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ECONOMIC INQUIRIES AND
STUDIES

ECONOMIC INQUIRIES

AND

STUDIES

SIR ROBERT GIFFEN, K.C.B.

VOL. I

LONDON
GEORGE BELL AND SONS

1904

CHISWICK PRESS : CHARLES WHITTINGHAM AND CO.
TOOKS COURT, CHANCERY LANE, LONDON.

\n\

V.I

PREFACE

THE essays here selected for re-publication were
written at intervals during a period of more than
thirty years. Accordingly they do not all speak from
the same time, and that time the present. It is con-
sidered best, however, to print them substantially as
they were written in the first instance, with the indica-
tions they contain of different circumstances, and a
different atmosphere, from those now existing. They
do not suffer, I trust, from a comparison between the
ideas and anticipations they contain, and those which
would now be expressed when new developments have
taken place, and fuller information on some points is
obtainable. Apart from other reasons for this course,
it so happens that one or two of the essays belong to
the history of the discussion of the subjects of which
they treat. I would refer especially among such essays
to those on the fall of prices in the first volume (Nos.
II., IV. and v.); to the essay in the same volume on
" The Use of Import and Export Statistics" (No. IX.),
in which the subject of "invisible exports" was first
discussed; and to the essay, also in the first volume,
on " The Economic Value of Ireland to Great Britain "
(No. XII.), which occasioned a considerable amount
of controversy and contributed eventually to the ap-
pointment of Mr. Childers's Commission on Financial

VI PREFACE

Relations. If such essays are to be reprinted at all,
therefore, it will be convenient to the reader that he
should have the original text before him. This may be
the place to state that I have been frequently asked to
reprint several of the essays, particularly the last of
the series on the fall of prices (No. V. of the first
volume — "Recent Changes in Prices and Incomes
Compared "), and the above essay on " The Economic
Value of Ireland to Great Britain."

Several of the essays, it will be observed, have
already formed part of the two volumes of " Essays in
Finance," which have been out of print for a good
many years. The present issue, indeed, is in part owing
to suggestions made to me that a new edition of these
"Essays in Finance" is called for. The occasion of
some of these older essays is, however, so long past
that I hesitate to put them before a new generation,
especially as they can be referred to by students,
although out of print; while some of them are also
superseded by later essays, where the argument is en-
larged and completed. The bulk of the essays have
not, however, been published before in a collected
form. The concluding essay in Volume II., on " The
Present Economic Conditions and Outlook for the
United Kingdom," has not before been published.

In arranging the order of the essays I have been
guided mainly, but not exclusively, by the chronology.
In all cases care has been taken to indicate the year of
publication or of writing at the beginning of the essay,
and sometimes at the end as well. A conspicuous de-
viation from the chronological order is in the case of

PREFACE VU

the essay on " Recent Changes of Prices and Incomes
Compared," which was not written till 1888, but is now
reprinted in immediate succession to the essay on " The
Fall of Prices" in 1873-79. This juxtaposition ap-
peared obviously expedient to complete the series, and
especially to bring together the anticipations of the
earlier essays, the first of them, " The Depreciation of
Gold since 1848," written in 1872, before the fall of
prices began, for comparison with the results ascer-
tained by 1888.

It would be out of place to go over in a preface
the discussions contained in the essays themselves,
however tempting it may be to do so in view of the
fiscal controversy which has been so incessant during
the last few months. It may be permissible, however,
to notice that several of the essays have a bearing on
this discussion, though it has always been my object to
avoid controversy. The essays in particular on " Foreign
Competition " (No. XL, Vol. I.); on " The Recent Rate
of Material Progress in England" (No. XVI., Vol. II.);
and the last essay of all, touch upon points that have
been raised in recent controversies, though the subjects
are treated non-controversially ; while the essay on
" The Use of Import and Export Statistics," though
that was not its purpose, clearly touches on many
points which our protectionist or fair-trade friends have
put in issue. It is the same with the essay on " Pro-
tectionist Victories and Free Trade Successes" (No.
XX. in Vol. II.), and the essay "Are we living on
Capital?" (No. XXVI. in Vol. II.). I have always
avoided discussinsf the direct issue between free trade

VllI PREFACE

and protection, but not from any doubts on the subject.
The argument for free trade generally, as expounded
by the great authorities from Adam Smith downwards,
appears to me complete both theoretically and experi-
mentally, while our own experience under free trade is
surely a demonstration that a state which says " Hands
off" to its government in matters of business does
better for itself than by letting government intermeddle.
But every man to his own task, and in this matter
the proper role for myself has hitherto been, I con-
ceive, to explain the character of the statistical argu-
ments which our fair-trade friends have adduced.
Looking over the accompanying pages, as they go to
press, I am interested to find how old are the complaints
of foreign competition, dumping, excess of imports, and
all the rest of the fair-trade stock of complaints. The
essay on " Foreign Competition" was written in 1877,
and that on " The Use of Import and Export Statistics,"
dealing with excess of imports, in 1882. So old are fair-
trade heresies; and they are older still, I believe, for I
find that I was writing anonymously as long ago as
1 869 about " Revivers of British I ndustry ." There were
heretics of an older date still. The well-known author of
"The Progress of the Nation," Mr. Porter, was afflicted
by them long before, and when he was pressed by them
about the ruination of the excess of imports, was wont
to remark, I am told, that it was a very pleasant way
of being ruined. The same may be said now. If we
had believed the fair- traders, we should have gone
back to protection thirty years ago and more. If we
have been ruined through not following their advice,

PREFACE IX

everybody must admit that so far the way of ruin has
been a pleasant one indeed.

My thanks are due to the Editors of the " Economic
Journal," the " Contemporary Review," and other
editors, for permission to reprint essays which have
appeared in their pages. My acknowledgements are
specially due to Sir James Knowles for his permission
to reprint from the "Nineteenth Century" the essays
on " The Economic V^alue of Ireland to Great Britain,"
" The Standard of Strength for the Army," and " The
Dream of a British Zollverein."

R. GiFFEN.

Chanctonbury,

Hayward's Heath,

January^ 1904.

CONTENTS
VOL. I

PAGE

I. The Cost of the Franco-German War

OF 1870-71 ...... I

II. The Depreciation of Gold since 1848 75

III. The Liquidations of 1873-76 . . 98

IV. On the Fall of Prices of Commodities

IN 1873-79 . . . . . 121

V. Recent Changes in Prices and Incomes

COMPARED . . . . . .156

VI. Mr. Gladstone's Work in Finance . 229

VII. Taxes on Land 253

VIII. The Taxation and Representation of

Ireland ...... 277

IX. The Use of Import and Export Stat-
istics ...... 282

X. The Progress of the Working Classes

IN THE last half CENTURY . . 382

XL Foreign Competition .... 423
XII. The Economic Value of Ireland to

Great Britain . . . . -431

VOL. II

XIII. The Utility of Common Statistics . i

XIV. On International Statistical Com-

parisons . . . . . -41
xi -

Xll

CONTENTS

XV. The Gross and the Net Gain of
Rising Wages ....
XVI. The Recent Rate of Material
Progress in England .
XVII. Protection for Manufactures in
New Countries ....
XVIII. Note on the Gresham Law .
XIX. Fancy Monetary Standards .
XX. Protectionist Victories and Free

Trade Successes
XXI. Consols in a Great War
XXII. Some Economic Aspects of the
South African War .

XXIII. The Relative Growth of the com-

ponent Parts of the Empire

XXIV. The Standard of Strength for

OUR Army: a Business Estimate
XXV. The Statistical Century
XXVI. Are we Living on Capital ? .
XXVII. A Financial Retrospect — 1861-
1901 .
XXVIII. The Importance of General Stat-
istical Ideas ....
XXIX. The Wealth of the 'Empire, and

HOW IT SHOULD BE USED

XXX. The Dream of a British Zoll-
VEREIN ......

XXXI. The Present Economic Conditions
AND Outlook for the United
Kingdom . . . . .

Index ........

PAGE

145
162

166

178
189

204

222

242
268
278

306

337
363
2>^7

405
431

ECONOMIC INQUIRIES AND STUDIES

THE COST OF THE FRANCO-GERMAN WAR OF 187O-71.

IN the following- pages an attempt will be made to
answer various questions in relation to the cost of
the Franco-German War.

The j^rsl question is the amount of the actual cost
of the war, both direct and indirect. The object will
be to reply to this question generally — that is, with as
little reference as possible to the distribution of the
burden. France and Germany have borne that burden
most unequally, and neutral countries perhaps have not
wholly escaped a share of the losses; but it will be in-
teresting to ascertain first of all how much the world is
really poorer. This will be the more necessary because
it is considered that the question of the distribution of
the burden raises new problems and requires separate
discussion. The burden has not only been distributed
unequally, but one country has been made to bear more
than the whole cost of carrying on the war.

It is expedient, perhaps, to explain what is meant by
the direct and the indirect cost. In the former will be
included the outlay of the belligerent. Governments,
the losses by the destruction of property in warlike
operations, the requisitions levied in the invaded dis-
tricts, and the like. The object, in short, will be to in-
clude whatever direct outlay the operations of the war
have occasioned and the visible destruction they have
caused. The indirect expenses will include every sort

I. B

2 ECONOMIC INQUIRIES AND STUDIES

of material loss which is fairly traceable to the war —
the loss of income to the communities whose pursuits
are disturbed, the displacement of capital, the destruc-
tion of valuable lives, and the like.

The second question is the loss of capital to the world
in consequence of the charge of the war. The first and
second questions, it is conceived, are entirely distinct
from each other. A war may easily cost a great deal
more to the communities which engage in it than the
permanent loss of capital which it involves. The ex-
penditure may be defrayed as well by the temporary
privation of the community as by abstracting capital
from individual and national resources. In part the
expense of a war is always so defrayed, and it is by not
attending to the distinction that people are astonished
at the recovery of nations from a war which has cost
overwhelming amounts.

The third question is the distribution of the burden
of the loss among the different communities affected
by the war. It is conceived that the peculiar arrange-
ments at the close of the late war, by which an enormous
war indemnity was imposed on the diminished area and
population of one of the belligerents, are worthy of
separate treatment. How much has France been made
to bear and what additional loss has been inflicted on
the world by so great a burden being thrust on a single
nation? How much has Germany gained by the re-
ceipt of a war indemnity far exceeding, it will be seen,
the expense which it had incurred?

The. fourth question will be the effect on the money
markets of the world, and especially of England, of the
financial arrangements made to meet these expenses
and losses.

I. — The Direct Expenses.

It is too early yet to state any precise figures as to
the actual amount even of the direct war expenditure
by the respective Governments. According to the con-

THE COST OF THE FRANCO-GERMAN WAR 3

tinental plan of dealing with budgets, an effort is made
in closing the accounts to throw upon each year every
burden properly inmrred in it, and include every re-
ceipt which belongs to it, according to the budgetary
laws. The accounts are therefore kept open till the
exact destination of each item is properly ascertained,
and it is not for two or three years after that we have
a closed account. There is likely to be an unusual
delay in making up the accounts of the war years in
France. The confusion of war creates accounts which
it would be difficult in any circumstances to adjust, and
the burning of the Hotel of the Ministry of Finance
by the Communists will make the difficulty in the
present case much greater than usual. The Budget
Estimates, however, as revised to the latest date, are
probably exact enough for the purposes of the present
Memorandum, which need not go much into detail.

To deal with the case of France first. The first item
in the direct expenditure is that of the Central Govern-
ment. The amount under this head will probably be
about ^100,000,000, viz.:

Extra "\^'ar Credits to Sept. 4, 1870^ .... ^28,000,000

,, ,, ,, from Sept. 4, to Dec. 31, 1870^ 38,520,000

,, ,, ,, in Rectified Budget in 1871 . 26,058,000

Estimated expense of maintaining German troops

in France in 1871" 9,025,000

;^ioi,6o3,ooo

In addition we should include the expense of main-
taining the German troops in France subsequent to

' Speech of M. Thiers, June 20, 187 1. Rapport sur I'ensemble de
la Situation Financiere de la France, par M. de la Bouillerie, au nom
de la Commission au Budget. It appears that ;^3, 680,000 of the
credits opened in 1870 were carried over to 187 1, but the amount is
apparently not included in the estimates set down for 1871. In any
case it will be safe to retain the original figure, to provide against
under-estimates.

^ Rectified Budget of 187 1, p. xxv. The actual expense would not
be so great as this, as the evacuation was accelerated, but how much

4 ECONOMIC INQUIRIES AND STUDIES

1 87 1, viz., for two years and a quarter; the cost of
rebuilding fortresses, re-equipping troops, and the Hke,
which are all to be carried to a special account for
liquidation of the cost of "repairing the misfortunes
of the war." ^ M. Thiers estimated the probable amount
of this liquidation in his Message of 7th December last
at ^16,000,000, but no proper details have yet been
presented, and subsequent unofficial statements repre-
sent it as already ;^20,ooo,ooo. In any case, if we carry
the above figure of ^101,000,000 up to ;^ 120,000,000,
we shall probably be about the mark as far as concerns
the direct cost of the war to the French Government.

Some doubt may be entertained as to whether the
expense of rebuilding fortresses and re-supplying the
army with war material should be included among the
direct war expenses, but it is believed the proper course
is to include these sums. A certain supply of fortresses
and war material being considered necessary in peace
to provide against the chances of war in general, any
deduction from the stock in a particular war is a part
of the direct cost of that war. And the value of this
deduction is best represented by the cost of making up
the deficiency. In the present case, the cost to France
of the captured fortresses is probably greater than the
expense to be incurred for providing makeshifts ; but
what France has lost Germany has gained, and we
shall only have to deal with this point when we try to
make an estimate of the burden on France alone.

It will be remarked, perhaps, that the deficits of
France for 1S70 and 1871 and subsequent years are
or will be greater than the above figures, taken in
connection with the payments for the indemnity, would
imply, but a part of these deficits arises from the failure
of revenue, which must be dealt with in a different
manner. The Germans, as we shall see, get some of
it, and, otherwise, what the Government lost by the

less there is no means of computing. Any excess will be a set-off
against under-estimates, which are almost certain to be very large.
^ M. Thiers' Message, December 7, 1871.

THE COST OF THE FRANCO-GERMAN WAR 5

non-payment of taxes the French people, individually
considered, gained. It is a set-off against the individual
losses we shall afterwards have to reckon.

So much then for the direct cost of the war incurred
by the Central Government. There remains to add
the amount of requisitions levied by the invading army,
the expenditure incurred locally, and generally the
direct destruction of property in the war, so far as not
provided for in the above items charged on the Central
Government. These matters can only be roughly dealt
with. The pages of the "Journal Officiel " for many
months have been largely filled with Projets de Loi
giving the Communes borrowing powers to cover their
war expenditure. Years must elapse, probably, before
the account on these heads can be complete.

Some facts, however, can be ascertained. In Sept-
ember last the Minister of the Interior, in a report to
the President, stated the extent of the losses of the
kind referred to, according to documents collected by
cantonal commissions appointed ad hoc. It appears
that the amount of the claims in the thirty-four de-
partments invaded, excluding Paris, is ^32,844,000,
composed as follows :

War contributions ^1,562,000

Taxes levied by the Germans 1,965,000

Requisitions 13,113,000

Destruction of property by fire and other causes . 5,640,000
Securities, articles of furniture, and other objects

carried off without requisition 10,564,000

Total ;^3^>844,

000

To this total, however — assuming the items for the
present to be correct — we must add the following items :
(i.) One-tenth additional for the losses sustained by
the inhabitants of Alsace and Lorraine. These pro-
vinces were the seat of war quite as much as the other
occupied territory of France which was not annexed
to Germany. They were not perhaps the seat of

6 ECONOMIC INQUIRIES AND STUDIES

military operations for so long a period, since they
were treated as virtually annexed after the fall of
Metz, but they had to bear the brunt of much of the
active part of the war, including the siege of Strasburg.
No account of the individual losses appears to have
been drawn up, such as the French Government has
compiled for the territory which remained to it ; but
the German Government has been obliged to vote
considerable amounts for indemnity to the inhabitants
who have suffered, and doubtless much will remain
which will never be compensated by the Government.
As the population of the annexed territory is about
1,600,000, and that of the remaining departments of
France invaded about 18,000,000, it is plain that about
one-tenth of the expenses incurred by the latter is not
too small an amount to assign to the former.

(2.) We must add the war contribution levied in
Paris at the conclusion of the armistice, and the war
expenses and other losses which Paris had to endure.
According to the report of M. Leon Say proposing the
new loan for Paris last August, the municipality was
altogether about ^16,000,000 the worse for the siege
and insurrection.

The war contribution was ^8,000,000

The loss of revenue was 4,000,000^

The miscellaneous additional expenses were . . 4,000,000

Total ;^i6,ooo,ooo

Deducting from the above amountthe item of ^4,000,000
for loss of revenue which falls to be dealt with differ-
ently, like the loss of the State revenue, we obtain a
total of ^12,000,000 as the Paris losses by the events
of the war, exclusive of its share in the direct national
expenditure. According to M. Say's report the above

^ The revenue of Paris is about ;^6, 000,000 a year, and the city
was besieged or in insurrection about seven months, while for other
two months communications were much interrupted.

THE COST OF THE FRANCO-GERMAN WAR 7

sum does not include the cost which must be incurred
in rebuilding the Hotel de Ville, so that ;^ 12,000,000
is rather under than above the mark.

We havethustoaddtotheabovetotalof^ 1 20,000,000,
which represents the direct expenditure of the French
Government on the war and its consequences, a sum
of about ;i^50,ooo,ooo, viz.:

Requisitions and other losses in the 34 invaded

departments, as above ;z^32,844,ooo

Estimated losses of similar nature in Alsace and

Lorraine 3,284,000

War contributions on Paris, and other expenses . 12,000,000

Total direct losses and expenditure by local

authorities and individuals in PVance . . . 48,128,000
Less amount voted by French Government
on 6th September last and included in
above estimates of national expenditure . 4,040,000

Net total ^44,088,000

One or two remarks may be made in explanation of
these items. One is, that the item of ^10,564,000 for
securities and articles carried away by the Germans
" without requisition " is in all probability excessive.
This is the sort of claim which is apt to be exaggerated
greatly, because disproof will be very difficult, and the
claimants will be tempted to make the most of the
existing prejudice in France against the Germans.
The value of the articles for which regular requisition-
papers were given by the German authorities is also,
in all probability, exaggerated. It will be of little use,
however, making any estimate of what the exaggera-
tion amounts to, and deducting the sum from the total
above set out. An error of this sort may fairly be set
against the extreme probability of under-estimates in
other directions which will not appear till the accounts
are finally closed.

Another doubt which will be suggested relates to
the apparent smallness of the items for the levies of

8 ECONOMIC INQUIRIES AND STUDIES

the German armies during the war. Exclusive of the
fine on Paris, it will be seen that the total amount re-
ceived by the German armies from the occupied pro-
vinces was not more than between ^16,000,000 and
^17,000,000, viz.:

War contributions ^^i, 562,000

Taxes levied by Germans 1,965,000

Requisitions 13,113,000

Total ^16,640,000

And it is not quite certain that the total is so large, for
the value of the requisitions, as we have already ex-
plained, is doubtful. Even if we add something for the
plunder on account of which the French have sent in
claims to their Government for ^10,000,000, and allow
also for the levies in Alsace and Lorraine, the money
value to the German Government of the privilege of
living on the enemy during the war would probably
not be more than ^20,000,000 or ^25,000,000 — only a
fourth or a fifth of the war credits of the French
Government itself The expense of maintaining an
invading army, according to this view, is not the most
formidable item in the bill of war losses which a nation
has to sustain. Nor is the fact to be wondered at,
though contrary to the popular impression. After all,
the invaders, unless they occupy large and wealthy
cities — and this was not the case in France — can
hardly impose on the country they invade more than
the expense of their living. Clothing and munitions of
war must all be secured beforehand or at home, and it
is difficult to impose money fines which could be im-
mediately useful when credit is suspended, however
wealthy a country may be. The great bulk of the
wealth is fixed in objects which cannot be carried away
at all, or in objects which cannot be carried away
quickly and sold, so as to be converted to the invader's
use. He must take therefore, even for his own con-
venience, only what he can consume at once. A pro-

THE COST OF THE FRANCO-GERMAN WAR 9

longed occupation, with military operations suspended
in the occupied districts, would enable the conqueror
to impose heavier tributes, but such an occupation is
only occasionally possible during a war.

Besides all this, there was a considerable local ex-
penditure throughout France in departments not occu-
pied by the enemy in mobilising the National Guard.
But the amounts have been reimbursed by the State,
and are included in the above war credits.

There are two heads of loss, however, about which,
perhaps, there may be some doubt. The first of these
is the damage caused to roads and bridges throughout
the invaded departments. According to an official re-
port made by a Commission of the Assembly, dated
May 2 1, 187 1, these losses appear to have been:

Damage to Communal roads ^400,000

„ Departmental roads 360,000

„ Imperial roads 366,000

Total ;^i, 1 26,000

These losses, however, are probably included in the
figures already submitted — the account for liquidating
the cost of the war includinof larg^e votes to the com-
munes and departments, and the budgets including
additional votes to the Ministry of Public Works for
urgent repairs. The total amount is too small to make
any material difference in the estimate of the total cost
of the war.

The second doubtful item is the damao^e done to the
railways, but it is not likely to have exceeded in amount
the damage to the roads, the length of the railways en-
dangered being much less than that of the roads. As
a matter of fact, the railways were not much cut up,
but were freely used by the Germans through the war.
The rolling stock was injured or carried away by the
Germans, but the rolling stock of all the railways in
France can hardly be worth ^20,000,000, and even if
it was damaged 5 per cent. — a most liberal allowance

lO ECONOMIC INQUIRIES AND STUDIES

— the loss would be under a million. The omission of
any estimate for this head of loss, therefore, should it
prove not to be included in the above figures, will not
alter materially the totals with which we shall have to
deal.

We may put the direct losses in France therefore at
about ^164,000,000, viz., ^120,000,000 directly ex-
pended by the Government, and ;^44,o88,ooo expended
or lost by destruction of property in the provinces. It
remains to inquire what expense was incurred by Ger-
many of a similar nature.

And first as to the Government expenditure. The
amount, it is believed, cannot exceed between
^40,000,000 and ;^5o,ooo,ooo. We have been unable
to obtain any exact figures, but a few considerations
may satisfy us that ^50,000,000 will be an approxi-
mately correct amount to take.

In the first place, this is about the amount of the
sums which Germany had to borrow for the actual
conduct of the war, and as the indemnity was not
afterwards appropriated to defray the war expenditure,
and there were no other extraordinary resources, the
loans must be nearly the measure of the outlay of the
German Governments. So far as can be ascertained,
the new loans and additions to the floating debt
were :

North Germany —

First issue of Treasury Bills ;^5,ooo,ooo

First issue of Treasury Bonds 7,500,000

Second ditto ditto 7,500,000

Funded loan 15,000,000

;^35,ooo,ooo

Bavaria 5,000,000

Smaller German States 5,000,000

;^45,ooo,ooo
Prussian war treasure exhausted 4,500,000

Total ^49,500,000

THE COST OF THE FRANCO-GERMAN WAR I I

This was all the money which it was necessary for
Germany to provide during the progress of the war.
To err on the safe side, however, we may put the
amount at ^60,000,000, to allow for arrears left
over.i

The direct expenditure for the war thus cost Ger-
many, in the first instance, about ^60,000,000, against
^164,000,000, which we have seen was the cost to
France. Such is the difference made to a country, first,
by being unprepared, and so having to spend more
hastily; and second, by being the seat of war, when
war is carried on in conformity with the rules which
the Germans have followed. In any case, it is ex-
pensive to be the seat of war, but France was caught
unprepared every way, and would have had to pay far
more dearly than its opponent, even if there had been
no indemnity to follow.

The other direct losses of Germany — viz., the losses
of individuals — seem hardly worth considering. The
only losses of the kind appear to have been the cap-
tures of German ships by French cruisers, but the
captures were only eighty in number, and the total out-
lay thus occasioned, as well as for ships detained, ap-
pears to have been only ^450,000." The amount is
absolutely insignificant compared with the figures with
which we are dealing. Claims have also been made by
German shipowners on account of ships lying idle, but
they belong to the department of indirect losses, with
which we have yet to deal.

Another direct loss which would also be sustained
by the Germans is the difference between the real
value of articles requisitioned by the Government in
mobilising the army and the price which the Govern-
ment pays for them. But there are no data for es-

* The actual outlay according to the latest (German account is pu
at rather more than ;^90,ooo,ooo, but this sum includes many indirect
items, so that the above estimate is really near the mark. See " Preus-
sischen Jahrbuch fiir 1875."

* Berlin correspondent of "The Times," June 3 1871.

12 ECONOMIC INQUIRIES AND STUDIES

timating this loss, which could not however be
large.

There is one other item which we must discuss
before leaving this part of our subject. We may fairly
include as part of the direct cost of the war the capital
of the new pensions which the losses of the war occa-
sion. They are part of the pay of the soldiers, and are
directly caused by the war, although they are only paid
in subsequent years. We must charge as part of the
direct cost therefore a capital sum sufficient to provide
the pensions. No very exact amount can be stated for
two reasons: (i) the annual amount of the additional
pensions will probably not be ascertainable for a year
or two; and (2) there are hardly any data for calcu-
lating the capital value. Still the item is worth men-
tioning. In the French Budget for 1872 the additional
military pensions charged amount to ^150,000, which
at twenty years' purchase would represent a capital of
^3,000,000, and it is not unlikely that before the ac-
counts of the war are closed the amount will be about
double, say ^5,000,000 altogether. The cost to Ger-
many will be at least as great, though no similar figure
can be mentioned, as one of the uses of the French in-
demnity to the Germans has been the establishment
for the first time of a military pension fund. It is im-
possible to say, then, what the cost of the pensions
caused by the war will be. But as the war was not
more murderous for Germany than France, but rather
less murderous, and the scale of living has not been so
high in Germany, we shall probably not be under the
mark in estimating the cost of the war pensions to
Germany at the same rate as the cost of the like pen-
sions to France. We have thus an additional sum of
^10,000,000 to add to the direct cost of the war —
^5,000,000 to each country.

The whole account up to this point will stand:

THE COST OF THE FRANCO-GERMAN WAR I 3

Direct Cost to France.
War credits and expenses of re-equip-
ment, etc ;!^i 20,000,000

Fines, requisitions, and destruction of
property (less ^4,000,000 reckoned

in war credits) 44,000,000

Capital value of war pensions . . . 5,000,000

^169,000,000

Direct Cost to Germany.
War credits, etc., less requisitions levied

in France ;^6o,ooo,ooo

Capital value of war pensions . . . 5,000,000

65,000,000

Total Direct Expenditure .... ^234,000,000

Such was the direct cost of the war to both Govern-
ments, so far as we can ascertain it. The two countries
would have been "out" of this sum, and no more, had
they been able to carry on their war operations without
a stoppage of industry and production, and by hiring
soldiers from distant countries with which they had no
other relations. Looked at in this way, as the Finance
Minister of a despotic country might be disposed to
view it, war cannot be considered a very expensive
game. For this sum of ^234,000,000 the Governments
of two orreat nations carried on unremitting hostilities
against each other, employing altogether two-and-a-
half millions of men for a period of nearly eight months.
That is, it cost them both nearly ^30,000,000 a month.
At this rate, war is cheap. The aggregate annual in-
come of the people of the two countries is probably
about ^1,200,000,000, so that the direct cost of war at
this rate for a twelvemonth would have been a little
over a third of the national income. Both countries
therefore, so far as mere expenditure on warlike opera-
tions is concerned, and if the expense were divided
equally, could have gone on fighting for an indefinitely
longer period without exhausting their material re-
sources. This is a somewhat different view from the
popular one about the expense of modern warfare, but

14 ECONOMIC INQUIRIES AND STUDIES

there is no doubt about the facts, and the conclusion is
in agreement with what might be expected from the
strength of modern industry. It is the natural result of
the introduction of machinery and the great accumula-
tion of wealth, that great communities should be capable
of extravagance for lengthened periods without ap-
proaching exhaustion, a feat which was hardly possible
before the age of mechanical invention. Of course they
would impoverish themselves in time, but the margin
before exhaustion comes, comparing modern societies
with the old, appears to have been increased.^

II. — The Indirect Expenses and Losses.

We now come to more difficult ground. So far we
have had tolerable data before us — the figures of bud-
gets and official reports and the public borrowings of
the belligerent Governments. But when we come to
the indirect expense of a war we have no such guide.
We know that it is quite as real a matter — that in any
business the loss which a man has to undergo in with-
drawing capital from some other undertaking to em-
bark in it is fairly reckoned as part of the cost of the
new business. If he is making ten per cent, elsewhere,
and makes fifteen in the new business, his net gain by
the change is five per cent. If his new business is
wholly profitless, he loses ten per cent. Still worse, if
he abandons the idea of profit altogether and expends
his capital in extravagance, he is poorer not only
by the loss of income for a time, but by the whole
capital he wastes. This last is the case of a nation en-
gaged in war to a greater or less extent — especially

^ The contributions to various charitable associations in rehef of
the wounded and other victims of the war are also a part of the direct
cost; but compared with the other items here dealt with it would be
of no moment to reckon them, even if exact data were procurable.
But the relief societies were so numerous and scattered, and so large
a part of the contributions was in kind, that there are practically no
data for an estimate.

THE COST OF THE FRANCO-GERMAN WAR I 5

in war as now conducted by European nations, who
abstract from industrial pursuits enormous masses of
the civil population. The community not only takes to
spending, but part of its former income ceases. The
expenditure and loss of income make up the bill which
its extravagance really costs. But this loss of income
in the case of great communities is difficult to ascer-
tain. How far industry is suspended, and how far the
war is the cause of it, are both very difficult questions
to answer. And there are more serious difficulties
behind. In the present conditions of modern industry,
a nation whose pursuits are disturbed cannot fall back
exactly into the old groove. When it settles down
again it may have to engage to some extent in less
productive industries than those which were formerly
open to it. The difference between the old and the
new profit is not only difficult to ascertain, but it is im-
possible of course to state the loss in capital which is
equivalent to the loss of annual profit. On these points
therefore, in relation to the present war, we shall only
offer the roughest possible estimate.

To take the case of France first. The main point is
the loss of national income, and one measure of the
loss, it is conceived, will be the falling off of the
national revenue. In proportion to the losses of the
taxpayer, he would be able to pay fewer taxes, so that
the national revenue would probably suffer in the
same deg^ree as the aCTorreg-ate income of the nation.
And as the national revenue and the falling off it sus-
tained in the years of war are both ascertainable
amounts, while the aggregate income of the nation is
an approximately calculable amount, it will be possible
to state in this manner what the deficiency on the
aggregate income may come to. The figure to be thus
obtained will obviously be a very rough one. Many
parts of the French national revenue would not fluctu-
ate with the prosperity or adversity of the people.
The direct taxes on land, for instance, are in the
nature of fixed charges, not varying with the income of

I 6 ECONOMIC INQUIRIES AND STUDIES

those who pay them, but collected almost to the full
amount, irrespective of individual profits or losses. A
bad year will no doubt cause an unusual amount of
'' d^grcvements " to relieve the very poor, but the bulk
of the tax will be unaffected. Much of the same may
be said of the other direct taxes, which are all fixed on
arbitrary bases similar to the direct tax on land. On
the other hand, other parts of the revenue might fall
off to an amount much greater in proportion than the
diminution of the aggregate income which was the
cause of the failure. The attempt of individuals not to
trench on their capital, but to square their expendi-
ture with their diminished income, mia;ht cause such
an economy of luxuries as very seriously to diminish
the amounts raised from optional taxation — the taxa-
tion, that is, which people regulate for themselves by
the consumption of taxable articles. The business of
transfer may also be suspended to a much greater ex-
tent than the business of production, and so cause a
disproportionate loss of revenue arising from charges
on transactions. On the whole, however, when it is
considered that as regards all moderate charges on
articles of consumption a very slight reduction of the
national revenue would imply very large economies on
the part of the taxpayer, the tax being only a small
part of the cost, and when it is also considered that
the direct taxes which are not optional in their nature
are only a fourth part of the State revenue of France,
so that the fixed revenue, unaffected by the adverse
fortune of the nation, is the least important — it may be
assumed as most probable that the aggregate income
of the people will have fallen off in excess of the pro-
portion to which the national revenue has fallen off
To assume a loss of aggregate income in proportion
only to the loss of national revenue will give us a mini-
mum and not a maximum estimate.

Now what has been the loss of national revenue to
France throuo^h the war? The French ofticial estimates
are as follows :

THE COST OF THE FRANCO-GERMAN WAR I 7

Loss of revenue in 1870 ^,^1 1,400,000

Do. do. in 1871 13,480,000

Total ;!^24,88o,ooo

Such is the calculated loss for a period of eighteen
months, but two deductions must be made for our pre-
sent purpose, as we are dealing only with the loss
occasioned by the interruption of business through the
war. We must deduct, in the first place, the loss occa-
sioned by the Germans collecting the taxes instead of
the French authorities, the amount so collected, as
above stated, being ;^ 1,960,000. The taxes were in
fact paid, though the French Government did not get
them. And we must deduct in the same way the loss
of revenue occasioned by the transfer of Alsace and
Lorraine to Germany. This loss also was not caused
by the deficiency of income of the French taxpayers.
As the annual loss appears to be about ;,/^ 2, 4 5 2, 000,'
the loss for eighteen months would be ;^3, 6 76,000,
which falls to be deducted along with the amount of
the taxes actually levied by the Germans from the
above total of ^24,880,000. The net loss of revenue
to France therefore due to the interruption of business,
withdrawal of civilians from industrial pursuits, and
the like, would be as follows:

^ Annual loss of Revenue to France by transfer of Alsace and
Lorraine to Germany [compiled from Budget of 1872].

Land tax ^219,000

Personal and furniture tax 74,000

Door and window tax 71,000

Patent tax (estimate) 114,000

Mainmast tax 18,000

Registration of stamp duties 619,000

Customs and salt duties 296,000

Miscellaneous indirect tax 840,000

Postal revenue 120,000

Produce of forest 80,000

Total ^2,452,000

T. C """"""

l8 ECONOMIC INQUIRIES AND STUDIES

Total loss of revenue in eighteen months as above . ;^24, 880,000
Deduct taxes levied by Germans . . ;^ 1,960, 000
,, loss of revenue by transfer of
Alsace and Lorraine to Ger-
many 3,676,000

5,636,000

Net loss by interruption of business, etc. ,^19,244,000

This is at the rate of ^12,800,000 per annum, and as
the annual revenue of France before the war, as fixed
in the Budget for 1871, was ^75,200,000, the propor-
tion of revenue lost by stoppage of industry is as nearly
as possible 1 7 per cent. — the loss running for a period
of eighteen months.

We have only, then, to apply this measure to the
aggregate income of France for a similar period, to see
what individual loss the war has occasioned. Various
estimates have been given of that income, but taking the
most moderate estimate of ^600,000,000 yearly, the
loss in eighteen months, at the rate of 1 7 per cent.,
would be ^153,000,000.

To this ought perhaps to be added the probable loss
of income in years subsequent to 1871, before the
routine of industry is fully re-established ; but this
would be too hypothetical an inquiry, and belongs
rather to the question as to what has been the per-
manent loss of capital to France through the war.

Is there any way, however, of testing whether the
French people on the average would only lose a fifth
of their income for eighteen months, including a period
of nearly eight months when both war and insurrection
had been over, and much of the ordinary avocations
of the people had been resumed? Let us consider for
a moment in detail how far French industry would be
affected.

It may be considered as certain, to begin with, that
agricultural operations would not be very much inter-
fered with. To a certain extent the season of the war
was favourable to an agricultural country. The summer

THE COST OF THE FRANCO-GERMAN WAR 1 9

was far advanced when it began, and the autumn was
well over before the levies whose absence would have
seriously hindered agriculture were called out. Peace
was finally concluded again before the end of February,
in time to let the greater part of the levies return for
the labours of the spring and summer. In this way the
harvest of 1870 was gathered in somehow, notwith-
standing the outbreak of war, and the harvest of 1871
could not have been much diminished by the want of
preliminary cultivation. Even in the occupied districts
the harvest of 1870 would not be lost, nor would the
preparations for the crops of 1871 be much interfered
with. As regards the harvest of 1870, the change which
was made by the invasion was that the German armies
to a large extent reaped it instead of the French
farmers, or it was destroyed by the operations of the
war. But the losses of this sort have already been
counted under the head of direct losses,' and ought not
to be counted twice over. As regards the preparations
for 1 87 1, the occupied districts stand in much the same
position as the unoccupied, peace having been con-
cluded in time to let the bulk of the- labours of the
season be proceeded with, and the occupation in no
way preventing the return of the farmers to their work.
There is no reason to believe that even in the occupied
districts there was any material suspension of agricul-
tural industry beyond what took place in other parts
of France.

How much, then, would the suspension come to even
on an extreme calculation — on the basis, that is, of all
labour being stopped in proportion to the withdrawal
of agricultural labourers for the numerous levies that
were raised ? Agriculture is unlike manufacturing in
this respect, that its existence from day to day does
not depend on the freedom of credit and perfect free-
dom of communication. These things are in the end
important, but they can be borne for months without

^ See p. 7.

20 ECONOMIC INQUIRIES AND STUDIES

more than the most passing damage, if the farmer
ultimately gets a market for what he does not consume
himself, and the facilities of credit and free communica-
tion are again opened up. The loss, then, could hardly
be greater than in proportion to the withdrawal of
hands, and the withdrawal could hardly be more than
about one-twelfth of the whole. The agricultural popu-
lation of France is about three-fifths of the whole, or
about 22,000,000, of whom about 5,400,000 would be
adult males engaged in the actual work of production.
Possibly we ought to include the estimate of a large
amount for female labour and for the labour of grown-
up children, but our case is quite strong enough as to
the small effect which the withdrawal of the levies
would have on agricultural industry if we take the
usual supply of labour at only 5,400,000 hands. The
total new levies for the war being about 800,000, the
proportion from the agricultural districts would be
480,000, which is almost exactly one-twelfth of the
above total of 5,400,000 labourers. Assuming, there-
fore, that the diminution of agricultural labours for one
year was one-twelfth — which is a strong assumption,
as the labourers were only away for eight months, and
that not for the best part of the season — we may
estimate very quickly the loss of income that would be
occasioned. The " net annual value " of the rural
property of France is ^106,000,000,^ which, according
to the usual mode of reckoning, shows a production of
three times that amount, or ^3 1 8,000,000. One-twelfth
of this sum would be ;^26,5oo,ooo, which would be the
maximum loss of agricultural income — apart from the
amounts paid in requisitions and fines — occasioned to
France in the war of 1 870-1 871. For the reasons
above stated, however, the loss, it is believed, could
not be so much. It is no doubt true that in exceptional
districts, to which the services of the Peasant Farmers'
Seed Fund were so useful, there was a great hindrance

' See Reports on Land Tenure in different countries in Europe,
and Mr. Goschen's Report on Local Taxation.

THE COST OF THE FRANCO-GERMAN WAR 2 I

to production in the want of seed, owing to the
thoroughness of the Prussian perquisitions; but in the
absence of all reports as to large areas of land being
left uncultivated, we may conclude that this cause
exerted an almost inappreciable influence in com-
parison with the extent of French agriculture. Except
in isolated cases, the war left the French agriculturists
wealthy enough to resume their pursuits, and purchase
seed and stock — the requisitions in the invaded dis-
tricts, ^13,000,000, and the destruction of property,
^5,600,000, being, after all, barely 6 per cent, of the
agricultural production of the whole of France for one
year, and barely 12 per cent, of the production of the
invaded districts.

We may set down, then, about ^26,500,000 as the
maximum loss of agricultural income. Reckoning in the
same way the manufacturing loss, viz., in proportion to
the withdrawal of labour, or about one-twelfth of the
total production, we should have to add to this sum
about ^23,500,000, making the total loss of income by
this mode of reckoning ^50,000,000.^ But the loss of
manufacturing income would of course be greater,
manufactures being so much more sensitive than agri-
culture to the disturbance of invasion. Without credit
and without the means of communication, manufactur-
ing establishments must be closed. Neither purchases
nor sales except to a limited amount are made with
ready money, and even if they could be made, war and
invasion would prevent the conveyance of raw material
and manufactured articles to and from distant spots
which is essential to the life of anv larQ^e trade. No
doubt there are many industries which will go on as
usual, the dealing from day to day in the necessaries
of life going on nearly to as great an extent as before,
and generally all retail commerce, as was the case in

^ We estimate the manufacturing production at ;j^282, 000,000,
making up, with the above sum of ^^3 18,000,000 allowed for agri-
cultural production, the total of ;^6oo,ooo,ooo, which we have taken
as the aggregate income of the French people.

22 ECONOMIC INQUIRIES AND STUDIES

Paris during the siege, being more or less active. In
the unoccupied districts, too, manufacturing enterprise
would only be partially suspended, though it would,
on the whole, be much less profitable than before ; and
the Germans, it is known, managed to prevent the
complete suspension of business not only in Alsace,
but in such advanced towns in their occupation as
Rheims and Rouen. If we estimate that outside the
invaded districts, including Paris, business was one-
fourth suspended for eight months of war, and that
where the invasion extended it was three-fourths sus-
pended for the same period, the estimate would hardly
seem to be the least under the reality. But this would
only make the loss of manufacturing income about
;^93,ooo,ooo, viz.:

One-fourth of manufacturing income in un-
occupied districts {^140,000,000 annually ')
for eight months ;^2 3. 333,000

Three-fourths of manufacturing income in
occupied districts (;^i4o,ooo,ooo annually ^)
for eight months 70,000,000

Total ^93>333.ooo

Adding this sum to the above total of ^26,500,000
allowed for the loss of agricultural income, we obtain
as the figure for the total loss £1 19,833,000, which is
about ^30,000,000 less than the sum we arrived at
above by drawing what appears to us a legitimate in-
ference from the diminution of national revenue. If we
remember, however, that the suspension of manufactur-
ing enterprise would continue for some months in 1871
after the war was over, and that in the present mode

Practically about one-half of France in population was occupied
or besieged by the German troops, and the districts thus dealt with
included Paris, Rouen, Rheims, Nancy, and other important towns,
Paris itself being by far the most important manufacturing city in
France. We assume, then, that half the manufacturing production
was in the occupied and half in the unoccupied districts.

THE COST OF THE FRANCO-GERMAN WAR 23

of computation we have only been dealing with a period
of eight months, whereas the former estimate applied
to the whole of 1870 and 187 1, it will be recognized that
the results of the two methods of computation very
nearly correspond. Sofar as wecanjudge.^i 50,000,000
would be about the mark.

There is one circumstance which may, perhaps, throw
doubt on this conclusion, unless explained. The exports
and imports of France have not diminished as we should
expect them to do with the diminution of manufactur-
ing production. The exports and imports of the last
three years compare as follows :

Imports for Consumption.

1871. 1870. 1869.

1000 frs. 1000 frs. 1000 frs.

Articles of food .... 983,677 720,844 693,828
Raw materials and natural

productions 1,862,296 1,679,988 2,030,618

Manufactures 314,591 218,560 264,616

Other articles 134,180 115,850 132,954

Total . . . 2,865,613 2,860,127 3,074,941

These are not the figures of a trade which has dimin-
ished; it is rather an increasing trade. But the ex-
planation is very simple. One is, that great internal
losses would be likely to cause a large export for
realization, while after the war was quite over the im-
ports would at first increase largely, in order to replenish
stores and warehouses and set many establishments

24 ECONOMIC INQUIRIES AND STUDIES

going. Another explanation of the increased external
trade is also to be found in the fact that two provinces
between which and the rest of France there was for-
merly a most intimate home trade have, for the first time,
become external ; so that what was formerly home trade
is now reckoned as foreign. In reality, the figures
prove a falling-off of business, though the exact amount
cannot be stated, and may not correspond exactly to
the exact diminution of manufacturing production in
France in the years of war.

So much for the loss of income sustained by French-
men during the war. But not only does the suspension
of business by war and invasion cause a loss of present
income to a community, it entails a permanent de-
preciation of producing power, that is, of the annual
income which the community is capable of earning —
on which some estimate ought also to be placed. It is
certain that some such depreciation cannot but occur.
The connections of great establishments are destroyed,
the staff is broken up, many labourers have been killed
or injured, the business which is resumed after a war,
at any rate after so prolonged an interruption of its
usual course as French commerce sustained, is never
precisely the same as it was before the war. Of course
any estimate of the present capital value of an annual
loss of income of this kind must be very wide indeed.
Fortunately there is one French tax which appears to
supply data for such an estimate. We refer to the
Trade Licence Tax, which applies a varying scale to
nearly every class of merchants and traders, according
to the size of the towns in which they reside and the
nature of business they pursue. Any great convulsion
in business diminishing the amount of its profits must
seriously affect the tax : many traders will be declassed ;
others will be driven from business altoo-ether and
occupy the place of labourers or assistants to larger
capitalists; there will be a great deal of migration,
during which capital will be locked up, or at least will
be less productive. There will also be a great deal of

THE COST OF THE FRANCO-GERMAN WAR 25

emigration which will have the same effect, even if the
emigrants, as will probably happen, should ultimately
return. All the changes will cause the licence tax to
be less productive, though perhaps the diminution may
not go quite so far in proportion as the diminution in
the earning power of the community. The scale of the
tax remaining the same, and most people refusing to
change their business even if they make less out of it
than before, the result will be that the tax will yield
nearly the same as before in proportion to the numbers
affected, but those who pay it may all be somew^hat
poorer. Insufficient as the test is, however, it is the
only one we have got, and it is perhaps better than
none. The way to apply it will be to calculate what
the annual loss of the business income of France will
be if it suffers in the same proportion as the licence
tax, and then multiply the sum so obtained by the
number of years' purchase we may consider the income
to be worth.

According to the Budget of 1872, the loss on the
" principal " of the licence tax due to the general effects
of the war is between 3 and 4 per cent. The total de-
ficiency, as compared with the estimate for 1871, which
was made before the war, is ;^ 168,800, equal to 7 per
cent, on a total yield of ;^2, 462,000; but of this de-
ficiency, about ^80,000, or 2)-3 V^^ cent., is caused
by the transfer of Alsace and Lorraine to Germany.
There remains, therefore, only ^88,000 which can be
ascribed to the general effects of the war, and the per-
centage of this loss is about t,."/, or say 4 per cent. If
this test is fairly applicable, then we may assume that
France has lost about one twenty-fifth part of its earn-
ing power in business in consequence of the war —
that is, one twenty-fifth part of the above annual sum
of ^280,000,000 which we have reckoned as the income
of the French people, independently of their agricul-
ture, or an annual loss of ^11,200,000. How many
years' purchase must we reckon to ascertain the equi-
valent capital value of this loss.'^ This point must

26 ECONOMIC INQUIRIES AND STUDIES

plainly be left a good deal to conjecture, but the
equivalent, we should think, will be at the very least
ten years' purchase, making the loss ^112,000,000.
The value of businesses reckoned by multiples of the
annual income yielded varies indefinitely, and perhaps
ten years' purchase would be too high an average in
such a country as England, where profits are large in
consequence of the large amounts which traders are
able to borrow in addition to the capital they them-
selves embark; but in a country like France, where
there is far less credit, and business capital, amount
for amount, is consequently less profitable, ten years'
purchase is probably rather too little than too much.
At any rate, it does not appear extravagant to reckon
that a war like last year, and the invasion which fol-
lowed, besides the immediate loss of income and heavier
taxes which they entailed, should have cost the busi-
ness men of France the equivalent of ^112,000,000,
or ^11,200,000 per annum. There must have been a
large loss of some kind on this head, and we do not see
how it can be reckoned at less.

Probably the agricultural income of France may
have permanently suffered in the same way, but it can
hardly have suffered much, being almost independent
of the credit and connections which make the life of
business. A long-enduring war would have injured
agriculture greatly, especially the culture of the grape,
through the loss of markets and the displacement by
competing vine districts, but a single winter's war could
have no such effect.

We have still one more head of indirect loss to
consider, viz.: the loss of life and the invaliding of
wounded and sick. But we must pass these over very
slightly, as losses on which no pecuniary value can
properly be placed. We subjoin a calculation of what
the capital value of the lives affected by death or in-
validing in the French Army may come to :

THE COST OF THE FRANCO-GERMAN WAR 27

Estimate of money value of lives destroyed or injured in French
Army:

30,000 ^ killed 30,000

30,000 ^ totally invalided 30,000

90,000,^ about one-eighth invalided on the average 1 0,000

Complete Uves destroyed (say) 70,000

Average earning power, ^40 per annum . . . ^4°

Total annual loss ;^2, 800,000

Present value of annuity of ;£i on single life at
age of 25, and reckoning 5 per cent. (Carlisle

Tables) ^15

Estimated capital value of lives lost or invalided . ;^42, 000,000

The total is ;^42, 000,000, and we doubt if the loss or
injury of life in an economic sense could be more.
Still the calculation must only be taken for what it is
worth, an imperfect way of representing in money the
material loss which is certainly occasioned by the de-
struction of human life. In addition we should prob-
ably reckon that the loss and injury of life among
civilians produced a similar loss. In Paris alone it is
reckoned that the additional deaths due to the war
were as follows in 1870 and 1871:

Deaths in 1870 73)5Si

.Ditto 1871 99j945

i73>S26
Less average mortality of two years 90,000

Total due to war 83,526

There must have been great injury to life beyond this
where the additional mortality is so large. Throughout

^ According to these figures, our estimate of the total killed and
wounded in the French armies is 150,000, but there are few official
data, and we have been obliged to make the best estimate we can
from scattered and contradictory notices in books on the campaign.
The German losses, reckoned in the same way, were about 100,000.

28 ECONOMIC INQUIRIES AND STUDIES

the country and in the numerous besieged places there
would be a similar loss of civilian life by privations,
but considering that Paris was exceptionally tried, and
that the above total of 83,000 would include the deaths
of the soldiers in Paris, it would, perhaps, be unsafe to
put the total deaths throughout France owing to the
war at more than 200,000. And of these one-half would
be aged, of hardly any economic value compared with
the young, whose expectation of life is at its highest. ^
Taking the loss of civilian life, therefore, as the basis
of the preceding calculation at 100,000 units, the pre-
sent capital value would be ^60,000,000, which will
fall to be added to the above ^^42, 000,000 of Army
loss — in all ^102,000,000. We repeat, however, that
this calculation is only given pour mdmoire, and to
render a little more definite the conception of the
losses which are involved in war. It should be re-
membered, besides, that part of the losses on this
account — so far at least as they affect the surviving
community — must have been reckoned under the pre-
vious head, there being nothing to distinguish the
failure of the licence tax through the death or invaliding
of the licencees from the failure which is due to more
general causes. In any general sum of the expenses of
the war it would be improper to include both items to
the full amount if they could be exactly ascertained.

The indirect losses of the French, therefore, in the
war, omitting any direct estimate for the value of lives
lost or injured, may be summarized as follows :

1. Loss of income in 1870-71 .... ^^150,000,000

2. Loss of permanent business, equal to . 112,000,000

Total Indirect Loss (say) .... ;j^262, 000,000

We come, then, to the German losses of a similar
nature, which may be very shortly dealt with. The

' Since this was written the fact of an unusual mortality having
been occasioned directly and indirectly by the war, has been con-
firmed by the Census Returns of 1872.

THE COST OF THE FRANCO-GERMAN WAR 29

principal causes of the great loss which France has
sustained did not affect Germany. These causes, as we
have seen, were not so much the abstraction of labourers
from their employments, as the suspension of business
through invasion. The loss of life in Germany was,
moreover, confined to the Army, the privations of
civilians, at least, being of the most insignificant kind
compared with French privations. The indirect loss
of Germany may therefore be summed up in the loss
by abstraction of labourers, equal to estimated loss of
France as above, or about ^50,000,000; the loss by
deaths ^nd invaliding of soldiers, which we mention
'toui" vi^jnoire, would be about two-thirds of the estim-
ated loss of France as above, or about ;^30,ooo,ooo.

We do not think it would be of any use reckoning
anything beyond this for the suspension of business in
Germany. Business, in fact, went on pretty much as
usual. Though the German ports were blockaded, the
ports of Belgium and Holland were open, and Ger-
many retained all its land communications unimpaired.
Loss, therefore, could hardly arise except to a quite
inappreciable extent, for which it would not be worth
while to make allowance. There is the more reason
for this, too, because it is more than doubtful whether
the loss by the abstraction of labour is not over-estim-
ated, the labour having been abstracted, as we have
already explained, at the season least injurious to agri-
cultural pursuits. So far as any loss of the kind could
be traced in its effect on German revenues, we have
no data to go upon, the receipts of the various Govern-
ments having gone on increasing as if there had been
no war.^

We may end our inquiry into the indirect losses at

^ Something should perhaps be added for the indirect manufac-
turing losses of Alsace and Lorraine, but business there was not
nearly so long disturbed as in the non-ceded districts of France, and
the above allowance for German indirect losses is believed to be
liberal enough in any case to cover those of the newly-acquired
province.

30 ECONOMIC INQUIRIES AND STUDIES

this point. No doubt other countries besides France
and Germany were made to suffer — England especi-
ally; but the amount of the injury, even if not com-
pensated by some indirect gains consequent on English
manufactures temporarily or permanently displacing
those of the belligerents, is lost in the enormous mag-
nitude of the business over which the loss would be
spread.

III. — General Summary of the Cost of the War.

Having thus gone through the various items of ex-
pense and loss consequent on the war, we may see
what the whole amounts to. The totals are as follows :

France.

Credits for carrying on war, re-equip-
ment, and the like ;^I20,000,000

Requisitions and fines levied by Ger-
mans and destruction of property in
the war 44,000,000

Capital value of war pensions . . . 5,000,000

Indirect losses, omitting estimate for

loss of life 262,000,000

Total for France ^431,000,000

Germany.

Credits for carrying on war and for re-
equipment ;^6o,ooo,ooo

Capital value of war pensions . . . 5,000,000

Indirect losses, omitting estimate for

loss of life 50,000,000

Total for Germany 115,000,000

Grand total of cost of war ;^546,ooo,ooo

At this rate war is not so very cheap as it appeared
when we looked only at the direct expenditure. It
cost the two belligerents in seven or eight months about
half their gross income, and such figures imply a very

THE COST OF THE FRANCO-GERMAN WAR 3 1

large exhaustion of stored-up capital. Even at this
rate, however, it would no doubt have taken a long
time to exhaust the material resources of France and
Germany.

IV. — The Permanent Loss of Capital.

Up to this point we have been discussing the mere
cost of the war, without any reference to the funds out
of which it had to be defrayed. As we have already
explained, the two questions are entirely distinct in
theory. A very costly war may result in little or no
permanent loss of capital, the belligerent nations pay-
ing the expense entirely out of their income, and like-
wise saving out of their income enough capital to
compensate those indirect causes of subsequent annual
loss which we have discussed at so much length. On
the other hand, a very cheap war may prove burden-
some from the mode of dealino- with its finance. A
nation may go on living as usual, and the capital bur-
den will then prove very heavy. What usually happens,
in fact, is the submission by the generation which
carries on a war to the ^^^^^z-necessity of bearing a
large part of the cost. The Governments, to secure
credit for borrowing, if for no other purpose, must go
as far as they prudently can in imposing taxes. In-
dividuals who suffer loss of income have often no
capital which they can trench upon, and will they nill
they, must adjust their expenditure to their income.
Those who have capital will try every possible ex-
pedient to keep it from diminishing. It is in this way
that war, as a rule, is so quickly recovered from. A
large part of the cost figures only as so much privation
of those who carry it on.

Going over the items constituting the above total of
^546,000,000 scj^iatiju, we believe it will be found that
a very large part indeed is not a permanent loss of
capital, but is exclusively a loss endured at the time by

32 ECONOMIC INQUIRIES AND STUDIES

the various victims of the war. Taking first the French
expenditure, the principal item which became a per-
manent loss appears to be the direct expenditure by
the Government, amounting to ;^i 20,000,000. No part
of the extra war expenditure either of 1870 or 1871
was provided out of revenue. As regards 1870, the
case stands thus:

Budget of 1870.

Amount of peace expenditure ;^72, 440,000

„ war expenditure 62,840,000

Total expenditure ;2^i 35, 280,000

Estimated receipts, exclusive of loans . . 61,040,000

Deficit ^74,240,000

The receipts were thus insufficient to meet the current
peace expenditure, much less defray any portion of the
war expenditure.

As regards 1871, the account will stand:

Budget of 187 i.

Rectified amount of peace expenditure . ^70,840,000
Amount of war expenditure 35,082,000

;^I05,922,000

Estimated receipts, exclusive of loans . . 66,800,000

Deficit ^39,122,000

Here, again, the estimated receipts are insufficient for
the current peace expenditure.

The whole war expenditure of the two years has
thus been defrayed by borrowing, and constitutes a
permanent burden on the country.

The second important item is the sum of ^44,000,000
for fines and requisitions, but a large part of this amount,
if not the whole, will probably be defrayed out of
revenue. This would be the case with the French
taxes levied by the Germans, and a large part of the

THE COST OF THE FRA^XO-GERMAX WAR

requisitions, losses by fire and war, and the alleged
plunder of the Germans, would be dealt with in a simi-
lar manner by the individuals concerned. They make
claims for reimbursement against their Government,
but in the meantime they have charged the expense to
revenue, and not to capital. How much has gone to
the one account and how much to the other it would
be impossible to say, and to divide the amount equally
between the two heads where there are absolutely no
data will perhaps be the safest plan. On the other
hand, the Parisian contributions of ^12,000,000 have
certainly been charged against capital. The whole
item of ^44,000.000 may therefore be distributed as
follows :

Charged against Capital.

Parisian contributions . . ^12,000,000
One-half of remaining items 15,064,000

^27,064,000

Charged against Revenue.

Taxes levied by Germans . ^1,960,000
One-half of remaining items 15,064,000

1 7,024,000

Total as above ^44,088,000

The direct expenditure of Germany, ^60,000,000,
was also defrayed entirely by loans, or by contributions
of the French indemnity, which were entirely supplied
out of special loans raised by the French Government.

The remaining item of ^10,000,000 which we have
mentioned as the capital value of the new war pensions
is also a capital charge.

We come, then, to the indirect expenditure. The
loss of income through the suspension of business was
substantially a charge on the income of individuals.
Many people, as we have explained, had no capital to
fall back upon, and the unwillingness of owners of
capital to trench upon it is also quite intelligible. In

I. D

34 ECONOMIC INQUIRIES AND STUDIES

fact, all accounts from France agree in the statement
that nothing could exceed the desperate pinching of
the people during the progress of the war. Some
capital, however, must have been lost through this
loss of income, in consequence of savings which would
otherwise have taken place not having been made. All
the usual savings would not be prevented, the pinch-
ing being most unequally distributed, but say two-thirds
were prevented. We should then have a loss of capital
due to this cause amounting to about ^60,000,000, the
annual savings of France being at least ^60,000,000,
if not more, so that the usual savings for eighteen
months would be ^90,000,000.

On the other hand, while Frenchmen individually
may have pinched to the extent of the ^150,000,000
which we have estimated as their loss of income, they
increased the burdens of the State by not paying taxes
enough to meet the usual peace expenditure. The
difference on this head in 1870 was ^11,000,000, and
in 1 87 1, 2^4,000,000 — a total of ^15,000,000 falling to
be added to the amount of savings prevented. We
must also deal in the same way with ^4,000,000 of
Paris revenue lost, making the total charge to capital
;^79,ooo,ooo.

The second item of indirect loss, amounting to
£1 12,000,000, is also a charge on capital, representing
a permanent deficiency of earning power.

As regards German indirect expenditure, it may be
considered that in the circumstances it has nearly all
been borne by income. ^50,000,000 is not a very large
deficiency, and would be easily covered by the priva-
tions of those concerned, while the saving of other
classes in the actual circumstances of the war may have
gone on as usual. We may divide the amount equally,
however, between capital and revenue.

Summarizing the account just given, the whole war
waste, exclusive of the value of destroyed or injured
lives, will have been borne by capital and revenue as
follows :

THE COST OF THE FRANCO-GERMAN WAR 3 =

France.

Capital. Revenue.

Direct war expenditure of France . ;^i 20,000,000 —

Requisitions, fines, etc 27,062,000 ^^i 7,022,000

War pensions of France .... 5,000,000 —
French loss of present income . . 79,000,000 71,000,000
Capital value of depreciation of

French earning power . . . . 112,000,000 —

Germany.

Direct war expenditure of Germany 60,000,000 —

German indirect losses .... 25,000,000 25,000,000

War pensions of Germany . . . 5,000,000 —

Total for France and Germany ;;^433,o62,ooo ^113,022,000

Four-fifths of a total expenditure of ;/^ 5 46,000,000
which we consider to be the expenditure, exclusive of
lives destroyed, may thus be considered a capital charge
upon the resources of the communities concerned. It
is probably equal to about five years' savings of France
and Germany combined.

The distribution is, of course, very unequal, the
capital loss to France being ;^343,ooo,ooo, and to Ger-
many only ^90,000,000; and the revenue loss to
France being ^88,000,000 against ^25,000,000 pri-
marily paid by Germany. But this and other inequalities
in distributing the burden, we reserve for further dis-
cussion.

We need state very briefly the conclusions from these
facts. Even a loss of capital of ^400,000,000 cannot
be considered a very serious drain on the resources of
two such countries as France and Germany. Four
years' saving will very soon be made up, say in two or
three years, for one-fourth of the loss consists of sav-
ings prevented during the period of the war, viz. :

French savings prevented ^{^79, 000,000

German ,, ,, 25,000,000

Total ;!^io4, 000,000

36 ECONOMIC INQUIRIES AND STUDIES

SO that there is only ^300,000,000 of actually stored-up
capital wasted, and requiring to be made good by sub-
sequent thrift. In three years, then, the people of the
two countries should be as well off as they were before
the war, if no other circumstances had to be considered.
The war would still have injured them and thrown
them back. Although in three years' time they might
have been as comfortable as they were before the war,
they would not have been exactly as if the war had
not happened, because the intermediate savings which
now make good a past loss would wholly or in part
have been added to the previous wealth. Probably at
some early date they might have caught up their lost
ground in the race by more energetic saving, so that
there would have been little permanent loss of capital
after all. Such saving would of course increase the
amount of the losses of the war which would have been
charged to the revenue of the existing generation, but
the effect in diminishing the permanent loss of capital
is all that we are now considering.

Nor could the loss of permanent capital be thought
very severe if it had fallen on the two nations in the
proportions originally defrayed by them. To Germany
the loss would only have been ^90,000,000, viz. :

;^6o, 000,000 for direct expenses.
5,000,000 for war pensions.
25,000,000 for indirect expenses.

;^9o,ooo,ooo in all,

— which is no very great amount, probably about one
and a half years' savings. To France the loss would
have been four times as great, viz. :

^120,000,000 direct Government expenses.
5,000,000 war pensions.
27,000,000 requisitions, etc.
79,000,000 present income charged to capital.
112,000,000 depreciation of earning power.

;^343,ooo,ooo

THE COST OF THE FRANCO-GERMAN WAR ^J

— or about one-half more than if the amount had been
equally divided, and equal perhaps to five years' savings
instead of three. France therefore mio"ht have been
expected to take two years more to recover than if
that equal division had taken place. That is to say, it
would have been five years after the war instead of
three before the lost ground was recovered. No doubt
the means of saving would be diminished by the interest
which must be paid on the lost capital, but the former
rate of savinp-, as w-e have already explained, will, for
other causes, be increased rather than diminished.

We have still, however, to look at the subject from
another point of view. The arrangements at the peace
have complicated the question by shifting the burden,
and perhaps more than the burden, on to the shoulders
of only one of the belligerents. What changes have
thus been made in the effects of the war losses, both
as respects the total charge, and as respects the per-
manent loss of capital which each has to bear?

V. — The Indemnity and Cession of Territory

AND THEIR RESULTS.

There are two ways in which the incidence of the
burdens of the war was changed by the terms of the
peace. One of these — the money indemnity — is very
easily described. In addition to all their other burdens
and losses, the French people were made to pay to
Germany a sum of five milliards of francs, or two
hundred millions sterling. Germany had so much less
to pay, and France had so much more. And there are
no qualifications or deductions to be made. The value
of the Alsace and Lorraine Railways, amounting to
^13,000,000, was indeed deducted, but only as between
the Governments of France and Germany. As they
belonged to a French company which had other lines
in French territory, and had close connections with the
French Government, Germany preferred to buy them,

38 ECONOMIC INQUIRIES AND STUDIES

and instead of doing so by an actual payment in cash,
deducted the value from the money indemnity it had
to receive. But the French Government in turn had
to come under obligations to the Railway Company
for the amount. It bought the railways at a stipulated
price, and transferred them to Germany at the price of
;^i 3,000,000, in place of paying Germany so much
money. This was no real deduction from the total
indemnity of ;^20o,ooo,ooo which was stipulated to be
paid. Nor are any deductions, at least none worth
speaking of, to be made on account of delay in the
terms of payment. The stipulations of the Treaty are
precise — ;^40,ooo,ooo to be paid within a year, and
the remaining ^160,000,000 within three years after
ratification, but of this latter amount ^120,000,000 is
to bear interest at 5 per cent, from the date of the
Treaty till payment. Any deductions, therefore, to be
made for delay in payment apply only to a sum of
^80,000,000, and of this sum ^^40,000,000 was in any
case to be paid within a year, while the guarantees for
paying the remainder were so stringent that the French
Government in fact took care to pay the whole
i^8o,ooo,ooo by the beginning of March in the present
year [1872]. The haste of payment caused the French
to pay a good deal on account of commissions to
bankers and loss by exchange, and these are a set-off
against any advantage gained by having to pay no
interest from the ist of March, 1871, to the time of
payment. France has thus had to pay to Germany
^200,000,000 net.

The other mode in which the incidence of the war
losses and expenses was changed, and the burden
shifted from one belligerent to the other, may require
a little explanation. This was the cession of the greater
part of Alsace and Lorraine to Germany, viz., the de-
partments of Haut-Rhin, Bas-Rhin, Moselle, and parts
of Meurthe and the Vosges. The territory in question
was ceded without any deduction for the value of the
public property it contained, or for the share of the

THE COST OF THE FRANCO-GERMAN WAR 39

French debt estimated to belong to it, or for its
estimated value as a source of revenue. The effect of
this arrangement necessarily was to increase the burden
of the charges of the French State on the diminished
territory and people. The diminished France was also
less able to bear any increase of debt and taxes. It
may be said, perhaps, that France was additionally
burdened by no deduction being made for the debt,
but nothing more, as the other expenses of government
ought to be proportioned to the smaller area ; but this
is a narrow w?y of looking at the burdens of a great
Power. A change of one or two millions in its people
either way leaves it in pretty much the same position
as it was before as regards its international duties and
dangers. It is still practically the same unit, and most
of its expenditure must be determined without any
reference to the increase or loss of territory. The
cession of territory, therefore, is a real loss, and its
acquisition a real gain, without any drawback in either
case so far as the material resources and taxpaying
powers are concerned. France lost and Germany gained
in a most distinct and measurable degree by the transfer
of the two provinces from the one to the other.

The loss, measured by population, is about the one-
and-twentieth part of France. According to the census
of 1866, the population then was 38,067,000, and the
cession would reduce the number by 1,597,000. As
the debt of France after the war is close upon
;^ 1, 000,000,000, it would follow that the diminished
France has, in fact, been burdened with an additional
debt of about ^50,000,000 beyond what it would have
to bear if the provinces had not been ceded. And the
total addition to its burdens would be more than double
that, as the interest of the debt is only about half the
annual State expenditure which the French people
have to meet.

There appears to be a more exact way of looking
at the matter, however, and that is by comparing the
revenue-yielding power of the ceded provinces with

40 ECONOMIC INQUIRIES AND STUDIES

that of the rest of France. The comparison is not
difficult to arrive at. The State revenue of France
before the war was as nearly as possible ^75,000,000,
of which, as we have seen, the amount yielded by
Alsace and Lorraine was ^2,400,000. The ceded pro-
vinces, therefore, were hardly equal in economic vigour
to the one-and-twentieth part of France, and their share
may be more fitly stated at the thirtieth part. Still the
deduction of a thirtieth would represent a very con-
siderable sum, and the share of the increased debt
alone would be upwards of ^33,000,000. Double that
amount, as above, would make the French loss of
capital by the cession ^66,000,000. Perhaps the fol-
lowing will be the most accurate way of arriving at an
estimate. The revenue ceded at twenty years' purchase
— which is not an excessive estimate for a country
which has to borrow at 5 per cent, and upwards —
would represent a capital of ^48,000,000, but as France
has had to increase its revenue one-third, we may con-
sider that Alsace and Lorraine could have paid at
least one-third more, or ^3,200,000, making the equi-
valent capital at twenty years' purchase ^64,000,000.
We may consider, therefore, the loss of Alsace and
Lorraine to France as equivalent to a loss of
^64,000,000. In the case of any ordinary cession, half
of this sum would at least have been allowed as the
share of the debt, and the province was at least worth
half as much aofain.

Some small allowance ought perhaps to have been
made for the diminished expense of collecting the
revenue and the diminution of one or two other charges,
but suppose a tenth to be allowed— and this would far
more than cover the savingf in collecting the revenue —
the capital loss to F'rance on account of the cession
would still remain about ^60,000,000. Per contra,
however, we ought to have added as part of the French
loss the value of national property in the two provinces.
The public buildings, fortresses, and similar property
represent very large sums, and we cannot be far wrong

THE COST OF THE FRANCO-GERMAN WAR 4 I

therefore in retaining ^^64, 000,000 as the figure for the
total loss.

Such, then, has been the result of the arrangements
forthe peace. Germany gets^264, 000,000 to setagainst
her outlay and losses, and France has ^264,000,000
more to pay. To both countries the change makes an
enormous difference in the final accounts of the war.

To begin with Germany, the curious fact will be that
the war in a material sense has yielded a profit instead
of a loss. Her losses, as we have seen, were only about
;!^ 1 45,000,000 (viz., ^60,000,000 direct outlay of
Government, ^ 5,000,000 for new pensions, ^50,000,000
for loss of income and capital, and ^30,000,000 for loss
of life). The war having brought in ^264,000,000, she
is a gainer of the enormous amount of £1 19,000,000.
This is putting her loss in the most extreme form.
Omitting, however, the very exceptional item for loss
of life, the losses and outlay of the surviving com-
munity can only be put at ^115,000,000, and as they
have got ^264,000,000, the net gain by the war is
;^ 1 49,000,000, or, in round numbers, one hundred

AND FIFTY MILLIONS STERLING.

The result is still more striking if we consider only
the permanent loss of capital. Germany, as we have
seen, lost permanently, that is spent out of capital
instead of out of revenue, only about ^90,000,000.
The above ;/^264, 000,000, however, is all capital, so
that Germany begins the world again after the war
with ^174,000,000 to the good. Whatever justice or
injustice there may have been in exacting an indemnity
from France, there need be no disofuisinor the fact that
the indemnity not only makes good losses, but actually
enriches Germany. It is about as much to the Germans
as two years' arduous savings, if not more, and no
such windfall, it may be safely said, ever fell to the lot
of any community as the result of seven months' war.
To be quite just, we must, of course, recognize that the
gain by such a cession as Alsace and Lorraine is very
apt to be lost to the nation, the Government taking

42 ECONOMIC INQUIRIES AND STUDIES

care to spend the additional money it gets, and not re-
mit the taxation of its subjects in proportion. Even
the gain by the indemnity will be less than a similar
accession of capital by industrial savings would be, be-
cause it will be received by the Government, and not
by individuals. But after all deductions, no such
money can come into any State without adding to the
general means, and enriching every single member of
the community. The prospect of such an indemnity
more than justifies the eager expectation with which the
Germans have discussed its payment.

What Germany has gained France has lost, and as
regards France, the net result must be to swell its
already gigantic losses to an enormous total. The
whole cost primarily borne, excluding the doubtful
estimate for the value of the lives lost or injured, was
;^43 1 ,000,000, viz. :

Direct expenses of Government . . . . ;^i 20,000,000

Requisitions, fines, etc 44,000,000

War pensions 5,000,000

Loss of income, 1870-71 150,000,000

Depreciation of French earning power . . 112,000,000

Total ;^43i,ooo,ooo

To which we must now add, —

For indemnity ;jr2oo,ooo,ooo

For ceded territory . . . 64,000,000

^264,000,000

Total ;^695, 000,000

making in all the formidable sum of ^695,000,000, or,
in round numbers, seven hundred millions sterling.
This is of itself very nearly as much as the English
National Debt, and very much more than the National
Debt of France before the war. Excluding any direct
estimate for lives lost and injured, this is the total loss
strictly falling upon the surviving French community,
and either borne by them out of their current income,

THE COST OF THE FRANCO-GERMAN WAR 43

or paid by capital on which they will have to suffer a
loss of interest in future. The amount is truly enor-
mous,— more than one year's aggregate income of the
people, and six times as much as the entire annual
revenue of the State, both for national and local pur-
poses.

The permanent loss of capital is almost equally
serious. The amount so lost, apart from the indemnity
and cession of territory, was about ^340,000,000, and
the losses now being dealt with being entirely from
capital, the total permanent loss of capital will amount
to ^600,000,000. While Germany therefore starts in
the world about ;^ 174,000,000 richer by the war,
France is rather more than ^600,000,000 poorer. In
this case there is no doubt about the effect of the loss
of territory. Whether the Germans gain by it in-
dividually or not, it is certain that every Frenchman
loses. The three millions of revenue which the ceded
provinces could have been made to yield are missed in
the French budgets, and their absence aggravates
materially the difficulty of the search for new taxes —
in other words, compels the French Government to
impose indefinitely more disagreeable burdens on the
diminished population than would otherwise have been
required.

We can now obtain a comprehensive view of what
the war has really cost the French. Divided among a
population of 36,500,000, the total of ;^695,ooo,ooo
represents a sum of ^19 per head, or, taking the
average French family as four persons, a sum of ^76
per family. This was the entire cost of the war pay-
able out of revenue and capital, but nearly an eighth was
paid out of revenue, and the remainder, ^603,000,000,
which is the burden upon capital, represents a sum
of ^16 10s. per head. The English National Debt at
this moment is ^26 per head, so that in one short war
the French have lost three-fifths as much capital per
head as the individual share of the English people in
that debt which has hitherto beenreQ:arded as the most

44 ECONOMIC INQUIRIES AND STUDIES

gigantic and oppressive burden upon the resources of
a nation.

In comparison with the aggregate annual income of
the French people, the loss is, roughly speaking, about
one year's income, and estimating the annual savings
at about ^60,000,000, must be about ten times the
amount of these savings. In ordinary circumstances,
therefore, it would take nearly ten years for France
to recover lost orround. Without the loss of terri-
tory and without an indemnity to pay, the French had
lost as much as would probably have taken five years
to recover, but the indemnity and the cession very
nearly double the wound. For reasons already sug-
gested, the period of recovery may, in fact, be less —
will probably be very much less — but the natural effect
of the loss is to put France about eight years behind
in its industrial career.

The greater part of the capital loss, it should be
understood, falls upon France collectively, that is, upon
the French State. Of the above total of ^603,000,000,
only two items will finally be borne by individuals, viz.:

Current loss of income borne by individuals ;^6o,ooo,ooo ^
Other indirect losses 112,000,000

Total £'i^l2,<.

leaving ^431,000,000 to become a charge upon the
State. This sum is made up as follows:

Direct expenses of the war p^i 20,000,000

War pensions 5,000,000

Requisitions, etc 27,000,000

Indemnity 200,000,000

Cession of territory 64,000,000

Loss of individual income in 1870-71 thrown

on State by diminished payment of taxes . 15,000,000

Total = ^,^43 1,000,000

^ The aggregate lossof income was estimated above at^i5o,ooo,ooo,
and the amount charged to capital was ^79, 000, 000, viz., ^^60,000,000

THE COST OF THE FRANCO-GERMAN WAR 45

And the charge upon the State may be increased,
and that upon individuals diminished, should the State
finally repay not only as much of the requisitions as we
have assumed to be charged to capital in private
accounts, but the whole amount. That the charge is in
no way exaggerated will be readily seen, if we com-
pare the actual cash transactions of the French Ex-
chequer during the last few months with the obliga-
tions which are still impending, and if we also inquire
into the amount of the annual burden which will now
fall upon the State. The accounts of the Exchequer
will stand :

In the budget of 1870 the deficiency of re-
ceipts, exclusive of loans, was .... ^74,240,000

In the budget of 187 1 it was 39,122,000

The indemnity paid in 187 1, deducting value

of Alsace and Lorraine Railways, was. . 47,000,000

Total actually borrowed .... /^i 60,362,000

To this we must add obligations outstanding at end of 187 1, and
the capital value of annual charges incurred without actual borrow-
ing, viz. :

Indemnity remaining due after 187 1 (three

and a half milliards) ;^i40,ooo,ooo

Value of Alsace and Lorraine Railways . . 13,000,000

New war pensions 5,000,000

Requisitions, etc 27,000,000

Ceded territory 64,000,000

Amount of special budget for liquidating

arrears of war 20,000,000

Total ^^429,362,000

At 5 per cent, the amount would involve an addi-
tional annual burden of about ^21,000,000, and we
find that, in fact, if the charge is less, it is due to a

of individual savings prevented, and 19,000,000 charged to the State
and to Paris by the payment of taxes being diminished, so that the
revenue in 1870-71 was insufficient for the ordinary peace expenditure
by ^15,000,000.

46 ECONOMIC INQUIRIES AND STUDIES

species of forced borrowing from the Bank of France
at less than the market rate of interest. The French
Government affirms that its agreement with the Bank
is no injustice to the shareholders, the monopoly of an
extended note-issue enabling the Bank to lend cheaper,
but if the monopoly is worth much to the Bank, it
would have been worth much to the State, and the
transaction is, in fact, a sale by the Government of a
certain privilege for the difference between the rate of
interest which it does pay and what it would have to
pay borrowing at the market rate. The additions to
the annual charge of the debt traceable to the war as
shown in the budget of 1872 are as follows :

Interest on loan of ^80,000,000 (in 1871) . ;^5,556,ooo

,, ,, 30,000,000 (in 1870) . 1,584,000

„ ,, 10,000,000 (in 1870) . 600,000

„ ,, from Bank 367,000

,, payable to Eastern of France Railway

for Alsace Railways 650,000

,, payable to Germanyon^i 20,000,000

of indemnity at 5 per cent. . . . 6,000,000

New military pensions 148,000

Total new debt charges in budget . . ^14,905,000

Add,

Alsace and Lorraine revenues lost .... ^3,200,000
Difference between interest paid to Bank and

interest payable at 5 per cent 2,633,000

Interest on requisitions, etc. (27,000,000) . . 1,350,000
Five per cent, interest on ^20,000,000 for

special budget to liquidate war-arrears . . 1,000,000

Total annual charge ;^23,o88,ooo

The whole charge before the war for "debt and
dotations" was ^22,300,000, so that it is no exaggera-
tion to say the annual burden has been really doubled
by the war and its consequences to France. The whole
additional charge which yet appears in the budget is
^14,900,000, but more than ^3,000,000 must be added

THE COST OF THE FRANCO-GERMAN WAR 47

for loss of the revenues of Alsace and Lorraine, and even
if we add nothing for the interest under-paid to the
Bank, there are still two sums amountinof tosfether to
over ^2,000,000 in suspense, which the State must
undertake to pay before it can fully discharge all the
arrears of the war. If it does not pay the ^27,000,000
for requisitions claimed — only a part of the total claim
— the charge on individuals and local authorities will
be increased, but it can in no way escape the burden of
;^2o,ooo,ooo for liquidating the arrears of the war.

The amount is of course an unprecedented addition
to the annual burdens of a people by the events of one
calamitous year. Taking it at ^22,000,000, it amounts
to i2s. 2,^. per head annually upon each inhabitant of
France, or about 49^-. per family. It is nearly equal to
the annual charge for interest on the National Debt of
England, for though the whole annual charge which
appears in our budgets is ^27,000,000, yet the interest
at 3 per cent, on ;!/"8oo,ooo,ooo — and we do not pay so
much as 3 per cent, on the whole of it — is only
^24,000,000, the difference between that amount and
the actual charge being, in fact, an annual appropria-
tion to repay the capital of the debt. In one year, then,
France has added to her annual State burdens, besides
the loss of individual capital, as much as the entire
charge of our accumulated debt.

Whatever way we look at the matter, then, we can-
not but be impressed by the enormous magnitude of
the loss which France has sustained. The war itself
was not so very costly if both nations had but divided
equally the actual outlay of the Governments, and
fought their battles on some debateable land without
incurrinor the terrible losses of an invasion. But P" ranee
was in fact invaded, had to bear the losses incidental
to that state, had to pay, as the war went on, a large
part of its invaders' costs, and in the end had to pay
an indemnity and suffer a loss of territory which nearly
doubled its losses. The loss of capital and the addition
to the national debt are enormous, while several years

48 ECONOMIC INQUIRIES AND STUDIES

must elapse before France, at the ordinary rate of pro-
gress, is even at the point of industrial prosperity which
she had attained before the war,

A remark or two may be allowed on one or two
points suggested by these facts. Will Germany, in fact,
really gain much by the indemnity and additional
territory in a material point of view? The capital is
really a loss to France, and the Germans ought to
gain, but will they really do so ? If they do not, the
transaction will be a net loss to the world, as well as a
special loss to France. To some extent it must be so.
The money is taken from individuals and goes into the
hands of a Government, and this is a disadvantageous
change. Even if the German Government uses the bulk
of what it receives in paying off the national debts of
Germany, so that the money comes back to individuals
again, it will have been a long time in transitu — con-
sequently, for a long time in a condition of impaired
efficiency. The operation is, therefore, a net loss to the
world, and Germany will be far from gaining all that
France will lose. We need not add that if the German
Government should devote the money to any extra-
vagance— to some fancied Imperial necessity or caprice
— the loss will be very serious indeed. The operation
will have all the effect of a great loan for a pernicious
purpose, and it will make no difference that the Govern-
ment which borrows is not the Government which
ultimately receives the money. So far as matters have
yet gone, however, the indemnity appears to be fairly
well used in an economic sense, though it is producing
some effects which it is difficult to trace. The chief good
uses are the establishment of a gold currency for Ger-
many, the repayment of German debts, and as a result
of these the reduction of German taxes. By all these
operations the money which the German Government
has got is being put to useful ends, though it cannot be
said it is so useful as it would have been if it had never
been transferred at all. Another purpose which the
monev has been made to serve is of a more doubtful

THE COST OF THE FRANCO-GERMAN WAR 49

kind. The German Government having large surplus
funds in hand has become a lender on a great scale, and
is the means of supplying German speculators and
traders, and through them speculators and traders in
England and throughout the world, with stores of cheap
money. The money which Germany pours into the
market competes with the ordinary loanable capital,
and has prolonged the period of very cheap money
which set in with 1867. Is the effect of this diversion
of capital in the end to be good or bad ? Probably it
makes trade more prosperous for a time than it would
otherwise be, so that one result of the French indemnity
is to give a bonus to the trade of England, because
England attracts the surplus money of the world, but
it would be hazardous to say that an effect so artificially
produced will in the end prove a benefit at all. Trade
and speculation get to depend on the artificial stimulant,
and the crash that may come on its withdrawal, of
which there was a foretaste last autumn, may more
than destroy all the unusual profits it has created.

The second point to be noticed is the probability of
France recovering with unexpected speed. At its es-
timated past rate of saving we have been inclined to
give it ten years to recover, and to save ^60,000,000
effectually each year it must really save ^"20,000,000
more than it did before, for there is so much more
taxation to pay. But all the chances are that the past
rate of saving will be greatly increased. The anxiety
of each individual in a nation which is habitually thrifty
will assuredly be to make up for the storm which has
passed over them by the most desperate industry and
saving. They will seek in a year or two not only to
recover lost ground, but to place themselves at the
point of prosperity which they had looked forward to
reach at a given period of their lives. It would not be
at all surprising if the phenomenon to be witnessed in
France for the next year or two were the multiplication
of the national wealth by the doubling or trebling of the
former savings of the people. A few years' savings of

I. E

50 ECONOMIC INQUIRIES AND STUDIES

only ^100,000,000 would go a long way to fill up the
chasm which has been made in the national resources;
and a single bountiful harvest at such a time would be
greedily made use of to repair the waste which is still
fresh in every one's remembrance. France is very far
indeed from being exhausted, though taxes are now
difficult to find. A revenue which has augmented a
million annually for many years is sure to have im-
mense elasticity. The existing taxes must soon provide
for all needs, if only the fatal habit of deficits in time
of peace is scrupulously shunned.

VI. — The Finance of the War and the
Money Market.

Owr fourth question was the effect of the war losses
and expenses and the financial arrangements made to
meet them on the money markets of the world, H ither-
to we have been dealing only with the economic aspect
of the war in its most general form — with the effect of
losses and expenses which all belligerent communities
are liable to feel, whether they possess the elaborate
machinery of the modern money market or not. We
have now to inquire how that machinery is affected or
disturbed by war, and in what special way the last war
operated and may still operate. Properly speaking this
might have been a branch of the other parts of the
inquiry, the losses or gains which arise to the world
from war through its influence on the money market
being an addition to or a set-off against all the other
losses which are otherwise traceable to it, but it is con-
ceived that it would have been inconvenient to deal
with the subject in this manner. The losses or gains
at the best would be quite incalculable, and the nature
of war influences on " money " is in reality so intricate
and important a topic as to justify separate treat-
ment.

The common opinion — and in the usual case perhaps

THE COST OF THE FRANCO-GERMAN WAR 5 I

the true opinion — about the effect of war on money is
very simple. War, it is understood, makes money dear.
It creates a new and heavy demand on the circulating
capital of the world, and must enhance the value of
that capital. But this opinion carries us a very little
way in studying the effects of the last war. The
phenomena we meet are various. First came a spasm
of dear money just at the outbreak of the war; then a
long period of cheap money, lasting all through the
war and for some months after it; then another spasm
of rather dear money, and again a prolonged period of
cheapness. At present it would be hazardous to say
that it now tends in any way to make money perceptibly
dearer. It n ay be said that after minor fluctuations
economic theory will come right in the end, but the
circumstances are perhaps enough to raise a doubt of
the universal applicability of the theory. It is plain that
in a war like the last it will be more practical to under-
stand the laws of variation from the usual result than
to rest contented with the knowledge of what the usual
result may be.

