H.M. Hyndman

Commercial Crises of the Nineteenth Century


The causes and effects of industrial crises must be reckoned among the most important subjects for consideration in the concluding years of the nineteenth century. From time to time all civilised countries are now exposed to a complete upset of their industrial, commercial, and financial machinery, at the very moment when the great majority even of those who are directly engaged in business imagine that trade is at its best and that no danger threatens them. Suddenly, in the midst of the greatest apparent prosperity, when the promoters and contractors have their hands full of work; when merchants and traders are congratulating themselves on the extent of their turnover; when manufacturers, mine-owners and shipping companies are dividing most satisfactory profits; and when the workers are being paid a somewhat better rate of wages – at that juncture a change for the worse begins. Prices, which have risen all along the line of commodities that enter into our social life, fall with great rapidity, uneasiness and distrust spread throughout the business community, there is a rush to obtain money either by sales of securities and goods, or by obtaining advances from the banks; and a nation, or as is now commonly the case, a whole group of nations, finds itself in the midst of a dangerous crisis, without knowing the why or the wherefore of the crash.

Now if this recurrence of financial and industrial disasters could be traced to well-defined natural causes, mankind would, in this as in other cases, be compelled to accept the inevitable, and make preparations to lessen the mischief which may be done. Earthquakes, droughts, tidal waves, hurricanes, swarms of locusts, epidemics, have all brought about serious disturbances in trade at different times; and some of the disturbances thus occasioned have had more than local or temporary effects. As science advances and knowledge spreads, we may succeed in counteracting some of the injury done to society by these convulsions of nature, and in limiting the ravages due to others which are in a certain degree open to human control. But nobody imagines that they will ever be finally stopped, or that within a conceivable period our descendants will have the power to order the winds and waves to be still, even if drought proves to be, like monarchs, amenable to skilfully-used explosives in the higher air.

Many of the trade difficulties of ancient times and of the middle ages can be directly traced to drought, or to flood, in the same way that famine due to similar causes has a prejudicial effect upon commerce in China, in India, in Russia, and even to a certain extent in Europe and America to-day. Such troubles, it is universally recognised now-a-days, should be met by freely using the surplus of one country, or one district, to make up the deficiency in another. Formerly, periods of scarcity were prepared for by the establishment of granaries and grain pits, which were not opened until such time as the failure of the crops in the particular region affected had deprived the people of their annual food supply; and it is more than probable that, our modern zeal for applying the latest methods of western civilisation to communities quite a different stage of social and economical development, this method for providing against a rainless day has been foolishly abandoned.

It is certain, at any rate, that at no period prior to the growth of what is now known as the capitalist system of production – the system of production, that is to say, of articles of social for profit, by free labourers who are paid wages – did difficulties arise in the trade or finance of any community from an actual superfluity of the wealth which the members of that community needed in their daily life. Famine, in former generations, of course attacked the poorer members of society first, and in the ancient slave-supported civilisations, as well as under the feudal regime, the contrast between the well-being of the few in “hard times,” as compared with the want and misery of the many, was in some respects as striking as it is today. But still the crucial distinction between our own and any former period in the world’s history remains – that the times of greatest distress for the mass of the people now are the times when there is a complete glut of the commodities which they need and which they make.

Local gluts and national crises due to the same cause, which now take so wide a range, have been recorded before the present century. Economists were anxious to account for them, and philanthropists were eager to remedy them, in the seventeenth and eighteenth centuries. As the growing influence of the middle-classes due to the extension of their political power was felt, and as the restrictions imposed by the elaborate balancing of interests in the feudal system slowly gave way before the spread of commerce and the widening of the local into a national market, the tendency to inflation followed by corresponding depression made itself manifest more clearly.

The local difficulty of transmitting goods produced for profit into money appeared then as a national difficulty. At the end of the seventeenth century such crises were recognised and partially analysed by John Bellers, who, in a passage quoted by me some years ago from his College of Industry, puts the matter thus: “In the common way of living on trade, men, their wives or children, often lose half what they get either by dear bargains, bad debts or law suits of which there will be neither in the college; and if the earth gives but forth its fruit, and workmen do but their parts, they will have plenty; whereas now, the husbandmen and mechanics both are ruined, though the first have a great crop and the second industriously maketh much manufacture. Money and not labour being made the standard, the husbandman paying the same rent and wages as when the crop yielded double the price; it being no better with the mechanics, where it’s not who wants his commodity, but who can give him money for it (will keep him), and so often he must take half the value in money another would give him in labour that hath no money.”

Here the difficulty is to bring the two producers of wealth together by reason of the necessity for converting commodities into money. Though also in this case a particular set of workers are spoken of as if they were producing for their own profit, the fact, of course, is that, under the system of production in which the capitalist class employs the wage-earners to reduce, the profit is realised by the employers and not by the actual producers.

