H.M. Hyndman

Commercial Crises of the Nineteenth Century

Chapter VIII
The Crisis of 1882

THE crisis of 1882 in Paris, which was the crisis of the Union Générale and its tributaries, reads like a financial nightmare, and has formed the basis of Zola’s novel, L’Argent. It was a clever and a taking notion that the Catholics should establish a great banking and promoting enterprise of their own, supported by the wealth of the rich devotees of Holy Mother Church and the accumulations of the religious bodies, wherewith to meet the ungodly and the scoffer, the Jew, the worldling, the freethinker, and rout them even in the temple of Mammon their god. And the man who, if he did not conceive, at any rate executed this brilliant project with, for a time, amazing success, was, of course, as little troubled with religious prejudices as he was affected by moral scruples. If ever there was an astounding effort in the way of financial balloonery successfully made and its speedy collapse rendered certain from the commencement, this of the Union Générale was that one. It lasted four years, from 1878 to 1882. Had the head of the enterprise been honest, it is possible that the foundation might have been laid for a gigantic business. As it was, these four years witnessed the rise and fall of a gigantic fraud.

If, as some consider, the Union Générale was simply a stock jobbing experiment, it would certainly not be worthy of consideration in these pages. Mere panics in stocks, though interesting to some extent as showing the excitement and the gullibility of men in such matters, and how even sober investors may be drawn into foolish action at times of general elation or general depression, may and do occur from political or other causes without producing any serious effect on the general well-being. But the upset of the Union Générale had a direct influence upon industry and commerce, and, coming at the time it did, had its share in bringing about the long depression which prevailed in Great Britain and other European countries from 1883 to 1888. It may be doubted indeed whether France herself, with all her industry and natural advantages, has yet fully realised the mischief done by the Union Générale and the failure of the Panama Canal. The one beginning by operations in the region of banking and the Stock Exchange, ended by doing much mischief to industry; the other commencing as a legitimate enterprise for the improvement of communications is ending as a cause of serious financial disturbance.

M. Eugene Bontoux, the founder and organiser and destroyer of the Union Générale , was a man of no greater ability or foresight than dozens of others who may be met any day in the vicinity of the great Bourses of Europe. He had neither the powerful intelligence of a Vanderbilt nor the unscrupulous and crafty cunning of a Jay Gould; yet, in a few months, he obtained control of resources from the public which placed him on a level with the magnates of finance and earned for him the immortal honour of having forced a Rothschild to commit suicide.

The causes of his temporary success are not far to seek. First, he began his operations at an exceptionally favourable moment. France, in the amazingly short space of seven years, had, to all appearance, recovered almost wholly from the losses occasioned by her defeat in the great war. She had bought back the greater part of her loans from abroad; had carried out a series of important public works in the shape of railways, canals, docks, warehouses, etc.; was in process of reorganising her army and navy; had escaped the crisis of 1873, which had inflicted such serious damage on Austria, Germany, the United States, and other countries; and had at the same time accumulated savings on a large scale. All this had been done notwithstanding the political intrigues and changes of Government which harassed the Republic, and now France stood ready to take another move forward as an important financial influence in Europe. Secondly, the policy of the statesmen of the Republic had roused Catholic feeling and had encouraged Catholic unity to an extent which they had scarcely reckoned upon. Shut out from the political power to which they considered themselves entitled, Catholics welcomed the suggestion that they should make themselves felt in the sphere of finance, which was under the control of their enemies. Thirdly, the French market offered special opportunities for the successful inauguration of such a scheme as M. Bontoux’s, owing to its lack of any proper regulations in regard to company-mongering. A company could buy its own shares on the French Stock Exchange, either before or after they were fully paid-up, and thus create a false scarcity of stock and manipulate a fictitious premium with the shareholders’ own money. Then, on the strength of a high price thus artificially established and maintained, the company could make a further issue of shares before the first shares had been fully paid. It was upon this combination of favourable circumstances that the Union Générale was founded by M. Bontoux.