To understand the matter thoroughly, it is submitted,
the money market must be looked at in two different
aspects. There is first of all its singular liability to
momentary and superficial disturbance. The money
markets of the world are now so much interconnected
as to make practically but one market, with London for
the centre, and the organization of this central market
is of the most delicate sort. It is so contrived, by
means of a hierarchy of banks and discount houses
centring in the Bank of England, that in ordinary times
the money it contains is made to go as far as possible,
but when anything goes wrong the strain is very severe.
The complete abstraction of any considerable amount,
though it may be small in comparison with the ag-
gregate transactions of the market, may disturb largely
the current relations of supply and demand, and its
effect will be multiplied tenfold by the sensitiveness of
all concerned and the precautions they are induced to

52 ECONOMIC INQUIRIES AND STUDIES

take. The natural structure of the market is such that
this liability to disturbance must always be great; but,
as if to intensify the evil, the natural means by which
a sudden demand could be tided over and alarm allayed
has been artificially destroyed. The expansion of the
note-issues of great banks, when there is a sudden de-
mand for money and the credit of the note is not
shaken, is the obvious method of meeting a sudden
strain, but Peel's Act forbids the exercise of any such
power in London by the bank which has the monopoly
of issue. Now that the inelasticity of the Act has be-
come familiar, each sudden disturbance is liable to be
increased in severity by the knowledge of all concerned
that the natural remedy for it cannot lawfully be used.
The second aspect of the market is the more general
and important one of steady and periodic change, ac-
cording as the supply of circulating capital exceeds or
falls short of the demands of borrowers in the market.
We must make a broad distinction between these two
different aspects of the market in studying the effects
upon it of war or of any other cause which produces
large financial operations.

As respects the first aspect of the market, we do not
think there can be any doubt as to the probable effect
of a great war. It can hardly fail to cause the most
serious spasmodic disturbance and a short period of
dear money. Many of its demands are likely to be of
extreme urgency, and the precautions which its out-
break and some of its incidents necessitate on the part
of all who have money engagements to meet are also
likely to be extreme. There is something formidable
in the very name of war. But the dear money thus
produced is only temporary and occasional, unless per-
haps the temporary panic should be converted into a
prolonged convulsion, a possibility which may be some-
times very threatening.

The effect of war on the money market, looked at in
its second aspect, does not appear to be so clear. No
doubt war absorbs capital, and the natural tendency of

THE COST OF THE FRANCO-GERMAN WAR 53

such an absorption, whether resulting from war or any
other extravagance, should be scarcity of capital, for
which accordingly higher rates would be charged. But
when we examine the matter carefully we find that the
effect of the absorption of capital is one of circum-
stances and degree. Much will depend on the amount
of the war requirements, and great as these often are,
we should not fororet the mag^nitude of the market out
of which the supplies have to come. Though the
market may be so delicate as to quiver to a sudden
demand of insignificant amount compared with its total
business, its real resources are enormous, and if time
is only given the most extravagant expenditures may
be supplied '"ithout a shock. For such a purpose, it
may be repeated, all the markets are one. Even if
France and Germany had been unable to launch their
loans in London, they would still have supplied them-
selves from the common resources of the European
markets. French and German securities would have
been sold abroad that Frenchmen and Germans might
subscribe to their own loans, and as regards any effect
on the money market, this is almost an equivalent pro-
cess to having a loan subscribed in London. The ques-
tion of circumstances is even more important. Accord-
ing as the war comes at a period when the current
savings of the chief industrial communities are small
or great, its effects will be serious or the reverse. If
savings are abundant, the expenditure may be met out
of surpluses which it might otherwise be difficult to
employ. What is perhaps still more important, there is
one secondary effect of war which in the actual circum-
stances of modern industrial societies will always help
to counteract the tendency to dearer money which is
the direct consequence of the war expenditure itself.
This secondary effect is the diffused apprehensiveness
and limitation of enterprise which war on a great scale
between two leading members of the society of nations
invariably produces. As thus viewed, war provides the
capital for its own sustenance by checking the employ-

54 ECONOMIC INQUIRIES AND STUDIES

ment of capital in other directions. It may be quite
true, perhaps, that all the while the belligerent com-
munities gradually get poorer, but this process appears
to be really consistent after all with an easy money
market. So long as capital is found for war by with-
drawing it from other pursuits, the effect on the borrow-
ing and lending markets will be nil. People will have
less to borrow and lend, but the supply will be adjusted
to the demand, and the rates will not be dearer. It
would be the tendency of a prolonged war, of course,
for the demand to outrun the process of diversion from
other pursuits, but until that process is outrun, money
will not grow dearer. The point is that war, to cause
dear money, must not merely produce a great demand
— it must produce a certain excess in the whole demand
for capital, whatever causes may be operating at the
time to increase the supply or to diminish other de-
mands.

The phenomena of the war and its after-effects, up
to the present date, suggest and confirm these views.
Andyfrj-/, as to the influence of war in causing spas-
modic disturbance. The first monetary spasm in the
war, in July, 1870, was clearly due to the precautions
lorced upon people who had money engagements to
meet. War was declared upon the 15th of July. On
the 2 I St the Bank of England rate was raised from 3
to 3^ per cent. ; on the 23rd, to 4; on the 28th, to 5 ; and
on the 4th of August, to 6— the rate having thus been
doubled in little more than a fortnight. All happened
long before the great spending and borrowingon account
of the war began, and the cause was notorious and
palpable. As the " Economist " ^ at the time explained,
we were "receiving securities from borrowers on the
Continent, who think that money is more easily pro-
cured in London than elsewhere. These borrowers are
mostly persons under heavy liabilities, and they send
for cash in time of danger because they feel that at any

' " Economist," July 23rd, 1870.

THE COST OF THE FRANCO-GERMAN WAR 55

moment they may be asked for cash themselves." At
the same time, foreign bankers having bills on London
sent them in for payment, and did not take fresh bills,
the same end of providing themselves being thereby
secured. The demand for gold was also increased in
London by the Bank of France exercising its option of
paying in silver. In other words, the crisis in London
was intensified by the precautions of the Bank of
France, which undoubtedly would have taken another
form had not this been open to it. We see, then, in a
moment, how war produces a spasm of dearness with-
out any of the expenditure which will ultimately act on
the market having even begun. Of course, the demand,
once begun was increased by the precautions of people
at home, and so the effect was great and immediate.
But a disturbance of this sort is very soon over. A week
after the rate was at 6, it was reduced to 5 1 ; a week
later, viz., on August i8th, it was reduced to 4 J; on
August 25th, to 4; on September ist, to 3^ ; and finally,
on September 15th, to 3 percent., the Bank all through
having followed the open market somewhat tardily,
but the whole period, nevertheless, commencing on
July 2ist, and terminating on September 15th, having
lasted less than two months. Taking it that the crisis
was really over when the rate was reduced to 4^ on
August 1 8th, the disturbance had, in fact, only lasted
a month.

The second disturbance was in no way more pro-
longed, and though it arose in a somewhat different
way, was distinctly traceable to a cause characteristic
of the war. The Germans in the autumn of 1871 were
receiving payment of a large part of their war indemnity.
Besides the fine of ^^8, 000,000 on Paris stipulated in
the armistice, and the other fines and taxes levied in
the occupied districts of France subsequent to the
peace preliminaries on 26th of February, 1 871, estimated
according to the table in the Appendix to amount to
^450,000—

56 ECONOMIC INQUIRIES AND STUDIES

Viz. : Contributions ;^59)Ooo

Direct taxes 285,000

Indirect taxes 106,000

;^45o,ooo

besides likewise the sums paid by the French Govern-
ment for the expense of the German army of occupa-
tion, which must have amounted at least to five or six
millions more — the Germans in 1871 received al-
together from France and on account of the indemnity
alone the large sum of ^47,000,000 in cash or bills.
This amount was paid, with the exception of a sum of
;^5, 000,000, between the 27th of June, when the
^80,000,000 loan was subscribed and the first days of
September, in the following form: ^

Cash paid at Berlin ^^^3 16,000

Commercial bills 32,915,000

Notes of Bank of France 5,000,000

French gold 4,360,000

5 -franc pieces 2,521,000

Bills of foreign banks 272,000

German money 1,831,000

Total ;^47,2i5,ooo

A large part of the bills fell due in London, and the
amount representing them had been transferred to the
credit of the German Government by September,
while other bills were to come due in November follow-
ing. Accordingly, the German Government, having
previously received large sums in cash which it had
locked up, was an unusually large creditor of Lombard
Street at the most difficult period of the year, and want-
ing gold for the purposes of a new German coinage,
suddenly exercised its power. The effect was almost
instantaneous. The gold in the Bank and the Reserve
rapidly fell off, and the rate was as quickly raised, as
the following table shows:

^ Budget of 1872, Introduction, pp. xxviii.-xxix.

THE COST OF THE FRANCO-GERMAN WAR 57

BULLION.

RESERVE.

RATE OF DISCOUNT

September 14

• ^24,159,000

14,424,000

per cent.

23,497,000

13,711,000

21,090,000

11,077,000

))

October 5 .

20,215,000

8,920,000

—

))

„ 12 .

19,173,000

8,064,900

))

The high rate in this case was maintained for five
weeks — a longer period than in the crisis of July and
August, 1870, but the Bank had only followed more
tardily than before the movement in the open market.
The spasm was in reality equally superficial and almost
equally soon over. In this case it did not, as in the
former one, arise from the acts of individuals acting in
view of the. war, and it may be said that it would not
have occurred if the German Government had been
careful to avoid it, but it is one of the incidents of such
large operations that the market is exposed to the
caprice or mistake of the operating Governments.
Precisely the same consequence might have followed
upon the acts of a Government in suddenly calling up
or discounting the instalments of a large loan.

While we speak of such disturbances as superficial,
it would be a mistake to underrate their consequences
and dangers. The chief sufferers in 1870 and 1871
were bankers and the Stock Exchange, principally the
latter, but no such disturbance can take place even on
the Stock Exchange without much private loss and
hardship to people who are not "speculators." It is
easy to conceive besides, that crises thus beginning
might have very wide effects, one crash leading to
another all through the world of finance and trade, and
there is no warrant that a future disturbance may not
have such effects, though the conditions necessary for
its development did not exist in 1870 or 1871.

The present war, therefore, has acted as we may
usually expect wars to do, in the production of spas-
modic disturbance. As regards the other mode in which

^ The rate was really raised to 5 per cent, on October 7, five days
before the usual weekly court, when the rate is changed.

58 ECONOMIC INQUIRIES AND STUDIES

war produces dear money — and that not temporarily,
but for a long period — viz., by the absorption of capital
— it will follow, from what we have said, that in the
late war there have been counteracting circumstances.
Speaking of the money markets of Europe generally,
money has been cheap and not dear for a long period
indeed, notwithstanding all the borrowing which the
war has occasioned. In France, no doubt, the rate has
been rather high, the Bank of France rate having risen
to 6 per cent, at the commencement of the war, and
been maintained at that figure till the 27th of February
last, a period of rather more than eighteen months.
But France is the only part of Europe where money
has been dear, and the rate there cannot be considered
very high, when it is considered that the brunt of all
the borrowing we have described had to be borne
originally by one country alone. It is doubtful, more-
over, whether so high a rate could have been main-
tained in France so lone but for the artificial nature of
Its currency and banking system, which have impeded
the free influx of money from the adjacent markets.
Had France been more en 7'apport with the rest of
Europe it would have been more quickly relieved from
sources so numerous as hardly to have felt the drain.
Even with this exception, then, we are entitled to say
that money has been cheap in Europe, notwithstanding
the war, and France is daily becoming less and less an
exception.

We should say, then, that in fact there were several
circumstances present to an unexampled degree during
the late war, which counteracted the usual tendency of
wars to produce a period of permanently dear money.
The war broke out, in the first place, at a time of the
most unprecedented prosperity— at the very flow of a
most prosperous tide, and before the usual following
of high prices and inflation had come to check the
profits. The money markets of Europe were therefore
well prepared to meet the unusual demand. Whether
they could have met it without sensibly dearer money

THE COST OF THE FRANCO-GERMAN WAR 59

had everything else gone on as usual may be doubted,
but the war, in fact, diffused a most unusual amount of
apprehensiveness, and if it did not prevent the con-
tinuance and expansion of ordinary trade, at least it
checked numberless new ventures of a speculative
kind. There is no doubt, however, that in F"rance
ordinary trade was checked to a large extent, that
being, as we have seen, one of the main causes of the
French indirect losses. Great as the loss thus caused
was, one result must have been that the French Govern-
ment would have fewer competitors in the home loan
market for means to carry on its struggle. A third
cause of *"he abundance of capital was the extended
issues of paper money in France. It is doubtful whether
the diminution of the demand for capital in France by
the suspension of business would not have been counter-
acted by the new demand which would spring up in
consequence of the old capital becoming of diminished
effectiveness through the destruction of the machinery
of credit; but if such a demand arose to any extent, it
was in turn compensated by the large issues of paper.
We shall not of course be understood to mean that
capital was created by this process. What is true is
that paper money economizes capital, and its issue has
all the effect for the moment of an increase of capital,
whatever bad results may afterwards ensue. In these
four ways, then — the occurrence of the war at a pros-
perous period in Europe, the diffused apprehensiveness
it produced, the suspension of trade in France, and the
extension of the Bank of France note issue — the natural
tendency of war to cause dear money by absorbing
capital was counteracted, and perhaps more than
counteracted. We have perhaps had cheaper money
longer than we would otherwise have had, if there had
been no war.

The effect in England has perhaps been greater than
in the belligerent countries in this way, that besides all
our own savings diverted from new enterprise by the
diffused apprehensiveness of the time, the disposition

6o ECONOMIC INQUIRIES AND STUDIES

has grown among foreign bankers and governments to
accumulate spare money in London. London is the
most convenient place for them to put their reserves,
the war illustrated in a most powerful manner its special
security, and one of the very steps by which the French
Government made its borrowinof easier— the issue of
inconvertible paper — also tended to increase the ex-
change business of London, and consequently the
foreign surpluses accumulated there. Paris had formerly
been a rival of London as an exchange centre, but with
inconvertible paper it could no longer compete. This
has certainly been a cause of cheaper money. Had
Paris and London continued to compete, more money
would have been required by their aggregate business
than is now required. The concentration of business
in one centre only cannot but produce an economy of
the instruments for carrying it on. The Paris money,
moreover, is now used by a more efficient mechanism
than it was used by in Paris, the agencies of the Lon-
don money market being altogether superior. A certain
amount of money has in this way been taken into a
new channel where the same amount of money does
more work than in the old channel. In every way,
then, the foreign money goes farther than ever it did
before.

Within the last three or four months there has been
an additional counteracting circumstance. The German
Government, instead of spending the money which is
the usual destination of the proceeds of war loans, and
instead of locking up the money as it did at one time,
which had a still more disastrous effect than even ex-
travagant expenditure, has taken to lending out a large
part — how much is not known — of the funds which it
has received. The aggregate loanable capital of the
world is thus artificially increased by the finance ar-
rangements in progress. Had the German Government
employed all the surplus money to repay debt, the
eftect would have been less, because there is always a
tendency for free circulating capital to become fixed.

THE COST OF THE FRANCO-GERMAN WAR 6 I

By the process of lending out, however, the money is
kept more in hand, and competes with the ordinary
supply of loanable capital in the world.

How powerful all these counteracting influences must
have been is shown by the large amount of the French
and German borrowings since July, 1870. The Govern-
ments alone have borrowed :

Germany ;/^5o,ooo,ooo

less repaid 20,000,000

France :

1870 Imperial loan . . ^30,000,000

1870 Morgan loan . . 10,000,000

1 87 1 loan 80,000,000

From Bank of France . 60,000,000

180,000,000

City of Paris loan .... 14,000,000

^30,000,000

194,000,000

Total borrowed ;^2 24,000,000

Money has not been cheap, therefore, because war did
not require much spending and borrowing. Large sums
have, in fact, been taken out of the market, though
plainly not larger than could easily have been met out
of the current savings of France, Germany, and Eng-
land, if only new enterprise was sensibly checked.

Something else has been taken out of the money
market by the private borrowings of French merchants
and manufacturers, but probably no large amount.
Such demands would necessarily be limited by the
deficient credit of the sufferers. The chief way, again,
in which these losses would be replaced would be by
the sale of securities, and it is noticeable that many
French securities are now cheaper than just at the close
of the war; but this may partly be due to the diminu-
tion in apparent value of the property represented by
these securities. In any case, it is clear that the sale
of securities has not checked to any material extent a

62 ECONOMIC INQUIRIES AND STUDIES

general rise in the value of such property on all the
exchanges of Europe. As that rise is due to the com-
petition of accumulated savings for investment, it is
clear that the private borrowings of Frenchmen have
not sensibly aggravated — any more than the public
borrowings — the general demand for capital.

The war of 1870-71, therefore, so far as it has gone,
though it has illustrated the usual tendency of wars to
cause disturbance in the money market, has hardl}'
illustrated their tendency to cause permanently dearer
money by the destruction of capital. It has illustrated,
on the contrary, the strength of the counteracting in-
fluences which sometimes exist. There is nothing in
the facts, however, to prove that these counteracting
influences are always likely to exist. War will always
cause diffused apprehensiveness, and invasion will sus-
pend trade, and probably extended issues of paper will
produce for a moment a new economy of capital, but
the coincidence of a period of great prosperity through-
out the world is not always to be looked for. Nor is it
likely that the money borrowed will be often lent out
in consequence of its being borrowed by one Govern-
ment and ultimately received by another. Such a very
favourable conjuncture for cheap money during and
after a war is not certain to occur aofain. As we have
already remarked, too, the war was not prolonged
enough to test what the destruction of capital would
lead to, or the tendency of war to outrun the process
of diverting capital from other employments, and so
make it in excessive demand. All that can be said is,
that in certain given circumstances a great European
war, which involved spending and borrowing to the
amount of over ^200,000,000 in about a twelvemonth,
did not produce dear money. In the circumstances
described, and with the means which the society of
nations now possesses, this scale of expenditure was not
large enough for such an effect to be produced.

But the account is not yet over; France has not yet
borrowed all she wants; Germany has not received all

THE COST OF THE FRANCO-GERMAN WAR 6

she is to get; we do not yet see how Germany will
dispose of what she does get. What effects may we yet
expect from the financial operations to be completed ?

On one point we think — viz., the possibility of spas-
modic disturbance — there can be very little doubt.
The German Government is still the holder of large
sums at call or at short notice. In addition to the
^47,000,000 indemnity money it got last year, besides
smaller sums, it has just got ^26,000,000 more, and
so far as is known it has spent only a part of the
money, not more than about twenty or twenty-five
millions, in repaying debt, and not more than ten
millions besides in miscellaneous purposes. We do
not reckon what it keeps for the new gold coinage, for
the coins will not be issued without a full equivalent
being received, so that their issue will not lessen its
power like a real expense. Germany has thus about
;^40.ooo,ooo still at its disposition, which it may use
for any object or any caprice it pleases. The absolute
disposition of so enormous an amount, is almost a new
power for any Government to possess, and increases,
we fear, the liability of the money market to accidents.
A Government which has the instalments of a loan to
receive has great command over the market, but the
German Government is in a superior position, having
lent out the money on its own terms, retaining a large
part of it at call or very short notice, and having in
any case the power of rediscounting, by which it could
convert the whole — or far more than enough to disturb
the money market — into cash at a moment's notice.

TheGermanGovernmenthasmoreover^' 1 20,000,000
still to receive, and the French Government must not
only borrow that, but considerable amounts besides.
Experience justifies us in believing that there is a
liability to accident in these operations, however
anxious the Governments concerned may be to avoid
them. What the state of matters will be when the
German Government has got the command of the
whole, in addition to all its previous command of the

64 ECONOMIC INQUIRIES AND STUDIES

market, we forbear to speculate. Even after paying
off all the debts of Germany, except the railway loans,
which are profitable investments — with this exception
not more than ^150,000,000 — the German Govern-
ment will have a large surplus, and it is not certain
that it will pay off all the debts. It may prefer rather
to lend out the funds, and have control of them, and
so avoid the necessity of ever borrowing again. Even
if it does pay off the debts, it will have annual accruing
surpluses, by which it will still possess control over
large amounts. There is thus no visible end to the
possibility of catastrophic action on the part of the
German Government on the money markets of Europe.
Nothing short of a great war or revolution can change
this disagreeable condition, under which monetary
business must now be carried on.

As regards the other class of effects, it appears at
first sight not improbable that the course of the market
may be pretty much what it has hitherto been. The
larger part of the actual borrowing is over, and sur-
prising as this fact may seem, considering what the
French losses have been, and that the borrowing of
France has only been ^194,000,000, it is not difficult
of explanation. A great many of the losses, though
real enough, do not affect the money market at all.
The loss sustained, for instance, by the cession of
Alsace and Lorraine requires no loan operation. It
takes the shape of a new rent-charge upon the re-
sources of France — for the retention of an old charge
upon a diminished property has precisely the same
kind of effect as the imposition of a new charge upon
a property which is not diminished — but though the
loss is a real one and will diminish in future the aggre-
gate net income of Frenchmen, it has not the effect of
the destruction of so much capital, which had to be
taken out of the money markets where it was used.
The same remark applies to the loss caused by the
creation of new war pensions. The losses endured at
the time and charged upon the annual income are also

THE COST OF THE FRANCO-GERMAN WAR 65

settled, and cannot now affect the money market. The
individual loss of capital, and the loss represented by
the depreciation of annual earning power, will also have
a smaller effect than would be supposed from their
apparent amount. So far as they consist of savings
prevented, the world is poorer by a capital which would
otherwise have existed; but the undertakings which
the capital would have supported — that is, the demands
upon the capital — have diminished too. The loss by
depreciated earning-power would only be partially
mitigated by loans, and it implies, moreover, the
diminished credit of the borrowers, so that the effective
demand on the aggregate oapital of the world is far
from being in proportion to the loss. The whole market
is smaller, but the supply is adjusted to the demand.
In this way, then, it happens that the larger part of
the borrowing is over. The amount borrowed, even
deducting what Germany has repaid, and not includ-
ing private borrowings, has been ^224,000.000, and,
so far as can be seen, France will be clear, if it only
borrows about ^120,000,000 to pay off the indemnity,
and ^40,000,000 more to liquidate arrears. It is prob-
able, too, that most of the private borrowings have
already taken place, the earliest opportunity having
been seized to restore establishments and resume
business as completely as diminished means would
permit.

It has also to be remembered that the greater part
of the future borrowings will not be for purposes of
expenditure, but only to transfer capital from one set
of people to another. The money taken from the money
market will be given to the German Government, and
will not be spent, but used as capital. We have already
shown that this will give the German Government
very great power, but at present we have nothing to
do with that point. It does not alter the fact that loans
which are to be so used will not only not exhaust the
resources of the money market, but by keeping in it
funds which mieht otherwise have been sunk in some

66 ECONOMIC INQUIRIES AND STUDIES

fixed form may even enlarge its resources. So far,
then, there is some HkeHhood that the future finance
operations of the war may help very little to cause dear
money.

Another circumstance which points in the same
direction is this. We shall continue in all probability
to hold the private foreign money which comes to us
in connection with our increased exchange business.
France in any case could only get back its share in
that business with difficulty, but the first condition of
its even attempting to get it back — the restoration of
a bullion basis for its currency — is not likely to be ful-
filled for an indefinite time.

On the other hand, other circumstances which were
very powerful during the last eighteen months have
changed. There is now much less diffused apprehen-
siveness than there was. There is some apprehensive-
ness still, for foreign money partly comes to or remains
in England for security, but the apprehensiveness is
indefinitely less than when war was actually raging or
only just concluded. The current savings of the world
are also probably less than when the war of 1870
broke out or than they were during its continuance.
We have now come to a period of high prices, and on
all sides the complaint of manufacturers and traders is
that their profits are very much less than they were.
It may happen that even a smaller demand on account
of the war than what has hitherto been so easily met
may tell very much on the market. It may come into
competition with other increasing demands, and hasten
a period of dear money. The point is that the finance
of the war is only one element out of many in deter-
mining the future of the money market, and while
some of the special circumstances which have hitherto
counteracted the natural tendency of war to turn the
balance in favour of dear money are still in operation,
some very important circumstances which acted in the
same direction are chang-ed.

On the whole, we should be inclined to say that the

THE COST OF THE FRANCO-GERMAN WAR 67

most important circumstances are changed. The most
important single influence on money is undoubtedly
the annual savings of England, and the savings have
been diminished while the employment for new capital
has increased. This change is the more likely to operate
because the other special circumstances which have
counteracted the tendency of war to make money dear
— the increased supply of foreign money in London
and the practice of the German Government to make
loans — are likely to have been most powerful at first.
The cur''ent demand gets adjusted to the new supply
and other capital is displaced, and then the more per-
manent causes which govern the market return in nearly
full force. The approach of a period of dear money
may possibly have been retarded on the whole by the
aggregate effects of the war, but the retarding influences
are probably played out, and the future can hardly be
the same as the past.

We must again repeat, however, that the possible
action of the German Government is apparently the
most important question for the future. Its power of
spasmodic disturbance is obvious, and we may further
point out that the more its practice of making loans
has been discounted, so that the market has o-ot to
depend on this extraordinary supply, the greater its
power will be. It may not only cause a spasmodic
disturbance of unprecedented severity, but by with-
drawing its supplies it may induce in a moment what
may prove to be a prolonged change from cheap to
dear money. It is not likely so to act, but its motives
will be purely political, and no one can guess at all the
circumstances and motives which from time to time
may determine it to act.

68 ECONOMIC INQUIRIES AND STUDIES

VII. — Conclusions.

The principal conclusions arrived at in the preced-
ing pages are the following:

First, — The direct expenditure in conducting the
war amounted to two hundred and thirty-four mil-
lions sterling, of which the amount primarily spent
by France was one hundred and sixty-nine millions
sterling, and by Germany, sixty-five millions ster-
ling. The items are :

Spent by France.

Extra war credits of French Govern-
ment, including special budget of
^20,000,000 for liquidating war
arrears ;;^ 120,000,000

Fines and requisitions levied in occu-
pied districts ; destruction of pro-
perty, etc., less ;^4, 000,000 voted
by Government included in war
credits 44,000,000

Capital value of war pensions created . 5,000,000

^169,000,000

Spent by Germany.

War credits, including maintenance of

French prisoners, etc ^60,000,000

Capital value of war pensions created . 5,000,000

65,000,000

Total Direct Expenditure ;^234,ooo,ooo

The above includes every cash outlay in actually con-
ducting the war by the respective belligerent Govern-
ments, and the loss of property occasioned to the in-
habitants of the invaded districts.

Second.— The indirect losses occasioned by the war
to the communities of France and Germanyrespectively,
amounted to three hundred and twelve millions
sterling — viz., two hundred and sixty-two millions
suffered by France, and fifty millions suffered by
Germany. The items are :

THE COST OF THE FRANCO-GERMAN WAR 69

Suffered by France.

Estimated loss of income in 1870-71 by
suspension of trade and abstraction
of labourers from employment . . ;^i5o,ooo,ooo

Estimated loss of permanent business
or depreciation of annual earning
power 112,000,000

;^262,000,000

Suffered by Germany.
Estimated loss of income in 1870-71 by
suspension of trade and abstraction
of labourers from employment 50,000,000

Total £7,

12,000,000

This statement of indirect losses is of course an es-
timate. The basis as regards the loss of income is, in
France, that the loss may be taken to have been in the
same proportion to the aggregate income of the people
as the loss of the State Revenue in 1870-71 was to the
whole of that revenue ; and in Germany, that the pro-
portion of the annual income of the labourers withdrawn
for war to the whole income of the people would be the
maximum amount of the loss, as trade was very little
interrupted. As regards the depreciation of annual
earning power in France, the data for calculation are
obtained by taking the per-centage of loss on the
patent-licence tax the first year after the war, and
reckoning that the annual loss of trade income would
be in proportion. As the yield of taxes in Germany
has not diminished, it is assumed that after-effects of
the war of the kind which have been felt in France
have not been felt in Germany.

Third. — The total cost and loss of the war thus
reckoned is five hundred and forty-six millions
STERLING, the particulars being :

France. Germany. Total.

Direct . ;^i6g,ooo,ooo _;^65,ooo,ooo ;^234,ooo,ooo
Indirect. 262,000,000 50,000,000 312,000,000

Total . ^431,000,000 ^115,000,000 ^^546,000,000

JO ECONOMIC INQUIRIES AND STUDIES

Fourth. — No estimate is made in the above calcula-
tion for the loss of life or injury thereto in the war. It
is believed that no proper estimate can be made of such
losses, and so far as they are felt by the surviving com-
munity, they would be shown among the other items of
indirect loss. A calculation is given, however, for what
it is worth, showing that the loss and injury to life in
France might be represented by a sum of ;^ 102,000,000,
and m Germany by a sum of ^30,000,000. The reason
of the much larger figure for France compared with
Germany is that Germany lost no civilian life, but in
France, which suffered greatly by the siege of Paris
and otherwise, this cause of loss accounts for sixty out
of the above one hundred and two millions. The loss
of soldiers' lives was also one-third greater on the
French than on the German side, the total on that
head alone being ^42,000,000 against the German
^30,000,000. These estimates, however, are only given
en passant, and are not used in subsequent calculations
respecting the war losses.

Fifth. — The above losses have been principally de-
frayed out of capital—that is, have increased the in-
debtedness of the belligerent communities — but a
considerable part has been dealt with at the time and
paid out of revenue. The distribution of the items is
as follows:

France.

Charged on Charged on

Capital. Revenue.

Direct war expenditure of France . ^120,000,000 —

Requisitions, fines, etc 27,062,000 ^17,022,000

War pensions of France .... 5,000,000 —

French loss of present income . . 79,000,000 71,000,000

Capital value of depreciation of

French earning power .... 112,000^000 —

Germany.

Direct war expenditure of Germany . 60,000,000 —

German indirect losses 25,000,000 25,000,000

War pensions of Germany .... 5,000,000 —

Total for France and Germany . ;^433,o62,ooo ^113,022,000

THE COST OF THE FRANCO-GERMAN WAR 7 I

Thus the amount charged to capital is four hundred

AND THIRTY-THREE MILLIONS, and tO revenue ONE HUN-
DRED AND THIRTEEN MILLIONS; the amount primarily
charged to capital by France being ^343,000,000, and
to revenue ^88,000,000, the corresponding charges
primarily made by Germany being ^90,000,000 and
;^2 5,000,000.

Sixth. — The above losses are not considered very
serious, compared with the aggregate income of the
communities concerned. Estimating that aggregate for
each at about ;^6oo,ooo,ooo annually, the direct outlay
is only about one-fourth of that income, the total cost
— omitting any estimate for loss of life — about one-
half, and the loss of permanent capital about one-third.
Such losses should be easily recovered from, especially
when it is recollected that ^104,000,000, or one-fourth
of the permanent loss of capital, does not represent any
waste from accumulated stores, but merely an amount
of annual savings prevented which would otherwise
have been made. The waste from past accumulation
is under three hundred and thirty millions sterling.

The cost, no doubt, had been unequally distributed
even in the primary outlay — the primary loss of capital
to France being ^343,000,000 against ^88,000,000
lost to Germany. Still, even as thus unequally dis-
tributed, the loss might have been quickly recovered
from. But —

Seventh. — The changes made at the peace have im-
mensely increased the burdens of France, and even
made Germany a gainer. France has had to pay to
Germany an indemnity of ^200,000,000 in money
without any deduction, and the cession of Alsace and
Lorraine is equivalent to a transfer of ;!/'64, 000,000.
The loss of France has therefore been increased by
;^ 2 64,000,000, while the loss of Germany, as the in-
demnity is so much in excess of all the war had cost
it, is turned into a gain.

Omitting any estimate for loss of life, Germany's
final account for the war will stand :

72 ECONOMIC INQUIRIES AND STUDIES

Indemnity and territory received .... ;^264, 000,000
Less total direct and indirect expenditure . 115,000,000

Net gain ^149,000,000

Looking only at the permanent loss of capital, however,
the gain of Germany is greater, because part of the war
cost was charged to revenue, and the indemnity comes
in as capital. The capital account will stand:

Indemnity and territory received . . . . ;^264, 000,000
Spent out of capital 90,000,000

Net capital gain of Germany by the war . ;2^i 74,000,000

On the other hand, the final account of France will
stand:

Total Cost of War.

Direct expenditure ^169,000,000

Indirect „ 262,000,000

;^43 1,000,000
Indemnity and cession of territory . . . 264,000,000

Total cost to France .... ^695,000,000

Capital Cost of War.

Amount of first outlay charged to capital . ;^343,ooo,ooo
Indemnity and cession of territory . . . 264,000,000

Net capital loss to France by the war ^607,000,000

The result is that while Germany gains one hun-
dred AND FIFTY MILLIONS on the whole, and one hun-
dred AND seventy-four MILLIONS in permanent capital,
France loses nearly seven hundred millions on the
whole, and rather more than six hundred millions in
permanent capital.

Eighth. — The magnitude of the loss to France is
illustrated in various ways. The total of ;^7oo,ooo,ooo
represents the sum of ^19 per head among a popula-

THE COST OF THE FRANCO-GERMAN WAR J 2>

tion of 36,500,000, or about £y6 per family. The
capital loss of ^600,000,000 is £16 los. per head, or
^66 per family, the English National Debt being ^26
per head: the French in a few months of war have lost
three-fifths as much capital per head as the individual
share of the English in their famous Debt. The total
addition to the Debt of France is over ;!^400,ooo,ooo,
and the annual charge, allowing for the loss of Alsace
and Lorraine revenues, and making a proper allowance
for interest on the amount borrowed from the Bank of
France, is virtually increased ;^2 3,000,000. This is
about as much as the annual charo;e for interest on the
English Debt.

Ninth. — The opinion is, however, expressed that
France must recover quickly, though the new burden
is equal to ten years' annual savings. The thrift of the
people will be increased; an effort will be made in-
dividually to recover lost ground. A single bountiful
harvest at such a time would go a long way to fill up
the void created by these immense losses.

As regards Germany, a doubt is expressed whether
the Germans will gain so much as France loses, the
capital of the indemnity being transferred from in-
dividuals to the German Government, who cannot use
it so profitably as individuals. It is doubted whether
the practice of lending out large sums, though a prefer-
able course to locking them up, will not in the end be
injurious.

Tenth. — The financial operations incidental to these
great losses and expenses seriously affect the money
market. They have been a fruitful cause, in the first
place, of spasmodic disturbance. The outbreak of war
caused a monetary panic in July, 1870, by the anxiety
of people who had money engagements to meet to pro-
vide against the chances of war, and there was another
monetary crash in September, 1 871, owing to the sudden
withdrawal by the German Government of the money
it had to receive. The war thus illustrates the tendency
of wars in general to cause spasmodic disturbance in a

74 ECONOMIC INQUIRIES AND STUDIES

market so delicately organized as that of London now
is. And the liability to spasmodic disturbance con-
tinues, as the financial operations will not be complete
till Germany receives ;^ 1 20,000,000, and France bor-
rows ^40,000,000 more for miscellaneous purposes.
The German Government has also complete control of
the market, in consequence of the large amount of its
loans.

A second tendency of war is to make money per-
manently dearer by destroying capital. But the effect
of this cause has hitherto been counteracted, although
the actual finance has been on a large scale, by the
prosperity of the period when war broke out, the
diffused apprehensiveness it generated, the partial sus-
pension of trade in France, the accumulation of foreign
money in London, which has risen to increased im-
portance as an exchange centre, and the practice of the
German Government latterly to lend out large sums
from what it received. It is conceived, however, that
as we are now entering on a less prosperous period,
the war demands, although of smaller amount, may be
more felt, and will help to accelerate a period of dearer
money. Some of the counteracting circumstances have
exhausted their first effects, and the market is left to
the operation of the usual permanent influences. The
fact that we are coming to a less prosperous period is
in this view the most important, and ensures that the
financial operations to be completed will have a maxi-
mum effect. — [March, 1872.]

II.

THE DEPRECIATION OF GOLD SINCE 1 848.

HAVING made a somewhat extended inquiry into
the facts of the supply and distribution of gold
since 1848/ we propose to comment directly on these
facts in connection with the alleged depreciation of
gold. Such an inquiry is probably not susceptible of
any perfectly satisfactory conclusion. The common
notion is that, as the supply of gold has enormously
increased in the last quarter of a century, therefore
there must have been a general rise in prices, and the
sovereign will no longer go as far as formerly. And
this easy belief has found a plausible confirmation in
the conspicuous rise of prices, especially in a few con-
spicuous articles, which has just occurred. The very
notion of a fall in the value of gold was likely to strike
the imagination and produce belief; and the notion
that a sovereign will not go as far as formerly is also
one to which men are prone, although the real difficulty
in a period when the scale of living is rising may be
to make a sovereign go fart/ier than it formerly did.
But those who are acquainted with such inquiries will
see at once that the common notion, though easily
enough accounted for, is unconnected with any valid
evidence. It is not a mere increase of supply which
tends to cause a fall of value, but an increase of supply
in excess of the demand. And supply and demand
themselves are not mere accidents. In the long run
supply is ultimately dependent on real causes operating
on producers and merchants, and the effective demand

^ This paper was written in 1872, as the sequel to a series of
articles on the supply and distribution of gold from 1S48 to date.

']6 ECONOMIC INQUIRIES AND STUDIES

changes with every change of price. The inquiry, there-
fore, if exhaustively carried out, would be resolved into
an inquiry into the whole causes affecting the supply
and demand for gold. It is obvious again that a mere
rise of prices even of a large number of articles in a
particular year or years proves nothing. Rises of price
are known to have proceeded in past times from many
other causes besides additions to the supply of money.
Before it can be asserted that gold has depreciated in
consequence of the gold discoveries, the other causes
of a rise of price must be excluded, and a general rise,
covering a mass of retail as well as of wholesale articles,
and extending over a long period, must be established.
But evidence on such points is nearly impossible. In-
vention is continually at work, diminishing the cost of
production, and even producing wholly new articles,
so that a group of articles representing fairly the
general stock of goods in the world at one time would
not so represent the general stock at an earlier or later
time. A general change of prices, therefore, between
two points of time would not be easily proved, and the
work is ten times more complicated when the com-
parison is made over long periods. In making the
inquir}', therefore, we are far from hoping to arrive at
any complete results. Instead of rushing at the popular
conclusion or its opposite, we should be quite satisfied
if the facts yield some results, however incomplete, on
which dependence can be placed.

There are two ways in which the fact of deprecia-
tion, or non-depreciation, may be approximately tested.
The fi^'st is to compare the prices of as large groups
of articles as possible, impartially selected, to ascertain
whether there is an average rise, comparing one long
period with others. If there is such a rise, the pre-
sumption will be that there has been a depreciation of
gold — that its value in relation to other commodities
has diminished, no matter what the cause may have
been. But the comparison, for the reasons already
stated, will be incomplete. In consequence of the in-

THE DEPRECIATION OF GOLD SINCE I 848 ']']

creasing complexity of production, a group of articles
which fairly represented the world's stock ten or twenty
years ago, is now an unfair representation, and it will
be necessary to inquire, if possible, on which side the
inaccuracy of the mode of comparison would produce
error. The second test, for which the facts we have
collected will be most useful, will be to see whether
the gold money of the nations using it has increased
in greater proportions than their population and trade.
Other things being the same, it follows from a general
rise of prices that a greater quantity of metal must be
employed in circulation to do the same work as before.
If other commodities are unchanged, and population
and business are the same, then if a sovereign is re-
duced to the value of half-a-sovereign, double the
number of sovereigns will be required to make the
same payments. And any similar reduction of value
must be accompanied by a similar increase of quantity.
No doubt the qualification that other things must be
the same is very important, but it appears to be not
altogether impossible to ascertain whether the require-
ments of a community for a gold circulation in pro-
portion to the population have or have not changed,
so that if they have not we should be able to affirm
that a general rise in prices must have involved an
addition to the circulation disproportionate to the in-
crease of population and of trade. The existence or
non-existence of such an addition in a given case, when
other elements of difficulty can be excluded, would be
determinative of a general rise of prices. Both methods
of inquiry are necessarily incomplete, and it will be
interesting to see how far they corroborate or confirm
each other.

We have to inquire, y^r^/, then as to the fact of a
general rise of prices, selecting as large a group of
articles as possible. This part of the inquiry is almost
done to our hand. Mr. Jevons, in the inquiry which

ECONOMIC INQUIRIES AND STUDIES

he made in 1863, grouped together a large number of
articles, whose prices he compared from year to year
between 185 1 and 1862 with the average of 1845-50,
the last industrial cycle of expansion and depression
which occurred before the gold discoveries ; and a
similar comparison of prices has been carried out in
the Annual Commercial History of the " Economist."
In both cases the superficial result brought out is un-
doubtedly a general rise of price. Mr. Jevons, amongst
other things, compared 39 articles, both separately and
in the following groups: " i, silver; 2-7, metals; 13,
timber; 8-9, oils; 10-12, tallow; 16-18, cotton; 19-
21, wool, etc.; 23-28, corn; 29-31, hay, etc.; 32-35,
meat; 36-39, sugar, etc.; 14-15, dyes; 22, hemp
omitted"; and the result of his inquiry was that the
average ratio of prices each year, 1845-62 to the
average prices of 1845-50, was as follows:

1845-40.

1851-60.

1861-62.

1845 . . 104.4

1851 .

92.4

1861

1846 . . 105.4

1852 .

93-8

1862

1847 • • 1 10.8

1853 •

III. 3

1848 . . 94.1

1854 .

120.7

Ave

1849 . . 89.6

1855 •

117. 6

1850 . . 92.1

1856 .

122.5

1857 •

128.8

Average 99.6

1858 .

114. 2

1859 .

116. 0

i860 .

117. 9

II5.I
113-4

1 14-3

Average 113.52

From these, and other figures of a like sort, Mr. Jevons
drew the conclusion that the average prices of the first
industrial cycle after 1850 were upwards of 10 per cent,
above the average before 1850, each portion of the
curve in the latter period being higher than the corre-
sponding portion of the curve in the earlier period. Not
only this, but the level of price in 1861 and 1862, when
prices were at a minimum point of the new cycle then
beginning, was 14 per cent, above the average of 1844-
50. Hence the conclusion that there had been a general
rise in prices, or, in other words, a depreciation of gold.

THE DEPRECIATION OF GOLD SINCE 1 848

The history since 1862 is given in the Commercial
History of the " Economist," but although the articles
referred to are nearly the same/ the figures are not
the average of each year, but the prices at the beginning
of the year only.- They confirm, however, Mr. Jevons's
figures previous to 1862, and show a great rise in price
immediately afterwards, such as Mr. Jevons predicted.
The rise is shown in the table we quote from, by an
index number, forming the aggregate of the ratios of
the articles to the average price of 1 844-50 ; but besides
the index number we subjoin the average ratio for all
the articles in the form given by Mr. Jevons :

Average

Total Ratio to Prices Ratio

Index No.

of 1844-50.

of Periods

1845-50 . . .

2200 .

100

. . . 100

185 1 — Jan. I

2293 .

104.2 '
1073

1853— July I .

2361 .

- . . 114.2^

1857— „

2996 .

136.2
I18.7 ,

1858— Jan. I .

2612

1861— „

2727 .

124.0 '

1862— „

2878 .

121.7

1863- „

• 3492 •

158.7

1864— „

3787 .

172. 1

1865— „

3575 •

162.5

1866— „

1867— „

3564 •
. 3024 .

162.0
137-4

. . 140. 1

1868— „

2682 .

121. 9

1869— „

2666 .

121. 1

1870— „

2689 .

122.2

1871— „

2590 .

117. 7

1872— „

• 2835 .

. 128.9.

^ Viz.: Coffee, sugar, tea, tobacco, wheat, butcher's meat, cotton,
raw silk, flax and hemp, sheep's wool, indigo, oils, timber, tallow,
leather, copper, iron, lead, tin, cotton-wool ; Pernambuco only —
cotton-yarn, cotton-cloth.

^ For the purpose of an inquiry like this, a set of prices at a given
date in each year is practically almost as good as the average of the
year. The object is to compare the average of one period of years
with that of another period, and it is most improbable that in each
year prices at the given date would vary materially from the average
of the year owing to some abnormal cause.

^ This figure is the average of the whole period deduced from Mr.
Jevons's statistics.

8o ECONOMIC INQUIPxIES AND STUDIES

Making every allowance for the difference in the data,
the fact of a much greater increase of prices between
1861-70 than between 1851-60, as shown by Mr.
Jevons, is apparent. We may take it as certain that in
the first decade after 1850, prices generally rose up-
wards of 10 per cent, above the average of the preced-
ing period, and that in the second decade there was a
further rise, which cannot, however, be deduced from
exactly the same data. The second set of figures gives
apparently a higher series of ratios all through than
the figures compiled on the method of Mr. Jevons,
the excess being about 10 per cent. Deducting this
excess from the above average of 140 per cent, in the
decade 1861-70, we arrive at 130 as the probable ratio
of the wholesale prices of that period to the period be-
fore 1850. According to this, the depreciation of gold
had amounted, in two decades, to something like 30
per cent.

So far, therefore, a depreciation of gold is made out,
but there are two important objections to the conclu-
sions from the above figures. One relates tothe extent of
the depreciation which is due to the gold discoveries,
and is, therefore, assumed to be more or less per-
manent. Textile fabrics, and the raw material of them,
enter very largely into the table which is given in the
Commercial History of the " Economist," the ratios
for such articles comprising a third of the ratios in-
cluded in the index number. But textile fabrics were
the subject of a most exceptional rise of price in the
years of the American War. Tobacco also rose in
price from the same cause in the 1861-70 decade. The
great rise between 1861 and 1870, therefore, was due
largely to an exceptional cause, and the consequent de-
preciation of gold, on the average, was thus to some
extent temporary.

The second objection to the figures is of a more
general nature, and suggests an important qualification.
The prices dealt with are wholesale prices, and mainly
the prices of leading articles of raw material or of pro-

THE DEPRECIATION OF GOLD SINCE I 848 8 I

visions. The prices of manufactured articles are almost
wholly excluded, although the number and value of
transactions in articles, after they leave the manufac-
turer's hands and are on their way to the consumer,
probably far exceeds the number and value of similar
transactions in the raw material. The distribution of
a manufacture — say, woollen or silk fabrics — must,
from the nature of the business, be a more complicated
process than the growth and collection of the raw
material for the purposes of manufacture. Omitting
the prices of such articles, therefore, the tables omit
the most important half of prices which require to be
dealt with before a perfectly general rise can be ascer-
tained. We admit, of course, that it would be quite
impossible to compare the prices of an immense mis-
cellany of manufactured articles, although a rough com-
parison can be made of the prices of a few raw
materials, but the significance of the necessary omission
ought not to be overlooked. As Mr. Jevons remarked
in his volume, the whole tendency of industry since
the gold discoveries has been towards the diminution
of the cost of manufacturing and distribution — a cir-
cumstance which itself has increased the demand for
the raw material. In omitting, therefore, the prices of
manufactured articles, the effect has probably been to
make the general rise of prices, which would argue a
depreciation of gold, appear greater than it really has
been, or even to exhibit the appearance of a general
rise when no such rise had in fact occurred. That this
is no mere quibble is shown very forcibly by some
figures in the tables themselves. The Commercial
History of the "Economist" happens to contain
columns for the prices of cotton-cloth as well as for
raw cotton, and the smaller rise of price in the manu-
facture compared with the rise of the raw material is
very curious. We give the entire ratios:

Cotton. Cotton-cloth.

1845-50 100 100

1851— Jan. I .... 86 118

I. G

ECONOMIC INQUIRIES AND STUDIES

Cotton.

1853- July I

1857— ,>

1858— Jan. I

7.-^

1861— „

1862— „

140

1863— „

314

1864- „

460

1865— „

363

1866— „

383

1867— „

227

1868— „

100

1869— „

155

1870- „

173

1871— „

118

„ —July I

123

1872 — Jan. I

141

Cotton-cloth.
107

• 113

• 125
127
222

• 275
. 252

222
. 178
. 114

• 131

• 135
. 118

• 117

• 125

In some years, it will be observed, the rise in the raw
material is indeed enormous, compared with the rise
in the manufacture, and the difference groes to show
that a table dealing mainly with raw materials would
err on the side of showing a greater general rise than
what had really occurred.

Another objection to the completeness of tables
dealing with principal commodities only, and one indi-
cating an error of the same sort, viz., an excess in the
estimated rise of price, is supplied by Mr. Jevons's
statements respecting " minor articles." To supple-
ment his conclusions he made a table comprising, in
addition to the 39 chief articles dealt with in his prin-
cipal table, 79 minor articles, and worked out the rise
of price in 1860-62 over the average of 1844-50. The
result was that the 79 minor articles showed a much
smaller per-centage of increase than the 39 chief
articles. Mr. Jevons states :

" Doing this separately for the 39 chief and the 79 minor articles, I
find that the prices of the former have, on an average, risen between
1845-50 and 1860-2 in the ratio of 100 to 116.2, which is equivalent
to a depreciation of gold in the ratio of 100 to 86.0, or by 14.0 per
cent. The minor commodities, however, give a somewhat different
result. In taking the mean, I have treated those which are bracketed
together in the last column as having the importance only of a single

THE DEPRECIATION OF GOLD SINCE I 848 83

commodity, so that only the mean of the ratios bracketed entered
into the general average. We thus find there are 64 independent
minor articles, of which the prices have, on the averages, risen between
1845-50 and 1860-2 in the ratio 100 to 106.76, which would indicate
a depreciation of gold in the ratio of 100 to 93.66, or by 6.34 per cent.,
not half the change shown by the chief commodities."

The conclusion would therefore be, that the more mis-
cellaneous the comparison can be made the smaller
would be the general rise shown. Coupling this with
the orfiission of manufactured articles, we obtain suffi-
cient grounds for thinking that the general rise of
price exhibited in the above figures is the maximum
and not the minimum average. Taking into account
such changes in price as have been caused by the in-
vention of the Bessemer process for making steel, we
should be inclined to doubt whether it could be proved
that the general purchasing power of the sovereign
has much diminished since 1850. A table of the
articles in which its power was likely most to be felt
shows an average depreciation of about 30 per cent.,
but the real general depreciation, if any, must have
been very much less.

It will have been noticed, perhaps, that we do not
take into account at all the extraordinary rise of prices
this year. That rise has been most sudden, and has
undoubtedly raised almost every price except those of
cotton and wool temporarily above the level of 1 86 1-70.
But we have yet to see, when this is absorbed in a
group of years, what the average rise will prove to be.
So far as can be judged, the present decade will not
show any rise above the average level of 1861-70. It
was a great point with Mr. Jevons, when he wrote in
1863, that the level of price then established, at the
minimum point of an industrial cycle, was considerably
above the level at the corresponding point in 1851.
But it is evident from the above figures that prices in
1868-71, when they were again at a minimum point,
had fallen back to the level of 186 1-2. The probability
is then that the curve will not rise higher, and we may

84 ECONOMIC INQUIRIES AND STUDIES

assume that there has been no further depreciation of
gold since 1862.1

II.

We have now to deal with the second test which we
proposed to apply in considering the question of a
depreciation of gold since 1848. The direct test of
prices, as we pointed out, is in various ways defective.
Even after making the best comparison possible be-
tween two industrial cycles, the question will remain
whether the groups of articles selected for comparison
in respect of prices are fairly representative of the
whole stock of commodities. In point of fact, as we
have since shown, there is reason to believe that the
group of articles selected for comparison being mainly
wholesale articles was likely to cause error on the side
of showing an excessive rise of price, although the
selection was as impartial as possible. At the same
time it would be difficult, if not impossible, to compare
anything but the prices of wholesale articles, retail
commodities being too various and changing to permit
of any such comparison. The object of our second
test, then, is to supplement and correct the first. It
maybe assumed, we say, that other things being equal
— that is, no change occurring in the conditions which
make coin be used — the circulation of coin in a country
will vary in exact proportion to the growth of popula-
tion and industry. If the population has grown in a
certain proportion without being, man for man, more

' This was the conclusion in 1S72. Since that date the index
numbers in the Commercial History of the " Economist," on the
I St of January in each year, have been:

1872

January i

• 2835

1875

January i

• 2778

1873

2947

1876

. 27II

1874

) J

2891

1877

• 2715

When these are compared with the table on p. 79, the conclusion
in the text is fully confirmed for the period subsequent to
1872.

THE DEPRECIATION OF GOLD SINCE 1 848 85

industrious, the coinage remaining of the same vakie
would increase in exactly that proportion. If the popu-
lation had also become more industrious, so that, man
for man, transactions and payments were increased,
then, besides the increase of coinage in proportion to
the population, there would be an increase in propor-
tion to the accelerated activity of business, and hence
too it would follow — this being the most important
inf..rence for our present purpose — that if the coinage
depreciated in value it would increase in nominal
amount in greater proportion than the increase of
population and industry combined. The excess of
such increase would be a measure of the deprecia-
tion which had occurred, and would corroborate or
correct the inferences drawn directly from the rise of
prices, which, for the reasons above given, must neces-
sarily be incomplete.

The most important — perhaps the only important —
country for which a comparison need be made is
England, As the most developed country commercially
at the time of the gold discoveries, English prices are
more likely than almost any other to show the effect of
a general depreciation of the measure of value. Is it
possible, however, to make any real comparison of the
growth of population, industry, and currency in Eng-
land? The common notion is that it is not possible,
the gradual perfection of the Clearing House arrange-
ments having, it is supposed, economized currency in
the interval since 1850. But a little consideration, we
think, will show that there are really some data to go
upon. In England there are in fact two standard cur-
rencies— the sovereigns, which are in the pockets of
the people and are used as small change, and the Bank
of England notes, which are used for large payments.
The economy of the Clearing House arrangements, it
is conceived, applies only to the latter currency. So far
as the use of sovereigns is concerned, the necessities
and habits of the people are unchanged. Deposit bank-
ing was quite as much developed in 1850, in proportion

86 ECONOMIC INQUIRIES AND STUDIES

to the population, as it is now. What the Clearing
House has accomplished is not anything which applies
to the mass of the people in their use of sovereigns,
but only something which applies to the arrangements
among bankers themselves in which notes only are
used. We may assume, then, that every increase of
population and business since 1850 must have involved
a proportionate expansion of the sovereign circulation,
and that it is only an expansion beyond that proportion
which can be considered as indicating a depreciation of
gold.

What we have to compare, then, is the increase of
population and industry in England since 1850 with
the increase of the sovereign circulation. The increase
of population is easily ascertained. As we showed in
an article on the coinage,^ the population of the United
Kingdom increased between 1848 and 187 1 from
28,000,000 to 32,000,000, or 14.3 per cent. In such a
comparison, however, we ought to look at the narrower
England. Scotland and Ireland do not use a gold cur-
rency, and the increase of the circulation of sovereigns
in the United Kingdom is, therefore, practically an in-
crease of the circulation in England proper. And the
increase of population in England and Wales since
1850 has been very much greater than the average
increase in the United Kingdom.

In 187 1 the population was 22,704,000

In 185 1 it was 17,927,000

Increase in 20 years ... - 4,777,000

— which is at the rate of 26.6 per cent., or about 1.3 per
cent, per annum.

Such has been the increase of population, and the
increase of industry has been in much greater propor-
tion. The annual income assessed to the income-tax
increased in England between 1848 and 1868 as follows:

^ See "Economist," June 29, 1872.

THE DEPRECIATION OF GOLD SINCE I 848 87

Amount in 1868 ;!{^365, 366,000

Amount in 1848 229,868,000

Increase in 20 years . . . ;i^i 35,498,000

— which is at the rate of about 60 per cent., or 3 per
cent, per annum. And this is probably the minimum
increase of business. As we showed in the article above
referred to, our staple industries have increased enor-
mously. The production of coal, between 1856 and
1869 only, rose 60 per cent., and of iron ^2> P^^ cent.,
while the development of the export trade, as respects
the quantities of all our manufactures, was truly pro-
digious. We are within the mark, then, in assuming as
the basis of comparison with the increase in the coinage,
that population since 1850 has increased at the rate of
1.3 per cent, per annum, and industry and wealth at the
rate of about 3 percent, per annum. The population is
one-fourth more numerous than before 1850, and, man
for man, their industry is nearly twice as productive
as it was then. For these reasons their small change
should have greatly increased, even without a deprecia-
tion of value; and if there has been depreciation, the
increase should have been enormous.

But what has the increase been ? Here we are beset
by new difficulties. The amount of the circulation at
any given time can only be approximately stated. It is
conceived, however, that if a minimum amount at an
early date can be compared with a maximum amount
at a later date, the full expansion of the circulation will
be more than accounted for, the proportion of increase
being made to appear greater than it really has been.
This will be a safe figure to compare with the increase
of population and industry, so far at least that any in-
ference of a depreciation of gold will be quite as strongly,
if not more strongly, supported than the facts would
fairly warrant.

The gross addition to the circulation since 1850 has
been about ^50,000,000. As we showed in our article

88 ECONOMIC INQUIRIES AND STUDIES

of August 31st, the addition to the coinage since 1857,
deducting light coin withdrawn, and the exports of
EngHsh coin, has been ^27,576,000; between 1848
and 1857 the total addition, as reckoned in Tooke's
" History of Prices," was ^22,000,000 — the two sums
making together almost exactly ^50,000,000. But this
is undoubtedly far in excess of the real addition. Mr.
Jevons, in 1868, in his Paper on the Gold Coinage
read before the Statistical Society, pointed out that
there was an excess in the statement of the gold coinage
upon a mere computation of the addition in the above
manner, amounting to about ^14,000,000. And he
gave other reasons for believing that there was a much
larger melting of coined money than was commonly
supposed. Deducting a million more for sovereigns
melted since 1868, we arrive at the sum of ;^ 15,000,000
as a moderate deduction from the above addition of
^50,000,000 to the coinage since 1848, the real maxi-
mum addition to the minimum coinage before 1850,
whatever we may take it to be, being thus only
^35,000,000.

Now the coinage before 1850 could hardly be less
than ^60,000,000. There are no data for estimating
the amount exactly, but the figure may be arrived at
indirectly. Mr. Newmarch, for instance, estimated that
the gold coinage in circulation in 1844 was ;^46,ooo,ooo,
and allowing only ^2,000,000 for subsequent additions,
which has been the average for many years, this would
bring the total in 1850 to the sum named. The actual
new coinage in the interval was ^27,000,000. Another
mode of verification yields the same conclusion. Mr.
Jevons, in 1868, ascertained that there were 44,000
sovereigns coined before 1850 out of every 100,000 then
in circulation. This figure being then ^80,000,000, the
conclusion is that in 1868 there were still ^35,000,000
of the coinage before 1850 in circulation. But mean-
while there had been withdrawn in light coin at least
^10,000,000, and there would also be some withdrawals
for export, besides losses through melting, wear and tear,

THE DEPRECIATION OF GOLD SINCE I 848 89

and the like which would easily sum up to ^i 5,000,000,
the difference to be accounted for. There is a high prob-
ability, therefore, that the coinage at 1850 could not be
much under ;/^6o,ooo,ooo, if at all under that amount.
The increase in the coinacre has therefore been :

Amount in 1871 (minimum) .... ^^95, 000,000
Amount in 1850 (maximum) . . . . 60,000,000

Increase ;^35, 000,000

— which is at the rate of 58.3 per cent., or rather less
than 3 per cent, per annum. Comparing this with the
increase of population alone, which was 25 per cent, in
20 years, it would appear that there is an excess of t^t,
per cent, in the expansion of the circulation, which,
according to this mode of verification, would be the
limit of the depreciation of gold. As compared, how-
ever, with the increase of wealth and industry, there is
no excess, the production of the staple raw materials of
manufacture, coal and iron, having been at as great a
rate between 1856 and 1869 alone, while the develop-
ment of our export trade has been truly prodigious.
We may safely say, then, that if there has been a great
depreciation of gold since 1848 — that is to say, any-
thing over 10 or 15 per cent. — there has been no such
expansion of the small change circulation as we should
have expected to follow that depreciation. As a cor-
roboration of the direct evidence from prices formerly
given, to the effect that the rise of prices has been little
more than 10 per cent., if any, the facts now brought
out are clearly worth something, although it would be
foolish to dogmatize on such points. The data are im-
perfect, but so far as they go they clearly point to a
very limited depreciation of gold as the past con-
sequence of the gold discoveries.

The question will arise on these facts whether the
economists were right or wrong who predicted manifold
economic changes as the result of the depreciation of

90 ECONOMIC INQUIRIES AND STUDIES

gold following on the gold discoveries. The conclusion
must be, we think, that so far as the facts have yet gone,
the speculation indulged in was exaggerated. A de-
preciation of ID or 15 per cent, in the measure of value
spread over a quarter of a century is hardly of a kind
to produce any social disruption. At the worst it is a
10 per cent, income tax, and though a 10 per cent, in-
come tax would be all but intolerable when levied
directly, experience has fully shown that a much heavier
per-centage can be levied on communities indirectly
without the victims being individually conscious of the
process. This would be the modifying consideration
in regard to fixed incomes, and, of course, as regards
the other transactions of life, the change would be quite
imperceptible. The fluctuations of prices in commerce
are so large, that this gradual change diffused over a
lengthened period would be wholly imperceptible, and
would in no way alter the basis of contracts, or the
effect of the continual adjustments of wages. In justice
to the economists, however, it should be remembered
— and the point is also important as a corrective of the
popular ideas — that the condition of the expected de-
preciation has not been fulfilled. M. Chevalier's esti-
mate of the probable annual production of gold was
^35,000,000, and he thought it might be ^42,000,000;
Mr. MacCulIoch's estimate was ^■39, 000,000. As we
have seen, however, the annual production has for
many years been only about ^20,000,000 per annum,
which is very little in excess of M. Chevalier's estimate
of the total annual consumption, viz., ^17,850,000.
The material fact of production having thus differed
so materially from the hypothesis on which the theory
of a great depreciation, amounting to 50 per cent., was
built, it is not surprising at all that the economists
were out in their estimate of the depreciation. But
there could be no better illustration of the error of the
popular habit of assuming, with little proof, a per-
manent rise of prices, and then assigning the gold dis-
coveries as the cause, with the assured conviction that

THE DEPRECIATION OF GOLD SINCE I 848 9 1

this is all done in accordance with economic authority.
The calculations which have helped the growth of this
popular conviction were not positive but hypothetical,
and the subsequent facts having contradicted the hypo-
thesis, the calculations fall to the ground.

III.

The last question to be discussed in connection with
the gold statistics we have lately collected, is the prob-
able course of the future movement and its effect on
prices. The past effect, as we have seen, is of a
moderate description, not exceeding about lo per cent,
in the central wholesale markets of the world, where
the effect of any change in the value of gold is most
easily distinguished from other causes in the fluctua-
tions of prices. It is urged, however, on one side that
the causes of the depreciation of gold are only be-
ginning to operate, that future supplies coming upon
an overstocked market will have an immense influence;
and on the other side that there are rather signs of a
falling off in production, and that, considering the
growing demands of the world, an appreciation of the
standard is more likely than any further decline in
value. What light is thrown on these opposing views
by the facts which we have been investigating?

At the outset, we may say we have no intention of
making any distinct prophecy. What the actual demand
of the future will be, and what will be the actual supply,
and in what way any tendency to fluctuations in value
will be corrected by a check to production on one side
or a diminished demand on the other, are all questions
on which there are perhaps no sufficient data in exist-
ence for a sure opinion. The experience of the past
twenty years should moreover counsel the utmost
modesty of prediction. No one in 1850 would have
predicted that of the immense new supply of gold then
coming into the world one-fifth would be absorbed by
India and the East, and nearly two-fifths more by a

92 ECONOMIC INQUIRIES AND STUDIES

single European country — viz., France, which would
practically substitute a gold currency for a silver one.
No one would have predicted, moreover, that the
United States would substitute paper for gold. Yet all
these facts were more or less essential in 1850 in calcu-
lating- the ratio of the demand to the then future supply
of gold. Any prediction of the future is equally liable
to be upset by unexpected incidents. All we shall do,
therefore, is to point out the relation of the current
supply to the current demand, and on what side the
probable great changes that will affect the value of gold
are likely to be.

According to the figures which we published in our
general article on " The Production and Movement of
Gold since 1848,"^ the current supply maybe taken as
^20,000,000. There may be some production besides
in outlying countries, but this figure of ;^ 20,000,000
represents the amount which comes into the general
bullion movement of the world. And this annual amount
has also been a tolerably steady one for more than ten
years. In the five years between 1852 and 1856 the
annual production was as high as ^29,000,000, and in
the following five years the average was still as high
as /^25, 000,000, but since 1862 the average has been
;^ 20,000,000, with ^22,000,000 on one side and
^19,000,000 on the other as the extremes of variation.
The condition of production may, of course, change
very quickly, but so steady a supply for a long period
seems to argue that the industry is being carried on
under stable conditions, and that about 2^20,ooo,ooo
may be relied on while the demand continues what
it is.

The question of the current demand is a more in-
tricate one. The whole history of the market in past
times shows the powerful influence of extraordinary
demands. But for the demand for India, and the de-
mand for France, there would not have been sufficient

' See " Economist," Vol. XXX., p. 954.

THE DEPRECIATION OF GOLD SINCE 1 848 93

outlets for all the new supplies of gold, aggravated as
they were by the substitution of paper for gold in the
United States. At the present moment, besides, the
course of the market is likely to be governed as much
as ever by extraordinary changes in the demand. Ger-
many and Scandinavia are substituting a gold for a
silver coinage on the one side, and France is sub-
stituting paper for gold, though its policy may change
at any moment. The Indian demand, which was for-
merly so great, has also of late years fallen off, though
"t would be rash to assume that under no circumstances
will it again revive.^ But omitting the question of these
great movements for a little, there appears to be an
ascertainable current demand of no small magnitude,
(i.) England absorbs on the average about ^5,000,000
a-year — about ^2,000,000 for coinage, and the re-
mainder for the arts and other purposes. (2.) There is
a demand of about ^1,000,000 per annum for South
America. Our exports to Brazil and other South Ameri-
can States in the ten years ending 1871 were almost
exactly ^10,000,000,^ and this demand being for Eng-
lish sovereigns is apparently a steady demand. (3.) The
annual consumption of Spain, Portugal, etc., appears
to be about ^800,000.^ (4.) The annual absorption by
India, though not so great as it was in 1862-66, ap-
pears still to exceed ^4,000,000. In the five years
ending 1871 the amount absorbed was ^21,458,000, or
over ^4,000,000 annually, the extremes of variation
being ;^2,283,ooo on the one side, and ^5,592,000 on
the other.^ Even before 1850, it must be remembered,
India was an absorbent of gold to the extent of about
a million and a half annually, and it is not surprising
that its great growth during the last twenty years
should enable it to increase its demands. (5.) There
is a steady Australian demand of uncertain amount,,
but probably nearly equal to the annual minimum

^ It has since revived to some extent.

' See Table XI , " Economist," p. 957, Vol. XXX. ' Ibid.

* " Economist," Vol. XXX., p. 1430, Table II.

94 ECONOMIC INQUIRIES AND STUDIES

coinage of the Sydney mint, or about ^1,200,000 a-
year. All these demands are comparatively stable, and
have practically existed for ten years without any
traceable permanent change in the level of prices, no
further rise or fall, as we have seen, having occurred
since 1862. They sum up as follows:

(i.) English consumption ;^5, 000,000

(2.) South American ditto 1,000,000

(3.) Portugal, Spain, etc., ditto . . . . 800,000

(4.) Indian ditto 4,000,000

(5.) x'\ustralian ditto 1,200,000

Total current annual consumption ;3^i 2,000,000

The figure is perhaps not quite complete, as there
are no doubt many other miscellaneous demands not
easily traceable ; but increase such demands as we
may, the conclusion is plain that a current annual de-
mand of ^12,000.000 or thereabouts, would not take
up a production of ^20,000,000. If there were nothing
else to be considered, the probability as regards gold
movements of the next few years would be the accu-
mulation of gold upon the commercial markets of the
world, and a somewhat rapid inflation of prices, ac-
companied by a real and permanent change in the
standard of value.

As we have seen, however, the extraordinary de-
mands are most important in this question, and we
have now to ask how far the annual excess of ;^8, 000,000
in the current supply over the current demand will
meet the extraordinary demands which seem in pro-
spect. On this point we shall be inclined to say that
there will not be enough for these extraordinary de-
mands without a great increase of production during
the next few years. The first known demand is very
urofent and of Qfreat mao-nitude, viz., the demand for
Germany. The Germans have decided to have a gold
currency, and in round numbers this means that within
the next few years Germany must obtain between

THE DEPRECIATION OF GOLD SINCE 1 848 95

^60,000,000 and ^80,000,000 of gold. Germany is
very much in the economical condition of France, and
is now a good deal more populous, but France in
twenty years took up about ^200,000,000 of gold. To
assume that Germany will use up half the amount in
half the time is no extravagant supposition, especially
as the German Government to begin with has extra-
ordinary means at command, and being richer now than
France was in 1850, will require more at once than
France then required. Last year, in fact, Germany, it
is now known, coined about ^21,000,000, and she pro-
poses to coin ^18,000,000 in the current year; and
the scale of coinage is not above her needs, and will
probably remain high for the next two or three years.
In this single extraordinary demand, therefore, there is
far more than enough to absorb the excess of current
production over the ordinary current demand which
we have above described. In addition, the known de-
mands for the Scandinavian countries will absorb a
good deal, though it is hardly worth reckoning them
when so overwhelming a demand as that for Germany
is impending.

The next great point as regards the future is the
possibility of a resumption of specie payments by the
two great "paper" countries — France and the United
States — whose standard previous to inconvertible paper
was practically gold. This resumption of specie pay-
ments will not cause so serious a demand as that for
Germany, because gold in both instances has undoubt-
edly been hoarded, and will come out of its hiding-
places as soon as it is once more legal tender. But
the United States at least has grown immensely since
1868, when inconvertible paper was introduced, and
the presumption is, that the old hoards would not be
sufficient for the new work they would have to do.
To resume specie payments the United States must
begin by a considerable coinage, and some additional
coinage will probably also be required for a similar
purpose in France. Here, then, we have the elements

96 ECONOiMIC INQUIRIES AND STUDIES

of another extraordinary demand besides that for Ger-
many during the next few years; and we do not think
the contingency should be disregarded. The inappre-
ciable premium on gold in France is itself an indica-
tion that the evil of inconvertible paper is being kept
within bounds, and always keeps the probability of a
resumption of specie payments within sight. And the
financial and political authorities of France will both
be equally desirous that specie payments should be
resumed at the earliest possible moment. In the United
States, again, there is a growing opinion in favour of
specie payments, and though the gold premium there
is a serious matter, as it is not in France, the United
States has ever shown a boldness and thorouehness
in expedients which is foreign to the usages of the old
world, and the fact of a high premium on gold is, there-
fore, a less barrier to the resumption of specie pay-
ments in the United States than it would be anywhere
else. If the public mind in America is once made up
to have specie payments, a somewhat revolutionary
and decided action is quite as likely as not.

Our conclusion, therefore, is that the better prob-
ability of the next few years is an excessive demand
for gold compared with the current supply. We have
a regular annual demand for ^12,000,000 or upwards,
leaving an excess of ^8,000,000 for any extraordinary
demands; but one known demand of this sort seems
likely to take far more than this excess for several
years to come, and there are heavy contingent demands
which it is needful to keep in mind. What the result
will be it would be needless to speculate. Compensa-
tion will, perhaps, be found in a greater economy of
existing stocks and a reduction of current demands, as
well as in a pressure to produce more, which may have
some result. But if the extraordinary demands continue,
and if little can be made of the last expedients sug-
gested, we should rather expect within the next decade
that gold will rise in value, instead of continuing the
fall which was arrested in 1862— in other words, that

THE DEPRECIATION OF GOLD SINCE I 848 97

the general range of prices is rather more likely to fall
during the next ten years than it is to rise. We must
again repeat, however, that the point is one on which
we have no pretension to dogmatize. — [December,
1872.]

III.

THE LIQUIDATIONS OF 1 873-76.

WHAT are the characteristic marks of the great
depression of trade during the last three or four
years? It is now ascertained that such depressions are
periodical. They recur at tolerably regular intervals,
following in the wake of equally regular periods of
great prosperity in trade, when everybody makes profits
or seems to make them. The alternation has no doubt
its roots in human nature, which lends itself to an ebb
and flow, an action and reaction, in affairs. The de-
pressions, like the periods of prosperity coming before
them, have also many features in common. Just as the
prosperity is shown by the prevalence of good credit,
an active money market, and a high range of prices
for both securities and commodities, so the depression
is marked by a low range of prices, heavy failures, bad
credit, and consequently a sluggish money market.
But each depression has likewise its own special features
and incidents. The crisis in which it begins, or which
it produces, indicates some special development of trade
at the time, or some special disease in it— the favourite
business of a country changing from time to time, and
a constant tendency existing to go to an extreme with
the momentary fashion. We propose, then, to inquire
what are these special features in the recent depression ;
this proceeding being likely, it is obvious, to be more
instructive than a mere examination and record of those
features which most depressions have in common.
There is an additional reason for this course. An im-
pression prevails that the present stagnation of trade

THE LIQUIDATIONS OF I 8 73-76 99

is unprecedented in intensity and duration, and that it
is likely to be permanent. A similar impression has
often been found to prevail at such times, and it will
be interesting to inquire whether it is now, for once,
well founded, or whether in reality the depression is
not much less than those to which trade has often been
subject, and is not as likely as any other to terminate
in a new period of prosperity.

Endeavouring to answer the question we have put,
what we are first struck with, in a general survey of
the last three or four years, is the universality of the
depression. Almost every civilized country has been
affected. The beginning was in 1873, with the great
Vienna panic and crash in May of that year — a crash
which was accompanied by immense agitation through-
out Germany and in England, and the occurrence of
incidents on almost every European Bourse which only
stopped short of panic. Next came a great panic and
crash in the autumn of 1873 in the United States,
perhaps the greatest event of the kind to which that
country, though it has had many great panics, has ever
been subject. This was accompanied by a renewal of
agitation in England, as well as generally on the Con-
tinent, as the rates of discount in November, 1873,
significantly prove. At that date the minimum bank
rate of discount was in London no less than nine per
cent., the maximum being two and three per cent,
higher ; the minimum in Paris and Brussels was seven
per cent. ; in Berlin and F^rankfort, five per cent. ;
Vienna, five per cent.; and Amsterdam six and a half
per cent. The following year was comparatively quiet,
but it was marked by great monetary disturbances in
South America, and by a great fall in prices both at
home, on the Continent, and in the United States. In
1875 came renewed disturbances in South America, a
renewal of agitation in the United States and Germany,

lOO ECONOMIC INQUIRIES AND STUDIES

and then the Im Thurn, Aberdare, ColHe, Sanderson,
and other failures, constituting the commercial crisis of
that year in England. This was in turn succeeded by
a great collapse in foreign loans, which had been
heralded and partly rehearsed in 1873, on the occasion
of the bankruptcy of Spain, and of which the con-
spicuous incident now was the non-payment of the
Turkish debt interest. To all these events succeeded
renewed depression and stagnation in trade at home,
as well as on the Continent, the crisis in Russia in 1876
being very marked, and the whole continuing till it
seemed to have a fresh cause in the apprehension and
actual outbreak of the present war. Thus the depression
has been widespread and general, Italy, Spain, and
France perhaps escaping with little hurt, but Austria,
Germany, Russia, the United States, and the South
American countries having all been in deep distress.

This universality, on a comparison with former
periods of crisis, may be in fact apparent only, arising
from the greatly increased facilities of observation at
the present day. There never was a time, probably,
since commerce was sufficiently advanced in more
countries than one to admit of crises, in which the
commercial misfortunes of one country did not react on
countries with which it did business. At such periods
as 1825, 1837-39, 1857-58, 1861-62, and 1866-68, it is
undoubtedly the case that the crisis in England has
been accompanied by more or less severe crises else-
where— France, America, England, Holland, and the
German towns on the Elbe, having shared each other's
fortunes more or less during the whole period. Now
the crisis is felt to be more extended, because we are
immediately informed of the events in most distant
places, because we see at once the association of failures
at centres remote from each other, because we also see
at once the effect in one place of the call upon it to
render assistance at another disturbed centre of busi-
ness. But it is also true that commercial relations are
themselves far more extended than was the case before

THE LIQUIDATIONS OF I 873-76 lOI

railways and telegraphs; that there are wide regions —
in the United States, for instance — which could not
have been the subject of crisis twenty or thirty years
ago, because they were unpeopled; that such countries
as Austria and Russia have lately shared more largely
than before in industrial development; and that Ger-
many has also advanced farther in the path which makes
it possible for it to be the subject of a commercial crisis.
There is consequently a real reason for the greater ex-
tension of the commercial depression of the last three
years as compared with anything before witnessed,
while it is equally true that steam and telegraphs, by
facilitating communication, have destroyed the natural
barriers between the different communities of the com-
mercial world. The London money market appears to
^be the great equalizer of markets, because it receives
the shock of every important business event throughout
the world, and transmits the shock of what it feels to
every other centre. But whatever the nature of the
connection, it is certain that there is a connection be-
tween commercial crises in different parts of the world,
and that the wider range of business increases the
possible area of disaster when once disaster has set in.

II.

The next important characteristic of the depression,
and, perhaps, the most important characteristic of all,
appears to be that the conspicuous industry which has
failed is that of the "exploitation" of new countries
with little surplus capital, and whose business is mainly
that of producing raw materials and food for export,
by old countries which have large surplus capital, and
are largely engaged in manufacturing; in other words,
the investment in new countries by the capitalists of
old countries. Much bad business is brought to light
in every depression; but it is the peculiarity of the
commercial cycle, as we have noticed, that there is a
change from time to time in the favourite business, so

I02 ECONOMIC INQUIRIES AND STUDIES

that every period has its special trade development,
and special trade disease. The favourite business for
many years before 1873 had become that of foreign
investment, and now the depression occurs where there
was the greatest expansion. Direct evidence in such
matters is difficult: it would hardly be possible to
measure precisely the extent of the various descriptions
of disaster which combine to make a crisis; but there
are many facts and circumstances which can leave little
doubt in the mind that the direct evidence, if it could be
obtained, would wholly confirm the conclusion stated.
The order of events in the crisis affords of itself a
very striking confirmation of the assumption. The
difficulties commenced in the countries more or less
farmed by the capital of England and other old coun
tries; whose industries are nourished by public loans
from England, and by the investment of private Eng-
lish capitalists within their territories, principally in the
form of English iron and manufactures. The crisis in
Austria, which was the first in the whole series, was a
crisis in a country answering this description to some
extent. To the United States, where the next great
crash occurred, the description is still more applicable.
The South American countries, whose prolonged suf-
fering was the special feature of 1874, are almost a
domain of England; and Russia, too, is largely "de-
veloped " by English capital. Some of these countries,
especially Austria and Russia, have not been exclu-
sively dependent on English capital. They have also
benefited by the accumulation of capital in Holland,
Belgium, and France, which had been drawn largely to
Germany before 1873, through the French indemnity,
and had overflowed thence into Austria and Russia;
but the indemnity payments, though they helped to
precipitate and aggravate the crisis in Austria, did not
alter the power of that crisis to react on England. No
doubt, in 1873, as already noticed, the collapse of the
foreign loan financing had been foreshadowed; but the
anticipatory events of that year were in themselves

THE LIQUIDATIONS OF I 873-76 IO3

comparatively unimportant, so that down to 1875 what
chiefly happened was a succession of monetary and
commercial crises in countries dependent on England,
but from which England by comparison escaped. In
1875 these crises were succeeded by a crisis in England
itself of very great intensity, naturally leading to a
renewal of crises and distress elsewhere, though not of
actual panic, and the whole culminating in the financial
disorders of the foreign loan collapses, which will prob-
ably form, in after years, the most conspicuous feature
of the whole series of liquidations. There appears to
have been a natural order, therefore, in the successive
crises to which the countries dependent on England
have been subjected, leading to a crisis in England
itself, and finally to a financial as well as a commercial
collapse.

We have next to adduce in evidence the fact of the
great expansion of the business of investment in foreign
countries previous to the depression. The great mul-
tiplication of foreign loans in the period is now familiar.
Not to speak of Turkish and other loans, which were
so largely mere borrowings to pay interest, there was
a loan of ^32,000,000 for Egypt, after there had been
large loans in 1868 and 1870; Chili in the same time
(1867-73) borrowed ;^5, 2 50,000; Peru, ;^24, 000,000;
Brazil, ^10,000,000; Russia, ;^77, 000,000; and Hun-
gary, ^22,000,000 — exclusive of minor borrowings by
guaranteed companies and otherwise. These were the
nominal amounts of the loans, and the real money or
money's worth ever transmitted to those countries in
respect of them must have been much less; but, making
all deductions, they indicate an immense direct credit
opened up in this country in favour of the States named.
The minor borrowings we have referred to were equally
important, if not more important, and, especially in the
case of the United States, the aggregate of small loans
for railways and other purposes was immense. All this
direct borrowing likewise implied a great investment of
capital privately in foreign countries. Merchants and

I04 ECONOMIC INQUIRIES AND STUDIES

traders were induced to set up establishments abroad
to facilitate the business which the loans brought into
existence, and accommodate the wants of emigrants to
the new fields of industry. The result was a luxuriant
industrial growth in the new countries by means of this
vast direct and indirect credit which old countries were
giving. Thus in the United States, immediately before
1873, th^ length of the whole railway system had been
doubled in seven years; in Russia almost the entire
system of 12,000 miles has been created since 1868; in
Austria there had been an increase from 2,200 in 1865,
to over 6,000 miles in 1873; and in South America,
Brazil, the River Plate Republics, Chili, and Peru, had
all been endowed with railways in a very few years —
the loans for these countries above enumerated, and
especially the above loan of ^24,000,000 for Peru,
being avowedly all for railways. And never was there
a more rapid development of the foreign trade of the
United Kingdom, The total import and export trade,
which was ^500,986,000 in 1867, had risen in 1873,
or in six years only, to ^682,292,000, or 36 per cent;
and the trade per head from £\6 is. '^d.X.o £21 \s. gd.,
or 3 2 per cent. The exports of British produce alone, to
take thetwo extreme years, had risenfrom^i 79,678,000
in 1868 to ^^256,257,000 in 1872, or 42 per cent, in
four years, the increase per head being in the same
period from ^5 17^-. /\d. to ^8 i^., or 37 per cent. All
this had followed a rapid rise in previous years; for the
panic of 1866 was chiefly the collapse of a home com-
pany mania, and had not brought with it discredit of
foreign loans, or a collapse of the business of lending
to foreign countries. And in one or two trades the in-
crease of business was even greater than the general
increase. Thus the quantity of our iron and steel ex-
ports rose from 2,042,000 tons in 1868 to 3,383,000 tons
in 1872, or 66 per cent, in four years; while there was
simultaneously a rise of price which made the increase
in values immense, not only in these, but in other
articles where there was no such increase of quantity.

THE LIQUIDATIONS OF I 873-76 IO5

It is sometimes said that the burst of trade which cul-
minated in 1872-3 was largely due to the extra demand
for our manufactures created by the Franco-German
War, This war checked manufacturing on the Con-
tinent for nearly a twelvemonth, besides causing a war
demand for certain of our manufactures. But the com-
parison we have made is of a year when the war was
long over, with a year quite before the war, while the
most conspicuous instance of increase in our exports
was in iron and steel, which was clearly in connection
with increased railway construction abroad. The ex-
pansion of our foreign trade was thus manifestly in
connection with the general expansion of our foreign
investment business, and not the result of the accidental
or temporary causes which have been assigned.

That there has been a most disproportionate stop-
page of the foreign investment business, which would
go far to account for the present depression, is also
very obvious. I do not refer so much to the notorious
stoppage of the issues of foreign loans, small and great:
after every great crisis new issues of almost every kind
come to a standstill, as frequent experience has shown.
It was so after 1866, and has been so after similar
years of crisis, although I doubt if foreign issues, as
distinguished from home enterprises, have ever been
so completely stopped as they are now. Quite apart
from this, we have unmistakable evidence of the de-
cline in foreign investment business in the financial
and industrial embarrassments in new countries, of
which, as I write, the great railway strikes in the
United States furnish a new illustration. There has
also been a diminution of sinoular mas^nitude in our
export trade. That trade has frequently fallen off in
times of general depression, but never to such an ex-
tent as has lately been witnessed. The diminution
altogether in the exports of home produce and manu-
factures has been from ^256,257,000 in 1872 to
;!^200,639,ooo in 1876, the change being partly due as
usual, and perhaps rather more than usual, to a fall in

I06 ECONOMIC INQUIRIES AND STUDIES

price, but only partially to that cause. There has not
since the free trade period been such a decline in our
foreign trade, just as there had been no previous ex-
ample of so great an expansion. The decline has also
been mainly in the exports to such countries as the
United States, which had been our ereat borrowers—
the fallinor off to the United States alone beino^ from
£/^o,'jT,j,ooo in 1872 to ^16,834,000 in 1876, this
latter figure being the lowest since 1864. It has also
been mainly in such articles as iron and steel ; the
exports of which diminished from 3,383,000 tons and
^35,996,000 in value in 1872, to 2,224,000 tons and
;^20,737,ooo in value in 1876; while the exports to
the United States alone fell from 975,000 tons in 1872
to only 160,000 tons in 1876. The recent diminution
in our export trade is therefore not only unusual, but
it is a diminution of the exports to new countries, and
a diminution of those articles which we send abroad
for the purpose of new works in such countries. So
great a change in one great branch of our business
would go far to account for the general depression
now prevailing, which is thus once more traced to the
failure of our foreign investments.

The embarrassments in the new countries were also
connected with the excessive development of their
capabilities which had been attempted. A very con-
siderable amount of the railway and other speculation
during the last few years, has been proved to have
been wholly in anticipation of the wants of the world,
the evidence of this being an over-production of raw
materials and food, the characteristic products of the
new countries. Of this over-production the most sig-
nificant sign was the low price of wheat in 1875, not-
withstanding the bad harvest of that year in several
countries. There had previously been complaint of low
prices in the United States — in 1873, for instance —
and of inability to "keep back" crops. Similar com-
plaints had also been received from Russia in 1874.
Even in 1876 the price of wheat was slow in rising in

THE LIQUIDATIONS OF 1873-/6 IO7

the autumn, notwithstanding a generally bad harvest,
and the extreme war rise the following spring was only
maintained a few days. In other words, the assumption
as regards wheat that new countries might be settled
indefinitely has proved to be erroneous. The result of
what appears to be excessive cultivation is an unre-
munerative price, which leaves merely agricultural
communities in distress, and disturbs their whole sys-
tem of industry. It has been the same with other raw
materials, such as cotton, although perhaps not to the
same extent. But in general the business of producing
raw materials and food had been overdone, and the
crises in Austria and the United States in 1873, fol-
lowed as they have since been by the similar crises in
South America and Russia, were evidence that the
power to support the financing of the previous two or
three years, which was based on the business of invest-
ment in new countries, had ceased.