Now, so long as the labourer, be he husband-man or mechanic, makes goods for his own use, or to the direct order of his customers, or for the supply of a local and limited market, he is in control of his tools, of his farm or workshop, of his raw material, and owns his product. Thus, though he does produce primarily for his own individual advantage, and not, as was the case under the old communal and gentile arrangements, for the advantage of the whole society in which he himself was included as a unit, yet he is not producing wholly and solely with a view to exchange on a great general market; and, above all, his products are owned by him, and are dealt with under his own control. So soon, however, as in the course of economical development, the workers began to produce no longer as individuals for their own use, or for the direct use of others in their locality, but as wage-earners, bound together by no tie other than that of turning out commodities or articles of use in the social conditions of the time to the order of an employer who threw the goods on the market; so soon as they did this a direct antagonism was established between the two parts of the wealth-creating machine.

The workers were then working no longer as individuals; they were working together in social union, and, as division of labour came in, were working together in co-operative union for a social purpose – namely, to produce goods which were articles of no use to them for the use of others at a distance, the limits of whose wants they could not gauge, although these were supplied by the exercise of a social function, to wit, exchange. In these circumstances the actual producers of the goods have no control over the raw material, no ownership of the finished article, no say in the matter of exchange, and, in the complete form of the process as we see it to-day, no proprietorship in the tools or machinery. They are simply wage-earners, working at wages regulated by the average standard of life or subsistence in their trade; which wages represent only a fraction of the value of the commodities produced by their labour. But the capitalist or employer, he has still retained the right of individual appropriation or ownership, and with it the power to exchange, which formerly belonged to the individual workers. The workers are working socially for social objects: the employer appropriates individually, and exchanges for individual objects – the realisation of his profits namely. Thus we have here a distinct and definite antagonism lying at the very basis of our modern system of wealth-creation, an antagonism between the social form of the actual production and the individual form of the appropriation and exchange.

Now, the remarkable point about the position of thought in regard to political economy to-day is that the orthodox political economists, and even some who call themselves socialists, fail to discern this antagonism even when it is pointed out to them. Not a few still maintain, also, that there is no antagonism between the labourers and the capitalists; in this respect proving themselves less clear-sighted than their master, Adam Smith, who, at least, detected that employers were in a permanent conspiracy to keep down the rate of wages.

But it is precisely this original antagonism between social production for social purposes and individual appropriation and exchange for individual profit that gives the key to all the industrial, commercial, and financial difficulties which arise in our society at the present time.

Failing this key, the most absurd explanations are given of those modern crises arising from superfluity and glut, followed by the discharge of work-people and the general distress, which occasion such grave anxiety to every thinking man.

Thus the problem of crises has been confidently solved by a reference to over-population, and there are still not a few wiseacres left who persist in this explanation; though it has been conclusively proved time after time that the power of man to produce wealth is increasing in every civilised country in a far more rapid ratio than any increase of population ever recorded among the poorest nations in the world. Though, moreover, it is seen at each successive crisis that a country which, like the United States in 1856 and 1872, had no over-population, and could have no over-population, before the crisis, had hundreds of thousands, not to say millions of people, out of work or employed at half-time when the crisis came. Manifestly, therefore, the over-population theory in nowise touches even the fringe of the problem.

Then there are those who enlarge upon the dangers of over-production, and consider that here we have the undoubted cause of crises. But this is to restate the problem, not to solve it, seeing that at the time when this “overproduction,” thanks to the enormous power of modern machinery, has been pushed to its last point, there are thousands of people who stand in need of the results of the over-production, and would gladly give their labour and its product in return for some of these very articles, including not unfrequently food itself, which have been so overproduced.

There are, again, the currency quacks who attribute everything to the lack of sufficient means of circulating commodities; though the same phenomena precisely have been recorded when currency was somewhat restricted, as, prior to the gold-discoveries in America and Australia, gold coin certainly was; and when it is if anything too plentiful, as during the crisis of 1857 it may be taken to have been. Similarly, it has been suggested that the system of banking is to blame, though here again it is impossible to show how tinkering with credit based upon production can remedy the defects of the faulty system of production itself.

To such a pitch of despair have economists been driven in their anxiety to avoid the true solution propounded for them already by a greater thinker than themselves, that Mr. Stanley Jevons traced crises to periods of bad harvests, and then, triumphantly connecting bad harvests with spots on the sun, referred the whole of our social troubles in this particular to these strange changes in that great body. This theory was actually accepted for a time, until what was perhaps the worst crisis of the century came in the same year with one of the finest harvests ever known on the planet, and when also the sun’s disc was exceptionally afflicted with spots. Then it became apparent to the most credulous that the spots on the sun had as much influence on industrial crises as the spots on the leopard in the Zoological Gardens; and that the genius before whose shrine our Professors of Political Economy at Oxford and Cambridge still prostrate themselves had only added another to his long list of blunders.

The ablest summary of the causes of crises yet formulated outside of the school of Marx is really but a recapitulation of the symptoms which precede a crisis, not in any sense an analysis of the causes which bring it about. A rush into new enterprises and a mania for speculation; an eager anxiety to get rich without toil; the credulity of the public in accepting unsound enterprises; the increase of luxury; the rise of prices; the exceptional demand for labour and increase of wages, etc., etc. – all these are precursors of an industrial crisis, but they cannot be considered as more than effects of what is going on below all the time.

