H.M. Hyndman

Commercial Crises of the Nineteenth Century

Chapter VII
The Crisis of 1873

The time had now arrived when great crises, although they may begin with a sudden panic, have also harmful and enduring effects upon industry which extend over many years, and, in the course of the long series of liquidations which they bring about, spread to every country, touching even those nations that apparently have least direct mercantile connection with the point at which they might chance to originate. With the increasing complexity of international trade and financial relations, alike under Protection and Free Trade, it is clear that stagnation in any one region, or in any particular industry, must make itself felt sooner or later in all others more or less; seeing that, in order to realise profits, exchange, first of commodities for gold and then of gold for other commodities, must go steadily and uninterruptedly forward. Such a country as the United States, with its enormous territory still sparsely peopled and in part wholly unoccupied, with its great variety of climate and unprecedented wealth, alike agricultural and mineral, may endeavour to render itself independent of its neighbours by the imposition of high tariffs. But even in this case the necessity for exporting food and raw material in vast quantities involves its inhabitants more and more in the ups and downs of Europe. Hence the low price of grain at the European centres, due to such a cause as an exceptionally good harvest in India or Russia, has prevented many a Western farmer from re-painting his farmhouse and barns, has thus reduced the demand for paint, and thus, in turn, has lowered the price of lead and caused the shutting down of many of the mines of the Western States. Hence, again, men have been thrown out of work and into distress even in that land of plenty in the best of good seasons. This is but one instance out of many, which is not rendered less sad to those who suffer by the fact that on the return of “good times” prosperity reaches a greater height than ever before.

The crisis of 1873, though it did not begin in the United States, as did the crisis of 1857, was, like that great catastrophe, largely due to the course of development in that country. But, taken in all, it had more various causes, it spread over a wider range and had more disastrous consequences than any of the previous crises. Beginning its career on the Bourse, it successively brought down in sympathy the trade, industry, and eventually the agricultural economy, of the entire West. It commenced first of all in Vienna at the commencement of the month of May, 1873, but the consequences of the crisis endured up to the autumn of 1879, and directly involved the whole of Austria-Hungary, the German Empire, Italy and Switzerland, in the injurious effects of its complications. The crisis broke out with redoubled force in America, and brought the English, Scandinavian, and Russian money-markets as well as the industries of France, specially devoted to the production of luxuries, within its range, though the latter country had been prevented by the misfortunes of the war from indulging in over-speculation. The shocks of the great crash were felt at Belgrade, and Bucharest, at Odessa, Moscow, and Nijni Novgorod, at Alexandria, And in South America.

Here we have the international crisis in its most complete form, and lasting in a more or less injurious shape for upwards of six years, and even then the recovery was shortlived in more than one country. Yet, during the sixteen years from 1857 to 1873, the development of production and trade had again surpassed all anticipations even of the most sanguine. And this experience was not confined to any one or two countries. Exports and imports had more than doubled in the United Kingdom, in the United States, in France, in Austria, and in Belgium. Railways, steam-ships, telegraphic cables were facilitating transport and rapidity of communication in a progressive ratio; improvement in the production of iron and steel was so great as to more than meet the increased demands of modern society; while the almost unnoticed application of machinery to agricultural purposes in United States was working a revolution in the production of food-stuffs, to be compared only with that which had already been brought about in the working up of cotton, wool, etc., at the beginning of century.

The most terrible wars in America and in Europe had been powerless to arrest the advance more than momentarily, and Great Britain actually benefited so much by the war between France and Germany that Mr. Gladstone, shortly afterwards, used his often-repeated phrase about prosperity advancing “by leaps and bounds.” It is, indeed, needless to enlarge upon the constantly multiplying power of man to produce wealth. The application of science to wealth-creation is now so direct and immediate that the difficulty of at once adopting new inventions and discoveries arises from the fact that in many branches of industry wages are so low that it is cheaper for the employer to proceed with the old methods than to introduce the new. But even this hindrance has only hindered not checked the advance all along the line; and, as each successive period passes and can be compared with the one before, we see clearly that for every person employed in industry the increased production per hour actually worked has again been multiplied many times.