The uglier features of the collapse of foreign loans
also furnish evidence of the characteristic mark of the
crisis with which we have been dealinof. In addition
to the issue of loans, which involved the investment of
capital in a fixed form to an extravagant extent, so that
immediate loss and ruin could not but ensue, there had
taken place in a few years before 1872 frequent issues
of loans for foreign countries so called, which were
only disguises to plunder the public. We refer to the
loans for Honduras, Paraguay, San Domingo, and
Costa Rica, which were investigated by the Foreign
Loans Committee, and to a numerous class of which
these were perhaps the most flagrant specimens. These
were simply issues by knots of speculators, usually on
the plea that they were for some public work — to which
a small portion of the money raised was perhaps, in
fact, devoted— but really with the design, as carried
out by those concerned, to pay themselves large sums
in commissions and otherwise, so long as the public
could be got to believe in such things by the payment
of interest out of the funds they had themselves ad-

I08 ECONOMIC INQUIRIES AND STUDIES

vanced. All this was very natural. The peculiarity of
the time being the development of foreign countries by
loans, it was only natural that the illegitimate financing
of the time should also consist of so-called loans. As
there had been bogus companies in the days of the
company mania, so now there were bogus loans.

These are all circumstances tending to show how
much the bad business brought to lip"ht in the recent
depression was connected with the business of invest-
ment in new countries, and its accessories, which had
previously just received so great an expansion. As we
have already remarked, there was much bad business
besides. In the set of failures connected with that of
Messrs. Collie, what seemed to be shown especially
was a peculiar disorder in the trade with India, the re-
sult, it is probable, of the undue investment of capital
in that trade at a date as far back as the cotton mania
in 1863 and 1864. But the bad business of foreign in-
vestment and financing has certainly been far the most
prominent.

III.

A third distinguishing mark of the crisis appears to
be the singular lightness of its effects on English in-
dustry and wages. As has been hinted already, such is
not the common impression regarding it. On the con-
trary, the depression of trade is spoken of in common
speech as something entirely unprecedented both in
intensity and duration. But a careful examination must
prove that, as far as matters have yet gone, the common
impression is wrong, and the facts are entirely the other
way.

The common impression appears to be due to a mis-
interpretation of two undoubted facts : first, the evident
magnitude of the financial collapse in foreign loans,
which has been productive of great social distress
among the classes who have most ample opportunities
of proclaiming their grievances ; and next, the magni-

THE LIQUIDATIONS OF I 873-76 IO9

tude of the decline of the foreign trade of the country,
which is identified with a decHne in its whole trade.
But it is easy to see that there is a misinterpretation.
The magnitude of the financial collapse is, of course,
very serious. The novelty of the deception of the public
by bogus loans has increased the evil as compared with
the evil of a company mania, while the opportunities
of fraud were really more favourable to the conspirators
than in the manufacture of bubble companies. A State
loan sounds more respectable than a company issue.
On the whole, the securities of States for a long period
had also answered better than the shares of companies,
and although also in former years many State loans
had proved the source of loss to English investors —
several South American States, Greece, Spain, and
one or two States of the American Union, having all
proved defaulters — yet there had been no flagrant in-
stances of loans which were merely cloaks to let pro-
moters and financiers have commissions. The agents
and institutions connected with States also controlled
larger resources than had been controlled by the
financiers of companies. The inability of investors,
therefore, to form a good judgement on the invest-
ments submitted to them, their disposition to rely on
market price, and other extraneous or irrelevant cir-
cumstances, was never experimented on so widely, or
with more unfortunate results. Hence the magnitude
of the bad business and the ensuing collapse. In the
loans for Turkey, Egypt, and Peru alone, the deprecia-
tion of securities within a year after the Turkish col-
lapse amounted to about ^150,000,000, while there is
a total destruction or suspension of income from tainted
securities exceeding ;i^20,ooo,ooo a-year. But, great
as this collapse is, it has probably affected very little
the accumulation or real wealth of the country. Many
people feel themselves poorer than they were before,
but the community as a whole is not really poorer by
the pricking of all these bladders. A certain number
of people are simply prevented from continuing any

I lO ECONOMIC INQUIRIES AND STUDIES

longer the process of living on their capital, for that
was what they were doing when they were spending
the so-called interest paid them, which was really only
a return of what they had themselves advanced. But
the whole of the so-called interest was not so spent, a
great deal of it, as is the case with the interest of every
description of investment, being reinvested, and in this
way the collapse really changes nothing, except to
let many people know that their accumulations were
imaginary. The direct economic effect is consequently
nil, although the social effects and individual disasters
are of the most serious kind. The depression of trade
attending a financial collapse ought not, therefore, to
be measured by the seeming magnitude of the financial
collapse itself, which last may be very great without
the ordinary industry of a country being seriously
checked.

As regards the second fact which is misinterpreted
— viz., the decline of the foreign trade — the common
impression only requires to be challenged to prove its
unsoundness. We have probably a larger proportion
of foreign trade than any other great nation. Our work-
men and capitalists have gradually come to exchange
a larger proportion of the products of their industry for
foreign products than any other people. But even yet
we are very far from exchanging more than a small
part of what we produce. Our whole agriculture is for
home consumption; our coal and iron mining, our cotton
and wool spinning and weaving, our manufactures
generally, are also mainly for home consumers. A de-
cline in our foreign trade, therefore, is only a decline
in a branch of our whole trade, and should by no means
be identified with a general depression in business.
The recent decline in the foreign trade, moreover, is
almost entirely a decline in "optional" business. It is
a decline in our exports of such articles as we have
been in the habit of exporting as a means of investing
our capital abroad. When we stop such exports, cer-
tain branches of home industry, which have been fitted

THE LIQUIDATIONS OF I 873-76 III

to this peculiar trade, suffer; but the capital which
would otherwise have been sent abroad, and the means
of producing that capital, are not destroyed. In the
course of time, if the taste for foreign investment does
not revive, the capital and labour employed in making
articles for export will be turned to the production of
articles for consumption and investment at home. In-
stead of merely looking at the foreign trade, then, we
should look at our aggregate trade in such times of
depression, and not suffer our opinions to be distorted
by one or two conspicuous facts.

Coming to the subject in this way, we do not see
how it can be doubted that the recent depression, al-
though it is very protracted, is as yet singularly light
in degree. Our imports of the chief articles of popular
consumption, to begin with, have not diminished, but
increased. Indeed, one of the favourite complaints
about the depression of trade is the old cry of the ex-
cess of imports over exports, which is certainly greater
than usual, because our investments in new countries
have ceased for a time, but which is the permanent
characteristic of English trade. It is quite certain, how-
ever, that no country sends us any goods on credit; it
is England which always gives credit in the trade of
the world. Whatever increase of imports there may be,
then, is a sign of real ability to pay for them, and pro
tanto of the undiminished prosperity of the country. To
the same effect, we have the fact of an increase of rail-
way traffic year after year during the depression. The
increase in 1874 and 1876, and again in 1877, has been
small; but in 1875, the very year of the great com-
mercial and financial collapse, it was considerable.
Evidence in the same sense is also supplied by the non-
increase of pauperism all through the depression, and
by the steady augmentation of the national revenue,
until the present year, and by the increase of the savings-
bank deposits. The non-increase of pauperism is no
doubt partly due to our improved administration, but
no improvement of administration could have prevented

I I 2 ECONOMIC INQUIRIES AND STUDIES

such an increase of paupers and decline of revenue as
followed the panics of 1847, 1857, and 1866, not to
speak of the awful convulsions and distress which
marked the depression of trade in still earlier periods.
To any one who has even glanced at the economic
history of England during the present century, the
common talk now about the "unusual" depression of
our trade appears simply ludicrous. The people who
indulge in it have simply never thought of what de-
pression of trade is. There has probably never been a
great commercial crisis in England which caused so
little suffering to the mass of the nation.

When we think of the matter a little, it seems reason-
able enough also that the depression should be a mild
one. Severe as the crisis has been, we were lucky
enough to escape an actual panic, with the shock to
credit and other lamentable incidents which a panic
invariably produces. It is probable also that we were
really befriended by the peculiar events in the money
market in connection with the German coinage. The
withdrawals of gold for Germany had the effect of an-
ticipating the stringency in the money market which a
period of great expansion ends in. The expansion was
thus hindered from reaching the extreme it would
otherwise have reached, and the reaction is less severe.
Some good judges are of opinion that we have to thank
yet another cause — the high normal wages of our work-
men, and their independence of abundant harvests and
cheap wheat, as compared with what was formerly the
case, so that all our staple industries are steadier than
they were. But I should doubt the effect of this cause
without greater experience than we have yet had.
Workmen will suffer, it is to be feared, in a way in
which they have not lately suffered, if another time of
expansion such as there was in 1872 should reach its
full term, and industry be subjected to the strain of the
inevitable reaction. But without this cause, the actual
facts of the absence of a panic during all this depres-
sion, and of the successive stringencies in the money

THE LIQUIDATIONS OF I 873-76 I I 3

market which checked the exuberant growth of 1872
and 1873, appear quite sufficient to account for the
comparative mildness of the effects of the depression
we are witnessing.

IV.

The marks of the present depression which we have
enumerated are thus its universahty, its origin in the
breaking down of the bad business of foreign invest-
ment, and its mildness in the United Kingdom as
compared with former periods of depression. Is there
anything in these peculiarities, or in any other circum-
stances of the depression, to lead us to anticipate that
it will be unusually protracted or that its effects will be
permanent? Is the depression, in other words, the
beginning of anything unusual or unprecedented ?

To put the questions thus explicitly is perhaps to
answer them. Although there is much vague talk about
existing depression — which is really based on an as-
sumption that it is something utterly unheard of and
must be lasting — it is not so easy to assert explicitly
what is so confidently assumed. To suppose the per-
manence of almost any depression would, in fact, be to
suppose a change in human nature itself. Universal
dulness and poverty are, in fact, contradictions in terms,
unless it is supposed that all people will voluntarily be
idle when they have the strongest motives to work.
Whatever awkwardness there may be in the distribu-
tion of labour and capital at certain times, the power
to produce and the wish to consume ensure that with
the means of production unimpaired — and there is no
allegation that the means of production in the present
case are impaired — production will go on and increase
with the increase of population and with every species
of chemical and mechanical improvement. It is thus
morally certain that if at any time the industrial ma-
chine, as a whole, is partially disused and times are dull,
a period of full employment and prosperity will return.

And short of the depression being permanent, its

I. I

114 ECONOMIC INQUIRIES AND STUDIES

effects will not, we think, be worse than usual, if indeed
the worst is not already past. The disorder has been
very general throughout the world, because, industrially,
the world is getting to be more and more one country;
but there is manifestly nothing in the extent of a de-
pression to alter its character or the power of the com-
munities affected to recover. So far as England is
concerned, moreover, all that has happened is that a
particular part of our trade — our exports of domestic
produce and manufactures — is momentarily weak, just
as in former times the home trade dependent on rail-
way contractors or bubble companies was weak. Our
new investments in a particular direction have failed,
but that is all. There is clearly no reason in this for
any prolonged stoppage or diminished use of the in-
dustrial machine for all the miscellaneous purposes of
life, although it will only be by degrees that new out-
lets for our surplus capital can be found. All the
reasons assigned to account for the lightness of the de-
pression until now — the absence of panic, the fact that
the collapse is so much a merely financial one, and the
circumstance that the expansion previous to the depres-
sion was arrested in its natural development — are also
reasons why it should not be more protracted than
usual. Some new mischief may of course arise, but
there is nothing on the face of the facts, according to
all former experience, to lead us to expect an aggrava-
tion of the present evils.

Nor do the special causes sometimes assigned for
expecting an unusual degree and continuance of de-
pression appear to be entitled to much weight. The
British workman, it is said, drives business away by his
misconduct and his demands for excessive wages.
Foreig-n nations are increasino- their manufactures of
the very articles of which England, till lately, had a
monopoly. Every import of a foreign manufacture into
England, at a time like this, gives occasion for a new
exclamation that Eno-lish industry is threatened. The
changes are constantly rung upon such facts as the in-

THE LIQUIDATIONS OF 1873-76 II5

creased capacity of the United States for the production
and manufacture of iron; the importation of certain
descriptions of American cotton manufactures into
England; the appearance of Belgian and German
manufactures in our markets at a cheaper price than
the articles can be made by ourselves. But those who
use this language appear to fail altogether in measuring
the extent of the mischief they point out. A great deal
of the apparent competition of foreign manufactures is
due to the search for a market which occurs in every
time of depression, and which furnishes no sure indica-
tion whatever of any real change in the currents of
trade. All we know for certain is that on the other side
the complaints abroad of the competition of English
manufactures are loudest at such a time, and that facts
as to foreign competition, similar to those now alleged,
have been brought forward in every time of depression
for the last half century, without any serious permanent
result on English trade being traceable. That trade,
on the contrary, as, for example, after the year 1869,
when a great noise was made about similar facts, always
makes a more rapid advance than ever after each de-
pression. No one can dispute, indeed, that English
workmen are often foolish for their own interest, or
that some English trades have diminished, and others
may yet diminish or may become stationary, while
foreign trades of the same kind increase. Still the
question here is of the general prosperity, and it is
easy to recognize the strength of the influences which
are likely, and, we believe, are certain to limit the
evils feared, as, in fact, they always have limited them.
Our workmen do, in fact, succeed in getting higher
wages, as a rule, than foreign workmen; they do not
migrate, and pauperism does not, on an average of
years, increase — all signs that manufacturing, as a
whole, whatever may happen to particular trades, in-
creases in England. It is because there is so much
more profitable manufacturing here than elsewhere
that our workmen can enforce the higher wages. As

Il6 ECONOMIC INQUIRIES AND STUDIES

we certainly cannot expect that foreign countries should
manufacture nothing at all, but must rather desire their
manufacturing to increase, there is really nothing in all
that is said of foreign competition to concern us in an in-
quiry as to the permanence of the present depression.
The fallacy in the use of these alleged facts as to
foreign competition consists, indeed, very largely in
the forgetfulness of other facts which are equally
material : that our foreign trade itself is not everything
to us, but is, after all, only a fraction of our whole
business ; that long before competition can diminish
that trade materially it must produce a fall of wages,
while wages abroad will rise if foreign trade increases ;
and that although foreiofn countries increase their
manufactures, we are not necessarily ruined — probably
we are greatly gainers. To take what seems as formid-
able a case of possible competition with us as any that
is threatened — viz., the increase of the American iron
and coal industries under natural conditions. It seems
probable enough that in course of time these industries
will be very largely developed in the United States.
The people have natural aptitude and skill, and other
advantages, and they may produce iron manufactures
cheaper than they can buy them abroad. In time they
may export them to other countries. But how is Eng-
land necessarily the poorer for that, and how much?
We may come to export a smaller quantity of our
iron manufactures to the United States than in the
years before 1872; but at most we shall only lose the
profit on so much trade, not the whole value of what
we sold to the United States, which was, in compari-
son with our whole trade, by no means a large sum.
Nor shall we even lose the whole profit. We can only
lose the difference of profit between what was derived
from that trade and the return on the less profitable
trade, into which a portion of our capital and labour
are diverted. Possibly, also, the growth of the world
may be such that the expansion of the American in-
dustry will not be exclusive of, but will be coincident

THE LIQUIDATIONS OF 1873-76 II7

with a similar expansion of our own — there may be
room for both of us. In that case there would be no
reduction of the profits on our own trade at all, although
America had become an exporter of iron manu-
factures. Ex hypothesi, the increase of the American
iron trade would also mean that America becomes
richer, and consequently a better customer to the world
generally for other things — thus causing an increase
of the general prosperity in which, with our extended
and various trade, we could not but participate. Worse
things may thus happen to us than a natural extension
of the American iron trade ; and if it is extended by
protection only, it can of course do us still less harm.
There is something essentially unsound, therefore, in
the continual references to the increase of manufactur-
ing abroad. Our concern should rather be to have
that manufacturing increase. To anticipate that the
world outside England is to be merely agricultural or
mining, is to anticipate the maintenance throughout
the world of the least productive forms of applying
human industry, and of low purchasing power among
other countries. What mankind require for the
greater efficiency of their labour is that the proportion
of people employed in agriculture and mining should
diminish, and more and more attention should be given
to other forms of industry. How England should grow
poorer as this transformation is being effected, it is
difficult to imagine. It appears to be as clear as any
proposition, that the general increase of production,
leading to still greater varieties and subdivisions of
manufacturing than those which now obtain, must
benefit most of all the countries like England, which
have got the start of others, and possess all the best
manufacturing appliances.

We should fully expect then, when the liquidations
which have been in progress are over, to see once more
a great revival of prosperity. Still more, according to
all former experience, the prosperity to come must be
even greater than anything yet seen. Ever since

Il8 ECONOMIC INQUIRIES AND STUDIES

1844 there has been an ascending scale in the rate of
our industrial advance. The years after 1848-49 were
more prosperous than any before, but the prosperity of
1863-65 exceeded that of 1850-53 just as the prosperity
of 1870-73 exceeded that of 1863-65. In like manner
the next period of prosperity will probably exhibit a
fuller development than 1870-73, and for a similar
reason — viz., that the productive capacity of mankind
in civilized nations, in proportion to their numbers, is
annually increasiag- — being capable of almost indefinite
increase. More railways and more machinery, the im-
proved knowledge of chemical and other arts, imply
that one year with another, in proportion to their popu-
lation, civilized communities can produce more real
wealth than they did before. Depression comes at
times, because mistakes have been made, and the
wrong things are produced ; but when the mistakes are
corrected, or some new favourable influence operates,
such as a good harvest, the tide flows again, industrial
communities work up to their full power, and they are
all richer than before. Possibly the workmen at a given
place may take out their share of the increased pro-
duction in the privilege of working fewer hours; but
the prosperity is there, however it may be enjoyed.
The great extension of railways throughout the world
in anticipation of real wants, which was the mistake of
the period of inflation, should, now that the mistake
has been paid for, contribute to a more rapid advance
of general prosperity than would take place if the world
had fewer railways.

There has naturally been much talk during these
liquidations of the commercial and financial dishonesty
brought to light. At every such period there is an
endless discussion of such matters, as if the worst evils
of every crisis arose out of dishonest acts, and the
practical questions were how such acts are to be pre-
vented in future. But while recognizing the importance
of such discussions in their own place, I doubt if they
are as profitable and instructive as those who engage

THE LIQUIDATIONS OF 1873-76 II9

in them suppose. Improvement in morality is neces-
sarily a slow process, and in so complex a world as
that of modern business the efficacy of any external
aids to prevent dishonest or quasi-dishonest practices,
or an abuse of credit in some form or other, may be
doubted. It would no doubt be im.portant to discuss
the immoralities disclosed during a period of crisis,
provided a great deterioration of character had become
manifest; but I should not look for a change of this
sort in so short a time as that which elapses between
different crises, and at any rate there was no such change
manifest in the last crisis. There was nothing very
novel in character after all in the Collie frauds, or in
the financial swindling which has occurred. The Collie
accommodation bills were no better and no worse than
the accommodation bills in the leather trade discovered
in 1857, or the similar discoveries in other crises. At
times, when trade becomes unprosperous, it is inevitable
that bills will deteriorate in quality through the de-
sperate efforts of people to carry on after they have
become insolvent. The point where insolvency is
passed must be difficult to discern for many houses
which depend on borrowed money, and which engage
incessantly in large speculations. Probably before the
fact of irretrievable insolvency is fairly recognized by
a house like Collie's, and desperate expedients to avert
bankruptcy increase in number and frequency, enor-
mous mischief has been done, and enormous losses to
the people who have trusted them are unavoidable.
The chief practical lesson to be learnt from such failures
is really a detail of practice — the revelation to our
great joint-stock banks of a defect in their system
which should be easily curable, and the cure of which
would mitigate the effects of catastrophes like that of
Messrs. Collie. The financing- of foreign loans was
also no better and no worse than the financing of
companies, or the construction of contractors' railways
in past times. There are reasons in the nature of
times of prosperity for the creation of pinchbeck secu-

I 20 ECONOMIC INQUIRIES AND STUDIES

rities, and the details and particular form of security
chosen are not of permanent interest. If the class of
promoters is checked in one way, they will invent new
methods and new fields of deception, still keeping
within the wind of any laws that may be contrived.
Since 1866 there have been few companies with large
amounts of uncalled capital, the special evil of the pre-
1866 period; but the activity formerly witnessed in
this field has been equally injurious, as we all see now,
in the field of foreign loans. The exposures of the
Foreign Loans committee in 1875 have so effectually
stopped these, that it has already become unnecessary
to consider the particular recommendations they made.
Probably promoters will now go into a totally different
field, which I am disposed to think may be the creation
of trusts or trust companies to "amalgamate" secu-
rities, and so distribute the risks. The principle seems
fascinating: more than one of the numerous trusts now
in existence have been fairly successful: we may accord-
ingly expect an extension of the principle by which in-
vestors will be once more encouraged in the impossible
experiment of making a high interest safely. But trust
companies are really as dangerous as limited com-
panies with much uncalled capital, or foreign loans,
though in a different way. They amalgamate secu-
rities and distribute risks, it is true, but they add the
great risk of a new set of intermediaries between the
investor and his investment. In addition to his former
risks, the latter, when he belongs to a trust, runs the
risk of employing an adventurer or a thief to select
and keep his securities. The danger is manifest. But
if promoters do not go into trusts, or trusts do not
"take," we may be certain they will try something else
which will probably be found to answer, so great and
so enduring is the infatuation of the public; and the
mischief will be done before effectual warning can be
given.— [1877.]

IV.

ON THE FALL OF PRICES OF COMMODITIES IN I 873-79.'

THERE is a general agreement that during the
last few years there has been a heavy fall in
prices. The fall in cotton and iron, and the various
manufactures of cotton and iron, is notorious, and for
the rest the losses in trade, in almost every description
of business, have been such as to leave no doubt of a
fall in price. It is usually a fall in price which cripples
the weaker borrowers, and causes bad debts, and this
makes a beginning of losses by which stronger bor-
rowers are in turn crippled, farther falls in prices
ensue, and more bad debts and losses are produced.
When we see so many failures as are now declared,
therefore, we may be quite sure that they are preceded
and accompanied by a heavy fall in prices. But the
question for statisticians in such a matter is not the
fact of a general fall, but whether it can be measured
and compared with other facts of a similar kind, and
whether there is anything to show the fall to be of a
more or less permanent character, and not merely a
temporary fluctuation which will be corrected by an
immediate rebound ; in other words, whether the aver-
age of two or three years, including the present, will
or will not exhibit a decline when a comparison is
made with a date two or three years back. Looking
at the matter in this more definite way, I have come
to the conclusion that not only is there a decline of

' Read before the Statistical Society, 21st January, 1879. The
tables referred to in the paper are not reprinted here, but will be found
in the Statistical Society's "Journal " of March, 1879.

122 ECONOMIC INQUIRIES AND STUDIES

prices at the present time from the high level estab-
lished a few years ago, but that this decline is more
serious than the downward fluctuation of prices usually
exhibited in dull times, and that it may be partly of a
permanent character unless some great change in the
conditions of business should occur at an early date.
I think this can be shown without difficulty with the
help of some well-known figures which have been
published lately, and which I propose to analyze and
sum up, after which I shall proceed to discuss the
causes of this apparently serious decline in prices, and
some of the probable consequences.

I. — The Extent of the Fall.

To take the matters in the rough first : we may see
what the general fall of prices has been by which the
popular impression has been created. For this purpose
I have made use of tables of prices of certain leading
wholesale commodities which I prepared for a series
of articles commencing in 1874 and continued for
several years. From these tables I have extracted the
prices on the ist of January, in each year, carrying
them back for the sake of comparison to the ist of
January, 1873, which was the period, as we shall see,
of maximum inflation during the late prosperous period,
and bringing them down to the ist of January of the
present year. The result is seen in the first table of
the appendix to this paper, which certainly gives the
impression of a tremendous fall, continued as regards
almost every article from the time the table begins.
Thus Scotch pig iron, which is the first on the list,
falls from iijs. to 1075. 6d. the following year, and
then to 805., 645-. 3«'., 57^-. 6d., 513-. 6d., and 43.?., the
fall in the end amounting to no less than 66 per cent,
of the original price. In Straits tin the fall is from
^142 per ton in January, 1873, to ^120 the following
January, and then to ^94, ^"82, £7S lO-^-. .^^6, and
;^6i, the fall in the end amounting to 57 per cent, of

THE FALL OF PRICES OF COMMODITIES IN 1873-79 I 23

the original price. To pass from the metals to the raw
materials of the textile manufactures, we find the fall
in cotton to be from lod. per lb. in January, 1873, to
S^d. in the following January, and then to 7 Id., yd.,
S^d., 6\d., and ^\d., the fall in the end amounting to
46 per cent, of the original price. In wool the fall is
from ^23 per pack in January, 1873, to ^19 15.^. in
January, 1874, and then to ^18 5^-., ^17 lOi"., £,\b lo.?.,
;^I5 I05-., and ^13, the fall in the end amounting to
43 per cent, of the original price. The fall is not quite
continuous in all cases. In wheat, for instance, although
the fall in the end is from 553-. i\d. to 39^. yd. per
quarter, or equal to 29 per cent, of the original price,
we find the price in January, 1874, to have been higher
than in January, 1873, while in 1877 and 1878 the
price was nearly as high as in 1873. But in a good
many instances at least there is a continuous and steady
decline, and in some instances of intermediate reaction,
as in the case of sugar, the recovery appears to have
been for a short period only. As regards sugar itself,
the price of 22^-. in January, 1877, stands out isolated
among the years of low price on either side. Altogether
there are sufficient instances of a continuous decline,
and of other instances where the intermediate recovery
was very brief, to justify us in speaking of the whole
table as showing not only a heavy, but for the most
part a continuous, fall in the prices of commodities,
which commenced in January, 1874, and has lasted to
the present time. Of course this must be on the
assumption applicable to all such tables, that the
articles are really representative of the wholesale mar-
kets. Short as the table is, however, I believe the
articles are fairly selected, and they have at least this
advantage, that they were selected in the beginning of
1874, with a view to recording current prices in a
convenient and easily handled form, and have not
been put together ex post facto for the purposes of the
present paper.

To show how heavy the fall is, comparing simply

124

ECONOMIC INQUIRIES AND STUDIES

January, 1873, "^^'^^^ January, 1879, I have made up the
following table :

Prices of Leading Wholesale Commodities in January 1873 and
1879 compared.

January,

iS73-'

Scotch pig iron . . . per ton

Coals ,,

Copper, Chili bars . . ,,

Straits tin ,,

Wheat, Gazette average . per qr.

„ Red spring, at ( ^^^
New York / P^ °^
Flour, town made . per sack

„ New York price per bshl.
Beef, inferior . . . per 8 lbs.

,, prime, small . . ,,
Cotton, mid. upland . per lb.

Wool per pack

Sugar, Manilla Musca per cwt.
Coffee, Ceylon, good ord. „
Pepper, black, Malabar . per lb.
Saltpetre, foreign . per cwt.

127.-.
30^.

January',

1879.

43-f-

£6x
39-y- 7^-

81.70 I .$1.

^js. 6d.

^7-5
^s. lod.

10^.
£22,
21s. 6d.
80s.
Id.
295-.

37^-

$3.70

2S. lod.

^s. ^d.

Sid.

^13
i6s.

e^s.

4i^-

I 9^5".

Fall in 1879.

Amount.

I Proportion

per Cent.

on Price of

1873.

84.^.

lis.

£2,A

^81

16s. Aid.

$0.60'

10s. 6d.
$3.80^

IS.

6d.
Aid.

Ss. 6d.
155.

2ld.
lOS.

37
37
57
29

51
26
10
46

43
26

19
39
34

A table like this speaks for itself, and fully justifies
the popular impression of a great and general decline
in the prices of commodities. I think it even strengthens
the impression. We should hardly have suspected be-
forehand that prices of wholesale articles not selected
with a view to make out a case, but impartially chosen
years ago as representative of the markets, would ex-
hibit a fall in the last six years, ranging from 66 per
cent, in the most extreme, to lo per cent, in the least
extreme case, and ranging, with three exceptions only,
between 26 and 66 per cent. So great a change would
seem to make it probable both that unusual causes

^ The fall in the latter of these two cases appears to have been
affected by the appreciation of the paper money in the United States.

THE FALL OF PRICES OF COMMODITIES IN 1 873-79 I 25

have been at work, and that unusual effects have been
produced.

We come then to the question which we stated at
the outset, viz., whether the prima facie impression is
correct, and the fall is anything more than what has
happened before, in the change from a period of infla-
tion to a period of depression. To help in a solution
of this question, I have availed myself of a table which
was drawn up and is continued annually in a well-
known " Commercial History and Review," by a dis-
tinguished Member of this Society, whom it is not
necessary for me to name. In this table {see Appendix
Table II.) a certain value, loo, is assigned to each
group of a considerable number of articles in respect
of the average prices of these articles in the years
1845-50, the value of all of these together forming the
index number 2200. The proportionate results in each
year or period of years since the above date are then
deduced, the sum of 100 being added to when the
price has risen and subtracted from when the price has
fallen, and the results for each year being added giving
a new index number. The net result now is the fol-
lowing series of index numbers, the one for January of
the present year being my own addition, and being
subject of course to the correction of the author of the
table when he continues his work:

Date. Index Number.

1845-50 Average six years 2200

'57 ist July 2996

'58 ist January 2612

'65 » 3575

'66 „ 3564

'67 „ 3024

'68 „ 2682

'69 ,, 2666

'70 ,, 2689

'71 n 2590

'72 „ 2835

'73 n 2947

'74 „ 2891

'75 » 2778

126 ECONOMIC INQUIRIES AND STUDIES

I^^te. Index Number,

'76 I St January 2711

'77 „ 2715

[78 » 2554

79 „ 2227'

According to this, comparing January, 1873, with
the present time, we have a change in the index
numbers from 2947 to 2227, which is equal to a fall of
24 per cent, on the average. It appears, however, that
between 1865 and 1871 there was a still greater fall,
the change in the index number between these dates
being from 3575 to 2590, or equal to 27 per cent.
Great as the fall in recent years has been, therefore, it
would appear that on striking an average it is more
than paralleled by what happened in the immediately
preceding period of depression. The explanation, I
believe, is that in 1865 the index number was ex-
cessively raised by an exceptional circumstance, the
great rise in cotton and cotton goods owing to the
American War ; but, apart from this exceptional cir-
cumstance throwing out the comparison of the former
period, the recent decline is greater than that which
followed 1865. Without any such exceptional occur-
rence to raise prices at first, there is finally on the
average, according to this table, a decline of 24 per
cent. I may add, perhaps, though I should be most
unwilling to criticise the construction of the table, that
it seems to me to give an excessive weight to cotton
and wool, and too little to the metals, while coal is
altogether omitted. The result is that changes in the
price of textile articles affect the table much more than
they would affect a similar table into which the metals
entered more largely. On the other hand, considering
how textile articles enter into general consumption, the
table may be more perfectly representative of general
prices than if the index number were differently com-
posed.

The index number eventually published was 2202.

THE FALL OF PRICES OF COMMODITIES IN 1873-79 I 27

But while this table does not show that the recent
decline of prices is without a parallel, it indicates an-
other fact of no small importance for the present in-
quiry. This is, that the closing index number approaches
most nearly of all to that of the average of 1845-50.
That average is 2200, but in all the years named, in-
cluding 1857 and 1858, and every year from 1865
inclusive, the lowest index number is higher than that
for January, 1879. The lowest of the previous depres-
sions following 1865 was 2590, but the figure now
touched is 2227 only. Even therefore if the fall from
the highest point of the previous inflation is now less
than it was after 1865, we have still to consider that
the inflation from which there is now a fall was not
aggravated as that of 1865 was by a cotton famine,
and that the descent is now to the lowest level of prices
which appears to have been touched since 1850. In
other words, we seem to have been getting back in our
years of depression to the average prices of the period
just before the Australian and Californian gold dis-
coveries began to tell on the markets of the world.
This does not mean of course that prices are getting
back to that average; we seem yet to be a certain way
from that point; only that in our years of depression
we touch a point much more nearly approaching that
average than we did in the years 1868 and 1869.

Passing from these figures, I come to certain tables
which were prepared last summer by my friend IVIr.
Arthur Ellis, one of the young Members of this Society,
and who has already been a credit to us. As a supple-
ment to the " Statist " of 9th June last, he published a
long essay on the " Money Value of Food and Raw
Materials," in which he compared the prices of 1859,
1869, 1873, 1876, and the first quarter of 1878, using
for that purpose a new species of index number, based
upon the relative amounts of articles imported, with
certain additions for articles produced at home. The
principal results of this procedure are exhibited in two
tables, which are reprinted in the Appendix (see Ap-

128

ECONOMIC INQUIRIES AND STUDIES

pendix III.), and of which we have the net effect in the
following short table in the body of the article :

Index
Number.

Relative Cost in

1859.

1869.

Standard.

1873.

1876.

1878,

First

Quarter.

Foods . .
Materials

53
47

49.780
41.790

53.000
47.000

60.230

54-830

56.010

40.600

1 60.550
37-925

Aggregate, )^
as above j

lOO

91-570

100.000

115.060

96.610

98.475

In other words, taking 1869 as the standard, we find
that in 1873 ^^^ average prices of food and raw materials
according to this mode of computation had risen about
15 per cent, but in 1876 they had fallen rather more
than 3 per cent, compared with 1869, and in the be-
ginning of 1878 were ij per cent, below the 1 869 level.
Considering the great fall of prices which has occurred
since these tables were prepared, they may be con-
sidered to confirm fully what has been deduced from
the above figures, that there has been a fall to a lower
level during the present depression than what was
established after the inflation of 1865. Even at the
beginning of last year prices were lower than they had
been in 1869, and there has been a great and general
fall of prices since the beginning of last year.

A noteworthy point in this table is the circumstance
that the fall is almost exclusively in raw materials.
Since the table was prepared, however, there has been
a great fall in articles of food, which are now at a low
level of price like other things.

I have yet another set of figures, which you will
perhaps allow me to refer to before I leave this question
of the extent of the fall of prices in recent years. In a
report which I have lately prepared for the Board of
Trade, on the prices of our exports, copies of which are
just being circulated, I have first of all shown in detail

THE FALL OF PRICES OF COMMODITIES IN I 8 73-79 I 29

the prices of the various articles of our export trade, as
deduced from the declared quantities and values in each
year from 1861 to 1877, and I have then endeavoured
to show the average rise or fall in price, taking 1861
as the basis, by the above method of an index number,
using the actual proportions of the value of the exports
of each article to the whole value exported in calculat-
ing the average rise or fall of price. The result, I find,
is that in the under-mentioned years, assuming 73.1 as
the index number, that being the proportion of the value
of the enumerated articles of export to the whole ex-
port values, the following additions or deductions would
fall to be made according to the average changes of
prices as compared with 1861 :

1865 + 22.71

'73 + 20.60

'68 + 9-99

'75 + 8.26

'76 + 1. 17

'77 - 2.04

Here, again, without allowing for the great fall of
prices in 1878, we find an indication that prices are
now at a much lower level than they were after the de-
pression of 1865. In 1868 the index number is still
9.99 above the level of 1861, but in 1877 it is already
2.04 below that level, while in 1878 there has been a
fall below 1877. Curiously enough also it would again
appear that in 1865 prices rose to a higher level in a
time of inflation than they have since touched. The fall
now is from a lower height than the fall after 1865,
though a much lower depth has been reached. Of
course this table only deals with exports, but in that
respect it is supplementary and confirmatory of the
above tables of Mr. Ellis's as to food and raw materials,
which are mainly based upon the imports.

The general effect of all these figures may now be
summed up. Firsi, it has been shown by a general
table of prices at the beginning of each year, from 1873
to 1879 inclusive, that there has been a general and

I. K

130 ECONOMIC INQUIRIES AND STUDIES

remarkable fall in the prices of wholesale commodities
in the period, this fall having also been to a large ex-
tent continuous, and amounting in the end, with three
exceptions only, to between 26 and 66 per cent. Second,
it would appear from a comparison of prices by means
of the index number in the " Commercial History and
Review," that the average fall between 1873 and 1879
is 24 per cent., and that the level of price now established
is lower than anything recorded since 1850 in the tables
referred to, these tables comprising the years 1857 and
1858, and each year since 1865 inclusive; further, that
although the fall between 1865 and 1871 appears
greater by this index number than between 1873 and
the present time, yet there is a special explanation of
this, and there is reason to believe the present fall to
be unusually great. Third, it has been shown by cer-
tain tables of Mr. Ellis's that as regard food and raw
materials, prices at the beginning of 1878 were lower
than in 1869, one of the years of depression following
1865, while prices are now considerably lower than at
the beginning of 1878. Fourth, it has been shown as
regards the prices of exports, that the average in 1877
was considerably lower than in 1868, while the fall to
the present level was from a lower height in 1873 than
the previous fall in 1868-70 from the height of 1865.
Allowing for the further fall of prices in 1878, we are
confirmed in the belief that prices are now unusually
low, and that the facts shown by the first index number
cited rather understate than overstate the change. In
other words, it is ascertained, by the concurrent testi-
mony of all the facts examined, that prices of com-
modities are unusually low, though one of the sets of
the figures w^ould seem to throw doubt on the idea that
the fall from the height of an inflated period to the
present depth is unusually great. The preponderance
of evidence seems, however, to be that there is an un-
usual fall, although it began from a lower level than
what had been established in the previous inflated
period. I have not attempted, however, to measure

THE FALL OF PRICES OF COMMODITIES IN I 873-79 131

exactly what the extra depreciation is, though I should
be inclined to put it at between lo and 20 per cent,
below the prices of 1868-71. In these matters great
exactness is impossible ; without waiting to aim at great
exactness, I have thought it would be useful to bring
the rough facts together, pending the more elaborate
efforts which I trust some of our Members — perhaps
Mr. Jevons — may be induced to attempt.

II. — The Causes of the Fall.

To a certain extent there is no doubt or mystery
about the causes of so general a fall of price. They are
the same as the often recognized causes of similar
downward movements. When trade is good a state of
things is created in which a downward movement of
prices is sooner or later inevitable. A great stimulus
has been given to production in certain favourite in-
dustries; capital has been employed in creating new
establishments, or in extending fixed works and plant;
labourers have flocked into the trade, attracted by the
high wages ; at a point the demand is found to be below
the supply, the prices of the manufactured article be-
come unremunerative, and in time the raw material and
labour employed in the trade are at a discount. The
fall is precipitated moreover by the inability of specu-
lative holders of stocks to hold on in face of falling
markets. At each new stage of the decline new sales
become necessary, till there is apparently no limit to
the fall, just as before there seemed no limit to the
rise. By sympathy almost all markets come to be af-
fected, the low prices in one market attracting capital
to it, and so weakening other markets, while speculators
who are hit in one department of trade seek to cover
their losses by sales of some commodity or stock which
has not depreciated. This is the ordinary explanation
of a general fall in prices; and the only feature in the
late decline it would not explain would be the long
continuation of that decline, and its renewal from time

132 ECONOMIC INQUIRIES AND STUDIES

to time when many circumstances appeared to combine
in favour of a new upward movement. This feature is,
however, quite consistent with the usual course of a
general fall of prices, though it has seldom, perhaps,
been so prominently brought out as during the recent
fall. In almost all markets there is constant action
and reaction as well as the more general tidal movement
which attracts attention when the course of prices for
several years is looked at. It depends upon minor cir-
cumstances, we might almost say accidents, whether a
given reaction will amount to a turn of the tide or not.
If these minor circumstances are unfavourable for a
time, the definite turn of prices upwards may be re-
tarded, although the circumstances may be of a kind
that when trade is stronger they would have little
apparent effect. In this way it is quite possible, for
instance, that the wars and rumours of wars during the
last three years may have retarded the recovery in
prices which is sure to come sooner or later, although
trade is often brisk in time of war and amidst great
political disquiet, as was the case for instance in 1 870-7 1
during the Franco- German War. The great prolonga-
tion of the late decline, therefore, is not inconsistent
with what we may expect at times when there is a
general fall of prices.

We have something more to account for, however,
than a general fall of prices, viz., the lower level which
has been reached as compared with the last period of
depression. This may be accounted for in part by the
circumstance that the rise from which the present de-
cline has taken place was not to so great a height as
the rise which preceded the former decline; although
a lower level has now been touched, the recent move-
ment may be no greater; but even if we had not this
explanation, or if it did not account for the entire
descent which has taken place, there are not wanting
special circumstances which go far to account for this
great descent, as well as to account, if necessary, for
that prolongation of the decline which has been referred

THE FALL OF PRICES OF COMMODITIES IX I 873-79 I 33

to. Among these circumstances I would notice first
the extremity of the discredit in recent years, and the
piecemeal way in which the faikires and disclosures
causing the discredit have occurred. It is difficult in
such matters to compare one time with another, and
probably in every time of depression there is a feeling
that things were never so bad before. I recollect per-
fectly well after the 1866 panic the languid and de-
spairing feeling which pervaded the City for two or
three years, when there was a prolonged reign of 2 per
cent., and for a time discount houses were barely pay-
ing lOi". per cent, for deposits. A famous article was
written at that time in the " Edinburgh Review," on
the strike of capital, and people blamed Lord Clarendon
for having made matters worse than they were ever
known to be before by the explanatory circular he sent
to our representatives abroad with reference to the
1866 panic. The Overend failure had also been un-
precedented, and so people were satisfied that the
depression was the worst. But in spite of the gloomi-
ness of affairs after 1866, it must be admitted, I think,
that what came to light then was not so calculated to
cause discredit as the revelations of the last three
or four years. To that period belonged the Overend
failure, the disclosures attending the break-up of a
company mania of a not very extreme type, and some
temporary difficulties of our great railway companies,
whose debentures could not for a time be floated.
Within the last four years, on the other hand, we have
twice had commercial revelations of the most discredit-
able kind, viz., in 1875, when Messrs. Im Thurn and
Co., Collie and Co., Sanderson and Co., and the Aber-
dare Iron Company all failed, besides many more, and
next in the present year,^ when we have had such firms
as Messrs. Smith, Fleming, and Co., Messrs. Heugh,
Balfour, and Co., and Messrs. James Morton and Co.,
all collapsing. Next, there has been perhaps the greatest

' I.e. 1878, when the paper was written, although it was not read
till January, 1879.

134 ECONOMIC INQUIRIES AND STUDIES

financial collapse ever known, viz., that of foreign loans,
which has not, so far as known, inflicted incurable
wounds in the banking world as the commercial revela-
tions have done, but which has dried up the channels
of investment, and reproduced the strike of capital so
strikingly written about ten years ago. Last of all, we
have had banking disasters quite on the scale of 1866,
including, perhaps, the most alarming, I might almost
say bewildering, catastrophe ever known in banking
annals, that of the City of Glasgow Bank. The spec-
tacle of such colossal fraud, and of the danger run by
investors in unlimited banks, seems calculated to create
more distrust, and has, I believe, created more distrust,
than the disaster of Overend's failure, great as that
catastrophe was. Happily there has not been a panic
during the last four or five years, although the City
has more than once been on the verge of one; but,
with this exception, the circumstances likely to cause
discredit have altogether been stronger in the last few
years than they were in and after 1866. Allowing then
for the illusion which present evils are apt to create,
there appears to me something in the extreme dis-
credit of recent years to account for the fall of prices
to a lower level than after 1866, although the real dis-
tress in trade may be no greater. The same result
would have followed from the lone continuance of dis-
credit. If the disclosures which have been spread over
three years had come all at once, say in 1875, perhaps
we should have had in that year a greater panic than
that of 1866, and the distress which is now being felt
would have followed sooner, but the reaction might
have come quicker, through the more effectual clearing
of the air. It is at any rate all but certain that in 1875
itself there was a reaction upwards, which was greatly
checked by the revelations of that year, although
another cause co-operated, viz., a succession of bad
harvests, which I shall presently mention ; and again,
last year there was a general feeling that improvement
had set in, when the disturbance in the money market

THE FALL OF PRICES OF COMMODITIES IN I 873-79 I 35

in the autumn, culminating in the Glasgow Bank failure,
at once threw matters back. The gradual character of
the failures and revelations has thus had something to
do with the greatness of thefall in prices. When just suf-
ficient time has been given for speculators to take heart,
suddenly some new evil breaks out, and prices tumble,
as if from an inflated level, from the lower level at which
they had been fixed in the first effort at improvement.
The second cause I would notice as probably con-
tributing to the severity of the fall is the bad harvests
of the three years 1875, 1876, and 1877. It has long
been an axiom of economists that nothing so power-
fully conduces to depression in trade, and a consequent
fall in prices, as a succession of bad harvests. One bad
harvest among several good ones may not have much
visible influence, but a succession of them is recognized
as a potent cause of mischief. The usual explanation
has been that the bad harvest, leading to a high price
of bread, causes direct distress among the masses of
consumers, that their purchases of staple manufactures
fall off, that the people in the trades so affected also
become poor, and so by a quick round all trades become
impoverished. If a second bad harvest follows the first,
and a third the second, these evil effects are aggravated,
and affairs at last come to be very bad. In addition, in
a country like England, which has to import more
largely from abroad when its own harvests are deficient,
the bad harvests tend to make the exchanges adverse,
raise the value of money, diminish new investments,
and so injure trade. Whatever the modus operandi,
the bad times following on bad harvests have been too
notorious for the connection to be overlooked. Now,
perhaps, we are only beginning to appreciate how bad
the harvests were in this country for the three years
before 1878. The fact that the great rise in the price
of wheat and bread which was formerly considered the
worst effect of a bad harvest, and the most powerful
cause of the succeeding depression, has not been ob-
served in recent years, helped to blind business men to

136 ECONOMIC INQUIRIES AND STUDIES

the actual deficiency. But the deficiency was most
serious. The wheat harvest, to begin with, was un-
doubtedly most deficient. According to Mr. Caird,
taking the average yield of the last thirty years to be
100, the yield of 1875, 1876, and 1877 was respectively:

1875 78

1876 76

1877 74

In other words, our wheat harvest was deficient by
one-fourth as compared with the average, and much
more of course as compared with a good year for three
years running. The usual rise in wheat and bread has
not followed, owing to the very fact that the home
yield is now less important than the aggregate foreign
importations, but other effects of a deficient harvest
must have ensued. Nor was there any compensation,
as there often is in England, in the yield of grass and
root crops, but the reverse. Here we cannot measure
the yield in the same way, but the diminution of the
stock of cattle and sheep in the three years ending 1877
was most marked. In Great Britain the reduction in
cattle was:

Stock of Cattle.

Reduction on previous
year.

1874 .

'75 .

'76 .

'77 •

6,125,000
6,013,000
5,844,000
5,698,000

112,000
169,000
146,000

— making a total reduction of 427,000 in a stock of
6,125,000, or about 7 per cent., in three years. In sheep
the reduction was:

1874

'75
'76

'77

Stock of Sheep.

30,314,000
29,167,000
28,183,000
28,161,000

Reduction on previous
year.

1,147,000

984,000

22,000

THE FALL OF PRICES OF COMMODITIES IN I 873-79 137

— making a total reduction of 2,153,000 on a stock of
30,314,000, or 7 per cent., in three years, the reduction
in this instance having been almost wholly in the first
two years. Such a reduction clearly implies, I think,
some difficulty in the farming and landowning industry
owing to the diminished productiveness of the industry,
although it may be in part explained by the gradual
substitution of superior for inferior stock — the diminu-
tion in numbers being accompanied by an improvement
in weight and quality — and in part by the substitution
of permanent pasture for other crops, the permanent
pasture giving a larger net but a smaller gross produce.
These explanations do not cover the entire ground, and
something is left which can be placed to no other
account than the unproductiveness of the industry.

Now although these bad harvests have not produced
the effect of raising the price of bread, which used for-
merly to cause so much distress and depression in trade
and a fall in general prices, with the exception of bread,
business men and economists have both, perhaps, over-
looked what the result must be of such a succession of
mishaps to the greatest single industry in the country.
Mr. Caird estimates the average annual value of our
crops at 260 millions, and if the gross produce has
fallen off 10 per cent, for three years running, the
cumulative effect on our home industry may have been
very great. Instead of being able to save largely,
farmers and the rural population may only have been
able to save a little, and many, perhaps, have had to
live on their capital, changes which would tend to
weaken our whole internal trade, and diminish the fund
for new investments. In actual fact, I believe it has
been a characteristic of the money market since the
spring of 1876, at which date the effect of the bad
harvest of 1875 would begin to be felt, that the banks
connected with the agricultural districts have been
poorer than they were. Some have been obliged from
time to time to draw upon their spare money in London,
and generally they have not been transmitting to

138 ECONOMIC INQUIRIES AND STUDIES

London the usual large sums they have been able to
send awaiting new investment. Another consequence
of the bad harvest has undoubtedly been a less favour-
able foreign exchange, although it was only in 1878
that this unfavourable exchange culminated in any-
thing like a serious stringency in the money market,
and that stringency was much less than bad harvests
had often led to in former times, owing mainly, I
believe, to the plentifulness of floating capital through-
out the world, which enabled us to attract with com-
parative ease what temporary money we required.
Still there has been a stringency which would tend
directly to check trade and lower prices a little, especi-
ally when trade was only barely convalescent, and
which has indirectly checked trade a great deal by
precipitating banking failures, and so causing much
discredit.

It will be said, perhaps, that this unfavourable ex-
change was the result of the excess of imports and the
wasting of our foreign capital, of which we have heard
so much during the last few years. But so far as the
excess of imports is due to a temporary deficiency of
our harvest, I think it hardly proper language to
describe the unfavourable exchange resulting as due
to a waste of capital or to anything very mysterious,
when it is the common and familiar, and also transitory
effect of a common, familiar, and also transitory cause.
Everybody allows that bad harvests make bad times,
but unless bad harvests are to continue indefinitely, of
which we have had no experience, this cause of mis-
chief will soon be absent ; undoubtedly it has helped
to bring about the present extreme depression of
prices.

A third cause which must be mentioned is the extra-
ordinary demand for gold for the new coinage of Ger-
many, and for the United States on its resumption of
specie payments during the last few years. It is a little
difficult to consider this point except in connection with
the question of the supply of gold, and any variation

THE FALL OF PRICES OF COMMODITIES IN 1 873-79 I 39

in that supply which may have occurred, but what I
desire to bring out is that apart from a permanent
diminution of the supply, whether absolutely or in rela-
tion to the trrowinof wants of the world, which would
necessarily have a permanent effect on prices, extra-
ordinary demands like those referred to would tend to
produce a momentarily extreme fall. The reason is
that a sudden pressure on the stock of the precious
metals at a given period tends to disturb the money
markets of the countries using them; makes money
dear, or creates a steady apprehension that it may at
any moment become dear; and so by weakening the
speculation in commodities and making it really diffi-
cult for merchants and traders to hold the stocks they
would otherwise hold, contracts business and assists a
fall in prices. It is conceivable that after such a pressure
the current supply of the metals may again be found
sufficient to meet the current demands with prices
raised to their former level; but while the pressure
lasts prices are low.

Now the extraordinary demands of the last few years
— I think I may say eight years, the German lock-up
having commenced in 1871 — have certainly been of a
kind to produce some momentary effect, even on the
assumption that the supply of gold, when the pressure
is removed, remains sufficient for the wants of the
world with prices at their former level. Altogether
during the last six years Germany has coined 84 millions
of gold, very little of this being re-coinage. The ac-
cumulation of gold in the United States, again, prin-
cipally during the last two years, amounts to about 30
millions sterling,' the stock of gold in the country
above what it had for several years previous having
been increased by that amount. These two sums amount
to 1 14 millions, and if we allow for other extraordinary
demands, such as that for Holland, which has been
substituting a gold for a silver money, and at the same

' The whole demand for the United States was ultimately much
larger than this.

140 ECONOMIC INQUIRIES AND STUDIES

time make deductions for what Germany may have
recoined, we may say in round numbers that the extra-
ordinary demands for gold during the last eight years
have amounted to 120 millions, or 15 millions a-year.
As the annual production of gold eight years ago was
estimated at from 20 to 22 millions only, and has since
rather fallen off, as we shall presently see, it is quite
plain that these extraordinary demands can have left
very little for the ordinary wants — the wear and tear
of coinage, losses, use in fine arts, and new coinage to
correspond with the wants of populations increasing in
numbers and wealth. My own calculation in 1872, in
a series of articles which I then wrote, ^ was that for
many years previous the average requirements of the
gold-using countries, excluding both Germany and the
United States, which were not then in the list, had
been 1 2 millions annually But if you deduct 1 5 millions
from 20 or 22 millions, you have much less than 12
millions left, and consequently the former state of
things as regards prices could not have been main-
tained during these eight years. Now that the extra-
ordinary demands are over, prices may recover, but
the extraordinary demands must have contributed to
the present adverse fluctuation.

These three causes then — the extreme and prolonged
discredit, the bad harvests, and the extraordinary de-
mands for gold — appear to me to have concurred in
bringing prices of commodities to the lowest level which
has been reached at any period for many years. That
they would be sufficient to account for much of the
effect which has been produced can hardly be disputed,
and that they have existed is beyond all doubt.

Thequestion is infalliblysuggested, however, whether
in addition there is not a subtler cause at work — an
actual insufficiency of the current supply of gold for
the current demands of gold-using countries. This is
quite a separate question from the effect of the extra-

' See above, p. 75 — "The Depreciation of Gold since 1848."

THE FALL OF PRICES OF COMMODITIES IN 1 873-79 I4I

ordinary demands which have been described, and it
seems to me most important that we should keep it
separate. It is a subject infinitely more complex and
difficult to treat, and one on which even the most
skilled, I believe, would venture to give an opinion
with far more diffidence than on the effect of the extra-
ordinary demands themselves.

My own opinion is that some such cause may have
been at work, though whether its effects would have
been at all marked as yet, in the absence of the extra-
ordinary demands, may be doubted. The main pre-
sumptions to this effect ^r^— first, the undoubted falling
off of the gold supplies during the last twenty years,
I have reprinted in the Appendix (Table IV.) that
portion of the table put in by Sir Hector Hay in his
examination before the silver committee which relates
to the production of gold, as containing, I believe, the
most generally accepted estimate of what the gold pro-
duction has been. The following is a summary of that
Table in quinquennial periods, with the annual average
for each period :

Estimated Production of Gold in the Years 1852-73, in Quinquennial
Periods, with annual Averages for each Period.

Period.

Total Production.

1852-56 . . .
'57-61 . . .
'62-66 . . .
'67-71 . . .
'71-75 (4 years)

149,665,000
123,165,000
1 13,800,000
108,765,000
76,800,000

Annual Average.

£
29>933.ooo
24>633,ooo
22,760,000

21,753.000
19,200,000

The dwindling of the supply in this table is very
marked, and naturally suggests that the effect on prices
of the great gold discoveries may not have been con-
tinued much beyond 1861, while lately the difference
is so great that, even apart from extraordinary demands
for gold, that effect may have been reversed. The
difference of an annual yield of from 25 to t^o millions

142 ECONOMIC INQUIRIES AND STUDIES

between 1852 and 1861, and an annual yield of less
than 20 millions at the present time, is palpable. Of
course the question is not settled by this consideration.
One of the effects of the great gold discoveries was to
create new markets for gold itself. Under its bimetallic
regime France replaced an enormous stock of silver by
gold, and, becoming a gold-using country, absorbed
the new supplies to an enormous extent. India again
absorbed an immense sum, especially during the years
of the cotton famine, when her credit abroad was so
suddenly and so enormously augmented. Until 1866
it may be said that the market for gold was so affected
by extraordinary demands that there was hardly time
for prices to settle down into a normal state, and the
full effect of the new supplies on gold-using countries
alone was never fully tested. But it is at least obvious
that the diminished supply could not now meet the
extraordinary demands which were met by the supply
of the earlier years, even if the ordinary demands have
continued the same.

I should add that not only do the figures show an
actual falling off of supply, but there is a probability of
the supply being obtained at a greatly increased cost
of production. The nineteen millions now produced
are obtained with more effort than the thirty millions
twenty years ago. This means that if prices were to
tend upwards a check might be put upon the move-
ment by a still farther falling off of the gold supply.
It might not pay to work mines which are now profit-
able if prices all round, necessarily including wages as
well as commodities, were to rise.

We come then to the question whether ordinary de-
mands have continued the same, to which the answer
must, of course, be that coincident with the gradually
declining supply of gold there must have been an
enormous increase of current demands. The increase
of population in the gold-using countries alone must
have been nearly 50 per cent. In the United Kingdom
alone, the annual rate of increase has been for long

THE FALL OF PRICES OF COMMODITIES IN 1 873-79 I43

nearly i per cent, per annum, 0.83 per cent, between
1 86 1 and 1 871, which gives 28 per cent, in thirty years,
while in the Australian colonies the rate of increase is,
of course, much greater. Suppose the world's annual
supply of gold before 1848 — say six millions sterling —
was quite sufficient to maintain equilibrium then, which
I doubt, the natural increment of population, assuming
it to be no more wealthy and to use no more coin per
head than the population before 1848, would make the
present usual requirement from the gold-using com-
munities in existence before 1848 or their descendants
about 9 millions. But the wealth per head has increased
enormously. In the paper I read last year on Recent
Accumulations of Capital in the United Kingdom, the
rate of increase in the ten years ending 1875 was es-
timated at 27 per cent., and this rate of increase being
deduced from the actual rate of increase in the assess-
ments to the income tax, is not subject to the doubts
which may be entertained respecting the totals of the
accumulations themselves. Whatever the figures may
be at the beginning and end of the period, such has
been the rate of increase. Not only then must the re-
quirements of gold-using people be increased by 50
per cent., to allow for the natural increment of popula-
tion, but another 50 per cent, must be added for the
greater wealth per head. This would further raise
the usual requirements according to the previous 1848
standard from the above sum of 9 millions, which allows
for the increase of population only to 13^ millions.
The same conclusion is reinforced by a consideration
of the quantities of goods dealt with in our principal
industries. The production of coal in 1846, as you will
see by reference to Mr. Mundella's paper last year,
was estimated in 1846 at 36,000,000 tons; in 1876 it
was 133,000,000 tons; or about three times as much.
Between 1854 and 1876, or little more than twenty
years, the production was rather more than doubled.
The production of pig iron again has increased between
1840 and 1876 from 1,396,000 to 6,556,000 tons, or

144 ECONOMIC INQUIRIES AND STUDIES

about five times in less than forty years. The entries
and clearances of ships in the foreign trade again have
increased from 13,307,000 in 1848 to 51,531,000 tons
in 1877, or nearly quadrupled. The imports of raw
cotton again have increased from 6 million cwts. in
1848 to more than 12 million cwts. in 1877, or 100
per cent. ; and although this seems less striking than
some of the previous figures, it is to be noticed on the
other side that the exports of cotton-piece goods have
risen from 1,096,75 1,000 yards in 1848 to 3,838 millions
in 1877, or nearly four times. But it would be needless
to multiply instances. The peculiarity of the period
has been the increase of mechanical invention and the
constant augmentation of goods, so that the accumula-
tion of capital above shown is even in less proportion
than the increase of the movement in trade which the
money in use has to move. It is a moderate calcula-
tion that if only the countries which used gold in 1848,
including their colonies, were now using it, the require-
ments to correspond with the increased population and
wealth would be at least three times what they were,
assuming prices to remain in equilibrium.

Nor is this all. The extension of the area of gold-
using countries since 1848, first, by the practical in-
clusion of France, and next, by the more recent inclusion
of Germany and the United States, has no doubt added
to the usual demands to an extent it is unnecessary to
determine exactly, but at least by several millions.
Thus while during the last thirty years the annual
yield of gold has been falling away from its first super-
abundance, the current demands for the metal have
certainly been growing with marvellous rapidity. If
there was much need twenty years ago of new channels
for the new gold supplies to prevent an enormous rise
in prices, it is at least possible that more recently the
increasing current demands have been sufficient to use
up the diminishing annual supply. So far as we can
judge, the point of junction of the two curves must
have been at some date within the last ten years.

THE FALL OF PRICES OF COMMODITIES IN I 873-79 I 45

though in such matters precision is of course impos-
sible. In this view the fall of prices in the last ten
years has been aggravated by a subtler cause than the
extraordinary demands for gold which have existed.
These demands have come upon a market which ap-
parently had no surplus to spare. They have con-
sequently been supplied very largely by a continued
pressure upon existing stocks, till an adjustment has
at length been made by a contraction of trade and a
fall in values.

It may be said, perhaps, that the usual requirements
of gold-using countries have been changed from what
they were by the extension of the cheque and clearing-
house system, by the diminished use of gold in the arts,
and by similar means. Perhaps there is some dimin-
ished use of gold in the arts, but, of course, the only
really important question in this matter is the use of
gold in coinage, and I should doubt if any great
economy in the use of gold has been established in the
last thirty years. Excluding Germany and the United
States, which have just been added to the number,
the principal gold-using countries besides the United
Kingdom and its colonies are France, Portugal, Egypt,
and the South American countries, but it would be
difficult to show, I think, that the cheque system or
any other system of economizing money has been
greatly extended in those countries in the period. In
the United Kingdom again all the recognized ex-
pedients for economizing money — especially the cheque
and clearing-house system — seem to have been fully
operative thirty years ago as they are now. The
United Kingdom was very fully " banked " before 1850,
the growth of banks and banking business having since
been no more than in proportion to the increasing
wealth of the community.^ The circumstances are such,
however, that a considerable allowance may be made

^ This is true substantially, notwithstanding the fact of a great
increase of the number of bank brafiches in England in the last thirty
or forty years.

I. L

146 ECONOMIC INQUIRIES AND STUDIES

for the introduction of economizing expedients, without
altering the fact that the current gold requirements of
the world have increased enormously since 1848, while
the annual supplies which threatened an incalculable
rise of prices have been dwindling away.

Let me add, that whatever doubt may be entertained
as to the actual meeting of the two curves of demand
and supply of gold during the last few years — apart
from extraordinary demands — all the facts and circum-
stances seem to indicate that the meeting point must
come very soon unless the supply of gold is increased,
or economizing expedients introduced and extended.
At the recent rate of progress the current demands
may be expected to increase at least 20 per cent, every
ten years, so that if 20 millions annually are now just
sufficient for all purposes, not less than 24 millions will
be required ten years hence. In another ten years the
annual requirement will be more nearly 30 millions.
If we start from a lower total now, say from 16 millions,
all the same the figure of 20 millions will soon be ex-
ceeded. And this without leaving any margin for
extraordinary demands, which experience seems to show
are never wanting, so that, as in a budget, allowance
should be made for the unforeseen as in some sense
more certain than all that is exactly forecast. If the
scarcity of gold has as yet contributed very little to
our money troubles or the fall in prices, it must at least
be about to have that effect if no great change comes.
Whether such a change is likely to come in the shape
of an increased gold supply it will be for geologists and
mineralogists to judge, but it is not reassuring to see
how little comes practically of the recent gold dis-
coveries in India, and the re-discovery in Midian.
Whether on the other hand change may come in the
shape of economizing expedients will be a point of no
little interest for bankers and all other business men,
and for legislators. Considering the slowness with
which such expedients become effective when they are
first introduced, and the perfection to which they have

THE FALL OF PRICES OF COMMODITIES IX I 873-79 I47

been brought in countries like England where they are
introduced, I feel great doubts whether much relief can
come in this way. On the whole, I see no other outlet
from the situation than in the gradual adjustment of
prices to the relatively smaller and smaller supply of
gold, which must result from the increasing numbers
and wealth of the populations of gold-using countries.

III. — What the Fall explains, and its
Consequences.

The fact of a fall of prices such as has been de-
scribed explains a good many things, while the con-
sequences of it, or, to speak more correctly, perhaps,
of the more permanent of the causes which have con-
tributed to it, must be far-reaching. There are one or
two topics of importance in this connection on which I
have a few brief remarks to offer.

First, we have a sufficient explanation in the fall of
prices of much of the falling off in trade, especially our
foreign trade, which is the occasion of so much alarmist
writing. There is a constant assertion by some writers
of two alleged facts, one, that our foreign trade is
diminishing, the other, that foreign countries are gain-
ing as we lose, from which the inference is that the
decline of our trade is to be accounted for by the suc-
cessful competition of foreigners. Indeed, it is some-
times said that the foreigner is taking the bread out
of the mouths of our manufacturers and the men whom
they employ. I have never seen this view supported
by any careful examination of what the growth of the
trade of foreign countries really is, or by a considera-
tion of what goes on in our trade generally, and not
merely in particular trades which maybe affected here
and there by the pressure of foreign competitors; but
the question of the fall of prices appears to open up a
new view. What if there is no falling off, or no mate-
rial fallincr off, of our trade at all, so that all this writing
about our decaying trade, and the gain of foreigners

148 ECONOMIC INQUIRIES AND STUDIES

at our expense, is only so much writing in the air? It
is clear that an average fall of 20 or 30 per cent, in
prices must make all the difference in the world. We
are not left to conjecture in the matter. The exports
of British and Irish produce show a falling off in total
value between 1873 and 1877 of about 22 per cent.

The exports in 1873 were . . . ;^255, 165,000
'77 „ . . . 198,893,000

Reduction .... ;^56,272,ooo

which is almost exactly in the proportion stated. But
we have already seen that while the index number of
73.1 falls to be increased in 1873, when a comparison
is made with 1861 prices, by the sum of 20.60, the
index number falls to be decreased in 1877 by 2.04,
so that there has been an average fall of price between
1873 and 1877 of more than 20 per cent.^ There is
nothing in the figures then to imply that the quantities
of the articles exported in 1877 were less than in 1873.
To throw farther light on the point, I extract from the
report to the Board of Trade already referred to, a
table in which the prices of the articles of export
enumerated in the statistical abstract, according to
their declared values in 1873, have been applied to
the quantities exported in 1877. The result is, that
while the aggregate declared value of these enumerated
articles in 1877 was ^147,801,000, their aggregate value
at the prices of 1873 would have been ^191,530,000,
which is within a million of the aggregate value of the
exports of the same articles in 1873. There are varia-
tions in the quantities of the articles, some increasing,
and others diminishing between 1873 and 1877, but
the upshot is that if the prices of 1873 had been main-
tained all round in 1877, the returns as far as the
enumerated articles are concerned, and presumably as
regards the remaining articles of trade where the entries

' And exclusive, of course, of the additional fall in 1878.

THE FALL OF PRICES OF COMMODITIES IN I 873-79 I 49

are mostly by value only, would have exhibited no
decline at all.

It cannot be maintained of course that a fall of
values only is immaterial. Profits depend on price,
and this is an especially important consideration in
the foreign export trade as regards articles exclusively
or mainly of British origin, and where a large part of
the value is not constituted by the cost of the raw
material previously imported. Our trade may conse-
quently be less profitable, though the quantity we turn
out has not diminished. But other countries must suffer
by the fall in price exactly as we do ourselves, and the
question here is not of the profitableness of the trade
at a given time, but of its extent; and as to this the
impression that our foreign trade has diminished to
any material extent during the last few years may be
pronounced to be absolutely without foundation. Re-
garding profit, moreover, I may be allowed to say in
passing, a good deal might be urged in favour of a
time like this being really the most profitable in the
end, notwithstanding all the complaints of depression.
Much of the prosperity of years like 1873 is in reality
hollow, and much of the dullness of dull times is due
to the fact that people are forced to acknowledge them-
selves not so rich as they thought. But this is perhaps
taking us away from the matter in hand, which is that
of the volume of our trade only.

To be quite fair, it must be acknowledged that hold-
ing our own in such matters is not all that is necessary.
If business is to be in a real equilibrium, there should
be a steady increase in it pari passu with the increase
of population. There has been some real check then
to the growth of our foreign trade during the last five
or six years. But on the other hand, we must remember
that previous to 1873 there was a marvellously rapid
growth, much above the annual average. All things
considered, it is yet too soon to complain of the check
of the last five years as indicating the beginning of a
permanent retrogression.

I 50 ECONOMIC INQUIRIES AND STUDIES

The second point I shall advert to is the possible
connection between the appreciation of gold and the
depreciation of silver. It is an obvious enough sugges-
tion that as silver in the markets of gold-using countries
is only a commodity, it will probably sympathize with
any general movement in the prices of commodities.
Indeed, it has been urged by the Calcutta Government
that it is not silver which has changed, but gold. Silver
prices, they say, have not perceptibly risen in the Indian
markets, although gold has risen. Without going into
detail on this subject, which would take up a whole
paper by itself, and which we may safely leave to Mr.
Bourne when he comes to read his paper on the silver
question, I may be allowed to remark that very likely
gold and silver have both changed. One or two of the
causes we have described as likely to produce a general
fall in prices — the prolonged discredit and the bad har-
vests— have been as applicable to silver-using as to
gold-using countries, and have surely been applicable
to India and China, with their tremendous famines and
much rottenness in their foreign trade. It was there-
fore possible that silver prices should have fallen like
gold prices, and the relation between the two metals
have been left unchanged ; if silver prices have been
stationary, or have not fallen so much as gold prices,
then, as we cannot be sure how much the scarcity of

ofold has agfSfravated the fall of prices here, it is difficult

1 • 111

to argue from the fall of silver in relation to gold that

the difference between them arises from an apprecia-
tion of gold only. There may have been depreciation
of silver as well, even if of a temporary kind only; the
events of the last few years relating to silver — especi-
ally the sudden sales of the stocks of German silver,
and the stoppage of silver coinage by the Latin union
— being calculated to have that effect. The wonder,
perhaps, rather is that silver has not depreciated still
more. Possibly the stock in use in the silver countries
is so large that great additions can be easily absorbed;
but the change has yet to be tested, we must remember,

THE FALL OF PRICES OF COMMODITIES IN I 873-79 15I

by a period of good business and naturally rising prices
in the silver-using countries. So far as it goes, how-
ever, the depreciation of silver in relation to gold, what-
ever changes may have occurred in silver itself in re-
lation to other commodities, is not inconsistent with
the supposed change in gold in relation to such com-
modities.

A third point to notice is the connection between a
great fall in the prices of commodities and a fall in
wages. The two things are inseparably connected.
First, in certain trades — and this connection has been
specially shown of late years in the iron trade — the
gross price of the articles produced is so much dimin-
ished, that if the cost of labour is unaltered the labourer
will be receiving an enormously increased share of what
is produced. Say an article formerly selling for ^20,
the cost for labour being one-fourth or £^, falls in
price to ^10, then the ^5 given to the labourer would
be 50 per cent, of the selling price. It is incredible
that so great a change could occur without the labourer
being affected, and there havebeen even greater changes
in the iron and coal trades. But, second, in almost all
trades, especially those in which the cost of labour con-
stitutes a large part of the cost of production, there is
necessarily some connection, in the long run, between
the money rate of wages and the prices of the usual
articles of the labourer's consumption, according to his
standard of living. It would take us out of our way to
enter into a controversy here about the wages fund,
but it is quite plain that the real wages paid by the
capitalist to the labourer consist mostly of commodities ;
if money wages remain the same while commodities
fall in price, there is an increase of real wages. In
some way or other, then, an adjustment of money
wages to reduced prices becomes inevitable. In mis-
cellaneous industries this may be effected by the con-
stant action of individual interests when changes of
employment occur; by the steady substitution of su-
perior for inferior workmen; by the transfers of busi-

152 ECONOMIC INQUIRIES AND STUDIES

ness enabling wages of clerks and others to be revised ;
and by similar means. In more conspicuous trades,
where large groups of men are employed, there are
notices of reduction on a laree scale as well as these
mmor mstruments of effecting a reduction. But nominal
reduction must come somehow, unless there is to be a
real rise in wages. The visible opportunity of employers
is of course the scarcity of employment and the dis-
organization of industry which attend a great fall of
prices; but employers would obviously be unable to
continue paying for any length of time really increased
wages. There is no Fortunatus's purse which would
not quickly be exhausted in such an attempt.

There is another subject of, perhaps, greater com-
plexity which seems to be suggested. If a general
downward movement of prices, due to a comparative
scarcity of gold, has begun, are we not on the eve of
a reversal of the changes which commenced with the
Australian and Californian discoveries — changes so
admirably described in Mr. Jevons's well-known book.-*
These changes were substantially a gradual lightening
of debts for the benefit of the debtor class, and to the
immediate loss of annuitants and capitalists, however
much the latter might be compensated in the end by
an increase in the nominal income of their land, houses,
and other securities. Now we may witness a gradual
increase of the burden of debts to the loss of debtors,
and for the immediate advantage of creditors, although,
in the end, the latter may lose by the relatively dimin-
ished nominal income of their securities, following the
adjustment of all prices to the new circumstances.
There can be no doubt that some such general effect
as this must follow, if it should, in fact, turn out that a
serious appreciation of gold has set in, and the circum-
stances of its production and the use of economizing
expedients do not change. In the end the effect in
contracting trade is looked forward to with some appre-
hension by many of our best authorities.

I do not propose to dispute this conclusion here. It

THE FALL OF PRICES OF COMMODITIES IN I 873-79 I 53

would land us in an almost endless controversy if we
were to discuss whether a constant influx of new money,
leading to a prolonged rise in prices, does more good
or harm in the long run, than a constant failure of new
supplies to meet current demands leading to a pro-
longed fall in prices. A great deal, I imagine, could
be said on both sides ; the rebound from excessive in-
flation more than compensating perhaps all its alleged
benefits, and the additional fall in prices due to a
gradual scarcity of gold being as nothing when com-
pared with the falls which take place from time to
time owing to the simple failure of credit. But while
avoiding this discussion, I may at least point out that
the most serious effects of this incipient gold scarcity
will probably be gradual, just as the effect of the dis-
coveries in causing a rise of prices has been much
more gradual and confined within narrower limits than
economists were in the habit of anticipating. Par-
ticularly at the present moment the depression may
have gone so far that the accumulating stocks of the
precious metals will be sufficient for a good while to
support a considerable expansion of trade — that it will
only be later on, as prices tend to get back to the
former level, that the real pressure of the scarcity will
be felt. A year or two's ease in the money market
following the events of last year will however be no
proof at all that the causes above described have not
been operative and will not again be operative.

IV. — Concluding Observations.

In bringing this long paper to a close, I have only
one or two practical observations to offer. The "moral "
of much that has been said is clearly this — that if pos-
sible the scarcity of gold which has contributed to the
present fall of prices, and may have farther serious
effects in future, should, if possible, be mitigated, and
should at any rate not be aggravated, by legislative
action. I have expressed great scepticism as to whether,

154 ECONOMIC INQUIRIES AND STUDIES

in fact, seeing how slow men's habits are to change,
any mitigation is probable in the shape of expedients
for economizing money. But it must be recognized
that if bodies of men were amenable to reason in
currency questions, and there was really a widely-felt
belief of serious mischief impending from a gold
scarcity, some economizing expedients could be tried.
To give only one illustration : I suppose few things
are more unlikely than that £i notes, or notes for less
than ^5, will again be reintroduced in England, but
the introduction of such notes alone, with all suitable
arrangements for their convertibility, would certainly
go far to neutralize even such another extraordinary
demand as that for the German coinage. The German
demand for gold would itself have been much smaller
than it was, but for the banking reform which accom-
panied the coinage, and part of which reform was the
abolition of notes of small denominations. The United
States' pressure for gold during the last few months
would also have been far more serious than it has
been, if the Government of that country had com-
plicated its resumption arrangements by the abandon-
ment of all greenbacks of from 5 to 25 dollars, and the
prohibition of bank notes for such amounts. There
seems a possibility of gaining something then by re-
introducing £1 notes if the present gold scarcity should
continue. I hope I shall not be understood as ad-
vocating such a change, or as being insensible to the
weight of many practical objections which could be
urged against it if it were immediately proposed. I
am only mentioning it as a possible expedient for
economizing money, and there are no doubt others.
As regards small notes, however, it would seem that
at least any change by countries which still retain them
in the direction of their further abolition, leading to a
greater demand for the precious metal, ought to be
deprecated. Still more we ought to deprecate any
change in silver-using countries in the direction of
substituting gold for any part of the silver in use. It

THE FALL OF PRICES OF COMMODITIES IN 1873-79 I 55

would be nothing short of calamitous to business if
another demand for gold like the recent demands for
Germany and the United States were now to spring
up. Even a much less demand would prove rather a
serious affair before a very long time elapsed.

RECENT CHANGES IN PRICES AND INCOMES COMPARED.^

Contents : Preliminary — The Appreciation of Gold — The Degree
and Character of the Appreciation — The Appreciation or Deprecia-
tion of Silver — Characters of Appreciation and Depreciation at differ-
ent Periods — The Causes of Appreciation and Depreciation — The
Redistribution of Wealth — The Future Course of Prices.

Preliminary.

ALMOST ten years ago I read a paper to the
Society on " The Fall of Prices of Commodities
since 1873,"^ i^ which the suggestion was made that
we were probably then in presence of, or about to be
in the presence of, the phenomenon known to econom-
ists as appreciation of money, i.e., as our money is
gold, appreciation of gold. The subject has since been
widely discussed as a branch of the great bimetallic
controversy, but I have not myself engaged in it ex-
cept to reiterate the original suggestion in a paper on
"Trade Depression and Low Prices" in 1885, and to
discuss generally some aspects of the theory of the
relation of the quantity of money to prices. It may
now be permitted to me to return to the topic, and to
explain more fully than I have hitherto thought of
doing the extent and nature of the appreciation which
was only a little more than apprehended when I wrote
in 1879, and some of th^e problems that arise for dis-
cussion in connection with it. In doing so I hope to
be excused if the bearings or alleged bearings of the
discussion on the bimetallic controversy are avoided.

^ Read before the Royal Statistical Society, i8th December, 1888.
For Appendices see Statistical Society's "Journal."

^ See Statistical Society's "Journal," March, 1879, and preceding
essay.

156

RECENT CHANGES IN PRICES AND INCOMES COMPARED I 57

Mr, Bagehot said in his "Lombard Street" that he
proposed to keep clear in that book of the Bank Charter
Act, because if he spoke on that subject nobody would
heed what he said on any other. It would be much the
same now with bimetallism : if that topic were to be
touched upon, the main topic would be forgotten. It is
of the utmost importance, however, that the question of
the appreciation of money at the present time should be
discussed for its own sake as a question of fact merely,
and as a purely statistical rather than an economic
question ; a practical currency controversy interposed
only confuses issues of the utmost consequence.

There is the more reason to keep clear of all con-
troversy because it may be hoped that much of the
discussion which has o^one on will be shown to be
verbal only, or to arise from mutual misunderstanding
of terms. The leading facts are not really in dispute,
and the only question is how to arrange and name
them and use them in other discussions. When the
phrase is properly limited and defined, the apprecia-
tion of gold of late years will be found to be in reality
universally admitted, although in words opposed and
controverted by many. Limitation and correct defini-
tion will enable us also to explain in what sense and
to what degree, if any, silver has depreciated.

It will be convenient to begin with a few explana-
tions and definitions.

First it is convenient to employ the phrases appre-
ciation of money and depreciation of money in a strict
study of the subject, and when the expressions are
used scientifically, as the mere equivalents of the fall
or rise of the prices of those articles or groups of
articles with which money is compared. In other words,
in this sense appreciation of gold would be only another
phrase for a rise in the purchasing power of gold —
depreciation for a fall in that purchasing power.

The phrases have no doubt been used as bearing a
different meaninsf, thou^^h a meaninij, it is to be feared,
not very clearly defined, and I should not pledge my-

158 ECONOMIC INQUIRIES AND STUDIES

self that there is no passage in my own writings, though
I trust I have generally been careful, which does not
seem to read into the phrases a larger meaning than
what is here expressed, but the convenience of strict
definition, if it can be adhered to, is self evident. It
agrees best, moreover, with the original literary use of
the expression, purchasing power of money, and if the
phrases did not exist in this sense, it would be absolutely
necessary to invent phrases that could be so used.

It will be observed, moreover — and this is most im-
portant— that the phrases are themselves incomplete.
To make them intelligible we must always understand
or sub-understand some definite thing or things with
which the money is compared. Instead of the general
phrases, appreciation or depreciation of gold, apprecia-
tion or depreciation of silver, appreciation or deprecia-
tion of money of any kind, we ought to say in each
case, appreciation or rise in the purchasing power of
gold measured by wheat, or pig iron, or copper, or a
certain group of articles arranged in a way so as to show
a mean or average ; and so on : whether we speak
of gold or silver, or any other kind of money, always
there must be something definite said or understood.

It may be convenient to assume afterwards that
what is true of the measurement of gold or silver, or
any sort of money, by one article or a group of articles,
would be true if an average of all articles could be
constructed; but always the scientific language which
is exactly true is definite enough, and a clear line
should be drawn between what is exactly known and
what is inferred.

Confusion has arisen because a convenient short-
hand phrase has come to be used dissociated from its
primary uses, and its necessary limitations have been
forgotten. The origin of inquiries as to changes in the
purchasing power of money was largely historical.
What a historian sometimes wants is to be able to say
that a certain payment two or three centuries ago repre-
sents so much in the money of a different time, usually

RECENT CHANGES IN PRICES AND INCOMES COMPARED I 59

the present. But all that has ever been proposed, or is
necessary, for such purposes, is to measure the money
bycertain other articles, and give an approximate answer
more or less complete. What the measure should be,
for what purposes it can be used, and so on, are later
questions, but the idea of an external measure of money
of some kind is necessarily involved in any references
to changes in its purchasing power. When we speak
scientifically we must say the purchasing power of
money over certain definite things, although popularly
our idea may be the purchasing power of money over
things in general, or the bulk of things.

The next preliminary point is that in dealing with
the appreciation or depreciation of money, the nature
of the economic movement in the country where the
appreciation or depreciation takes place, or in two or
more countries which may be compared, ought to be
carefully considered. The signs of appreciation or
depreciation are not the same in any two cases unless
the economic movement is the same.

Thus in a stationary community, which goes on
from year to year with the same population, producing
and consuming the same things, and neither advancing
nor going back, appreciation or depreciation of money,
should it take place from any cause, would probably
have uniform effects. The fall or rise of prices would
extend to all commodities equally, and to wages and
incomes also. A rise would entail a proportionate in-
crease of wages and incomes; a fall a proportionate
decrease. Nothing would be easier apparently than
to ascertain appreciation or depreciation in such a
community.

Of course, however, there is no such ideal com-
munity. In actual life the disturbance of money alone
would probably disturb a great deal besides.

The case of an absolutely retrograding community,
which is no doubt a very rare one, would supply some-
what different signs. It is quite conceivable that in
such a community there might be a depreciation of

l6o ECONOMIC INQUIRIES AND STUDIES

money measured by commodities or large groups of
them, and yet there would be no apparent increase of
wages or incomes, because, the community retrograd-
ing, there is less of real things to divide, and there
being in fact as much income expressed in money to
go round as before, the loss to the community by its
retrogression might be measured by the percentage
rise of prices. Superficial observers would, however,
be apt to say that because there is no rise of wages or
incomes there is no depreciation of money, although
there is unquestionably depreciation when commodities
are the measure.

Retrogression is a rare case, but advance is not so
rare, and we must consider carefully what may be the
signs of appreciation or depreciation in an advancing
community as distinguished from a stationary com-
munity.

Three kinds of appreciation and depreciation — six
cases in all, if not seven — may apparently be distin-
guished plainly in such a community :

1. As regards appreciation there may be a case of
falling prices of commodities coupled with stationary
incomes and wages. In this case the fall of prices
might be the measure of the increase of the return to
the industry of the community, assuming that the
labour employed in services improves generally as does
the labour employed in the production of commodities.
Still measured by commodities there may be an appre-
ciation of money, although the diminution of wages
and incomes which accompanies some forms of appre-
ciation of money is absent.

2. There may be a case of less wages and incomes
per head, in which case the fall of prices would be
greater than in the first case, and the difference be-
tween it and the fall in wages and incomes might repre-
sent the advance in the return to the industry of the
community. But the only distinction between the first
and second instances is clearly the degree of appre-
ciation. There can be no warrant for saying that in an

RECENT CHANGES IN PRICES AND INCOMES COMPARED l6l

advancing community appreciation as it has been here
defined may not take place without an actual diminu-
tion of wages and incomes.

3. There may be a case of not only less wages and
incomes per head, but an absolute diminution of the
aggregate of all individual incomes, notwithstanding
an increase of population. In this last case the fall of
prices and diminution of wages and incomes per head
would be more severe than in the second case, where
the diminution per head might not be so great as to
prevent altogether the growth of the aggregate of in-
dividual incomes. Still this extreme form of the appre-
ciation of money must not be looked for in every
instance.

4. As regards depreciation again, there may be a
case of stationary prices of commodities coupled with
increasing wages and incomes per head. The increase
in the latter case might correspond with the increase
of the return to the industry of the community.

The important point to understand is that there may
be a case of what may properly be described as depre-
ciation of money where prices do not rise, just as there
may be a case of appreciation where incomes and
wages do not fall. Measured by incomes, though not
by the prices of commodities, there may unquestionably
in such a case be depreciation.

5. Depreciation may go so far that there is a rise of
wages and incomes more than in proportion to the in-
crease of the return to the industry of the community,
in which case the improvement in the latter might be
measured by the differetice between the rise in the
prices of commodities and the rise in wages and
incomes.

6. Depreciation may go so far that there is absolute
inflation in all prices along with a continued cheapening
of production. In this last case along with the rise in
commodities there would be an enormous rise in wages
and incomes. But there may well be depreciation
rightly called such without this extreme.

I. M

1 62 ECONOMIC INQUIRIES AND STUDIES

There is also as already hinted a seventh case,
which may be described as intermediate between the
mildest types of appreciation and depreciation above
specified, a case namely in which, on the one hand,
prices fall a little, showing appreciation measured by
commodities, /re tanto, and on the other hand wages
and incomes rise a little, showing depreciation mea-
sured by incomes pi^o tanto. Such a case may in fact
occur in an advancing community, however it may be
described.

It is expedient to put the cases thus generally, in
order to understand in what class in each country re-
spectively we are to put the appreciation of gold or
depreciation of silver at the present time. There is
nothing but confusion possible so long as people
argue that because wages have not fallen lately there
is no appreciation of gold, or because prices have not
risen in silver countries, or have even fallen a little,
therefore there is nothing which can properly be
described as depreciation of silver in those countries.
The economic movement of the country concerned,
and the degree of the appreciation or depreciation of
money, according to the measure of the money em-
ployed, are first to be understood. It will be found
also, I believe, that one of the puzzles of the matter is
strictly connected with this point. The figures of
appreciation of gold, measured by commodities, in
European countries, have not been balanced by signs
of depreciation of silver in silver-using non-European
countries. If the economic movement in India has
been different from that in England, if an increase of
the return to industry has been absent there, or has been
at a different rate, may it not be somewhat difficult to
state what are the proper signs of depreciation in India
to be looked for ?

A short preliminary explanation may be useful on
yet another point.