Recent experience in Austria and Germany was, to the misfortune of the public, completely disregarded, and M. Bontoux, though he came forward from his connection with an Austrian railway with none too clean hands, was received as a financial genius by Catholic society in France. The object of the Union Générale, as was boldly proclaimed on the face of the prospectus, was to bring together the capital of good Catholics, and to centralise the financial interest of bishops, religious missions, and private companies. The union started on its eventful career with the prayers and blessings, followed by the deposits, of the faithful. Those deposits rose from less than £1,000,000 at the end of 1878, to upwards of £5,000,000, in 1881. Branches were set on foot in many French cities, and in Austria. And then the gambling began in earnest. The money of the shareholders and depositors was used to buy the shares on the market, thus forcing them up to a preposterous price; and the shares having been divided, they were again run up in the same way.

This, however, was not the worst part of the matter by any means. Gambling on the Stock Exchange, like gambling at Monte Carlo, is a matter of small importance, except to those who waste their time and squander their money. What one loses another gains. But it is a very different thing when the money which people cannot afford to take from useful business is used to employ labour on enterprises which have no chance of succeeding eventually. And this the Union Générale was forced to do, in order to justify the tremendous premium at which its shares were quoted, and which pulled up the whole market with them. Then set in a regular tussle between the “bulls” and the “bears,” – the gamblers for the rise and the gamblers for the fall. Among the latter were the Jews, who knew right well that the whole thing was fraudulent; that the investments made and enterprises undertaken were rotten; and that sooner or later a crash was inevitable. Yet such was the infatuation of the Catholics, followed by the general public, that at first the Jews were beaten. In the long run they had their revenge, and in the spring of 1882 the Union Générale fell.

It is the fashion to say that this was simply an affair of the Bourse; but it is clear, from the course which events took afterwards, that though Paris was the chief seat of the inflation, other markets were very closely concerned, and other industrial centres were most seriously affected. From 1883 to 1888 was a time of low prices and general stagnation of trade. It was a long, slow, grinding crisis in Great Britain, which was felt in every trade, and was reflected in the depression of every industry. There seemed to be a permanent glut and over-production. Furnaces were blown out in every iron district; collieries were shut down, or were running at a loss; ships were laid up to such an extent, owing to the falling off of the freights, that shipowners began to fear that our carrying trade was departing from us. All this meant, of course, thousands and tens of thousands of men out of work, a heavy call upon the Trade Unions for the support even of skilled men who could get no employment, to such an extent that even the most powerful of them saw their solvency threatened. Then followed meetings of the unemployed in London and in all parts of Great Britain, applications for the State organisation of labour, the West End rioting, and the Mansion-House Fund, due wholly to the scare occasioned. It was, in fact, a crisis of the most serious kind, none the less dreadful because at the very same time there seemed to be no equivalent shrinkage in returns to income tax, and the ordinary trade of the country was proclaimed by experts to be “sound.” The workers suffered for the blunders made by the “captains of industry” and the “organisers of labour.”

A careful examination of the period through which we have but just passed exhibits precisely the same features on both sides of the Atlantic that have been manifested in former times of crisis. A great advance in the production of wealth and improvement in the cheapness and rapidity of transport in every department, accompanied by bad trade and stagnation. In the iron industry, the substitution of steel for iron, the extension of the Bessemer process, and the adoption of the Thomas-Gilchrist process, immensely reduced the cost of production. In shipbuilding, an increase in the size and speed of vessels without precedent since the introduction of steamers, and a corresponding reduction in the quantity of coal used to obtain a given rate of speed, materially affected the carrying trade: the length of voyage on all the great sea routes being reduced by from twelve to twenty per cent. in a few years. In textile industries, though no great leap forward could be recorded, the steady rate of progress maintained since the beginning of the. century was kept up, in spite of the fact that the competition in neutral markets, and in India itself, for our cotton goods, rendered the rate of profit on the turnover small in comparison with the huge gains made in the early days when our Lancashire manufacturers had virtually a monopoly of the trade. At the same time the coal mining industry was proceeding along the same path of an ever-increasing output per man employed. In ten years in the iron industry there was an increase of 1,750,000 tons of pig produced and used by the same number of hands. The introduction and improvement of machinery in carpentery, and joinery, and cabinet-making, in stone-cutting, in brick-making – all had the same effect on production, in the way of making commodities cheaper, and the number of hands employed in each department to produce a given amount of useful articles less and less. Now also electricity was beginning to show, especially in the United States, how ingenious and surprising experiments, made a few years before in the laboratory by the unselfish enthusiasm of a Faraday, could be turned to the practical use of mankind. Electric lighting, electric propulsion, electric telegraphs, electric telephones, electric power in chemistry, all became part of the ordinary life of mankind. The older societies could scarcely keep pace with this new development. “Vested interests,” and cheap labour combined, have headed back progress even in Great Britain, and many a petty township of the Far West of America is consequently much better furnished with all the new appliances which science had placed at the disposal of the community than the metropolis of the British Empire. Once more, however, it was clearly proved that all the changes, which should have proved so beneficial, in nowise stayed, but on the contrary rather prolonged, the stagnation on both sides of the Atlantic.