The war of 1870, with its fearful waste of life and material, and the trade losses it had involved to the two greatest continental powers, occasioned an immediate demand on this powerful economical machinery to fill the gap. Even the tremendous war indemnity, which was intended to crush France, had its effect in stimulating the remarkable rebound of trade which commenced on the conclusion of peace. For France, with a power of recovery wholly unexpected, set to work to pay her vast debt, pile up fresh accumulations, and reorganise her army and navy at one and the same time, with an industry and assiduity which perhaps no other nation in Europe could have rivalled. The Germans on their side used the £200,000,000 of indemnity to replace their material and refill their war chest, but also to pay off the various State debts. This put large amounts of capital at the disposal of private persons who naturally wished to use them to a profit again. It is scarcely too much to say, also, that the moral effects of the astounding victories of the Germans over the French and the reconstitution of the German Empire were such that Germany was filled with a new life, and felt invigorated to an extent never experienced since the wholesale devastations of the Thirty Years’ War. Hence followed a rush into new undertakings, a desire to extend and beautify the principal cities, and to complete the railway connections between the various parts of the new Empire, for but a fraction of which enterprises the French indemnity could provide the funds.

Though, however, some of the chief causes of the crisis lay in the German Empire, Vienna, as already stated, was the first city to feel its effects. Throughout Austria-Hungary the five or six years prior to 1873 had been years of the most extraordinary development of companies. Railways, coal mines, iron and steel works, sugar factories, and banks were constructed, organised, and started one after the other. In Vienna, in the year 1869, the total of such enterprises set on foot reached the amount of upwards of £80,000,000, of which more than half was paid up. In Pesth, no fewer than 91 companies, with a gross capital of not less than £27,000,000, were quoted on the Exchange. In short, the Austro-Hungarian Empire was for the first time gripped completely within the circle of international capitalist finance, and the company form of industry supplanted the old methods in every direction. As an example of the apparent prosperity which followed, the output of the great breweries increased in five years from 2,978,464 firkins to 5,433,904. According to official returns, State concessions were granted for the formation of 1005 companies, with a nominal capital of about £300,000,000, most of which were supported by foreign capital, and for their mere foundation not less than £100,000,000 were required according to law. There were thus established 175 banks, 604 industrial undertakings, 34 railway companies, 39 insurance companies, 23 mining companies, 8 shipping companies, and 18 hotel companies. In 1866, the total paid-up capital of the banks amounted to 190 millions of gulden, at the end of 1872 to 508 millions. In the first three months of 1873, 15 new banks were established, with a paid-up capital of 72 millions of gulden. The share capital invested in railways nearly doubled in the same time, while the preference shares nearly trebled. So enormous was the amount of capital subscribed and to be expended, that if all the enterprises had been undertaken and carried on there would not have been nearly enough skilled workmen in the country to complete the works. A similar state of things was to be found in Germany. In the year 1872 there were established in Prussia alone banks, building societies, mining companies, railway companies, iron works, etc. etc., with a capital of £76,000,000, while in the same year the total issues on the European Stock Exchanges reached the vast figure of £500,000,000, following upon similar issues to the still greater amount of over £600,000,000 in 1871, without any estimate of premiums.

In Prussia 259 companies were established in 1871, and 504 in 1872, as against 34 in 1870 and 225 since the beginning of the century. Even in the first six months of 1873, companies and loans were issued in Europe to the amount of fully £300,000,000, though the crash was then close at hand.

These figures, and many more might be given, only express, after all, the truth that the continent of Europe had fully entered upon that period of wholesale capitalistic production and speculation which had already produced such disastrous effects on countries economically more advanced. What made matters even worse was the foundation of all sorts of banking institutions, which had little else than stock-jobbing in view. The real object of banks and companies was quite lost sight of, and men were swept into the whirl of speculation without having any other desire than to gamble and to make money in the lottery of the share market. Mortgage banks and building societies gave an undue impetus to building speculations in the great cities, from which Berlin and Vienna still suffer. These building speculations were indeed among the most unsound and ruinous of all the business of the time. The price of land was run up to a purely fictitious level, and loans were made to cover the sites with houses to an extent which, when the crash came, rendered it impossible to recover even a fraction of the principal. The great object was to run up the houses in good, or what were likely to be good, situations, and put a rental upon them which, in nine cases out of ten, was never realised. To give an adequate account of this building mania in Berlin and Vienna would require a chapter to itself. But similar follies can be seen in London on a smaller proportional scale, and the speculative builder who, working on a small capital, must live continuously from hand to mouth, borrowing at usurious rates to complete jerry-built structures, is well-known here at home.