A rise or fall between two dates in the purchasing
power of money — an appreciation or depreciation of

RECENT CHANGES IN PRICES AND INCOMES COMPARED I 63

money — in itself implies a contraction or expansion of
money. There is relative contraction or expansion,
and this is true on any view of the relation of money
to prices. Whether the quantity of money in use is
the cause or the effect of a given state of prices, or
partly the one and partly the other, a low range of
prices means less employment for money? than there
would otherwise be, and a high range of prices means
more employment. Consequently when prices change
from high to low or from low to high, there must
be in the former case contraction, and in the latter
expansion of money. Absolutely there may or may not
be less or more money at the latter date compared
than at the starting, the absolute amounts being de-
pendent on many causes, such as change in people's
habits and the like, but relatively there must always
be contraction or expansion.

In connection with this last point yet another ex-
planation may be made. Whatever the thing used to
measure the purchasing power of money may be, it
must be treated while so used as an absolute measure,
and when we do so, it becomes necessary to treat the
rise or fall in gold as due to a change of demand for,
or change of supply of gold, leaving out all considera-
tion of changes in the measure itself. This is done
every day when money is the measure; we neglect
any changes in money itself, and treat only of demand
and supply of the things measured. For those pur-
poses where money in turn becomes the thing measured,
and a commodity or group of commodities or the bulk
of commodities becomes the measure, it is equally
necessary to consider all the changes as arising from
the demand or supply of the thing measured, i.e.,
money.

The question is largely one of language, and the two
processes, viz., using money and commodities alter-
nately as measures one of the other, are not incon-
sistent. The one variable is simply put against the
other the better to understand the phenomena accord-

164 ECONOMIC INQUIRIES AND STUDIES

ing to the special object in view. There is also a clear
distinction between the cases where money is the
measure, and those where another measure is sought.
Money has become money because it changes least ia
short periods. For short periods therefore, and for
comparing one commodity with another, in those
periods, money is the common measure ; any changes
in it may practically be disregarded. But for longer
periods, as already pointed out, the convenience of a
different measure is felt. When we desire to know
what the real wealth of a previous generation was com-
pared with the present, some of the things which make
wealth are found to be a better measure than money.
Money then seems to change more from generation to
generation than any other commodity almost compared
with the average of the mass. But there would be no
occasion for using a measure for money at all, unless
the changes in the money were of such a kind that for
the purpose in hand the changes in the measure used
could be neglected.

The Appreciation of Gold.

Passing from these preliminary points, I begin by
referring back to my former papers, and asking whether
the suggestion there thrown out has since been con-
firmed by the facts, and in what sense there has been
appreciation of gold in recent years.

Two thinos were stated with regard to the connection
between the low prices of 1879, and the contraction of
gold which had taken place in the years following 1873.
The first was that the events in the money market con-
sequent on the gold withdrawals for Germany, and
for the resumption of specie payments in the United
States, had contributed to the fall of prices by acting
on the discount market, and assisting an oscillation
from a credit to a discredit range of prices. This was
an obvious and palpable fact of the time, but I laid no
great stress on it. Oscillations in the money market

RECENT CHANGES IN PRICES AND INCOMES COMPARED 1 65

and prices incidental to the ebb and flow of credit are
familiar phenomena, and it could not be said in 1879
that the oscillation towards discredit was so very much
more than usual, that apart from other circumstances
the low prices should have been deemed remarkable.
The second suggestion, however, was that although it
was then early to speculate, there was reason to appre-
hend we were in the presence of, or about to be in the
presence of, the phenomenon known to economists as
appreciation of money. I did not define the terms, as-
suming them to be sufficiently understood by those
interested, but the meaning, I believe, was clear enough.
Appreciation or depreciation of money being pheno-
mena only to be measured at long intervals, for it is
only at such intervals that it becomes expedient to
make commodities a measure, and so to measure money,
what I had in my mind was to suggest that the course
of prices in the immediately following years would prob-
ably deserve attention ; that when time had passed for
another cycle of credit and discredit, it would clearly
be seen whether prices had fallen to a permanently
lower level than in the period before 1873, in which
case there would be no question as to an " appreciation
of money" having occurred. The reasons for that
opinion, in which to a large extent there was only a
repetition of what I had said so long ago as 1872, ap-
peared also to be overwhelmingly strong. There was
visibly a strong " pull " upon gold, which was passing
out of circulation in England instead of passing into it,
as in the twenty years before 1873. The production
was obviously diminishing; there was also to all ap-
pearance an increase of the cost of producing gold,
which pointed in the same direction of an increase of
its purchasing power. All this was said with the least
possible amount of theorizing. The quantity of money
in supply and the demands upon it were certainly as-
sumed to have some connection with prices, the theory
of the connection having never before been disputed
to my knowledge, but I did nothing more than point

1 66 ECONOMIC INQUIRIES AND STUDIES

out that if the world was about to witness an apprecia-
tion of gold — a rise in its purchasing power measured
by commodities, and ascertained after long intervals,
so as to allow for minor oscillations and to permit of
the use of the fact for the comparisons to which it is
adapted — then there were sufficient facts in the supply
of and demand for gold to account for the appreciation.

If the test of prophecy be the event, there was never
surely a better forecast. The fall of prices in such a
general way as to amount to what is known as a rise
in the purchasing power of gold is generally, I might
almost say universally, admitted. There is much as-
sertion in some quarters that there is no appreciation
of gold, but the assertion is made by those who attach
a meaning, or think they attach a meaning, to the words
which I confess I am unable to make out and express
in my own language, and there can at any rate be
no doubt that, as the phrase is here limited and de-
fined, we have for some years been in the presence of
the phenomenon known as appreciation of money.
Measured by any commodity or group of commodities
usually taken as the measure for such a purpose, gold
is undoubtedly possessed of more purchasing power
than was the case fifteen or twenty years ago, and this
high purchasing power has been continued over a long
enough period to allow for all minor oscillations.

It would be slaying the slain to recapitulate all the
facts as to the fall of prices; but as the question was
first distinctly raised at our meetings, and the record
may be convenient, we may refer briefly to the evidence
adduced in 1879, and see how the tables look when
continued to the present date, and what additional
evidence has been worked up.

Let me first refer to the short table with which the
paper in 1879 began, and which was made use of, it
will be remembered, as an extraneous table which had
been commenced several years before for another pur-
pose, and which, though short, seems to me to contain
a great deal :

RECENT CHANGES IN PRICES AND INCOMES COMPARED 16/

A. — Prices of Leading Wholesale Commodities in January^ 1873, 1879,
1883, and 1885, and December^ 1888, compared.

Scotch pig iron . . . per ton
Coals ,,

Copper, Chili bars . . ,,
Straits tin ... . ,,
Wheat, Gazette average per qr.
„ red spring, at \ ,^j

New York . . j P^"^ '^^"^•
Flour, town made . . per sack.

,, New York price per brl.
Beef, inferior . . . per 8 lbs.

,, prime small . . ,,
Cotton, middling upland per lb.

Wool per pack.

Sugar, Manilla musca-

vado per cwt.

Coffee, Ceylon, good red ,,
Pepper, black Malabar per lb.
Saltpetre, foreign . . per cwt.

1873-

1879.

I27i-.

43-f-

2,0s.

19^-. 1

£91

£S7

^142

£ei

\SSs.iid.

39^. yd.

S1.70

Si. 10

475. 6d.

37 s.

$7-5

33-70

y. lod.

2S. lod.

5-f- Zd.

4x. gd.

lod.

Sid.

£23

£13

21s. 6d.

les.

Sos.

ess.

Aid.

2gs.

195.

1883.

1 888.

47J-. %d.
175. bd.

;^93
40J. 4(/.

§1.18

38i-.

?4-30

4J-. i,d.

6j.

161. (yd.
78s. 6d.

S¥-
igs.

41s. gd.

18^.

£4H

£77h

34J-. iid.

91C.

32s.

$3-25

4s.

Ss. 4d.

6d.

lOS.

71s.

Sd.

iSs. 3d.

41s. lid.

17 s. gd.

£78

3IJ-. gd.

33.f-
S3.60

2S. Sd
4s. 2d.

S^^d.
£11

ly. 3d.^
gis.^

7¥-
i6s. dd.

The advantage of this table is that it leaves off at a
point when trade is good, and there has been a good
deal of inflation in different quarters, but although
some prices are higher now than in 1885, they are still
in very few cases higher than in 1883, while they are
far below the level of 1873, and a good deal below the
level of 1879 ; the latter, it must be remembered, being
a year of depression, while the present is a year of ex-
pansion. The fact of continuously low prices for the
bulk of staple articles is accordingly established by this
short table, and this is what is meant by an appreciation
of gold measured by commodities. There may be no
appreciation, using the words in some sense not clearly
defined; but that if we measure by the mean or average

' Corner.

■ In 1888 this is the quotation of Brown West Indian. I have
been unable to find a quotation for " Manilla Muscavado " in the
usual price list; but the price of Brown West Indian in 1885 was
nearly the same as that here given for Manilla Muscavado.

^ This is Ceylon Plan. Mid., as I do not find the old quality quoted
in the lists before me. The price taken in 1885 was rather higher
than Ceylon Plan. Mid. at that time, but the difference was not
material, and 1 have now taken the top price instead of the mean price.

i68

ECONOMIC INQUIRIES AND STUDIES

of the articles named there is a rise in the purchasing
power of gold is self evident. The phrase is only a
synonym for the fall of prices. There can be no dispute
about the fact.

To the same effect are the conclusions from the index
numbers, of which there has been so much talk of late
years — the "Economist" index number, Mr. Sauer-
beck's number. Dr. Soetbeer's number, and the Board
of Trade index number, the latter based on the average
prices of imports and exports. These numbers are so
well known that I may simply copy a few extracts from
the records and place them side by side, along with
similar extracts for the price of silver, leaving them to
tell their own tale. The table, of course, could be
easily enlarged:

B. — Comparison of the Index Numbers of the " Economist" Mr. Sauer-
beck, Board of Trade Itnport and Export Prices, Dr. Soetbeer, and
an American Index Number.

I. "Economist"

II. Sauerbeck

III. Soetbeer ^

IV. American -

V. Board of Trade import "i Exports ' .

and export prices J Imports ^ .
VI. Silver (Sauerbeck)

Average
Years,
186S-77.

2750
100
129

"3
S5.7
85.6

100

Average
Years,

2300

120

93
59-9
71.7

Decrease in
Second Period.

Amount. [ Per Cent.

25.8

13-9
18

i6i

30
16
18

Thus, whichever of these measures be adopted, we

' 1866-75 and 1876-85.

- 1866-70 and 1876-80. The American figures are not later than
1880. See Appendix III., appendix to first report of Royal Com-
mission on Trade Depression.

^ Figures of 1873 and 1883. These figures not being calculated
for every year, it is not possible to give an average of a ten-yearly
period ; but the results would be much the same comparing any other
years at ten years' interval.

RECENT CHANGES IN PRICES AND INCOMES COMPARED I 69

are equally led to the conclusion that, measured by
staple articles, no matter how we select them, gold is
found to have increased its purchasing power; and the
increase has lasted over a long enough period to allow
for minor fluctuations, and to show a change which can
be made use of for such comparisons as a rise or fall in
the purchasing power of money is adapted to illustrate.
In my evidence before the Royal Commission on
Gold and Silver, I said a great deal about index
numbers, and how they can be used, to which I may
be permitted to refer here, as well as to the papers on
the " Prices of Imports and Exports," laid before Par-
liament. Let me only say here, for the purpose of
continuing the logical thread of the argument, that an
index number, apart from the details of its construc-
tion, is a very simple matter. It is nothing more than
a device to enable a mean or average to be struck of
the prices of a great number of articles, the mean being
the result of an addition of the prices of all the articles
named divided by the number, and the average being
arrived at after weighting the prices selected accord-
ing to an estimate, on a subjective or objective basis,
of their relative importance. The estimate in the
case of the prices of imports and exports with which
I have myself dealt, is on an objective basis, that
of the relative importance of each import to the whole
imports, and of each export to the whole exports.
Formally the latter process gets rid of the only good
theoretical objection ever made to the use of index
numbers as a means of averaging a group of prices,
the objection, viz., that all articles, important or un-
important, are treated alike; but I may state that prac-
tically, as the result of Mr. Edgeworth's mathematical
investigations for the monetary committee of the British
Association, of which several of us are members, the
ordinary index numbers, which are exposed to the
theoretical objections stated, yield much the same results
as the formally more correct indexes. The reason is,
that having: been selected almost at random as it were

I 70 ECONOMIC INQUIRIES AND STUDIES

from among staple articles which happened to be quoted
in wholesale price lists, the articles in general have
moved in sympathy, so that one selection yields much
the same results as any other. This is what theory
would lead us to expect, but in fact Mr. Edgeworth has
tried and compared the different index numbers not
only with each other, but with a new number based on
a different objective basis, and for practical purposes
there is not much to choose between them.

All this is important when we proceed to the next
step, which is to infer from the appreciation of gold
measured by the commodities or groups stated, the
probable appreciation if we had for measure a still
greater number of articles, or in fact all articles. This
is a matter of inference ; but when in fact the different
groups include from 50 to 90 per cent, of the chief
commodities in use or consumed, or good types of these
commodities, it would require very strong suggestions
as to an opposite movement in the smaller number of
articles which cannot be brought to the test to over-
balance the conclusion to which the index numbers
point. There are facts which would lead us to presume
that the fall of prices in the excluded articles has been
even greater in proportion than in the case of the
articles included; but without laying stress on this,
the proportion excluded is so small that we may have
confidence in the general conclusion from the actual
measure. Thus it is a mere matter of arithmetical state-
ment that, measured by any of the groups named, the
purchasing power of gold has increased of late years ;
it is a matter of practical certainty, though there can be
no arithmetical proof formally complete, that measured
by things in general gold has appreciated— its pur-
chasing power has risen.

There is also corroborative evidence of a very strong
kind in favour of the same conclusion in various sets of
facts as to values, which are referred to in the essay
already referred to, published in 1885. These are the
facts as to the growth of import and export values

RECENT CHANGES IN PRICES AND INCOMES COMPARED I/I

compared with the growth of quantities, the facts as to
income tax valuations, and the Hke. The facts on these
heads are now notorious. The logic of the use of them
is that they show effects in a mass, and thus get rid of
any objections based on the possible peculiarities of
some prices, though these are also got rid of, as we
have seen, in a different way. Thus as regards imports
and exports, if we are entitled to assume from the
growth of quantities a certain growth of business, then
if the growth of import and export values is at a differ-
ent rate, the inference clearly is that the money ex-
pression of the individual things has changed. Hence
only can it be that the mass of values is lower. The
same with income tax valuations, as I pointed out in
my paper at the British Association last year,^ and as
I shall have occasion to point out again in a book on
the " Accumulations of Capital in Recent Years,'" which
will continue the paper read before the Society in
January, 1878, and which is all but ready for publica-
tion.■ If the produce of land commands a less money
price than before, rent falls and the capital value falls ;
if houses are built of less costly materials, object for
object, their capital value and rent are also lower than
they would otherwise be. It is quite easy to calculate,
given the increase of population, and assuming a cer-
tain growth in real wealth per head, what difference is
made in the figures by the change in the money ex-
pression, which can only be ascribed to a fall in the
money value of average things.

Now with regard to a comparison of the growth of
imports and exports in quantities and values, the facts
are very clear. To bring this out has been one of the
objects of the various reports to the Board of Trade
which I have made in the "Prices of Imports and Ex-
ports," and it was obviously a point of various tables
which were laid before the Royal Commission on Trade
Depression. It is unnecessary to go into an elaborate

^ ^ee postea, " Recent Rate of Material Progress in England."
* See " The Growth of Capital " (George Bell and Sons).

172

ECONOMIC INQUIRIES AND STUDIES

comparison here. Let me only condense from the latter
tables the following short table, comparing the growth
of the money values of imports and exports per head
with the growth of the entries of shipping per head:

C. — Average Imports per Head and Total Imports and Exports per
Head of the Population of the United Kingdom in the Under-
mentioned Quinquennial Periods; tvith the Entries of Shipping
per Head in the sajne Periods ; also shoiving Percentage Increases
or Decreases.

[Extracted from First Report of Trade Depression Commission, p. 127, etc.,
and continued.]

Imports per Head.

Imports and Exports
per Head.

Entries of Shipping
per head.

Amount.

Increase or

Decrease

per Cent, on

Period.

Amount.

Increase or
Decrease

per Cent, on
Previous
Period.

Amount.

Increase
per Cent.

on
Previous
Period.

rf.

£ s.

Tons.

1855-59-

—

10 19

—

0.38

—

'60-64 .

14 4

0-45

'65-69 .

16 19

0-53

'70-74 .

19 19

0.65

'75-79-

18 16

- 6

0-75

'80-84 .

20 0

+ 6

0.86

'85-87 .

- 19

>7 15

- II

0.86

—

Thus while, in the earlier quinquennial periods, the
increase in values is more than the increase of shipping,
although the latter is ver}'' great, the increase in values
practically stops short about 1874, or amounts to very
little after that; while the increase in shipping goes on
at a very rapid rate, if not quite at so rapid a rate as
formerly. There is much other evidence, if we go into
details, of a rapid growth of our foreign trade, judging by
quantities only, while values do not increase, for which
those interested maybe referred to the tables mentioned.

With regard to income tax and other property valua-
tions, it will be enough to call attention to the failure
of their growth as compared with the growth in the

RECENT CHANGES IN PRICES AND INCOMES COMPARED 173

immediately preceding period, in the simplest manner.
The followinof short table is extracted from the tables
produced by Sir xA-lgernon West to the Trade De-
pression Commission :

D. — Statement of Gross Amount of Profits Assessed to Income Tax
per Head in Undermentioned Quinquennial Periods.

[Appendix to First Report of Trade Depression Commission, p. 212.]

1865-69. Annual average per head . . . 14.0

'70-74. „ ... 15.6

'75-79- » ... 17.4

'80-84. •>■> ... 17.2

Allowing for the notorious increase in production
per head shown by other statistics, such as the entries
of shipping and the like, such a failure of money values
to respond surely confirms the impression, derived from
the above figures of fall of prices shown by index
numbers and otherwise, as to the rise in the purchasing
power of money being quite general. Whatever doubts
may be raised as to the generality of the fall, when we
look at prices merely, however grouped, there seems to
be no room for them when we look at such mass ob-
servations as those of the growth of import and export
values and valuations of property compared with the
growth of things.

The evidence is not necessary for the purpose of
proving the point, but the same divergence between
the growth of quantities is noticeable in the statistics
of import and export values, and statistics of property
valuations, in foreign countries. The tables put in by my-
self before the Royal Commission on Trade Depression
fully show this; and reference may also be made to a
statement on this head by Sir Louis Mallet, in a note of
his to the Report of the Gold and Silver Commission.

It hardly seems necessary to mention the point
specially, but so much has been said quite properly as
to retail prices not following necessarily to the full
extent wholesale prices, and as to the danger, there-
fore, of relying too exclusively on the latter, that it

I 74 ECONOMIC INQUIRIES AND STUDIES

may be useful to point out the bearing of these mass
figures on the question of how far wholesale prices are
to be trusted as a measure of gold, because they may
be assumed to be representative of prices of com-
modities in general. It seems to be plain that if retail
prices did not follow wholesale prices more closely than
would be thought likely at first sight, results like what
is here shown in the mass would not appear. A little
reflection will also show, I think, that retail prices can
hardly fail to follow wholesale prices closely. So far
as the difference between them and wholesale prices is
made up by cost of distribution, there appears to be no
small reason to believe, first, that the real cost of dis-
tribution, as w^ell as the real cost of production, has
lately diminished; and next that, at most, the mere
cost of distribution is only a fraction, 20 or 30 per cent,
at most, of the final cost of articles, so that, even if no
economies are effected in distribution in a given period,
the fall in wholesale prices must still drag with it sub-
stantially the fall of retail prices. Some retail prices
may not fall nominally, as they embody largely labour
expended on the wholesale article; but this pheno-
menon belongs in part to the phenomenon of a non-
diminution of wages while prices fall, which may be
the characteristic of some cases of appreciating money,
and which is a characteristic of the present case, as we
shall presently discuss. Thus the point of retail prices
was a proper one to raise, and there is something in it,
but there is nothing to prevent us forming the conclu-
sion that the increase of the purchasing power of money
of late years, indicated by the measure of wholesale
commodities, is, in fact, quite general. We do not need
to include all commodities, each properly weighted, to
arrive at this conclusion.

The Degree and Character of the Appreciation.

The rise in the purchasing power of gold measured
by commodities being established, it remains for con-

RECENT CHANGES IN PRICES AND INCOMES COMPARED 1 75

sideration to which of the types described in our pre-
liminary remarks this appreciation belongs? Is it an
appreciation in which the income per head of the com-
munity, and the earnings per head of the wage-earners,
diminish? Is it an appreciation in which the aggregate
income of the whole community diminishes? Or is it
a case where incomes remain stationary although com-
modities fall?

I assume the community to be itself one of the ad-
vancing type, as in fact all the communities which are
gold-using undoubtedly are. Tried by the test of things
produced, all these communities have lately been ad-
vancing in population and wealth, however difficult it
may be to measure what the percentage of advance is.
Appreciation of money in their case must accordingly
conform to one of the three types stated: (i) a fall of
prices along with stationary incomes; (2) a fall along
with diminishing incomes per head; (3) a fall along
with a diminution of the aggregate money income of
the community. To which category does the apprecia-
tion belong?

The facts here are most difficult of measurement,
owing to the want of records of wages in a tolerably
complete statistical form. Records of wages for a pur-
pose like the present ought to show the aggregate
earnings of the wage-earning part of the community,
from which, with a knowledge of the population, the
amount per head can be deduced. With such records
at short intervals, the result we now wish to arrive at
would appear at once, not as a matter of inference, but
as a statement of fact. But no such records are in ex-
istence. Instead there are only records of isolated
rates of wages, not " weighted " in any way, with ap-
parent changes in opposite directions from time to
time, so that it becomes most difficult to deduce what
the general movement is. Fortunately for us, however,
there is in England at any rate a record of a large part
of the income of the nation which may be considered
tolerably complete, and which may help, along with

176

ECONOMIC INQUIRIES AND STUDIES

careful study of such wages records as exist, to show
what the conclusion on the point before us must be.

The records referred to are those of the income tax,
which have already been quoted for another purpose,
but which may again be used with greater detail for
the somewhat novel question now raised. Here there
is an account of a large part of the gross income of the
nation from time to time, largely, though not ex-
clusively, the earnings or profits of capital. Assuming
the recipients of this income not to change greatly
from year to year in proportion to the general popula-
tion, though we cannot count their numbers, then we
may infer that the income per head diminishes or in-
creases as we find that the annual amount divided by
the numbers of the general population diminishes or
increases. We can also see directly whether in the
aggregate this portion of the national income diminishes
or increases.

Looking at the income tax income then we find that
the figures for the last twenty years, ending 1886, and
beyond this we need not go, are as follows:

Income Tax Income in the undermentiofied Years.
[In millions.]

1867
'68
'69

'70

'71

'72

'73
'74

'75
'76

424

1877

430

'78

435

^79

445

'80

466

'81

482

'82

514

'83

549

'84

571

^85

579

'86

Annual average . . . . 492
,, per head 15/. \os.

„ of 1875-76, 17/. 8i-.6r/.

570
578
578
577
585
601
613
628
631
630

Annual average

• • • 599
per head . 1 7/.
of 1885-86, 17/. 5:f.

This shows a material increase even in the amount
per head comparing ten years' period with a ten years'
period. It will not fail to be observed, however, that

RECENT CHANGES IN PRICES AND INCOMES COMPARED I ^j"]

while in the first ten years' period, the increase from
the beginning to the end of the period is very great,
the reverse is the case in the second ten years' period,
the income having increased little all through. The
average in the first ten years' period is thus the average
of years of rapid growth; the second of an almost
stationary period. Comparing the two last years of each
period only the income per head is found to have even
slightly diminished.

Unless therefore there has been something different
in the progress of non-income tax incomes from what
has taken place in income tax incomes, the inference
would be that the appreciation of gold measured by
commodities of late years is an appreciation which has
not extended, or has yet extended very little, to the
diminution of incomes per head, much less to a diminu-
tion of the aeereofate of individual incomes; in other
words it must be an appreciation of a comparatively
mild type.

So far as I can judge, also, what we do know of
wages points in the same direction. I shall mention
the facts and circumstances which seem to point in this
direction, and refer to and explain any opposing facts
which seem to point in the opposite direction.

First then there is a general impression that wages
have not declined at all, or at least have declined very
little. Popular impressions count for very little as a
rule when they can be brought to the test of figures ;
but if there had been at all a general and heavy fall of
wages, a fall at all approaching the fall in the prices of
commodities, it is an event which must have made a
oreat deal of noise. I remember Mr. Jevons, who was
present when I read my paper in 1879, remarking to
me as we left the meeting that he looked forward with
some foreboding to an appreciation of money, antici-
pating, as we all did then, that wages would follow
suit to the fall of prices, and not adverting to the pos-
sibility of a considerable fall of prices without incomes
per head declining. That there have not been strikes

I. N

178 ECONOMIC INQUIRIES AND STUDIES

and lock-outs on an extensive scale, such as Mr. Jevons
anticipated, is evidence pro tanto that the general and
severe fall in wages he rather looked forward to, and
many more of us also looked forward to, has not in fact
occurred.

As a farther proof of there being no great fall in
wages, I may perhaps remind you of Mr. Goschen's
puzzle on this very head when he delivered his address
on appreciation of gold at the Bankers' Institute in
1883. He could not then account for wages and in-
comes keeping up and prices declining. Since 1883
certainly there has been no material decline of wages,
and the puzzle would remain unless upon the hypo-
thesis now put forward of an increase of real wealth,
which is represented by the same money income as
before, but to which the fall of prices ensures that the
same income will go farther than it did.

I have still more important evidence to adduce, how-
ever, as to the generality of the impression that there
has been no general fall in wages of late years corre-
sponding to the fall of commodities. Looking over the
bulky volumes of the Trade Depression Commission,
we find that one of the questions put to chambers of
commerce and other mercantile bodies, and to work-
men's associations, bore on this very point. They were
asked to say in 1885 whether wages were then less on
the average than they had been in the previous twenty
years. This was not precisely the question we should
have liked to put for the present purpose, but allowing
for the fact that the average would include the inflated
years of 1872-76, the answer that wages were not then
under the average of the previous twenty, or very little
under the average, if at all general, would seem to
show that there can have been no material fall in
money wages of late from the average of the ten years
1867-76, which is the starting point of the comparison
of the fall of prices. The answers however are most
conclusive on the point. I have extracted them one
and all, except one or two detailed tables which I deal

RECENT CHANGES IN PRICES AND INCOMES COMPARED I 79

with specially ; and I have placed these answers in the
appendix. They speak for themselves. They seem to
be absolute proof that there could have been no great
and general fall in wages of late years.

There is moreover statistical evidence of the general
maintenance of wages in the leading industries of the
country. In the last report on Trades Unions, by Mr.
Burnett, the labour correspondent of the Board of
Trade, there will be found a series of tables, including
among other particulars the standard rates of wages
for a long period of years in various trades there men-
tioned.' From this I extract the following particulars:

E. — Comparison of Wages Rates published in the Second Report of the
Labour Correspondent of the Board of Trade on Trades Unions.

1. Engineers

2. Amalgamated Society of ^

Carpenters and Joiners S

3. Steam Engine Makers . .

4. Iron Founders

5. United Kingdom Pattern )

INIakers f

6. Operative Bricklayers )

(summer) f

7. Iron Moulders of Scotland

8. Compositors (time only)

9. Journeyman Bookbinders

10. Associated Blacksmiths

11. Alliance Cabinet Makers

12. Operative Stonemasons \

(summer) f

13. Glass Bottlemakers of )

Yorkshire . . . . f

14. Northumberland Miners ^ ,

Stonemen

Onsetters

Banksmen

Putters

15. Kent and Sussex Labourer;

16. Pressmen

17. Zincworkers ,

18. Coopers (Leith and Edin- \

burgh) f

19. United Operative Brick- (.

layers (summer) . . S

20. Perseverance Society of \

Carpenters and Joiners )

21. Operative Plasterers . . .

22. Co-operative Smiths . . .

23. Plumbers

24. Durham Colliery Engine- )

men i

31) per week
33) -

(„ 35)
(„ 37)

(„ 45)

,.) „

47) per hour
49) per week
5O ..
53) „
55) per hour

59) per week

65) n

69)

per day

71) per week
75) „
77) „
81) „

83) ,.

S5) per hour

87) „
89) per week
91) per hour

121) per day

26,?. 3(/.
[33^. in 1885]

■zos. to 39J. 9«/.

l\d.
33-f-
32J.
25^.
^d. to 8W.

10s. to 37J. id.
33-f-

i,S.

5.f-

3^. \\d.

13^.

not stated

36ji-. to 39^.

23^. to 25^.
ly. to 30J.
not stated

25*.
not stated

Maximum,

1873-74.

26.f. to 36J.

21.;. to 42;. 4</.

26i. to 36J.

26^. (>d.

24J. to 45i. srf.

36^.
32J.
27^.
8.W.

|iSi. to i,as.o\d.
:;6.r.

7J. 5^.
7^. 9</.
TS. 8(/.
55. \\d.

36^.
36^. to 39J.

2 7 J.
2 7 J. to 33^.

Q</.

dd. to grt'.

33^.
M.

^s. lid.

Latest.

26s. to 38.?.

20s. to 42 J. 43^.

26J. to 38^.
24^.

3 1 J. j^d.

24s. to 42J. 4;</.

yd.
36.S.
32^.
28^.
Si</. to gd.

20s. to 40J.
30J.

4i. Zd.
4S. 4d.
4s. 3^.
2S. gid.
12s. 6d.
36s.
26s. to jgs.

2JS.

2ys. to 36^.

gd.

6d. to gd.
30*.
Sd.

4s, 4</.

^ "Report on Trades Unions, C-5505, Sess. 1888," pp. 134 et se(].
■ A great number of rates are given. 1 select a few only as specimens.

i8o

ECONOMIC INQUIRIES AND STUDIES

E. — Comparison of Wages Rates, etc. — continued.

2?. Carpenters and Joiners Scot
land 1

Aberdeen . .

Bishopsbriggs

Coatbridge

Dundee

Edinburgh

Glasgow .

Johnstone .

Nairn . .

Stirling . .
26. Friendly Ironfounders

143) per hour

)
)

)
)
)
)

147) per

.veek

Normal,

Maximum,

1866-76.

1873-74-

4ld.

7d.

t\d.

gd.

6d.

Sd.

6d.

Sd.

6Jrf.

Shd.

S'^-

yd.

4id.

6d.

sArf.

8d.

2ts. ^d.

26s. 3d.

Latest.

6d.
l\d
6^d
7d
id.
l\d.
b\d.
id
td.
24;.

It would be most desirable to have more details of
this sort, but the indication is certainly not that of
greatly declining wages of late years when period is
compared with period. There are some cases of de-
cline, but on the whole the normal wages of ten or
fifteen years ago are maintained. The cases where the
decline takes place are mainly in the coal and iron
trades, where there was special inflation in 1872-76,
and also agricultural labour, where there was also some
inflation about the same date ; but even in these cases
the decline below the average wage as it stood before
the inflated years, or even below an average for a long
period, including the inflated years, is not very marked.
Of course a few exceptions would not alter the general
conclusion. Incessant changes are going on in the
conditions of different trades and their relations to
others. The average wage maybe maintained through-
out the labouring community, notwithstanding these
special declines.

To the same effect are various tables which can be
extracted from the bulky volumes of the Trade De-
pression Commission. I begin with two or three tables
put in by Mr. Lord, the President of the Manchester
Chamber of Commerce, the last being a summary of
longer tables whose construction does not appear
logically correct, but which contain data, as far as I can
judge, pointing to the conclusion arrived at, although

^ About 86 places given. About one place in ten picked out.

RECENT CHANGES IN PRICES AND INCOMES COMPARED l8l

the process by which it is actually arrived at may not
appear strictly and logically correct. These tables are
as follows :

F. — Wages in Lancashire Mills given by Mr. Lord, President of the

Manchester Chamber of Commerce.
[Appendix, Part I., to 2ad Report of Royal Commission on Trade Depression

(P- 377)-]
M. — Cotton Spinning and Weaving.

Num-
bers Em-
ployed.

Description.

lo I Strippers and
grinders .

1 6 j Rovers . .

52 I Minders . .

I
6o I Winders . .

330 ! Weavers . .

Mechanics .

10 ' Overlookers

and tacklers

Average Weekly Earnings.

1850.

i860. I 1870.

£ s. d. £ s. d}^£ s. d.

on 00 14 o;o 17 o

o 7 6,0 II o o ri 6

i I

0 18 00 18 o I 20

1 !

o 8 60 9 o o 1 1 6

I i

o 8 20 14 90 15 6

140
I 5 o

160

1877. 1883.

£ s. d£ s. d

I I o^o 19 o

0 19 6:0 18 o

1 10 01 9 o
o 14 o|o 12 6

0 16 o|o 15 o

1 10 o'l 10 o

I 14 01 13 o

At the above rates the weekly wages of operatives working a mill
of 1,000 looms with requisite spinning, viz. :

480 persons, amounted in 1850 to
And in 1883 to

£ s. d.
231 3 o
403 16 o

Increase

£n- 13

= 74.69 per cent.
Increase in 1883 over 1850.

l82

ECONOMIC INQUIRIES AND STUDIES

In 1850 the great majority of weavers had only two looms each;
now they average about three looms each.

N. — Cotton Spinning and Weaving, Medium Quality.

Descriptions.

10
16
50
25

2
10

I
2

Strippers and grinders .

Rovers

Throstle spinners
Minders

Male

Female.

Winders

Weavers

Mechanics

Overlookers and tacklers

Stonemason ....
Labourers

M.
F.

M. &F.

M.
M.

Average Weekly Earnings.

1850. i860.

1870. ; 1877.

1883.

£s. d £ s. d
0 10 6 0 13 0

£ S. d
0 16 0

£ s. d.
0 19 0

£ s.d.
I I 0

0 7 6 0 II 0

0 14 0

0 17 0

0 18 0

o 7 6 o 10 00 13 00 15 o;o 15 o

o 16 o o 18 Oji o 01 5 01 50

to j to I to

I 2 Oil 8 01 8 o

o 700 8 o

I
o II 2^0 14 6

oil o'o 16 0!0 16 o

i i

o 17 ojO 18 ojo 19 8J

I 3 6 |i 5 oil 7 o[i

I 201 5 oji 10 01 14 o
to
I 16 o

I 00 ;I 3 01 8 01 10 O

I 16 O

to
I 18 O

O 12 O

o 15 O

I 10 O

I O O I 2 O I 2 O

At the above rates the weekly wages of operatives working a mill
of 1,000 looms with requisite spinning, viz.:

£ s. d.
526 persons, amounted in 1850 to . . . 282 13 11
And in 1883 to 51316 5

Increase

;^23i 2 6

= 81.75 PS'' cent.
Increase in 1883 over 1850.

In 1850 each weaver tented on the average 2.74 looms.

RECENT CHANGES IN PRICES AND INCOMES COMPARED I 8 7,

G. — Summary of Tables showing Increase of Wages given in several
Trades in La7icashire, given in by Mr. Lord, President of the
Manchester Chamber of Commerce.

[Appendix to First Report of Royal Commission on Trade Depression, p. 99.]

Descriptions.

Percentage Increase in Wages Earned in the
undemoted Years on those Earned in 1850.

i860.

1870. i 1877.

Cotton spinning and weaving, medium \ 16.85

„ fine .Unchanged

,, and weaving, fine, \

Bolton. ... J

,, No. 150 weft . . .

Bleaching

Calico printing

Shipping warehouse

Mechanical engineering

Coal mining

Building

Average advance

Iron manufacture, decrease ....

33-o6

8.00

15.46

Unchanged

22.78

43-59
9.68

64.47
30.21

15-13 ; 37-72

i
o returns
I
31.40 56.60

25.00

25.77

2.42

24.64

50.00
31-44
12.73

55.64

74-72
16.27

35-16

37.00
50.00
50.00

35-05
10.30

43-53

10.12

23.11

48.21

3976

11.70

22.30

43.00

39.18

9 trades

10 trades

8.71

11.98

10.16

14.88

{^Signed)

Manchester Chamber of Commerce,
May, 1883.

George Lord,

President.

Thus it seems to be demonstrated that in the lead-
ing industries of Lancashire, comparing a date two or
three years ago — since which there has been no fall in
wages — with a middle period in the wages course be-
tween 1865 and 1875, there is not only not a fall in
wages, but even a rise. The details in M and N fully
show this, and give the necessary strength to the
above summary of more detailed tables, which it would
occupy too much space to quote.

i84

ECONOMIC INQUIRIES AND STUDIES

To the same effect is a record of wages paid at
Newcastle in the chemical trade, laid by Mr. Allhusen
before the Commission, and which happens to be in a
very convenient form for showing the facts.

H. — Record of Wages Paid at the Newcastle Chemical Works from
1840 to end of 1885.

[Statement of Mr. Allhusen. Appendix to Third Report of Royal Commission
on Trade Depression, p. 307.]

Record of Wages Paid at the Newcastle Chemical ]Vorks frotn 1840 to end

0/188S.

Years.

Blacksmiths.

Millwrights.

Bricklayers.

Joiners.

Labourers.

Per week.

Per w

eek.

Per week.

i. <f.

<t.

s. d.

1840

20 0

\zs. to 135'.

'50

22 0

1 4 J.

'55

24 0

i4.y. to \%s.

'60

26 0

29 0

i6.f. „ \%s.

'72

28 0

22 0^

20s.

'73

32 0

20s. to 2 2.y.

'74

32 0

22s. „ 24s.

'75

32 0

36 0

20s. „ 22s.

'76

32 0

36 0

22s. „ 24s.

'77

30 6

34 0

20s. to 2 2.y. dd.

'78

28 0

30 0

iSs.

'79

26 0

28 0

1 7 J.

'80

27 6

29 6

18^.

'81

30 0

29 6

iSs.

'82

30 0

29 6

iSs.

'83

31 6

29 6

iSs.

'84

31 6

29 6

iSs.

'85

27 6

28 0

i8s.

Note. — Up to year 187 1 a week's work consisted of 61 hours; from
that period, 54 hours.

^ Sic in original; but ought not the figure perhaps to be 32.^. ?

RECENT CHANGES IN PRICES AND INCOMES COMPARED 1 85

To the same effect is a similar table put in by Sir
I. Lowthian Bell as to coal mining, though here the
short period of inflation in 1873-74 is very distinctly
marked, and the normal rates of wages before and
after that date are in this case not distinctly marked:

I. — Earnings of Coal Hewers in Durham.

[Statement of Sir I. Lowthian Bell. Appendix, Part I. to II. Report of Royal
Commission on Trade Depression, p. 341.]

Year.

Weight of Coal
Worked.

Daily Earnings.

Year.

Weight of Coal
Worked.

Daily Earnings.

cwts.

^. d.

cwts.

i. d.

1871

83.87

4 5-67

1878

90.00

5 0-55

'72

76.03

5 7-40

'79

74-63

4 4-42

'73

71.96

8 3-54

'80

91.96

4 3-73

'74

70.80

6 10.65

'81

94-79

4 10.20

'75

70.14

5 9-13

'82

107.74

5 2.57

'76

78.64

5 10.16

'83

107.21

5 3-53

'77

86.96

5 3-9

'84

106.96

5 1-27

Putting all the evidence together, there seems little
doubt that in staple trades wages have been maintained,
or nearly so, as compared with the average of 1867-77.
There are exceptions, but not sufficient to obscure
what the general movement has been.

To be quite fair it may be useful to conclude this
review with a table of agricultural labourers* wages, in
which, as already referred to in connection with the
figures from the Trades Union Report, there is ap-
parently a decline, at any rate from the high level of
1872-76. The table in question was put in before the
Royal Commission on Trade Depression by Mr. Druce,
who had been one of the Assistant Commissioners of
the Royal Commission on Agriculture some years be-
fore, and is as follows:

i86

ECONOMIC INQUIRIES AND STUDIES

Rate of Money Wages of Ordinary Agricultural Labourers, 1870-71

and 1880-81, Statement of Mr. S. B. L. Druce.
[Appendix to 3rd Report of Royal Commission on Trade Depression, p. 296.]

APPENDIX A.— II.
K. — Statement put in by Mr. S. B. L. Druce. (See Question 9, 153.)

Name of County.

Beds .
Berks ,

Bucks '

Cambs^

Chester

Cornwall

Cumberland

Derby

Devon

Dorset

Durham

Essex

Gloster

Hants

Hereford

Herts

Hunts

Kent (extra Metropolitan)
Lancaster

Leicester

Lincoln . . .
Middlesex .
Monmouth . .
Norfolk .
Northampton .
Northumberland

Notts ....

Oxoni

Rutland

Salop

Somerset

Stafford

Suffolk

Surrey (extra Metropolitan) ,

Sussex

Warwick

Westmoreland ....

Wilts

Worcester

Yorks(E. R.) . . . .

„ (N. R.) . . . .

„ (W. R.) . . . .

1870-71.

Per week.

\OS. to IIJ-.

\OS.

lis. to IT,S.

lOS. ,, 12S.
12S. ,, If)S.

lis.

155. or gs.^

14s.

8s. 6d. to 12s.

Ss. 6d. to lis. bd.

155. to ijs.

los. „ 12S.

gs. 6d. to i2s.

los. to lis.

gs. to lOS.

lOs. gd. to lis. T,d.

lis.

ly. to i$s.

15J. or 7^.^

125.

to 14J.

I3i-. 6d.
No return

lis. to i6s. 6d.

lOS.

lis.

to 12S.

ISS.

„ i8s.

12S.

„ 14s.

lOS.

„ 13s-

12S.
lOS. to 12S.
lOS. ,, lis.

13s.
lOS. to 12S.
13s. ,, 14s.

lis. „ 13s.

lis. ,, 12S.
14s. ,, 17s.

gs. 6d. to lis.
los. to 12S.
No return
12s. to i^s.

135-. 6d. to I7J-.

1880-81.

Per week.
12S. to 1 3 J.

lis. „ ly.

135. to 14s., winter

14s. to iS-f-j summer

12s. to 135.

No general return

14s. to 155.

iSs.
i$s. to i8s.
lis. ,, 15J.
lOS. ,, 12S.
ijs. 6d. to 18s.
12S. to ly.

12S. ,, ly.

lis. „ ly.
12s. ,, 14s.

12S. ,, ly.
12s.

155. to i8s.

ijs. ,, i8s.

lis. to I2s. ordinary districts

14s. ,, ly. ironstone ,,

I3J-. 6d. to 15^.

I5J-. to 16s.

12s.

I2s. to 135.

ly. „ 14s.

iSs. „ i8s.

ly. to 155. ordinary

iSs. to 20i^. colliery district

1 1 J. to ly. 6d.

No return

l2s. to 14s.

lis.

12S.

12s.
14s.

12S.
12S,

15s.
155.
13s.
16s.
ISS.

1 6s.

18s.

lis. to ly.

ly. 6d.

Iso-
lds, to 1 7 J.

ly. ,, 18s.

' Extracted from the Report of the Commissioners on the Employment of
Women and Children in Agriculture, 1867-68.

* For quarter ended Michaelmas, 1869 (harvest money not included).
' The latter with board and lodging.

RECENT CHANGES IN PRICES AND INCOMES COMPARED I 87

From this it is evident that the fall in agricultural
wages recently which has undoubtedly taken place,
can hardly have been very great from the normal
average of 1867-77, as marked by the wages of 1870-
71 included in the above table, but must have been
from the high level of 1880-81, to which they had
risen in the interval. This is evidently the case, in
fact, if we look at the figures for agricultural labour in
the above Trades' Union Table E. Even agricultural
labour cannot be said to have sustained a material fall
from the high average of 1867-77, though there is a
distinct decline from the maximum of those years.

While revising the proofs of this paper, I have had
the advantage of receiving a copy of Major Craigie's
most valuable paper on the Agricultural Labour Bill
read at the Farmer's Club on the loth instant. Major
Craigie's conclusion is that at the present time, as
compared with ten years ago, the drop in that part of
the labourer's wage paid in money is from 18 to 20
per cent, in the east, and in the rest of England about
1 2 per cent. He adds that as the numbers of labourers
are about f ths of the whole in the latter districts, per-
haps a drop of 14 per cent, will represent the loss of
wages over the farmed surface of England. But this
is comparing the present time with the high level ten
years ago, and the average drop would of course be
less comparing ten years' period with ten years' period.
Major Craigie at the same time gives most interesting
tables showing the real improvement in the labourer's
position notwithstanding the fall in money wages,
which confirms in the strongest way the present argu-
ment that the appreciation is a case of appreciation
measured by commodities in an advancing community,
so that money incomes, though just maintained, or not
quite maintained, go further than they did before.

It would be needless to multiply figures. The
common impression as to wages having been main-
tained, while the prices of commodities have fallen, is
not only confirmed by the proof above given as to

165 ECONOMIC INQUIRIES AND STUDIES

income tax incomes having been maintained, and by
the statements of numerous observers with special
means of knowing, but by actual tables of wages statis-
tics derived from a variety of sources, and all telling
the same tale. The appreciation of money, therefore,
as far as England is concerned, is an appreciation un-
accompanied by any serious general decline in average
incomes and wages per head, much less by any decline
in the aggregate national income.

It should be added, however, that the maintenance
of individual incomes at the former average level has
at most been barely accomplished, and no more. The
appreciation has very nearly, if not quite, been one of
the second type, viz. : where not only prices of com-
modities fall, but where average incomes expressed in
money decline.

It is not necessary for confirmation's sake to go
abroad, but it may be useful to do so, while the facts
cannot but throw light on the further question, which
is a most interesting one, as to the area of the ap-
preciation.

As regards Germany, I have only to refer to Dr.
Soetbeer's " Materialien," from which I extract and
place in the Appendix certain particulars as to wages
and incomes. Dr. Soetbeer uses these very particulars
to disprove the assertion that gold has appreciated, but
this is with reference to the peculiar meaning or no
meaning of the word which has been productive of so
much confusion in all these discussions. We are at
liberty to use the same particulars to demonstrate the
character and degree of the appreciation as we have
limited and defined the phrase.

With regard to Belgium the figures are contained in
a blue book issued last session,^ compiled from an in-
quiry into the wages and condition of the working
classes, which has just been made by the Belgian
Government. From this blue book I have compiled

' See C-5269, Sess. 1888.

RECENT CHANGES IN PRICES AND INCOMES COMPARED I 89

and put in the Appendix one or two short tables. The
figures certainly show a fall in the iron and coal trades,
but not a general fall at the present time as compared
with the average of 1867-77. ^ desire to refer especially
to the table in which the wages are directly compared
with the quantities purchaseable at the average prices
of the years in question. This is the most direct way
of course of putting the rise in real wages. Whatever
the intermediate changes in money have been, and
although they are no higher at the end than the be-
ginning, their purchasing power has been immensely
increased.

Similar particulars for France yield the same con-
clusion, the difficulty here being to show any general
decline. I do not make any extracts, however, and may
content myself with a reference to the elaborate par-
ticulars at p. 132 et seq., Appendix, Part II., Second
Report of the Royal Commission on Trade De-
pression.

Similar particulars for Italy are to be found in the
Report of the Royal Commission on Trade Depres-
sion. To corroborate them I extract and put in the
Appendix an extract from a report by Mr. Kennedy,
lately Secretary of Legation at Rome, which appears
to be conclusive on the point.

Thus the phenomenon of falling prices of com-
modities and stationary or, at least, not greatly declin-
ing incomes and wages, appears to be very general in
gold-using countries. It does not follow that the result
should be the same in every country. We cannot
assume the rate of advance in material progress to be
the same in each, or that the margin between the
average prices of commodities and the average income
should widen in the same way. But although the same
result precisely is not to be looked for, if we could
measure with the necessary degree of fineness, we can-
not but assume that the communities of all the countries
named are progressing to some extent, and that con-
sequently, if commodities fall and incomes remain

IQO ECONOMIC INQUIRIES AND STUDIES

Stationary in one, the same results should appear in
the other with only minor divergencies. When we
find, therefore, that everywhere in Europe at least,
wages and incomes remain stationary, or at least fall
much less than the average prices of commodities, we
cannot but conclude that the type of appreciation is
everywhere the same, and that we are in the presence
of a phenomenon which extends over a wide area —
that phenomenon being an undoubted rise in the pur-
chasing power of money measured by commodities, but
this rise being unaccompanied by any corresponding
diminution of wages and incomes which would not
unnaturally be looked for, but which reflection shows
need not take place in advancing communities when
prices fall.

The Appreciation or Depreciation of Silver.

The appreciation of gold measured by average com-
modities being thus established, and the appreciation
being of a type in which, as the communities affected
are advancing at the same time in material wealth,
there is no diminution, or at any rate no great diminu-
tion, of average incomes, the question arises, what are
the similar facts respecting silver?

Of course, as regards the relation of silver to com-
modities, there can be no question. In each case, what-
ever fall in the gold prices of commodities is shown,
would either be less or more than the fall in the gold
price of silver by an exact percentage. There is no
room for theorizing. It is a case of exact measurement,
with this difference only, that silver and gold can be
measured against each other with more exactness than
any other commodity against one or the other.

It would seem to follow also that on the whole, if we
avoid extreme years, the average fall in commodities
measured by gold rather exceeds the average fall in
silver measured by gold. In other words, instead of
speaking of the depreciation of silver, though that is a

RECENT CHANGES IN PRICES AND INCOMES COMPARED I9I

correct enough phrase when we measure it by gold, we
should be quite justified in speaking of the apprecia-
tion of silver when we measure it by the average of
commodities in the way above described.

This is true when we measure silver in gold-using
countries, but what is true there, a little reflection will
show, must also be true in silver-using countries. In
these days of quick communication it must be assumed
that every improvement is for the benefit of consumers
generally in the long run, though there may be im-
portant exceptions for a time when a backward country
is first brought into contact with the rest of the world,
and all its produce obtains an enhancement of value.
Still the latter cases are exceptions, and it may be
taken for granted that a rise or fall in prices in one
locality, if at all general, is accompanied by a similar
rise or fall throughout the world. I assume then that
silver has appreciated a little, measured by commodi-
ties, in those countries at least which, like India, are
in close and intimate intercourse with the civilized
world. If necessary the exact correspondence between
Indian and European prices could be shown, but it
does not seem worth while to labour the point.

But to what type does the appreciation of silver
conform in India? Clearly, if the community of India
had been advancing as European communities, and
especially the community of the United Kingdom,
have been advancing, there would be a material differ-
ence in the growth of incomes in India and England
respectively. Silver prices having fallen very little
compared with gold prices, then, in an advancing com-
munity using silver, money wages and incomes ought
to have risen in order that wages and incomes may
maintain the same relation to commodities that they do
in advancing gold countries, where, as we have seen,
wages and incomes remain stationary while prices fall.
The one change would be the exact counterpart of the
other. But, so far as I have been able to learn, no such
increase in Indian wages and incomes has, in fact, taken

192 ECONOMIC INQUIRIES AND STUDIES

place. On this head I can only accept the statements
of Indian authorities, and Mr. Barbour, who is in the
best position to be an authority, is quite explicit on the
point. In his evidence before the Royal Commission
on Gold and Silver, he was asked by the Chairman
(Question 1,162) whether, with respect to labour, the
value of silver had decreased in India, and he replied:

" I think that the wages of labour have risen in large
towns, and along the railways, and in places where large
manufactures have been started, and especially the
wages of skilled labour. As regards the great mass of
the people, I do not think there has been much change ;
and very often the labourer is paid in kind [paid by
produce], so that one could not say that the money
wages had risen or fallen. I have made some inquiries
as to the cost of carrying the mails by runners. I
applied to the head of the post office, who obtained
from the auditor of the post office accounts a statement
of the wages paid to what are called postal runners,
and I found very little change in the rates. I will put
in a paper giving those rates: it goes back for a con-
siderable number of years. There is a rise in the rates
up to, 1 think, about 1870 or so, and since that there
has been very little change — a slight tendency to rise."
— "First Report of Gold and Silver Commission,"
Question 1,162, p. 60.

Nothing more need be said, but I may add that I am
led to believe from conversation with residents in India
who are shrewd observers, that the authorities are right.
There has been no general or material rise in wages
and incomes in India in the last ten or fifteen years.
What I believe has occurred is a rise of wages in the
larofe cities of India and in some districts near thep:old
mines, not sufficient to affect greatly the general aver-
age. The conclusion consequently is not that the facts
as to appreciation of gold in Europe measured by com-
modities, and as to a less appreciation of silver in India
measured by commodities, implying a depreciation of
silver measured by gold, are out of harmony, but that

RECENT CHANGES IN PRICES AND INCOMES COMPARED I 93

India, as a community, has not of late been advancing
as European communities have advanced. Hence the
absence in India of many of the usual phenomena of
depreciation of money, though some of them must have
accompanied an increase of wages and incomes in India,
such as would undoubtedly have taken place of late if
India had been an advancing community, although the
silver prices of commodities had fallen a little.

I make these observations with some diffidence, and
in the absence of fuller information, which is much to
be desired, as to prices and wages in India. It would
be most interesting to know, on its own merits, how
much the people of India have been gaining in material
wealth of late years. It appears somewhat remote to
bring in the relations between gold and silver prices
and gold and silver wages as having a bearing on this
point, but with good statistics the topic should be in no
way remote.

Similar statements, it may be noticed, are made by
consuls of the United Kingdom in silver-using countries,
in reply to the wages query of the Royal Commission
on Trade Depression contained in the circular sent to
H.M.'s representatives abroad by that bod)'. From
Mexico, from China, from Japan, or at least from many
places in these countries, and from other countries also,
the report is that there has been no noticeable rise of
wages for twenty years, or since 1870. From Russia
and Austria, which are paper countries, but with little
discount on the paper compared with silver, there is
much the same reply.

The inference as to the slow growth of silver-using
communities as compared with that of gold-using com-
munities is a specially important one, as we shall after-
wards see. It bears upon the question of the future
demand for gold compared with that of silver. For
the present purpose, however, I am using it merely to
show the nature and extent of the depreciation of silver.
It can hardly be spoken of anywhere as a depreciation
at all, even when the measure is the income per head

I. o

194 ECONOMIC INQUIRIES AND STUDIES

of a community, and there is obviously no depreciation,
but appreciation only, when the measure is that of the
average of commodities.

At this point we may notice what was adverted to in
the opening remarks with reference to the puzzle caused
by there being no phenomena of depreciation of silver
in India answering exactly to its depreciation measured
by gold in Europe, Clearly the correspondence cannot
be exact, because the economic movement in India and
in Europe is not the same. The difference accounts,
especially, I think, for that most curious puzzle of all,
which seems so insoluble, viz., the slowness with which
wages adjust themselves in England and India to the
changed ratio between gold and silver, so that the Indian
producer who has no more wages to pay, while his pro-
duce commands relatively more silver than the produce
of the English producer commands of gold, in com-
parison with what was formerly the case, appears to
have a permanent advantage over the English com-
petitor. Clearly if real wages are rising in England
generally more than they are In India, wages here may
not apparently be adjusted to this specific change, be-
cause along with the apparent adjustment required an-
other change has to be adjusted, viz., the increase in
real wages. Thus the English producer appears to be
more and more handicapped by his Indian competitors,
because he cannot get money wages down. If, however,
there had been no fall of prices and no fall in silver,
this difficulty would have been the same, only it would
have taken the form of rising wages here with prices
stationary, instead of the form of stationary wages and
falling prices. Always the real changes must have been
the same. The change, however, implies no insuperable
difficulty in the English competition maintaining itself.
Real wages Increase because the work done Is better
generally, and though there may be momentary diffi-
culties in special trades, always this improvement in
work will tell.

The facts as thus described also appear to account

RECENT CHANGES IN PRICES AND INCOMES COMPARED 1 95

for the extent of the recent flow of silver to the East,
on which there appears to be some misconception, and
on which I may be allowed to say something, as the
name of a revered authority, Mr. Bagehot, whom I
am specially bound to defend, has been brought into
question. Mr. Bagehot, it is said, when the depreciation
of silver measured by gold began, discouraged a panic
feeling by predicting a great export of silver to the
East, and a continual demand for silver as it fell in
value, so that unlimited depreciation was not in pro-
spect. The event, it is said, has belied his prediction,
and shows that his appeals against panic were not well
founded.

I remember no conversation with Mr. Bagehot having
the purport stated, and I was in close communication
with him till he died. What he was always speaking
of was a sudden depreciation of silver such as took place
in 1876, when the market fell away suddenly to 3^'. 11^.,
and of this he predicted that it would speedily right itself
by stimulating exports of goods from India, and so creat-
ing a demand for silver for export to India. In this Mr.
Bagehot was undoubtedly right. Indian trade was
stimulated, and there was a large export of silver from
Europe to India immediately after Mr. Bagehot made
his statement as to what was going to happen, while
the price of silver recovered to over 4^. 6d., and only
fell very gradually after that for a good many years
until, in 1886, another fall occurred such as Mr. Bagehot
wrote of in 1876. Mr. Bagehot by no means predicted
that silver would go back to its ancient level, nor was
any such idea in his mind. He was the last man in
the world to discount the future or to take very long
views.

Since Mr. Bagehot died, however, the circumstances
relating to both silver and gold have very greatly
changed, and I am tolerably confident that he never
said anything to imply a belief that the stimulus to
Indian trade, which he anticipated from a momentary
great drop in silver, would be permanent and continuous

196

ECONOMIC INQUIRIES AND STUDIES

in totally different circumstances. The new circum-
stances are what economists would recognize as rather
an appreciation than depreciation of silver, and this
aspect of the fall in silver was certainly not so visible
before 1877, when Mr. Bagehot died, as It has since
become.

I have further to point out that the flow of silver to
India of late years has in fact been on a considerable
scale. Since 1877 ^^^ influx into India in tens of
rupees has been :

Net Imports of Silver into India by Sea in the
tuidermentioned Years.

[In thousands of tens of rupees.]

Year ended 31st
March.

Imports.

Exports.

Net Imports.

1874

4>T43

1,648

2,495

'75

6,052

1,410

4,642

'76

3.464

1,909

1,555

'77

9,992

2,793

7,199

'78

IS>776

1,100

14,676

'79

5>594

1,623

3,971

'80

9>6o5

1,735

7,870

'81

5.316

1,423

3,893

'82

6,466

1,087

5,379

'83

8,358

878

7,480

'84

7,408

1,003

6,405

'85

9,110

1,864

7,246

'86

12,386

780

11,606

'87

8,220

1,064

7,156

'88

9,219

And I maintain these are large figures. They would
hardly have taken place unless there had been some
increase of wages and incomes In India, though, as we
have seen, there Is no large general increase of such
wages and Incomes. I ndia remains a consumer of silver
on a large scale. No doubt for many years, owing to
the great advance In prices and wages which took place
in India between 1850 and 1870, India was a consumer

RECENT CHANGES IN PRICES AND INCOMES COMPARED 1 97

on a still larger scale, just as England was a large con-
sumer of gold for monetary purposes in the same years;
but while in the last fifteen years England has ceased
to be a consumer of gold, India remains a large con-
sumer of silver. The difference arises in part, I believe,
from the fact that, while gold has appreciated greatly,
measured by commodities, and gold incomes have not
increased, silver has appreciated only a little, measured
by commodities, and silver incomes, though silver-
using communities have not advanced as gold-using
communities have done, have nevertheless advanced
a little.

I have to apologize for this digression as to the flow
of silver to the East, but my excuse must be the ex-
pediency of showing that all the facts, when rightly
understood, are in harmony. The flow of silver to
India should be in strict relation with the degree and
nature of depreciation in its money and the economic
progress of its inhabitants.

Characters of Appreciation and Depreciation at
Different Periods.

Making the broad distinction we have made between
the course of prices and incomes, it may be useful to
look at what happened in previous periods of appreci-
ation or depreciation, and see how they may be char-
acterized with reference to this distinction. A good
deal of light seems to be thrown on the subject by so
doing. Much doubt is removed as to when there has
been appreciation or depreciation.

We may take first the period following the Austra-
lian and Californian gold discoveries. Mr. Jevons
showed for this period an appreciation of money,
measured by staple commodities in England, amount-
ing to about 1 5 per cent. As you are aware, however,
the statement was not universally accepted as repre-
senting the change in prices of commodities generally;
and still retaining the confused idea as to appreciation

ICjH ECONOMIC L\^<>t;iKIES AND STUDIES

being something absolute and independent, which is so
difficult to get rid of, economists argued that Mr. Jevons
had not made out his case. I have been told myself
that because I agreed that the limit of the depreciation
measured by commodities in the twenty years after
1850 was a very narrow one, I must admit that the
subject is extremely difficult, and we may equally con-
clude now that appreciation is not established with any
certainty! When we bring in the question of incomes,
however, the character of the period which Mr. Jevons
described is placed beyond all question. If the margin
of the rise in the prices of commodities was a narrow
one, the rise in incomes and wages was immense. As to
income tax incomes, the facts are notorious. The income
tax income per head of the people of the United King-
dom, which was about jC 1 1 just before 1850, amounted
about 1875 to over ^17. 1 here is reason to believe
moreover that the growth of working class incomes
corresponded, on which head I may be allowed to refer
to the papers on tlie " Progress of the Working Classes "
which I read to the Society in 1883 and 1885.' The
case between 1 850 and 1 870 therefore was one in which
there was a moderate depreciation of gold measured by
commodities, but as the community was advancing in
real wealth at the same time the improvement in its
condition was indicated by the larger growth in incomes
than in the prices of commodities. Scientifically stated
then, there v/as unquestionably depreciation between
1850 and 1870; the depreciation being that character-
istic of an advancing community, when prices of com-
modities rise a little, and incomes rise a great deal.

Looking at the matter broadly the difference between
that period and the later period since 1873 may simply
be described as being that while the increase in real
wealth in the two periods was much the sam(^, the com-
munity received the benefit in the former period in the
form of a great rise in money incomes accompanied by

' Sec Statistical Society's "Journal," 1S83 and 1885, and for the
first of these tssays postea.

RECENT CHANGES IN PRICES AND INCOMES COMPARED I 99

a much less rise in commodities, and in the hitter they
have received the benefit in the form of stationary and
almost slightly declining incomes, accompanied by a
great fall in the prices of commodities. The facts are
all in harmony. The substantial result to the com-
munity, apart from the redistribution of wealth involved,
is the same in both periods, but the money expressions
and the changes in these money expressions are dif-
ferent.

Going back a little further, again, it is easy to see
that the period between the early part of the century
and the eve of the gold discoveries of 1848-50 was one
of great likeness to the present period since 1873. In
both there was the same steady fall of general prices,
a fall which has long been recognized, in spite of the
unwillingness of many economists, such as Tooke, to
speak of it as a rise in the purchasing power of money.
Now we must add that there is a farther likeness in the
circumstance that between the early part of the century
and 1845 average money incomes increased very little.
Nothing is more remarkable than the small advance of
income tax incomes between the date when the income
tax was left off in 18 15 and its renewal in 1843, there
being in fact no advance, or barely any advance, allow-
ing for the increase of population. It is equally on
record, though there are no exact statistics, that money
wages during the same period were with difficulty
maintained. Hence the general likeness between the
period 1815-45 and the present time. Appreciation of
money shows itself in both periods in much the same
way, and is of much the same type, though I am in-
clined to think that the advance in real wealth before
1845 was not so great as it has since been.

Going back still further, it will be found that towards
the close of last century, and during the early part
of the present century, there was a remarkable rise of
prices, and an equally remarkable, if not more remark-
able, rise of incomes, indicating that, on the whole, the
community was then advancing. In thus speaking, I

200 ECONOMIC INQUIRIES AND STUDIES

leave out, of course, that part of the rise of prices and
incomes which answered to the depreciation of paper.
Apart from this element, there was a great rise in prices
and incomes in the last quarter of last century and the
beginning of the present century, though rather more
in incomes than in prices. The data are too scattered
to enable us to speak with much exactness, and it would
take us too far at present to go into historical investiga-
tions; but that there was at the time spoken of depre-
ciation of money, measured by commodities, such as
we had between 1850 and 1870, is undoubted, and there
was at least sufficient advance of incomes to raise a
question whether the whole change was not of the same
type, though the degree of advance in real wealth was
not nearly so marked as in the period 1850-70.

It is not proposed to go back any farther at present;
but enough has perhaps been said to show how fruitful
such investigations may be made when the relations
between prices and incomes are kept steadily in view,
and how necessary it is to allow for the economic
movement in a community in studying the signs of
appreciation or depreciation of money. The apparent
inconsistencies between a fall of prices and no fall of
wages, or no corresponding fall, and vice versa, are all
to be reconciled. When this is done there can be no
sort of doubt as to the changes in the purchasing power
of money at different times in the last hundred years.

Equally when we turn to another field the utility of
the comparison is shown. In India, as we have seen,
since about 1873, there is notably no depreciation of
silver measured by commodities; there is perhaps a
slight appreciation. There appears also to be a slight
increase of incomes, though not much. Just before
1870, however, there was unquestionably depreciation
of silver in India, marked by a rise of both prices and
incomes, and a little more in incomes than in prices.
In India the real progress in both periods has been less
than in Western Europe, but the facts again are all in
conformity. As the community advances, though some-

RECENT CHANGES IN PRICES AND INCOMES COMPARED 20I

what slowly, depreciation of money measured by com-
modities is accompanied by a greater increase in money
incomes than in the prices of commodities. On the
other hand a stationary value or slight appreciation of
money measured by commodities is accompanied by
stationary or only slightly rising incomes.

This characterization of the various sorts of apprecia-
tion and depreciation may be used generally in com-
paring different countries at different times. The fact
of appreciation or depreciation of money is one which
must be frequently kept in view in economic com-
parisons, and the nature and degree of appreciation or
depreciation must equally be considered. A study of
the economic movement in the chief countries of the
world, and in different provinces of the same countries
for the last century, if not longer, comparing prices
and incomes all through, could not but be most in-
structive.

A useful explanation with regard to the employment
of certain phrases in economic discussions appears like-
wise to be suggested. We often hear of certain things,
such as war, causing high prices, and other things, such
as abundant harvests, causing low prices; and the high
prices are spoken of as "dearness," and the low prices
as " cheapness. " But when the expressions are analyzed
it will be found that the "dearness" and "cheap-
ness " can have really nothing to do with money prices;
that real " dearness," that is a high price in relation to
income, and real " cheapness," that is a low price in
relation to income, are intended; while it is farther
obvious from what has been said here that " dearness "
and "cheapness" in this sense may co-exist or come
about with any conceivable range of money prices or
any conceivable change in that range. Things may
become cheap in this sense when money prices rise
and dear when money prices fall-r-not perhaps in a
short period, and especially as regards a particular
article, money then being the most stable measure, but
certainly as regards an average of articles in those long

202 ECONOMIC INQUIRIES AND STUDIES

periods when it is found convenient to invent measures
for money itself. Much confusion has arisen from the
neglect of this distinction. The common notion that
war prices are high money prices, which is so inveterate,
although it is absolutely disproved by experience as
well as by theory, is an instance. Perhaps — to give an
illustration from present controversies — the question
whether abundance of commodities or scarcity of money
causes a given appreciation of money, which we shall
presently have to notice, would never have become a
question at all, if it had been clearly recognized from
the first that the effect of abundance of commodities
properly belongs to a question of real cheapness, where
the ratio of the commodities to incomes is involved, and
that the effect of scarcity of money properly belongs to
a question as to the range of money prices only where
the ratio of commodities to money is involved, so that
there is no antagonism between the two causes as they
are not related to the same class of effects.

The Causes of Appreciation and Depreciation.

What are the causes of the changes in money with
which we have been dealing? I approach this topic
with great diffidence. The changes have been rung,
as you are aware, on the antagonism, or supposed
antagonism, which has just been mentioned, between
the influence of abundant commodities and the influence
of scarce money on prices. It has become extremely
difficult for a modest student like myself to strike in
with a few appeasing words, and show that there is a
great deal to be said on the subject which does not
touch on the conflict at all, and that the conflict itself
is more about words than things.

I would begin by saying that there is, necessarily,
ambiguity in asking generally what are the causes of the
appreciation of gold or depreciation of silver ? There
is liability to misunderstanding, as we have seen, in
the fact that there may be appreciations and deprecia-

RECENT CHANGES IN PRICES AND INCOMES COMPARED 2O3

tions of quite different types, and what is true of one
may not be true of another; but in addition causes
are hardly to be treated in this general way when we
are dealing with economic phenomena, or indeed with
any scientific phenomena. We should hardly ask what
are the causes of the sun rising in the east, without
limiting the question in some way so as to show what
facts are assumed, and where the point as to the rising
in the east comes in. In the same way we must limit
and define the inquiry as to the causes of appreciation
and depreciation of money at one time as compared
with another.

I have to begin then by drawing attention to what
is stated in the preliminary remarks, to the effect that
there must be a sense in which the ascription of every
case of appreciation of money to a contraction of money,
and every case of depreciation to an expansion, must
be true. There must be relative contraction and ex-
pansion whatever the absolute changes may be; and
as there is an incessant action and reaction in all
economic phenomena, this means that contraction of
money may always be taken as the cause of an increase
of the purchasing power of money, in the sense that
such an increase necessarily implies contraction as
compared with what would otherwise be. We may
infer the one fact from the other, which is the im-
portant point for us, without troubling our heads very
much about metaphysical ideas of cause.

Using the words contraction and expansion in this
sense, however, a very different view would be taken
of the causes and order of the phenomena from what
would be taken by anyone attaching a totally different
meaning to contraction and expansion, and overlook-
ing the relative nature of the expressions as thus used.
Both disputants might be right, but then they would
not be talkino- of the same thinofs.

According to this view, then, as already explained,
it becomes convenient, to say the least of it, to treat
all the changes, whether in the demand for or supply

204 ECONOMIC INQUIRIES AND STUDIES

of money or the demand for or supply of commodities
as changes in the circumstances of money, although
in discussions where money itself is treated as the
measure the same circumstances may be spoken of
as changes in the circumstances of the things which
money measures. Everything turns on the point of
view. Thus, a general and continued fall of prices
being proved, and commodities being taken as the
measure of money, the circumstances imply a contrac-
tion of money as compared with the time just before.
Whatever the real changes may have been, and what-
ever may be the ultimate causes of one thing exchang-
ing at a particular ratio for another, for the purpose of
the special inquiry, where money is being measured,
the changes must be spoken of as changes in money,
and as the purchasing power of money is increased,
there is contraction of money.

It would only vary the language a little to substitute
for the phrase contraction of money increased cost of
production, just as it would be to substitute in the
opposite case lowered cost of production, in both cases
relatively to commodities. Relative contraction and
expansion of money may either be conceived of as
causes or effects of chano-es in the ratio of exchangee
with commodities; if we conceive of them as effects we
should speak of the relative change of cost of produc-
tion as the cause; but the result is the same so far. It
is the circumstances of money we must view as having
changed.

It appears to be possible, however, to go farther,
and to point out that by comparison, if we attend care-
fully to the terms of the comparison, we can say posit-
ively that the recent change from a high to a low level
of prices is due to a change in money, of the nature or
in the direction of absolute contraction.

If we look at the matter dynamically, what we find
is that over a long period of years the circumstances
affecting the two factors in the ratio between money
and commodities, viz., money on one side and com-

RECENT CHANGES IN PRICES AND INCOMES COxMPARED 2O5

modities on the other side, so varied from moment to
moment at one time that the ratio remained steady,
and so varied at another time that the ratio changed.
If at the moment of transition from the steady to the
changing ratio it is found that the circumstances of the
one factor have not altered dynamically, but that the
progress remains what it was before, then it is a pro-
per conclusion that the circumstances of the other
factor have altered dynamically, and that the change
in the ratio is to be ascribed to the change in that
other factor.

This description applies exactly to what went on
between commodities on the one side and money on
the other from 1850 to 1873, and the change which
occurred about the latter year. Before 1873 for rather
more than twenty years the circumstances of com-
modities and of money, supply on one side and demand
on the other, were undoubtedly in a state of constant
flux, but the movement was such in both cases, the
changes so kept pace with each other, that the ratio
remained unchanged, or if anything gold fell and com-
modities rose. About 1873 there was an alteration, but
accordinpf to the best observation the movement in
commodities continued what it had been, the quantity
increasing at as great a rate as in the period just before,
but not at a greater rate. The inference seems con-
clusive therefore that after 1873 the alteration in the
economic movement was in money, and to this must be
ascribed the change of prices which has occurred.

It is only an additional confirmation of this view that
actual changes in the movement in money in a direction
likely to lead to a fall of prices can be referred to. The
argument, on the assumption that the movement in
commodities has been correctly described, would be
complete, even if we knew less about the changes in
money than we do. Whatever may be the qualities or
conditions which make money exchange at a particular
ratio for a group of commodities, then the changes in
those conditions from day to day which made money

206 ECONOMIC INQUIRIES AND STUDIES

remain steady in price towards commodities or to fall
a little before 1873, n^ust have undergone an altera-
tion in their course about 1873. The effect being
different, and the course of commodities being the
same after 1873 ^s before that date, it must have been
the course of money that changed.

The actual facts that we find as regard changes in
the movement of money before and after 1873 ^^^
most striking.

In the fourteen years ending 1871, which was the
last year before me when I wrote the paper in 1872
already referred to, the net imports of gold into
England, the excess of the imports over the ex-
ports amounted to no less a sum than ^67,776,000,
viz.:

Excess of Imports of Gold into the United Kingdom
over Exports.

1858 10,226,000

'^59 4,217,000

'60 3,057,000

'61 926,000

'62 3,892,000

'63 3,840,000

'64 3,621,000

'65 5'993>ooo

'66 10,768,000

'67 7,911,000

'68 4,428,000

^'69 5,297,000

'7° 8,793,000

'71 921,000

Total . . . ;^67,776,ooo

This is an average of about ^5,000,000 per annum
or nearly so. In the following sixteen years, however,
there has been hardly any excess, as the following
statement shows :

RECENT CHANGES IN PRICES AND INCOMES COMPARED 2O7

Excess of Imports of Gold into the United Kingdom
over Exports, 1872-87.

Excess of Imports.

Excess of Exports.

1872

'73

'74

'75

'76

'77

'78

'79

'80

'81

'82

'83

'84

'85

'86

'87

1,540,000
7,439,000
4,493,000
6,960,000

5,902,000

2,353,000
665,000

1,446,000

632,000

£
1,280,000

4,932,000

4,210,000
2,374,000
5,536,000

1,269,000
391,000

Total ....

31,430,000
19,992,000

19,992,000

Deduct excess of ex- )
ports .... J

—

Net Total ....

11,438,000

—

Allowing for the increase of population, the excess
of imports in the second period, to correspond to the
excess in the first period, should have been very nearly
^80,000,000; actually it has only been ^i 1,438,000.

Whatever evidence there may be about the quantities
of ofold in the world and in the banks or Government
treasuries of other countries, the difference in the
amount available or required for the United Kingdom
is enormous. As the United Kingdom, it may be
added, is and has been practically the only free market,
workine on the same basis all throuo;-h, the fiorures
are worth all the others. In the one period then we
get nearly ^70,000,000. In the other period, when in

208 ECONOMIC INQUIRIES AND STUDIES

the same proportion we might have expected nearly
;^8o,ooo,ooo, we got about ^11,000,000 only. It is
clearly impossible to contend there has been no change
in the movement of gold, comparing the one period
with the other.

If we looked at coinage or other details, the result
would be the same. The stock of gold in England
available for money has not been added to of late
years as it was in the period just before. The stock
with the additions has had to do more work, and it has
only been able to do so because prices have fallen, and
incomes have not risen, whereas from 1850 to 1873,
when gold was going so largely into England, not only
did prices rise a little but incomes a great deal.^

Of course, however, the special point of view has
always to be considered. The comparison is of move-
ments in two periods, and the change in ratio is ascribed
to an arrest of the movement in one of the factors
which is apparently established beyond all question.

To put the matter into more popular language, we
might perhaps say that the stationary or rather rising
prices of commodities between 1850 and 1873, although
commodities were increasing as much as they have
done since 1 873, were maintained by continual additions
to the stock and efficiency of money. Since 1873 the
movement of additions to the stock which was a very
pronounced one has been arrested, if there has not
been an actual withdrawal from or diminution of stock
uncompensated by an increase in the efficiency of
money. Consequently the fall of prices since 1873 is
explained by the check to the previous movement,
when the matter is looked at dynamically and the
periods are compared.

The utility of this mode of comparison is also obvi-
ous, and it was simply by using it that it was possible
to anticipate fifteen and then ten years ago the actual

^ The comparison would be still more striking, I believe, if we
could compare the excess of imports of gold from 1850 downwards.
But there are no official statistics of gold imports before 1858.

RECENT CHANGES IN PRICES AND INCOMES COMPARED 209

course which prices have since followed. In my paper
in 1872 on "The Depreciation of Gold since 1848," ^
this was exactly the method followed. The real pro-
gress of the community at a certain rate was assumed,
and then as it appeared probable that the amount of
new gold available for an increase of business could
not be the same as before, but was likely rather to
diminish, the conclusion was that the course of prices
would be different from what it had been. The common
opinion then was different. It was freely said that as
there was so much gold about, there was enough for
every purpose, and prices would rise farther. But the
method of dynamiccomparison,as the event has proved,
made a true forecast possible. Again in 1879 it was
always the dynamic comparison that was in view. Two
passages may be extracted from the paper of 1879
which put the view plainly. First, speaking of the past,
I said :

" The peculiarity of the period has been the increase
of mechanical invention and the constant augmenta-
tion of goods, so that the accumulation of capital above
shown is even in less proportion than the increase of
the movement in trade which the money in use has to
move. It is a moderate calculation that if only the
countries which used gold in 1848, including their
colonies, were now using it, the requirements to corre-
spond with the increased population and wealth would
be at least three times what they were, assuming prices
to remain in equilibrium." "^

Next as regards the future:

" Let me add that whatever doubt may be entertained
as to the actual meeting of the two curves of demand
and supply of gold during the last few years apart from
extraordinarydemands — all the facts and circumstances
seem to indicate that the meeting point must come
very soon unless the supply of gold is increased or
economizing expedients introduced and extended. . . .

^ See supra, pp. 75-97. "^ Supra, p. 144.

2IO ECONOMIC INQUIRIES AND STUDIES

Whether such a change is likely to come in the shape
of an increased gold supply it will be for geologists and
mineralogists to judge, but it is not reassuring to see
how little comes practically of the recent gold discoveries
in India and the re-discovery in Midian. Whether on
the other hand change may come in the shape of
economizing expedients will be a point of no little
interest for bankers and all other business men, and
for legislators. Considering the slowness with which
such expedients become effective when they are first
introduced, and the perfection to which they have been
brought in countries like England where they are in-
troduced, I feel great doubts whether much relief can
come in this way. On the whole, I see no other outlet
from the situation than in the gradual adjustment of
prices to the relatively smaller and smaller supply of
gold, which must result from the increasing numbers
and wealth of the population of gold-using countries." '

I spoke to much the same effect in a few words
following on Mr. Goschen's address to the Bankers'
Institute in 1883. " If it is found," I said, "that the
annual supply of gold, now that the transition period
may be considered over, is not sufficient to maintain
things in what we may call an equilibrium, that there
is a constant increase in population and in the resources
of mankind from time to time going on, and the supply
of new money is not quite equal to keep things at an
equilibrium, then we may have a long-continued fall
of prices from generation to generation, and this will
probably have very great effects as time goes on. We
may perhaps have what may be called a permanent
transition period, as far as I can see."

Thus the idea of a dynamic equilibrium has always
been in my mind as the basis of any comparison between
period and period, and I must maintain it, especially
after the event, to be a useful method of comparison.
In any case you must define your idea of an equi-

' See suj>ra, pp. 146-147.

RECENT CHANGES IN PRICES AND INCOMES COMPARED 2 I I

librium at starting, or you can have no clear notion of
the facts at all.

It would perhaps be possible to leave the discussion
at this point. If the dynamic comparison here made is
useful, partly for forecasting the future course of prices,
and partly for explaining generally the relations of
money, commodities, and incomes to each other when
prices change, then it is a comparison which ought to
be made, whatever else is done or omitted. It carries
us a long way in the investigation. So much is said,
however, about other comparisons, especially about the
abundance of commodities causing the fall of prices
and not the contraction of money, that at the risk of
burdening myself with controversy I propose to add a
short criticism on this discussion.

Clearly the suggestion already made that the two
causes are not on the same plane— abundance of com-
modities properly belonging to a question of real cheap-
ness, while scarcity of money belongs to a question of
money prices only — covers the whole ground. But the
point need not be pressed. The argument from the
abundance of commodities may be demonstrated to be
faulty in other ways.

The question immediately arises, looking at the
whole course of the discussion, whether those who
insist so much on the increasing abundance of com-
modities as excluding any idea of the contraction of
gold are not really attempting the impossible, viz., to
measure two variables, one against the other, without
a third common measure by which to try them. We
know, however, so little of the ultimate facts which
regulate the ratio of exchange between particular com-
modities, that it would be useless to determine, except
in a comparative and limited manner, what are the
facts which change at a given time, and how one com-
modity may exchange for less than before, although
it may be produced in smaller quantity; another for
more than before, although it may be produced in
greater abundance; and although it may be true gener-

2 12 ECONOMIC INQUIRIES AND STUDIES

ally in theory that increase of supply means a lower
rate of exchange for the article supplied, and a less
supply a higher rate of exchange. The concrete facts
are in truth infinitely difficult to follow out, and no one
should attempt to do so without limiting his quest in
some way.

When, therefore, abundance of commodities is pitted
against scarcity of money in the way that is sometimes
done, I confess my inability to follow the discussion at
all. I seek in vain for the exact terms of the comparison
— the definition of the equilibrium which is the start-
ing point of the comparison, and a description of the
changes as from this equilibrium. The whole discus-
sion is bewildering to a degree.

I would say, however, though it is not quite safe to
speak in the absence of all clear definitions by the dis-
putants themselves, that the contention that the recent
change in prices or in the purchasing power of gold is
to be ascribed rather to the increasing abundance of
commodities than to any contraction of money, is
obviously, as far as it has any reason at all, based upon
an attempt at a totally different comparison from the
one which we have now made. For the purpose of this
comparison the quantities of commodities and money,
or the conditions of their production, or whatever
determines the ratio between them, are assumed to be
in a state of rest just before the change in prices occurs
— a statical and not a dynamical equilibrium is assumed ;
— and as it is found that commodities go on increasing,
and there is no actual diminution of money from that
point or very little, the subsequent change in prices is
ascribed to the change in commodities. But whatever
may be thought of the validity and usefulness of such
a comparison, what I have to submit is that it is obvi-
ously, and by the terms of it, a totally different com-
parison from what is attempted when the two periods
are looked at dynamically and a dynamic comparison
attempted.

The difference between the two comparisons can be

RECENT CHANGES IN PRICES AND INCOMES COMPARED 2 I 3

illustrated very simply by diagrams, which show at a
glance that those who argue for abundance of com-
modities as causing the recent fall of prices, start from
an assumed equilibrium of rest at the date when the
fall began, while the comparison which asserts a change
in money is really a dynamic comparison. (See p. 214.)

The first diagram, it will be seen, shows commodities
and money both increasing from 1850 to 1873, and the
ratio between them remaining steady; there was in
truth a moderate rise of prices, but it would complicate
the diagram to show this; after 1873 commodities went
on increasing as before, but there was a check to the
increase of money, and hence the fall of prices is
ascribed to this check to the increase of money. This
was the change that took place in 1873 or thereabouts.
The recent fall of prices, therefore, in a dynamic com-
parison, is clearly due to a change in money.

The second diagram, on the other hand, starts from
1873 only, assumes a state of rest as at that date, and
thence as commodities increase, while money does not,
the fall in prices after that date is ascribed to the in-
crease of commodities. It is the increase of commodities
which causes a chang'e from the assumed state of rest.
But this second diagram is only a copy of the second
half of the first, and deals with the same facts, only pre-
senting them in a different way, and without comparison
with the previous period, which is the essential point of
the comparison in the first diagram.

The two comparisons, it is plain, are fundamentally
different, and to argue as if they were the same must
cause endless confusion.

My own opinion is that a statical comparison, besides
being much more difficult than those who attempt it
imagine, is not of much use when you do make it. The
economic world is in incessant movement, and the com-
parison required for any purpose is almost always
dynamic. You have to compare movement with move-
ment if you want to find out what is changing, not state
with state. In any case also the movement is much

DIAGRAMS

ILLUSTRATING DIFFERENT COMPARISONS AS TO THE CAUSES
OF THE RECENT FALL IN PRICES.

FIRST DIAGRAM.

CHANGE IN MONEY VIEWED AS CAUSE OF CHANGE.
DYNAMIC COMPARISON.

mo IS73

Cornmodities
Money

Prices

1887

SECOND DIAGRAM.

CHANGE IN COMMODITIES VIEWED AS CAUSE OF CHANGE.

STATIC COMPARISON.

1873

1it87

GmwwdUies
Money

Prices

RECENT CHANGES IN PRICES AND INCOMES COMPARED 2 I 5

more easily compared. You may not be able to tell all
the causes of a given economic condition so as to com-
pare it with another economic condition and its causes;
but if you can take two economic conditions succeeding
each other, and point out a difference in the movement
of one of two factors .which must have contributed to
the conditions, you have something definite and palpable
to rely on.

Those who dwell on the abundance of commodities
rely on the great authority of Tooke, and much of their
writing is in fact a reminiscence of Tooke. I may be
allowed a word therefore regarding Tooke's place in
the literature of these discussions. To my mind he is
completely superseded by Jevons. With all his industry
and knowledofe of business — and there is no more acute
or fruitful author to study — Tooke never seems to have
got into his mind the notion that the causes of changes
in prices which he dealt with were not all on the same
plane, and that most of what he said about good crops
and the rest of it causing a fall in prices could be ad-
mitted without bringing into question the notion that
looking at the whole history from another point of view
the averag-e chano^es from o-eneration to oreneration
could be described as changes in the value of money.
He had no good idea besides of the logical or scientific
value of an index number, such as his successor, Mr.
Newmarch, found himself compelled to adopt in his
continuation of the " History of Prices." Mr. Jevons
has changed all that. By demonstrating how an index
number can be used on an extensive scale, he has in
fact demonstrated that in point of fact changes in
average prices from generation to generation can be
traced, i.e., changes in the average purchasing power
of money; and most of Tooke therefore, as far as
questions like the present are concerned, goes by the
board. In theory, however, Tooke never denied that
there might be changes in the supply and demand for
money adequate to cause great changes in prices.
Where he failed was in recognizing the special character

2l6 ECONOMIC INQUIRIES AND STUDIES

of the problem, and the inapplicability of most of the
points he raised — as to good harvests and the like ac-
counting for changes in particular commodities — in a
discussion in which from the necessity of the case the
average of commodities is itself the measure, and the
question is not of real cheapness or dearness, but of
money prices only. After Jevons, Tooke is really out
of date, and nothing is more curious than to see how in
the recent discussions disputant after disputant seems
unable to follow Jevons, and prefers to go back to an
order of ideas which is entirely superseded.

