank Act, which was forced upon Scotland in 1845, has met with a general run; that for the first time the cry of "gold against paper" has been heard there; and that at Edinburgh, for the first time, even Bank of England notes have been refused. The idea of the defenders of Peel's Act, that if it was unable to ward off monetary crises in general, it would at least secure the convertibility of the notes in circulation, has now been exploded, the noteholders sharing the fate of the depositors.

The general state of the British manufacturing districts cannot be better described than by two extracts, the one from a Manchester trade circular, printed in The Economist, the latter from a private letter from Macclesfield in the The London Free Press. The Manchester circular, after giving a comparative statement of the cotton trade for the last five years, proceeds as follows:

"Prices have this week been falling with, day by day, more summary acceleration. For numerous descriptions, no prices can be given, because none could find a buyer, and generally where prices are given, they depend more on the position or apprehensions of the holder than on demand. No current demand exists. The home trade have laid in more stock than Winter prospects now give hope of clearing"

That foreign markets have been overstocked, the circular does, of course, not say.

"Short time has now been currently adopted as a necessity; the amount of its adoption is computed at present to exceed one fifth of the whole production. The exceptions to extending its adoption are daily becoming less, and the expediency is now debated of rather closing the mills for a time wholly."[e]

The Macclesfield writer tells us:

"At least 5,000 persons, consisting of skilled artisans and their families, who get up each morning and know not where to get food to break their fast, have applied for relief to the Union, and as they come under the class of able-bodied paupers, the alternative is of either going to break stones at about four pence per day, or ° going into the House, where they are treated like prisoners, and where unhealthy and scanty food is given to them through a hole in the wall; and as to the breaking of stones, to men that have hands only capable of handling the finest of materials, viz: silk, [that] is a complete refusal."[f]

What English writers consider an advantage of their present crisis, as compared with that of 1847—that there is no paramount channel of speculation, like the railways, for instance, absorbing their capital—is by no means a fact. The truth is the English have very largely participated in speculations abroad, both on the Continent of Europe and in America, while at home their surplus capital has been mainly invested in factories, so that, more than ever before, the present convulsion bears the character of an industrial crisis, and therefore strikes at the very roots of the national prosperity.

On the Continent of Europe the contagion has spread from Sweden to Italy in one direction, and from Madrid to Pesth in the other. Hamburg, forming the great commercial center of the exports and imports of the Zollverein[424], and the general money market of Northern Germany, has had, of course, to bear the first shock. As to France, the Bank of France has screwed up its rate of discount to the English- standard; the decrees for the prohibition of the export of corn have been revoked[425]; all the Paris papers have received confidential warnings to beware of gloomy views; the bullion dealers are being frightened by gens d'armes, and Louis Bonaparte himself, in a rather coxcombical letter[g], condescends to inform his subjects that he does not feel himself prepared for a financial coup d'état, and that, consequently, "the evil only exists in the imagination.[426]

Notes