A very short consideration would have proved to the speculators that no possible increase of population could justify the excessive competition for building land and the inordinate sums spent in erecting houses upon it. But at such times nobody reasons. Each expects that the good times will last until he is able to “get out” at a profit, and what the result may be when a crash does come – that is a matter which can be attended to when it presses, not before. What concerned the gamblers for the moment was that building plots were fetching fully ten times what they were unsaleable at a few years before; that they were able to borrow on their purchases up to the hilt; and that no sooner were the buildings above ground than they could borrow up to the hilt again. And so for the time the building companies made an exceedingly good showing and divided up large sums on paper. During the same period railway contractors and speculators such as Dr. Strousberg, who at this time came to London and took a mansion in Grosvenor Place, made vast fortunes likewise on paper, and also constructed railways so badly that, as was the case with more than one firm of English contractors, they obtained so infamous a name for their fellow-contractors of the same nationality that no English contractor has been allowed to build a line in certain countries since. Adulteration in commodities, jobbing and jerry-building in contracts and house construction, such unfortunately is the rule in days of high prices and prosperity such as these before 1873 appeared to be. The swindling and corruption which accompanied the procuring of the concessions in Austria and Germany formed a fitting preface to the shameful stamping which followed in carrying them out. There was thus quite enough inflation in the German-speaking countries at home to render a crisis inevitable, and to ensure that its effects should be disastrous; but the enormous extent to which Germans of all classes had invested their savings in American railways rendered the crash more calamitous when it came.

Germany and Holland, more far-seeing than England taken as a whole, and better informed perhaps by their emigrants as to the prospects of eventual victory, had steadily backed the North during the Civil War, and had continuously purchased American securities at low prices during the whole of the struggle. When the fight was over they reaped their reward, and their successful investments in United States bonds encouraged them to take up those American railway securities with which Europe was now flooded. The development of railways in the United States had attained a height quite unparalleled in Europe, rapidly as railways had been constructed in Great Britain and elsewhere to meet the necessities of increasing trade. In America railways were really the only permanent roads over vast stretches of territory, and it was by this means alone that the great cities could be connected together and the magnificent far West opened up to colonisation. The United States had therefore, even in 1870, seven times the mileage of railway per inhabitant to that which was formed by Europe; and in 1870 the Great Republic had fully 60,000 miles of railway completed and running between the Canadian State line and the Gulf.

It was a period of marvellous “boom” in West and East alike. The first great trans-continental line to San Francisco had only recently been completed, and the inhabitants of that city and of California generally anticipated that the development of the Pacific Slope would rival or even surpass the older settlements of the Eastern States. The farmers of the West, not as yet crushed down under the weight of mortgages as they too often are to-day, were prospering in every way, and, unprecedented though the expenditure on railways had been, there was every reason to believe that it would fully repay the investors and benefit the entire country. Those who have been in the United States at such times know the sensation of general wellbeing and universal progress which is felt throughout the country. Nowhere is a period of prosperity more suddenly and surely exhibited in the lives of the people. During these years when the losses by the war had been replaced and the whole nation thought itself on the full flow of continuous improvement, everybody was making money and nearly everybody was spending it. Good trade in one quarter made good trade in another. The spread of luxury even in the villages of the far West was something astounding. Never perhaps in the history of the United States had the mass of the people been so well off as during the years from 1869 to 1873.

On railways alone it is estimated that not less than £400,000,000 had been expended since 1867, of which nearly one-half was represented by mortgage bonds. It was these mortgage bonds at low prices, with sometimes an accompanying bonus in the shares of the company, which tempted the European investors to invest in America again, as they realised their profits on the United States loans bought back at high prices by the Americans themselves. All this marvellous well-being for the many and fortune for the few was duly reported to their friends and relatives at home by the ten millions or more Germans who were now settled in the United States. For the Germans had benefited even more than the English or the Irish by the settlement of the great West. Small thrifty farmers or tradesmen at home, they went out to the United States with a little capital, prepared to rough it, and to devote many years of their life to building up a happy home for themselves and a moderate competence for their children.