It was in the midst of this depression, occasioned again by superfluity of wealth and the excessive power of man, as it would seem, over the forces of Nature, that all sorts of proposals were made to deal with the sad state of things which prevailed for the working-classes of the United Kingdom. The fearful famine in Ireland, largely arising from the drain of wealth to Great Britain to pay absentee rents, naturally produced political and social disturbance of a serious character. In England, where working-people take starvation as a mere detail in their dreary career of pleasureless toil, there was, it is true, a little dissatisfaction expressed; but as nothing seriously disagreeable occurred, the governing classes contented themselves with setting forth the usual series of absurd remedies for evils which can only be met by dealing with their causes at the root. Thus it was but a few years ago – but the fact is already forgotten – that well-meaning people stumped the country in favour of thrift for labourers who were earning not more than twelve shillings a-week all the year round, including their extra pay during harvest. Some, too, held forth on the advantages of temperance as a cure for bad trade. A third party earnestly advocated State-aided emigration. A single tax upon land values, as preached by Mr. Henry George, was the nostrum of a fourth. Others, again, pointed to peasant proprietary as a necessity if a national catastrophe were to be escaped. It was at this time also that the “Bitter Cry of Outcast London” was published, and created a considerable stir. The public was beginning very slowly to recognise the fact that all this stagnation might be owing, not to outside influences, but to arrangements which might be satisfactorily controlled if only they were studied. >From this to action is, however, a very long way.

The main facts of the situation were put on record by me at the time in the Nineteenth Century in reply to those who contended that the glut and depression were due to the inability of this country to supply itself with food, and to over-population which could only be met by emigration. “We are now (1884) dependent on foreign sources for half our food supply, which we obtain partly in return for goods exported, and partly in payment of interest on capital lent. To devote more labour to raising food than we could get it for by devoting less labour to producing other commodities is clearly bad policy so long as we command the sea and can carry on such exchange. It is not the amount of food which can be grown in these islands that limits population, or what has been called the supply and demand of labour in Great Britain. That depends upon the state of the world-market for goods and the profit which has been made by the capitalist class under the present conditions of production. Thus there is over-population, and thousands of men are out of work all along the Clyde to-day; but about two years ago there were not hands enough to do the business which flowed into the shipyards, and mere boys not out of their apprenticeship were coming from other centres to earn 32s. a week as rivetters. Is this sort of ‘boom’ and depression, with its accompanying periods of over-work, followed by slack time and over-population, due merely to the natural increase of our people? Assuredly not. There is some other cause at work to make useful labourers useless within a period of a few months.”

