XLIII. 1848. 145. Which keeps the nation con stantly on the verge of a mone tary crisis CHAP. sible amount of disposable capital cannot otherwise maintain it, a course of trade which causes thirty or forty millions of specie, or bills payable in specie, annually to leave the country to make up the balance of trade with foreign States, must keep it constantly on the verge of disaster. No amount of prudence or foresight, on the part of those engaged in commerce, can prevent the recurrence of the most serious calamities, because they may any moment be induced by causes which they can neither foresee nor prevent. Three weeks' rain in Great Britain in August, a cry for gold to ruin the banks in the United States, great railway undertakings abroad, a revolution. in France, a war on the Continent, any considerable increase in the export of metallic treasures to the Eastanything, in short, which causes an unusual drain of the precious metals in London, must at once induce a monetary crisis in the British Islands, suspend advances, and ruin all traders and persons engaged in business, who do not enjoy the highest credit, or possess the advantage of large realised capital. The nation, under such a system, is like a person walking in the dark on the edge of a precipice; any false step or external blast may at once precipitate him into the abyss. A great increase in the supply of the precious metals for the use of the globe, such as has occurred since 1852, from the discovery of the rich gold-fields of California. and Australia, which raised the annual produce of the mines from eight or ten to thirty-six millions a-year, may for a time avert, but it cannot permanently remove, this danger. When gold is every week pouring in immense quantities into the vaults of the Bank of England, and the drain arising from the balance of trade is met by a never-ceasing influx from the gold regions, credit may for a considerable period be maintained, and commerce be prosperous, because a sufficient stock of gold may be retained notwithstanding that drain. But it is obvious that this auspicious state of things cannot be of long XLIII. 1848. endurance, and that ere long the old risk must reappear, CHAP. possibly under still more threatening circumstances. The reason is obvious. The rise of prices consequent on such an increased influx of the precious metals is, or must soon become, universal over the world; consequently the issue of the precious metals to pay the balance of trade must be augmented in as great a proportion as the influx is increased. What will it avail the nation that the supply of gold and silver to the Bank of England is increased in a year from ten to thirty millions, if as fast as it flows. in it is drawn out to meet the increased balance of trade arising from the enhanced price of every species of imported commodity? Accordingly, at the moment when these lines are written (Nov. 17, 1856), the stock of gold in both departments of the Bank of England is reduced to £9,540,000, interest is 7 per cent, credit is almost suspended, and two more adverse weeks, such as the two last, would render a supension of the Bank Charter Act indispensable. And all that in the face of an annual influx of the precious metals to the extent of between thirty to forty millions a-year; and an affluence of capital in the British Islands unequalled in the history of the world.* * This state of things has extorted the following just observations from the ablest organ of the united bullion and Free-trade systems: " A uniform price of 7 per cent for the use of money is a state of things which, though happily unintelligible to many of our readers, is equivalent in its effects to a great national disaster. Famine, pest, earthquake, floods, conflagrations, and shipwreck, inflict local or personal injury. A very high rate of interest in a country where it is unusual, will produce a greater amount of inconvenience than any one of them. It affects the whole atmosphere of trade, and particularly of that which is not strictly trade, but of a more speculative character, such as transactions in funds and shares. "The particular hardship just now--not, however, for the first time alleged -is, that there is no speculation of an unusual character; scarcely a railway, or a loan, or any enterprise, except now and then the proposition of a branch railway, very reasonable in its object and modest in its demands. There are very few failures, and these are such as either do not much affect the mercantile world, or are only attended with temporary inconvenience. Nevertheless, good mercantile houses find they have to pay for usual accommodation such rates as devour all their profits. It used to be thought a divine retribution that in one way or another the gold of America passed through Spain with marvellous rapidity, in spite of the laws to arrest its progress. We find the CHAP. 1848. 147. on the other side as to It is often said that this great export of the precious metals, which is the invariable result of Free Trade, is of no consequence, because the gold or silver, being valuable Argument commodities, could not have come to this country but in exchange for something of equal value; and therefore a great import of gold implies a proportionally great export of manufactures to purchase it. But the answer to this is threefold and decisive. First, it is by its derangement of a currency, resting on the retention of the precious metals, that this exportation to any great extent becomes so the export of gold. same in our case. Ecce signum. It is assumed as a matter of course that the XLIII. 