The great through lines of railway which were being built served for them the same purpose as the great rivers had served before, and thrifty, well-to-do German colonies were to be found pushing on steadily along the routes of the main railways to the new unsettled countries which had not yet been overrun. For the Germans did not as a rule linger round the cities in the same way as the Irish, nor did they meddle much with politics until they had made their reasonable competence, or until their own individual interests were directly affected. But now these men in country-township, town and city alike, were getting rich, not slowly but fast. Their habits of life and expenditure were below the scale adopted by native Americans or English when they are successful, and their savings were proportionately greater. Wonderful accounts, therefore, they sent home of what they were doing, and it is not too much to say that the whole middle-class of Germany and Austria looked to America as to the promised land. Those who went put themselves and their capital, under the Stars and Stripes; those who remained and could do so invested their savings largely in the bonds of those American railways which were to bear their relatives to the regions of plenty. The process went on steadily, and this German exodus contributed even more to the wealth of the United States than the Irish colonisation, of which so much more, in England at any rate, has been heard. The injury which was thus done to Germany herself, and the overwhelming competition to which German and other European agriculture would be subjected by the competition of the products from their own fellow-countrymen, were not at first fully seen, while at the same time the pressure of the Imperial Government drove away across the Atlantic many Germans who could ill afford to spend even their passage money. Meanwhile the American railways, with their enormous land grants from Congress, continued to attract European capital, and among others two great new trans-continental lines, the Northern and the Southern Pacific, were taken in hand.

As usual, the causes of the crash were not observed, nor was its imminence believed in, even by businessmen, until the collapse in prices and the helter-skelter rush to sell had well begun. Yet all the symptoms of crisis were well exhibited in Austria and Germany for some time beforehand. A glance at the list of enterprises launched in those countries in the year 1872 alone is sufficient to show that already speculation and excessive construction of permanent works, and over-production, as it is called, had reached their extreme limit. Prices of commodities, of shares in good enterprises, of land, of houses, had all risen, and wages had gone up in at least an equal ratio, attaining a level, in America more especially, higher than anything ever reached before. At the same time the workers in every country were constantly on strike, and efforts were being made to obtain better conditions of existence and shorter hours of labour, so that the wage-earners might in turn derive some benefit from the enormously increased power to create wealth.

The upward sweep of luxurious living among the well-to-do kept pace with the rest of the development. A visitor to Berlin or Vienna, who had known those cities well before the great changes wrought by the recent extension of capitalism, could not fail to be struck with the spread of luxury and display among the middle and upper classes. The simplicity of German bourgeois life had vanished. Ostentation had displaced elegance, and domestic comfort had given way before vulgar profusion. Nor had the people benefited in the same degree even as in Great Britain. The overcrowding, due to the erection of magnificent palaces where labourers’ dwellings had formerly stood, had raised rents for the poor for worse accommodation to an extent that could only be paralleled in London or New York. Wages had not advanced in proportion to the dearness of living, and the right of combination was greatly interfered with.

The whole industrial growth of Austria had so concentrated itself in companies, credit establishments, banks, and similar institutions, represented by shares in the Stock Exchange, which were dealt in and settled for day by day, that the great crisis which began in Vienna on May 10th took at first exclusively the form of a Stock Exchange panic, such as might be, and lately was, brought about at the same centre by a war scare. It was even supposed that this might be the beginning and the end of it. That the prices of shares in such companies had been run up far too high by the declaration of fictitious dividends, by assiduous puffing in the parasite press, and by the usual trickery resorted to to keep stocks above their real value, was freely admitted by some German financiers, not a few of whom regarded the commencement of this, as it proved, overwhelming crisis as only a natural and wholesome shrinkage of the price of shares to reasonable dimensions. They were soon undeceived as to the magnitude of the calamity which had befallen the whole of Central Europe and the countries with which their recent operations had brought them most directly into contact. Even the most important agricultural industries of the country, connected as they were, like the sugar industry, in an increasing degree with factories managed and owned by share companies, were represented by shares on the Vienna and Berlin Stock Exchanges. And the gambling in all these shares was carried on upon a scale hitherto quite unprecedented on the Continent. Creatures of finance too often to begin with, they soon become mere playthings of the stock operator.

At the end of April the Vienna Bourse was already in the first throes of the panic, and herculean efforts were made to meet the threatened catastrophe, which also, it was hoped, would be in some strange fashion conjured away by the opening of the Exhibition that was arranged for the 1st May. Meetings of banks were held to consider if any steps could be taken to restore confidence, and to stem what was still regarded as a mere fall in stocks. But the evil was too deep-seated to be arrested in this fashion. Nothing less than the temporary unhinging of all Austrian finance, trade, industry, and construction of public works, was inevitable. Accordingly, the now familiar spectacle to be witnessed during every really serious crisis was displayed to the world for the first time on the banks of the Danube, on the 8th and 9th of May, 1873. Panic, chaos, wild despair, hopeless madness, collapse of confidence, complete crash in business – such are the words used by eye-witnesses to describe scenes which, they confess, beggared description.