As showing farther the difficulty of the method of a
statical comparison in this very matter, I may refer to
the excellent mathematical work of Dr. Krai, with a
preface by Dr. von Neumann-Spallart, in which an at-
tempt is made to prove that the change from a high to
a low level of prices is due to a change in commodities
and not in money. It is evident from this book that if
a solution could be found for this question, starting from
a statical equilibrium, the most difficult mathematics
would be necessary, whereas when a dynamic com-
parison is attempted, the result stands out with striking
distinctness, and there is no difficulty.

I have only to add that for the purpose of forecasting
the future it is absolutely necessary we should look at
the matter dynamically. We cannot trace out all the
causes which produce a given ratio between prices and
commodities. We can see, however, that the movement
in one or two important factors of that ratio is in a
certain direction, by which an equilibrium of a certain
kind is established. It is easy to predict that a con-
tinuance of the movement in the leading factors must
lead to one kind of result, and an alteration in that
movement to a different result.

The Redish'ibution of Wealth.

The consequences of an appreciation of money would
demand a chapter to themselves, but though unable to

RECENT CHANGES IN PRICES AND INCOMES COMPARED 2 I 7

treat the subject fully in the present paper, I am unwill-
ing to pass over it altogether, as it must be referred to
when we come to draw conclusions as to the future
prospect.

These consequences are usually dealt with in two
divisions : i. The effect of appreciation in checking in-
dustry and so retarding the increase of wealth ; and
2. The social and other effects of appreciation in re-
distributing wealth. The former of these branches need
not, however, detain us. I do not consider it really
important. Industry goes on with any sort of currency
provided it does not change in short periods. It is hard
to say whether abundant money causing inflation is
better or worse in the end in its effect on production
than a contraction of money which causes appreciation.
What I have to say on these points moreover is said
elsewhere. I shall only deal then with the effects of
appreciation, and of course in this connection appre-
ciation of the special character above described, in re-
distributing wealth.

It is obvious beyond all question that these effects
may be important. Measured by a certain standard,
the average of commodities, the weight of all permanent
burdens is increased as compared with what would have
been the case if there had been no appreciation. People
in paying annuities or old debts have to give sovereigns
which each represent a greater quantity of commodities,
a greater quantity of the results of human energy, than
it would have represented if there had been no appre-
ciation. It may be quite true that on the average the
individual in paying a debt, as his average income is
not less, only uses the same proportion of that income
or the capital represented by it to discharge the debt,
and in this sense there is superficially no increase of
the burden on the average in the case supposed; but
it is hardly to be assumed, I think, that the increase of
production is an increase without additional effort — it
is the effort rather of a human unit who is always be-
coming on the average a stronger producer — and in

2l8 ECONOMIC INQUIRIES AND STUDIES

admitting consequently that the same proportion of a
larger production is required to pay larger debts, it re-
mains true that there is an increase of burden, although
it happens to be borne by stronger producers. It is at
any rate quite clear that the benefit of an increase of
production is distributed differently when money ap-
preciates measured by commodities than when it does
not appreciate. The debtors pay more than they would
otherwise pay, and the creditors receive more.

The matter is thus not unimportant to the two large
classes of people who make up the community. Ap-
preciation is a most serious matter to those who have
debts to pay. It prevents them gaining by the develop-
ment of industry as they would otherwise gain. There
may be compensations in different directions, as by the
lowering of the rate of interest which seems to take
place as the result of appreciation, but on the whole
the balance is against the debtor, as compared with
what it would be if there were no appreciation.

On a large scale this applies to transactions between
nations. A creditor nation is able to draw more from
its tributaries, who have to pay it in the appreciating
money, than it would otherwise be able to draw. To
pay the same debt they must send to their creditors
30, 50, perhaps 100 per cent, more produce than they
would otherwise have to send. There is no doubt that
in this sense the weight of the gold debt of a debtor-
country like India or the United States has enormously
increased of late years. The resources in both cases
may have grown even more largely than the burden, but
there is nevertheless an increase of the burden itself.

All this is treating the question with regard to the
average effect. It is still more important to remember,
however, that the average may be made up of a great
variety of cases, and in fact there is no doubt the re-
distribution described spells ruin to individuals and
classes. Although average production is increased,
there are large masses of property where there is no
increase, or little increase, where the fall of prices there-

RECENT CHANGES IN PRICES AND INCOMES COMPARED 2ig

fore means a diminution of the gross money return,
and where, consequently, the property being mortgaged,
the margin of the mortgagor is swept away. This has
now become a familiar matter to most people in con-
nection with the depression in land-owning, but the
landlord only exemplifies an extreme case of a general
mischief He owns very often only the margin of a
margin. The rent itself is the margin of profit remain-
ing after the expenses of cultivation and the farmer's
profit have been deducted from the gross produce, these
expenses not being reducible, at any rate at once, with
the fall in prices. Of this margin again the nominal
owner only gets a remainder, and he would often be a
loser, even if the rent represented the same proportion
of the gross produce as before, because being less in
money the whole of it is swept away by the charges
and debenture interest so that there is no remainder.
In this way landowners who seemed to have so safe a
position have been ruined by the score. But this case
is the case mutatis mutandis of every ordinary share-
holder in a company who has debenture holders and
holders of preference shares in front of him. Margins
are everywhere endangered. On the other hand the
owners of the preferences so long as they are safe are
paid much more than they would have been paid if there
had been no appreciation. They belong to the creditor
class, and gain where the others lose.

All this, let me repeat, is involved in the appreciation
of money measured by commodities, even though in-
comes as a rule do not diminish. The mischiefs are no
doubt less than if there was a still greater fall of prices,
accompanied by a serious diminution of incomes on the
average. But they are mischiefs as far as they go. No
doubt one reason they have been less felt than would
otherwise have been the case is that many people are
both debtors and creditors. They not only own land,
perhaps, but they own Government and the like stocks,
where they are preferred creditors, and where they gain
consequently by the appreciation of money. But there

2 20 ECONOMIC INQUIRIES AND STUDIES

are sufficient cases of marginal owners whose margins
have been swept away to make the social effects of the
redistribution of wealth involved in the appreciation of
money measured by commodities very widely felt.

At the same time, it should be recognized that in
some cases the appreciation, though it means ap-
parently a redistribution of wealth, does not really in-
volve that mischief; it only anticipates what would
otherwise happen. For instance, in giving more to a
wage receiver or salaried servant, whose nominal in-
come is unchanged, it may still only place him in the
position in which a gradual rise in the scale of living
would have placed him. If real wealth had been in-
creasing without a corresponding fall of prices, or rise
in the purchasing power of money, then wages and
salaries must infallibly have risen. In these cases, al-
though redistribution of wealth seems involved in the
appreciation, there is no real redistribution involved;
there is a general increase, in which all incomes par-
ticipate on the average.

The appreciation in any case is not one to be re-
garded with a panic feeling except in special cases.
Especially as regards national debts, which are not
themselves increasing in amount, the increase of burden
need not be very formidable, for two reasons: i. The
reason already mentioned, that the income per head in
the case supposed does not diminish, so that the charge
per head cannot be more than it was before; and 2.
The fact that population in an advancing community
is always increasing, so that if the debt does increase,
the burden on each individual taxpayer must diminish
from period to period by the increase of their numbers.
The taxpayer does not gain as he would gain if there
were no appreciation of money; but the case must not
be spoken of as that of a debt growing and swamping
the debtor. There is a third reason, viz., the reduc-
tion of interest which seems to be a consequence of
the appreciation of money; but as this involves dis-
putable matter, I do not insist upon it, although in the

RECENT CHANGES IX PRICES AND INCOMES COMPARED 22 1

case of our own national debt the reduction of interest
by conversion, as we all know, has been most serious.
It is obvious practically that there are many national
debts where the appreciation of money, for the reasons
stated, and also because the debt is so small, does not
lead to such an increase of burden as to be serious. It
does not follow, of course, that all communities and all
national debts are in the same case. Where debts in-
crease fast, and where, in addition, as in the case of
France, there is no rapid increase of population, the
problems involved in the appreciation of money may
at any time become serious. I should look for troublous
times, for instance, both for some of our Australasian
colonies and for a country like the Argentine Republic,
even if the appreciation does not grow more serious
than it has been. That the pile of debts has to be paid,
principal and interest, in appreciating money, even if
individual money incomes do not diminish, is a most
serious consideration. The increase of the wealth of
such borrowers ought to be enormous to enable them
to bear safely the debts they are incurring.

The Fuhire Course of Prices.

What is to be the movement of prices in the future?
Of course no one would attempt prophecy in such a
matter. We can only assume the continuance of certain
conditions which seem more or less probable, and infer
from past experience what the result will be. In 1872
this method of proceeding enabled me to anticipate as
highly probable the fall of prices which has since in
fact occurred. What are the data now for an anticipa-
tion regarding the future }

On this head then I am bound to say all the evid-
ence seems to me to point to a continuance of the
appreciation. So far as can be judged, there is no end
to the progress of invention or improvement in indus-
trial qualities among gold-using communities. The
increase of the numbers of such communities, especially

222 ECONOMIC INQUIRIES AND STUDIES

English-speaking communities, also goes on at a very
rapid rate. The conditions therefore are generally so far
the same as they were in 1872. There are no special
demands for gold ahead such as were then in view,
first of all for Germany, and more recently for the
United States; but, /^r contra, the area of ordinary
use has been enormously enlarged. France and Eng-
land before 1872 were almost the only gold-using
countries, the United States at that moment, though
gold was its principal metallic money in use, being on
a paper basis; but since 1872 Germany, the United
States, and Italy, among the leading countries of the
world, have all become gold-using. The increase of
population among some of these new additions to the
gold-using area has also been remarkable, while the
increase in England goes on at as great a rate as
before, and the increase among the minor gold-using
countries, such as the Australian colonies, the Cape,
and Brazil has also been remarkable. It has to be con-
sidered ao-ain that the transition from a silver to a gold
standard among wealthy nations is a secular pheno-
menon, and that we may fairly expect the gold-using
area to increase as one nation after another becomes
richer. First England about two centuries ago went
over to gold; more recently, rather more than fifty
years ago, the United States went over to gold with
the help of a bimetallic law, but really with the de-
liberate intention to get gold ; still more recently,
France took to gold, refusing to part with it after
having once got it, and suspending the coinage of silver
when silver threatened to become the principal money
in use, and therefore the standard, just as England, for
similar reasons, suspended the coinage of silver in
1798; still more recently Germany, and then Italy, not
to speak of minor countries, have become gold-using.
It is impossible to suppose that this favour to gold is
accidental, or that the movement to adopt it will not
extend to other countries as they grow richer. We who
are gold-using may think it highly desirable that other

RECENT CHANGES IN PRICES AND INCOMES COMPARED 223

nations should favour silver more than they do, but
the tendency to go over to gold must be recognized as
a fact. At this very moment two of the countries to
whom a silver money might be thought most useful
when they resume specie payments, viz., Russia and
Austria, do in fact keep large bullion reserves in gold,
this being especially noticeable in the case of Russia ;
while the intention to have a basis in gold is further
marked in the case of Austria by the fact that silver is
at a discount compared with the paper, and gold only
at a premium. I should anticipate, therefore, as most
likely an extension, and not a contraction, of the gold-
using area in the coming years. There is also a natural
reason of great weight for the preference. As peoples
become richer the mere weight of silver makes it in-
convenient for all concerned to handle it to the neces-
sary amounts if it is used at all in the daily transactions
of life. Gold becomes a quasi necessity and not merely
a luxury, and this necessity increases rather than
diminishes not only among communities which are not
gold-using, but even among those which are already
on a gold basis. With regard again to the use of gold
in the arts, we cannot but expect the demand of the
richer nations as they grow richer to increase. It is
now very considerable, amounting at a low computa-
tion to two-thirds of the annual production, and is
most likely to increase.

All these facts point to a continued pressure upon
gold, against which the only compensation would be a
more extended use of economizing expedients. Such
economizing expedients will in fact, as I believe, miti-
gate and modify the demand for gold, but the question
is to what extent? and just as I believed in 1872 that
they would not do so to the extent of preventing a fall
of prices, should the supply of gold not increase, so I
do not believe now that they will have a mitigating
effect to any serious extent. The question then be-
comes, what is to be the supply of gold? A great deal
is said about the Transvaal and other sources of supply.

224 ECONOMIC INQUIRIES AND STUDIES

and if there should be an enormous development of
gold mining the tendency towards a rise in the pur-
chasing power of gold would no doubt be checked or
reversed. But it would take a very large development
indeed to produce any result of the kind, perhaps an
addition of lo or 20 millions to the annual supply,
while the demand itself will of course increase with a
diminished cost of producing gold as compared with
other things. The better probability seems therefore
to be that the increase of the purchasing power of gold
will continue from the present time. If it does not
increase, there must be a very large increase of the

supply.

Will silver participate in the fall along with other
commodities? Here the better probability seems also
to be that the tendencies rather are towards an increase
of the divergence between gold and silver which has
been croing on for centuries, in consequence, as I be-
lieve, of the growing wealth of nations making them
turn to gold one after another as they find or make
opportunity. The silver-using nations are nations with
much smaller individual incomes than gold-using na-
tions ; they are not so progressive ; while if they do
progress they are apt to resort to gold more and more,
partly as a supplement to, and partly as a substitute
for, silver as they come to have a variety of dealings
and transactions in which gold is more useful than
silver. At the same time nothing is more remarkable
than the continued increase of the supply of silver,
which is produced geologically as yet under different
conditions from gold, and is more susceptible of almost
unlimited development. The difference between gold
and silver geologically was well expressed by M. Leon
Faucher forty years ago, when people were excited by
the gold discoveries, and his remarks have since been
confirmed by the subsequent great development of
silver mining. M. Faucher says:

"It is not without some show of reason that my-
thology, transporting the analogy of the physical into

RECENT CHANGES IN PRICES AND INCOMES COMPARED 2 25

the moral world, made the age of silver succeed that
of gold. Historically, in fact, the discovery of and the
working of gold preceded that of silver. Gold is almost
always found either pure or mixed with silver. In
searching the beds of rivers and streams it has been
obtained by the mere process of washing. This work
is within the reach of the rudest state of society. It
appears like a treasure spread over the surface of the
earth, under the very feet of the first occupier of the
soil. Silver, on the contrary, is embedded in rocks of
primitive formation, and is seldom found near the sur-
face of the earth; its extraction requires a combination
of science, machinery, and capital. It is the work of a
state of civilization already far advanced, and firmly
established. . . . Not only did the value of money and
of the precious metals increase in the long dark night
of the middle ages, but the relative value between
silver and gold which had been established by the
progress of industry again changed. Gold preserved
its value the longest; its supply was fed by the wash-
ings of the golden sands, a fit occupation for the know-
ledge and tastes of an ignorant people. The working
of the silver mines, on the other hand, being a work
befitting a civilized and scientific people, was naturally
interrupted, and languished during a period of spolia-
tion and endless warfare. Hence, as we may suppose,
even the scarcity, both relative and absolute, of silver;
the comparison with gold remained at ii and 12 to i
from the ninth to the middle of the sixteenth century.
It required the excessive and sudden abundance spring-
ing from the working of the mines of Potosi and Peru,
and of Zacatecas in Mexico, to reduce the proportion
to 14 and 15, the average rate at which it remained in
Europe until the end of last century.^

There is a strong drift of things therefore towards
appreciation of gold, and relative depreciation of silver,
though not as yet an actual depreciation of silver mea-

^ Leon Faucher, *' Remarks on the Production of the Precious
Metals." Translated by Thomson Hankey, jun. London, 1852.

I. Q

226

ECONOMIC INQUIRIES AND STUDIES

sured by commodities. If this drift goes on, the diver-
gence between the two metals will increase and not
diminish. This impression will be confirmed, I think,
when the ratio between the two metals is looked at
historically. I extract the following short table from
Soetbeer, adding the figures subsequent to 1680 as of
common knowledge :

Ratio of Silver to Gold from 1500 to the present time.

Years.

Ratio Silver to Gold.

Years.

Ratio Silver to Gold.

1501-20
'21-40

10.75
11.25

1641-60
'61-80

14.50: I
15.00:1

'41-60
'61-80
'81-1600

11.30
11.50
11.80

1800
1800-50

15I :i
15I :i

1601-20
21-40

12.25
14.00

'50-70
Present time

15.40:1
22.00 : I

The steady dwindling of the ratio of silver to gold
over the whole period is manifest, and perhaps it may
be lawful to mention, without incurring the charge of
bringing in the bimetallic controversy, that the great
nations of the w^orld, with the single exception of
England after 1680, before which a considerable part
of the fall took place, were bimetallic almost the
whole time. The movement has thus been steadily
towards a decline of silver in reference to gold. Of
course the change in the last few years has been most
unusually sudden and severe, but there was, it will be
observed, a very serious change, indeed, in the early
part of the seventeenth century, and it may be sug-
gested that the whole economic movement in modern
times is quicker than it was formerly, while the run
upon gold has been fostered by the unusual supply
which came on the market from 1850 onwards, and the
increase of supply in the case of silver, from the sheer
weight of it, produces no such effect, if it does not pro-
duce the opposite effect.

RECENT CHANGES IN PRICES AND INCOMES COMPARED 2 27

I regard all this movement and have described it as
a natural movement. This would hardly be the place
to discuss the bimetallic theory if we were inclined to
do so, but certainly it may be allowed, even by bi-
metallists, I think, that the tendencies to divergence
between gold and silver are strong enough to require a
very powerful controlling influence to keep a constant
ratio between them, if they are to be controlled at all,
which I do not believe to be possible. In fact, but for
the accidental gold discoveries of 1848-50, and the
previous discoveries in Russia, the increasing diverg-
ence between gold and silver which was manifested
before that time would have long previously produced
a fall of silver in relation to gold like that we now
witness. Such a fall was in fact anticipated by eco-
nomic experts before 1850. The events of 1848-50
suspended the economic development. To all appear-
ance it is again in full course. The probabilities appear
to point to a further heavy fall of silver in the next
ten or twenty years, the reason at bottom being the
run upon gold and the short supply of it, though the
steady increase of the production of silver, and the
comparatively limited natural area of its use, also
count.^

Is there anything to be done by Governments to
mitigate the appreciation of gold or provide against its
effects, is a question which will naturally arise. The
anticipation I ventured to indulge in in 1879 to the
eftect that we should infallibly have such topics as the
issue of j^i notes brought up for discussion has cer-
tainly been more than fulfilled. To find a Royal Com-
mission recommending the issue, not merely of ^i
notes but of los. notes, and these based on silver,
is certainly a sign of increased readiness to discuss
currency innovations. But the only suggestion I
would make is of a statistical kind. All these diffi-
culties seem to me to suggest the expediency of further

^ This has been fully confirmed by the actual course of silver
prices since 1888. [1903.]

2 28 ECONOMIC INQUIRIES AND STUDIES

scientific study by those interested of the theory and
practice of index numbers, which supply a means for
providing for deferred payments by substituting a
different currency for money, as is done by the corn
averages for tithe and by corn rents generally. If we
cannot invent a money that will itself be stable over
generations, may it not be possible to devise a substi-
tute by which the deferred payments will themselves
change with the changing value measured by some
other standard, and in that way the redistribution of
wealth will in some degree be lessened?

This last suggestion can hardly be expected to be a
very popular one at present, while as yet index num-
bers are hardly known to the public. It is remote
enough from any practical issues. But in any case, it
may be hoped, studies like what we have been engaged
in to-night will not be in vain apart from practical
issues. Knowledge is always useful, and a clear in-
sight into what is going on and what is fairly to be
anticipated may both prevent panic and enable business
people to make sensible arrangements in their provi-
sions for the future which otherwise they would not
think of In documents charging estates, for instance,
lawyers might have been able to save their clients
much embarrassment by charging 2i pe^'centage of net
rental only, or a sum to be varied by another measure,
as the tithe is varied, instead of a fixed and unchange-
able sum in money. Generally in a time of appreciat-
ing money business men must consider carefully the
effect of engagements to pay money at distant dates.
Many mischiefs might have been avoided if all con-
cerned had realized ten or fifteen years ago what was
likely to happen in money, and good will now be done
if possibilities are kept steadily in view.

Note (1903). — The anticipations as to the UkeUhood of a farther
appreciation of gold were not reahzed in consequence of the South
African, Westralian, and North American gold discoveries, but enor-
mous as these discoveries have been, there is as yet little sign of
another great depreciation of gold.

VI.

MR. Gladstone's work in finance.^

THERE is a universal agreement of opinion that
Mr, Gladstone's strencrth is finance. Those who
dispute his capacity in other respects allow that figures
steady him, and his achievements in this field have
been the principal boast of his admirers. Until lately,
indeed, it might be said, there was little else to boast
of; Mr. Gladstone's career had been otherwise mainly
interesting as a psychological stud}-, exhibiting the pro-
cess by which a peculiar mind, starting with a false
appreciation of the tendencies of the time, and imbued
with notions of a theological cast, has gradually har-
monized itself with these tendencies, and discarded
theological conceptions in the domain of politics. Be-
cause, then, Mr. Gladstone is so prominent, and his
repute is so largely due to success in one department
of politics, an inquiry into what his work here has been,
without embracing his whole career, may be more than
justified. This would be the case altogether apart from
his recent accession to the premiership. No doubt the
past history of any premier, the predilections he has
manifested, and his success, or supposed success, in a
particular department, are likely to throw light on his
future policy. But it is enough to know that Mr. Glad-
stone, as a prominent party leader, is mainly praised
for his finance — has his achievements here put forward
as a main reason for supporting him. This fact alone
proves that the work is considered of a vitally important
character, intimately concerned with the business of
politicians in the present time. By studying Mr. Glad-

' Written in 1868.
229

230 ECONOMIC INQUIRIES AND STUDIES

Stone's finance we are likely to get light on some of
the most important problems which our public men
have to solve — unless it should prove, what we find is
not the case, that great achievements in finance, of the
kind so much praised, are no longer possible. It will
be said, perhaps, that the subject is familiar enough —
Mr. Gladstone and his financial deeds have been in all
the papers these many years. But common as is the
talk of Mr. Gladstone's finance, it may be doubted how
far it is really known. A generation has grown up which
knows not Mr. Gladstone directly, or the work that he
has done — to whom his orreat budg^ets are matters of
history quite as much as the Reform Bill of 1832, or
the dreary politics which preceded it from 1815 down-
wards. There are plenty of men among us who have
lived through the whole period, but the last events are
almost as unknown as the first to those who were at
school during the Crimean War, or have graduated
since i860, but who will henceforth have their share in
the politics of the future. On this account it may be
useful to resume questions and arguments which may
to some be stale and commonplace, and mark out the
outlines of a period from which the present has been
developed. Perhaps those who are older may not
wholly lose by looking broadly at the past. A de-
liberate retrospect may remove or modify the partial
impressions of the hour — may show what was essential
and permanent, what are probably, therefore, the
strongest influences in the times which are beginning.
The talk is of finance, but the fact which meets us
at the threshold is the secondary place of what passes
by that name in the financial record of this country
during recent years — that is to say, since 1842. The
ordinary understanding of a financier's duty — and
usually the correct understanding — is, that he is to
find ways and means for expenditure, and maintain the
credit of his Government. With the expenditure itself
it is not supposed he has much to do, except that having
to furnish the means he is expected to criticise it closely,

MR. GLADSTONES WORK IN FINANCE 23 I

and reduce the bill if he can. What he must know is
the way to borrow cheaply, or to raise a revenue with
the minimum of resistance. The unpardonable sin is
not the infliction or maintenance of bad taxes, but the
failure to find the money. The history of States, as a
rule, lias shown Governments spending up to the limit
of their means, the limit of what could be screwed out
of their subjects; and books on taxation bear curious
witness to the anxiety of the problem — how to find a
new instrument of raising the wind. There is nothing,
says Adam Smith, which governments have been so
ready to borrow of each other as a new tax. The most
important financial exploits on record have likewise
been those of financiers, such as the younger Pitt, in
the conduct of a great war. To keep the stream of
expenditure flowing, without totally exhausting the
nation, and to devise a new expedient with every fresh
strain on the national resources, were the tasks that had
procured most renown. But the problems of recent
years have been of a different order — a different exercise
of ingenuity has been required. The conditions have
wholly changed. The experiment of free trade, so much
recommended as it was in order to improve the revenue,
had other relations as important, or more important, to
the general welfare of the country. Whether the ex-
periment was worth trying for the good of the country,
and how to find the means of trying it, became the
financier's questions. But the necessity of looking so
much more to the general welfare of the country is not
the only change. What must besides be taken into ac-
count is the marvellous and unprecedented increase of
the oatioaaL wealth in the course of a very fe\v^ years
— an increase which apparently has not yet approached
a permanent check. The aggregate income of the
nation has probably been doubled within the last thirty
years; the taxable income of the country must have in-
creased in much greater proportion. To maintain in
such circumstances an equilibrium between State in-
come and expenditure became so easy a task that, if

232 ECONOMIC INQUIRIES AND STUDIES

that were all, a financier might fold his hands. But the
overflow of means beyond all former precedent, as soon
as it began to be felt, could not but impose new duties.
Among these a financier of the old school would hardly
have thought of aught else but the wholesale reduction
of taxation, and the improvement of the national credit
by the diminution of debt, or the accumulation of a
" reserve" — the steps which are suggested at the close
of a great war, when the diminution of the demands
on the Exchequer produces a similar abundance. But
much else was to be thought of. The signal growth of
wealth, if it had preceded, instead of succeeding, the
commencement of free-trade legislation, should itself
have suggested the revisal of a scheme of taxation
handed down from other times. Happening as it did,
it furnished another reason for carrying on the work
begun, for making the revision complete, and thus en-
larging the cause which had assisted so much in pro-
ducing this very effect. All the reasons for continuing
the experiment were reinforced by the initial success.
Whether at the time the idea of that success was not
much exaggerated is not now in question. In other
circumstances commerce and industry might not have
flourished as they actually did after free-trade measures ;
there might have been an advance to prosperity, al-
though not the same brilliant prosperity, without any
such measures at all. Still the proofs are abundant that
this new legislation had been a large part of the battle.
Before 1842 the condition of the country was alarming,
in a way we cannot easily imagine. Successive deficits
in the revenue were but a feeble index to the complaints
of suffering which arose from every quarter. The
country was standing still, with a vast gulf between
the rich and the poor, and political discontent assuming
the most threatening forms. The visible beginning of
a change was the free-trade experiment — the abolition
of the burdens which those concerned at the time felt
to be hinderinor their business. If other forces, such as
railways and steamships, came into play, and intensified

MR. GLADSTONES WORK IN FINANCE 233

the apparent effect, it is still true that there was an effect
to be intensified, and that politicians had some excuse
if they ascribed, perhaps, more than its fair share of
the cause to what their own hands had wrought. It
could not be a question, at least, that the work should
be carried on which had assisted so beneficial an end —
one of the effects being the supply of more means with
which to carry it on. What remained for financiers to
consider was the order of the subsequent steps, and
how far the process should be carried.

The change suggested another problem of equal im-
portance— the assistance to be given by finance in
amelioratinor the condition of the masses of the com-
munity. The whole tendency of the time is to bring
this problem directly before statesmen and Parliaments;
but the new increase of wealth, by raising the masses
a little, by putting them on a better vantage-ground,
byopening out for them new and unexpected vistas,
has perhaps been more effectual than any other single
cause. The conception of a vast manufacturing com-
munity, well fed, and housed, and clothed, living in
comfort — what would even have been thought affluence
only a century ago — was hardly thought possible till
people witnessed the growth of such a community
almost before their eyes. But once made a possible,
almost an actual, fact, the expediency of consulting this
people's welfare, of giving them more chances, of mak-
ing life richer and more enjoyable for them, became
much less problematical than it had seemed even to
very good men. Statesmen came under new obliga-
tions, and the idea forced on financiers, almost un-
consciously, was that, instead of benefiting the masses
merely by undoing still further an antique legislation,
they could also add to their means by reducing the
taxes which pressed on them. To distribute the ac-
cumulated wealth of the country more evenly, to cause
it to be shared more and more largely by the mass —
especially those who are just struggling out of the
borders of pauperism — are objects of paramount im-

234 ECONOMIC INQUIRIES AND STUDIES

portance, which might be worth, if need were, the
weighting of the balance of taxation in favour of the
poor. Whether their condition could not yet more be
improved by the appropriation of the new wealth to
the development for the general interest of the " mono-
polies of civilization" — whether financiers should not
be prepared to find means for this sort of expenditure
— is equally a question which presses. To urge this
earnestly may appear to some to be devotion to a not
very high aim, but not to those who know what
" wealth " for the poor means. Command of the means
of enjoyment is, in truth, the beginning of civilization.
The roughest navvies may gain little by the sudden
possession of high wages, but the second generation of
a highly-paid labouring class develops new tastes and
gifts. Recent history has furnished too many illustra-
tions of the fact to make it any longer doubtful. The
increase of wealth in the possession of the mass of the
community is therefore an aim of first importance. If
a financier can accomplish it by reducing taxation, or
by other means in his power, all his energies should be
bent to the task.

What share, then, had Mr, Gladstone in the financial
tasks of the period ? in what direction will his future in-
fluence be bent? are the questions we have to answer.
Glancing backwards, it is not difficult to see that all the
problems stated have been solved, or many steps made
towards solving them; and, whatever the criticism of
detail, the respective merits of the financiers of the
time can almost be measured by the bulk of their con-
tributions to the work. Tried in this manner, Mr.
Gladstone's contributions are confessedly the largest
of the whole twenty-six years since 1842. All that is
characteristic in the last sixteen is exclusively his.
There have been other Chancellors of the Exchequer —
Sir George Lewis, Mr. Disraeli, and Mr. Ward Hunt
— but, as fortune or management would have it, they
have contributed almost nothino^ amongr them to the
work of the period. Mr. Disraeli's insignificant con-

MR. GLADSTONES WORK IN FINANCE 235

tribution in the budget of 1867 is literally almost the
only thing which Mr. Gladstone cannot claim. It is
obvious, too, that a very large share of the work has
been got into these sixteen years. Of the four great
stages into which the whole period may be divided, two
at least are included in the later time. To Sir Robert
Peel belongs the first step in 1842, and the second step
in 1845; but the stages of 1853 and i860 were marked
with equal distinctness, and were hardly of less im-
portance. To take the test of the amount of taxation
reduced, it appears that, in the years 1842-52, the
balance of remission was ^7,000,000, while in 1853-66
the balance is ^13,000,000. This, too, was in spite of
the fact that the expenditure in the former period was
only between ^50,000,000 and ^52,000,000; whereas
in the latter period it has been between ^65,000,000
and ;^7o,ooo,ooo. The proportionate merit of Mr.
Gladstone is not so great as the figures show, because
all our figures are now bigger, and the taxes reduced
would not have been so productive, when they came
to be reduced, but for Sir Robert Peel. They are proof,
nevertheless, that a great deal was done; and when the
details are looked at, the conclusion is not less un-
favourable. To the first period necessarily belongs the
redress of the worst evils in the old system — the aboli-
tion of export duties, of import duties on the raw material
of manufacture, and of certain oppressive excise duties,
such as that on glass ; above all, the destruction of the
corn laws, with the reduction of duties on other articles
of food. Still, how incomplete the work would have been
without M r. Gladstone's contribution . There were no ex-
port duties left for him to touch, but every other feature
of Sir Robert Peel's work is found in his. The abo-
lition of the excise on soap and on paper released two
home industries of the first magnitude, and were quite
as important measures in that kind as the repeal of the
duty on glass. Mr. Gladstone, again, first reduced yet
further the customs duties on articles of food, and
finally abolished every duty of that kind, with the single

236 ECONOMIC INQUIRIES AND STUDIES

exception of the shilling duty on corn. Sir Robert Peel,
besides, only began the total abolition of duties, his main
steps being merely to make reductions. Mr. Gladstone
has swept the tariff clear, leaving only certain charges
on great articles of consumption, with supporting duties
on a few articles besides.

This is a fair account, so far, of the difference between
the two periods — without any design, it may be added,
to disparage the work of the first period for the sake
of eulogizing Mr. Gladstone. The measures of 1842
and 1845 have the merit of novelty, which, in a matter
of this kind, far outweighs every other. They broke
the spell of the old system, and gave the country, as it
were, life from the dead: any fresh additions to that
life are hardly to be compared. Still it is also just to see
how large the additions were. Their full effect is hardly
perceived, because they came in the midst of abounding
prosperity; yet without them the new era would show
fewer signs of an economic revolution. The occasional
fits of languor would probably have been far more severe.
Mr. Gladstone's share, however, appears the more im-
portant, if we consider that the later problems were
almost exclusively his. They were all raised, more or
less, in the earlier period. Even then the success of
free trade had suggested the continuance of the work;
Mr. Gladstone was only one of many on whom the ex-
periment made a deep impression. Even then the idea
of relieving the burden of taxation so as to ameliorate
directly the lot of the masses by taking less out of their
pockets, as well as by lightening the springs of in-
dustry, had come into view. But the main work in that
period before 1853 still was the relief of industry — the
continuance of the free-trade experiment through its
earlier stages. Mr. Gladstone, on the contrary, had to
pursue the task through all the later and less obvious
stages; while, as he completed the task, the relief of
the tax-paying masses came directly in his path. His
work, on the whole, was one of greater complexity;
and where the indications were less sure, the personal

MR. GLADSTONES WORK IN FINANCE 237

merit of success was proportionately greater. Mistake
in development was more easy than at the first start,
when things were so bad that you could hardly shake
off anything without doing infinite good. By the neces-
sity of the case, too, he has had rather less popular sup-
port. He has not had the popular clamour to carry him
through, which made some of the steps so easy to Sir
Robert Peel after the first had been taken. He has
been compelled to create an artificial intelligence, an
artificial agitation, to supply the place of feelings his
predecessor had at command. Add only one more differ-
ence. The one lever with which Sir Robert Peel wrought
was the income tax. to replace the revenue sacrificed
until the natural process of recovery. Mr. Gladstone
has devised more than one subsidiary aid, like the ex-
tension of the succession duty to real and settled pro-
perty, and the increase of the spirit duties — processes
which leave in his favour, as we have stated, the balance
of remitted taxes, but which made a good deal easier
the various steps in his progress. Of the same order of
work, in a financial view, is the vigorous warfare he
has waged from the beginning to the end of his career
against the growth of expenditure — a warfare not re-
quired in the same degree before the Crimean time.

Little more need be said, perhaps, to show the ex-
tent of Mr. Gladstone's share in the finance of the
period. But the fact that his period required so much
management may need some explanation. It may not
be plain at first sight that the questions were very dif-
ficult. There is a popular impression that the progress-
ive increase in the revenue is the whole secret — when
financiers have surpluses to give away, it is thought
they cannot go far wrong. To remove the impression,
let us watch what the history has been, how little would
have turned the scale.

In 1853 it was far from certain whether the mere
work of relieving industry would be carried any further.
The country already was feeling itself more prosperous,
and although various taxes, such as the advertisement

230 ECONOMIC INQUIRIES AND STUDIES

duty, were the subject of agitation, although the general
sentiment was in this direction, yet there was no such
strong body of opinion as would have forced things in
the direction which Mr. Gladstone selected. On the
other hand, there were various powerful circumstances
tending to an opposite course. Thanks to its own de-
merits, and perhaps also to the ingenuity with which
public men, not excepting Mr. Gladstone, had com-
mitted themselves to its condemnation, the income tax
was almost as good as doomed. The work bargained
for when it was imposed had long since been performed,
and the first thinQ- desired was to be free of the burden.
Proposals to renew it were unpopular ; and just before,
a committee which had been appointed to consider its
reconstruction had been unable to agree, while collect-
ing a mass of evidence to prove its inequalities. At
the same time, all the interests which had been deprived
of protection were clamorous. The agricultural interest
especially was eagerly demanding the transfer of local
charges to the Consolidated Fund, and would have
welcomed, above all things, a reduction of the malt tax
as a concession to its claims, A popular proposal talked
of was a re-adjustment of the house tax, which had
been substituted for the window duty, so as to make it
fall on a lower class of houses. Thus it was quite pos-
sible in the circumstances of that time that, but for good
guidance, these interests would have been heard above
everything — that the income tax would have been
sacrificed gradually, without securing any more relief
to trade (excepting the trade in malt), and that in a
house duty the lower middle classes and the working
classes would have had imposed on them a drawback
on the reduction of the tea duty, which was the only
boon suggested for their benefit. All the while, too,
though this could not be foreseen, the national expendi-
ture was destined to rise to an unwonted height, partly
in a great war, partly in the military excitement which
that war nursed into new life all over Europe. Had
no decisive remissions been made in 1853, had not the

MR. GLADSTONE S WORK IN FINANCE 239

way to do so been discovered notwithstanding every
obstacle, it is altogether doubtful when they would have
been made — what agitations and controversies would
have been necessary to effect them when the country,
in the actual course of events, was pushing on to new
conquests.

That the remissions took place — to the extent in
money of more than ^5,000,000 — may be held in these
circumstances to show that the financier who had the
management of them had a true insight into the situa-
tion. The impression is more than confirmed by an
examination of the budget of 1853. The budget was a
surprise to the Chancellor s contemporaries ; but looked
at closely, it rests upon the firm discernment of two
points which ought to have been as clear to every one
as they were to him, but were not, in fact, so clear.
The first is the great value of the work of having set
trade free. In their very prosperity people had forgot-
ten it, so that the willingness to pay the price of the
income tax had died out. Mr. Gladstone only urged
that what was good in 1842 and 1845 must be good in
1853, though the sharpness of the stimulus in the earlier
years no longer existed. Such a position suggested as
a natural corollary the continuance of the income tax
for the sake of further remissions — the great point at
which Mr. Gladstone aimed. Although expenditure
had not increased in the ten years as it afterwards did,
it had still increased so far that the abolition of the
income tax was not so easily manageable as it was cal-
culated it would have been. Its reduction could only
take place gradually ; and it was easy to argue that as
the tax must at any rate remain, they might as well
keep it at a higher amount than was absolutely necess-
ary, and associate it with further remissions. This was
the vital point of the budget, and made the subsidiary
points more easy to handle, though, looking upon the
whole as a piece of persuasion, hardly anything was
unimportant. The controversy about the inequalities
of the income tax was especially placed in an entirely

240 ECONOMIC INQUIRIES AND STUDIES

new light. These inequaHties were to be no worse than
they had been, and as the practical difficulties in the
way of its reconstruction were endless, and it was still
to be only temporary and to do for the country the old
work, there were good practical reasons for enduring it
somewhat longer. It was, perhaps, more effective to
remind people that, after all, those who were most
hardly dealt with by the tax, who would have cause to
grumble most, had really been direct gainers in money
by the new legislation, as well as by the general im-
provement of the national industry. This was the
Minister's justification for extending the tax to incomes
under ;^i5o, by which its amount and effectiveness
would be increased. The argument was special and
narrow, but it reminded people in the most telling way
of the nature of the new rSgime, and taught them not
to calculate too nicely the price they were called on to
pay. The idea of calling in new aids to help in the
work — mainly, the extension of the succession duty to
real and settled property — was even more exclusively
Mr. Gladstone's. A like proposal had not been made
since the days of Mr. Pitt. Though it has not realized
what was expected at the time, it has gradually become
profitable, and has yielded assistance in the task of re-
mission which is not to be despised. It was like the
discovery of a national estate, which had been appro-
priated to their own use by the individuals of a favoured
class, and it secured to the country for all purposes a
source of revenue peculiarly unobjectionable. By di-
recting attention to new sources of income, Mr. Glad-
stone undoubtedly solved the problem of meefTn^ the
high expenditure of the years that were to come, with-
out stopping the work of reform. Without such aids
we should, perhaps, have been paying to this day a
shilling income tax, without the remissions which were
contained in the latest budgets of the series.

The features of personal effort in the next great stage,
that of 1860-66, are perhaps more difficult to make out.
The start would seem to have been made amid the

MR. GLADSTONES WORK IN FINANCE 24 I

loud din of party wrangling about comparatively small
points — objections to proceeding in the way of free
trade by means of treaties; clamour about Coventry
distress; and the woes of paper-makers subjected to
foreign competition, while foreign nations were allowed
to maintain their export duties on rags, so denying
them perfectly free access to the raw material. It may
well seem, in the midst of such wrangling, that there
was no real controversy, and no real difficulty — that
only some minor points of procedure had to be adjusted,
so that no one financier could claim any particular
credit. The perplexities of 1853, it is plain, had like-
wise come to an end. The agricultural and other in-
terests were less clamorous, having survived the deluge,
and found themselves more prosperous than before.
The inequalities of the income tax Avere less talked
about, either because of the circumstance so well known
to economists, that taxes, the longer they continue, tend
to adjust themselves; or because, being richer, people
felt less the pinching of the tax. But the situation,
when looked at, discloses great difficulties, which made
the selection of the right path hardly a bit more easy
than it had been in 1853. The danger caused by public
indifference to the work of reform was now very marked.
They were disposed to approve and acclaim another
characteristic budget, but their hearts were not so set
upon it as to compel Ministers to introduce such
budgets, or make an Opposition forbearing and careful.
Perhaps they thought themselves, in their prosperity,
almost sure of such work. But the great danger of all,
which threatened an indefinite postponement of the
whole work, was undoubtedly the growth of expendi-
ture. Between 1853 ^^^ i860 the annual charge for
the supply services had actually increased by the sum
of ^14,000,000 — had increased, as Mr. Gladstone ex-
plained, at the rate of 58 per cent., while the wealth
of the country had only increased at the rate of 16^
per cent. And there was no repugnance in the public
mind towards almost any expenditure : that the country

I. R

242 ECONOMIC INQUIRIES AND STUDIES

was rich, and could afford what it really wanted, was
the new formula coming into vogue.

With such a condition of things, then, in i860, the
budgets of finance ministers were not likely, as a matter
of course, to be progressive. The temptation must
have been strong, with Palmerston in power, to let
things slide. People would have been quite satisfied
vrith a little effort to reduce the income tax and the
war duties on tea and sugar, which had not yet been
repealed, and there end. Here, then, was Mr. Glad-
stone's personal mark upon the time. He would not
have it that the work should stop; but in spite of high
expenditure, and the indifference of popular feeling,
proposed changes of the very greatest magnitude — in
fact, proposed almost at once to finish the work of the
period. To carry out the French Treaty was itself a
large work, involving the sacrifice of a considerable
revenue by the lowering of the wine duties, but to add
on to it the repeal of the paper duty, and of all duties
on articles of food, except the shilling duty on corn,
and the clearing away from the tariff of all the small
burdens, was to show a new sense of the importance of
the task. Mr. Gladstone, in short, was not satisfied
with a small effort, but desired a remission which people
would perceive, which would tell on commerce and
industry. That he was right in his aim will surely not
be doubted after the event; nor should it be doubted
that by thus presenting the question, by showing the
possibility of a great achievement, he created a new
interest in the work which would not have been felt in
piecemeal reductions. Good judges say that the French
Treaty was enough ; that the inauguration of free trade
on the Continent was sufficient to mark a single great
budget; and there was probably ample work, in passing
it, in explaining how the treaty might yet be a free-trade
one, although in form more suited to the days of pro-
tection— a topic, by the way, with which Mr. Gladstone
had long before been familiarized when Sir Robert Peel's
Governmentwasvainlynegotiatinga verysimilar treaty.

MR. GLADSTONE S WORK IN FINANCE 243

But, judging by the event, it is difficult not to feel that
the larger the work, the more beneficial it was likely to
be in proportion, and that the excitement of interest
required the very strongest stimulants. Perhaps in no
other way could the income tax have been maintained at
a high figure, or a vantage-ground obtained for fighting
expenditure, which last is perhaps the cardinal feature
of Mr. Gladstone's latest policy. As it happened, his
failure in this warfare made it very convenient, financi-
ally, that his repeal of the paper duty was checked for
a year by the action of the House of Lords; but any
further failure would have been disastrous, and the
following series of budgets would have been utterly
impossible. The figures have lately been discussed
ad nauseam, but it is not possible to go outside the
fact, that but for the reduction of expenditure from
^69,502,000 in i860, and ^72,792,000 in 1861, to
^65,914,000 in 1866, the whole process of that time
— the gradual diminution of the income tax and tea
duties, and smaller reliefs to industry, the clearing ofi"
of the remnants of the great work — must have come to
an end. In the latter years, it seems plain, Mr. Glad-
stone was preparing another great cotip: the income
tax was left at the manageable rate of 4^. in the pound,
while the revenue for the year 1866-67 showed a surplus
of about ^2,700,000 on an expenditure of ^66,780,000.
Had the same management continued, the year 1867
might well have been the era of another great budget,
in which the alternative would have been, more dis-
tinctly than at any period since 1842, the laying of the
income tax on the shelf — but this time a liofht income
tax — or the continuance, if there was room for it, of the
work of invigorating the industry of the country, and
amelioratinof the lot of its masses. This was the fruit
of keeping expenditure down, whatever damage, in the
shape of insecurity or inefficient services, may have
been the consequence. In a financial view the success
was complete enough, and it was got by following a path
which was far from patent.

244 ECONOMIC INQUIRIES AND STUDIES

Mr. Gladstone, in another way, has shown in this
later period his discernment of what is required by
proposing to tax the charities — a measure which, in
addition to its other merits, would have added to the
fund by which the general work of remission might be
carried on. He failed to carry it as he had carried the
succession duty on real property in 1853. The attempt,
nevertheless, proved how strenuously he was fighting
for the sake of those measures of finance by which the
country has prospered so much.

It hardly comes within my plan to criticise in detail
Mr. Gladstone's qualities as a financier; but before
glancing at the work of the future, and the probable
direction of his influence, it may be useful to look at
him personally, and point out in one or two important
particulars his strength and his weakness. What is the
main secret of his splendid success? As far as reputa-
tion goes, I believe the impression is that even in
finance, what has made him successful and popular is his
oratorical power. People look to his budget speeches,
remember their startling effects, have been moved by
stirring speeches and comparisons to take an interest
in subjects which, as usually treated, are repugnant.
But for his oratorical art, it is hardly to be questioned,
he would not have created that artificial intelligence
which was essential to success. Looking back on the
whole series of his speeches, however, it is not this
power which strikes the reader most. One is sure to
find, indeed, not a few faults in taste, and very often a
defective exposition. In his last budget speech, for
instance, an impressive statement as to the danger of a
load of debt, and our duty to discharge it before the
exhaustion of the coal-fields, is merely the preface to a
scheme on the paltriest scale by which this duty was to
be discharged. Defects of this kind are apt to spoil the
appreciation of harangues which can hardly be under-
stood without a feeling of the whole circumstances, not
afterwards easy to supply. But what begins to be clear
is something not so obvious to those who listened to

MR. GLADSTONE S WORK IN FINANCE 245

the Speeches at the time — who had almost forgotten one
before they heard another. This is the continuity of
the orator's own mind, his firm grasp of certain leading
ideas of which every new speech is only an application.
We see this conspicuously in his notion about checking
expenditure. There is hardly one of his great financial
efforts in which he does not recur to the theme — his
whole financial theory being plainly coloured with a
passion against the waste of money, with which ex-
perience has taught him to identify almost any Govern-
ment expenditure. The cry, he has lately said, is always
for rriore efficiency; but he had found that when any
money was granted, the cry was as loud as ever. Per-
haps more conspicuous still is his impression of the
power of free trade. The salient fact he got hold of
from the first was the multiplication of the means of
employment by taking off artificial restrictions. Long
before his first great budget, while he was at the Board
of Trade under Sir Robert Peel's Government, we find
him making numerous proposals, of which this was the
theme; as, for instance, in a remarkable speech on
abolishing the prohibition of the export of machinery.
Even in defendino- the corn laws he assumes that the
prospect of increased employment for the people is an
irrefragable reason for their abolition — only they must
beware of giving too great a shock to old arrangements,
and suddenly throwing people out of work. The changes
are rung on these phrases almost to the last. The in-
vigoration of trade and commerce, the lightening of the
springs of industry, are much in his mind even when
proposing the reduction of tea duties, by which money
would be put directly into the pockets of the poor. If
Mr. Gladstone has changed his financial opinions at
all, it is on such a matter as the income tax. It has
been a gradual or cyclical change. As the experiment
proceeded, he has come to appreciate more and more
its merits as an engine of fiscal reform, though, perhaps,
also, the circumstances have changed — the increased
expenditure upsetting all the calculations by which the

246 ECONOMIC INQUIRIES AND STUDIES

tax would have been temporary, and yet every existing
benefit secured. Change of this kind is plainly not in-
consistent with the utmost firmness and continuity
which characterize a sure-judging mind. To this quality
I would attribute in the highest degree Mr. Gladstone's
success. The power to persuade others was a valuable
gift, but in scientific questions — and finance is scientific,
or it is nothing — it is essential to be right in fact. Mr.
Gladstone understood at a very early period, and in all
its thoroughness, the meaning of the work to be done,
and hence the steadiness of his aim.

At the same time, in other matters besides the in-
come tax, he has not been insensible to the teaching
of events. He did not anticipate the overflow of pro-
sperity which has marked the time. Free-trade meas-
ures, it should not be forgotten, were rather promoted
at first to keep England from decaying altogether.
But as the prosperity advanced, he has continued to
enlarge on the duty and necessity of ameliorating the
lot of the masses — of keeping this, likewise, as an aim
constantly to be cherished. That this sure-judging
mind is commonplace and average in its sympathies,
always looking at the things as they can be presented
to a popular audience, such as Parliament really is,
narrows its range of action very much, but that is only
saying that the defect is inherent in the very qualities
by which the success has been gained.

Were this the only great quality in Mr. Gladstone
as a financier, there would be some cause to wonder at
the excuse he has given for applying to his finance the
epithets, adventurous and crotchety. It is a remark-
able alliance with love of subtlety and detail, and with
abounding activity and energy, which has introduced
into Gladstonian budgets those brilliant devices from
which common people are apt to revolt. But Mr.
Gladstone, with all his foundation of commonplaceness
and steady popular judgment, would yet have been
very little in finance without his love of detail and
wonderful knowledge of expedients. To a very large

MR. GLADSTONE S WORK IN FINANCE 247

extent this only means that he has the enthusiasm of
his occupation. People succeed in nothing unless they
give their days and nights to it, and Mr. Gladstone
has given to finance the sweat and toil of many years
of his life. By dint of much study he has acquired a
genuine love of the niceties of the malt tax credits, the
alcoholic test in the wine duties, the effect of an extra
Sunday in a year diminishing, and an extra day in
leap year increasing, the amount of revenue, and the
infinitely complex problems which are bound up with
sugar. He had a real intellectual pleasure in inventing
and explaining that intricate operation B in the Ter-
minable Annuities Bill of three years ago. The singu-
larity is, that people rather like in him an exposition
of minute detail which hardly another financier could
make tolerable. The net result is, that he is what may
be termed rusi in finance — never without resource at
any crisis. The abundance of expedients, and his
audacity, have damaged him in the past, but would
hardly have done so if full justice had been done to
the solid qualities in which, after all, they had their root.
Mr. Gladstone, nevertheless, has committed many
financial sins. Trying so many ingenious schemes, he
could not but fail in some; as he failed with the plan
for convertinor the debt, and so reducingr the interest,
in his budget of 1853, and as he failed on a smaller
scale with the stamp on shipping forms, which he ex-
pected to parallel his successful penny stamp on receipts.
Perhaps, too, he owes to the want of pliancy in his
nature a certain capacity of provoking and stimulating
opposition. The proposal to tax the charities in 1863
was pushed on with too much haste and vehemence;
not even Mr. Gladstone could bring all the world to
see at once the force of that logic by which the conclu-
sion in his own mind was slowly built up. On one
occasion, too — in i860 — his haste and vehemence led
him to make arran^xements which would have landed
him in a huge deficit, and possibly damaged irretriev-
ably his financial repute. The primary duty of finan-

248 ECONOMIC INQUIRIES AND STUDIES

ciers, though it has been dwarfed by other considera-
tions, cannot wholly sink into abeyance, and a great
gulf between expenditure and income would not have
been forgiven. In fairness, however, it must be allowed,
Mr. Gladstone was at least conscious of the risk, and
was only more passionately bent than others on the
remissions he was effecting. As we could hardly have
had the work done at all without him, the error is com-
paratively venial. It is, perhaps, a graver fault that on
the question of expenditure his teaching and preaching
have been too one-sided. He has taken a somewhat
narrow view, with the obstinacy of his nature, and harped
upon that — very effectively, no doubt, but not with the
effect a fuller exposition would have had. It is not the
whole truth about expenditure that it is to be dis-
cussed as a natural evil, which financiers must league
themselves with such allies as they can get to keep
under. Nor can any certain measure of expenditure
be found in a comparison between one period and
another. In addition to what he has done, beyond
pointing out the importance of a nation setting a scale
for itself, and comparing always the price it pays in
taxation with what it gets in money spent, Mr. Glad-
stone would have done well to. examine directly the
services to which the money is applied. The exposure
of inefficiency and waste, of the multitude of useless
objects which are sought after, would have been worth
a great many speeches in the air, which left behind a
vague doubt whether there was not something right on
the other side — whether, with all its inconveniences,
the high expenditure had not some excuse. Direct
teaching by the highest financial authorities on the
principles of military and naval expenditure is really a
good deal required; and Mr. Gladstone, if some critics
are right, might only too easily have shown how all
the efficiency talked of, or even more real efficiency,
might have been gained at less cost.

Imperfect as this survey has been, it may not be
impossible to derive from it some clue to the future.

MR. GLADSTONES WORK IN FINANCE 249

The general features of the situation, it will be evident,
are substantially the same. If we have no longer to do
with the extension of a free-trade policy, our revenue
being derived from no protective duties, and our tariff
being so contrived as to yield a large revenue with the
least possible injury to trade, and the least trouble to
the taxpayer, we have still the main condition of all —
the rapid increase in the national wealth and the elasti-
city of the revenue. The present temporary arrest of our
progress — if, indeed, there has been any real arrest —
does not alter the general set of the current, which be-
gins once more to flow in the old direction. We may
fairly count on the revival of prosperity for an indefinite
period to come, just because labour grows daily more
intelligent and effective, and mechanical agencies are
continually multiplied. A financier may safely count on
a return to nearly the oldaverageof ^1,750,000 increase
in the year. Such a fact must furnish ever-new oppor-
tunities of great budgets, and would have furnished an
opportunity two years since had there been any one to
seize it, or had the country not been occupied with
other matters. The opportunity may at once be made
by reducing expenditure to the level at which it stood
when that opportunity arose, and trusting to the im-
mediate revival of the revenue. But without any such
effort — by merely keeping things as they are, or re-
ducing a very little — any Government may easily have
the chance of continuing the work. Is it worth con-
tinuing? or are there any counter-schemes to make the
finance of the new period altogether novel?

Looking at the past, there is hardly a doubt as to
what the action of financiers should be, or as to the
line of action Mr. Gladstone would recommend. There
is still much in a financier's power towards amelior-
ating the lot of the masses. The duty on corn, the
taxes on locomotion, not a few of the stamp duties, the
fire insurance tax, the tea and sugar duties, are all
burdens whose abolition would benefit the country,
and for the most part put money directly into the

250 ECONOMIC INQUIRIES AND STUDIES

pockets of the poor.^ So long as taxes of this kind re-
main, and the wealth of the country grows as it has
done, it will be the business of financiers to give
people the benefit of the facts. That taxation may
rapidly be made much less burdensome than it is should
be the guide of their action. The objection may be
urged that people would really gain more by a more
judicious expenditure — as on education and other
things which are now starved. But sudden expendi-
ture on a large scale, even for the best of objects, is
not likely to be productive — is not likely in this country
to be tried; so that finance ministers may remain at
ease notwithstanding this contingency. They need
not apprehend any expense to swamp their budgets if
there is any decent management, procuring for the
country all the real benefit it can gain. The most ex-
travagant could hardly pretend that the new things
wanted will cost the country an increasing amount of
nearly ^2,000,000 a year, which would be necessary
to keep pace with the increasing growth of revenue.
Others, however, will say that attention should exclu-
sively be given, for a long time to come, to the diminu-
tion of the debt. But this purpose ought surely to be
compatible with very large remissions of taxation, as
it was, in point of fact, during Mr. Gladstone's last
period. To divide the work would be a very fair
arrangement, applying equal sums to the remission of
taxation and the reduction of debt — an arrangement
which has this advantage, that every diminution of the
debt lessens the annual charge, and so increases the
surpluses that future Chancellors of the Exchequer
may expect to give away. How much may be done
in this direction is perhaps not well understood. But
two facts may set it in a proper light. One is that

^ The taxes here referred to were ahnost all abolished a few years
after 1869, tea being the principal exception. The reimposition of
the corn and sugar duties in late years and the repeal of the corn
duty after existing for one year only need not be more than men-
tioned in this place.

MR. GLADSTONES WORK IN FINANCE 25 I

during the last fifty years the capital of the debt has
been reduced by ;^ 100,000,000. During the next fifty,
if we only have a similar period of broken peace, we
should, if we do as well as the last two generations, re-
duce the debt by ^300,000,000. Our taxable income
is three times greater than it was in 18 15, and we
should be capable of thrice the effort. The other fact
is, what might have been during the last sixteen years
if the growth of expenditure had been checked with
firmer hand. Long before this the free breakfast-table,
which Mr. Bright has imagined, might have been en-
joyed, and the capital of the debt still farther reduced.
If we choose to stand still, and devote all our surpluses
with accumulations to paying off debt, we might ac-
complish as much in the next ten as we have done in
the last fifty years. Of course, all this must be written
barring accidents, but it proves the measure of the
nation's ability ; and, much as may be allowed before-
hand for accidents, it is hardly wise to forget a high
aim altogether, merely because an undefined worst
may happen. The facts show, however, that even a
great disaster — a war on the largest scale — might
occur without arresting for a long time the work of
financial reform. It is surely, then, the more allowable
to look forward to a better future for our masses, for
better conditions of existence so far as the State can
make them better, than these now enjoy. Not only
might there be a free breakfast-table, but, better still,
it should be possible in a very near future to make
England a free port, except for spirits and tobacco,
without entertaining any grand scheme of direct taxa-
tion. Of course so much will not be done without
raising the question of equalizing taxation upon the
various classes of the community — a question which
the working classes will not lose by having raised; but
if it is possible to do so much, the worst difficulties
of the question may be evaded. With the income
tax at a vanishing point, if not quite abolished, the
richest classes could hardly complain of others gain-

252 ECONOMIC INQUIRIES AND STUDIES

ing rather more than they do by the wholesale remis-
sions of taxation which common prosperity has made
possible.

Of course the financial work of the next few years
will include much more than this. The succession duty
may be further extended, the charities taxed, and many
more expedients tried. There are points without number
for financial ingenuity, and in a Government of his
own, Mr. Gladstone may be expected to aid with all
the suggestions his experience and study have fur-
nished. Above all is the question of extending the
principle which has been called in to sanction the pur-
chase of the telegraphs. Here, too, much might be said
to show how well disposed Mr. Gladstone will be to
venture farther in this direction — to acquire the rail-
way monopoly, and work it for the benefit of the whole
community.^ This will be the introduction of some
novelty in finance, as the State may lose or gain, finan-
cially, by the experiment, though the community can
only gain; but it does not seriously affect the prospect
of direct financial benefit through the continuance of
the work of reform in its recent groove. — [1869.]

^ How far the country has ever been from any measure like the
purchase of the railways by the State, which was at one time so
popular, need not now be pointed out. I should not myself be so
decidedly in favour of such a scheme as I once was, but the present
state of the railway question is as unsatisfactory as it ever was, and
either purchase or an analogous measure must be held to be still on
the cards. I leave the sentence in the text as I wrote it as an indica-
tion of opinion at the time. Of course no reference is made to
Mr. Gladstone's work as Chancellor of the Exchequer at later periods
when he was also Prime Minister, long after the date when this essay
was written. But there was nothing special in the later finance, in
comparison with what was accomplished in the earlier period.

VII.

TAXES ON LAND.^

A CURIOUS and instructive collision has just
occurred between a bold and comprehensive pro-
ject in the application of political economy, and one of
those traditional cries in English politics which origin-
ate in some class interest, or in circumstances quite
different from those which now exist, and yet colour
strangely the discussion of practical reforms. I refer to
the proposals of the Land Tenure Reform Association
on the one side, and the agitation against local rates, or
rather against the burdens on land, on the other. There
could not be a wider divercjence of ideas and aims than
what is here discovered. The Association addresses
itself directly to one of the gravest questions which can
come before an old and crowded community — the ques-
tion, namely, how the ownership and occupation of its
narrow area should be regulated. It challenges the
complete applicability here of the rule of absolute
ownership which is found expedient as regards other
property, and proposes, among other restrictions, that
individuals who are allowed to have exclusive posses-
sion of any part of the national soil should be specially
taxed. In this way, it is argued, the whole community
may benefit in some degree from the competition which
is inevitable when a large population is crowded into
narrow room. The proposal has at least the merit of
coming down from philosophy to practice, and raises
in a suitable manner a question of the first importance
in a democratic society, where the political power is in

1 Written in 1871.
253

2 54 ECONOMIC INQUIRIES AND STUDIES

the hands of masses who are not the possessors of the
soil. The opposing cry — that the possessors of land, or
that land itself, are already unjustly burdened — is of a
very different kind. It has long occupied a principal
place in the party politics of England, though perhaps
it was never louder or more persistent than it is now.
But it is based upon no great principle. Apparently it
began when all taxation was heavy, and when the
possessors of land, from their political influence, had a
peculiar power of making themselves heard ; and it
has descended to our own day, partly from habit and
partly from keen self-interest, the promised gain to a
class from any material change being, as we shall see,
very great. But whatever its history, it springs evid-
ently from the lowest practical side of politics — the
exact opposite of the rival agitation. In discussing, as
I now propose to do, the question on which this colli-
sion of opinion occurs, it will probably be useful to
keep in mind the contrast which is here presented.
Some good may be done by bringing scientific prin-
ciples to bear on the traditional cry against rates, and
by confronting the philosophical principles of Mr. Mill,
and of the Association whose programme he expounds,
with the practical facts and difficulties of English
finance.

It will be convenient to examine, first, the traditional
cry. While a good deal has been said and written on
the economic theory by which the proposals of the
Association are supported, the means of reducing it to
practice have only been discussed in the most general
terms. If we begin with a question in the practice of
English taxation in this matter, we shall obtain a near
view of the field to which the theory must be applied.
On the other hand, the indigenous discussion, as it may
be termed, is most confused; and progress will be
difficult till the confusion is cleared up.

The confusion is at the very beginning. It is difficult

TAXES ON LAND 255

to get an exact statement of the grievance of which so
much is made. The common mode of speech is some-
thing like this: — that land, or real property, has to bear
more burdens, in proportion to its value, than any
other kind of property. Lord Salisbury, Sir Massey
Lopes, and a hundred others, have rung the changes
on this theme during the last few months; and I have
read not a few laborious estimates of the personal
property in the country, and the burdens upon it, got
up for comparison with the more accurately ascertained
facts as to real property and its burdens. But what is
meant by real property bearing burdens is found on
examination to be far from clear. The case is some-
times arofued as if the burdens were in the nature of an
income tax upon the owners of property, and the rate
of the tax is contrasted with the rate which falls on
incomes from personal property, or on incomes which
are not from property at all ; but at other times there
is evidently some vague notion that property, as such,
should be equally taxed, and that the rule is broken in
the case of land. Confused as the statement is, we must
take it as it comes, and inquire into the principles it
assumes.

Whichever alternative we take, it must strike every
student of finance that the principle laid down does not
make out the case, even if the facts are as supposed.
In either case it is a misapplication of the real doctrine
of equality in taxation which political economy lays
down. Taking the first alternative, that it is the owners
of real property who pay a larger income tax than
others, it is no doubt true that each taxpayer should
contribute according to his ability; but it would not
follow that a special income tax on a certain class would
offend against the maxim. If this were so our present
income tax would be grossly unjust, for the masses of
incomes are exempt. Theoretically, however, it is
obviously quite possible that to produce the final result
it may be necessary to tax some sort of incomes exclu-
sively, or more than any other sort. Say, for instance,

256 ECONOMIC INQUIRIES AND STUDIES

in a country where a large part of the taxation is raised
by duties on articles of general consumption, and is
therefore borne by the masses of the people, and another
large part by an income tax which in conjunction with
the other taxes falls with peculiar weight on the lower
middle class — clearly, in such a community there might
be some reason for a third set of taxes designed to fall
on the classes more or less exempt from the other two
branches of taxation. And if these classes possessed
almost exclusively some special kind of property, a tax
on that property, supposing it could be made to fall on
its owners, would be the very thing to redress an exist-
ing inequality. I am only supposing a hypothetical case;
but it is enough to show that inequality of burdens on
different kinds of property is no part of the theory of
taxation.

If we take the other alternative, which makes no
assumption that taxes upon a particular sort of property
fall upon the incomes of the owners, the theory of the
grievance will even appear absurd. How can it be sup-
posed that there is any principle of political economy,
when one sort of property is taxed, requiring all pro-
perty to be taxed alike? Ex hypothesi, the ultimate
incidence of the tax is not upon the owners of it, and
before deciding to tax all property equally it would be
necessary for a legislator both to weigh the immediate
effects of his measures and the object he wishes to
arrive at. In point of fact, the considerations which
induce a legislator to impose or retain special taxes on
property will induce him to tax some kinds and let
others be exempt. As with taxes on the profits of a
particular trade, with which a tax on property may be
classed, his object will either be to impose some charge
on the general consumer, in which case the tax will fall
to be dealt with as one of the many taxes on consump-
tion, or he will select some trade in which the limita-
tion of the area of profit — the tax not being charged to
the consumer — will produce the minimum of incon-
venience to the whole community. The particular tax

TAXES ON LAND 257

will not be unjust per se, but its injustice will be deter-
mined by the nature of its ultimate incidence, and the
extent of its hindrance to business as compared with
other taxes. Such considerations have hardly been
touched on by those who complain of unequal taxes on
property, but they are essential to the question when
the so-called burdens on property are not of the nature
of an income tax upon its owners.

What has been said may be enough to prove the
great imperfections in the statement of the grievance
under discussion. It may be useful to note, however,
that in the actual circumstances of England, on the
principles suggested, there is a violent presumption in
favour of existing taxes on property or profits. They
are not likely to be objectionable on any of the grounds
suggested. The reason is that they are the last of a
heavy burden of a similar kind, and the fact that they
are the last is so far a proof that they have been dis-
tributed— that if the persons who pay them suffered
at one time, they have long since been compensated.
Any long-continuing tax on profits tends to adjust it-
self, but in the case of England during the last thirty
years the adjustment has been favoured by the remark-
able growth of the country under the stimulus of the
removal of other taxes. The limitation of the profit
area caused by the tax has been more than made up by
the general progress. Unless, then, there is some over-
whelming objection, or some greater good to the whole
community would result, such as comes, for instance,
from a larger reduction of Customs duties, it would
even be inequitable to remove these old taxes. To do
so would be simply to make a present of a capital sum
to the followers of some particular industry or the
owners of some particular property. They have already
shared to the full in the general prosperity of the com-
munity caused by the lightening of taxation, and now
they would obtain in addition the capital value of the
tax which they do not really pay, since its burden has
been transferred.

258 ECONOMIC INQUIRIES AND STUDIES

There can be no objection, besides, to special taxes
on real property, on the ground of their hindrance to
trade. Land-owning is so simple a business, that it is
divorced from the very notion of trade, and considered
a special occupation for trustees and widows and
orphans. So simple a business can hardly be checked
by a few plain conditions. The objection of hindrance
to trade is also compensated by the consideration that
the business itself is in the nature of a monopoly. The
abolition of brewers' licences was objected to for this
among other reasons, that the business had become
practically a monopoly in a few hands ; to abolish the
licences would have been to put money in the pockets
of a few without any real chance of its reaching the
public. The passenger duty on railways is defended
for a similar reason. The duty, it is said, is only a way
by which the State reserves to itself the share of a
monopoly. This may be wrong as regards railways,
but the principle of the reasoning is obviously sound.
Now land-owning is, beyond all other callings, in the
nature of a monopoly. The whole quantity in a par-
ticular country cannot be increased, and there are be-
sides hundreds of specially favoured spots. As regards
land, therefore, that condition exists in the highest de-
gree of force, which makes it probable that any abolition
of a tax on profits would not benefit the community.

We are thus a long way from the proposition so
confidently assumed, that all property should be taxed
alike. There are many questions affecting the regula-
tion of special taxes on property of a very difterent
order. We may look, then, at the particular taxes which
form the gravamen of the complaint, and see what por-
tion, if any, offend against the true principle of equality
in taxation, by pressing unduly on some classes of in-
come, and which of them, on other grounds, are liable
to objection.

The maximum taxation which can form the subject
of this inquiry appears to be, from Mr. Goschen's re-
cent report:

TAXES ON LAND 259

Stamp duties on deeds ^^1,033,000

Probate and succession duties .... 715,000

Land tax 1,082,000

House tax 1,062,000

Rates 16,783,000

Total . . . ^,^20,675,000

Besides these there is the income-tax, which the
owners of real property pay Hke all others; but this is
not an exceptional impost on income, and the only
question here is of exceptional burdens.

The total of taxation affecting real property looks
very formidable. In fact, it is nearly one-third of the
entire taxation of the country, imperial and local, and
amounts to a charge of about ^s. per pound on the
estimated annual value of the property in the country.^
But the moment we examine the items, we find how
little reason there is to suppose that the burden is of
the nature of an income tax on the owners of real pro-
perty, or that any part is of such a nature as to raise
an overwhelming objection against it.

I. The stamp duties on deeds may very well be left
out. The heaviest of them is a half per cent, ad valorem
charge on the sale of property, a charge which is
borne by many kinds of other property as well; and
even a half per cent, charge is a hardly perceptible tax.
It is sunk in charges of much greater magnitude, which
always take place at sales. In any case, the incidence
of stamp duties is so peculiar, that it cannot be said to
affect a class so much as individuals of a class, and
these unevenly amongst each other, in comparison with
the amount of the duties. Where they are not defens-
ible as a minute charge on transactions, like the receipt
and cheque stamps, as I think they may perhaps be
now in the case of real property, though it was not
always so, there would be a case for their reduction,
so as to make them minute enough for the purpose.
In that case they would cease to be taxes which could

' Viz., ;^i43,ooo,ooo.

26o ECONOMIC INQUIRIES AND STUDIES

be set off against others in a question of comparative
taxation. It would be a mistake, however, in the mean-
time, to make their existence a ground for interfering
with some other impost.

2. The probate and succession duties appear to me
also to be a tax sui gejzeris, with which no others pro-
perly come into comparison. I have to discuss them
afterwards ; but the distinguishing peculiarity is ap-
parent. They are charges upon a very special extension
of the ordinary rights of property, its bequest or descent
after death — an extension which necessitates the direct
intervention of the State ; and as such, the burden
which they constitute cannot properly be weighed with
burdens of a different nature. If it is discussed as a
charge upon a particular description of property, the
difficulty at once arises that it is most unequal and
severe. Some owners escape with hardly a charge,
while others, who own no more, have much to pay.
The only plea by which it can be defended, therefore,
is that the Acts in respect of which it is levied — the
authorizations given by the State to the transmission
of property from the dead to the living — furnish occa-
sion for a wholly exceptional charge. In any case, so
far as the probate and succession duties are a tax upon
real property generally, it will not be denied that they
are more moderate than the corresponding imposts
upon other property and its owners.

3. The land tax, which is next on the list, should
equally cause but little controversy. It is persistently
claimed as a burden upon land or landowners ; but this
will not bear scrutiny when we inquire out of whose
income the tax is paid, or what way it causes pressure,
so that its reduction or abolition would be a benefit to
the community. As a fixed charge upon land for
generations, it is now past all controversy a rent-charge.
In many instances it has long since been redeemed, the
property having subsequently changed hands; in others,
inheritors of property have acquired it under the burden,
and have calculated their income minus the tax, while

TAXES ON LAND 26 I

purchasers, in buying, invariably allow for it. To reduce
it now would be to present the landowners of England
with a capital sum of nearly ;^30,ooo,ooo. Their estates,
relieved of the burden, would become at once so much
more valuable, and if they did not sell, they would
pocket an additional income which they never inherited
or paid for.

There remain the house duty and the rates — still a
formidable amount, if they are considered to fall on the
incomes of real property owners, or as forming an
objectionable tax on profits, notwithstanding that the
burden is shifted to the consumer. We may class them
shortly as rates, the only difference being that the house
duty is a fixed rate limited to certain descriptions of
property, whereas the rates apply more or less to all
real property, though in fluctuating proportions. But
what is the incidence of these rates ? Are they, in the
first place, an income tax on the owners of real property ?
There is one very short answer to this question. If
they were an income tax there is none more out-
rageously unjust. Most properties, we are told, are
incumbered, often heavily incumbered, and the re-
siduary owner, as we may call him, the man who would
benefit by a reduction of the rates, has often but a
barren interest. Measuring the rates with his income
from the property, they might be ten or fifteen shillings
in the pound. Is it possible to believe that the owners
of real property are subjected to any such income tax?
The inequality in itself suggests that the incidence of
the tax is different — that the burden is on the property
and not on the individuals who have incomes from it.

The question remains, however, whether the rates
are on other grounds objectionable. r\nd here it should
be noticed that it is by no means unanimously admitted
that they are burdens on the profits of land-owning at
all. A large party maintains that to no inconsiderable
extent they really are passed on to the consumers — in
the country districts, farmers, who pass it on as a de-
duction from their farming profits; and in towns, the

262 ECONOMIC INQUIRIES AND STUDIES

class of occupiers, who both pay it and ultimately bear
it. But granting that this transference does not take
place to any material extent — a view, I am willing to
admit, which I am disposed to agree with — granting
that in consequence the whole or most of the charge
falls on the profits of owners, are the circumstances
such that they have any cause for complaint? The
answer is that in the lowest view the business is one
which has increased enormously, stimulated by other
changes in taxation, and that being a monopoly, as land-
owning confessedly is, the magnitude of the charge,
even if it has been an increasing one, makes nothing
against its propriety. Look only for a moment at what
the increase of business has been. In 1815 the annual
value of real property — in other words, the annual
return of the business — was ;^53, 000,000; in 1853 it
was ;/^ 8 5, 000, 000; in 1868 it was ^143,000,000.^ At
the same time the rates have barely doubled in the last
thirty years, and have not doubled if we take an earlier
date for comparison. -

The improvement it may be said has arisen through
the investment of capital, but this statement cuts two
ways. If it means anything at all, it would mean that
the charge upon the profits of the business checks in-
vestment, but nothing of the sort is alleged. The fact
that investment has continued is thus a proof that the
burden, whatever it is, has still left a large enough
margin of profit to induce a resort to this species of
business. It is certain, however, that a large part of
the improvement is due to the increasing value of ad-
vantageous sites, an unearned increase of value such as
Mr. Mill speaks of, and therefore a kind of profit which
the State may restrict with least harm. The increase
of the annual value of house property in the country

^ In 1884 it was ^^193, 000,000, and in 1901-2, the latest year
before me, ;^238,ooo,ooo.

^ Rates increased from ;;/^2o,ooo,ooo to ;:/?3 1,000,000 between
1868 and 1883. In the latest year, 1 900-1, they were (England and
Wales only) ^^43, 000,000.

TAXES ON LAND 263

since 1815 has been ;/^5 4,000, 000, or 356 per cent.,
although the population has barely doubled. If we
estimate that only a fifth of this amount is for extra
ground rents — that is, rentals in excess of the value of
the area occupied for agricultural purposes — we shall
probably be far under the mark. And this is not the
only unearned increase of value. Against the large
amount of rates therefore is to be set an unearned in-
crease of value which altogether will be of equal amount,
and double, perhaps treble, what the increase of rates
has been.

Nor does the case as to profit end here. The increase
of rental value does not measure the actual increase of
profit with which the rating-charge should be compared.
It is probably the case that as respects the bulk of
property in area, the increase of rental measures the
whole increase of value; but there is one kind of pro-
perty, that in the suburbs of large towns not taken up
for building, extending in the case of London in all
directions but the east over an area of about eighty
miles diameter, where the increase of rental is no
measure at all of the increased value. The position of
the property is in effect discounted, and it is no ex-
aggeration to say that its real selling value is now
double what it would have been ten or fifteen years
ago upon the same rental. It would be useless to put
any figure estimate upon this increase of value, but it
must be remembered as a set-off against " increasing"
rates.

The question might well be left upon these broad
facts, and these general principles stated, but there are
other facts about the rates which affect the question of
the business profits on which they are a charge. When
we look into them we discover that the increase has
been far from uniform geographically, or in respect of
the class of property affected. The increase has in
fact been confined to that class of property in which
the investment of capital has taken place to the largest
extent, while as respects the remainder of the property,

264 ECONOMIC INQUIRIES AND STUDIES

there has either been a diminution of the burden or no
material increase. The inference is, that while the
rates where they have increased have not checked in-
vestment, there is an immense mass of property which
has augmented in value without any proportionate
charge upon its profits. The facts speak for them-
selves. First of all, of the above sum of ^16,783,000
of rates proper,^ there are upwards of _;^4, 000,000 of
comparatively recent rates which not only form a
charge upon the property in which the investment of
capital has taken place, but were mainly intended for
the improvement of that property. The remainder,
;^ 1 2,689,000, is very little more in amount than similar
rates have been during the present century, and the
rate per pound is less.

In 181 7 the rates were ;!^i 0,000,000, or per £, 3^'. \o\d.
1826 ,, 9,500,000, „ 1$. 8d.

1841 ,, 8,000,000, ,, 2S. ']d.

1852 ,, 8,700,000, „ 2S. ']d.

1868 ,, 12,689,000, ,, 2S. 6\d.

Thus, as respects a large part of the real property
in the country, it is incorrect, strictly speaking, to talk
of the increase of rates. ^

The second fact is, that at a time when real property
was different in its constituents from what it is now,
there was an enormous diminution of the burden, pre-
cedent to the subsequent rise in proportion to the value.

In 1826 — The rates were ;^9, 500,000

House duty 1,182,000

Window duty 1,167,000

;^i 1,849,000

In 1843 — The rates were ;^8,ooo,ooo

House duty Nil.

Window duty 1,436,000

;^9,436,ooo

^ This is for England and Wales only.
This is still true, although rates (for England and Wales only) are

TAXES ON LAND 265

showing an actual diminution of about ;^2, 500,000,
representing a capital sum of about ;^ 7 5, 000,000 in the
charges upon the property then existing — a burden
which has never since been reimposed, as the rates,
including house duty, have only risen in proportion
with the augmentation of rent. The relief to the old
property has been permanent.

It is thus evident, that while so much has been heard
of the increase of rates, the actual fact is entirely
different. The increase, such as it was, has been
limited in extent, and conceals an actual diminution
in the amounts levied upon part of the property which
has since never been made good. To complete the
statement, we need only ask ourselves what the effect
would be of any such reduction of rates as the prin-
ciples of the anti-rate agitators point to. Consequences
are very often a test of principles, the logical result
proving the groundlessness of the plea. And this
appears to be the case in the present matter. Grant
that certain rates ^ are thrown on the Consolidated
Fund, as the most eager reasoners of the party con-
tend, or that they are reduced one half, which would
be the effect of throwing them rateably on all the
schedules of the income tax, what would be the result?
It is not difficult to see that in the former case some
people would have ;!^i 1,000,000 a- year, and in the latter
case ;^5, 500,000 a-year more than they had before.
Possibly it would not all go to the so-called owners of
property, for the occupiers would gain where they are
dealt with on tenant-right principles; but it may be
treated practically as a bonus to owners, and, as such,
it is of magnificent dimensions. In the one case, at
thirty years' purchase only, it represents a capital of
^330,000,000, and in the other of half that amount —
all to be transferred to a single class by a few lines in

now about ;^43, 000,000 annually, as above stated (see note, p. 262).
The bulk of the increase has been in improvement rates.

^ Viz., poor and police rates, amounting to about ^^i 1,000,000.
[;!^ 1 8,000,000 in England and Wales in 1900-1.]

266 ECONOMIC INQUIRIES AND STUDIES

an Act of Parliament! To state such a result is to
make the argument absurd. Unless it is to be con-
tended that the State keeps out of the pockets of the
class some ;^30o,ooo,ooo which they ought to have
now, there is no call to give the money. And if the
State inflicts such a wrong, the sooner it pays back
what it has exacted, with interest, the better.

II.

Having thus examined the case against existing
burdens on land, I turn to the second part of my sub-
ject— the claims urged by the Land Tenure Reform
Association for securing to the State a share of the
unearned increase of value. The inquiry, however,
should have prepared the way for looking at the ques-
tion from the Association's point of view. It has been
seen that upon the general theory of taxation special
burdens on this particular description of property are
not unreasonable, that they are not without analogy in
taxes upon trade profits, which no one thinks of alter-
ing on the ground that "other property" escapes the
burden, or that they are a special income tax on the
people in the trade. It has also been shown that, if
taxes on profits are justifiable in any case, the circum-
stances of land-owning are such as to reduce the hard-
ship of the owners to a minimum when their profits are
taxed. The business is a monopoly, and simple in the
highest degree, and nowhere else can be found more
favouring conditions for a tax upon profits. We are
thus prepared for the inquiry, whether so peculiar a
business could not be made to bear a larger burden;
and for the theory of the Association, that while it is
only on grounds of expediency the State permits in-
dividual property in land at all, there is no reason of
expediency against its limiting that right of individual
property by a large reservation in its own favour. If
there is any reason in this theory at all, the facts stated
will have suggested the magnitude of the value in which

TAXES ON LAND 267

the State may claim a share. The augmenting value,
on which it is urged the State would have had the first
claim under a proper financial system, must have
amounted, in the last thirty years, to hundreds of
millions sterling.

Now in theory, so far as I can see, there is absolutely
nothing to be urged, and nothing has, in fact, been
urged, against the principle of the Association. The
soil of the nation is primarily the property of the whole
nation — the common inheritance of all, regarding which
the State, according to its lights, cannot help laying
down rules from time to time for the common advant-
age. There is no other final authority, and if the action
of that authority is to be limited by so-called rights, if
on cause shown it may not destine the whole land, or
any part of it, to any use it pleases, then we have this
anomaly — that the most vital necessity of national
existence is to be held, not under the direction of the
State, but subject to some arbitrary limitations in
favour of individuals or classes, based on a superstition
of right. In point of fact, as well as theory, no such
limitation has ever been admitted by English law.
Year after year the national Parliament exercises in
innumerable cases the right of diverting some part of
the "common inheritance " from one use to another.
If it so acts in part and detail, it has clearly a right to
take a wider range and exercise its discretion upon the
whole or a large part of the soil of the country. The
only question would be whether the particular regula-
tions or uses proposed to it are wise.

And whatever regulations may be objected to, it
seems to me that, assuming private property in land to
be retained as the rule, the imposition of special charges
on it, which will be in the nature of mining royalties,
or a reserved rent-charge, or like the casualties under
feudal tenures, will be about as innocent a way of limit-
ing the privilege, interfering as little as possible with
the individual enjoyment as could well be desired. It
leaves untouched the right of exclusive possession,

268 ECONOMIC INQUIRIES AND STUDIES

which is the main thing coveted, and merely keeps to
the State a charge, which exactly resembles many other
charges by which the privilege of absolute possession
is limited. Of course the mode of the reservation will
be an important matter; but theoretically there is no
reason ao-ainst reserving- something".

It may be added that the more progressive a com-
munity, the morelikely it is that any proper reservation
will be little felt as a burden. By the hypothesis, it is in
such communities that competition will cause an im-
mense unearned increase of rent and of capital value.
There will be a large margin for ground rents of every
description, and the State ground rent will be no more
felt than the others. So free from hardship will the
charge in fact be, that just as the commuted tithe rent-
charge and the land tax are no longer felt as burdens
by the present possessors of land, the whole charge of
the State, when it is carefully studied, will be acknow-
ledged as equally light.

But what form should the charge of the State assume,
and how much in the present condition of things, as
respects property, business, and population, should the
State endeavour to obtain? Clearly, if the phenomena
of the last thirty years are about to be repeated — and
there is a reasonable chance that they will be, for there
is no sign of check to the growth of population or the
increase of machinery and inventions- — it is much to be
wished that a better system should, if possible, be at
work than has hitherto existed for securing to the nation
a portion of the augmenting value of its soil. The
problem, however, is excessively difficult, and I doubt
very much whether Mr. Mill's own suggestion, which
must be first considered, will be found, as a general
measure, to answer the purpose. It is in effect a pro-
posal to go straight to the end in view — that the State
should inquire at prescribed intervals what is the aug-
menting rental of land, and make a charge upon the
owners of some definite portion of that augmentation.
If there is no increase of rental due to general causes,

TAXES ON LAND 269

there will be no increase of tax, and owners who object
will have the opportunity of surrendering their estate
on what Mr. Mill's enemies must admit will be full
compensation. One objection to this proposal is that
it is almost wholly novel in European countries, at least
where the art of taxation has been most carefully
studied, and is least of all fitted for a country in the
circumstances of England. Mr. Mill has apparently in
view the ideal of the foficier taxes on the Continent,
in which the process is for the State at a certain date
to impose a lump charge on the whole land of the
country in proportion to its estimated value, and then
apportion this charge among the various localities and
parts of soil in the country, by a carefully arranged
cadastre. But there is nothing more tedious in fact than
the completion of a cadastre, or unequal when it is com-
pleted. Even in France, which has set the example in
these foncier taxes, the new cadastre, which was com-
menced forty years ago, was only completed the other
day, and while it was being put into operation the
value of the whole land subject to it was changing. It
is hardly possible to imagine that even if in England
we could give that attention to the nice adjustment of
competing qualities of land or property which could
alone make the basis of French direct taxes endurable,
we should be content to await the slow development of
a pretentiously perfect, but really imperfect, cadastre
for a period of forty years. It is a still more fatal ob-
jection that such taxes do not appear to draw. It is
officially estimated in France that the annual value of
real property has increased since 1 821 from ^64,000,000
to ^160,000,000, which is quite comparable with the in-
crease in Enofland. But while the rates have risen in
England from about ^10,000,000 to ^ 17,000,000, the
special landtaxofFrancehasonlyrisenfrom^ 1 1,720,000
to ^12, 280,000, including th^additional hundredths im-
posed for local purposes, as well as the " principal " of
the tax. The special tax of England is thus more
elastic and effective than the special tax of France,

270 ECONOMIC INQUIRIES AND STUDIES

which is proposed as a model. Besides, if these ob-
jections could be got over, if it could be shown that an
improved cadastre is easily possible, and is capable of
frequent renewal, there would remain the objection that
such a tax, so imposed, might interfere with the enjoy-
ment of private property in an inexpedient manner. It
would be very difficult to reassure individuals against
the operations of the tax assessors. Every few years
they would foresee a demand of an indefinite amount,
depending on many points of taste and opinion, and
they would only have the alternative of paying or sur-
rendering their property to the State. Careful as Mr.
Mill is to suggest safeguards, the essential nature of the
transaction would be such as to destroy confidence in
the continuity of private right in some particular plot
of land. The apprehensions might in the main be un-
founded, but their existence would be a public calamity,
unless the theory is admitted that the abolition of
private property would be beneficial, which in some
localities it might be.