1848. serious a matter. If the nation possessed a currency ade- CHAP. quate to its necessities, and yet duly limited, independent of gold, that metal might all go away without inducing a greater evil than the efflux of lead or iron. The peril of a great export of gold to pay an adverse balance of trade, therefore, is noways lessened, even though the whole of it had come in to pay the price of manufactures exported. In the next place, great part of the gold which finds its way to the Bank of England is not brought to the British shores in payment of any manufactures or British pro respects could lead only to a rapid improvement in our money-market, was so strong, that the most persevering warnings were necessary to prevent the public from at once running wildly into every description of foreign adventure; and their surprise, therefore, may well be great, when after twelve months' continuance of such prosperity, they find themselves increasingly in debt to other nations. The chief explanation offered is, that the great commercial development consequent upon the gold discoveries and other causes has created a demand for capital beyond all former experience. This however, is little better than a superficial assumption. There has been no unexpected addition to the population of the world, nor any conversion of nations from barbarism to civilisation, to warrant the belief that our mercantile transactions have been suddenly forced to such magnitude that our entire yearly gains are insufficient to supply the extra capital requisite for carrying them on. The Australian discoveries are now six years old; the population of those colonies is still insignificant; a large portion of them continue their old avocations of producing wool and tallow, and the occupation of the remainder, who are engaged in goldfinding, can have no material effect either in increasing or diminishing the wealth of the world, or in leading to an alteration of the rate of interest, however extraordinary may be its influence on the other relations of property. It is true that our exports last year were £20,000,000 above any recent average, and that an augmentation is still taking place; but commercial men know with what a slight increase of actual money an improved trade to this extent may, in times when credit is perfectly sound, be carried on. A large part of the addition, moreover, is merely consequent upon higher prices, and, although these involve a proportionate increase in the movements of capital, their effects are in most cases balanced in the course of a few months; since if we have to pay more for our raw material, we have also more to receive for our manufactured goods, and the ultimate bullion balances in settlement can therefore in no way be affected. Hence the doctrine that the spread of commerce will account for the phenomena now in progress must be discarded as unsatisfactory, or, at all events, insufficient." It is not surprising that the able writers in the Times find a difficulty in explaining the phenomenon, which, on their principles, is perfectly unaccountable. But the simple explanation of it is, that in the year 1856 the imports were, as already shown, £33,238,000 over the exports, and of the former above 10,000,000 quarters, costing about £25,000,000, was for grain imported into the United Kingdom. There had been no such importation since 1847; and thence the recurrence of a similar monetary crisis, which all the intermediate supplies of gold, great as they were, had proved insufficient to prevent. 1848. CHAP. duce whatever, but is simply a remittance of wealth made XLIII. in the gold regions, or of commercial fortunes realised there, from the impulse given to every species of industry by the gold discoveries. These are remitted home or brought by the fortunate holders without any corresponding export of British manufactures paid, as money forming part of rents or surplus wealth is remitted from Scotland or Ireland to London to be spent. In the third place, what is most material of all, the import and export of gold, or any other article of import, differs in this vital respect from the export of native produce or manufactures, that a double import takes place, but only a single export of the produce of British industry. If £5,000,000 worth of English manufactures are sent to America or Australia, to buy an equal amount of gold, there is an equal balance of imports and exports. But if the £5,000,000 worth of gold is immediately exported to buy foreign grain, the imports are £10,000,000, while the exports of British produce are only £5,000,000. This would be immaterial if the gold was a mere article of commerce, like sugar or molasses; but it becomes very different when, in addition to that, it is the sole foundation of currency and credit, on the abstraction of which both fall to the ground. 148. through the richer states. There is another consideration of the very highest imDanger of portance connected with this matter of a great influx of gold passing merely gold from the gold regions into the British Islands, especially when a great import of foreign goods is at the same time going on. It is this when gold in great quantities flows into the rich State, either from its own colonies or foreign countries, it necessarily becomes cheap, because it is plentiful, and of course all other commodities become comparatively dear. But this state of things cannot long continue; it is speedily corrected by the efflux of gold to, and imports of commodities from, poorer States, in which the former is more valuable, because it is more scarce-the latter cheaper, |