On the 10th May things were at their worst. Every effort was made to lessen the effects of the crash – a guarantee fund was formed, and on May 13th the National Bank, by a somewhat similar suspension of the law to that which the failures of the Bank of England have accustomed us to in London, was enabled to come in some degree to the rescue, and save the situation. But even then it was thought that the crisis was merely a crisis in stocks and shares, and that the extension to trade and industry could be avoided. But by this time all Austria-Hungary was in the whirl of the crisis, and guarantee funds and committees of assistance had to be set on foot in all the principal towns. By degrees the more acute superficial symptoms of the crisis were subdued by the various remedies employed, but the cure of the disease was slow and the recovery greatly prolonged.

For, of course, this Vienna crisis was essentially an industrial, trade, and, in the widest sense, financial crisis, and it was only one peculiar feature of the case that it should have manifested itself, to begin with, in a Stock Exchange form. An increase in the facilities for discounting bills or lending on securities, an inflation of the currency, might give relief to genuine traders, and prevent a complete stoppage of the necessary exchanges, but all remedies of this kind cannot possibly replace wasted capital, find a market for commodities which have no buyers, or pay interest on repudiated loans. And Austria-Hungary, and then America, and shortly afterwards Germany and Holland, had to face all these difficulties, and slowly to overcome them at the expense of great suffering and poverty. But at first it was thought in England, in America, and in Germany, as it had been in Vienna, that business generally was quite sound, and that little more would be heard of the first serious crisis in Eastern Europe. This, too, although all dealing in fresh American issues stopped suddenly, and there was a great and general fall in all American securities in sympathy.

But similar causes to those which operated in 1857, and to a less degree in 1869, were at work in the United States, and it needed but a slight shock from without to bring on another very serious crisis in that country. The astounding growth of business and the extension of railways in America, accompanied by an ever-increasing prosperity for the whole nation, in the sixteen years from 1857 to 1873, in spite of the heavy loss of life and enormous expenditure during the Civil War, have already been spoken of. It was from this wealthy nation that the next blow was to come which would fall with redoubled force upon the trade and finance and industry of Europe, already most injuriously affected by the Vienna crash, which had spread to other countries and had involved every branch of business. New York at this time was literally swamped with railway securities for which, especially after the outbreak of the Vienna crisis, no outlet could be found in Europe. To such an extent had the overbuilding and rash financing been carried, that the moment one bank failed a succession of bankruptcies became inevitable. The crisis there began with the downfall of a firm which had made heavy advances on the securities of the Missouri, Kansas, and Texas Railroad, followed by the suspension of payments on the part of another firm which had acted in the same capacity towards the Canada Southern. Thereupon came the appointment of a receiver for the New York, Oswego, and Midland Railroad.

Directly afterwards, on September 18th, down came the bank of Jay Cooke & Co., with their branch bank of Jay Cooke, McCulloch & Co. in London, in which latter city, however, they had never attained to a very high position, in spite of the fact that they were the financial agents of the United States Government. Their fall was due to their intimate connection with the Northern Pacific Railway, and the affect of it was both immediate and disastrous; the position which the firm had held in relation to United States loans, and the general financial business of the Government rendering their collapse the more serious from all points of view, especially as they had in hand at this very time the negotiations for the formation of a syndicate to float United States bonds at a lower rate of interest. Concerning the details of the general crash and liquidation which followed, it is unnecessary to say much. Banking house after banking house came down, and the New York Stock Exchange was closed, only opening again on September 30th. But great commercial and distributing houses were also obliged to suspend payments. Not a single industry remained unaffected by the collapse, which, as in Vienna, was at first thought to be purely a Stock Exchange difficulty.