Turning from this suggestion, I think there is much
to be said in favour of our present special taxes on
land, imperfect as we have shown them to be. They
have permitted the growth of an immense mass of
value in the hands of individuals only, and at a very
recent date there was a sudden reduction of the burden,
by which a small class received a considerable gain.
But with all their imperfections they have the merit of
elasticity. They are set apart for the discharge of cer-
tain branches of expenditure; and, without fluctuating
so widely as to disturb property rights, they may be
increased materially, and so reserve for the State some
portion, however insignificant it may be, of the aug-
menting value of property. This is no small merit,
especially when compared with the model of the con-
tinental land taxes, which have no such capacity of
expansion. It is an additional convenience that, as the
branches of expenditure which are thrown specially on
this property are local, local administration and local

TAXES ON LAND 2 7 I

taxation can be associated. In this view rates are, in
fact, a happy English invention, by which different
and unconnected advantages are obtained in a rough
practical fashion, and as it is a familiar system we have
another obvious reason for trying to make the most of
it. Could not something more be made of it ? It will
be of some use perhaps if the discussion of the prin-
ciples on which the burden is imposed makes it clear
that no injustice is now committed — that the support
of a certain burden of expenditure is a condition of
the enjoyment of the property which the State may
properly impose. Every one knows the condition
beforehand, and as it is quite a calculable one, notwith-
standing the loud talk of the increase of rates, and the
addition of new rates, there is no inexpediency in it as
a too heavy restriction on the enjoyment of private
property in land. But the discussion, I think, may do
more, and justify the imposition of new charges which
are convenient for local administration. As the tend-
ency of the functions of local government is to increase,
and the additional expense has not yet proved com-
mensurate with the increase of the value of property,
we have a security in the recognition of this principle,
both of the reservation to the State of a part of that
value — though, I fear, a most inadequate part — and for
the safety of private property against any great dis-
turbance. If I might venture to make a suggestion,
there is one new charge which escapes notice, and
which might very properly be treated as a branch of
local expenditure: the army for home defence ought
to be locally maintained. For many reasons it is im-
portant that a good deal of local management and
self-government should be associated with the organi-
zation of our militia and volunteers, and the charges
might very properly fall on the rates. This would not
only relieve the Imperial army estimates of a hetero-
geneous charge, but by really associating localities
with the work, would contribute much to the strength
and vitality of our home system of defence. There is

272 ECONOMIC INQUIRIES AND STUDIES

another way in which something more could be made
of the present system. Under the haphazard methods
and want of principle which have hitherto prevailed
the local rates have gradually been relieved of a large
portion of the burden which properly falls upon them.
On one pretext or another, the Imperial Exchequer has
been drawn on for "grants," amounting annually in
England to a million and a quarter, by which the
growth of the local burden has been retarded — or, in
other words, the individual landowner has been per-
mitted to retain a larger share than otherwise he would
retain of the augmenting value of land. Good reasons,
I think, have been furnished for putting a stop to this
system, if rates continue to be the form of our especial
tax. The proper course would now be to institute a
mode of discontinuing the grants by degrees, accord-
ing to a defined scale, and so reimpose on property a
burden which it has escaped.^

But while the system of rates is preserved and
amended, as the principal agency for securing to the
State a share in the national soil, there is another
mode in which it seems to me a smaller advantage of
the same sort may be gained, equally without disturb-
ing the security of private property in land, I have
already referred to the probate and succession duties,
pointing out the confusion of thought which leads to
the share of them derived from land being added in
with taxes of different kinds, so as to present a large
total of burdens on land. But the rationale of these
taxes is so important a part of the art of taxation that,
even apart from the suggestion I intend making, I may
be excused from returning to the subject and showing
how the special nature of these taxes makes it improper
to classify them with the burdens on property.

Their distinguishing feature, as has been already
said, is that they are a charge for a special intervention
of the State — for the authority it gives to the trans-
mission of property from the dead to the living. It is
^ The system, alas, has been much extended in recent years. [1903.]

TAXES ON LAND 273

common to consider the bequest and descent of pro-
perty as mere extensions of the right of private pro-
perty, but they are not so historically or practically.
The reasons which make private property expedient
during life do not apply with the same force to the
transmission of it at death. It would be difficult to con-
ceive of a large society existing without absolute
ownership in the fruits of individual industry, but so
long as people are secure in what they earn themselves
a very severe strain may be put on the rules for dis-
posing of it at death without endangering the existence
of society. Instead of the absolute right of bequest
and the unincumbered descent of property to individuals
when there is no bequest, being an ordinance of nature
as of natural right, they are in fact very peculiarly the
creations of the State, and have been modified in all
civilized countries to suit its varying policy. For these
reasons a special tax on successions has an undoubted
justification. The State being their author, and having,
strictly speaking, the power and right to absorb them
altogether, a power which it would be infinitely less in-
expedient to exercise than would be its similar power in
regard to private property — the special tax becomes
virtually a charge for a concession which the State
grants, and which it might conceivably withhold, or at
least very seriously curtail. Viewed in any other light,
it appears to me wholly indefensible, for though it would
no doubt fall on the payer at a convenient time for
payment, its pressure on individuals would be most
unequal, and it would thus offend against a cardinal
maxim of taxation.

Regarding it as a charge upon a concession how-
ever, we may recognize in the State a capacity for
varying it which would not exist in the case of an
ordinary tax. It may take into account, in adjusting
the so-called tax, the whole policy of the law of succes-
sion and bequest, and the nature of the property itself.
The principles to guide it seem hardly to admit of
discussion. The tax must not be so severe as to check

I. T

2 74 ECONOMIC INQUIRIES AND STUDIES

accumulation, or be severely felt, so as to cause in-
dividual suffering even when accumulation is not
checked. Subject to these restrictions the State should
simply take by a succession duty what it can. It follows
that its charge should be most moderate where the
transmission resembles most a continuance of the en-
joyment of private property, or is the transmission of
property which the deceased person has acquired by
his own industry, and in acquiring which he may be
supposed to have been influenced by the prospect of
regulating the succession ; and should be most severe
in the contrary case, where the transmission is to
strangers, or where the property has been inherited.
Unless these points are kept in mind the State will
not be able to levy so large an amount as would other-
wise be possible for it. To make the charge uniform
would simply be to limit it to the minimum possible in
those cases where the succession of the dependents of
a deceased person, whose income dies with them, gives
the tax the appearance of a charge not upon inherit-
ance, but impoverishment. It would be quite con-
sistent with the principle of the tax, however, to look
at the composition of the property bequeathed ; to say
that as the possession of a certain kind of property
over which the State had primary rights was keenly
competed for, one condition of its enjoyment should
be a special liability to taxes on successions. No per-
son could complain, for there are abundant modes of
investment besides land, and those who wished to
have an unrestricted privilege of bequest could invest
in other property. Even a charge of five per cent.,
however, would probably present no inducement to
people to keep away from land. It is very seldom that
an entire fortune is thus invested (it would be sheer
folly so to invest it), and the total charge on the succes-
sion, though it is five percent, on a portion of it, might
not be much hioher than it is. I need not add that if
there is any reason in this view of succession duties,
the singular arrangement by which land now pays least

TAXES ON LAND 275

of all is more than indefensible ; it is a gross neglect
of the State to secure a due to which it is most fairly
entitled. The arrangement is another instance of the
perversity of discussions about the incidence of taxes
according to the historical method in England. An
illogical mode of comparison has not only enabled the
owners of land to secure for themselves an auofmentin< •■
value in which the State mio-ht well have had a larger
share, but has enabled a class which enjoys a valuable
monopoly to escape payment on its successions of the
charges which other classes of the community, enjoying
no monopoly, have to bear.

After all, it may well be doubted whether by any
process that would not be worse that the disease, any-
thing but a small fraction of the augmenting value of
land will ever be secured for the State. At the past rate
of increase, the real property of England, which is now
worth about ^150,000,000 a year, will be worth
;^2 50,000,000 in another thirty years. And a large
part of this additional ;^ 1 00,000,000, perhaps the half
of it or more, will not be owing to any investment of
capital in improvements, but to increasing monopoly
value. At the past rate of increase, however, our rates
will be under ^30,000,000, so that, at the outside,
there will not be an additional burden of ^15,000,000
to set against an additional value of ^100,000,000,
while much of that additional burden will also have
fallen, not on the property generally, but on the profits
of the improvements. There is little hope of touching
this immense augmentation. But this is hardly a result
to be rejoiced over by the defenders of private pro-
perty in land. If they were wise in their generation it
should be their aim to show that the present system,
besides any indirect advantages to the community it
may have, is also directly beneficial to the State, be-
cause it provides a large fund for the support of
national charges. Looking forward to the great increase
of value which is inevitable, they should rather, of all
others, be anxious to secure a large appropriation to

276

ECONOMIC INQUIRIES AND STUDIES

the State, as some compensation to the masses for the
privilege of exclusive possession which they enjoy.
The divorce of the people of England from the soil
would be more, and not less, defensible than it is if it
could be shown that private property in it was so re-
gulated as to relieve the general taxpayer of his bur-
dens.— [187 1.]

VIII.

THE TAXATION AND REPRESENTATION OF IRELAND.^

THE House of Commons was occupied on Monday
and Tuesday with two subjects which are not at
first sight connected, but between which a real connec-
tion of some interest may in our opinion be established.
We refer to the debate on Monday on the alleged dis-
proportionate taxation of Ireland, and to the debate on
Tuesday on Mr. Trevelyan's motion as to the electoral
system as far as the question of redistributing seats is
concerned. These two debates suoro"est to us that what-
ever difficulties there may be about a redistribution
of seats within each particular division of the United
Kingdom, there can be little question of the expediency
of a redistribution of seats between these divisions
themselves. The Irish members complain that Ireland
is unduly taxed, but England and Scotland may com-
plain that Ireland is unduly represented, and use in
support of their complaint the very arguments as to
taxation in Ireland which Irish members employ to
prove that Ireland should pay less to the Imperial
Exchequer. There ought clearly to be some proportion
between the representation of different communities in
a common Parliament and the wealth and population
of these communities; there is an unstable political
equilibrium wherever the poorer and weaker communi-
ties have a disproportionate share in dictating the
general policy, and so voting the burdens which their
richer and stronger associates have to bear; and as

^ Written and published as an article of the " Economist " in
1876.

277

278 ECONOMIC INQUIRIES AND STUDIES

Ireland now has, and has always had, a larger repre-
sentation in the Imperial Parliament than the propor-
tion of the taxes it paid would give it, the argument
that it should pay a still less proportion implies that it
should also be less represented. Until lately this argu-
ment was partly counterbalanced by the large propor-
tion of the population of Ireland to that of Great
Britain, but year by year the claim of Ireland on this
ground has become weaker, till now it has no existence.
The facts can be stated very shortly. Ireland sends
to the Imperial Parliament 105 members out of 658, or
almost exactly 16 per cent., as compared with 553
members, or 84 per cent., representing Great Britain.
As regards taxation, therefore, assuming an exact pro-
portion between it and representation, Ireland would
not be unjustly burdened if it contributed 16 per cent,
of the Imperial revenue. But its contributions in
1874-5, the last year mentioned in the return obtained
by Mr. Mitchell- Henry for the purpose of the debate,
were only in the proportion of 10.6 per cent. Of a
total of ^74,986,397, which was the revenue of 1874-5,
Great Britain and Ireland contributed as follows :

f- Per Cent.

^ of Total.

Great Britain . .... 67,016,346 89.4

Ireland 7,970,051 10.6

Total . . . 74,986,397 loo.o

The inhabitants of Great Britain may surely ask with
some fairness that there shall be no complaints of Irish
taxation until Ireland pays taxes in some more exact
proportion to the number of representatives it has —
that is, 16 per cent., instead of 10.6 per cent., of the
total Imperial revenue. If it did so its contribution
would have been in 1874-5, ^^^ ^7,970jOOO. b^^t
^11,998,000, or 50 per cent. more.

We fear it would be hopeless to tax Ireland in pro-
portion to its present representation, but the inequality

THE TAXATION AND REPRESENTATION OF IRELAND 279

could be redressed by reducing the representation. In
that case Ireland would only elect 10.6 per cent, of the
members of Parliament, instead of 16 per cent, or 70
members instead of 105. And matters would be still
worse for Ireland in this respect if the Irish members
had their way, and Irish taxation were reduced as they
say it should be. Great Britain, we are told, would pay
^200,000,000 if it were taxed as Ireland is. In other
words, Great Britain is affirmed to be twenty-five times
richer than Ireland. But if representation were to be
adjusted accordingly, Ireland would only elect i-25th
of the members of the Imperial Parliament, or 26 in-
stead of 105. As far as it goes, this argument for
diminished taxation is also an argument for enormously
diminished representation.

We come then to the facts as to the relative popula-
tion of Ireland and Great Britain, on which the claim
of Ireland to a larger representation than one in pro-
portion to the share of taxes it pays may be based. At
the time of the Union, and for many years after, it was
certainly intelligible that the magnitude of the popula-
tion of Ireland should be a set-off to its poverty in a
question of representation in a common Parliament with
Great Britain. In 1821, which is the first year for
which we have good data, the population of Great
Britain and Ireland were respectively:

Per Cent.
Numbers. of Total.

Great Britain 14,391,631 67.9

Ireland 6,801,827 32.1

Total . . . 21,193,458 100. o

In other words, Ireland was about a third of the
United Kingdom as respects population, and in con-
sequence its claim to have a larger share of representa-
tion than the proportion of its wealth and taxation to
that of Great Britain would have given it had some
foundation. Ireland with such relative numbers, what-

28o ECONOMIC INQUIRIES AND STUDIES

ever their condition, was a large unit to which much
less than a sixth of the representation could not reason-
ably have been assigned. And this proportion con-
tinued during the two following census periods. In
1 83 1 and 1 84 1 the proportions of Great Britain and
Ireland in the total population of the United Kingdom
were :

,■ Great Britain. ^ .. Ireland. ,

Total Per Cent. Per Cent.

Year. Population. Numbers. of Total. Numbers. of Total,

1831 24,306,719 16,531,318 68.1 7,767,401 31.9

1841 26,916,991 18,720,394 69.6 8,196,597 30.4

But since 1841 a great change has taken place. The
following twenty years were the period of the Irish
exodus, and although of late the population of Ireland
has remained stationary, or has only diminished very
slowly, the stationariness has been coincident with a
rapid increase in the population of Great Britain, which
is constantly altering the proportion. The effect is
seen if we compare the population for the last three
census years, and also for 1875. The figures are:

Population of Ireland and Great Britaifi compared at various Dates

since 185 1.

^ Great Britain. , , Ireland.

Per Cent. Per Cent.

Numbers. of Total. Numbers. of Total.

20,883,000 76.2 6,552,000 23.8

23>i85>947 8o-o 5.788,415 20.0

26,126,734 82.9 5,386,708 17. 1

27>439.673 83.9 5.297>732 16.1

Thus the proportion of the population of Ireland,
which was thirty per cent, of that of the United King-
dom as late as 1841, had fallen in 1851 to 23.8 per
cent, and in 1871 to 17.1 per cent, only, while since
the latter year it has gradually come to be still lower,
or 16. 1 per cent. It is thus quite manifest that Ireland
has lost the claim it once had, on the score of its great
population, to a larger share of representation than its
wealth and taxation would give it. If existing taxation

^ Part estimated for Scotland.

Total

Year.

Population.

1851'

27,435.000

1861

28,974,362

1871

31,513,442

1875

32,737,405

THE TAXATION AND REPRESENTATION OF IRELAND 28 I

were to be the test, the argument for reducing the
representation of Ireland in the Imperial Parliament
from 105 members to 70, which is the proportion exist-
ing taxation would give it, as we have above seen, and
for proportionally raising the representation of Great
Britain, would now be irresistible.

We are not usinor these arofuments in a controversial
spirit, and as a /z^ quoque to the Irish members in their
demand for lessened taxation. The excessive repre-
sentation of Ireland in the Imperial Parliament is a
substantial mischief to the whole United Kingdom.
It gives undue influence to one of the elements in the
Union the least in harmony with those which really
preponderate, and consequently impedes and thwarts
the naturally stronger forces of the nation in their de-
velopment. On Ireland itself the effect is most per-
nicious, because the scale of Irish affairs is artificially
altered from the natural one. Because Ireland has such
tremendous power to force its affairs on Imperial
notice, the Irish people are encouraged in the belief
that their local affairs really compare in importance
with those of Great Britain, whereas Ireland is now
only a fragment, and relatively a diminishing fragment,
of the State in which it is absorbed, and whose fortunes
more and more it must inevitably share. Even for ob-
taining attention to peculiar legislation for Ireland a
smaller number of representatives would be better than
the present, because their weakness on the one hand
would tend to unite them and give them strength for
all reasonable ends, while diminishing on the other
hand the natural distrust of Ireland and Irish members
in Great Britain, which is certainly stimulated at pre-
sent by the artificial weight of the Irish vote. We are
not much in favour of electoral changes so soon after
the Reform Act of 1867, but a reduction of the Irish
representation, and an increase of that of Great Britain,
constitute a question apart which should be dealt with
at no distant date. [1903. Not yet dealt with !J

IX.

THE USE OF IMPORT AND EXPORT STATISTICS.^

/. — Introductory.

WE must all agree in this place, I think, that there
is cause both for encouragement and discourage-
ment to us as regards the prospects of the study in
which we are engaged in the very extensive use of
statistics which some recent controversies have occa-
sioned. I refer particularly to the balance of trade
controversy, and the controversy between fair trade
and free trade which made so much noise last autumn,
but which has rather subsided of late, as questions of
the kind are apt to do when trade itself is improving.
In these controversies, which have run very much into
each other, the fair traders having made use of the
alleged balance of trade being against this country to
support their arguments, the appeal has been very
largely to statistics. Literary journals and magazines,
which rather dread figures as a rule, have admitted
them into their columns on a liberal scale, including
even tables in the rough, as we should here consider
them. But while this appeal to statistics is cause for
satisfaction to us, the actual handling of the subjects of
our study has been such, I think, as to prove how little
it has really advanced, not merely amongst the multi-
tude only, but amongst the classes who are most care-
fully and highly cultivated. There has been a great
hash of figures, indicating that those who use them

^ Read before the Statistical Society, March 21, 1882. The Tables
in the Appendix referred to in the course of the paper will be found
in the "Journal of the Statistical Society" for June, 1882.

282

THE USE OF IMPORT AND EXPORT STATISTICS 28

have hardly the rudiments of statistical ideas, whether
true or false. In journals of the highest standing there
are the wildest blunders of the schoolboy order. Thus
in the " Quarterly Review" of July last, a writer states
and argues upon the statement: " It is estimated that
about a million of acres of land have gone out of cul-
tivation during the last ten years." ^ The fact, of course,
is that there is not a year in the last ten in which the
cultivated area of the United Kingdom has not in-
creased, the total increase being nearly two million acres.
The same writer also makes a great mess of the very
figures of imports and exports with which I propose to
deal specially to-night. He makes the excess of im-
ports into the United Kingdon in 1879 .;^i 70,595,983,
and in 1880 ^187,179,530, and in the first five months
of 1 88 1 ^78,782,396, having obviously omitted in all
cases the re-exports of foreign and colonial merchandise,
by which these figures would be reduced by 60 million
pounds a year or upwards, while he quotes as his
authority the quarterly returns of the Board of Trade,
which issues no quarterly returns relating to imports
and exports, but only monthly and annual returns.'
Similarly a writer in the "Nineteenth Century" for
August last. Sir Edward Sullivan, compares the pro-
perty assessed to the legacy and succession duties in
England with the property assessed to similar duties
in France, which has no such duties at all, but which
has only probate duties, which are levied like ours on
the gross amount of the estates of deceased persons,
without deduction for debts, whereas our legacy and
succession duties are imposed on the net amounts of
property.*^ Similarly he speaks elsewhere of the " com-
merce " of the world having increased 36 per cent, in

' "Quarterly Review," July, 1881, p. 282.

'^ Ibid., July, 1 88 1, p. 288. It is just possible that the writer may
refer to a quarterly account published at intervals in the monthly
Board of Trade returns, but his allusion is so vague as to indicate
that he has little idea what the publications are.

' "Nineteenth Century," August, 1881, p. 173.

284 ECONOMIC INQUIRIES AND STUDIES

ten years, and English commerce so much less,^ the
actual fact being of course that there is no figure in
existence which can be spoken of as representing the
commerce of the world; while the writer probably
meant the foreign commerce, and yet excluded from
his comparison one of the most important parts of
English foreign commerce, viz., the shipping. Our
satisfaction therefore at seeing so frequent an appeal
to statistics must be considerably qualified by the nature
of the appeal. It is evidently still quite possible for
essays to find admission to journals of high standing
like the "Nineteenth Century" and the "Quarterly
Review," in which the writers not only make mistakes,
but mistakes of an elementary and substantial character,
as if in discussing chemistry a writer were to confound
oxygen with hydrogen, or as if in discussing geometry
he were to confound an isosceles with a right-angled
triangle. Writers who were capable of making such
mistakes in chemistry and geometry, however culti-
vated in other respects, would either not find admission
to the pages of the "Nineteenth Century" or the
"Quarterly Review," or their mistakes would be cor-
rected by the editors ; but the popular standard for
statistics is evidently as yet not so strict as it is for
other scientific studies. Any man, it seems to be
thought, can handle figures, and writers who are other-
wise competent are not afraid to touch them as they
would be afraid to touch chemistry, or geometry, or
botany, or geology, or almost any science one could
name. That our special study should be so little ad-
vanced, although there is a dim idea in the public mind
of the utility of statistics, must surely be a matter for
concern to a Society which has been established for
nearly fifty years for the express purpose of diffusing
right ideas and information. We have still, it is plain,
a great work before us to perform, ^

^ "Nineteenth Century," August, 1881, p. 172.
' How many fresh illustrations have been furnished by the recent
fiscal controversy.

THE USE OF IMPORT AND EXPORT STATISTICS 285

It is in this view that the present paper, which is
mainly directed to the method of statistics, has been
written. The object is to show how great may be the
errors in using the comparatively well-known figures
of imports and exports, unless proper caution is exer-
cised, and how difficult it is to elicit true conclusions
on the questions respecting the balance of trade and
free trade v. protection, which have lately been dis-
cussed. Statistics, I need hardly say in this company,
are almost always difficult. No table almost can be
used without qualification and discretion. The moment
we perceive that figures are used without qualifications
and without anxiety to appreciate them in their right
meaning, and to support no greater conclusion than
they can be made to bear, we may be sure there is
something wrong. My object will have been gained if
the remarks I have to make, and the discussion they
elicit, help to popularize what are really truisms within
these walls, but which ought also to be truisms outside,
if statistics held the place they ought to do among
politicians and public men.

//. — General Remarks on Import and Export Figures.

In dealing with the causes of error in handling im-
port and export statistics, it would of course be super-
fluous for me to do more than mention such questions
of method as are common to them and all other
statistics. In using them, as in other statistics, it is of
course necessary to see that in comparing different
years or different countries the data are substantially
of the same nature. I shall have to notice some special
difficulties of this sort in regard to imports and exports
which I am aware of; but I am only at first noticing
the principle as a well-known one. It is also necessary
in comparing one period with another, so as to draw
out a curve of progress or retrogression, to ascertain
whether the figures of single years or of less periods
can safely be used, or whether, as is more likely to be

286 ECONOMIC INQUIRIES AND STUDIES

the case, the mean or average of groups of years ought
to be used. For some purposes, as we know from
statistics of crime, population, and the Hke, five, and
even ten years' periods are by no means too long to be
considered, and common sense will tell us that for many
purposes this will also be the case with trade statistics,
trade having ups and downs, if nothing else has, what-
ever regime it may be subject to, and the statistician's
first business being to eliminate the errors which may
be due to such ups and downs. A large discourse might
be written even on these points, which are habitually
neglected by popular writers who use statistics, and by
persons of more authority. A question, for instance,
was put by Mr. Mclver last session, ^ to the President
of the Board of Trade, the whole point of which was
that our exports to France had diminished from 33
million to 28 million pounds in ten years, while our
imports had increased from 30 million to 42 million
pounds in the same period, and the explanation being
that the apparent decrease in the one case and increase
in the other corresponded only to temporary facts of
trade, because the year 1871, owing to the Franco-
German war, was of a wholly exceptional character as
regards the trade between France and England. An-
other elementary difficulty is m the use of percentages,
especially those of increase or decrease, nothing being
more necessary than a cautious use of such percentages,
and, especially when comparisons are made, a use of
them only with reference to amounts as well as per-
centages. In the beginning of things percentages may
be large, as we all know, but the real growth may be
largest where the percentage is least, in consequence
of the greater amount at which the percentage is cal-
culated. We are all familiar here also with M , Ouetelet's
illustration of the enormous mortality of a particular
street, in which nearly all the inhabitants died, and
where the area was really too small to yield any good

' "Times," June 14, 1S81.

THE USE OF IMPORT AND EXPORT STATISTICS 28/

average. Some of the arguments of the " Nineteenth
Century," already referred to as to the percentages of
the growth of the commerce of different countries, are
really as illogical. But elementary as this paper is in-
tended to be, I may perhaps be excused from going
into such extreme commonplaces, which relate not
merely to imports and exports, but to all statistics.
When these matters are properly attended to, enough
remains to be considered as regards imports and ex-
ports which may well demand the utmost caution.

The^rs^ point to be considered, as in all statistics,
is the degree of accuracy obtained in the original data.
The figures of imports and exports are sometimes used,
and we are all of us too apt to use them, as if they were
figures in accounts, giving rise to no question respect-
ing the nature of the data; as if every particle of com-
modities and every pound of value sent out or brought
into a country, and to and from what countries they
were sent or brought, were recorded with perfect ac-
curacy; and as if too the accounts of all countries, and
of each country at different times, were made up on the
same principles, and could be trusted to the same de-
gree. Those who know anything of statistical compila-
tion, and even those who do not know, if they only
consider for a moment the necessary conditions, will
perceive at once that no impression could be more un-
founded. In all statistical inquiries the nature of the
data is a necessary question, and there are great
varieties in the possible degree of accuracy, while the
same data may be sufficient for one purpose and not
for another. Thus a census like that of the United
Kingdom, made on the same day for the whole king-
dom, by a staff of enumerators collecting individual
returns from all householders, yields results which are
absolutely trustworthy to a most infinitesimal fraction
as regards the numbers of the people, as regards the
sexes, as regards the conjugal condition, that is, whether
married or not, and — with some exceptions perhaps —
as regards the numbers at each age. The population

2 88 ECONOMIC INQUIRIES AND STUDIES

of small localities on the day of the census may also be
considered to be stated as regards all these details with
practically complete accuracy. But when we come to
such details as the occupations of the people, which
involve inherent difficulties of statement by those who
have to make the returns, and of classification by those
who compile, we are plainly on more treacherous ground.
Especially with the smaller occupations, and in com-
parisons between different localities, it would become
necessary for inquirers to use the figures with judgment
and discretion, and to bring to their aid a study of the
instructions to the enumerators, and information from
local or special sources. In using the population figures
again for deducing birth, marriage, and death-rates, the
fact that the population returned is only the population
on a given day, and that there are many localities in
which the population on other days of the year would be
less or more, has to be considered; while the special
birth, marriage, and death-rates themselves, that is the
rates as compared with the population at particular ages,
would be still more liable to error. There are methods
for eliminating errors known to statistical experts by
which the data can be used, but the methods must be
employed if any good result is to be obtained. To give
another illustration from matters within my own de-
partment— the emigration statistics. As far as numbers
are concerned, these statistics are complete — we have
practically a complete record of passengers leaving the
country for places out of Europe, and returning to it
from places out of Europe. Making the assumption,
as I believe we may do, that the balance of the resident
population is unaffected by people coming and going
from and to European ports, — the excess of " imports "
from such places, if I may adapt a well-known expres-
sion to this subject, being practically all exported to
places out of Europe, — the emigration and immigration
statistics become perfectly trustworthy as to numbers.
I think also the distinctions made as to the nationality
and sex of the emigrants, and the conjugal condition.

THE USE OF IMPORT AND EXPORT STATISTICS 289

with the numbers of children, are fairly to be trusted.
But when we get to the " occupations " I am not so
sure. We have nothing to trust to but the description
given by the emigrants themselves, as reported by
officers who are busy with other work; and I confess
I should not like to found important inferences on
minute changes in the numbers from year to year of
so-called joiners, or painters, or farmers, or even " la-
bourers." It would be impossible to use the figures
for such details to any good purpose without much
discretion and a wide knowledge of local facts deter-
mining the emigration. To take yet another illustration
— again from my own department. While the total
entries and clearances of ships at ports in the United
Kingdom in the foreign trade may be held to be com-
pletely accurate, there is an undoubted defect in the
statistics of particular ports, owing to the practice which
has been established of only returning a vessel as
entered and cleared at one port, though it may really
enter and clear at more than one. By the present prac-
tice the total of the port accounts agrees with that of
the United Kingdom, and I believe the trade of the
ports generally is relatively fairly accurate, but the
practice nevertheless might obviously lead to difficulty
and wrong inferences in special cases. The nature of
the data is thus an all-important matter.

Now, as to the nature of the data in import and ex-
port statistics, we have the advantage of a paper in our
own "Journal," which Mr. Bourne read to us in 1871,
and which will be found the first in his volume, " Trade,
Population, and Food." A more useful paper, I think,
was never laid before the Society, and I shall do little
more than refer to it. Those interested will find a full
account in it of how the data are obtained, and the
means used to check them, with some critical observa-
tions on the main point I am now suggesting — the
degree of accuracy of the data. There are many points
in the paper and in the whole subject which in my
official position I should hardly feel at liberty to discuss,

I. u

290 ECONOMIC INQUIRIES AND STUDIES

but the main points are indisputable. The data, both
as to quantities and values, with the countries of origin
or destination, are derived from the declarations of im-
porters in the case of imports, and of shippers in the
case of exports, subject to a certain check by the cus-
toms' officers, and there is a margin of error to be
allowed for in these declarations. Mr. Bourne, as re-
gards quantities only, compares the declarations in the
case of dutiable goods imported with the actual weights
or measurements subsequently made by the customs'
officers, and points out a variation between the two
ranging from 0.21 percent, in the case of cocoa, to 5.70
per cent, in the case of tobacco, and averaging for all
the articles 1.50 per cent. According to this, the de-
clarations actually made, and which are the basis of all
the statistics, are subject to such variations. They are
no doubt checked by the customs* officers and corrected
for the annual statement of trade, so that the limit of
error is farther reduced, but in the case of non-dutiable
goods some limit of error must remain. These are the
facts as regards quantities only. As regards values,
what Mr. Bourne points out as regards the imports is
especially important :

" The present system has great disadvantages, arising from the
want of knowledge on the part of the importers, the indifference of
many who pass the entries, and the impossibihty of the department
exercising a vaHd check. It is well known that a very large propor-
tion of the goods sent to this comitry are on consignment, and not on
purchase, in which case there is no invoice or statement of prices. In
these cases the consignee is very much in ignorance of their quality or
price, and therefore unable to fix a proper value until they have been
examined and sampled. Where, again, as is very frequently done, the
entry is made by a mere agent, who may gather the description of the
goods from the ship's report, and estimate the weight from the nature""
of the packages ; there is no guide at all to the value. In other
instances there is great indisposition to let the true value be known.
Supposing, as is constantly the case, wine to be brought from Hamburg
in casks, branded with the mark of the best Spanish vintages, it is
very improbable that, however vile the stuff may be, it will be valued
at less than the price of good sherry. The greatest vigilance, there-
fore, is necessary to guard against the most erroneous values, but the
department can only interfere in extreme cases, for it is unable to

THE USE OF IMPORT AND EXPORT STATISTICS 29 I

discover or question any but very extravagant departures from the
average. The law has given it the power of caUing for invoices or
other proof, which is frequently done, and fines are often inflicted for
wilful or careless departures from the truth. The only real security,
however, is in exciting an interest amongst those who have to declare
the value. When once it is understood that these and other particulars
are of real importance, there is, in importers generally, too much
good feeling and desire to do what is right, to permit of other than
the best information it is in their power to give being placed at the
disposal of the authorities. There seems, however, no way of pro-
viding for the very numerous cases in which the consignee is ignorant
of the value, or the agent who puts in the entry is without instructions
to guide him."

So far as I can judge, the check on values in the
case of exports must be even more difficult of appHca-
tion than it is in the case of imports.

We have thus two facts before us: first, apossibiHty
of error in the original declarations as to quantity,
which are found to vary from the actual quantities on
a considerable average of articles as much as 1.50 per
cent,, and in extreme cases nearly 6 per cent. , and which
cannot be completely controlled by the officers com-
piling the statistics; and next, a farther possibility of
error in the declarations of values, owing to the want
of interest in the merchants or assents makine them.
I need hardly say here, that errors arising in this way
are not likely to affect the returns as a whole as much
as they may affect special articles; that in the absence
of special motives for making wrong declarations in one
direction, the errors made through indifference or care-
lessness by thousands of people are likely to compen-
sate each other in so vast a field as that of the imports
and exports; and that the comparison between two or
three years coming together, in which there is no great
change of system, might be fairly trustworthy as to the
progress or retrogression shown, even allowing for a
larger margin of error than it is necessary to allow for
in the original data. But the more detailed the use
which is made of the statistics, the more necessary it
is to keep in mind that there is a margin of error.

Another point has also to be considered. We may

292 ECONOMIC INQUIRIES AND STUDIES

know pretty well where we are in comparing two or
three years at the present time; but the farther we go
back the less is our knowledge as to the way the busi-
ness was done formerly, and as to the increased or
diminished accuracy of the data from that time. This
last fact we know is especially important as to the im-
ports, for there was a very considerable change of
system in 1870, which Mr. Bourne fully describes in
the paper already referred to. One of the principal
changes was in the mode of ascertaining the values,
which previously to that date, from 1854 downwards,
had been computed according to a plan introduced by
Mr. James Wilson, but which have since been declared
by the merchants as already explained. We cannot be
quite sure, I think, that the computed values before
1870 are on all fours with the declared values since;
the presumption would be that they are not. On this
head I can most heartily re-echo the complaint made
by Mr. Bourne in the paper already cited, that the old
plan was not maintained in conjunction with the new
for several years. His assertion that the change of
system produced in many articles of import an appar-
ently great divergence between the values of 1871 and
former years, is a most serious one, and should warn
us all to use a great deal of caution in carrying our com-
parisons of import values farther back than 1870.

Farther, whatever dependence may be placed on the
returns of the total imports and exports of particular
articles, and of the aggregate imports and exports, a
fresh difficulty arises in making the data complete as
regards particular countries traded with. Formerly it
was a very general practice to consider imports as
coming from the country they had last left, although
they might only have been in transit through that
country; and exports as being despatched to the
country they would first arrive at, although they might
only be going there in transit. The attempt has been
made in recent years to show the countries of ultimate
origin and destination, but it is impossible to suppose

THE USE OF IMPORT AND EXPORT STATISTICS 293

that this attempt has been completely successful. Where
there is a through bill of lading, merchants can easily
declare the country of origin or destination as appear-
ing in that document, but such documents themselves
do not always disclose the exact facts on this head. I
have again to refer to Mr. Bourne's statements in the
paper already referred to, but I may add one or two
obvious facts, which you can all test. It is beyond
question that there is an appreciable amount of trade
between this country and Switzerland. We import
Swiss clocks and watches, and we send there cotton and
other yarns to be made up, besides other articles. But
Switzerland does not even figure as a separate country
in our returns. Our trade therewith figures as part of
the trade with France, Belgium, Holland, and perhaps
Italy. Another of these facts is, that in recent years a
great deal of the raw sugar we imported was of Austrian
origin, but the bulk of it figured in our returns as an
import from Germany. Apart then from the above
question as to the data themselves, there is a special
source of error in the accounts of the trade with par-
ticular countries. It must not be supposed that all the
so-called trade with France, or Belgium, or Holland,
or the United States, is really our trade with those
countries. Large deductions or additions may have to
be made in a thorough study of the subject.

I have spoken mainly of the import and export
statistics of the United Kingdom, but mutatis iimtandis
the same remarks apply to the data of imports and
exports in every country. Governments which have a
voluminous tariff are probably more careful about the
imports than we are, verifying values and quantities in
a way we do not attempt; such Governments are prob-
ably also very careful in verifying the quantities and
values of articles exported on which there is a draw-
back; but they are none of them likely to be more
careful than we are about exports where there is no
drawback, and none, we believe, are in fact more care-
ful, while their extra care as to imports is no doubt

294 ECONOMIC INQUIRIES AND STUDIES

balanced in most cases, in countries like the United
States for instance, by the ingenuity and resource of
the smuggler. No foreign country, therefore, any more
than England, has import and export statistics which
can be used as absolutely accurate in the sense com-
monly assumed. The remarks already made as to the
possibility of useful comparisons, the nearer the years
compared are together, and the danger of not allowing
for changes of system, also apply to foreign countries
as well as our own. On this latter head it happens to
be possible to give one or two good illustrations from
the experience of foreign countries. My first illustra-
tion is from the experience of the United States. Mr.
Wells, the special commissioner of revenue of the
United States in 1867-69, in one of his well-known
reports, that for 1869, after stating at one place that
he assumes the sums chargeable to smuggling and
undervaluation of imports to be counterbalanced by
the undervaluation of exports, goes on to say in a foot-
note: " If we confine ourselves to the comparison of
the values given to imports and exports respectively,
in previous years, this may be considered a reasonable
estimate; but for the last fiscal year it is certainly not
the case. Under the present organization of the bureau
of statistics, the values given to the exports of the
country have been scrutinized and verified to such an
extent as to leave but little doubt that the statement
for last year is substantially accurate and complete.
The fraudulent undervaluation of imports, however, it
is not within the power of such an agency to prevent." ^
A statement like this discloses the existence of a very
serious pitfall for us, when we carry our comparisons
of United States trade farther back than 1869. It may
throw some light perhaps on such questions as the
excess of exports from the United States in recent
years, which may after all be largely due to the in-
sufficient record of the imports. As regards compari-

' Report of Mr. Wells for 1869, pp. xxix to xxxi.

THE USE OF IMPORT AND EXPORT STATISTICS 295

sons before 1869, it is immediately suggested that the
apparently slow increase of United States trade between
1 860 and 1 870 may in part be apparent only, being due
to the imperfection of records, and especially to a check
on the record of imports through the introduction of
the war tariff between the two dates.

The second illustration I shall give is from the last
number of the foreign statistical abstract, in which it is
noticed that the Austrian Statistical Bureau has lately
begun to substitute real for official values, and tables
are given showing side by side for four years these
official and real values. The subject is of so much in-
terest that I propose, for the sake of reference in our
" Journal," to extract the tables. They will be found in
the Appendix (Table I.). The following is a summary
of the totals :

[Values in ;^i,ooo sterling^ooo's omitted.]

Imports.

Exports.

Official Values.

Real Values.

Official \'alues.

Real Values.

1875

55>255

54,927

50,447

£
55,086

'76

51)807

53,428

50,857

59,523

'77

54,666

55,526

55,060

66,660

'78

59.672

55>2io

59,970

65,469

The discrepancies in the two values are perhaps not
very serious in the case of the imports, except for the
year 1878, but in the case of the exports they are serious
all through, the " real " being 5 millions to 1 1 millions
more than the " official," and the proportion of the dis-
crepancy being from 10 to 20 per cent. In the case of
special articles, it will be observed, on referring to the
tables, that the discrepancies are still more serious, and

296 ECONOMIC INQUIRIES AND STUDIES

that the very first article on the list — animals (except
horses) — is a good instance of extreme differences. In
the imports of this article the " real " are in almost all
cases about twice the "official" values, and in the ex-
ports they are about four times the " official " values,

I have a third illustration to give you, derived from
French experience. In 1870 the French statistical
authorities began to give the countries of origin and
destination. It is impossible, therefore, in France to
continue from the French accounts any real comparison
of French trade with certain foreign countries from a
period before 1 870. The change of practice throws out
all comparisons, and throws out especially any com-
parison of French trade with England, England being
a country of transit to and from France.

The conclusion surely is that in regard to imports
and exports, as with most other statistics, comparison
with distant periods is not the easy matter it seems.
The changes in the data from time to time interpose
certain difficulties in the way of comparisons, which
must be recognized and met. Besides these foreign in-
stances, I have already given a recent illustration from
the change in our own statistics so late as 1870, but
the instances might be increased indefinitely. As re-
gards our own statistics especially, the imports were
affected by a change from official to computed values
in 1854, already referred to, involving quite as serious
consequences as those just mentioned in the case of
Austria. At a still earlier date also there was a change
from official to declared values in the case of the ex-
ports, involving large discrepancies.

There Is yet another question as regards these data
which I must notice before passing on to the next point.
The " values " so called when ascertained, whether
official, computed, or declared, or in whatever way yet
devised they are ascertained, are not identical with the
values realized by merchants. They do not profess to
be so when they are official or computed values, but
even when they are declared by the merchants them-

THE USE OF IMPORT AND EXPORT STATISTICS 297

selves, they are still different things from the values
which the merchant realizes. A merchant who declares
a particular quantity and value at the time of import
may be himself misled. A cargo of wool or grain when
it comes to be delivered may turn out less or more than
invoiced or estimated by a slight percentage, and the
cargo when sold may realize less or more per lb. or
cwt. ; consequently may realize less or more in the
aggregate than the value in the merchant's declaration.
Errors in the estimate of quantities may possibly tend
to compensate each other in accounts on a large scale,
and such errors are also liable to check by the customs
authorities, but the difference between the declared and
realized values must remain and will not be so surely
compensated. We must always consider, then, when
we deal with these declared or other values, that they
are not necessarily the same as the realized values, but
are only the best substitute we can obtain for them, and
we must not use them as if they were accurate to a
fraction. When an argument is used in which that
accuracy must be assumed in order to make it of any
value, we may be sure that the argument is bad, and
the person who uses it does not know the necessary
limitations of statistics.

A seco7id cause of difficulty in the data — operating
more especially when comparisons are made between
the imports and exports of different countries — is to be
found in the difference of methods by which the data
are obtained. I am referring now especially to the
values. The nature of the difficulty has already been
glanced at in reference to the changes of system in a
particular country itself, but the systems used are still
so various in different countries, that the fact requires
to be incessantly remembered in any comparisons. The
most important foreign countries have none of them
adopted our practice of declaring values, which, as re-
gards imports even here, is comparatively recent. In
France the values of both imports and exports are
computed according to tables of prices established by

298 ECONOMIC INQUIRIES AND STUDIES

a commission of values; in Austria values are partly
computed and partly official; in other countries there
are still official values, modified in part as to imports,
where there are ad valorem duties, by the declarations
of the importers. There is the greatest variety of
system. Not only then do the statistics of imports and
exports in all countries vary from the values actually
realized by the merchants, to which they ought to ap-
proximate, but they probably vary in different ways
and degrees from the true standard, so that a com-
parison of the figures of two different countries ought
to be made with great caution,^ One fact alone will
show what is meant. The tendency of our own method
is at least to indicate very quickly any great change in
the level of prices which may occur. The statistics
being made from declarations of value, checked by the
daily use of price lists, changes in price act instan-
taneously, even in the returns as they are issued month
by month. But it is not so in France. The monthly
returns of quantities are there valued according to the
last table established by the commission of values.
They do not show quickly, therefore, any change in
the level of price. In years when prices are falling they
do not fall off as the English monthly returns do, and
in years when prices are rising they do not increase so
quickly. Again, in countries where official values are
used, the variations will depend on quantities far more
than on values, and the changes from year to year will
consequently be different from those of a country which
has declared or computed values. In comparing two
countries together, or several countries with each other,
or one country with all others or with a group, the

' How great the difference is, any one who chooses may find out
by comparing the exports from England to France, say, as they
appear in the English official returns of exports, with the imports into
France from England as they appear in the French official returns of
imports. See also return of the trade between England and France,
according to the official statistics of the respective countries (No. 405,
Sess. 1881), in which other difficulties in the comparison of the
returns of the two countries are pointed out.

THE USE OF IMPORT AND EXPORT STATISTICS 299

differences arising from the original differences of data
must be remembered. We must always beware of
pushing any conclusions too far.

I need hardly say how much this conclusion strikes
at a good deal of reasoning lately about the comparative
growth of English foreign trade, and the foreign trade
of other countries. A country with official values in a
time of falling prices would show steady progress,
where a country with declared values, as in the United
Kingdom, would show a falling off, although in both
countries the real movement might be much the same.

A //^zV^ point to be considered, in using import and
export statistics, is the periodical variations in price to
which commodities are liable. As regards particular
articles variations in price do not matter so much if
quantities are also given. In showing the progress of
wheat exports from the United States, for instance, it
would be expedient to use the record of quantities and
not of values. But when articles come to be grouped,
values must be used, as they must also be used in
showing aggregate trade, and here variations in prices
are most important. A low range of values in a par-
ticular year will make the aggregate smaller than it
would otherwise be, and a high range of values would
increase it; and clearly this cause of variation must be
allowed for. How it is to be allowed for may be a
difficult problem, but the difficulty cannot safely be
ignored. When it is considered that the range of dif-
ference in the aggregate values of the exports of the
United Kingdom, owing to difference of price only,
amounted to 30 per cent, between 1873 ^"^ i^79. "^ve
can easily perceive that no comparison between the
two years which omits to take note of the different
levels of price, can be of any value. This consideration,
by the way, disposes altogether of the fair trade argu-
ment, which assumes a decline of the English export
trade between 1873 ^^^ 1S79, corresponding to the
decline of value only.

This difference of price may also be most material

300 ECONOMIC INQUIRIES AND STUDIES

in comparing the relative progress of the foreign trade
of two different countries. The articles of one country
may be affected more by a change in the level of values
than the articles of another. If the exports of cotton
manufactures, for instance, constitute a larger part of
the export trade of the United Kingdom than they do
of the export trade of France, and the price of cotton
manufactures has declined greatly, it would be reason-
able, other things being equal, to look for a greater
apparent reduction in English than in French exports,
although perhaps, as the decline may have been mainly
due to a decline in the price of the raw material con-
tained in the exports, the falling off in the real exports
of France, i.e., the exports of what is strictly the pro-
duction of the country, may be greater than the falling
off in the real exports of England. In other words, not
only is the comparison of the trade of the same country
in different years not simple but difficult, owing to this
question of price, but a comparison of the progress of
two foreign countries may be still more complicated by
the same cause of variation.

A foui'th difficulty in using the statistics of imports
and exports, so as to show normal progress or retro-
gression, arises from the disturbing influence of great
economic events. A great war, for instance, between
two countries, may destroy the foreign trade of one or
the other, or both — stimulate certain parts of the foreign
trades of third countries, necessitate large loans, which
may in turn stimulate the foreign exports of the third
countries trading, and in general act as a cause of great
disturbance to the foreisfn trade of their neiofhbours as
well as themselves. Such an event, agfain, as the g^old
discoveries of California and Australia, disturbs the
normal course of trade by causing an immense migra-
tion and colonization. The Lancashire cotton famine,
itself one of the secondary consequences of the Ameri-
can civil war, disturbed the trade of the civilized world
for probably fifteen years. It stimulated the growth of
cotton in countries like India, Egypt, and Brazil; led

THE USE OF IMPORT AND EXPORT STATISTICS 3OI

to a great export of capital to those countries for their
farther development; induced a great movement of
the precious metals, which in turn stimulated trade in
various ways; and finally, as the stimulant was with-
drawn, and the cotton trade returned nearly to the old
channels in which it ran before i860, contributed to
such incidents as the failure of Alexander Collie in
1875 ^^^ th^ C^ty o^ Glasgow Bank in 1878, the rot-
tenness disclosed by these failures having been largely
due to the excessive investment of capital in the
eastern trade in the times of the cotton famine. The
abnormal swelling of trade at one time, in consequence
of the disturbance of this great event, and its abnormal
diminution at another time, when the stimulus is with-
drawn, have all to be allowed for of course in extract-
ing the real lessons as to trade progress or the reverse
from import and export statistics. The payment of the
German indemnity in 1871-73 may be noted as another
disturbing event, tending to swell for a time the export
trade of France and the countries which lent to France.
But it would be needless to enumerate all such causes.
Suffice it to note that the history of the last forty years
alone comprises the Irish famine, and the exodus to
America which followed, the gold discoveries, the
Crimean war, the Franco-Austrian war, the American
civil war, the Lancashire cotton famine, the Austro-
German war of 1866, the Franco-German war of 18 70-1,
the Franco-German indemnity, the introduction of
gold and demonetization of silver in Germany, the re-
sumption of specie payments in gold in the United
States, and last of all, an unusual run of bad seasons
for agriculture in England between 1875 and 1879 in-
clusive. What a complicated business it must really be
to extract from the records of imports and exports of
the period any conclusion as to their normal progress,
or as to the effect of differences in the economic rdgi))ie
of different countries in promoting their foreign trade
or general welfare, especially when differences in the
volume of imports and exports due to differences of

302 ECONOMIC INQUIRIES AND STUDIES

price and changes in the mode of obtaining the returns
may also have to be allowed for.

K fifth cause of difficulty in appreciating the figures
of imports and exports, especially for comparative pur-
poses, arises from the different character intrinsically
of the foreign trade of different countries. Admitting
that quantities and values are stated in precisely the
same way, the figures do not mean the same thing to
each country. There are at least two important differ-
ences possible, which I shall notice, viz., the differing
degrees in which the trade may be one of transit only,
and the different amounts of the carrying trade of dif-
ferent countries, as to which there is no precise record
of values, yet the outlay on which, by a shipping
country, may be as much an " export " as the export of
grain from a grain-growing country like the United
States, which happens to be exactly recorded.

As regards the degrees in which the foreign trade of
different countries may be one of transit only, I think
the differences are really most signal. Some of these
differences are on the surface. England has on the face
of the account a large transit trade, the re-exports, as
they are called, being a very large item. Belgium
affords a still more striking illustration of a large transit
trade. But there may be further differences of a vital
character which are not on the surface. Any foreign
articles once admitted into consumption in a country,
and re-made up in any way, and sometimes with little
or nothing done to them, are treated, when exported,
as exports of native produce and manufactures. You
will actually find tea, coffee, and raw cotton among the
exports of domestic produce from France. The result
is that the exports, so-called, of domestic produce and
manufactures from a country which manufactures
largely, are, in part, in the strictest sense of the word,
re-exports. The raw material previously imported goes
out in a different guise, but it is still the same raw
material. To compare the exports of native produce
of such a country with those of a country which does

THE USE OF IMPORT AND EXPORT STATISTICS

J^j

not import raw material to be re-exported in a manu-
factured form, we ought clearly to deduct from the
exports the value of the previously imported raw ma-
terial which they contain. The explanation specially
applies to a country like England, which is a manu-
facturing country more than any other, as compared
with countries like the United States, which re-export
in a manufactured form very little of what they import.
If a correction were made, probably it would appear
that our exports of domestic produce, exclusive of our
carrying trade, though nominally larger than those of
any other country, are not really much larger than
some, and are perhaps, in some cases, exceeded. The
United States, for instance, exported in 1879-80 about
170 million pounds' worth of domestic produce and
manufactures, hardly any raw material previously im-
ported being included, for the manufactures altogether
are only a few million pounds. The United Kingdom,
on the other hand, exported nominally, in 1880, 223
million pounds; but from this sum a large deduction
must be made for the value of the previously imported
raw material contained in it, perhaps about 60 million
pounds; deducting this, the real export of British pro-
duce would be only 163 million pounds, as compared
with 170 million pounds from the United States. Our
exports per head would still be larger than those of
the latter country, and a special difference is made by
the shipping, which again brings up our total, but the
figures may serve to illustrate how different the real
may be from the apparent facts. When the real magni-
tude of the export trade of different countries is com-
pared so as to show their dependence on foreign
countries for markets, the point of view here referred
to is not to be lost sight of.

A similar rectification is also necessary as regards
the imports, in any comparison at least of what is im-
ported for final consumption with the exports of native
produce. In some countries the whole imports, less the
re-exports, may be treated as imports for final con-

304 ECONOMIC INQUIRIES AND STUDIES

sumption; in the United Kingdom, to arrive at a com-
parable figure, we must deduct the value of the pre-
viously imported raw material contained in the manu-
factures exported, this raw material being merely the
block to which British capital and labour are applied.
Applying these considerations to the case of England
and other countries, we find that our imports for final
consumption are still by far the largest, but the interval
between us and other countries is considerably re-
duced. Our gross imports last year in round figures
were 410 million pounds, but deducting

For re-exports 65 mlns.

,, raw material previously imported ) .
included in manufactures exported j "

Total 125 „

we arrive at a sum of 285 million pounds only as the
net imports for final consumption in the country. This
is a very different figure, though large, from the gross
total of 410 million pounds.^ It shows that our de-
pendency on foreign countries for supplies, or for a
market for our own produce, is really much less than
is sometimes supposed. We are no doubt dependent
on them for the " blocks " with which we work in
making for export, and this is an important fact by
itself, while the fact of so much foreign produce going
through our hands, though we do not ourselves con-
sume it, has its value in the proper place; but our
dependency in these respects is a different thing from
our requiring foreign markets where we may sell what
we produce, in order to buy what we finally consume.
In this respect foreign countries are more nearly on an
equality with us than is sometimes supposed.

' This last figure, it may be explained, is itself, strictly speaking,
too small, not including the transhipment trade and bullion, which
ought, I think, to be included, and which would bring the total up to
450 million pounds ; the imports for final consumption being, how-
ever, as stated in the text, only about 285 million pounds.

THE USE OF IMPORT AND EXPORT STATISTICS 305

Another important conclusion is to be drawn from
this consideration. The exports of a manufacturing
country may be nominally affected by a change in the
value of the previously imported raw material, although
there is no real change in the native produce ex-
ported, or when the real change may be the opposite
of the nominal one. Say that a fourth of the exports
consists of previously imported raw material, then a
decline of 50 per cent, in the value of the raw material
would produce a decline of 1 2 J per cent, in the aggre-
gate exports, which would be entirely nominal. If at
such a time the exports were apparently stationary, the
real fact would be that they had increased 1 2^ per cent,
or rather about 1 7 per cent., allowing that the increase
really takes place on three-fourths only of the nominal
total. The influence of changes of price has already
been referred to generally, but the special influence of
this factor on the exports of manufacturing countries
appears also worthy of attention. It is by no means an
immaterial point. The apparent falling off in the ex-
ports of British produce and manufactures between
1873 ^"*^ 1S79 is to be accounted for largely by a reduc-
tion merely in the price of the raw cotton — the block
to which our industry was applied — contained in the
manufactures.^ To talk of the decline between 1873
and 1879 without taking note of such facts would
clearly be to mistake show for substance. No wonder
figures are so often said to be capable of proving any-
thing, when pitfalls like these, which have seldom even
been referred to in past discussions, are in the way.

With regard to shipping, the facts may be more
simply stated. A country with a large carrying trade
may export little in the shape of commodities, and yet
be to all intents and purposes a considerable exporter.
Its outlay in wages and provisions for ships' crews, in
equipping and repairing ships, in insurance and re-
newals, and the profits it earns, are all parts of its ex-

^ See Report on Prices of Imports and Exports, C-3079, Sess.
1881.

I. X

306 ECONOMIC INQUIRIES AND STUDIES

port as much as if the export were embodied and
stored up in a commodity. In any complete account of
the foreign trade, therefore, the carrying done by carry-
ing countries, with analogous charges, ought to be in-
cluded ; otherwise no proper comparison is possible
with countries which have a small shipowning business.
The so-called foreign trade in the one case is the whole
foreign trade, in the other it is only part of the whole.

I shall have to make use of this principle afterwards
in dealing with the question of the balance of trade;
but it is enough to state it, I hope, to prove its reason-
ableness. To put the point in a concrete shape, the im-
port and export statistics of a shipowning country like
England do not show its foreign trade, as the imports
and exports show the foreign trade of the United States,
which has only a very small shipowning business.

That all these questions are substantial and not
formal may be shown by a single example of how
much our view of the foreign trade of the United
States as compared with that of England would be
altered by taking account of them. See, it is said, how
much of American goods the United Kingdom im-
ports, and how little of British goods America imports.
This difference, I confess, would not, in my opinion,
be at all material if the real facts were the same as the
apparent ones. Trade is well known to be very often
triangular; we may buy from America, and send goods
elsewhere on American account, though not directly to
America. But the statement is itself untrue if we
examine the facts carefully. No doubt we record an
import of 107 million pounds from the United States,
and only record a return of 38 million pounds, show-
ing an excess of imports over our exports amounting
to 69 million pounds, which it is supposed the Ameri-
cans prevent us by their tariff from sending to them.
But people forget first that our trade is largely one of
transit both directly and indirectly through our manu-
factures. Among the articles we import from the
United States there was ;i^3 1,784,000 worth of raw

THE USE OF IMPORT AND EXPORT STATISTICS 307

cotton alone in 1880, of which directly as a re-export,
and indirectly through our manufactures, we would
send away at least four-fifths or 26 million pounds.
Why should we expect the United States to take goods
directly from us for this amount ? Surely the countries
which ultimately get the raw cotton directly or in-
directly are the countries which should pay, and they
may do so in part directly as well as through our
agency, our only share being a commission on the
whole transaction. The second fact is that we export
to America in the form of carrying goods on American
account, and this item probably amounts at the present
time to 16 million pounds a year. These two sums to-
gether— what we send away elsewhere of raw cotton
alone among articles we have imported from America,
and what we export to America in the shape of doing-
carrying work for her — go a long way towards extin-
guishing the apparent balance against us on the import
and export account. They amount together to 42
million pounds, thus reducing the apparent balance
from 69 million pounds to 27 million pounds. This is
a much smaller sum than might at first be expected
from the bare record of so-called imports and exports,
and shows how short a way the latter figures carry us
by themselves. As already stated, it is of no conse-
quence whether there is an exact balance or not, but the
actual facts should be well understood, and they cannot
be understood without appreciating the totally different
character of the foreign trade of the two countries.

The above, let me add, are not the only points of
difficulty in the study and use of import and export
statistics which ought to be considered. I have not
attempted to make an exhaustive catalogue. I have
simply noticed a few points which have lately been
brought under my notice as material or which recent
controversies have suggested. They are enough to
show, however, that there is no royal road to this
branch of learning any more than to other branches.
There is a great deal in the study, and patience and

308 ECONOMIC INQUIRIES AND STUDIES

labour are required of all who would enter into the
held. That there are yet more difficulties will be
apparent when we come to the special applications of
these statistics which I have thought it would be useful
to investigate, viz., their bearing on the question of
the balance of trade or balance of indebtedness be-
tween countries, and their bearing on the points in dis-
pute in the fair-trade controversy. We can show not
only by a statement of principles, but by the actual steps
necessary in applying the statistics, how much con-
sideration is required in the application of figures
which appear very simple, and how difficult it is to
arrive at correct views. To prevent misunderstanding
let me only add that, while pointing out the difficulties
of the study, I am saying nothing to imply any doubt of
conclusions which are arrived at after a sufficient study
of all the facts. There are conclusions in all studies
which it is hard for the unlearned to follow, but they
are none the less certain to those who care to learn.

///. — Balance of Trade and Balance of Indebtedness.
The Generality of the Excess of hnports.

The first special question I propose to discuss is the
application of the import and export statistics to the
problem of the balance of trade, and the connected
problem of the balance of indebtedness of a country;
the case I propose more particularly to investigate
being that of the United Kingdom. Importance has
come to be attached to the question in this way. The
imports into the United Kingdom, as recorded, have
in late years shown a great excess over the exports
from the United Kingdom, as recorded. By many
this excess is treated as a trade balance against this
country, and without much ado there is also an assump-
tion that the country is running into debt. We are
buying, it is thought, more than we can pay for, and
we can only pay by an export of securities. The conclu-
sion itself seems so extravagant to any one who watches

THE USE OF IMPORT AND EXPORT STATISTICS 3O9

the constant issues of foreign securities on the London
Stock Exchange, or the constant lending by private
capitaHsts to foreign countries, which hardly ever
ceases, that for one I have never thought it worth
while to discuss it. A statement was actually brought
me on one occasion showing that the country had be-
come indebted to foreigners in twenty years to the
extent of i,ooo million pounds, which had never been
paid, and which was all represented by bills the non-
payment of which would bring about, some day, a
financial collapse. The writer was plainly unaware that
the whole amount of bills current at one time in the
country, in both home and foreign trade, was under
1,000 million pounds, that the amount has not been
increasing lately, and that the foreign bills are only
about a third or fourth part; and I think also he was
unaware that in the foreign trade it is English capital-
ists who give credit to foreign nations, and not foreign
capitalists who give credit to England. Still the state-
ments as to the excess of imports have acquired a certain
amount of currency, and we may see how far they are
really countenanced by import and export statistics.

The general statement of the difficulties of the in-
quiry already made has somewhat cleared the ground.
We are prepared to see at the very threshold that the
imports and exports themselves are not exact to a
fraction. There may be an error in the data of i or 2
per cent., and the values may also differ from the
values realized by merchants. Suppose there is a
difference of 2 per cent, only, and that it acts on im-
ports and exports in opposite directions, increasing the
former and diminishing the latter, we have a difference
at once of about 15 million pounds in the so-called ex-
cess of imports. Our imports, bullion and tranship-
ment included, amounting to nearly 450 million
pounds; our exports, bullion and transhipment also
included, to over 300 million pounds, on all of which
2 per cent, conies to the sum of 15 million pounds, as
stated. The balance of probabilities is perhaps against

3IO ECONOMIC INQUIRIES AND STUDIES

any variation of such great magnitude from the amounts
actually realized by merchants, while the variation may
be in the opposite direction, tending to swell the ex-
cess of imports; but the great effect of what is really
a slight percentage should warn us against reasoning
too finely. Even the apparent amount by which the
recorded imports exceed the recorded exports may be
subject to great reduction.

The variations in the level of prices from year to
year are also most material in such a question. A
sudden rise or fall of 5 per cent, in the average price
of the exports beyond the corresponding rise or fall in
the average price of the imports, would alter momen-
tarily the excess of imports to a most material extent,
without implying any real changes in the general con-
ditions of our trade. Similarly, any of the great dis-
turbing economic events referred to, two of which
have at least affected business during the last few
years, viz., the resumption of specie payments in
America, and the bad harvests in western Europe,
might largely alter for a moment the balance of trade.
Last, and more important, the fact of our being a ship-
owning country, and doing other duties in connection
with the foreign trade of the world, causes what is
really a large export of the produce of our capital and
labour in an unrecorded form, and there can be no
commencement even of a discussion of the facts without
a proper allowance for this export; while the trade
balance itself, when properly ascertained, is no more
than one item in the general account of international
transactions, especially when the country concerned is
a country like the United Kingdom, having invest-
ments abroad in endless number and variety. We see
at once from these considerations that even to ascer-
tain the exact excess of apparent imports over apparent
exports is no easy matter; that this excess is different
from the real excess in the case of a country like the
United Kingdom, which has a large ship-owning busi-
ness; and that the excess when ascertained is only one

THE USE OF IMPORT AND EXPORT STATISTICS 3 I I

item in an international account. We are far enough
already from the rough-and-ready handling which the
excess of imports receives from writers in the " Quar-
terly Review " and the like authorities.

Grappling now with the subject more directly, what I
have first to suggest, in accordance with a sound maxim
of statistical investigation, is an inquiry how far the
excess of imports is a new or not a general fact. There
is little use in discussing it at all until we look about
us. The question of the generality of the fact is very
soon settled. An excess of imports is a very common
thing indeed. I have only to refer you to the Appendix
No. 1 1, on the point. In this I have had taken out for a
late year in each case, usually 1878 or 1879, the im-
ports and exports of every country in the world : there
is hardly an exception, I think. The result is that in
forty-five instances there is an excess of imports, and in
forty-two instances an excess of exports. I say nothing
at present of amounts in each case: it is possible that
the United Kingdom is specially unfortunate on account
of the magnitude of the case. It is clear, however, that
the mere fact of excess of imports is a very general one
in the experience of nations. We do not stand alone.

Another general fact which appears is that, taken
altogether, the column of imports is in excess of the
column of exports. The totals are :

Imports 1)768 mlns.

Exports 1,606 ,,

Excess of Imports 162 ,,

This fact is surely very significant. It is the same
goods substantially which are dealt with in both cases,
the fact that it is not the same year which is dealt v.ith
in all cases making no sensible difference when so
many countries are dealt with and the years are selected
without any bias. But although it is the same goods
that are dealt with, they are represented in the one
column as 162 million pounds more than in the other

312 ECONOMIC INQUIRIES AND STUDIES

column. This of itself suggests, I think, a natural
reason for an excess of imports. A difference like this
can only be due to a common cause, and that cause
obviously is the cost of conveyance; the imports, being
mostly or often valued at the place of arrival, include
the cost of conveyance; the exports, being valued at
the place of departure, do not include that cost. Hence
the difference between the two columns. In so Qfeneral
an account, putting all the countries of the world to-
gether, I can suggest no other cause of difference. Of
course, after what I have already said, you will not ex-
pect me to put forward the figure as absolutely exact.
We know too little of the methods followed in more than
eighty countries to be sure that the values are com-
parable one with another. Still the resulting difference,
being in accordance with reasonable expectation, is
evidently to be relied upon as a fact, though we cannot
state a figure which pretends to any exactness.

It follows also that, as there is and must be an excess
of imports in the aggregate, some particular countries
are entitled to the excess. These must also be the
carrying countries. Freight must be the chief matter;
but the difference cannot be wholly freight, as the
figures include goods which have passed from country
to country by land, though not a large amount in pro-
portion, as well as goods which have passed by sea.
There are also other charges on the conveyance of
goods besides the freight paid to ship-owners, and all
must be included in the difference here stated, or the
true figure which it approximately represents. Still,
whoever carries, in proportion to what he does carry,
or rather in proportion to the outlay he contributes for
the carrying and the profit he thereby earns, must be
entitled to a corresponding amount of imports. If the
account were exact, and there were no other cause for
an excess of imports or exports in particular cases, the
table would show not only what the excess of imports
was in the aggregate, but what were the carrying
nations and how much each received. The table, how-

THE USE OF IMPORT AND EXPORT STATISTICS 3I3

ever, does not show this. No doubt the countries with
an excess of imports are largely carrying nations: the
United Kingdom, Norway, Denmark, Germany, Hol-
land, France, Italy; but there are other countries with
an excess of imports, while in some cases, perhaps, the
excess is not so large as that to which the share of the
country concerned in the carrying trade would appar-
ently entitle it. This suggests obviously that besides
the cause which produces an excess of imports in the
aggregate, the excess varies in the case of particular
countries, or becomes even an excess of exports, owing
to another cause. That cause I have to suggest is that
countries are either borrowing or lending in their inter-
national transactions, or that some are receiving while
others are paying interest. The result is that if we add
the excesses of imports on the one side and put against
them the excesses of the exports on the other, the
aggregate excesses of imports are found to be 286 mil-
lions, and the aggregate excesses of exports i 24 mil-
lions, the difference being the net excess of imports
already stated. The excesses of exports in certain cases,
amounting to 124 millions, would also imply that in the
international transactions of the world, unless the figure
should be modified by including the bullion, as we
ought to do for this purpose, but which I have found
it impossible to do in all cases, a sum of that amount
was passed as the balance of the various loan and in-
terest transactions of the world. The total amounts
lent and the total amounts paid for interest may both
have been larger, and there is nothing to indicate the
amounts; but of the fact of a balance having to be
passed there can be no question. While we conclude
then, from the general fact of an excess of imports, that
it corresponds to the cost of conveyance in interna-
tional trade, it is quite possible that the countries en-
titled to share in it may show a smaller excess than they
would otherwise do through their lending to foreign
countries, or may show a larger excess through their
receiving interest or borrowing on balance; while, on

314

ECONOMIC INQUIRIES AND STUDIES

the contrary, non-carrying nations may show a small
excess of exports, or even an excess of imports, in con-
sequence of the balance of their other transactions.
The figures in the case of each country are no guide to
the state of its general account with other nations.

It is to be observed, however, that there is a geo-
graphical distribution to some extent of the countries
having an excess of imports or of exports respectively.
The nations in the tables are classified geographically,
with a cross division for the British empire and for the
rest of the world; and the result is, that while Europe
shows an enormous excess of imports, viz.:

United Kingdom and Malta . . . 112 mlns.
Other countries of Europe . . . , 142 „

Total 254

the Other quarters of the world show on the whole an
excess of exports, viz.:

Excess of

Imports. 1 Exports.

Africa —

British empire

Other countries

Asia —

British empire

Other countries

Australasia —

British empire

Other countries

America and West Indies —

British empire

Other countries

Mlns.

£
4

6
I

Mlns.

£
4

Deduct

103
II

Excess of exports . . .

— 92

THE USE OF IMPORT AND EXPORT STATISTICS 3 I 5

The figures at least suggest, I think, that it is the old
countries — the homes of capital — which have to receive
interest, and the new countries — principally the United
States — which have to pay it. Certainly no inference
can be drawn to the effect that it is the countries with
an excess of exports which are the most prosperous,
the list comprising Peru and other South American
States, which have lately been passing through the most
serious calamities. The most singular fact disclosed
by the table is perhaps the excess of imports in the case
of the Australian colonies ; but this is partly to be
accounted for, I believe, by the fact of the continuous
lending of this country to Australasia, which has been
going on for many years past. Its natural place would
have been with America and the new countries gener-
ally. The facts as to the Cape Colony give rise to a
similar remark.

I shall have to return to the figures shortly in refer-
ence to the question of the charges for conveyance to
which the United Kingdom is entitled; but I pass on
to remark that as the fact of an excess of imports is
general, it is also by no means new, either in the case
of the United Kingdom or of the world generally.
With regard to the United Kingdom, the fact is toler-
ably well known; but to make this paper complete, I
have included in the Appendix (Table 1 1 1.) a statement
of what the excess has been since 1854. The annexed
(see p. 316) is a summary of this table in three years'
periods :

3i6

ECONOMIC INQUIRIES AND STUDIES

Excess of Imports, and Proportion to Total hnports and Exports,
including Bullion and Specie, 1854-80.

1854-56

'57-59
'60-62
'63-65
'66-68
'69-71
'72-74

'75-77
'78-80

Excess of Imports.

Total Imports and

Exports. 1

Amounts. 1

Per Cent, of
Imports and Exports

Mln. ^'s

Mln. ;£'$

330

II. 2

386

8.0

432

12.3

523

II-5

566

II. 8

617

lO.O

732

8.3

713

121

17.0

690

119

17.2

Thus we have always had an excess of imports into
this country. Of late years it has been larger in amount
and in proportion to the imports and exports recorded
than formerly, but the only novelty to be inquired into
is clearly the increase of the excess: (i) whether it is
apparent or real — a most important inquiry, as the
mode of valuing the imports, we have seen, was
changed in 1870, and in 187 1 there is a sudden and
remarkable increase in the imports, and a still more
remarkable increase in the re-exports; and (2) whether
there are any circumstances to account for a real in-
crease of the excess of imports, such as an unusual
diminution of our current lending to foreign countries,
or an unusual increase of ship-owning business making
our unrecorded exports unusually large. At present I
do no more than suggest these answers, the main point
to be considered being that the excess of imports, and
that on a very large scale in proportion to our whole
foreign trade, is itself no novelty.

The excess of imports, as I have stated, is also no
novelty in the aggregate trade of the world. On this
head I have to quote the figures given by Dr. von
Neumann-Spallart,^ to whom I am indebted for some
of the figures in the second table of the Appendix, viz. :

' Averages of three years.

^ Uebersichten der Weltwirthschaft, von Dr. F. X. von Neumann-
Spallart. Jahrgang 1880. Stuttgart. 188 1. P. 360.

THE USE OF IMPORT AND EXTORT STATISTICS

Imports a7id Exports of the World.
[In millions sterling, converting the mark at 20 per £.'\

Imports.

Exports.

Excess of Imports.

1867-68 . . .

1,165

1,045

120

'69-70

1,266

1,100

166

'72-73

1,554

1,334

220

'74-75

1,450

1,289

161

'76 .

1,493

1,296

197

'78 .

1,508

1,359

149

'79 •

1,571

1,355

216

Thus an excess of imports in the aggregate trade of
the world is a permanent fact. There is nothing new
in it. There is also some proportion between the aggre-
gate trade and the excess of imports. The more trade
there is the more charges for conveyance, though the
progression is of course not quite constant, and the
figures themselves are of course somewhat incomplete,
which makes it difficult to exhibit a regular progress
from year to year.^

IV. — Subject co7itinued: hoiu the Excess of Imports into
the United Kingdom is to be accounted for.

Having thus brought out the facts of the generality
and want of novelty in the excess of imports, and
having suggested as a necessary cause of it the cost of
conveyance between countries which must always exist,
and as a contributing cause the settlements of inter-
national accounts through the remittance of loans or
interest on money previously borrowed, I propose now
to inquire more particularly with reference to the

' It will be observed that the annual amounts here are in no case
so large as the annual amount in Table II. of the Appendix. Some of
the figures in the latter table, however, are for a year later than 1879,
and the figures I have used also include the bullion and specie as
much as possible, which are not included, apparently, in Dr. Spallart's
figures.

3l8 ECONOMIC INQUIRIES AND STUDIES

United Kingdom how the excess is to be accounted
for.

How much, to begin with, is annually due to us as a
ship-owning and carrying nation? As we have seen,
there is no reason why the actual excess of imports, in
the case of a ship-owning nation, should correspond to
the sum it earns in the carrying trade; the actual
excess may be less or more than that sum ; but the
sum is nevertheless an item in the account just as
much as the so-called exports on the one side or the
imports on the other. I have to call attention to the
words ship-owning and carrying. According to the de-
finition already given, the question is, what is the
amount of our contribution to the carrying of the world's
goods.'* and though it is mainly a ship-owner's question,
it is not wholly so.^

Replying to this question, I propose to take the facts
as to ship-owning first, and to use first in a general
view of the subject the excess of imports already shown
in the aggregate trade of the world. Assuming this
excess of 162 million pounds to represent approxi-
mately the cost of conveyance, how much of it should
fall to the share of the United Kingdom? I have to
suggest first of all, for reasons to be given afterwards,
that about 32 million pounds of the amount, or rather
less than 2 per cent, on the aggregate trade, represent

^ The following propositions appear to cover the various cases of
an excess of imports or exports arising in connection with carrying
operations :

1. A non-carrying nation, in the absence of borrowing or lending,
ought to show in its accounts an equality between imports at the
place of arrival, and exports at the place of departure.

2. A nation carrying half its foreign trade ought to have an excess
of imports equal to the cost of carrying the goods one way ; and so in
proportion for whatever its contribution to carrying may be.

3. A nation carrying its whole foreign trade will have an excess of
imports equal to the cost of carrying the goods both ways.

4. A nation carrying for others is entitled, in addition, to an excess
of imports equal to the freight earned, less any expenses incurred
abroad. Any nation contributing to carriage will also have something
to receive.

THE USE OF IMPORT AND EXPORT STATISTICS

miscellaneous charges and commissions, which all form
part of the cost of conveyance, and of which the Eng-
lish share may be put at one-half, or 16 million pounds.
Deducting this 32 million pounds, the sum of 130
million pounds is left as the amount due for freight.
How much should fall to the share of England? It
would also be natural in reply to compare the mer-
cantile tonnage of England with the tonnage of the
rest of the world, and divide the 130 million pounds
between them in proportion. For all practical purposes
England's proportion may be put at something like 55
per cent.,^ and assuming this proportion, the division
would be as follows:

Per Cent. Proportion.

United Kingdom

Other countries

55
45

Mlns.

5S^

Total

—

130

' This is a rough deduction from the tables in the return, " Progress
of British Merchant Shipping," No. 125, Sess. 1881. The calculation
(for 1879) in millions of tons is:

Sailing.

Steam.

Total.

Per Cent.

Tonnage of —
United Kingdom . . .
Rest of British empire .

Amount

1 Equivalent in
1 Sailing tons.

of
Total.

4.0
2.0

2.5
0.2

P P
bob

14.0

2.8

50
9

Foreign countries . . .

6.0
7.2

2.7
I.I

1 10.8
4.4

16.8

11.6

59
41

Total ....

13-2

3.8

! 15.2

28.4 ,

100

Thus the proportion of ships belonging to the United Kingdom
alone is 50 per cent., and allowing a certain proportion of colonial
ships to be owned in the United Kingdom, the figure of 55 per cent,
in the text seems near the mark. Since 1879 our proportion has
largely increased.

320 ECONOMIC INQUIRIES AND STUDIES

The sum of 71 millions sterling is certainly enor-
mous. Still, the figures, whatever they may be worth,
are not cooked in any way I have simply taken the
excess of imports as I have found it, and made a proper
deduction as I think, so as to leave only what is due
to freight, and I have then merely divided this freight
between England and other countries in proportion to
their tonnage. As regards the actual amount of this
freight, it cannot be called extravagant. On the total
imports of the world, as shown in Table II. of the
Appendix, it amounts to a charge of y^ per cent, only,
and on the total tonnage of the world, sailing and steam
together, it would show a gross earning of no more
than ^8 per ton.

As regards the division between England and other
countries, it would perhaps be necessary to make a
correction for the amount of outlay by English ships in
foreign ports, in excess of the outlay by foreign ships
in English ports; but the outlay of this sort, I believe,
from a consideration of the other outlays in earning
freight, cannot exceed about a sixth part of the total
earninofs. Deductino- a sixth from the above sum of
7 1 1" millions would leave about 60 millions as the sum
due to the United Kingdom for freight. This would
be our share of the 130 millions.

Adding together the 60 millions for freight and the
16 millions for miscellaneous charges and commissions,
we arrive at a total of 76 millions, as the share of the
above 162 millions, for cost of international convey-
ance annually due to the United Kingdom at the pre-
sent time.

These figures are, of course, too uncertain to be
relied upon by themselves, but they are not without
corroboration. I have first to refer to various authori-
ties who have dealt especially with the amounts of
freight earned in the direct trade of the United King-
dom. Mr. Bourne, in a paper read before the Society,
and printed No. 3 of the volume already referred to,
was one of the first to grapple with the problem. His

THE USE OF IMPORT AND EXPORT STATISTICS 32 I

method, I believe, was incomplete, but some of his
statements were most interesting. One of them (p. 63)
is to the effect that 1 1 per cent, on the value of our
imports would be a fair average allowance for freight.
The imports are now, roughly speaking, over 400
millions a year, on which i i per cent, would be 44
millions, and of this 44 millions the English share,
dividing the sum in the proportion of the entries of
English and foreign ships — 70 per cent, to 30 per cent.
— would be very nearly 31 millions. Similarly IVIr.
Bourne gives the freight on exports as 20^^. per ton
for sailing vessels, and 2,0s. per ton for steamers, at
which rates in 1880, the clearances of British sailing
vessels being 3,182,000 tons, and of steamers 15,685,000
tons, the freight on exports in British bottoms would
be nearly 27 millions. The total for imports and ex-
ports is 58 millions. Adding a sum for freights earned
by British ships in the indirect trade, which must be
enormous, and again making a deduction for outlays in
foreign ports, we should still, on this showing, get well
on to the figure of 60 millions, if not beyond it.

I must, of course, allow that Mr. Bourne was writing
several years ago, and freights are a variable item ; but
I do not believe that one year with another they have
fallen permanently below the level of price he quoted.
Some freights have fallen, but not the run of freights
to any material extent. There has been, in truth, no
large margin for a fall in freights, the cost of working
being itself from 70 to 90 per cent, of the income, and
the absolute outlay per ton, though it tends to diminish
with the increasing size of vessels, not having dimin-
ished very greatly from the time Mr. Bourne wrote.

Mr. Newmarch again, in a paper read to this Society
in 1878,^ proposes to deduct 5 per cent, from the im-
ports and add 10 per cent, to the exports for all charges
of conveyance. These amounts on our present trade
would come to about 50 millions. Mr. Newmarch does

' Statistical Society's "Journal," vol. xli., pp. 218-220.
I. Y

322 ECONOMIC INQUIRIES AND STUDIES

not indicate what he thinks the other charges as dis-
tinguished from freight would be, and does not enter
into the question of outlays in foreign ports or of work
done by British vessels for foreign countries. The sum
of 50 millions, which he actually arrives at for the di-
rect trade of the United Kingdom alone, appears to
corroborate the notion that the sum of 60 millions for
the whole earnings of our mercantile fleet, less all out-
lays abroad, is not wide of the mark.

In the same paper Mr. Newmarch quotes a letter of
Mr. McKay, of Liverpool, who estimates the freights
earned in British bottoms at 30^-. per ton for imports
and 20s. per ton for exports.^ These rates on the
tonnage of 1880, converting the net registered tons into
gross tons in the proportion of two-thirds to i, would
give:

Imports 37 mlns.

Exports 27 ,,

Total 64 „

Again, there is no mention of any outlays abroad,
but the figures amply support those already stated.
The sum these authorities deal with, it must always
be remembered, is for the direct trade of the United
Kingdom alone; and the figure of 60 millions already
given represents our whole earnings from freight, less
actual outlays abroad in earning it.

Quite lately I have obtained a calculation from a
ship-owning friend (whom I shall call A, as I have
many other facts from ship-owners, whose names I am
not at liberty to mention, and to whom I shall assign
the letters of the alphabet) with reference to average
freights at the present time. His calculation is that on
the weights of goods actually imported and exported
in the American trade, freights come to about 2'/s. 6c/.

^ I am unable to identify the tonnage actually quoted by Mr.
McKay.

THE USE OF IMPORT AND EXPORT STATISTICS 323

and 20s. respectively. It is not quite clear what these
weights are, or whether they would be represented by
the tonnaofes entered and cleared; but assumino- the
latter to be the case, and converting the net registered
tons into gross tons, as is done above, and assuming
also that the American trade is a good average of the
whole foreign trade, as I believe we may do, we get
the following figures :

Imports 34 mlns.

Exports 27 ,,

Total 61 ,,

This is substantially the same figure as that arrived
at on Mr. McKay's calculation.^ It manifestly supports
the conclusion that 60 millions at least is earned by
our shipping, after deducting all outlays abroad, in the
direct and indirect trades.

I propose now, however, to deal more directly with
the matter. The tonnao^e of the British mercantile fleet
being known, how much per ton, according to direct
evidence, does the sailing ship and the steamer earn on
the average, and how much ought to be the deduction
for outlay abroad ? I have many figures on this head
to submit to you, and I must crave your patience on
Recount of the very great importance of the subject.

I have first to call your attention to Appendix No.
IV,, in which there are certain tables extracted from
the "Statist" newspaper of 26th November last [1881].
These tables summarize the accounts of our principal
joint-stock shipping companies in a form which was
partly of my own suggestion, with a view to the present
paper, though the tables themselves are not my own

^ It is hardly worth while cumbering the paper with the details,
but I have made a calculation of the actual weights of goods imported
and exported, and these charges for freights would bring out a sum
on such weights of 50 million pounds. I have also to call attention,
on this head, to Appendix X., showing the amount of weights carried
in our direct foreign trade, as far as weights can be stated.

324 ECONOMIC INQUIRIES AND STUDIES

work, but the work of a gentleman already well known
to many of you, Mr. Wynnard Hooper, whose analysis,
I think, does him great credit. The points in this state-
ment to which I desire to call attention are these :

a. The capital value of the fleets of eight companies,
including some of the largest and best, but also in-
cluding one or two of a second class, comes out on the
average at ^16 135. per ton gross, which is not less
than about £2^ per ton net, taking the net as two-thirds
of the gross, and the real proportion being less. The
range of value is from ^13 2^-. to ^18 12s. per ton
gross, or from ^19 13^-. to ^27 \^s. per net registered
ton. These are much lower values in all cases, I believe,
than the ships could be built for. They are not ex-
treme values.

b. The gross income of six of the above companies,
representing fairly well the average of the nine, works
out at ^14 123". per ton gross, or about ^22 per net
registered ton. This is a percentage on the value of
about 88 per cent. The percentage on the value in
each case is:

Per Cent.

Peninsular and Oriental . . 91

Pacific Steam 92

Royal Mail 70

Cunard 100

General Steam 84

Mercantile Steamship ... 59

Thus the lowest value per net registered ton is about
;^2o and the lowest proportion of gross earnings about
60 per cent.

c. The proportion of expenditure to gross income
works out as follows :

Per Cent.

Peninsular and Oriental .

. 92.4

Pacific Steam ....

. 92.6

Royal Mail

• 99-3

Cunard

• 83-9

General Steam ....

. 91. 1

Mercantile Steamship

• 87.7

THE USE OF IMPORT AND EXPORT STATISTICS 325

The average of the six is about 91 per cent., and the
lowest is about 84 per cent. As the gross earnings are
a large percentage of the value, so the gross outlay is
also a large percentage of the gross earnings.

The outlay per ton gross amounts tO;^i3 ys. on the
average of the six companies, equal to about ^20 per
net registered ton. The value being ^25, this shows
an average outlay in proportion to the value of 80
per cent.

d. \n the case of three of the principal companies
practically little more than half the gross earnings
are from freights, but they earn from freights alone
^2,1 16,000, or about ^8 per gross ton, equal to about
;^I2 per net registered ton. In any case a part of their
income from passengers, probably the larger part, being
for the conveyance of foreigners, or of persons travel-
ling on foreign account, has the same effect on the
international account as a charge for conveyance of
goods. It is a debit to foreign nations, and a credit to
the ship-owner in this country.

e. The average expenditure per ton is stated under
several heads for each of the three principal com-
panies, and is in all very nearly alike, the mean being
as follows:

Coal

Pay^ of Crews

Provisions

Repairs and Renewals . .
Insurance and depreciation
Other expenses ....

Per Ton Gross.

I
I
I

2
4

12
10

12
2
8

13 12

Per Ton Register.