”But I deny the actual over-population, so far as the labourers are concerned, altogether. Never, assuredly, was the power of man over nature so great as it is today. Never in the history of the human race was so much wealth raised with so little labour. Relatively, fewer hands are employed in the iron, coal, cotton, wool, and other industries than was the case a few years ago, yet a much greater quantity of wealth is produced. A few figures will make this quite clear. Thus, in the coal industry, 538,829 persons employed in mining and handling coal above and below ground, in the year 1874, extracted 140,713,182 tons of coal. In the year 1883, 514,933 persons produced 163,737,327 tons, an increase of over 23,000,000 tons, though 24,000 fewer persons were employed. In 1874 the miners won 261 tons of coal per head; in 1883, 334 tons a head; yet in the latter year 53,896 of them were out of work – became over-population that is. In the working of iron and steel 360,356 persons were employed in 1872 and produced and used 6,741,929 tons of pig-iron; in 1883, 361,343 persons were so employed, and they produced 8,490,224 tons, or an increase of 1,750,000 tons for virtually the same number employed! In the cotton and flax industry 570,000 persons used 1,266,100,000 pounds of cotton in 1874; while in 1883 but 586,470 persons used 1,510,600,900 pounds. In every case a trifling increase or actual decrease of persons employed, contemporaneously with a great increase in production. All this while population has been increasing at the rate of 10 per cent. in every ten years; so that the numbers of actual workers remain stationary, or decrease, while the whole population increases. The overpopulation then arises not from a decrease in the powers of production but from their increase. Improved machinery gives greater wealth to the employing class, but renders employment for the workers more uncertain, substituting in many departments women’s and children’s low-priced labour for that of men, and brings about the periods of universal crisis, such as that we are now suffering from – over-production, over-population and the rest of it – more often and renders them more severe. …. Mr. Mundella assures us triumphantly that the returns to income-tax have increased from £578,000,000 to £601,000,000 during even these years of depression.”

I have made these extracts even at. the risk of repetition, because the figures were brought together in the midst of the stagnation, and it is worth while to recall them now. Out of the population of 26,000,000 in England and Wales at that date, 16,500,000 belonged to the non-producing sections.

In the admirable analysis of the statistics of the United States between the years 1870 and 1880, made by my able correspondent, Dr. H. Stiebeling of New York, in his pamphlet, Das Werth-Gesetz and die Profit-Rate, the truth appears far more clearly than we in England, with our very imperfect statistical department, can as yet exhibit it. Thus, in 1870, the total capital embarked in the factory industry and in production by hand in the United States amounted to 2,780,665,969 dollars, or, putting roughly 5 dollars (instead of 4.85 dollars) to the pound, £556,000,000. The amount paid in wages in the same year was 620,467,474 dollars or, say, £125,000,000; and the total product amounted to 3,385,860,383 dollars or £677,170,000. The number of the workers employed was 2,052,996; the horse-power represented 2,346,142 horses; and the number of factories and workshops amounted to 252,148, representing 11,027 dollars or £2,205 as the capital of each establishment.

Thus, in 1870, 2,053,996 labourers produced a total value of £677,170,000 or £300 a head, receiving in wages 620,467,474 dollars or £125,000,000, representing £60 a head, the profit being 529,045,688 dollars or £106,000,000.

In 1880, however, the total capital in these same industries had increased to £925,000,000 and the total paid in wages to £190,000,000. The entire product had increased to a value of £1,074,000,000, the number of the workers employed to 2,732,595, and the horse-power to 3,410,837. There were in 1880, however, no more than 253,852 establishments with a capital of £3,600 each, and every worker produced 1798 dollars or £360 in the year, of which he obtained nearly £70 in wages.

Thus, in this decade, the productive power of these American industries had increased 58 per cent., while the number of the workers had increased only 33 per cent., and the number of establishments had increased inappreciably in proportion to the capital employed. Therefore it is manifest that in America, as in Great Britain, as the official statistics prove, the power of production is increasing in a far higher degree than the increase in the number of the workers employed. Consequently, what is defective in the existing system of manufacturing commodities is the co-ordination of the two parts, the living and the dead productive forces. In this very period, 1870 to 1880, the United States passed through a serious crisis with its following years of stagnation and depression, proving once more that the wealth of the country for the well-to-do may be growing, even while the workers are in many branches of trade out of work and starving.

How soon the exhibition of the truth may induce all classes to endeavour to comprehend the facts and to solve the problem either in co-operation or in conflict depends upon the occurrence of economical developments, of which none can foresee exactly the times and seasons.

Last updated on 29.7.2007