Strangers who were in America, or engaged in American business at the time, were as much surprised at the sudden and universal sweep of the catastrophe as they had been at the previous extraordinary inflation. Throughout the whole of the United States it seemed as if some great disruption had occurred. There was a glut in every department of trade, almost, it may be said, in every warehouse. Mills, factories, and workshops of every kind were closed in the West, as well as in the East, or worked short time. The almost universal suspension of work on the new railways threw tens of thousands of labourers out of work, while the old railways only made such betterments as were absolutely indispensable. The influence of this upon the iron and steel trades, and upon the iron and coal mining industries, was felt immediately. Thousands of men were unavoidably dismissed in these departments, and from a third to a half of the workpeople in the Eastern States were said to be without employment. The number of actual “tramps” during the winters of 1873 and 1874 was placed as high as 3,000,000 out of a total population of little over 40,000,000. When to these are added the numbers who starved quietly at home, the proportion of workless persons to the entire population seems something prodigious. In New York, Pennsylvania, Ohio, and the New England States, the state of things was quite deplorable.

The condition of the West was little better. All prices were down and yet goods were unsaleable. Cotton, wheat, wool, lead, iron, steel, leather, were all selling from 20 per cent. and more below the prices they had fetched before the crisis. Importers were in the same case as the manufacturers and contractors. Even at the full shrinkage they could not realise on their goods. Wholesale and retail traders were in the same hopeless condition unless they had obtained time from their creditors. The whole country looked as if it were suffering from some huge natural catastrophe. It was nothing short of horrible to go through some of the districts where, but a few months before, all the industries had been in full swing, where the people were in the enjoyment of a good standard of living, anticipating the continuance of employment at high wages, and now to find whole towns full of workers standing idle, and not knowing what to expect next. For, once more, it was not only the mismanagement of the past that was to blame for the fearful condition of workless misery into which the industrious wealth-producers had been plunged, but the mismanagement of the present alike in America and in Austria.

There were the unsaleable goods lying to their damage in the warehouses; there was the machinery rusting and depreciating for want of use; there stood the labourers, eager to work and to produce useful articles, or to complete great highways of communication in return for some of this food and these clothes, etc., which were so cheap that they could not buy them. And yet it passed the wit of man, as exercised in modern society, to bring these two sides of production and consumption together for the benefit of all, by reason of the fact that the wit of man in society today is so bemused by the complications of that society that employers and employed alike still imagine that these periods of collapse are inevitable, and that hard times cannot but come. At any rate, 83 railway companies, with a capital of some £50,000,000, suspended payment, and workmen were discharged in every direction. And as the theory of the well-to-do classes throughout the United States is, that no man need ever be out of work except by his own fault, and that a vagrant is to all intents and purposes a criminal, the way in which the unfortunate workers were treated during this sad time for them, may be imagined. America is a hard place for a poor man during a trade depression.

As usual in all countries after a crash of this sort, instead of looking into the methods of production, and the unregulated maladministration of capital, the rich and their governments began to overhaul the banking system and those currency arrangements which, however defective they may be, cannot, by any possibility, create an industrial crisis, though they may and do intensify one when it comes. The United States had devoted itself since the war to the improvement of its general credit; and the steady repurchase of its bonds had placed the Republic in the first rank of borrowers so far as its State debt was concerned. But it had left its paper money, which bore no interest, to settle itself, this paper money being, practically, an inconvertible currency, and silver only legal tender up to five dollars. But although it may be granted that this currency question had some influence, it must surely be clear even to the most bigoted doctrinaire in currency matters that, assuming that the United States had put matters on so sound a footing that no inconvertible paper had been in circulation at all; that the note issue of the banks had been represented by bullion up to their full value; and that the supply of gold and silver had been unprecedently large; still the expenditure of so much labour and capital on railways, on mines, on the production of commodities, and on the provision of luxuries must have brought about a crisis. Losses had been incurred which some one had to pay for, and goods had been produced to such an extent that, the market for them being what it was, further profit could not be made by producing them on the same scale any longer. Consequently, the individuals and companies who had incurred the losses had to go into liquidation; the traders who had more goods on hand than they could dispose of were compelled to ask for time in which to dispose of them; the employers of labour either could not carry on their contracts or get orders for more goods; and the result of it all, no matter how the currency stood, must still have been as it was, that men and women would be thrown out of work and industry would be involved in a crisis.

In such circumstances it is not in the power of banks or currency manipulators to put matters right. Organisation of labour by the community is needed, and of all countries in the world the United States is most opposed to any interference with the anarchy engendered by the capitalist system. And if such crises as these of 1857 and 1873 could occur in America, with its unlimited territory, its vast resources of every kind, and constant influx of the cream of the European populations, many of the immigrants bringing their own capital, it is manifest that the older communities which do not possess these advantages are likely to suffer still more severely from them as time goes on.