£ s-

I postpone drawing any deductions from the figures,
as I have other figures to give, but I may note before

26 ECONOMIC INQUIRIES AND STUDIES

passing that the figures as to the eight companies com-
prise 442,000 tons gross of shipping; the figures as
to six, 400,000 tons ; and the figures as to three, 278,000
tons. A considerable part of the steam mercantile fleet
is thus represented.

I have next to direct attention to the series of state-
ments respecting different classes of ships in Appendix
No. V. The statement B is exactly parallel, it will be
observed, to the statements above quoted, relating to
the leading companies which publish their accounts,
with the differences that only the outlay is stated,
and that the outlay abroad is distinguished from the
outlay at home. The general result is that on a some-
what higher valuation, the steamers being valued at
^20 per ton gross, or ^'31 per ton net register, the
outlay is also about 65 to 70 per cent, of the value,
or ;^2i.88 per registered ton in the one case and
;^2o.34 in the other case. The amount spent per ton
on wages, coal, and other items is less than in the case
of the companies which publish their accounts, but the
total outlay is swollen by a large charge for deprecia-
tion.

With regard to the distribution of the expenses be-
tween this country and abroad, the point to note seems
to be that the total abroad in the one case is ^7.70
per ton and in the other £7.60 per ton, or about 35
per cent, of the total outlay. The amount is chiefly for
port expenses and Suez Canal expenses.

The next statement, C, also relates to a steamer, but
of a different class from the above, the value being
;,/*i9 only per net registered ton, and the gross outlay
;^i4 36-. per ton. The wages are again much lower
than in the case of the first-class steamers, but the out-
lay for coal is as much as ^5 per ton.

The next statement, D, is also a steamer — a cargo
boat — the actual value not being stated, but apparently
belonging to a class which is valued at ^25 per ton.
Here the outlay is ^14 135-. yd. per ton, and the wages
are as much as £2 lys. 6d. per ton.

THE USE OF IMPORT ANIJ EXPORT STATISTICS 327

E. Is another steamer, a plain cargo boat, valued at
£2^ per ton, with an annual outlay of ^ii 2s. per ton,
including only £\ \os. per ton for wages.

F. Is another cargo boat, value about ;^2 2 per ton.
Here the gross earnings are stated, and amount to about
£1"] per ton, nearly 80 per cent, of the value. Of the
£1"] per ton earned, the outlay abroad is ^7 per ton,
or between a half and a third.

G. Contains an account of four steamers in the
Mediterranean trade valued at ^15 per gross ton, or
^22 net, whose average outlay amounts to about
£10 i6s. per ton gross, equal to about £\6 per ton net.
The results are in fact much the same as for F, though
the payments abroad do not appear so large.

H. Is a record of four steamers engaged in the
coasting trade or short voyages. Their average value
is also about ^15 per gross ton, or ;^2 2 per ton net,
and the average outlay is about ^10 \os. per gross ton,
or ^15 155-. per net ton.

The next records, I, K, and L, all relate to sailing
ships: I shows an outlay of ^5 17^'. per net registered
ton; K an outlay of ^6 i^-. ^d.\ and L, which gives an
average of no fewer than fifty vessels engaged in mis-
cellaneous trades, an average outlay of about ^5 65-.
per net registered ton. The values in I and K are ^15
and £\df respectively, and in L about £<^ \os. per ton.
In the case of L the statement is accompanied by a
private note, indicating that the profit is about ^i \^s.
per ton, that is, about one-third of the outlay. This
would make the gross earnings over £'] per ton; and
as' the outlay abroad is £\ \qs. per ton, the gross
earnings receivable at home would be about ^5 \os.
per ton.

Combining all the information from the various
sources, what it seems to point to in the case of steamers
is first a gross outlay, ranging from about ^i i or ^i 2
up to ^20 and even more per net registered ton, this
gross outlay being also about 80 or 90 per cent, of the
income, which would thus range from about ^15 to

328

ECONOMIC INQUIRIES AND STUDIES

^2 2 per ton. In no case, apparently, not even that of
the lowest collier, can the gross income be put at less
than about ^15 per ton. The subjoined table brings
out this clearly :

Gross Income

where Stated,

per Ton.

Outlay per Ton.

Amount.

Per Cent, of
Income.

Six Steamers in "Statist"
Statement B . . . ,

£
22

£ s. d.
20 0 0
2100

,, c

„ E

—

14 3 0
14 13 7
II 2 0

—

„ F
„ G
» H

1200
1600
15 IS 0

Thus, In any case where the income is mentioned at
all, even in the case of an ordinary steamer spending
no more than ^12 per ton, there is no lower sum men-
tioned than £1"] per ton. Assuming that in all the
other cases the percentage of expenses is also high,
and not less than 80 per cent, of the income, we should
have an income in all, except the lowest class, amount-
ing to about ^16 to ^18 per ton and upwards.

I shall propose then to place the earnings of our
steam fleet on home account, inclusive of the earnings
from passengers, at not less than ^15 per ton, which
would allow for expenditure in foreign ports. This on
the tonnage registered at the end of 1880, viz., 2,723,000
tons, would come to about 41 million pounds.

With regard to the sailing vessels, the problem seems
more simple. The average earnings may be put at not
less than £"] per ton, the outlay being ^5 6i'. per ton.
The sum of £"] per ton on a fleet of 3,851,000 tons
comes to about 27 million pounds, from which about
^i lOi". per ton, or say 6 million pounds, would fall to
be deducted for outlay in foreign ports, leaving about

THE USE OF IMPORT AND EXPORT STATISTICS 329

2 1 million pounds as earned on home account. The
two sums together amount to 62 million pounds, which
is not far from the sum of 60 million pounds already
arrived at. A certain deduction would of course have
to be made from this calculation for the earnings of
the fleet engaged purely in coasting, but not suf-
ficient, I think, to alter the round figure of 60 million
pounds.

As a rough calculation, I would suggest that £$ per
ton from sailing ships, and ^15 per ton from steamers,
will give us an approximate figure for the foreign earn-
ings of our mercantile fleet, making all corrections for
outlays abroad. If there is any over-estimate, there
would be a set-off to some extent in the outlay on
foreign vessels in our own ports.

My own impression is that the figure is under and
not over the mark. The above account deals only with
vessels on the register of the United Kingdom, and
known to be employed in the foreign trade. There are
many vessels, as already hinted, on colonial registers,
or which have been lost sight of, which are really
British owned, and which bring an income to British
owners. We may be sure that there are considerable
sums beyond what has been stated to be brought to
account.

It will serve to make clear to us what all this trade
means, besides confirming the conclusion as to the
income derived from it to the United Kingdom, if we
further inquire what the share of the gross earnings
which comes to us is composed of. What are the prin-
cipal items? The information in the Appendices IV.
and V. bears a good deal on this point, and may be
confirmed in various ways.

The principal items are clearly — wages, victual-
ling, insurance, repairs, renewals and depreciation, and
profit. I have to submit the following table, deduced
from the accounts annexed, always premising that the
figures show only what is earned for the United King-
dom :

ECONOMIC INQUIRIES AND STUDIES

Total for Tonnage

Per Ton.

United Kingdom.

Mlns.

Sailing Vessels —

Wages

4
2

Victualling

Insurance, 7| per cent, on mean
value of ]£,\o per ton

}

Repairs, renewal, and deprecia-

tion, \2\ per cent, on mean

value of ;;^io per ton

)

Profit, \z\ per cent

Total

—

Steamers —

Wages

5^
4*

Provisions

10
17

0
6

Insurance, i\ per cent, on mean
value of ;^2 5 per ton

}

Repairs, renewals, and deprecia-

I
)

tion, 15 per cent, on mean

value of ;^2 5 per ton . .

Profit, \2\ per cent

Total

—

33^

Sutnmary.

Sailing Vessels. ^ Steamers. | Totals.

Wages .
Provisions
Insurance .
Repairs, etc.
Profit . .

Mlns.

£
4
2

Mlns.

5
10

I 19 33i

Add port expenses at home, including harbour and light

dues, commissions, etc

„ coals shipped in steamers from United Kingdom .

Total

Mlns.

9i
6i
8'

15
13^

52I

THE USE OF IMPORT AND EXPORT STATISTICS 33 I

Here again little is included for the outlay on foreign
vessels in English ports, while no deduction is made
for the earnino-s of our fleet enaaored in the coastino-
trade. Making all allowances, the figure of 60 million
pounds as our foreign earnings in connection with ship-
ping is submitted as near the mark.

The question arises whether the figures are vrai-
semblable, and it is immediately suggested as regards
wages that we have a check. The number of persons
employed in our mercantile fleet in 1880, not including
masters, was 193,000. Dividing 9|- million pounds by
this sum we get at an average money wage of ^50 per
per man. I do not consider this a very high average,
allowing for the fact that it includes the pay of masters,
and officers of every grade, engineers, stokers, and
others, all receiving more than the ordinary a.b. wages,
which are not less than £2 \qs. or ^3 per month. ^
The averages for sailing vessels and steamers would
work out at about ^40 per man for sailing vessels, and
rather less than £']o per man for steamers, which of
course include a much larger proportion of highly
skilled labour.^

With regard to victualling, I think I need do no
more than refer you to the paper of Mr. Bourne, already
cited, in which he gives the estimate of 6 million pounds
for victualling and stores for the year 1879 — that is,
victualling and stores put on board ships from the
United Kingdom. As I understand Mr. Bourne's mode
of doing the sum, this would include victuals and stores
put on board foreign ships also, whereas this item in
the above account only includes British ships; but the
item in any case is not a large one.

^ See return, " Progress of Merchant Shipping for 1880."
" It will obviously be suggested that two deductions should be
made, one for the wages of the fleet engaged in coasting, the other
for wages paid abroad ; but the deductions on these heads would, I
believe, be immaterial, while I have sought to allow for minor cor-
rections like these by the moderation of the estimates. In 1881, wages
generally advanced above the figures here dealt with about £(i per
head, or nearly ^1,500,000 in all.

332 ECONOMIC INQUIRIES AND STUDIES

The other items of insurance, repairs, renewals and
depreciation, and profit require less remark. They
amount altogether to 35 per cent, on the value of our
shipping-, which I assume to be about 40 million pounds
for sailing vessels, and about jo million pounds for
steamers, in the year 1880. With regard to insurance,
however, it may be pointed out that the annual re-
placements required by wrecks to vessels of the
United Kingdom — I speak of total losses only —
amount to about

150,000 tons, sailing vessels
2-?o,ooo „ steamers

380,000 „ total

annually. The cost of building these vessels, at ^^15
per ton for sailing vessels, and ^30 per ton for steamers,
would be about 9 million pounds, or more than the
8 millions put down for insurance. I am inclined to
think that this estimate in particular is under the mark,
but I leave the fiorure as it stands, in case it should be
thought by some that there is an over-estimate for
repairs and depreciation. This last is a high estimate,
though I consider it fully justified by the figures before
me, shipping property ageing rapidly. With regard to
the profit, in putting it at 12^ per cent, I have kept a
good deal below what more than one ship-owner owns
to, but the rate is undoubtedly a good deal more than
that paid by the high-class steam shipping companies
whose accounts are published. There is reason to be-
lieve, however, that the latter are among the least re-
munerative of vessels. With regard to port expenses
at home, the broad facts are that harbour, pilotage, and
light dues alone would account for nearly three-fourths
of the amount here stated, and only a small part would
fall on the coasting fleet. The final item of coal put on
board steamers at home is rendered necessary in this
calculation by the exclusion from the other items of

any payments abroad, which are included in the general
accounts above dealt with/

There is a concurrence of testimony, therefore, to
the effect that an enormous sum accrues annually to
the United Kingdom in connection with its shipping
business, and that the sum of 60 million pouuds is not
far from the mark. First, in examining the imports
and exports of the whole world, we find a difference
between them which must represent the cost of con-
veyance, and analyzing and dividing this amount among
the principal ship-owning nations, we get a figure of
about 60 million pounds as due annually to the United
Kingdom for freight alone. Second, according to vari-
ous testimonies — Mr. Bourne, Mr. Newmarch, Mr.
McKay and others — there is known to be a large sum
annually accruing in connection with the direct trade
of the United Kingdom alone, a sum of 40 to 50
millions sterling, and this sum, making due allowance
for what comes to us from the shipping in the indirect
trade, again points to the probability of a large sum
being due to us which cannot be less than about 60
million pounds. Third, the direct evidence of the ac-
counts of numerous steamers and sailing ships points
to a gross earning of this amount, if not more, deduct-
ing all outlays abroad. Last of all, there is additional
confirmation in the analysis of the different items of
the expenses of our fleet, and the comparison of these
items with other sources of information, such as, for
wages — the number of men employed, for victualling
and stores — the independent inquiry of Mr. Bourne,
for insurance — the sums actually spent in replacing
wrecks, for profit — the actual admissions of ship-owners
themselves, and the accountsof leading companies, and

' There ought to be some further correction, perhaps, as regards
the latter figures in respect of the earnings of our mercantile fleet
engaged in the coasting trade, already referred to, but that portion, as
already stated, is comparatively small, while these last calculations do
not include anything for the earnings or profit of British-owned ships
not on the register of the United Kingdom.

334 ECONOMIC INQUIRIES AND STUDIES

or such items as port expenses — the amounts actually-
paid for harbour and light dues. I must again repeat,
however, my impression that probably a much larger
sum is really due to us, in consequence both of the
moderation of the estimates and the circumstance of a
large number of vessels not on the register of the

United Kingdom being in fact owned in the United
Kingdom. It is not necessary, however, for the special
purpose of this paper to name an exact figure. I shall
be content if I have made clear that the business of
ship-owning is really enormous, and that if we would
make any use at all of the import and export figures in
the question of the balance of trade, we must dwell on
the invisible export which takes place by means of our
shipping. The discussion on the subject ought to in-
clude a formal treatment of the question of how much
our shipping earns.

The inquiry does not end here. I have already
drawn attention to the point that the ship-owner is not
the only person concerned in the cost of conveyance,
of which the aggregate excess of imports in the im-
ports and exports of the world is composed. There are
other commissions and charges, of which I have sug-
gested that the English share amounts at least to i6
million pounds — perhaps 20 million pounds would be
nearer the mark. The latter sum is only 2^ per cent,
on the total of our imports and exports — about 800
million pounds; and when I point out that insurance
cannot be estimated at less than i^s. per cent., and
bankers' commission, bill stamps, and minor charges
5^-. per cent, leaving only i|- per cent, for all other
charges, the estimate must be held to be moderate.
Mr. McKay, in the letter already referred to, makes
the commission and charges amount to more than
double this sum, and quotes the case of a Manchester
shipment, in which the insurance and other charges
came to 4 per cent. I confess I am afraid of too big
figures, and have tried to keep well within the mark.
The sum of 20 million pounds, added to the 60 million

THE USE OF IMPORT AND EXPORT STATISTICS 335

pounds due to us for freight, make a total of 80 million
pounds, which is really, to use a phrase which I have
tried to make familiar, an invisible export. In using
the import and export statistics for the question of the
balance of trade, we have to credit ourselves, in addi-
tion to our recorded exports, with a sum of at least this
amount.

Such figures, if accepted, without any further correc-
tion for interest receivable for investments abroad,
would serve of themselves to revolutionize the concep-
tion of the international balance between this country
and other nations, which would be suggested by the
bare consideration of the import and export figures.
In the last few years the excess of imports, as we have
seen, has been about 1 20 million pounds (see supra,
p. 315), but a deduction from this sum of 80 million
pounds would reduce the amount to 40 million pounds,
without any correction whatever for other international
transactions, such as the receipt of interest upon our
foreign investments. Even apart from such a correc-
tion, then, the excess of imports is almost accounted
for. A nominal difference of about 40 million pounds,
subject to the qualifications already stated, is prac-
tically much the same thing as no difference at all. As
we have seen, we cannot be sure to within 15 or 20
million pounds of the totals of our imports and exports
and the balance shown by them, while there is also a
very great probability that the sum of 80 million
pounds, which I have assumed to be annually earned
by the country in connection with its shipping, and
other charges in connection with the conveyance of
goods from country to country, is a good deal under
the mark. When we establish, therefore, that 40 million
pounds is a maximum sum for the apparent excess of
imports, we establish that there is nothing in such a
figure by itself to give us any concern about the nation
living on its capital. An excess of that amount might
easily be balanced by an excess in the opposite direc-
tion in other years; we must expect so great a trade as

136

ECONOMIC INQUIRIES AND STUDIES

that of the United Kingdom to exhibit oscillations of
this magnitude. If it is to be proved that the nation is
living on its capital to any extent at all, it must be
shown almnde, from the operations of the stock ex-
changes and otherwise, that the nation is borrowing
abroad, or is bringing home its capital.

The figures suggest another correction of the first
impression of the import and export figures. The excess
of imports being itself no novelty, and the only thing
new being the sudden increase in recent years, the
question is naturally suggested whether there is any
change in the invisible items of our export which would
help to account for such an increase. On this head I
need hardly say that nothing has been more remark-
able during the last twenty years than the wonderful
progress of our shipping, both in absolute amount and
in relation to the rest of the world. The figures as to
the United Kingdom are:

Tonnage of Sailing and Steam Vessels belonging to the United Kingdom.
[In thousands of tons.]

Steam.

Sailing.

Total in
Sailing Tons.

Increase Per

Amount.

Equivalent in
Sailing Tons.

Cent, in Five
Periods.

1840

'50

'60

2,637

3>336
4,134

87
168

452

348

672

1,808

Tons.

2,985
4,008

5,942

'70
'80

4,506
3,799

I, III

2,720

4,444
10,880

8,95°
14,679

50
64

The business is thus a rapidly increasing one.
Twenty years ago the mercantile fleet of the United
Kingdom was capable of performing the work of about
two-fifths only of the present mercantile fleet. Assum-
ing the earnings to be in much the same proportion,
the sum accruinof to the United Kingdom in connec-
tion with its shipping would be about 27 million pounds

THE USE OF IMPORT AND EXPORT STATISTICS 2)Z7

only twenty years ago, as compared with 60 million
pounds now. Even as compared with a period ten years
ago, since which our mercantile fleet has increased 65
per cent., such an increase would imply that the earn-
ings ten years ago were only about 35 million pounds,
as compared with 60 million pounds now, a difference of
25 million pounds, by which our invisible exports, in
connection with the shipping alone, have increased in
the ten years. Not only then is the excess of imports
no new fact, but the increase of it in recent years is
obviously to be largely accounted for by the increase
of our shipping business. ^

The increase of our shipping has been going on quite
steadily all through the recent years of depression.
You had the figures before you at your last meeting in
Mr. Glover's very able paper; but for convenience of
reference I have included in the Appendix (No. VI.) a
statement of the progress of our mercantile fleet in
each year since 1854, from which date we are able to
compare it with the excess of imports, adding a note
of the estimated earnings for the United Kingdom on
the basis already established. This shows a progressive
increase from about 24 million pounds in 1854 to over
60 million pounds at the present time. It will be said
perhaps that rates of freight have been diminishing,
which is perhaps true to a certain extent; but such a
reduction is allowed for in the mode of calculation
adopted, the earning power of steamers being stated at
three times only that of sailing ships, whereas their
effectiveness is as 4 to i. The reduction of freights
cannot have been very great all round, though it may
be large on some descriptions of cargo. The expenses,
owing to the rise of wages, notwithstanding the great
economy of iron as compared with wood, and the
economy of labour by means of large vessels and the

^ See also on this head Appendix X., already referred to, showing
the great increase in recent years of weights carried in the direct
foreign trade of the United Kingdom, where weights are stated or can
be calculated.

I. z

338

ECONOMIC INQUIRIES AND STUDIES

substitution of steam for sailing, still remain very large,
both per ton per annum and per voyage.

The other charges for conveyance accruing to a
country like the United Kingdom must also have in-
creased greatly during the last twenty years. The
charge of 2^ per cent, on the foreign trade of twenty
years ago would have been under 10 million pounds,
as compared with 20 million pounds now.

These corrections will best be shown in a short table,
for which I have made use of the figures in Table III.,
already summarized (see supra, p. 315):

Excess of Imports as shown in Appendix III., and Summarized above
{supra, p. 169), Corrected by Deducting (i) the Charges for Gross
Earnings of Shipping as shown in Appendix VI.; and (2) the
charge of 2^ per Cent, for Commissions, Insurance, etc., on the
Total Amount of the Direct Trade of the United Kingdom.

[In millions of pounds.]

Charges to be Deducted.

Total Im-
ports and

Apparent
Excess of

Corrected

Exports.

Imports.

Freight,
etc.

Commission,

Insurance,

etc.

Total.

Excess.

1854-56

330

'57-59

386

(-)6

'60-62

432

'63-65

523

'66-68

566

'69-71

617

'72-74

732

(-)3

'75-77

713

121

'78-80

690

119

This table needs no comment. The figures are not
presented as exact, but they show approximately the
difference between the real and the apparent excess,
and one of the reasons for the apparent excess increas-
ing in recent years. There remains, of course, the more

THE USE OF IMPORT AND EXPORT STATISTICS 339

general question of the balance of indebtedness between
nations, all the points yet dealt with, the imports and
exports themselves, and the sum accruing to the United
Kint^dom for the gross earnings of its mercantile fleet
and for other charges of conveyance being only items
in a more general account. On this head, however, I
may be permitted not to enlarge. It is notorious that
a large sum is due to this country annually for its in-
vestments abroad; we belong, as has been seen, to a
geographical group which has probably such interest
to receive. The usual estimate has been about 50 mil-
lion pounds to 60 million pounds a year; but since these
estimates were made our investments abroad have in-
creased enormously, the public issues on foreign ac-
count of the last six years alone, i.e., since the foreign
loan collapse of 1875 on the London Stock Exchange,
having been about 210 million pounds, this figure not
including, moreover, some very large issues, in which
the London Stock Exchange was interested, but where
the issue was abroad. (See Appendix VIL) I am dis-
posed to think also, from a consideration of the enor-
mous investment of capital in the movement of goods
in our ships, and in the conduct of our trade in foreign
countries themselves, that this private capital has never
been sufficiently estimated, and that our investments of
capital abroad at the present time are not less than
1,500 million pounds sterling, on which interest at only

5 per cent, would be 75 million pounds per annum, at

6 per cent. 90 million pounds per annum, and at 7 per
cent 105 million pounds per annum. Whatever sum
we take, looking at the small magnitude of the excess
of imports which remains after proper corrections for
the charges of the cost of conveyance, there can be no
question that in recent years, large as the apparent ex-
cess of imports has been, this country has been continu-
ing to invest capital abroad — from 40 million pounds
to 60 million pounds per annum, if not more. But for
this lending, the excess of imports would have been still
greater than it has been.

340 ECONOMIC INQUIRIES AND STUDIES

I do not propose to go farther into this question of
the balance of indebtedness in its international trans-
actions for the United Kingdom. To complete it would
require an elaborate investigation of the magnitude of
private investments, while such points as the expendi-
ture of British citizens abroad, and the expenditure by
foreigners in this country, and the minor movements
of international capital in connection with exchange
operations, would all require to be considered. To treat
this subject properly would require a paper by itself
almost as long as the one now before you, which is
already of ample dimensions. I shall be quite content
if I have established to your satisfaction (i) that the
question to be investigated is not that of the diminution,
but of the increase, of our investments abroad — that
there is really no question at all of the nation bringing
home capital or living on its capital in recent years ;
and (2) that, whatever may be our conclusion on this
point, the import and export figures themselves are
only a small part of the question, and that the use of
these figures by some writers as if they were the whole
is only to be excused, if it is excusable, on the score of
ignorance of the nature of statistics and the necessary
conditions of dealing with them.

V. — Subject continued: the Excess of Imports or Exports
in France and the United States. Conclusion.

Mutatis mutandis, all these points have to be con-
sidered of course in dealing with foreign nations. I shall
only consider two, the United States and France. The
United States is the country which has perhaps the
largest excess of exports. In the last six years, including
bullion, that excess has been 37 million pounds annually.
(See Appendix VIII.) The United States is practically
a country whose exports, apart from the question of in-
terest on borrowed money, ought to balance its imports,
its foreign shipping being quite insignificant, earning

THE USE OF IMPORT AND EXPORT STATISTICS 34 I

for it probably, according to the above calculation of ^5
per ton for sailing ships, about 6 million pounds a year
only. How then is the excess of exports to be accounted
for ? What economic circumstances or conditions does
it imply? I have to suggest two things: (i) the ex-
penditure by United States citizens travelling abroad
less the expenditure of foreigners travelling in the
United States; (2) the interest payable to foreigners
on account of foreign capital invested in the United
States. The former cannot be less, I believe, than 10
million to 15 million pounds, the annual migration of
Americans to Europe being 20,000 to 30,000 in addition
to an American colony of several thousands almost
constantly resident In Europe, and the latter cannot be
less than 30 million pounds; total 40 million pounds.
Even if the latter ought to be a smaller figure, we should
still have to consider the margin of error in the United
States figures, especially those for the imports, on ac-
count of the undervaluations and smufjs^lino-, so that
the apparent excess of exports would be more than
the real excess, because of the imports being under-
valued. There is certainly nothing in the excess of
exports to indicate unusual prosperity, whether present
or prospective. The recent increase of the exports,
and of the excess of exports, is also to be accounted for
by the fact that in the last twenty years American
foreign shipping has been diminishing in proportion to
its total trade. That trade twenty years ago was 135
million pounds only, the tonnageof American shipping
in the foreign trade being over 2^ million tons, which,
at the rate of £^ per ton, would entitle it to a gross
income of 12^- million pounds a year. Now the trade
is 347 million pounds, and the earnings from the ship-
ping must be about 6 million pounds only. There is
ample reason, therefore, for the excess of imports in
the American trade ceasing, and an excess of exports
beginning, apart from the farther obvious explanation
that America borrowed larQ^e sums abroad during- the
civil war and afterwards, the interest of which has now

;42

ECONOMIC INQUIRIES AND STUDIES

to be paid. It seems a nice question whether America
of late years has been reducing its indebtedness abroad,
but there is nothing, at least in the import and export
figures, corrected as they ought to be, to indicate such
a reduction. I am only concerned, however, at present,
with pointing out the nature of the inquiry which must
be made.^

As regards France, the account stands as follows for
the last twenty years (see Appendix IX.):

[In thousands of pounds.]

Excess of

Imports.

Exports.

Imports.

Exports.

i860. . .

—

'71 . .

—

'61.

'72

'62.

—

'73

'63-

—

'74

20i

—

'64.

—

'75

I2J

—

'65-

—

'76

4oi

—

'66.

1-5

—

'77

29I

—

'67.

—

'78

—

'68.

—

'79

—

'69.

'80

—

'70.

—

Here the excess of imports is less marked than it is
in the case of the United Kingdom, and there has been
a smaller increase in the excess in recent years com-
pared with six or seven years ago. The explanation,
no doubt, is that French shipping is comparatively

^ See also an Essay on the Foreign Trade of the United States
("Essays in Finance," 2nd Series, ed. 1886). I may add too a fact,
of which I was not aware when I wrote this paper, that the system in
America is to value the imports not at the port of arrival, but as at the
place from which the goods were sent. The value in America there-
fore does not include the cost of conveyance, and the proportion of
the exports is accordingly higher than it would otherwise be as com-
pared with a country like England, where the value of the imports does
include the cost of conveyance.

THE USE OF IMPORT AND EXPORT STATISTICS 343

small, being 932,000 tons, and has increased very little
in recent years, the only change being that since i860
about 200,000 tons of steam shipping have been sub-
stituted for as many tons sailing, the total rather di-
minishing. The total gross earnings for France, at the
same rate as for England, can only be about 6 million
pounds, and the increase in twenty years little over
2 million pounds. At the same time, leaving out our
shipping, the excess is as great in proportion for France
as for the United Kingdom. There can be little ques-
tion that France has increased its investments abroad,
notwithstanding the payment of the indemnity, while
it must derive a large income annually from the ex-
penditure of foreigners travelling or residing in France,
French citizens by comparison going very little abroad.
It would be interesting for France as for England to
trace the growth of its foreign investments in recent
years, but the problem of stating its balance is neither
so large as that for England nor so complicated in
various ways. The figures, however, when rightly con-
sidered, are in apparent accordance with the economic
circumstances of the country, while they teach nothing
as to comparative prosperity or the reverse.

The broad conclusion is that the importance attached
in some of the recent discussions to the excess of im-
ports in any country, and to the increase of that excess
in this country in recent years, and contrariwise to the
excess of exports in the case of other countries, and to
the increase of that excess, is wholly mistaken. There
is nothing in the facts either way to indicate special
circumstances of prosperity or adversity, or that one
nation is living on its foreign capital, and another in-
creasing its foreign capital or diminishing its indebted-
ness abroad. The facts when investigated throw a
great deal of light on the industrial circumstances of
different countries, but until investigated and compared
with other facts they are entirely without meaning. In
other words, import and export figures require delicate
and careful handling for any such inquiry as the ac-

344 ECONOMIC INQUIRIES AND STUDIES

count of indebtedness between nations. Quod erat de-
monstrandum.

VI. — Import and Export Statistics and the
Protectionist Controversy.

The second special inquiry I have proposed is the
way to use import and export figures in the controversy
between free traders and protectionists. How do the
statistics assist?

In answering this question, we must be struck by the
fact that there can hardly be any statistics available to
settle directly the cardinal question between free trade
and protection, viz., which rSgime favours most the
general prosperity of a people, morally as well as
materially. No such question can be treated practically
from a material point of view alone; political and moral
considerations must come in. I could quite understand
a free trader admitting a protectionist system to be the
best materially, and a protectionist admitting the free
trade system to be the best materially, and yet each on
moral and political grounds preferring the less advan-
tageous system in a material view. But how difficult to
trace out all the effects of an economic regime in the
moral and political sphere ! Even materially, however,
there can hardly be adequate statistics. To make any
statistical comparison at all possible between different
7'egimes, it would be necessary either to find two
countries practically alike in their economic and in-
dustrial circumstances, and in the character of their
people, subject them to the opposite rSgifnes, and then
ascertain and compare their relative material progress;
or to find a particular country subjected at different
periods to the two opposite rSgi7nes without any other
differences, and then compare the different results, if
any such are appreciable. Experience does not supply
us with such cases. No two communities are sufficiently
alike to be comparable in strict logic. The slightest
differences in the race or moral condition of the two

THE USE OF IMPORT AND EXPORT STATISTICS 345

communities which are to outward appearance much
the same, miofht make a p-reat deal of difference in their
material progress. If the two are subjected to different
economic regwies, how are we to tell whether the in-
ferior progress of the one materially — even when we
are sure about the inferiority — is due to the rdgime,
and not to other differences in the character of the
communities, which we cannot so well appreciate ? The
same with a community at different periods of its own
history. How can we tell that there is no moral differ-
ence of a serious kind to affect the economic progress
of the community between one period and another ?
External economic circumstances are, besides, incess-
antly changing, and may affect two communities ap-
parently of much the same character and position quite
differently. If it were possible to institute many pairs
of comparisons and exhibit a uniform result in all, it
might be safe to infer that it was the r(fgime which did
make the difference, no other uniform cause of differ-
ence being assignable; but this condition of course it
is impossible to fulfil.

Quite lately an interesting attempt has been made
by Mr. Baden-PowelP to show that the regime does
make all the difference in the case of two communities
which he compares — New South Wales and Victoria,
the former free-trading and the latter protectionist;
but directly, I fear, the comparison proves nothing. In
strict logic one comparison is not enough. There must
be many comparisons. It may be doubted, moreover,
as regards this particular case, whether the two com-
manities compared were really in sufficiently like cir-
cumstances at starting to make the comparison really
valuable; while it is not shown that no other circum-
stances besides the economic ones may have helped to
make the difference since; nor is it shown that the
difference of the regi??ie itself was so great as to justify
us in calling the one colony free-trading and the other

' "Fortnightly Review," March, 1S82.

34^ ECONOMIC INQUIRIES AND STUDIES

protectionist. But granting the apparent likeness of
the two cases in all except the one point, what I have
to urge is that one comparison proves nothing in strict
logic, and at best does no more than raise a presumption
to be confirmed or set aside by farther inquiry.

There would be a farther difficulty in making such an
inquiry statistically, in the facility with which the visible
consequences of an inferior rigime may be masked by
an increase of industry on the part of the suffering
community to make up the loss. The community,
rather than lose in the return to its labour, might labour
more energetically, and so the outward result would be
as before — the production, consumption, and saving
might remain what they were. It is even conceivable
that the community suffering most might apparently
gain, in consequence of a greater development of in-
dustry and energy than what is absolutely necessary to
supply the loss. In any case, I am quite ready to be-
lieve that the visible difference, as between free trade
and protection, if the protection is not extreme, may
often not be so great as to be traceable by statistics.
Suppose the protected industries in a country giving
protection to be one-tenth of the whole, or the industries
which might be protected in a free-trading community,
but which are left free, to be also one-tenth, which is a
large proportion, and that the loss arising to the com-
munity by the diversion of capital and labour from
more profitable to less profitable employments is lo per
cent, on the production of this one-tenth of the people;
then the loss to the whole community — the difference
it makes — is only i per cent, of the total production.
Even if the diversion should cause a waste of 25 per
cent, in the protected industries in the one case, and
the unprotected industries in the other case, the differ-
ence to the whole community would still be only 2J per
cent. Such small margins, it is obvious, may be lost
sight of among other things, and easily made up by a
little more industry on the part of those who suffer.
They may also affect still less the growth of wealth.

THE USE OF IMPORT AND EXPORT STATISTICS 2)47

through the community bearing what loss there may
be out of its income and accumulating wealth as rapidly
as before. There is an inherent difficulty, then, of a very
formidable kind, in showing by statistics that any given
economic r^ewte is more favourable to the material wel-
fare of a community than another. Unless the differ-
ences are extreme and marked, it seems hardly possible
that there can be much difference in the results, of which
statistics can take note, whether a community is free-
trading or protectionist.

Such being the case as regards statistics generally,
it is hardly necessary to add that import and export
statistics alone cannot give much help. They are even
irrelevant to the question to be answered. It is quite
conceivable that a country may be very prosperous
without foreign trade at all, or with very little foreign
trade, or that for special reasons the foreign trade of
the least progressing country as a whole may be making
greater progress than the foreign trade of a more pro-
gressing country. Were the British Empire, for in-
stance, to form one customs union, the foreign trade of
that union would probably be less than the foreign trade
of the United Kingdom alone is now, and its growth
or decline would be less important in proportion to the
whole business of the empire than the growth or de-
cline of the foreign trade of the mother country is now to
the mother country itself The progress of the foreign
trade of different countries is thus no index at all of
their relative progress materially. Even therefore if
you could reduce the so-called imports and exports of
different countries to common denominators, and make
all proper allowances for changes of prices and the like
disturbing influences, which I have alread)- shown to
be most difficult, you would be no nearer than you were
before to proving that the country whose foreign trade
increases fastest is the most prosperous materially.
There is a more serious difficulty still. Foreign trade
is trade between nations, and the foreign trade of a
country which has an inferior rt^givic may consequently

348 ECONOMIC INQUIRIES AND STUDIES

increase as much in amount, and perhaps infinitely-
more in proportion, than the foreign trade of a country
with a superior regime. The trade of the inferior may
be with the superior, and the two will increase pari
passu, though the impetus may be given by the superior
and not by the inferior. We may see this very clearly
if we put the hypothetical case of two countries, the one
free-trading and the other protectionist, trading ex-
clusively with each other, that is, having no other foreign
trade, with a third country doing no trade itself but
carrying for the two others. Clearly, the foreign trade
of the free-trading and protectionist countries must
exactly balance. Their imports and exports will be
exactly alike. Whether, to give a practical illustration,
the foreign trade of the United States with the United
Kingdom has been the result of the impetus of the
former or the latter will, I think, hardly be open to
question. It is the United Kingdom which by its pur-
chases has stimulated the foreign trade of the United
States, small as that trade is compared with our own.
In any case, these considerations show sufficiently that
the increase of foreign trade proves nothing by itself
as regards the relative material prosperity of different
countries. The circumstances affecting foreign trade,
besides the differences of reghne, are innumerable ; and
above all, it is a necessity that countries with different
regimes should trade with each other, so that the greater
prosperity of free trade countries may cause the foreign
trade of protectionist countries to advance more rapidly
than that of their own.

But while statistics are thus not available in giving
a distinct yes or no to the cardinal question between
free trade and protection, it does not follow that they
are of no use at all. Rightly used and handled they
may contribute materially to the solution of the points
at issue. I have to suggest various ways in which they
may be so used.

First. The proposition, if accepted, that statistics
are not available to prove directly the superiority of

THE USE OF IMPORT AND EXPORT STATISTICS 349

one regime to another in promoting material prosperity,
appears to be entirely on the free trade side of the
argument. It is the protectionist on whom the onus of
proof lies. He affirms that if the State interferes with
trade and does certain things, the greater material
prosperity of a country will ensue. He is bound there-
fore to furnish proof that the State ought to interfere,
and interfere in the way indicated. The free trader, on
the other hand, need not prove anything at all. He
simply wishes to let things alone unless it can be shown
that something should be done; the whole onus of proof
is on his opponent. When it appears, therefore, that
statistics cannot be appealed to in the direct issue be-
tween free trade and protection ; that statistics can
hardly be got to indicate in any way the superiority of
one rSgime to another; this is as much as to say that
the protectionist is not helped by statistics. One great
branch of argument is cut away from him. Logically
then the unsuitability of statistics, owing to their neces-
sary imperfections, for solving the direct issue between
free trade and protection, is a material fact. In point-
ing out that they are unsuitable we do a great deal to
destroy the protectionist case.

It may be asked, then, how it is that the protection-
ist appeals so much to statistics — that he talks of the
greater increase of prosperity in protectionist countries,
of the greater increase relatively of the foreign trade of
protectionist countries, of special industries promoted
by protection, and so forth? The reply is that very
often the facts appealed to are themselves misunder-
stood, being, as we have seen, very difficult to read,
while their logical treatment is a difficult matter. I
notice in all these discussions that the statement of the
major premiss is avoided. The protectionists do not
make clear to themselves what they wish to prove.
They show, for instance, that the United States is
prosperous ; but that is not what they have to prove.
What they have to prove is that it is more prosperous
than it would have been under a free trade regime, a

350 ECONOMIC INQUIRIES AND STUDIES

Statement in which statistics cannot help them. They
assert, again, that the foreign trade of protectionist
countries increases faster than that of free-trading
countries; but what they have really got to prove is
not only that it increases faster than that of other
countries, but that it increases faster than it would have
done under free trade, and that this more rapid increase
is itself an index of greater growth of material prosper-
ity generally than would have otherwise taken place.
The proof again that special industries have been
ostered by protection is nihil ad rem. What has to be
proved is that the industry of the country as a whole
has prospered, which is a very different thing. With-
out discussing, then, the whole case between free trade
and protection, we are entitled, as a scientific body, to
point out that the call which protection makes on stat-
istics is one which cannot be answered. The protec-
tionist seeks an affirmative answer to a question which
statistics cannot answer affirmatively or negatively.

We may perhaps go farther, and say that as the pro-
tectionist relies so much on statistics, and has nothing
else to rely on, — his argument is always an appeal
from theory to facts — then there can be no argument
for protection. This appears, in fact, to be the logical
position of the controversy.

VII. — Subject continued: the 7tegative zise of Import
and Export Statistics.

Second. While statistics can be of no use to the pro-
tectionist, they may be of use to the free trader, nega-
tively, by affording presumptive conclusions that the
anticipations of the protectionist are unfounded. The
protectionist, in arguing that a country will be better
off under protection than under free trade, implies and
assumes that the condition under free trade will not
be satisfactory, that this is the reason for not letting
things alone. If, then, it can be shown that, taking
countries as they stand, the condition of things is

THE USE OF IMPORT AND EXPORT STATISTICS 35 I

tolerably satisfactory under free trade, the difficulty of
the protectionist would be enormously increased. The
reverse, as we have seen, would prove nothing against
free trade logically, but if free trade, on the average,
appears to do as well, or better than protection, the
protectionist is clearly out of court. His only appeal is
to statistics, which could not by any possibility help
him; but if the answer they give, as far as it goes,
makes against him, he is hopelessly in the wrong.

Looking at economic statistics generally in this way,
it is plain that free trade nations, and especially the
United Kingdom, have nothing to complain of. The
fact of the United Kingdom having made great strides
in material prosperity since the free trade period is
undeniable, and is not really denied by protectionists.
Of late, they say, owing to foreign tariffs and other
causes, the results are less satisfactory, and they shake
their heads ominously about the future, but the advance
in the past, I apprehend, is not denied. If it is desired,
I think there are ample materials in our " Journal " to
prove the contrary, so that a mere passing reference
may be sufficient for me to-night. The satisfactory
result may not be wholly due to free trade, and no free
trader ever said that it was; Mr. Newmarch's repudia-
tion of any such idea, in his paper read in 1878, was
most emphatic; but it has been consistent with free
trade, and it is upon protectionists to prove that the
result with protection would have been better.

We are concerned to-night, however, with import
and export statistics specially, and on this narrower
field I may perhaps be allowed to refer to one or two
facts which appear to raise an insuperable presumption
against protection. I should not think of going into the
history of our foreign trade exhaustively, the subject
having been treated so fully by Mr. Newmarch in 1878,
and our special business to-night being with the method
of statistics; but without exhaustive treatment a few
broad facts can be made to stand out clearly enough.
Before pointing them out, however, I must again call

352

ECONOMIC INQUIRIES AND STUDIES

attention to the remark already made, to the effect that
the progress of foreign trade is not necessarily an index
of the progress of material prosperity in a country
generally. It may or may not be so. But conceding it
to be an index, the facts of our experience are not such
as to encourage a protectionist to appeal to them. Our
progress has been astonishing. The protectionist may
imagine, or say he imagines, that under protection we
would have done better, but surely he cannot deny that
under free trade we have done well.

The first facts to be mentioned are those relating to
the movements of shipping. Of these you had a very
full account at the last meeting, and I have said a good
deal to-night about the growth of our shipping business
as a separate business ; but I wish now to speak of those
movements as an indication of the growth of imports
and exports. To some extent they are a better indica-
tion than the figures of imports and exports themselves.
The latter may fluctuate, as we have seen, owing to
changes of price; but if increased quantities of goods
are carried, whatever nominal sums they may be entered
at, you must have more ships. It is quite true, of
course, that shipping may increase disproportionately
to the trade through the articles handled being more
largely of a bulky and less valuable nature than before;
but this is a point which can easily be inquired into.
The entries and clearances of shipping, then, in the
foreign trade of the United Kingdom during the last
forty years have progressed as follows:

1840 . . .

9,440,000

— [

—

'50 . . .

i4,5o5>ooo

5,065,000

53-4

'60 . . .

24,689,000

10,184,000

70.2

'70 . . .

36,640,000

11,951,000 1

48.6

'80 . . .

58,736,000

22,096,000

60.4

THE USE OF IMPORT AND EXPORT STATISTICS 2>53

And the increase from first to last, between 1840 and
1880, covering the whole free trade period, is no less
than 49,296,000 tons, and 525 per cent. To be quite
fair, even in dealing with protectionists, it may be ad-
mitted that the increased use of steamers which do a
calling trade may have caused some increase of entries
and clearances without an increase of goods carried to
correspond; but the self-interest of ship-owners may of
course be trusted to fill up their vessels as much as pos-
sible. Comparing the figures with the increase of popu-
lation in the interval, it appears that while the entries
and clearances in 1840 were 0.36 ton for each unit of
the population, in 1880 they were 1.73 tons for each
unit of the population, an increase of 381 per cent.

We may give some idea of these figures in another
way. The entries and clearances of shipping in the
foreign trade of almost all foreign countries put to-
gether, excluding British colonies, may be taken as
140 million tons.^ The increase of our entries and
clearances, therefore, since 1840 is equal to one-third
of the whole existinof business of all foreig-n countries
put together. Assuming imports and exports, there-
fore, to have increased in the same proportion, we may
say broadly that the increase of the foreign trade of
the United Kingdom since 1840 is equal to one-third
of the whole foreign trade of the world, not comprised
within the British Empire. The increase, moreover, is
equal to about i-| tons for each individual of the United
Kingdom, or five-sixths of a ton of goods conveyed
each way. If a growth of foreign trade like this does
not please protectionists, what sort of trade is it which
will satisfy them?

We come then to the suggestion that the goods have
changed in character. They are said to be more bulky
than they were. This is especially the case, we may be
told, with the exports, where the increase is chiefiy in
coal and pig iron, in raw materials. But this does not
prove that the real values involved have not risen in
^ See Statistical Abstract for Foreign Countries.

I. A A

154

ECONOMIC INQUIRIES AND STUDIES

proportion. On the contrary, it is probable that, value
for value, an export of so much coal or pig iron implies
a much larger employment for labour and capital within
the country than an export of so much cotton manu-
factures. The whole value in these cases is an export
of the produce of British capital and labour; whereas,
in the case of cotton manufactures, four-fifths or two-
thirds of the value may be a re-export. In other words,
lO million pounds worth of coal exported may mean
an export of as much produce of British capital and
labour as 50 million pounds worth of cotton manufac-
tures. Not only so : the fact that equal values of coal or
pig iron exported means more employment for shipping
than values of cotton manufactures implies, as the ship-
ping is mostly British, that there is an immense indirect
employment for capital and labour in connection with
the shipments. We may assume then that the increase
in the movements of shipping is a very good index of
the increase in the imports and exports themselves.

We may look, however, at the actual facts of a few
chief articles, always remembering the circumstances
pointed out by Mr. Newmarch in the paper already
referred to, that the part of our foreign trade which
has most conspicuously increased is the miscellaneous
trade. Take first the exports of cotton yarn and piece
goods. The progress we find is shown as follows:

Cotton Yarn.

Cotton Piece Goods.

Increase on Previous

Ten Years.

Total.

Amount.

Per Cent

Amount.

Per Cent.

Mln. lbs.

Mln. yds.

1840.

I18.5

—

790

—

'50.

131

12.9

1,358

567

'60.

197

65-9

2,776

1,418

104

'70.

186

(-)ii.3

(-)6

3,267

491

17I

'80.

215

29-5

4,496

1,229

Note. — Percentage increase between 1840 and 1880: cotton yarn,
84 per cent., and cotton piece goods, 468 per cent.

THE USE OF IMPORT AND EXPORT STATISTICS 355

On the same plan I make up the following short
tables:

Exports of Iron and Steel.

Increase on Previous Ten Years.

Tons.

Amount. Per Cent.

Mlns.

1840 ....

0.3

— —

'50. . . .

0.8

0.5 167

'60 . . . .

1.4

0.6

'70. . . .

2.8

1.4

100

'80 ... .

3-8

I.O

Note.-
per cent.

-Percentage increase between 1840 and 1880 equal to 1,167
Exports of Hardware and Cutlery.

Increase on Pre\nous Ten Years.

1840 .

'50.
'60 .

'70.
'80 .

Value.

Amount.

Per Cent.

Mln. ;^'s.

1-3

—

2.6

1-3

100

3-8

1.2

3-8

—

3-5

(-)3

(-)8

Note.-
per cent.

-Percentage increase between 1840 and 1880 equal to 169

Exports of Machinery.

Increase on

Prei

ious

Ten Years.

Values.

Amount.

Per Cent.

Mln. £\.

1840 ....

0.6

—

'50 ... .

1.0

0.4

'60 . . . .

3-8

2.8

280

'70 . . . .

5-3

1-5

'80 . . . .

9-3

4.0

Note.-
per cent.

-Percentage increase between 1840 and iSSo equal to 1,483

;56 ECONOMIC INQUIRIES AND STUDIES

Exp07'ts of Coal.

1840 .

'50.
'60 .
'70.
'80 .

Increase on Pre\

ious Ten Years.

Tons.

Amount.

Per Cent.

Mlns.
1.6
3-4

1.8

112

7-3

1 3-9

115

II. 7

4.4

18.7

7.0

Note. — Percentage increase between 1840 and 1880 equal to 1,070
per cent.

These tables of course are not, and do not pretend
to be, exhaustive as regards foreign trade, while if they
were exhaustive, many questions would be suggested
as to the precise character of the increase, the countries
with which it takes place, and other particulars. Com-
paring these exports, however, with the above stated
facts as to shipping, they serve to show what a gigantic
growth we are dealing with. It is difficult to imagine
what foreign trade there can be which increases more
rapidly. I have omitted giving any quantities for the
imports, for the practical reason that the quantities of
our importations are less in dispute, but they are easily
enough accessible to all concerned.

The facts as to quantities being thus clear, we are
able to use the facts as to values. The whole exports
of British and Irish produce between 1840 and 1880,
according to the declared values, have been :

Total.

Increase on Previous Ten Years.

Amount.

Per Cent.

MIn. ;^'s.

1840 . . .

51-3

—

'50 . . .

71.4

20.1

'60 ...

135-9

64-5

'70 . . .

199.6

63-7

»8o ...

223.1

23-5

THE USE OF IMPORT AND EXPORT STATISTICS 357

and the increase between 1840 and 1880 is 335 per
cent. There are some points in detail to be observed
upon, but the progress generally is evidently as re-
markable as that of entries and clearances of shipping
and the quantities of the principal articles of export,
and, taken in conjunction with these facts, gives fair
ground for supposing that the whole foreign export
trade in quantities, as well as values, has increased in
about the same degree.

Dealing with values alone, as regards the imports,
we get the following comparison :

Increase on

Previous Decade.

Total.

Amount.

; Per Cent.

Mln. ;^'s.

854^ . . .

143-5

—

'60 . . .

210.5

67.0

'70 . . .

303-2

92.7

'80 . . .

411. 2

108.0

and the increase since 1855 is 186 per cent. Thus
both in imports and exports there has been an enormous
increase for the United Kino-dom durinof the free trade
period — an increase which has been demonstrated to
be as great in quantities as in values in the case of the
exports, and which is presumably so in the case of the
imports, though it would encumber this paper too much
to go into detail. As regards imports at least, there
can be no question of its having continued to the latest
date. There is no apparent falling off in the last few
years to account for.

Clearly, then, in these figures the protectionist has
a very difficult argument. If our foreign trade had
progressed less, the onus of proof would still have been
on the protectionist to show that under another rcgi7ne

^ In the case of the imports, there are no computed or declared
values before 1854.

358 ECONOMIC INQUIRIES AND STUDIES

it would have progressed more ; logically, figures show-
ing a less progress would not have helped his argument
a bit. But the figures being what they are, he has to
prove that protection would have had a better result,
and promises better in future. He must

" Gild refined gold, and paint the lily."

Thus, negatively, the statistics of foreign trade are
useful. The prosperity of the last forty years may not
be owing to free trade, but it has been consistent with
free trade, and protectionists must look elsewhere than
in our import and export statistics for any argument
against free trade policy.

There are one or two points, however, which are
likely to be cavilled at, though the figures themselves
will help to supply an explanation. There is apparently
a little support given by some of the figures to the con-
tention that in recent years foreign trade has ceased
to progress quite as rapidly as it did at an earlier
period. The increase in the export values is only 12
per cent, in the last decade, as compared with 47 per
cent, in the previous decade, 90 per cent, between
1850 and i860, and 40 per cent, between 1840 and
1850. There is a similar diminution in the quantities
of the principal articles exported, though not in all ;
v.'hile in one decade at least, viz., between 1850 and
1 060, the proportionate growth of the movements of
shipping was a little greater than it has been since.
A little consideration will show, however, I believe,
that while there were probably real causes between
1850 and i860 for a greater proportionate increase
of our foreigfn trade than there has been since — such
causes as the great growth of railways between 1840
and 1850, which came really into use between 1850
and i860, the gold discoveries, and the great coloniza-
tion which went on in the latter decade — yet the
diminution in the rate of increase lately is much less
than it appears to be. The period between 1850 and
i860 was the one in which the first effect of the gold

THE USE OF IMPORT AND EXPORT STATISTICS

•59

discoveries, which beyond question raised prices con-
siderably, was experienced. In the period since 1870
there has been a general decline in prices, aggravated,
specially as regards our own exports, by a special de-
cline in cotton. Keeping in mind then the important
element of price, we see reason at once for looking
more to the quantities and to the movements of ship-
ping than to the values only. The figures, in fact,
corroborate what has already been stated in the first
part of this paper as to the importance of price. Unless
we allow for this element, we shall be bewildered by
the fiofures.

The point is perhaps worth even more minute con-
sideration. Comparing the percentages of increase of
the values of the exports and of the movements of
shipping, we get the following results :

Increase of Shipping
Movements.

Increase of Export
Values.

1840-50

'50-60

'60-70

'70-80

Per cent.
53-4
70.2
48.6
60.4

Per cent.
40

47
12

1840-80

525-0 335

Thus between 1840 and 1850, before the gold dis-
coveries had caused prices to rise, and when they were
probably tending to decline, the increase of shipping
was rather more than the increase of export values ;
in the following decade, when prices were undoubtedly
rising, the increase of export values is more than the
increase of shipping movements; in the third decade,

360 ECONOMIC INQUIRIES AND STUDIES

viz., between i860 and 1870, when prices were prob-
ably stationary, the rate of growth is about even In
the two cases; in the last decade, when the level of
price has probably declined considerably, the rate of
growth of shipping remains much the same as in the
previous decades, but the rate of growth of the export
values shows a diminution. To my mind the sugges-
tion of this table as to a fall of prices between 1870
and 1880 is most direct, and such questions of price,
I am satisfied, will require to be more and more con-
sidered. We have not had import and export figures
on a tolerably satisfactory basis for many years to deal
with, and we are only beginning to find out the diffi-
culties of using them when long periods are compared.
Meanwhile the practical conclusion appears beyond
question.

I have to suggest, moreover, what has already been
stated in the previous part of the paper as to the in-
crease of our shipping business as a means of account-
ing for the non-increase of our apparent exports. It is
because our invisible exports have been increasing so
enormously, that there is less increase of the visible.
But it is the same thing of course whether we export
the produce of our capital and labour stored up in
goods, or in the shape of repairs to ships, or new ships
built to replace old ones, which carry the foreign goods
of the world. In any way that we take the figures,
there has obviously been an enormous growth of our
foreign trade since the free trade period, continued to
the most recent date. What the protectionist has to
prove is that protection would probably have done
better or so well.

It would be impossible to go through the imports
and exports of foreign countries in detail, to show how
they also raise a presumption against the protectionist.
Looking at the difficulties of analyzing the data them-
selves, and allowing for special circumstances which
may have affected the foreign trade of difterent coun-
tries, the difficulty of inquiring what the facts are as

THE USE OF IMPORT AND EXPORT STATISTICS 36 I

regards foreign countries, and of finding suitable pairs
of free trading and protectionist countries for com-
parison, would in truth be insuperable. To mention
only some of the difficulties which occurred to me in
endeavouring to form a group of protected European
countries, I may state that the fact already mentioned
as to the recent change from official to real values in
Austria throws out all comparisons as regards that
country; and that for Russia comparisons are equally
thrown out by the recent depreciation of the rouble
and rise in nominal prices, which unduly swell the
figures of the foreign trade, while a reduction of the
rouble to specie value in each year would be open to
some exceptions. For Germany, again, we have statis-
tics for ten years only, too short to be of any value.
This leaves no other country than France among the
great European States as to which a special inquiry
would seem worth while, and even as regards France
we have also to remember that the separation of Alsace
and Lorraine ten years ago was a special cause of in-
crease in the foreign trade, what was home trade in
France becoming in fact foreign.

In the absence of any general grouping, then, I
shall refer specially to two foreign countries only — the
United States and France — the former a protectionist
country, which became in the period under review
more protectionist than at the beginning, and the latter
a protectionist country, which became less protectionist.
Is there anything on the face of the figures of either
country to suggest such a progress in their foreign
trade, assuming that trade to be a good index of ma-
terial prosperity, as to imply that protection is a speci-
ally advantageous j'ej^imc}

With regard to the United States, making a table
in much the same form as that for the United King-
dom, but including specie, the general figures are:^

"' I make use here of the figures in the Essay already referred to
on the Foreign Trade of the United States.

362

ECONOMIC INQUIRIES AND STUDIES

Foreign Trade of the United States.
[In millions of pounds.]

Imports.

Exports.

Amount.

Increase on previous
Period.

Amount.

Increase on previous
Period.

Increase.

Per Cent.

Increase.

Per Cent.

1840 .

—

'50 .

'60 .

100

165

'70 .

I2ir

'80 .

152

170

And the increase in the imports for the whole period
is nearly 700 per cent., and in the exports between
500 and 600 per cent. \xv proportion, therefore, there
is a greater rate of progress in protectionist America
than in free trade England, though, if we take the
whole period, not so much greater an increase as to
raise any presumption in favour of protection as being
more likely to develop the foreign trade. I need hardly
say, however, that in such a question the mere propor-
tion of increase is not the proper test. The amounts
are also material, and it cannot fail to be observed that
the United States beingf a larg^er unit than the United
Kingdom, had at the beginning, and still has, a smaller
foreign trade. The whole imports are, in fact, 150
million pounds only at present, as compared with 400
million pounds and upwards into the United King-
dom ; and the whole exports are 1 70 million pounds,
as compared with 223 million pounds of domestic pro-
duce exported from the United Kingdom; the latter

THE USE OF IMPORT AND EXPORT STATISTICS ^6

J^J

figure, besides, as already explained, not including the
invisible export in the shape of outlay for earning
freight. The increase in imports again between 1840
and 1880 is 130 million pounds, as compared with an
increase of 268 million pounds into the United King-
dom since 1854 only; while the increase of the exports
between 1840 and 1880 is 144 million pounds, as com-
pared with 171 million pounds in the case of the United
Kino-dom, aofain rememberino- in the latter case that
our invisible exports have increased so much, and are
not reckoned in this calculation.

These figures, then, rather suggest, if anything, the
superiority of a free trading to a protectionist regime.
They are something for the protectionist to get over
if he appeals to progress in imports and exports as a
proof of the superiority of protection. No doubt in any
complete discussion we should have to analyze minutely
what the foreign trade in each case is composed of;
while it would be fair to allow, I think, that the United
States, from its geographical extent and the ancient
development of its manufactures — for the eastern States
are as much an old country as England — may have
a smaller foreign trade in proportion than another
country of less extent with large manufactures, or
another country of large extent without manufactures.
It is an empire within a ring fence, and the foreign
trade of the British Empire, if that empire were made
a customs union, would, as already stated, be less than
the foreign trade of the United Kingdom now is, and
certainly much less in proportion to the home trade.
Sdll all these nice considerations are out of place in
the mouths of protectionists, who have dwelt lately on
the wonderful progress of the American foreign trade.
The figures, in the way they use them, turn against
themselves.

Coming to the French figures, I have to submit a
similar table, beginning, however, in 1850 only, as there
are only official values in 1840:

ECONOMIC INQUIRIES AND STUDIES

General Imports into Fra?ice, and Exports of Do?nesfic Produce.

In millions

]

Imports.

Exports.

Amount.

Increase
1 on previous

Period.

Per Cent.

Amount.

Increase

on previous

Period.

Per Cent.

1850.
'60.

'70.

'80.

45
106
140
245

105

135
33

112

139

i £

' 48
21

109
22
22

Here again the rate of growth is apparently as great
as that of the United Kingdom, though an exact com-
parison is impossible, as we cannot go back to 1840.
The amount of trade and amount of growth, however,
are, like those of the United States, much smaller than
the amount and growth of our own trade, although
France, like the United States, is a larger unit. In the
imports the growth is 200 million pounds between
1850 and 1880, as compared with 286 million pounds
in the United Kingdom, between 1854 and 1880, and
in the exports it is 96 million pounds between 1850
and 1880, as compared with 151 million pounds in the
same period in the United Kingdom. There is nothing
then in the French fiorures to make a case for the
protectionist, while there is ground for claiming that
between i860 and 1880 France had made considerable
steps in the direction of free trade, so that whatever
progress had been made might be ascribed to free
trade, and not to protection. There is no need, how-
ever, to press this point. France may be taken as a
protectionist country. There is surely nothing in the
figures to raise any doubt of our free trade rigime,
always remembering, besides, our own invisible exports.

It is interesting to note, in passing, the great aug-
mentation of French trade between 1850 and i860, a
sign of the rise of prices I have already suggested in

THE USE OF IMPORT AND EXPORT STATISTICS

365

connection with the EngHsh figures for the same period.
In France, however, the augmentation may partly be
due to the more intimate connection which then took
place between France and its neighbours on the differ-
ent land frontiers, which must have been a powerful
special cause, I believe, for the development of foreign
trade among inter-continental countries.

To bring these figures to a point, it may be useful
to look at a calculation per head of the population in
each case :

Imports and Exports per Head of the Population in England, France,
and the United States co7npared.

Iviports-
1840

'50
'60
'70
'80

Exports-
1840

'50
'60
'70
'80

United Kingdom.

s. d.

3 2'

7 0
14 4
18 7

I
2

18 9
II 10

4
6
6

14 7
7 II
9 5

United States.

£ s.

I 5

1 10

2 6

2 8

3 o

III I
162
2 10 II
2 611

France.

1 5 o

2 17 4

3 15 8
6 12 5

I 3 II
292
306
3 15 2

Thus our imports are still about four times per head
those of the United States, and twice per head those
of 'France, and our exports are about twice those of
either country, not counting, what I must always insist
on, our invisible exports. The increase of our imports
per head since 1850 is also double the whole of the
present imports per head into the United States, and
about equal to the present imports per head into
France, and the increase of our exports since the same

Year 1854.

366 ECONOMIC INQUIRIES AND STUDIES

date is between 25 and 50 per cent, more than the
total exports per head in either case.^

We may conclude, then, that not only has England
made satisfactory progress in its foreign business under
free trade, but the most prominent foreign countries
have advanced less under protection. The onus of
proof thus laid on the protectionist to show that we
would have done better than we have done under pro-
tection, or that we shall do better in future with pro-
tection, appears to me overwhelming. There is no
bearing up against it. Thus statistics, though they
cannot logically prove the affirmative in the direct
issue between free trade and protection, from the diffi-
culty of finding exactly parallel cases and eliminating
other causes, may be used to prove negatively that
there is nothing in the apparent facts to help the pro-
tectionist. The presumptions are altogether against the
latter.

VIIL — Subject contimied: other tises of Import and
Export Statistics. Conclusion.

A third way in which statistics may be used in the
argument is to show that protection does certain par-
ticular things which are obviously of an injurious tend-
ency, while there is and can be no proof that the
advantages of protection counterbalance these evils;
and on the other hand that free trade effects certain
ends which are obviously beneficial, which are additive
to the welfare of a community, without any drawbacks.
Facts of this nature corroborate the general theory of
free trade, though they do not demonstrate completely
and logically by themselves that the one rigime is better
than the other.

We may examine what a few of these facts are.

' For later figures as to English, French, and American foreign
trade, I may refer to the Tables I laid before the Royal Commission
on Trade Depression, and to the recent Board of Trade Blue-book
Cd 1761, Sess. 1903.

THE USE OF IMPORT AND EXPORT STATISTICS 367

Peoples adapt themselves quickly to any regime, and
when a particular r^gi7ne has been long established, it
is difficult to see what its permanent effects are; but
when changes are made, the nature of the influence
maybe perceived, and it is from such transition periods
we get evidence for or against the one rigime or the
other.

To go back a long way, let me refer you to a com-
paratively old book, Sir Henry Parnell s " Financial
Reform," published in 1832. At pages 37-39 et seq. of
the book, this author gives numerous instances of the
effect of high duties in checking consumption — that is,
in diverting trade and imposing various hardships on
the community. He refers to tea, tobacco, wine, spirits,
and other articles, in which an increase of taxes pro-
duced no more or little more revenue ; and I shall
quote as a specimen what he says of flint and plate
glass :

"In 1813 the duties on flint and plate glass w^ere
doubled. In four years to 18 13, the average annual
quantity made for home consumption was 66,500 cwts.
In the four years following 1813, the annual average
quantity was only 30,000 cwts. The duties on all other
kinds of glass were doubled in the same year. The
revenue received in the four years preceding 18 13 was,
on an average, ^340,000; that received in the three
years following 18 13 was, on an average, ^395,000, so
that the doubling of the duties, instead of producing
;^340,ooo, produced only ^55,000."

In the opposite sense Sir Henry Parnell then refers
to numerous remissions of high duties which produced
increase of revenue, and I shall again only mention the
case of flint glass, in which a reduction of duty, in
1825, from 983-. to 565. per cwt, was followed by an
increase of consumption from 30,000 to 47,000 cwts.
annually. Sir Henry Parnell adds:

" The Committee of Finance state, in their fourth
report on the revenue and expenditure, that if the
revenue had fallen off in the five years from 1825 to

368 ECONOMIC INQUIRIES AND STUDIES

1828 \_sic'\ in the same proportion that taxes had been
reduced, the diminution of it would have been 9
million pounds; but that, owing to increased consump-
tion, it had only fallen off about one-third of that sum."

No doubt Sir Henry Parnell is speaking of high
taxes generally, but the greater includes the less, and
high tariffs of a protective character must have exactly
the same or a worse effect in diverting industry and
diminishing consumption as high taxes of a non-protec-
tive character. It is the tendency of the system which
is exhibited in such instances as those given by Sir
Henry Parnell. The book I refer to is comparatively
forgotten nowadays, but it was famous once, and those
who look into it will find it to deserve its reputation.

Another case of the effect of the large remission of
duties at the period of transition is supplied by the
experience of what occurred in this country in the first
two years after the introduction of the free trade tariff
of 1842. Historically this experience had a great deal
to do with the practically unanimous conversion of the
country to free trade principles, but the striking nature
of the facts statistically is still worth repeating. They
are recorded for us in a little book of Mr. Gladstone's,
not, I fear, very well known, entitled " Remarks upon
Recent Commercial Legislation," published in 1845.^
It would be hopeless for me to attempt to give a con-
densed account of this book, to which I can but refer
you; but among the principal points I note, (i) that
the calculated money loss of the reductions of the tariff
in 1842-44 was ^5,142,000, and that other duties
were repealed or reduced, involving a money loss of
;^ 1, 1 6 2,000, making together a sum of ^6,304,000, and
that the free surplus of the income tax over and above
what was required to supply actual deficiency was only
^2,621,000. This was all that was really required, as
the event proved, to balance remissions of taxation
amounting to ^6,304,000 (pp. 12 and 13). (2) The

^ London: John Murray, 1845. Third edition.

THE USE OF IMPORT AND EXPORT STATISTICS 369

mean estimated loss from remissions of duties on raw

material mainly was ^1,452,000, and the actual loss in

the first year after the tariff Act was about this sum;

but this first year was a year of great depression, and

the actual loss in the secondyear was ^1,133,000 only,

showing a recovery in that year of ;^325,ooo on a total

of about 3 millions only (pp. 27 and 28). (3) The net

loss of revenue from a ofreat remission of the timber

....
duties, while it was greater in the first year by

£1 14,000 than Sir Robert Peel had estimated, was less
in the second year than he had estimated by no less a
sum than ^193,000, showing a great recovery in the
trade (pp. 36 and 2,7)', and (4) the predictions of injury
to our manufactures and other industries by exposing
them to foreign competition — there was quite as much
talk of foreign competition then as there is now — were
ludicrously falsified in the case of cork-cutting, candle-
making, vinegar-making, and other industries (pp. 49
et seq.). In all these matters a free trade tariff had ap-
parently done what it was expected to do, and had
contributed to swell the volume of national trade. As
I have said, I am by no means condensing the volume,
which is itself in a highly condensed form, but only
pointing it out as a mine of information on the proposi-
tion that the change from a protective to a free trade
regime appears to stimulate trade, from which we infer
that the stimulus continues to operate afterwards,
though it becomes impossible, from change of circum-
stances, to compare in a strictly logical manner a free-
trading and a protectionist I'dgime.

A third source of information to which reference
cannot be too often made is Mr. Wells's valuable re-
ports as commissioner of internal revenue in the United
States. These are so well known that I may refer to
them very briefly only. We hear a great deal of the
growth of certain manufactures in the United States
which have been protected, but these reports show
clearly the reverse of the medal — the injury to other
industries incidental to these changes. Thus the first

I. BE

370 ECONOMIC INQUIRIES AND STUDIES

report for 1866 dwells largely on the injury to the
woollen manufacture by the protective tariff on wool
designed to protect the growth of raw wool. Then in
the report for 1869 we have many such statements as
this about boots and shoes, viz., that the export value
declined from 1,329,000 dollars in 1863 to 682,000 in
1867, and 475,000 dollars in 1869. Lastly, there is the
well-known story of the decline in the American ship-
ping trade, and the great increase in the amount of the
foreign trade of the United States itself, carried on in
foreign ships. Mr. Wells gives a table at p. 30 of the
report for 1867, showing even then the preponderance
of foreign vessels in the carrying trade of the United
States, and calculating the amount which the United
States has to pay to foreigners in consequence, the
opposite of the calculations I have submitted to you
to-night as to what this country has to receive. These
are all instances of loss arising through protectionist
measures, and they should be remembered, as being
undoubtedly in operation as a check to industry, though
we cannot well see the effects from day to day, when a
country has adapted itself to a protectionist regime.
What they prove is, that protection does not add to
the industry of a country, but that it only diverts the
industry at a great expense at the time and presumably
at a continuous expense. The loss is certain and the
gain entirely problematical, however much it may be
proved that certain special industries have been fostered
by protection.

As there are many later figures about American
shipping since the date of Mr. Wells's report in 1869,
and there is still a vague impression that it was the
" Alabama " which diverted shipping business from the
United States, I may be allowed to notice briefly these
later figures, and see how far the impression as to the
" Alabama " is confirmed. The first set of figures shows
the increasing preponderance of foreign vessels in the
American carrying trade. For the years ended 30th
June, 1871-80, we get the following figures:

THE USE OF IMPORT AND EXPORT STATISTICS

Table shozuitig American Imports and Exports Carried in American
and Foreign Vessels respectively.

[In millions of dollars. ]

Exports of
Domestic Produce.

Imports.

In American Vessels-
1871. . . .

73
74

75
76,

77'
78,

79'
80,

In Foreign Vessels-
1871. . . .

72
'73
'74

'75
'76

'77
'78

'79.

181
161
163
166

M5
160

156

159
122
109

376

381
478

521

493
480

515
557
588
719

163

177

174
176
158
143

151
146
144
164

363
445
472

405
382
321

329

307
310

579

Total.

344
338
337
342
303
303
307

305
266

273

739
826

950
926
877
801

844

864

898

1,298

A table like this speaks for itself. While the amount
of American trade carried in foreign vessels increases
in ten years from 739 million to 1,298 million dollars,
or more than jo per cent., the amount carried in
American diminishes from 344 to 273 million dollars.
The American share, which is nearly half the foreign
at the beginning of the period, is at the close just
about a fifth of the foreign.

The second set of figures relates to American ship-
building. I give the figures for twenty years, covering
the whole of the " Alabama " period. They are as
follows :

ZT^

ECONOMIC INQUIRIES AND STUDIES

Tonnage of Vessels Annually Built in the United States in the
Years 1 860-80.

[In thousands of tons.]

,. Thousand
^^^'' Tons.

,r Thousand
^^^'- Tons.

i860 .... 213

1871 .... 273

'61

233

'72 .

209

'62

175

'73

359

'63

310

'74

432

'64

415

'75

297

'65

383

'76

203

'66

336

'77

176

'67

• 303

'78

• 235

'68

285

'79

193

'69

• 275

'80

157

'70

. 276

What this table shows, I think, is, that American
ship-building did not fall off till after the war. From
1863, the third year of the war, down to and inclusive
of 187 1, the ship-building is larger than in i860 and
1 86 1, and not much short, I may state, of the figures
in the previous decade, which was one of great pro-
sperity in American shipping. As late again as 1873
and 1874 the building is considerable. I think we may
infer" from this that down to a very recent period even
American ship-building and ship-owning had a suffi-
cient basis for its development, if that development
had not been checked by external causes. The effects
of the " Alabama " would in fact have been very speedily
recovered from but for other causes. Probably, indeed,
the operation of the civil war was not so unfavourable
as it seemed. If ship-building for private individuals
was checked, there was a great demand for Govern-
ment ships, and miscellaneous vessels of all kinds, and
at the close of the war there was nothing to prevent
American ship-builders and ship-owners from recover-
ing some of the ground they had lost. It may perhaps
be doubted whether even with a free trade tariff in
America the results would not have been the same as
they have been. There were natural causes, I believe,

THE USE OF IMPORT AND EXPORT STATISTICS 2)73

Operating in favour of the extension of the industry
in British hands. But that the American tariff" made
impossible the extension of American ship-building,
which would otherwise have been difficult only, is be-
yond doubt.

Last of all, coming to more recent times, the ex-
perience of the high tariff in Germany maybe referred
to as proving that those particular evils happen which
free traders predict from such a tariff as Germany has
established, viz., a high price of food, the deterioration
of the position of the labourer, and a general inalaise.
On this head I need do no more than mention the
well-known paper containing extracts from reports of
the German Chambers of Commerce respecting the
new tariff and its effects, lately presented to Parliament
by the Board of Trade. ^ The reports summarized in
that paper do not contain many figures, but the state-
ments are distinctly quantitative, and when a sufficient
time has elapsed we shall no doubt have the statistics.

Thus in many ways statistics can be used to show
that the tendencies of free trade and protection are
what they are said by free traders to be — the former
additive to the material prosperity of a country, the
latter siibtractive, in some of their effects at least, so
that no proof can be given of their being on balance
beneficial. The quantity of evidence of this sort is
overwhelming — I have only given a few instances. If
we keep in mind the exact logical value of this evidence,
it is destructive, I believe, of the protectionist case, as
far as the appeal to statistics is concerned. In the
absence of direct comparisons between free trade and
protectionist regimes, which is a circumstance entirely
against the protectionist, all the indirect evidence of
tendencies exhibited at transition periods is in favour
of the free trader.

A fotirtk way in which statistics may help in this
controversy is by demonstrating the confusion of ideas

' See C. 3111. Session 1882,

374 ECONOMIC INQUIRIES AND STUDIES

which one always finds to be of the essence of a fair
trade argument. The difficulty in dealing with these
arguments is the difficulty of understanding them only,
of trying to form a conception of what is in the mind
of your opponent. We are told at one time that our
foreign trade is falling off enormously, the alleged proof
being that the exports of domestic produce have de-
clined in value; while the obvious fact, apart from
statistics, is the preponderance of English foreign trade
in the business of the world, so that if the figures ap-
parently showed the contrary, that would be no reason
for arrivinof at a conclusion with which other facts
would not fit in, but a reason only for studying and in-
quiring into the figures themselves, and seeing what
they really meant, when properly rectified. We are
told at another time that imports of manufactured
articles into the United Kingdom are increasing, lead-
ing to the decay of manufacturing at home; the fact
being, as distinguished from what some statistics may
show or appear to show, that there never was more
manufacturing than there is in England at the present
time, of which the obvious proof is the rapid increase
of the population in recent years, and the fact that
pauperism has been stationary or declining. If any
statistics therefore appear to show the contrary, that is
only a reason for studying the statistics with all the
collateral aids possible, not for blindly rushing at a
conclusion with which nothing else will agree. Simi-
larly we have had the excess of imports in a country
dealt with as a proof that the country is running into
debt ; the excess of exports of other countries used as
a proof that they are prosperous, these countries being
also assumed not only to be protectionist, but to owe
their great exports to protection, and so forth; the real
facts as to whether one country is running into debt
and another gaining not being otherwise inquired into.
The peculiarity of most such ideas is, that even if true
they do not help the protectionist argument, which is
of such a kind, as we have seen, that it cannot be

THE USE OF IMPORT AND EXPORT STATISTICS 375

helped by statistics; but the so-called arguments and
statements are themselves misleading and unintelligible.
Now one supreme use of the study of statistics, in-
cluding import and export statistics, which is our
special subject to-night, is to clear up all this con-
fusion; to introduce true ideas where there are strictly
no ideas at all — no picture of what is really going on
in the world; and in this way to purge the mind of any
tendencies to protectionist heresy. The mind capable
of thinking about economic questions from a statistical
point of view, and forming a true picture of the facts
of the business world, would not, I maintain, be liable
to the influence of protectionist ideas. It is not among
leading business men in the City, or men conversant
with great business affairs anywhere, with the single
exception perhaps of Prince Bismarck, that you find
these confused notions, which are the congenial soil of
protectionist heresy.

How statistics help in these matters has already been
set forth, I hope, to some extent, by the discussion of
the excess of imports controversy, and by reference to
many special points. But a few more remarks may be
permitted to illustrate the extreme confusion of ideas
which require to be cleared up. To come back to the
excess of imports controversy; even if the excess of
imports meant what it is assumed to mean, it would not
help the protectionist, but the real facts are wholly
different from the apparent ones, and any true study of
the subject gives quite a different idea of the business
activity of England from the careless one. Our exports
of British produce being nominally 223 million pounds,
of which about 60 million pounds is raw material pre-
viously imported, the real export of the produce of
British capital and labour shown in the so-called ex-
ports is thus about 160 million pounds only. We have
found, however, on investigating the facts, that our un-
recorded exports, in the shape of freights carried and
other charges on the conveyance of goods, apart alto-
gether from interest on investments abroad, amount to

376 ECONOMIC INQUIRIES AND STUDIES

about 80 million pounds — about half the real amount
of our recorded exports of British produce — so that
without having some view of these unrecorded exports,
we have no true idea of English trade. Without taking
the unrecorded figures into account, we should err in
our appreciation of the actual fact of England's business
activity by 30 per cent, or more. It is not that the
statistics — the figures themselves — are wrong. They
merely require study and careful interpretation to get
at the facts which underlie the statistics.

Another illustration of how the true study of statistics
clears up false conceptions is supplied by the confuta-
tion of many historical arguments which have recently
been used by fair traders. Not long ago an evening
journal of the very highest literary reputation admitted
into its columns a series of letters comparing the rela-
tive progress of English trade at different dates during
the last two centuries, in which not the slightest refer-
ence was made to the fact that we have no good statis-
tics of aggregate imports before 1854, and no declared
values of exports before 1820, so that all comparisons
before these dates, or between facts before and facts
after these dates, are most difficult. The true study of
statistics of course shows the necessary limitations of
any such comparisons. I do not say it would be quite
impossible to go back farther to some good purpose.
It is quite likely that a careful student, with a good
record of prices in his hand, willing to take the trouble
to compare this record with the official valuations from
time to time, and to attend to the relative magnitude
of the chief articles of trade, might arrive at results
which would throw a great deal of light on the economic
history of the last two centuries. But for the present
the confused notion that our recent progress under free
trade has been less than in former periods before free
trade, which was the conclusion or apparent conclusion
of the remarkable letters I have referred to, must be
dismissed as a mere wild notion which cannot be known
to have any relation to actual facts. The range of our

THE USE OF IMPORT AND EXPORT STATISTICS 377

genuine knowledge in these matters is much more
limited than such discussions assume.

Another illustration of how true ideas may be sub-
stituted for false is supplied by the discussion in Sir T.
Farrer's recent pamphlet issued by the Cobden Club,
on " Free Trade v. Fair Trade." A great deal of this
pamphlet is taken up with the refutation of the idea
that our trade with the colonies is specially beneficial,
or tends to increase more than our trade with foreign
countries. For myself, I cannot see how the idea which
Sir T. Farrer refutes tends to support the protectionist
argument. It rather seems to prove that as the colonies
are less protectionist than foreign countries, their rela-
tive free trade is only a sign that if they w^ere more
free trading the better for us. But Sir T. Farrer's
demonstration that there are " colonies " and "colonies,"
and that there have been great fluctuations in the
amount of trade and its proportion to our whole trade
which we have done with them in different periods, is
conclusive as to there being nothing in the protectionist
notion of the special value of colonial trade. Perhaps
I may add that a reference to one of the tables which
I have given to you to-night, viz., that showing the
issues of public loans and companies on the London
Stock Exchanofe on foreign account in the last six
years, throws some light on the momentarily greater
development of our trade with the colonies as com-
pared with our trade with foreign countries. This list
com.prises a very large proportion of colonial issues, a
much larger proportion than the previous six years,
before the foreign loans collapse, would have shown.
The truth is, I should say, our exports to the colonies
lately have kept on increasing because their credit
was never impaired, while our exports to many foreign
countries fell off because we ceased to lend to them.
At any rate the point seems worth investigating before
drawing absolute conclusions.

Yet one more remark on this head. Sir T. Farrer
shows conclusively enough that colonies are of different

378 ECONOMIC INQUIRIES AND STUDIES

sorts, and they are not to be grouped together, nor
are all foreign countries to be grouped together. This
reminds me of a different grouping of countries, which
some of you may remember, by a gentleman, Mr. Ernest
Seyd, who was one of us, and for whom we all had the
highest respect, though few of us agreed with his con-
clusions or methods. Mr. Seyd grouped countries into
those having the gold standard, and those having the
silver standard, and found, or believed he had found,
that it was with countries having the gold standard
our trade had progressed most, while with countries
having the silver standard it had tended to decline. I
do not know whether if Mr. Seyd had lived and ob-
served the very last advance in the trade with India
he would have adhered to his view, but his division
was at least quite as logical as the division into
colonies and foreign countries which has lately been
made.

The conclusion is that such rough groupings and
the facts apparently shown are not to be relied upon,
and do not yield true ideas in a statistical view. The
inquirer in this as in other matters must try many
methods, and must not conclude that the apparent
look of the figures corresponds to facts. A true his-
tory of the recent course of the foreign trade of the
principal nations of the world would lay stress upon
many things besides the division of nations into British
colonies and foreign countries, or into gold standard
and silver standard countries. The progress of inven-
tion; the growth of shipping in one country, and its
decline in another; the settlement of new countries,
and the like facts, would all have a place, and perhaps
a larger place, than the points which protectionists and
fair traders, or enthusiasts like Mr. Seyd, who concen-
trate their attention on one subject only, take up. I
need not, however, multiply illustrations, especially as
the whole course of the argument to-night has been to
substitute, as I hope, true ideas for false ones, on many
points.

THE USE OF IMPORT AND EXPORT STATISTICS 2)79

In various ways, then, we conclude that a use can
be made of statistics of imports and exports in the
discussion between free traders and protectionists.
The fact that such statistics cannot be used in the
direct argument as to which 7'igiine is most favourable
to material progress is against the protectionist, who
calls for Government interference, and must thus prove
his case, while the free trader is passive. The statistics
at the same time supply ample "proof prima facie that
there is nothing in the apparent figures of imports and
exports to supply a case against free trade. Next, they
can also be used to prove that at the period of transi-
tion from one rSgime to another, the tendency of free
trade measures is to add to the prosperity of a country,
while no such tendency can be proved of protectionist
measures. Finally, they help to prove the utter con-
fusion of ideas which is found to be the most fitting
soil for the growth of the protectionist idea itself.
Without then making more of statistics than can really
be made of them, we can affirm that they are most
useful in these controversies. They are, however, use-
ful in proportion only as we observe their necessary
limitations. If the example of protectionists is imitated
by free traders, and the first figures that come to hand
are shied at opponents on the principle that any stick
is good enough to beat a dog with, I am not sure that
figures will help the free trader much. The public will
simply be puzzled, and induced more than ever to be-
lieve that there is nothincr at all in statistics.

IX. — Conchision .

I have now to return to the point from which I
started. My complaint at the beginning was of the
wrono- use of statistics, and the netjlect of the con-
ditions upon which alone they can be rightly used. If
I have made out a case at all, it is that even import
and export figures, which are so familiar to many, can-
not be handled with facility ; that there is a world of

380 ECONOMIC INQUIRIES AND STUDIES

knowledge to be learnt concerning them; and that in
all directions sound and diligent study must precede
any good use of them; but that if there is such a study
of statistics, useful and valuable conclusions can be
arrived at with certainty. My suggestion, then, would
be that there is need, not only for the members of this
Society to redouble their exertions in the way of dif-
fusing a knowledge of statistical methods, but for some
improvements in our system of education, in which
there is hardly any visible place given to statistics.
There are many chairs of political economy in this
country, but no chair of statistics that I know of, and
very few, if any, of the political economy chairs, where
the teaching of statistics forms part of the course.
Some remedy surely ought to be applied to this defect.
As regards political economy, it is quite certain that
any study of that science in its applications is impos-
sible without statistics. A theoretical teacher may trace
out tendencies or forces on paper, but in the real world
quantities must be dealt with; and in the measurement
of tendencies or forces statistics are absolutely needed.
It is easy to prove theoretically, for instance, that a
protectionist tariff does harm, but it is a different thing
in the real world to give any notion of how much harm
is done, and when the protection is slight in proportion
to the whole business of a country to measure the
effect at all. How to deal with such questions is the
problem for the economist who is also a statistician,
and they are much more difficult and complex than
those belonging to theoretical or deductive political
economy. The time has come then, it seems to me,
when the public have a right to expect that in our
universities statistics should have some recognized
place as well as political economy. If the facts of the
business world, as it is constituted at present, were
taught statistically, and some notion given of the
sources of information and of how they could be rightly
used, much of the recent discussion between free traders
and protectionists would probably have been saved:

THE USE OF IMPORT AND EXPORT STATISTICS 38 I

most educated men would have seen at once when
propositions were stated which were incapable of stat-
istical proof, and when figures were used without any
study or appreciation of the facts underlying them.
The protectionist or fair trader would have been sum-
marily laughed out of court, instead of being supposed
for a time to have had so much of a case that party
politicians on one side thought fit to give him some
encouragement, and party politicians on the other side
were a little apprehensive of the result. The study of
statistics should undoubtedly form a necessary part of
liberal education, especially of those who aspire to be
politicians or public men.

Note. — In 1899 I read a paper at the Statistical Society on "The
Excess of Imports," in which the figures on that part of the subject
are continued and a new estimate is made of the earnings of our ship-
ping fleet. The paper will be found in the " Journal " of the Statistical
Society for March, 1899. See also the recent Board of Trade Blue-
book in connection with the fiscal controversy, C d 1761.

THE PROGRESS OF THE WORKING CLASSES IN THE LAST
HALF CENTURY.^

IN assembling for the labours of another session, our
first duty, as it was a year ago, is to commemorate
the heavy loss which the Society has sustained by
death. On the last occasion the names before us were
those of Mr. Newmarch and Mr. Jevons, identified for
many years with our work, and intimately known to
many of us. On the present occasion the loss to be
recorded is of another co-worker equally distinguished,
though in a different way, and perhaps possessing a
more exclusively statistical reputation — Dr. Farr. The
"Journal" of the Society already contains a record of
our sense of loss, but a few words more may surely be
permitted here — in memory of one who was present
year after year, not only at our inaugural meetings,
but at almost all the ordinary meetings as well : who,
throughout a long career, contributed numerous and
valuable papers to our discussions, the interval between
his first and last paper read at our meetings being over
thirty years; who in the fulness of time, and certainly
not before he deserved the distinction, presided over
us for the usual period; and who, in fact, deserves
credit as one of the makers and promoters of this
Society, and of the study which we cultivate, in the
most literal sense of the words. It is a very great loss
we have sustained. Happily in Dr. Farr's case we
have not to lament the premature shortening of days
which we had to lament in referring to the loss of
Mr. Newmarch and Mr. Jevons. Dr. Farr had reached

^ Inaugural address as President of the Statistical Society. De-
livered 2oth November, 1883.