To return, therefore, to the view already set forth. We have historically on record the origin of the antagonism between that social form of production and individual form of appropriation of commodities which replaced the limited individual production of the middle ages. Thus, the workers, though nominally free, lost all control over the products of their labour, and could in no wise direct or influence either the nature or the disposal of the commodities. From this time forward all improvements in machinery, and all the conquests of science as applied to the increase of wealth, have come into the hands of the employing class, who, by degrees, relieved themselves of all trade regulations and State or municipal restrictions, and went forward to capture and control new markets for their goods. With the industrial revolution at the end of the eighteenth century and the establishment of the factory system, this monopoly of improvements in the hands of the employing class became more and more dangerous to the welfare of the community.

For now the antagonism to which reference has been made began to show itself on a wider scale than was possible before. Each manufacturer is, of course, solely anxious to make hay while the sun shines. When, therefore, markets are good, he produces as much of the special commodities he manufactures as he possibly can, he employs more “hands,” or works those he has overtime in order to gain greater and greater profits while prices are high. All do the same thing at the same time, no one having the slightest regard in the heat of competition for the interests of his neighbour manufacturer or for the glut of the market which may ensue. This arises from the inherent nature of the competitive system in its first hey-day of youth and prosperity. Every employer and capitalist, in order to live himself, must try his hardest to extend and not merely to maintain his trade. Good employers and bad employers there may be, but no capitalist, so long as competition is the rule in his trade, can help proceeding in this way. The moment he relaxes his efforts, down he goes in the struggle, his firm appears in the bankruptcy court, and the fury of competition rages on as before over his business remains.

But this cannot go on permanently. Though the markets are larger than ever they were, and the cheapening of goods perpetually going on enables the machine industry to conquer the old forms of production in other countries, nevertheless, the crisis is approaching. There is no social control whatever exercised over the individual rush for profit. As the labour in the factory, in the works, in the mine, on the farm is more and more completely organised and ordered, so do the anarchy and disorder more and more completely dominate in the exchange. While inside all is conducted with the most careful regard to the profit-making efficiency of all the parts, outside each contends against his fellow to sell his goods most rapidly and in the greatest quantity.

Moreover, the necessities of the capitalist system force the manufacturer, or contractor, or mine-owner, or shipbuilder, continuously to realise his value embodied in goods, or railways, or coal, or iron, or vessels, in the shape of cash. Without doing this he cannot recommence his operations by buying raw material, fuel, oil, labour-force and the like. The commodities produced by other manufactures are of no use to him, any more than his commodities are of use to them. Each and all must realise their products in coin or its equivalent. However good a firm’s credit may be, to this complexion must they all come at last. Consequently, the capitalist system of production involves an antagonism between money and commodities.

If the circulation of the capitalist’s commodities is checked, or the realisation of his paper representing work done is impeded, then the work cannot be carried on at all, but must be stopped altogether. But before this point is reached, doubts arise as to whether matters have not been pushed too far. There is a rush to discount bills and to obtain advances on securities, or to sell out and out for cash at reduced prices. But just as everybody before was anxious to produce more on the rising prices, and buyers were eager to buy – not for use but for profit – so all now are looking about to see how they can contrive to produce less, and those who were buyers are eager to sell, no longer to obtain enhanced profits, but to avoid actual loss. A crisis has, in fact, set in, and what should be the gain of society becomes its direct injury. That increased power to create wealth on which men are in the habit of congratulating themselves, becomes an actual hindrance to the creation of more wealth. That is to say, the sole object of capitalists in producing commodities is to obtain profits for themselves. Their individual control and anarchical method has resulted in a glut. That glut renders it impossible for them to continue to produce on the same scale. Therefore, many of them go into bankruptcy, and many more close their factories and works, or run them on short time. Hence labourers thrown out of work, goods unsaleable, and at intervals a commercial and financial crash.

What has happened? The capitalist class has virtually declared its own inability to conduct the business of the community. The form of the production has revolted against the form of the exchange.

As a result, prices fall all along the line, economies are resorted to, mostly at the expense of the workers: and in due course, after a period more or less prolonged of stagnation and depression, the heavy accumulations of stocks are disposed of, confidence is gradually restored, orders begin to come in afresh, and the whole cycle is repeated, ending in a similar crisis on probably a larger scale than before. Such crises with the liquidations that follow upon them now frequently extend over many years. The power of production hampers its continuous employment. So far as the actual producers are concerned, the destruction of the goods manufactured would be a direct benefit. They have been employed in producing their worst enemy and bringing about their own discharge. Men, that is, in civilised communities, are now controlled and overmastered by their own machinery of production, instead of controlling and mastering it themselves for the general advantage.

To formulate the diagnosis of the evil is, in fact, to point out the only possible remedy. This remedy society itself is unconsciously beginning to supply. In every direction the unregulated capitalist competitive system is being modified and partially transformed. How the changes which are now being brought about, unconsciously and anarchically, may in the near turn be carried on consciously and in an orderly fashion by an educated and organised democracy, will be partially suggested in the concluding chapter of this work. Meanwhile recognition of the economic and class antagonisms in which our civilised society moves and has its being is slowly making way even among so whose position is threatened by the coming change.

Last updated on 29.7.2007