But now it was the turn of Germany and, after her, of France and England, to experience the inconveniences arising from the ups and downs of modern trade. So far the Vienna crisis had only partially affected the principal German Stock Exchanges. The period of inflation continued months after the crash in Vienna had disorganised the whole business of Austria-Hungary. In the first six months of 1873 no fewer than 196 new companies, with a gross capital of £25,000,000, were set on foot in Prussia alone, and even so late as July, August, and September, capital to the amount of nearly £15,000,000 was asked for similar undertakings. There was certainly no taking in of sail or preparation to meet danger in all this. On the contrary, the mania for speculation carried on the inflation up to the very last moment. The crash in Vienna took place early in May: yet in October a number of new companies were launched in North Germany. The inflation was rendered greater and more serious in its effects by the gambling shops, mis-called banks, which were set on foot in every German town of any importance, to aid in fostering the premium hunt that was going on, more particularly in the shares of the rotten and over-capitalised building companies which were now at preposterous prices. The total amount of capital required for various enterprises in Prussia far exceeded the possible savings of the nation.

In the end the crash came here too and produced similar effects to those which had been felt in Austria earlier in the year. One after the other the paper-built schemes tottered and fell. Thousands of work people were thrown out of work, the crisis continuing at its height for upwards of two months, after which the full extent of the glut and stagnation and the consequent distrust was perceived. In Austria the State was called in to help the sufferers from the social bankruptcy, and though the advances were made, of course, to the middle-class, the workers benefited to some extent: in Prussia and Germany the anti-State view was on the whole taken, and the workers suffered the more. The spread of the crisis to Italy, Sweden, Holland, and other countries, where railway and building speculations had been pushed beyond the bounds of all reason, was, of course, inevitable, and, as each nation received the shock, the general glut and stagnation of trade were more severely felt by the rest. Necessarily, for if the workers cease to produce in one part of the civilised world, there is less demand for the articles which they consume themselves and less demand for the luxuries consumed by their employers. Thus, bad trade tends to develop bad trade, as good trade expands the area of good trade, until such time as the world’s business has “touched bottom,” and the upward cycle recommences with as little foresight and consideration as before by those who form part of it.

In Great Britain, though the crisis of 1873 could not fail to produce a temporary panic, and early in November the rate of discount at the Bank of England ran up to the crisis point of 9 per cent., and there seemed a probability of a renewal of the scenes of 1866 and 1857, the reserve in the bank remained at a sufficient height to check an actual furious rush. Since 1869, the country had been enjoying such marked prosperity, and precautions had been so widely taken after the warning of 1866, that in proportion to the growing wealth of the country the commitments were not excessive. The speculation had not overstepped the bounds of ordinary capitalist prudence in good times, or, at any rate, the losses in Paraguay, Honduras, San Domingo, and the Argentine Republic were small in comparison with the general wealth of the nation, while the orders to manufacturers which these loans and others to the Australian Colonies, New Zealand, and Canada had occasioned, gave a still further impetus to a period of exceptional good fortune.

Thus, the rush for gold to the Bank of England early in November found Great Britain better prepared, perhaps, than at any other time to meet it, and it is interesting to compare the very trifling fall which took place in Consols in November, 1873, with the wholesale deterioration which took place during the earlier panics. Even the American Government securities, which in the circumstances might have been specially sold, only fell ½ per cent. at the time of the greatest depression. It may indeed be said that Great Britain on the occasion of this, the heaviest crisis which had been felt on the Continent of Europe, and possibly in America, escaped with little more that a sharp financial scare and losses to a class of investors who could well afford to lose. That the results of the crisis were felt when the general shrinkage of prices set in a few years later is probable, for it is impossible to say where such a collapse as that of 1873 comes to an end; but for the time being there was assuredly no such industrial stagnation here, following immediately upon the financial crisis of 1873, as had accompanied the previous crises. It was a foreign crash which incommoded rather than permanently injured British trade and industry. For in 1873, 1874, and 1875, prices rose to a higher point, especially for coal and iron, than had ever yet been reached.

In the winters of 1874 and 1875, such was the demand for coal for all purposes, that household coal in London was bought retail at between 50s. and 60s. a ton, or about three times its ordinary price. Similar absurd prices were obtained for pig-iron, cotton, wool, and all raw materials, the prices thus paid being, of course, fully represented in the cost of the finished articles. This is the period so often referred to by opponents of the working-classes of Great Britain as that in which Englishmen drank themselves out of their indebtedness, and when pitmen are supposed to have given beef-steaks to their bull-dogs, while they drank one another’s health in champagne. That these were grotesque misrepresentations of the truth needs no demonstration. But, even assuming the statements to be true, at this very time the yearly savings for investment made by the well-to-do, non-producing classes, were estimated at not less than £200,000,000 a year, and the total capitalised wealth of the country was put by the same authority at £8,500,000,000 as against £6,100,000,000 in 1865, an increase of wealth probably quite unequalled in any old-settled country within so short a space of time.

But the reaction, though it did not come immediately, was not far off. If England, thanks to a long series of good luck, did not participate in the miseries entailed by the great international crisis of 1873 on other countries, the United Kingdom was not destined to escape unscathed for more than a few years from the inevitable consequences of a long course of prosperity. A shrinkage of prices even below the lowest point yet touched followed, and with this shrinkage a reduction of wages in every department of industry, which brought on strike after strike, and a discharge of labourers in every department of trade. There was a fearful stagnation and glut in commerce and industry, and so great was the fall in prices that even men who were in a position to know better attributed the change more to the scarcity of gold brought about by the demonetisation of silver and the adoption of a gold standard in Germany and other countries than to the glut occasioned by the use of improved machinery alike in agriculture and in manufacture. Others raised again the cry of “over-production.” As if food could have been over-produced either in America or in Europe when hundreds of thousands, not to say millions, of men and women were miserably underfed, but could not afford to buy wheat or even Indian corn in sufficient quantity; though the price of this necessary of life was lower both actually and relatively than it had ever been known to be in modern times. For America was developing her agricultural resources again upon a stupendous scale, and produced in the year 1878, which was a bad year for English trade, no fewer than 420,000,000 bushels of wheat, and the export of American wheat and other produce had now attained such proportions that English agriculture was crushed by its competition.

The marvellous improvement in transport and cost of freight, which rendered it cheaper to send grain from the far West to London than to send it from the Lothians, had its practical disadvantages for Great Britain in the effects which it produced upon that which is still the greatest industry in this as in other countries. Agriculture in the form of grain-growing became unprofitable in these islands except upon the better soils, and the system of landownership and land cultivation in England does not allow the greatest advantage to be taken even of favourable opportunities. Grain-growing fell off more and more, and the numbers of live stock were materially reduced. Hence, although the workers of the cities found that their wages went further when they were wholly or partially employed, and the well-to-do classes were able to purchase all the articles needed for the supply of their households from 25 to 40 or 50 per cent. cheaper than ever before, yet the working-classes as a whole had little to congratulate themselves upon. Their uncertainty of employment became worse and worse. The agricultural labourers who were unable to get employment on the land, partly owing to the increasing severity of American competition, and partly owing to the introduction of labour-saving machinery into agriculture in this country as elsewhere, crowded into the cities and still further intensified the competition for employment in periods of stagnation by swelling the numbers of those out of work. The same causes were at work at the same time among the small farmers and peasant proprietors of France, Germany, and Austria. There also the machine-sown and machine-reaped grain of America was bringing about the ruin of the agriculturists, and attempts were made to lessen by taxation the damage done to this class by the unprecedented invasion of the European markets by cheap food from America and later from India. The protective duties imposed with this object in view had, of course, the effect of raising the cost of subsistence to the urban population.

Though there was no actual crisis in England or in any other European country between 1873 and the fall of the Union Générale in 1882, the heavy losses on Turkish, Peruvian, American, Egyptian, Paraguayan, and other foreign loans, the fall of the Glasgow City Bank in 1878, and the consequent shock to business and credit, brought about a period of stagnation and shrinkage of prices which lasted with but little improvement for the mass of the people for several years. It will shortly appear, indeed, that we have entered upon an epoch when periods of a long, slow drag of liquidation below the surface, coming in quick succession, have replaced the panic and crash of the earlier crises. That the effect is precisely the same, and the injury to the mass of the people possibly even greater, cannot be doubted. But the crisis of 1873 is so far the last crisis which has taken the old form. Since then the capitalist class has learnt the art of combination and mutual support in times of danger without, however, taking any care to safeguard the interests of the people.

Last updated on 29.7.2007