382

THE PROGRESS OF THE WORKING CLASSES 383

the limit of a tolerably long life, and, till within a very
few years of the close, had been able to take an active
part in the studies to which he was devoted. There
are at least two remarkable monuments of his later
labours, the special report to the Registrar-General
on the mortality of the 1 861-71 decade, which was
completed only seven or eight years ago, and his paper
on the mode of estimating the value of stocks having
a deferred dividend, read at one of our meetings in
King's College in the year 1876, after Dr. Farr had
served his term as President of the Society. We can
only lament Dr. Farr's loss, therefore, as the common
lot of humanity, and though we could have wished a
longer life and greater service, we may rejoice that the
life was not incomplete, and that Dr. Farr had time to
perfect his best work. What he has left is a noble
monument of industry and ingenuity, full of example
to all of us who have devoted time and strength to
statistics, and he is certain to be honoured, we may
be sure, by future generations even more than he has
been by the present. To have organized, as he did,
the official records of vital statistics on a model which
has been widely followed not only here but abroad,
and which has done much even already to promote
the health and welfare of mankind, by revealing and
making evident to all some main causes of disease and
mortality, is a great work for one man to have done.
Politicians and members of Parliament, who are ready
enough to use whatever figures come to hand as imple-
ments of political warfare, but who seldom study them,
may not have been able to recognize the work as the
public did; but the work remains, and we, at any rate,
as members of the Statistical Society, are all proud of it.
I am sorry to have to add that after this address
was prepared, the announcement appeared in the news-
papers of the death of Lord Overstone, who was also
one of the founders of this Society, and one of its most
active promoters in its earlier years, and who was Pre-
sident in the years 1851-53. Lord Overstone has long

384 ECONOMIC INQUIRIES AND STUDIES

survived the limit of the active period of Hfe, and as
we have been reminded within the last day or two,
the pubhc have very largely forgotten the services
which he rendered ; but in this Society there is enough
knowledge and enough interest in the economic pur-
suits to which Lord Overstone devoted himself, for
many of us here really to possess some acquaintance
with what he accomplished.

There can be no doubt that in the evidence which
he gave before several Committees of the House of
Commons, and in the opinions which he expressed
privately to Cabinet ministers and public men on eco-
nomic and more especially financial matters, upon
which he was frequently consulted, Lord Overstone
was able to render eminent services to the country.
As a preacher of the doctrine of " hard money " he did
much to settle the basis of the national currency in a
difficult time, and that in a way which has left no room
for change, and which has thus done not a little to
steady the business of the country. There is no doubt
also that it was in his capacity as a statistician very
largely that he was able to render these services. He
was pre-eminently one of those men who were ex-
tremely practical and careful about the facts upon
which they gave their opinions. We may thus claim
Lord Overstone as one of our distinguished members.
I may add that of the original members of the Society
there are now very few surviving. We have others
surviving, as I shall notice presently, who were mem-
bers almost from the beginning, but I am speaking
now literally of our formal beginning. Amongst those
who will be known to you, I think, Mr. Heywood and
Mr. Edwin Chadwick are to be mentioned as among
the very distinguished members who were at the founda-
tion of the Society, and who still survive to take an
interest in our labours.

The mention of the names of Lord Overstone and
Dr. Farr carries us back naturally enough to the origin

THE PROGRESS OF THE WORKING CLASSES 385

of the Society. We are carried back to the same date
by an impending event which now casts its shadow
before — our approaching jubilee, which we may hope
will be worthily celebrated. It is of good augury, I
trust, that we commence our fiftieth session with the
election of no fewer than fifty-eight new members. It
seems fairly probable now that when we complete our
fiftieth year we shall have the round number of one
thousand members — a wonderful improvement upon the
small number of fifty years ago. On such an occasion
I believe the subject on which I propose to address
you to-night will be not unsuitable — a review of the
official statistics bearing on the progress of the work-
ing classes— the masses of the nation — in the last half
century. If you go back to the early records of the
Society, you will find that one of the leading objects of
its founders was to obtain means by which to study
the very question I have selected. Happily we have
still with us, in addition to those I have named as
original members, one or two honoured members asso-
ciated with the early history of the Society — Dr. Guy
and Sir Rawson Rawson — who will bear me out in
what I have stated. I may remind you, moreover, that
one of the founders of the Society was Mr. Porter, of
the Board of Trade, whose special study for years was
much the same, as his well-known book, " The Pro-
gress of the Nation," bears witness; and that in one
of the earliest publications of the Society, a volume
preceding the regular issue of the "Journal," he has
left a most interesting account of what he hoped might
be effected by means of statistics in studying the sub-
ject I have put before you, or the more general subject
of the " Progress of the Nation." In asking you, there-
fore, to look for a little at what statistics tell us of the
progress of the great masses of the nation, I feel that
I am selecting a subject which is connected with the
special history of the Society. That it happens for
the moment to be attracting a considerable amount of
popular attention in connection with sensational politics
I. c c

86 ECONOMIC INQUIRIES AND STUDIES

and sociology, with agitations for land nationalization
and collectivism among pretended representatives of
the workine classes, is an additional reason for our not
neglecting this question; but it is a question to which
the Society has a primary claim, and which the authors
of the agitations I have referred to would have done
well to study from the statistical point of view.

There are two or three ways in which statistics may
throw light on such a question as I have put forward.
The first and most direct is to see what records there
are of the money earnings of the masses now and fifty
years ago, ascertain w^hether they have increased or
diminished, and then compare them with the rise or
fall in the prices of the chief articles which the masses
consume. Even such records would not give a com-
plete answer. It is conceivable, for instance, that while
earning more money, and being able to spend it to more
advantage, the working classes might be no better off
than formerly. There may be masses, as there are in-
dividuals, who do not know how to spend. The ques-
tion of means, however, will carry us some distance on
the road to our object. We shall know that the masses
must be better off, unless they have deteriorated in the
art of spending, a subject of separate inquiry.

In investigating such records, however, we have to
recognize that the ideal mode of answering the ques-
tion is not yet possible. That mode would be to draw
up an account of the aggregate annual earnings of the
working classes for a period about fifty years ago, and
a similar account of the aggregate annual earnings of
the same classes at the present time, and then compare
the average per head and per family at the different
dates. Having thus ascertained the increase or diminu-
tion in the amount per head at the different dates, it
would be comparatively easy, though not in itself quite
so easy a matter as it seems, to ascertain how much
less or how much more the increased or diminished
sum would buy of the chief articles of the workman's

THE PROGRESS OF THE WORKING CLASSES 2>'^'J

consumption. But no such account that I know of has
been drawn up, except for a date about fifteen or six-
teen years ago, when Mr. Dudley Baxter and Professor
Leone Levi both drew up statements of enormous
vahie as to aggregate earnings, statements which it
would now be most desirable to compare with similar
statements for the present time, if we could have them,
and which will be simply invaluable to future genera-
tions. In the absence of such statements, all that can
be done is to compare what appear to be the average
wages of large groups of the working classes. If it is
found that the changes in the money wages of such
groups are in the same direction, or almost all in the
same direction, then there would be sufficient reason
for believing that similar changes had occurred through-
out the entire mass. It would be in the highest degree
improbable that precisely those changes which could
not be traced were in the opposite direction. The
difficulty in the way is that in a period of fifty years in
a country like England the character of the work itself
changes. The people who have the same names at
different times are not necessarily doing the same
work. Some forms of work pass wholly away and
wholly new forms come into existence. Making all
allowances, however, and selecting the best comparative
cases possible, some useful conclusion seems obtainable.
What I propose to do first and mainly, as regards
this point, is to make use of an independent official
record which we have to thank Mr. Porter for com-
mencing. I mean the record of wages, which has been
maintained for many years in the miscellaneous stat-
istics of the United Kingdom, and which was previously
commenced and carried on in the volumes ol Revenue
J and Population Tables which Mr. Porter introduced at

' the Board of Trade about fifty years ago. It is curious

on looking back through these volumes to find how
difficult it is to get a continuous record. The wages in
one volume are for certain districts and trades; in a
subsequent volume for different districts and trades;

388

ECONOMIC INQUIRIES AND STUDIES

the descriptive classifications of the workers are also
constantly changing. Picking my way through the
figures, however, I have to submit the following par-
ticulars of changes in money wages, between a period
forty to fifty years ago — it is not possible to get the
same year in all cases to start from — and a period
about two years ago, which may be taken as the present
time. This comparison leaves out of account the
length of hours of work, which is a material point I
shall notice presently.

Comparison of Wages Fifty Years ago and at Present Time.

[From " Miscellaneous Statistics of the United Kingdom," and Porter's
"Progress of the Nation."]

Wages

Increase or

Fifty

Present

Decrease.

Occupation.

Place.

Years

Times,

ago, per
Week.

per
Week.

Amount. ^^^^^

Carpenters ....

Manchester

24/-

34/-

10/- ( + ) 42

Glasgow

14/-

26/-

12/- ( + ) 85

Bricklayers . .

Manchester ^

24/-

36/-

12/- ( + ) 50

Glasgow

15/-

27/-

12/. ( + ) 80

Masons . . .

Manchester ^

24/-

29/10

5/io( + ) 24

,, ...

Glasgow

14/-

23/8

9/8 ( + ) 69

Miners . . .

Staffordshire

2/8-

4/--^

1/4 ( + ) 50

Pattern weavers

Huddersfield

16/.

25/-

9/- ( + ) 55

Wool scourers .

))

17/-

22/-

5/- ( + ) 30

Mule spinners .

»>

25/6

30/-

4/6 ( + ) 20

Weavers . .

12/-

26/-

14/- ( + ) 115

Warpers and beamers

17/-

27/-

10/. ( + ) 58

Winders and reelers .

))

6/-

11/-

5/- ( + ) 83

Weavers (men) . .

Bradford

8/3

20/6

12/3 ( + ) 150

Reeling and warping .

7/9

15/6

7/9 ( + ) 100

Spinning (children

) •

4/5

1 1/6

7/1 ( + ) 160

Thus in all cases where I have found it possible
from the apparent similarity of the work to make a
comparison there is an enormous apparent rise in money
wages ranging from 20 and in most cases from 50 to
100 per cent., and in one or two instances more than
100 per cent.^ This understates, I believe, the real

W825. ^ Wages per day.

^ The mean of the percentages of increase is over 70.

THE PROGRESS OF THE WORKING CLASSES

189

extent of the change. Thus, builders' wages are given
at the earher date as so much weekly, whereas in the
later returns a distinction is made between summer and
winter wages, the hours of labour being less in winter,
and as the wages are so much per hour, the week's
wages being also less, so that it has been possible to
strike a mean for the later period, while it does not
appear that anything more is meant at the early period
than the usual weekly wage, which would be the sum-
mer wage. Without making this point, however, it is
obvious that in all cases there is a very great rise.

Before passing from this point, there is another and
continuous ofBcial record I would refer to. Unfor-
tunately it does not go back for much more than thirty
years. Still, as far as it goes, the evidence is in the
same direction. I refer to the return of merchant sea-
men's wages annually issued by the Board of Trade, in
what is known as the Progress of Merchant Shipping
Return. From this Return may be derived the follow-
ing comparison of seamen's wages:

Comparison of Seamen's Money Wages per Month at 1850 and the
Present Time.

[From the " Progress of Merchant Shipping Return."]

Increase.

1850.
Sailing.

Present Time.
Steam.

Amount.

Per Cent.

Bristol . . .

45'-

75/-

30'-

Glasgow . .

45'-

70/-

25/-

Liverpool (i) .

50-

67/6

16/6

„ (2).

50/-

85/-

35/-

„ (3) .

45'-

60/-

15/-

„ (4) .

40-

5°;-

10'-

„ (5).

42 6

60/-

i7;'6

London (i) .

45 -

75/-

30;-

„ (2) .

50;'-

77/6

2 7/6

„ (3) •

45-

65/-

20'-

„ (4) ■

45/-

70/-

25/-

„ (5) .

40'-

1 67/6

27/6

» (6) .

40/-

67/6

27/6

390 ECONOMIC INQUIRIES AND STUDIES

Here again there Is an enormous rise in money
wages. This return is specially subject to the observa-
tion that money wages are only part of the wages of
seamen, but I assume it is not open to dispute, that
with the improvement in our shipping there has been
an improvement in the food and lodging of the sailor,
quite equal to the improvement in his money wage.

This question of seamen's wages, however, well il-
lustrates the difficulty of the whole subject. Ships are
not now navigated by able seamen so much as by
engineers and stokers. It would seem that as a class
the new men all round are paid better than the able
seamen, but I should not press this point; it might well
be the case that steam ships as a whole could be worked
by an inferior class of labourers as compared with
sailing-ships, and yet the fact that inferior labour is
sufficient for this special trade would be quite con-
sistent with the fact that the whole conditions of modern
labour require more skill than the conditions fifty years
ago, so that there is more labour relatively at the
higher rates than used to be the case.

The comparison, except for seamen's wages, where
it has only been possible to go back for about thirty
years, is made between a period about fifty years ago
and the present time only. It would have complicated
the figures too much to introduce intermediate dates.
I may state, however, that I have not been inattentive
to this point, and that if we had commenced about
twenty to twenty-five years ago, we should also have
been able to show a very great improvement since that
time, while at that date also, as compared with an
earlier period, a great improvement would have been
apparent. A careful and exhaustive investigation of
the records of wages I have referred to, in comparison
with the numbers employed in different^ occupations,
as shown by the census reports, would in fact repay
the student who has time to make it; and I trust the
investigation will yet be made.

The records do not include anything relating to the

THE PROGRESS OF THE WORKING CLASSES 39 1

agricultural labourer, but from independent sources —
I would refer especially to the Reports of the recent
Royal Agricultural Commission — we may perceive how
universal the rise in the wages of agricultural labourers
has been, and how universal at any rate is the com-
plaint that more money is paid for less work. Sir
James Caird, in his " Landed Interest" (p. 65), put the
rise at 60 per cent, as compared with the period just
before the Repeal of the Corn Laws, and there is much
other evidence to the same effect. The rise in the re-
muneration of labour in Ireland in the last forty years
is also one of the facts which have been conspicuously
brought before the public of late. In no other way is
it possible to account for the stationariness of rents in
Ireland for a long period, notwithstanding the great
rise in the prices of the cattle and dairy products which
Ireland produces, and which, it has been contended,
would have justified a rise of rents. The farmer and
the labourer together have in fact had all the benefit of
the rise in agricultural prices.

The next point to which attention must be drawn is
the shortening of the hours of labour which has taken
place. While the money wages have increased, as we
have seen, the hours of labour have diminished. It is
difficult to estimate what the extent of this diminution
has been, but collecting one or two scattered notices
I should be inclined to say very nearly 20 per cent.
There has been at least this reduction in the textile,
engineering, and house-building trades. The workman
gets from 50 to too per cent more money, for 20 per
cent, less work ; in round figures, he has gained from
70 to 120 per cent, in fifty years in money return. It
is just possible of course that the workman may do as
much or nearly as much in the shorter period as he
did in his longer hours. Still there is the positive gain
in his being less time at his task, which many of the
classes still tugging lengthily day by day at the oar
would appreciate. The workman may have been wise
or unwise in setting much store by shorter hours in

392 ECONOMIC INQUIRIES AND STUDIES

bettering himself, but the shortening of the hours of
labour is undoubtedly to be counted to the good as
well as the larger money return he obtains.

We come then to the question of what the changes
have been in the prices of the chief articles of the
workman's consumption. It is important, to begin
with, that, as regards prices of commodities generally,
there seems to be little doubt things are much the same
as they were forty or fifty years ago. This is the general
effect of the inquiries which have been made first as
to the depreciation of gold consequent on the Aus-
tralian and Californian gold discoveries, and next as to
the appreciation of gold which has taken place within
the last twenty years, consequent on the new demands
for gold which have arisen, and the falling off in the
supply as compared with the period between 1850 and
i860. It would burden us too much to go into these
inquiries on an occasion like the present, and therefore
I only take the broad result. This is that while there
was a moderate rise of prices all round between the
years 1847-50, just before the new gold came on the
market, and the year 1862, when Mr. Jevons published
his celebrated essay, a rise not exceeding about 20 per
cent., yet within the last twenty years this rise has dis-
appeared, and prices are back to the level, or nearly to
the level, of 1847-50. The conclusion is that, taking
things in the mass, the sovereign goes as far as it did
forty or fifty years ago, while there are many new
things in existence at a low price which could not then
have been bought at all. If, in the interval, the average
money earnings of the working classes have risen be-
tween 50 and 100 per cent., there must have been an
enormous change for the better in the means of the
working man, unless by some wonderful accident it
has happened that his special articles have changed in
a different way from the general run of prices.

But looking to special articles, we find that on
balance prices are lower and not higher. Take wheat.

THE PROGRESS OF THE WORKING CLASSES 393

It is notorious that wheat, the staff of Hfe, has been
lower on the average of late years than it was before the
free trade era. Even our fair trade friends, who find it
so difficult to see very plain things, were forced to allow,
in that wonderful manifesto which was published in the
" Times " some weeks back, that wheat is about 55. a
quarter cheaper on the average than it was. The facts,
however, deserve still more careful statement to enable
us to realize the state of things fifty years ago and at
the present time. The fair trade statement, if I re-
member rightly, showed an average fall of 5^. in the
price of wheat, comparing the whole period since the
Repeal of the Corn Laws with a long period before.
This may have been right or wrong for the purpose in
hand, but for our present purpose, which is to compare
the present period with that of half a century ago, it
is important to note that it is mainly within the last
ten years the steadily low price of wheat has been
established. Comparing the ten years before 1846
with the last ten years, what we find is that while the
average price of wheat in 1837-46 was 58^-. "jd., it was
485. <^d. only in the last ten years — a reduction not of
55-. merely, but \os. The truth is, the Repeal of the
Corn Laws was not followed by an immediate decline
of wheat on the average. The failure of the potato
crop, the Crimean War, and the depreciation of gold,
all contributed to maintain the price, notwithstanding
free trade, down to 1862. Since then steadily lower
prices have ruled; and when we compare the present
time with a half century ago, or any earlier part of the
century, these facts should be remembered.

There is a still more important consideration.
Averages are very good for certain purposes, but we
all know in this place that a good deal sometimes
turns upon the composition of the average, — upon
whether it is made up of great extremes, or whether
the individual elements depart very little from the
average. This is specially an important matter in a
question of the price of food. The average of a neces-

394 ECONOMIC INQUIRIES AND STUDIES

sary of life over a long period of years may be moderate,
but if in some years the actual price is double what it
is in other years, the fact of the average will in no way
save from starvation at certain periods the workman
who may have a difficulty in making both ends meet
in the best of times. What we find then is that fifty
years ago the extremes were disastrous compared with
what they are at the present time. In 1836 we find
wheat touching 365-.; in 1838, 1839, 1840, and in 1841,
we find it touching 78^. /\.d,, Sis. 6d., 'J2s. lod,, and
j6s. id.; in all cases double the price of the lowest
year, and nearly double the "average" of the decade;
and in 1847 the price of 102^. 5^/., or three times the
price of the lowest period, is touched. If we go back
earlier we find still more startling extremes. We have
such figures as io6i-. 5c/. in 18 10; 126^. 6d. in 181 2;
1095. (^d. in 18 13, and 96^-. iid. in 181 7; these figures
being not merely the extremes touched, but the actual
averages for the whole year. No doubt in the early
part of the century the over-issue of inconvertible paper
accounts for part of the nominal prices, but it accounts
for a very small part. What we have to consider then
is, that fifty years ago the working man with wages,
on the average, about half, or not much more than half
what they are now, had at times to contend with a
fluctuation in the price of bread which implied sheer
starvation. Periodic starvation was, in fact, the condi-
tion of the masses of working men throughout the
kingdom fifty years ago, and the references to the sub-
ject in the economic literature of the time are most
instructive. M. Ouetelet, in his well-known great book,
points to the obvious connection between the high
price of bread following the bad harvest of 1816, and
the excessive rate of mortality which followed. To this
day you will find tables in the Registrar-General's re-
turns which descend from a time when a distinct con-
nection between these high prices of bread and ex-
cessive rates of mortality was traced. But within the
last twenty years what do we find ? Wheat has not been,

THE PROGRESS OF THE WORKING CLASSES 395

on the average, for a whole year so high as 70^., the
highest averages for any year being 64^-. ■^d. in 1867,
and 63i-. <^d. in 1868; while the highest average of the
last ten years alone is 585'. Zd. in 1873; that is, only
about \os. above the average of the whole period. In
the twenty years, moreover, the highest price touched
at any period was just over 70^-., viz., ']Qs. ^d.,'\n 1867,
and 745-. ']d. in 1868; while in the last ten years the
figure of ']os. was not even touched, the nearest ap-
proach to it being 68i'. 9^. in 1877. Thus of late years
there has been a steadily low price, which must have
been an immense boon to the masses, and especially
to the poorest. The rise of money wages has been
such, I believe, that working men for the most part
could have contended with extreme fluctuations in the
price of bread better than they did fifty years ago.
But they have not had the fiuctuations to contend
with.

It would be useless to eo throucjh other articles with
the same detail. Wheat had quite a special importance
fifty years ago, and the fact that it no longer has the
same importance — that we have ceased to think of it
as people did fifty years ago — is itself significant.
Still, taking one or two other articles, we find, on the
whole, a decline:

Prices of Various Articles about Fifty Years ago and at
Present Time.

. per cwt.
. per yard

1839-40.

Present Time.

Sugar

Cotton cloth exported

s. d.

68 8^

0 5f

s. d.
: 21 9^

^ Porter's "Progress of the Nation," p. 543. In the paper as read
to the Society I gave the price without the duty, but including the
duty the price was what is now given here. The average price with
the duty of the ten years ending 1840 was 58^. ^d.

'■* Average price of raw sugar imported.

i96

ECONOMIC INQUIRIES AND STUDIES

Prices of Various Artides-

-continued.

1840,

1882.

s. d.

Inferior beasts .... per 8 lbs.

3 I

4 34

Second class ,,

3 6

4 9l

Third ,, ,,

3 iif

5 1\

Inferior sheep .... ,,

3 5

5 7

Second class ,,

3 104

6 i\

Large hogs ,,

4 3i

4 6

I should have hked a longer list of articles, but the
difficulty of comparison is very serious. It may be
stated broadly, however, that while sugar and such
articles have declined largely in price, and while cloth-
ing is also cheaper, the only article interesting the
workman much which has increased in price is meat,
the increase here being considerable. The " only " it
may be supposed covers a great deal. The truth is,
however, that meat fifty years ago was not an article
of the workman's diet as it has since become. He had
little more concern with its price than with the price
of diamonds. The kind of meat which was mainly
accessible to the workman fifty years ago, viz., bacon,
has not, it will be seen, increased sensibly in price.

Only one question remains. Various commodities, it
may be admitted, have fallen in price, but house rent,
it is said, has gone up. We have heard a good deal
lately of the high prices of rooms in the slums. When
we take things in the mass, however, we find that how-
ever much some workmen may suffer, house rent in
the aggregate cannot have gone up in a way to neu-
tralize to any serious extent the great rise in the money
wages of the workman. It appears that in 1834, when
the house duty, which had existed up to that date, was
abolished, the annual value of dwelling houses charged
to duty was ;^ 12,603,000, the duty being levied on
all houses above ^10 rental in Great Britain. In
1881-82 the annual value of dwelling houses charged

THE PROGRESS OF THE WORKING CLASSES

397

to duty, the duty being levied on houses above ^20
only, was ^39,845,000, while the value of the houses
between ^10 and ^20 was ^17,040,000, making a
total of ^56,885,000, or between four and five times
the total of fifty years ago. Population, however, in
Great Britain has increased from about 16^ millions
in 1 83 1, to nearly 30 millions in 1881, or nearly 100
per cent. Allowing for this, the increase in value would
be about 32 million pounds, on a total of about 25
million pounds, which may be considered the increased
rent which householders above ^10 have to pay — the
increase being about 130 per cent. Assuming that
houses under ^10 have increased in proportion, it may
be considered that house rents are now i^ times more
than they were fifty years ago. In other words, a
workman who paid ^3 a year fifty years ago, would
now pay ^7 los. Even, however, if rent were a fourth
part of the workman's earnings fifty years ago, he would
still be much better off at the present time than he was.
His whole wages have doubled, while the prices of no
part of his necessary consumption, except rent, as we
have seen, have increased — on the contrary, they have
rather diminished. Say then that the rent, which was
a fourth part of his expenditure, has increased ij
times, while his whole wage has doubled, the account,
on a wage of 20^. fifty years ago, and 405. now, would
stand :

Fifty Years

ago.

Present Time.

Wage

Deduct for rent

s. d
20 0

5 0

s. d.
40 0

12 6

Balance for other purposes .

15 0

27 6

— showing still an enormous improvement in the work
man's condition.

398 ECONOMIC INQUIRIES AND STUDIES

It may be pointed out, however, that houses are un-
doubtedly of the better value all round than they were
fifty years ago. More rent is paid because more capital
is in the houses, and they are better houses. It appears
also that fifty years ago there were far more exemptions
than there are now, rural dwellings particularly being
favoured as regards exemption. The increase of rent
for the same accommodation, there is consequently
reason to believe, has not been nearly so great as these
figures would appear to show. It has further to be con-
sidered that the whole annual value of the dwelling
houses under ^10 even now is ^17,885,000 only, the
number of houses being 3,124,000. This must be a
very small proportion of the aggregate earnings of
those portions of the working classes who live in
houses under ;^io rent, and even adding to it the
value of all the houses up to ^20, which would bring
up the total to ^34,925,000, the proportion would still
be very small. On the five million families at least of
the working classes in Great Britain, the sum would
come to about ^7 per family, which is not the mam
portion of an average working man's expenditure.^

We return then to the conclusion that the increase
of the money wages of the working man in the last
fifty years corresponds to a real gain. While his wages
have advanced, most articles he consumes have rather
diminished in price, the change in wheat being especi-
ally remarkable, and significant of a complete revolu-
tion in the condition of the masses. The increased
price in the case of one or two articles — particularly

' It may be convenient to note here that the figures as to dwelling
houses which I have made use of are those relating to the Inhabited
House Duty. The figures as to houses in the income tax returns
include shops and factories as well as dwelling houses, and are not
available in a question of house rent. I have also omitted the question
of rates. The rates per pound, however, have not increased as com-
pared with what they were formerly, and it would make no material
difference if they were to be included. The workman's payment for
rates and rent together cannot have increased more than is here stated
for rent.

THE PROGRESS OF THE WORKING CLASSES 399

meat and house rent — is insufficient to neutralize the
general advantages which the workman has gained.
Meat formerly was a very small part of his consump-
tion, and allowing to house rent a much larger share
of his expenditure than it actually bore, the increase
in amount would still leave the workman out of his
increased wage a larger margin than he had before for
miscellaneous expenditure. There is reason to believe
also that the houses are better, and that the increased
house rent is merely the higher price for a superior
article which the workman can afford.

It has to be added to all this that while the cost of
government has been greatly diminished to the work-
ing man, he gets more from the government expendi-
ture than he formerly did. It would not do to count
things twice over, and as the benefit to the working
man of diminished taxes has already been allowed for
in the lower prices of wheat and sugar, we need say
nothing more on this head. But few people seem to
be aware how, simultaneously with this reduction of
the cost of government, there has been an increase of
the expenditure of the government for miscellaneous
civil purposes, of all of which the workman gets the
benefit. It may be stated broadly that nearly 15 mil-
lion pounds of the expenditure of the central govern-
ment for education, for the post office, for inspection
of factories, and for the miscellaneous purposes of civil
government, is entirely new as compared with fifty years
ago. So far as the expenditure is beneficial, the masses
get something they did not get before at all. It is the
same even more markedly with local government. In
Great Britain, the annual outlay is now about 60 million
pounds, as compared with 20 million pounds fifty years
ago. This 20 million pounds was mainly for poor relief
and other old burdens. Now the poor relief and other
old burdens are much the same, but the total is swollen
by a vast expenditure for sanitary, educational, and
similar purposes, of all of which the masses of the
population get the benefit. To a great deal of this

400

ECONOMIC INQUIRIES AND STUDIES

expenditure we may attach the highest value. It does
not give bread or clothing to the working man, but it
all helps to make life sweeter and better, and to open
out careers even to the poorest. The value of the free
library for instance, in a large city, is simply incalcul-
able. All this outlay the workman has now the benefit
of as he had not fifty years ago. To repeat the words
I have already used, he pays less taxes, and he gets
more — much more — from the Government.^

^ With regard to this question of prices, I have been favoured since
the deHvery of this address with the copy of a letter, dated nth June,
1881, addressed by Mr. Charles Hawkins, of 27, Savile Row, to the
editor of the " Daily News " on the co^X. per patient of the expenditure
of St. George's Hospital in 1830 and 1880. The facts stated confirm
in an interesting way what is here said as to the cost of articles of
the workman's consumption fifty years ago and at the present time.
Mr. Hawkins, who was at one time one of the treasurers of the
hospital, and therefore speaks with authority, gives the following table
and notes :

"Although each patient costs now \s. id. less than in 1830, there
have been great alterations in the different items of expenditure, viz. :

Meat

Bread and flour

Wine and spirits

Malt liquor

Milk

Tea and grocery

Drugs

Coals and wood

Laundry

Instruments and surgical appliances
Staff; — officers, servants, nurses .

Cost per

Patient.

1830.

1880.

s. d.
18 4

s.
22

d.
2

10 7
0 10

5 5

6 2

4
3
2

3 10
16 5
10 6

3
7
3

5
II
10

2 10

I 9
20 3

5
34

2
3

"Had wheat cost in 1880 what it did in 1830, _;^i,884 must have
been spent in bread and flour instead of ;^738. The cost of port
wine in 1830 was ;^72 per pipe ; in 1880 ;z^45. In 1830 many of the
patients provided themselves with tea and sugar. Under the head
' Drugs' is included the cost of leeches ; in 1846, 14,800 leeches were
used, at a cost of ^,^143; in 1880 only 425, costing ]£\ ids. In 1833
another hospital, treating double the number of patients, used 48,900
leeches, but in 1880 only 250.

"These items show the great advantage of the reduction of price in

THE PROGRESS OF THE WORKING CLASSES 4OI

As already anticipated, however, the conclusion thus
arrived at only carries us part of the way. Assuming
it to have been shown that the masses have more
money than they had fifty years ago, and that the prices
of the chief articles they consume are cheaper rather
than dearer, the question remains whether the condition
of the masses has in fact been improved. This can
only be shown indirectly by statistics of different kinds,
which justify conclusions as to the condition of the
people to whom they apply. To such statistics I pro-
pose now to draw your attention for a moment, I need
hardly say that any evidence they contain as to the
condition of the people having actually improved cor-
roborates what has been already said as to their having
had the means of improvement in their hands. The
evidence is cumulative, a point of material importance
in all such inquiries.

The first and the most important statistics on this
head are those relating^ to the leno-th of life amoncr the
masses of the nation. Do the people live longer than
they did ? Here I need not detain you. A very effective
answer was supplied last session by Mr. Humphreys,
in his able paper on " The Recent Decline in the Eng-
lish Death Rate."^ Mr. Humphreys there showed
conclusively that the decline in the death-rate in the
last five years, 1876-80, as compared with the rates on
which Dr. Farr's English Life Table was based — rates
obtained in the years 1838-54 — amounted to from 28
to 32 per cent, in males at each quinquennium of the
twenty years 5-25, and in females at each quinquennium
from 5-35 to between 24 and 35 percent.; and that the
effect of this decline in the death-rate is to raise the
mean duration of life among males from 39.9 to 41.9

some articles of diet, and the great extra expenditure now necessary
for the treatment of hospital patients, depending on the greater call
for additional ' staff,' more especially for nursing, and an altered mode
of treatment of accidents and operations, as also the greater amount
of stimulants now exhibited, etc."

' See Statistical Society's "Journal," vol. xlvi., p. 195, etc.

I. D D

402 ECONOMIC INQUIRIES AND STUDIES

years, a gain of 2 years in the average duration of life,
and among females from 41.9 to 45.3 years, a gain of
nearly 3|- years in the average duration of life. Mr.
Humphreys also showed that by far the larger propor-
tion of the increased duration of human life in Eng-land
is lived at useful ages, and not at the dependent ages
of either childhood or old age. This little statement is
absolutely conclusive on the subject; but we are apt to
overlook how much the figures mean. No such change
could take place without a great increase in the vitality
of the people. Not only have fewer died, but the
masses who have lived must have been healthier, and
have suffered less from sickness than they did. Though
no statistics are available on this point, we must assume
that like causes produce like effects ; and if the weaker,
who would otherwise have died, have been able to
survive, the strong must also have been better than
they would otherwise have been. From the nature of
the figures, also, the improvement must have been
among the masses, and not among a select class whose
figures throw up the average. The figures to be affected
relate to such large masses of population, that so great
a change in the averag^e could not have occurred if
only a small percentage of the population had improved
in health.

I should like also to point out that the improvement
in health actually recorded obviously relates to a trans-
ition stage. Many of the improvements in the con-
dition of the working classes have only taken place
quite recently. They have not, therefore, affected all
through their existence any but the youngest lives.
When the improvements have been in existence for a
longer period, so that the lives of all who are living
must have been affected from birth by the changed
conditions, we may infer that even a greater gain in
the mean duration of life will be shown. As it is, the
gain is enormous. Whether it is due to better and
more abundant food and clothing, to better sanitation,
to better knowledge of medicine, or to these and other

THE PROGRESS OF THE WORKING CLASSES

403

causes combined, the improvement has beyond all
question taken place.

The next figures I shall refer to are those well-known
ones relating to the consumption of the articles which
the masses consume. I copy merely the figures in the
Statistical Abstract for the years 1840 and 1881 :

Quantities of the Principal Imported and Excisable Articles retained
for Home Consumption, per Head of the Total Population of the
Ufiited Kin^dojn.

1840.

Bacon and hams lbs.

Butter „

Cheese ,,

Currants and raisins .... „

Eggs No.

Potatoes lbs.

Rice ,,

Cocoa ,,

Coffee ,,

Corn, wheat, and wheat flour . „

Raw sugar „

Refined sugar „

Tea „

Tobacco „

Wine galls.

Spirits ,,

Malt bshls.

O.OI

13-93

1.05

6.36

0.92

5-77

1-45

4-34

3-63

21.65

O.OI

12.85

0.90

16.32

0.08

0.31

1.08

0.89

42.47

216.92

15.20

58.92

nil

8.44

1.22

4-58

0.86

1.41

0.25

0.45

0.97

1.08

1-59

1.91^

This wonderful table may speak for itself It is an
obvious criticism that many of the articles are also
articles of home production, so that the increase does
not show the real increase of the consumption of the
whole population per head. Assuming a stationary
production at home, the increased consumption per
head cannot be so much as is here stated for the im-
ported article only. There are other articles, however,
such as rice, tea, sugar, coffee, tobacco, spirits, wine

' Year 1878.

404 ECONOMIC INQUIRIES AND STUDIES

and malt, which are either wholly imported, or where
we have the excisable figures as well, and they all —
with the one exception of coffee — tell a clear tale. The
increase in tea and sugar appears especially significant,
the consumption per head now being four times in
round figures what it was forty years ago. There could
be no better evidence of diffused material well-being
amone the masses. The articles are not such that the
increased consumption by the rich could have made
much difference. It is the consumption emphatically of
the mass which is here in question.

As regards the articles imported, which are also
articles of home production, it has, moreover, to be
noted that in several of them, bacon and hams, cheese
and butter, the increase is practically from nothing to
a very respectable figure. The import of bacon and
hams alone is itself nearly equal to the estimated con-
sumption among the working classes fifty years ago,
who consumed no other meat.

The only other figures I shall mention are those
relating to education, pauperism, crime, and savings
banks. But I need not detain you here. The figures
are so well known that I must almost apologize for
repeating them. I only insert them to round off the
statement.

As to education, we have practically only figures
going back thirty years. In 185 1, in England, the
children in average attendance at schools aided by
parliamentary grants numbered 239,000, and in Scot-
land 32,000; in 1 88 1 the figures were 2,863,000 and
410,000. If anything is to be allowed at all in favour
of parliamentary grants as raising the character of edu-
cation, such a change of numbers is most significant.
The children of the masses are, in fact, now obtaining
a good education all round, while fifty years ago the
masses had either no education at all or a comparatively
poor one. Dropping statistics for the moment, I should
like to give my own testimony to an observed fact of
social life — that there is nothing so striking or so satis-

THE PROGRESS OF THE WORKING CLASSES 4O5

factory to those who can carry their memories back
nearly forty years, as to observe the superiority of the
education of the masses at the present time to what it
was then. I suppose the most advanced common edu-
cation forty or fifty years ago was in Scotland, but the
superiority of the common school system there at the
present day to what it was forty years ago is immense.
If Scotland has gained so much, what must it have
been in England, where there was no national system
fifty years ago at all ? Thus at the present day not only
do we get all children into schools, or nearly all, but
the education for the increased numbers is better than
that which the fortunate few alone obtained before.

Next as to crime, the facts to note are that rather
more than forty years ago, with a population little more
than half what it is now, the number of criminal
offenders committed for trial (1839) was 54,000: in
England alone 24,000. Now the corresponding figures
are, United Kingdom 22,000, and England 15,000;
fewer criminals by a great deal in a much larger popu-
lation. Of course the figures are open to the observa-
tion that changes in legislation providing for the sum-
mary trial of offences that formerly went to the assizes
may have had some effect. But the figures show so
ofreat and orradual a chang^e, that there is ample margin
for the results of legislative changes, without altenng
the inference that there is less serious crime now in
the population than there was fifty years ago. Thus
an improvement as regards crime corresponds to the
better education and well-being of the masses.

Next as regards pauperism; here again the figures
are so imperfect that we cannot go back quite fifty
years. It is matter of history, however, that pauperism
was nearly breaking down the country half a century
ago. The expenditure on poor relief early in the cen-
tury and down to 1830-31 was nearly as great at times
as it is now. With half the population in the country
that there now is, the burden of the poor was the
same. Since 1849, however, we have continuous figures,

4o6

ECONOMIC INQUIRIES AND STUDIES

and from these we know that, with a constantly in-
creasing population, there is an absolute decline in the
amount of pauperism
are:

The earliest and latest figures

Paupers in Receipt of Relief in the it?idermentioned Years at
given Dates.

1849.

1881.

England

Scotland

Ireland

934,000

122,000^
620,000

803,000
102,000
109,000

United Kingdom .

1,676,000

1,014,000

Thus in each of the three divisions of the United
Kingdom there is a material decline, and most of all in
Ireland, the magnitude of the decline there being no
doubt due to the fact that the figures are for a period
just after the great famine. But how remote we seem
to be from those days of famine !

Last of all we come to the figures of savings banks.
A fifty years' comparison gives the following results
for the whole kingdom:

Number of depositors
Amount of deposits
„ per depositor

1831.

429,000
p{;i3,7i9,ooo

4,140,000

;2^8o,334,ooo

^19

An increase of tenfold in the number of depositors,

and of fivefold and more in the amounts of deposits!

It seems obvious from these fio^ures that the habit and

... 1
means of saving have become widely diffused in these

fifty years. The change is of course in part due to a

mere change in the facilities offered for obtaining de-

' 1859.

THE PROGRESS OF THE WORKING CLASSES

407

posits; but allowing ample margin for the effect of in-
creased facilities, we have still before us evidence of
more saving among the masses.

There is yet one other set of statistics I should like to
notice in this connection, those relating to the progress
of industrial and provident co-operative societies in
England and Wales. These I abstract from the special
appendix to the " Co-operative Wholesale Society's
Annual Almanac and Diary " for the present year (pp.
81 and 82). Unfortunately the figures only go back
to 1862, but the growth up to 1862 appears to have
been very small. Now, however, most material advance
is shown:

1862.

Number of members

Capital —

Share ....

Loan ....

Sales

Net profit ....

90,000

428,000

55.000

2,333.000

165,000

525,000

5,881,000

1,267,000

20,901,000

1,617,000

Such figures are still small compared with what we
should like to see them, but they at least indicate pro-
gress among the working classes, and not retrogression
or standing still.

To conclude this part of the evidence, we find un-
doubtedly that in longer life, in increased consumption
of the chief comniodities they use, in better education,
in greater freedom from crime and pauperism, and in
increased savings, the masses o{ the people are better,
immensely better, than they were fifty years ago. This
is quite consistent with the fact, which we all lament,
that there is a residuum still unimproved, but apparently
a smaller residuum both in proportion to the population
and absolutely, than was the case fifty years ago ; and
with the fact that the improvement, measured even by
a low ideal, is far too small. No one can contemplate

408 ECONOMIC INQUIRIES AND STUDIES

the condition of the masses of the people without
desiring something like a revolution for the better.
Still, the fact of progress in the last fifty years — pro-
gress which is really enormous when a comparison is
made with the former state of thinofs — must be recoo;-
nized. Discontent with the present must not make us
forget that things have been so much worse.

But the question is raised : Have the working classes
gained in proportion with others by the development
of material wealth during the last fifty years ? The
question is not one which would natually excite much
interest among those who would answer the primary
question as to whether the working classes have
gained or not, as I have done, in the affirmative.
Where all are getting on, it does not seem very prac-
tical in those who are getting on slowly to grudge the
quicker advance of others. Usually those who put the
question have some vague idea that the capitalist
classes, as they are called, secure for themselves all the
benefits of the modern advance in wealth; the rich, it
is said, are becoming richer, and the poor are becom-
ing poorer. It will be convenient then to examine the
additional question specifically. If the answer agrees
with what has already been advanced, then, as nobody
doubts that material wealth has increased, all will be
forced to admit that the working classes have had a fair
share.

At first sight it would appear that the enormous
figures of the increase of capital, which belong, it is as-
sumed, to the capitalist classes, are inconsistent with
the notion of the non-capitalist classes having had a fair
share. In the paper which I read to the Society four
years ago, on " The Recent Accumulations of Capital
in the United Kingdom," the conclusion at which I
arrived was that in the ten years, 1865-75, there had
been an increase of 40 per cent, in the capital of the
nation, and 27 per cent, in the amount of capital per
head, that is, allowing for the increase of population.

THE PROGRESS OF THE WORKING CLASSES 4O9

Going back to 1843, which is as far as we can go back
with the income tax returns, we also find that since
then the gross assessment, allowing for the income
from Ireland not then included in the returns, has in-
creased from 280 million pounds to 577 million pounds,
or more than 100 per cent, in less than fifty years.
Assuming capital to have increased in proportion, it is
not to be wondered at that the impression of a group of
people called the capitalist classes getting richer and
richer, while the mass remain poor or become poorer,
should be entertained. Allowing for the increase of
population, the growth of capital and income-tax in-
come is really much smaller than the growth of the
money income of the working classes, which we have
found to be something like 50 to 100 per cent, and
more per head in fifty years, but the impression to the
contrary undoubtedly exists, and is very natural.

The error is partly in supposing that the capitalist
classes remain the same in number. This is not the
case; and I have two pieces of statistics to refer to
which seem to show that the capitalist classes are far
from stationary, and that they receive recruits from
period to period — in other words, that wealth, in cer-
tain directions, is becoming more diffused, although it
may not be diffusing itself as we should wish.

The first evidence I refer to is that of the Probate
Duty returns. Through the kindness of the Commis-
sioners of Inland Revenue, I am able to put before you
a statement of the number of probates granted in
1 88 1, and of the amounts of property "proved," with
which we may compare similar figures published by
Mr. Porter in his " Progress of the Nation" for 1838.
I am sorry to say Mr. Porter's figures for 1838 are far
more detailed than those I am able to give; a more
minute comparison would be most instructive; but I
was unfortunately too late in applying to the Commis-
sioners of Inland Revenue for the details, which I
found they were most willing to give. However, the
statement they supplied to me, and the comparison

4IO

ECONOMIC INQUIRIES AND STUDIES

which can thus be made, seem most instructive. They
are as follows :

Statement of Number of P7-obates granted in 1882, tvith Amounts of
Property Proved, and Average per Probate \from figures supplied
by the Commissio?iers of hiland Revenue^ ; and Co?nparison with
a similar Statement for 1838 \Jrovi Porter's '■'Progress of the
Nation,^'' pp. 600 et seq\

Number of Probates.

Amount of Property.

Amount of

Property

per Estate.

1882.

1838.

1882.

1838.

1882.

1838.

England . . .
Scotland . . .
Ireland ....

45,555
5,221

4,583

21,900
1,272
2,196

118,120,961
13,695,314

8,544,579

£.
47,604,755

2,817,260
4,465,240

2,600
2,600
1,900

£
2,170

2,200

2,000

United Kingdom

55,359

25,368

140,360,854

54,887,255

2,500

2,160

Thus, in spite of the enormous increase of property
passing at death, amounting to over 150 per cent.,
which is more than the increase in the income-tax in-
come, the amount of property per estate has not sens-
ibly increased. The increase of the number of estates
is more than double, and greater therefore than the in-
crease of population, but the increase of capital per
head of the capitalist classes in England only 19 per
cent., and in the United Kingdom only 15 per cent.
Curiously enough, I may state, it is hardly correct to
speak of the capitalist classes as holding this property,
as the figures include a small percentage of insolvent
estates; but allowing all the property to belong to the
capitalist classes, still we have the fact that those classes
are themselves increasing. They may be only a minority
of the nation, though I think a considerable minority,
as 55,000 estates passing in a year represent from
1,500,000 to 2,000,000 persons as possessing property
subject to probate duty; and these figures, it must be

THE PROGRESS OF THE WORKING CLASSES 4I I

remembered, do not include real property at all. Still,
small or large as the minority may be, the fact we have
before us is that in the last fifty years it has been an
increasing minority, and a minority increasing at a
greater rate than the increase of general population.
Wealth, to a certain extent, is more diffused than it
was.

If I had been able to obtain more details, it would
have been possible to specify the different sizes of
estates and the different percentages of increase, from
which it would not only have appeared whether the
owners of personal property were increasing in number,
but whether the very rich were adding to their wealth
more than the moderately rich, or vice versa. But it is
something to know at least that there are more owners.
I trust the Commissioners of Inland Revenue will see
their way in their next report to give more details on
this very interesting point. ^

Before passing on I should like to add a caution
which may not be necessary in this room, but which
may be needed outside. All such figures must be taken
with a good deal of qualification, owing to variations
of detail in the method of levying the duty at different
times, variations in the character of the administration,
and the like causes. I notice, for instance, an unusu-
ally remarkable increase both in the number of owners
and amount of property passing in Scotland; this last
fact, I believe, having already given rise to the state-
ment that there has been something unexampled in the
increase of personal property in Scotland. The ex-
planation appears to be, however, that the increase of
property in Scotland is, to some extent, only apparent,
being due partly, for instance, to the fact that by Scotch

' It appears that the increase in the number of probates for less
than p^i,ooo is from 18,490 to 41,278, or about 120 per cent., the
average value per probate being much the same: while the increase
of the number of probates for more than ^1,000 is from 6,878 to
12,629, or over 80 per cent., and the average value per probate has
increased from ^7,150 to £^^,2qq.

412 ECONOMIC INQUIRIES AND STUDIES

law mortgages are real property, whereas in England
they are personal property, so that it was necessary, in
the course of administering the tax, to pass a special
law enabling the Commissioners of Inland Revenue to
bring Scotch mortgages into the category of personal
property/ This is only one illustration of the caution
with which such figures must be used. Taking them
in the lump, and not pressing comparisons between
the three divisions of the United Kingdom, or any
other points of detail which might be dangerous, we
appear to be safe in the main conclusion that the num-
ber of owners of personal property liable to probate
duty has increased in the last fifty years more than the
increase of population, and that on the average these
owners are only about 15 per cent, richer than they
were, while the individual income of the working
classes has increased from 50 to 100 per cent.

The next piece of statistics I have to refer to is the
number of separate assessments in that part of Schedule
D known as Part I., viz.. Trades and Professions, which
excludes public companies and their sources of income,
where there is no reason to believe that the number of
separate assessments corresponds in any way to the
num.ber of individual incomes. Even in Part I. there
can be no exact correspondence, as partnerships make
only one return; but in comparing distant periods, it
seems not unfair to assume that the increase or de-
crease of assessments would correspond to the increase
or decrease of individual incomes. This must be the
case, unless we assume that in the interval material dif-
ferences were likely to arise from the changes in the
number of partnerships to which individuals belonged,
or from partnerships as a rule comprising a greater or
less number of individuals. Using: the fisfures with all
these qualifications, we get the following comparison:

^ See " Special Report of Commissioners of Inland Revenue," 1870,
vol. i., p. 99. The law on this and other points was altered by 23 & 24
Vict. cap. 80.

THE PROGRESS OF THE WORKING CLASSES

Number of Persons at differe7it Afuounts of Inco7ne charged under
Schedule D in 1843 "-"'^ 1879-80 compared \in Etigland\^

1843.

1879-80.

150 and under 200 . .

39.366

130,101

200 ,

300 . .

28,370

88,445

300 >

, 400 . .

13.429

39,896

400 ,

, 500 . .

6,781

16,501

500 ,

, 600 . .

4,780

11,317

600 ,

, 700 .

2,672

6,894

700 ,

, 800 . .

1,874

4,054

800

, 900 .

1,442

3.595

900 ,

, 1,000 .

894

1,396

1,000 ,

, 2,000 .

4,228

10,352

2,000 ,

, 3,000 . .

1,235

3,131

3,000

, 4,000 . .

526

1,430

4,000 ,

, 5,000 . .

339

758

5,000

, 10,000

493

1,439

10,000 ,

, 50,000 . .

200

785

50,000 and u

pwards . . .
rotal ....

106,637

320,162

Here the increase in all classes, from the lowest to
the highest, is between two and three times, or rather
more than three times, with the exception of the high-
est class of all, where the numbers, however, are quite
inconsiderable. Again a proof, I think, of the greater
diffusion of wealth so far as the assessment of income
to income tax under Schedule D may be taken as a
sign of the person assessed having wealth of some kind,
which I fear is not always the case. If the owners of
this income, at least of the smaller incomes, are to be
considered as not among the capitalists, but among the
working classes — a very arguable proposition — then
the increase of the number of incomes from ^150 up
to say ^1,000 a year is a sign of the increased earnings
of working classes, which are not usually thought of by
that name. The increase in this instance is out of all
proportion to the increase of population.

' The figures for 1843 cannot be given for either Scotland or
Ireland.

414 ECONOMIC INQUIRIES AND STUDIES

In giving these figures I have omitted the incomes
under ^i 50. There is quite a want of satisfactory data
for any comparison, I think, except as regards incomes
actually subject to assessment, and the data at the be-
ginning of the period are specially incomplete.

Whichever way we look at the figures, therefore, we
have this result, that while the increase of personal
property per head of the capitalist class, according to
the probate returns, is comparatively small, being only
about 15 per cent, yet there is an increase of the
number of people receiving good incomes from trades
and professions out of all proportion to the increase of
population. We cannot but infer from this that the
number of the moderately rich is increasing, and that
there is little foundation for the assertion that the rich
are becoming richer. All the facts agree. The working
classes have had large additions to their means; capital
has increased in about equal ratio; but the increase of
capital per head of the capitalist classes is by no means
so great as the increase of working-class incomes.

I should wish further to point out, however, that it
is a mistake to speak of the income in the various
schedules to the income tax as the income of a few, or
exclusively of classes which can be called capitalist or
rich. A suspicion of this has already been raised by the
facts as to trades and professions. Let me just mention
this one little fact in addition. Out of ^190,000,000
assessed under Schedule A in 1881-82, the sum of
^i 1,359,000 was exempted from duty as being the in-
come of people whose whole income from all sources
was under ^150 a year. If we could get at the fact as
to how the shares of public companies are held, and as
to the immense variety of interests in lands and houses,
we should have ample confirmation of what has already
appeared from the probate duty figures, that there is a
huge minority interested in property in the United
Kingdom, great numbers of whom would not be spoken
of as the capitalist classes.

To test the question as to whether there has been

THE PROGRESS OF THE WORKING CLASSES

415

any disproportionate increase of capital, and of the in-
come from it, in yet another way, I have endeavoured
to make an analysis of the income tax returns them-
selves, distinguishing in them what appears to be the
income of idle capital from income which is derived
not so much from the capital itself as from the labour
bestowed in using- the capital. Only the roughest es-
timate can be made, and the data, when we go back to
1843, are even more incomplete than they are now; but
I have endeavoured as faras possible to give everything
to capital that ought to be given, and not to err on the
side of assigning it too small a share. The whole of
Schedule A is thus assigned to capital, although it is
well known that not even in Schedule A is the income
obtained without exertion and care, and some risk of
loss, which are entitled to remuneration. In Schedule
D also I have allowed that all the income from public
companies and foreign investments is from idle capital,
although here the vigilance necessary, and the risk
attendant on the business, are really most serious, and
part of the so-called profit is not really interest on idle
capital at all, but strictly the remuneration of labour.
I have also rather exaggerated than depreciated the
estimate for capital employed in trades and professions,
my estimate being rather more than that of Mr. Dudley
Baxter in his famous paper on the National Income.
With these explanations I submit the accompanying
estimate of the share of capital in the income-tax in-
come at different dates (see p. 416).

This estimate may be summarized as follows:

Summary of Analysis of I)icome-Tax Income i}i u7idert)ientioned Years.
[In millions of pounds.]

Year.

From Capital.

From Salaries,
etc.

Total.

1843

1862

1881

£
188^

252^-
407'

107^
177

£
282
360
584

4i6

ECONOMIC INQUIRIES AND STUDIES

Analysts of the Income Tax Returns for the undennentioned Years,
showing the Estimated Inco7ne from Capital on the one side, and
the Estimated Ifico?ne from Wages of Siiperintendence and Salaries
071 the other side.

[In millions of pounds, ooo,ooo's omitted, i.e., io = ;^i 0,000,000.]

iSS

ji.

i8f

,2.

1843.

From
Capital.

From

Salaries,

etc.

From
Capital.

From

Salaries,

etc.

From
Capital.

From

Salaries,

etc.

Schedule A —

Land, tithes, etc., |
exclusive of V
houses . . )

70,

nil

60,

nil

57,

nil

Messuages, etc.

117.

nil

62,

nil

41,

nil

Schedule B —

Occupation of land

25/

44,

22i

3«i

20,

36,

Schedule C . . .

40,

nil

29,

nil

29,

nil

,. D (Part I.)

64,^

100,"

32,

49,

29^

46i,

„ „ ( „ 11.)

9i>

nil

47,

nil

12,

nil

„ E . . .

nil

33,

nil

20,

nil

II,

407)

177,

252I-,

107^,

i88i

93^,

Note. — In the estimate for 1843 the figures assigned to Schedule A
are only those of lands and tithes and houses to correspond with the
existing Schedule A: and the figures of Schedule D include mines,
quarries, railways, etc., now in Schedule D. An estimate is also made
of the totals for Ireland, based on the returns of 1834, the total gross
income under all the schedules thus estimated being about 30 million
pounds.

^ Interest on 500 millions of capital in 1881 at 5 per cent. In my
paper on accumulations of capital, I estimated agricultural capital at
a larger sum than this ; but since then there has been some loss of
agricultural capital, and if a larger sum were taken, the rate of interest
used in the calculation for the present purpose should be less.

^ Estimating that the income here is worth four years' purchase,
and that it may be capitalized at that rate; and then allowing that
this capital earns 10 per cent., the rest being wages of superintendence
or salaries.

THE PROGRESS OF THE WORKING CLASSES 417

Thus a very large part of the increase of the income-
tax income in the last forty years is not an increase of
the income from capital at all in any proper sense of
the word. On the contrary, the increase in the income
from capital is only about two-thirds of the total in-
crease. This increase is, moreover, at a less rate than
the increase of the capital itself, as appearing from the
Probate Duty returns,' a point which deserves special
notice. The conclusion therefore is, that the working
classes have not been losing in the last fifty years
through the fruits of their labour being increasingly ap-
propriated to capital. On the contrary, the income from
capital has at least no more than kept pace with the
increase of capital itself, while the increase of capital
per head, as we have seen, is very little ; so that it may
be doubted whether the income of the individual capi-
talist from capital has on the average increased at all.
If the return to capital had doubled, as the wages of
the working classes appear to have doubled, the aggre-
gate income of the capitalist classes returned to the
income tax would now be 800 instead of 400 millions.
In other words, it would not be far short of the mark
to say that almost the whole of the great material im-
provement of the last fifty years has gone to the masses.
The share of capital is a very small one. And what
has not gone to the workmen, so called, has gone to
remunerate people who are really workmen also, the
persons whose incomes are returned under Schedule
D as from " Trades and Professions." The capitalist
as such gets a low interest for his money, and the
aggregate return to capital is not a third part of the
aggregate income of the country, which may be put at
not less than 1,200 millions, and is, I should estimate,
not much more than a fourth part.

It will be interesting, I think, to present these con-
clusions in the form of an account. We have not, as I
have already said, an exact statement of aggregate

' These returns, however, it should always be remembered, do not
include real property.

I. E E

4i8

ECONOMIC INQUIRIES AND STUDIES

earnings, either at the beginning or at the end of the
period; but assuming the aggregate income of the
people as about 1,200 milHons now, and that the wages
of working men are, per head, twice what they were,
the aggregates in 1843 and at the present time would
compare as follows :

Progress of National Income.
[In millions of pounds.]

Capitalist classes from
capital

Working income in in- \
come-tax returns . . f

Working income not in
income-tax returns

Income
in 1843.

Income

at Present

Time.

Increase.

190

235

400
180
620

Amount. Per Cent,

515

£
210

385

685

1 10

100

160

130

Progress of National Capital Paying Probate Duty.

1838.

Present
Time.

Increase.

1
Amount. Per Cent.

Amount of capital

55 mlns.

140 mlns.

85 mlns.

155

„ per estate . .

2,200

2,500

300

Note. — Increase of working income per head 100 per cent.

From this it appears that the increase of what is
known as working-class income in the aggregate is
greater than that of any other class, being 160 per cent.,
while the return to capital and the return to what are
called the capitalist classes, whether it is from capital
proper or, as I maintain, a return only in the nature of
wages, has only increased about 100 per cent., although

THE PROGRESS OF THE WORKING CLASSES 419

capital itself has increased over 150 per cent. At the
same time the capitalist classes themselves have greatly
increased in number, so that the amount of capital
possessed among them per head has only increased 1 5
per cent., notwithstanding the great increase in capital
itself, and the average income per head can have hardly
increased at all. On the other hand, as the masses of
the nation, taking the United Kingdom altogether,
have only increased about 30 per cent, since 1843,
when these income tax figures begin, while their aggre-
gate incomes have increased 160 per cent., it is ex-
plained how these incomes have gained, individually,
about 100 per cent, as against hardly any increase at
all in the incomes of what are called the capitalist classes,
on the average. Thus the rich have become more
numerous, but not richer individually; the "poor" are,
to some smaller extent, fewer; and those who remain
"poor" are, individually, twice as well off on the average
as they were fifty years ago. The " poor " have thus
had almost all the benefit of the great material advance
of the last fifty years.

We may now conclude this long inquiry. It has been
shown directly, I believe, that, while the individual in-
comes of the working classes have largely increased,
the prices of the main articles of their consumption
have rather declined; and the inference as to their
being much better off which would be drawn from these
facts is fully supported by statistics showing a decline
in the rate of mortality, an increase of the consumption
of articles in general use, an improvement in general
education, a diminution of crime and pauperism, a vast
increase of the number of depositors in savings banks,
and other evidences of oreneral well-beinof.

Finally, the increase of the return to capital has not
been in any way in proportion, the yield on the same
amount of capital being less than it was, and the capital
itself being more diffused, while the remuneration of
labour has enormously increased. The facts are what

420 ECONOMIC INQUIRIES AND STUDIES

we should have expected from the conditions of pro-
duction in recent years. Inventions having been mul-
tiplied, and production having been increasingly effici-
ent, while capital has been accumulated rapidly, it is
the wage receivers who must have the benefit. The
competition of capital keeps profits down to the lowest
point, and workmen consequently get for themselves
nearly the whole product of the aggregate industry of
the country. It is interesting, nevertheless, to find that
the facts correspond with what theory should lead us
to anticipate.

The moral is a very obvious one. Whatever may
be said as to the ideal perfection or imperfection of the
present economic regime, the fact of so great an advance
having been possible for the masses of the people in
the last half-century is encouraging. It is something
to know that whether a better regime is conceivable or
not, human nature being what it is now (and I am one
of those who think that the regime is the best, the
general result of a vast community living as the British
nation does, with all the means of healthy life and
civilization at command, being little short of a marvel
if we only consider for a moment what vices of anarchy
and misrule in society have had to be rooted out to
make this marvel) ; still, whether best or not, it is some-
thing to know that vast improvement has been possible
with this regime. Surely the lesson is that the nation
ought to go on improving on the same lines, relaxing
none of the efforts which have been so successful.
Steady progress in the direction maintained for the last
fifty years must soon make the English people vastly
superior to what they are now.

I should like to add just one or two remarks bearing
on questions of the moment, and as to the desirability
or possibility of a change of regime now so much dis-
cussed, which the figures I have brought before you
suggest. One is, that apart from all objections of prin-
ciple to schemes of confiscating capital, — land nation-
alization, or collectivism, or whatever they may be called,

THE PROGRESS OF THE WORKING CLASSES 42 I

— the masses could not hope to have much to divide
by any such schemes. Taking the income from capital
at 400 million pounds, we must not suppose that the
whole of that would be divisible among the masses if
capital were confiscated. What the capitalist classes
spend is a very different thing from what they make.
The annual savings of the country now exceed 200
million pounds, being made as a rule, though not ex-
clusively, by the capitalist classes. If then the 400
million pounds were to be confiscated, one of two things
would happen : either the savings would not be made,
in which case the condition of the working classes would
soon deteriorate, for everything depends upon the
steady increase of capital; or the savings would be
made, in which case the spending power of the masses
would not be so very much increased. The difference
would be that they would be owners of the capital,
but the income would itself remain untouched. The
system under which large capitals are in a few hands
may, in fact, have its good side in this, that the Jay
Goulds, Vanderbilts, and Rothschilds cannot spend
their income. The consequent accumulation of capital
is, in fact, one of the reasons why the reward for labour
is so high, and the masses get nearly all the benefit of
the great increase of production. The other remark I
have to make is that if the object really aimed at by
those who talk of land nationalization and the like is
carried out, the people who will suffer are those who
receive large wages. To effect what they intend, the
agitators must not merely seize on the property of a
few, they must confiscate what are as much earnings as
those of a mechanic or a labourer, and the wages of the
most skilled mechanics and artisans themselves. The
agitation is, in fact, to level down, to diminish the re-
ward of labourers who receive a large wage because
they can do the work the community requires, the proof
being that in a market without favour they get the
wage, and to increase the reward of other labourers
beyond what in the same free market the community

42 2 ECONOMIC INQUIRIES AND STUDIES

would freely give them. Whether the production would
be continued at all if there were any success in these
attempts, common sense will tell us. Those who have
done some hard work in the world will, I am sure, agree
with me that it is only done by virtue of the most
powerful stimulants. Take away the rewards, and even
the best would probably not give themselves up to
doing what the community wants and now pays them
for doing, but they would give themselves up either to
idleness or to doing something else. The war of the
land nationalizer and Socialist is then not so much with
the capitalist as with the workman, and the importance
of this fact should not be lost sight of.

[Note. — This essay is reprinted as it stood originally, for the
general reasons stated in the preface to the present volumes, though it
is specially tempting to give later figures in this case, prices having
become lower and wages having risen in the last twenty years. I
would refer all interested to the recent Board of Trade Blue-book
(C. d. 1 761) mentioned in notes to previous essays, and to the Report
on Wholesale and Retail Prices, No. 321, Sess. 1903.]

FOREIGN COMPETITION.^

A PHENOMENON is being repeated at the pre-
sent time which is often witnessed in times of
depression of trade. The cry is raised that trade is
being destroyed by foreign competition. Every bale
of goods or ton of ironwork which comes from a foreign
country into England " at a lower price than the same
articles could be produced at home " is made the text
of a discourse on the decline of Eno-lish manufacturinor.

o o

The multiplication abroad of manufactories of those
articles which we produce for export is made the text
of similar discourses, "See," it is said, "how some
nations which were formerly our customers are manu-
facturing for themselves, and how other nations are
going to the shops of rivals like the United States,
France, and Germany, who are gaining upon us every
day in the race." There is an essential fallacy in the
whole argument, for the alleged facts, even if they were
true, would not prove that foreign competition causes
our manufacturing industry to decline, although it may
be coincident with that decline. It is notorious, indeed,
that everywhere abroad, and not least in Germany and
the United States, manufacturing industry is depressed
as much as it is here, so that our agitators really mean
that English manufacturing causes that of Germany to
fall off and German manufacturing that of England,
whereas the natural inference would be that a common
effect must have a common cause, and that it is some-
thing else than competition which makes foreign and

^ Written in 1877.
423

424 ECONOMIC INQUIRIES AND STUDIES

English manufacturing be simultaneously depressed.
But, apart from direct arguments as to the causes of
the present depression in trade, we think it may be
useful to inquire into the meaning of the words so
freely employed. What would happen if English manu-
facturing were " declining" to any material extent and
foreign manufacturing beginning to take its place?
What would be the loss of income or transfer of labour
and capital involved? If people were accustomed to
measure their words in such discussions, or realize to
themselves what they mean, a good deal of loose talk
would be prevented, and a juster and more practical
view formed of the economic incidents of the hour.

To take first the question of our foreign export trade.
How much of the national income is really derived
from that trade ? To judge by the common language
of the agitators we refer to, England would be nothing
without its exports to foreign nations. Almost our
whole trade and industry, it seems to be thought,
would be at an end; an extensive emigration would be
necessary; we should be a ruined nation. But, apart
from questions as to the mutual conveniences of our
exchanges with foreign nations, from whom we get
much we cannot produce at home, and to whom we
also send much they cannot produce at all, and much
they cannot produce so easily as what they send us —
conveniences which are such that the total extinction
of our foreign export trade is inconceivable — we be-
lieve it may be affirmed that the possible loss of income
from the entire loss of our foreion trade would be a
most measurable and by no means a fatal injury. It
may be calculated that the earnings of the people of
the United Kingdom approximate at the present mo-
ment ^1,200,000,000 sterling a year, if they do not
exceed that amount, Mr. Dudley Baxter, in his well-
known book on the " National Income," published in
1868, computed that in the previous year the aggregate
income of the people was ^814,000,000, and there is
ample reason to believe both that he was fairly accurate

FOREIGN COMPETITION 425

and careful in his calculations, into which the element
of conjecture enters comparatively little, and that since
he wrote the numbers, wealth, and resources of the
people have increased at a wonderful rate. In these
estimates there is one central fact about which there is
no dispute — the amount of income assessed to income
tax ; and we know that income has increased over 40
per cent, in the last ten years of which we have an
account. In the year ended the 5th of April, 1865, the
gross amount of annual value assessed to income tax
was ^396,000,000 sterling, and in 1875 the correspond-
ing amount was ^571,000,000. This is an increase of
very nearly 44 per cent, in ten years, and shows with
what rapid strides the country has progressed. In 1 865,
again, the amount charged to income tax, as distin-
guished from the gross annual value, was ^349,000,000
sterling, while in 1875 the corresponding figure is
;^498, 000,000 sterling, the increase being at the rate
of 43 per cent. Taking into account the increase of
exemptions and abatements from the income tax, which
has been a characteristic of our recent finance, we can
well believe that the real increase of net income must
have been more, and must have exceeded the propor-
tionate increase of gross income. That the net incomes
chargeable to income tax, if the exemptions were
the same now as in 1865, would considerably exceed
;^500,ooo,ooo there can be no doubt ; and altogether,
allowing as well for the incomes under Schedule D
which escape assessment through incomplete returns, we
can hardly err in placing the net incomes of the income-
tax-paying classes at somewhere about ^'600,000,000
sterling. But the income thus arrived at does not in-
clude the laro-e incomes in the ao-grreofate of the wasfes-
receivmg classes, or the incomes of many in the upper
and middle classes which are under the income-tax
limits; and this remainder can hardly be taken as less
than another ^600,000,000. What with the increase
of population and the great rise of wages which has
occurred since 1867, there is no reason to believe that

426 ECONOMIC INQUIRIES AND STUDIES

the proportion of the aggregate income of the country
to what pays income tax is less now than it was when
Mr. Dudley Baxter wrote, and this proportion would
give about ^1,200,000,000 sterling as the aggregate.
There is thus some sanction beyond mere conjecture
for putting the aggregate income of the country at the
latter figure.

Now, to come to our present question — How much
of this income is derived from our foreign exports ?
We perceive at once that instead of these exports
being our main business, it may be doubted if they
contribute more than an eighth or so much to the
total. Last year, which we take to be a more normal
year for prices than such years as 1872 and 1873, when
our exports seemed so much augmented, we exported
goods of British and Irish produce to the value of
;/^ 200,000, 000 sterling. But this amount was not in
reality exclusively British and Irish produce. It in-
cluded the value of an immense amount of raw material
imported from abroad which we had worked up — where
we had added to, but had not created the whole value.
It included, for instance, in cotton yarn and piece
goods, about 970,000,000 lbs. of raw material, worth,
say, ^25,000,000 at the average price of the cotton
imported in the same year. It included, again, in
woollen yarn and manufactures, about 140,000,000 lbs.
or more of raw material, worth, say, ^10,000,000 at
the average price of the wool imported in the same
year. Altogether, deducting for the value of raw ma-
terial in these exports which had previously been ob-
tained from abroad, we doubt if we can estimate the
probable maximum amount of the net income directly
derived from our exports as more than ^140,000,000.
In addition, there are, no doubt, indirect benefits in
the connection between our trade and shipping interests
which are difficult to estimate, but no large sum im-
portant for such an inquiry as the present would fall
to be added in that way to the amount. Comparing,
then, ;^ 1 40,000,000 with ;^ 1,200,000,000, it is at once

FOREIGN COMPETITION 427

seen that the labour and capital engaged in foreign
manufacturing is only a fraction of our whole industry.
England might still be a great and prosperous country
— not so great and prosperous as it is now, but still
great and prosperous — even if the whole of that frac-
tion were to be at once swept away. But even if we
were to lose our entire foreign custom, the whole of
the income from what we send to foreigners would not
be lost. The machines and tools used in manufactur-
ing and the labourers would remain, and some use
could be made of them. Only the difference between
what would be earned in that use and what we now
get from abroad in return would be lost. The precise
net loss would be difficult to state; but it would be
something much less than ;,/^ 140,000,000, and perhaps
not a tenth or a twelfth of the aesfreo^ate income of
^ 1,200,000,000. It is evident that no such loss would
be fatal to a great country. It would make us no worse,
probably, than the reimposition of the taxes which
have been remitted during the last twenty years, and
would be a less calamity, in proportion, than the eco-
nomic losses of the Franco-German War to France,
which was much less fitted beforehand than we are to
stand such a calamity. Probably it could all be made
up by the community sacrificing only a portion of that
additional leisure which it has acquired during the last
thirty years, in addition to the increase of money
wages and profits.

But there is, of course, no question of losing our
whole foreign custom at one fell swoop. What people
have in their minds is that we are threatened with the
loss of a considerable part of our export trade. They
should be asked, then, to define what they mean by a
considerable part. Is it a half, a fourth, a fifth, or
what? Of course, as we reduce the amount, the ridicul-
ous smallness of it, compared with our whole industry,
becomes apparent. The loss of a fifth of our foreign
export trade would only be the loss at most of a fortieth
or fiftieth part of our whole income, which a very little

428 ECONOMIC INQUIRIES AND STUDIES

additional industry would make good. Looking at the
matter in this way, besides, there is one conspicuous
illustration that a considerable breach in the foreio^n
trade is not fatal to our whole industry. In 1863-65
England suffered from the cotton famine, which came
upon us quite suddenly. But, saddening and distress-
ing as the results of that famine were, the distress was
merely local ; the country, as a whole, prospered, and
probably the distress in Lancashire would have been
less but for the common expectation of a more rapid
turning of the tide than what actually occurred. The
diversion of labour and capital to other pursuits was
retarded by the belief that the loss of trade was only
to be temporary.

On the other hand, while our foreign export trade
is small in proportion to our gigantic industry as a
whole, it is large enough to make it a very difficult
matter for any foreign competitors to displace us
materially. The capital sunk in producing annually
^140,000,000 of value must be immense — at least
several hundred millions. But even ^100,000,000
would not be easily found in the whole civilized world
outside of England for the erection of new works to
compete with our manufactories. The annual accumula-
tions of France are computed at ^60,000,000 a year,
and of Germany at ^40,000,000; and the accumula-
tions of the United States must also be very large.
But the accumulations are not free savings, to be
directed into any enterprise. They are largely used in
building houses, in furniture, in improving land under
the direction of its owners, and in other ways, so that
it is only a small surplus which is annually available
for new enterprise. We see, therefore, what an effort
of imagination is required when the displacement of
England as a manufacturer for export is talked of.
Even if she could be displaced at once from her whole
export trade, the loss would be much less than is some-
times thought; but the amount of capital required to
displace us even partially is so great that it must take

FOREIGN COMPETITION 429

many years for our competitors to accumulate any such
amount. The displacement of labour, we believe, would
be an equally serious matter; for workmen are not
made in a day, and many more skilled workmen must
be trained abroad if they are to undertake any serious
part of the labour which is now performed in England.
There is even a more serious difficulty, we believe, in
the way of quickly-increased foreign competition. It
is the com[)lexity, variety, and minute subdivision ne-
cessary in great manufacturing enterprise which make
displacement almost inconceivable. No workshop is
complete in itself; we doubt if any manufacturing town
is complete; England is one vast workshop, fitted with
complete appliances of every sort, with a capability of
turning on great force in any given direction, unex-
ampled and not even approached elsewhere. But, apart
from this complexity, we are content to call attention
to the mere amount of the capital involved in any
question of a material transfer of our foreign export
trade.

We come, then, to the question of our home trade.
Foreign nations, we are told, are not only going to do
without us and cease altogether to be our customers;
they are to send goods here and cut up our home
manufactures. But our remarks in the last paragraph
apply with tenfold force to the question of such a
foreign invasion. If foreign nations are likely to find it
difficult to procure capital which would enable them to
take away a material part of our foreign export trade,
how are they to find capital to make any impression
on our vast manufacturing industry for home con-
sumers? Here it is a question, not of hundreds, but of
thousands of millions of capital, and of a transfer of
labour which fairly takes one's breath away. In this
respect foreign nations would have to begin at the
beginning. Of our whole imports in 1876, amounting
to ^375.000,000, little more than ^40,000,000 were of
manufactured goods, and these included a great deal
which we could hardly make for ourselves at home,

430 ECONOMIC INQUIRIES AND STUDIES

even if our workmen were not otherwise employed;
while the manufacturing in them, representing wages
and profits — i.e., exclusive of the value of raw material,
which we should have to buy in any case — would only
be a part of the total. ^ How are foreign nations to add
seriously to this relatively insignificant sum, at least
within any reasonable limit of time to which we can
look forward? If they are to displace any considerable
part of our home trade, the work must be one of
generations, and it is not to be lightly associated with
a few isolated augmentations of imports of Belgian iron
or American cotton goods.

We trust we shall not be misunderstood. We have
not a word to say against efforts to keep the public
informed of the prices of foreign manufactures and the
nature of their competition with our own manufactures
at points where there is competition. There is enough
indolence and routine and mismanagement even in
English manufacturing to make it desirable in every
way to have the stimulus of foreign competition ap-
plied. But when the decline and ruin of our whole
manufacturing, or even any material part of it, are
talked of, people should know what they mean. If they
did know, they would not, as sensible men, confuse
their minds with notions which are just as sensible and
relevant, and no more, as the familiar illustration of
Tenterden Steeple being the cause of Goodwin Sands.
Harm is done in the end by all such confusion of ideas,
including the harm in the present case of distracting
attention from the obvious causes of the depression of
our foreign trade. — [1877.]

' There are larger figures now ( 1 903), but the so-called manufactures
imported from abroad are still for the most part raw materials of our
own industries, which have increased enormously since 1877, and are
still increasing.

XII.

THE ECONOMIC VALUE OF IRELAND TO GREAT BRITAIN.'

THAT one of the roots of mischief in Ireland is
economic everybody agrees. The curse of Ire-
land is its poverty. The hunger for land which is so
unintelligfible to Enolish feelingr is at the bottom of

o o o

outrages of every kind, and is played upon by political
agitators. It is not, however, generally understood how
the weakness of Ireland affects the whole aspect of the
Irish political difficulty.

I have thought it worth while, therefore, when the
notion of splitting partnership is in the air, to bring
together some notes as to the economic position of
Ireland, relatively to Great Britain, from the point of
view of a statesman in Great Britain looking at the
suggested proposal to part company as a mere matter
of business — as he would look, in fact, at the analogous
suggestion of union with a State which was seeking
partnership with us. The statesman, of course, must
weigh moral and political considerations as well as
economic, and the various questions involved are neces-
sarily intermixed; but it is expedient nevertheless to
separate the economic from the other elements. We
shall know better what we are doing or going to do in
Ireland if the business loss or gain is clear.

The first point to notice in such a question is popu-
lation. The people of Ireland are rather less than five
millions, as compared with nearly thirty-one and a half
millions in Great Britain. If Great Britain were to be

^ From the "Nineteenth Century" of March, 1886.
431

432 ECONOMIC INQUIRIES AND STUDIES

offered a partnership of about five millions of people
of equal character and resources to those of Great
Britain themselves, the addition to the strength of the
empire would be as five to thirty-one and a half. The
population thus to be added would constitute in the
new State somewhat less than a seventh of the whole.
Equally the deduction of a people of this magnitude
from the existing Union would be the deduction of
rather less than a seventh.

A change of this description would be a very con-
siderable one. But, apart from what it might lead to,
it cannot be described as in itself formidable. With the
loss of a seventh, the United Kingdom would be as
great a Power as it was in 1870, and in fact a much
greater Power, because the remaining six-sevenths are
richer and stronger individually than the population of
1870. Their condition in the interval has enormously
improved.

Of course, if by any arrangement the splitting of
partnership were only to be partial — if we retained
Ulster, while permitting to the rest of Ireland more
or less complete separation — the deduction from the
United Kingdom would be materially less. The dis-
affected parts of Ireland are not more than three-fifths
of the whole, or three millions. In losing the three
millions we should only lose one-twelfth of our num-
bers, or less than the growth of our population every
decade.

Looking at the matter historically, we must come to
the conclusion that the problem of disaffection in Ire-
land is mitigated in its intensity by the changes of
population which have occurred. Down to about 1845,
from the beginning of the century, the people of Ire-
land were about half those of Great Britain — about a
third of the whole population of the United Kingdom.
The population of the disaffected parts of Ireland was
also nearly three-fourths of the whole of that country,
and consequently about a fourth of that of the United
Kingdom. The change from such proportions to those

ECONOMIC VALUE OF IRELAND TO GREAT BRITAIN 433

of about one-seventh for the proportion of Ireland itself
to the United Kingdom, and one-twelfth for the pro-
portion of the disaffected parts of Ireland, requires no
comment. Disaffection in Ireland is obviously not what
it was in relation to the United Kingdom as a whole,
I have called attention to this point for some years
past as necessarily altering our entire conception of the
Irish difficulty. It is dealt with in "Essays in Finance"
(first series), in an essay on the " Taxation and Repre-
sentation of Ireland," which was first published in
1876,^ and I have introduced the same topic in two
essays in the second series of " Essays in Finance" —
viz., an essay on the Utility of Common Statistics," and
another on Some General Uses of Statistical Knowledge.
I doubt if the full force of this consideration is properly-
appreciated even yet. Relatively Ireland is still losing
ground most rapidly, not so much because Irish popu-
lation diminishes, as because that of Great Britain in-
creases. We grow a new people in Great Britain equal
to the whole disaffected part of Ireland at the present
time every ten years. In a few generations, at this rate,
Ireland must become relatively to Great Britain very
little more than a somewhat larger Isle of Man or
Channel Islands. To let Ireland split partnership would
differ in no way in kind, and comparatively little in
degree, as far as business is concerned, from letting
the Isle of Man remain a separate State.

The second point is even more important. The
people of Ireland are not equal in industrial character
and resources to those of the United Kingdom. They
are very far from being equal. Great Britain, in adding
to itself an Ireland, would add a community having only
a twentieth part of the income of the United Kingdom ;
the United Kingdom, in losing an Ireland, would only
lose a small percentage of its strength.

It is very difficult, of course, dealing with questions
of the aggregate income of different communities; but,

' See supra^ P- ^tj. ^ Seepos^ea, vol. ii., p. i.

I. F F

434 ECONOMIC INQUIRIES AND STUDIES

practically, we need have little doubt of the proportions
stated.

In the assessments to the income tax the propor-
tion of Ireland is as i to 17 — viz., United Kingdom
(including Ireland), ^629,000,000 sterling; Ireland,
^37,000,000 sterling. This is more than five per cent,
but not very much more. And there is reason to be-
lieve that Ireland is more strictly valued than Great
Britain, and that it is over-valued.

At any rate, when it comes to be a question of the
whole aggregate income of the different communities,
there can be little doubt that other sources of income,
outside of the income tax, are larger relatively in Great
Britain than in Ireland. In dealing with the subject
lately in " Further Notes on the Progress of the Work-
ing Classes," I put down the whole income of Great
Britain as about ^^ 1,200,000,000, and that of Ireland
alone as just over _;^ 70, 000, 000. But I have a strong
feeling that in these figures, which were based very
much on what Mr. Dudley Baxter and Mr. Leone Levi
had done, I gave too little to Great Britain, if not too
much to Ireland.

With regard to Ireland specially, it is easy to see that
the income cannot be very large. The chief industry is
agriculture, which employs in round figures about sixty
per cent, of the population. Out of 1,290,000 males of
twenty years and upwards, with specified occupations,
according to the census of 1881, no fewer than 757,000
were engaged in agriculture, which is just under sixty
per cent. Among the remainder, there were no fewer
than 115,000 called "mechanics or labourers," among
whom, I suspect, would be many partly or largely en-
gaged in agriculture. The proportion of sixty percent,
may, however, be taken. In other words, three millions
of people in Ireland depend on agriculture directly —
the breadwinners of the family are engaged in that
occupation. And this means that, all told, the average
income of these three millions, including those who
receive rent, as well as farmers and labourers, is not

ECONOMIC VALUE OF IRELAND TO GREAT BRITAIN 435

more than about ^13 or ^14 per head. The gross
produce of the crops of Ireland, according to the latest
returns, is about ^^33,000,000 only, from five million
acres, of which about £ 1 0,000,000 are from cereal crops,
;^ 10,000,000 from potatoes, and the remainder mainly
from hay and green crops, which latter, of course, along
with a large part of the cereal crops themselves, are not
in their final form when thus valued. Making a deduc-
tion from the ^33,000,000 on this account, and making
an estimate for the value of cattle, sheep, and pigs sold,
and for dairy produce, the gross produce of pasture-
land being, of course, much less than that of cereal or
other crops, it seems impossible to arrive at a larger
figure than about forty to forty-five millions as the
value of the agricultural produce of Ireland, deducting
seed, manures, and expenses of that nature. On this
forty to forty-five millions, three millions of people have
to live, which gives about £\/\ per head; or less than
£6q for a family of four persons.

Deducting the total rent of just under ;^ 10,000,000
according to the income-tax returns, with practically
no deduction from the numbers of people on the other
side, we should leave about ^11 per head only for
farmers and labourers and their families. And if we
take the rent at a less figure, as I believe we ought to
do — sayat about eight millions sterling only — we should
still make the income of the Irish agricultural classes,
farmers and labourers together, v^nly ^12 per head; or
under ^50 for a family of four persons. Comparing
this with England, it would appear that the tenant-
farmers and labourers of Ireland are not so well oft' as
the average of the English agricultural labourers, which
implies that very many must be far below that level.

On this basis, also, we may calculate the aggregate
income of Ireland. Assuming the income per head of
the rest of the people of Ireland to be one-half equal
to the income per head of those engaged in agriculture,
and the other half fifty per cent, more, we should still
arrive at a figure of less than eighty millions only as

436 ECONOMIC INQUIRIES AND STUDIES

the total aggregate income of the whole people of
Ireland.

In this way, according to estimates of income gener-
ally, the proportion of Ireland to the United Kingdom
also comes out as one to seventeen, the same as from
income-tax assessments only.

Another test of resources would be the relative
capital of Great Britain and Ireland. I have to refer to
Irish capital later on, and estimate it at ^400,000,000,
or thereabouts. There can be no exact estimates in
such matters; but the total capital of the United King-
dom ten years ago I ventured to estimate at not less
than ^8,500,000,000, and, calculating on a similar basis
now, it cannot be less, I think, than ^^9, 600,000,000.
In other words, Irish capital is only a twenty-fourth
part of that of the United Kingdom. And, whatever
doubt there may be about the figures, which are neces-
sarily very wide, and which assume that a nation can
be valued as a going business concern, it is at least
certain that no emendation would sensibly alter the
proportions. An addition to Irish capital and a deduc-
tion from English capital that would both be large
would leave the proportions much the same.

It is easy to see, then, how little the gain of an Ire-
land would add to the resources of Great Britain, or
the loss of it would deduct from those resources. The
taxable income of Ireland must bear a still smaller pro-
portion to the taxable income of Great Britain than
does its gross income or capital to the gross income or
capital of Great Britain. The taxable income is the
income remaining after allowance for the minimum
necessary to maintain a population upon a given stand-
ard of living. In this sense, giving the people of
Great Britain an average of ^12 per head as the mini-
mum, they have a taxable income of about ^800,000,000
sterling annually.^ On the same scale, five millions of
people in Ireland would absorb sixty out of, say,

^ Thirty-two millions, multiplied by 12, is 384 millions, deducting
which from 1,200 millions leaves rather more than 800 millions.

ECONOMIC VALUE OF IRELAND TO GREAT BRITAIN 437

seventy-five millions gross income, leaving a taxable
income of ^15,000,000 sterling only. Even allowing
that the standard in Ireland is necessarily lower, the
taxable income would not be much increased. As a
partner with so rich a State as Great Britain, Ireland
must therefore be considered strictly as entirely insig-
nificant. It hardly counts one way or the other.

Of course the practical taxable income of Great
Britain is not so much as ^800,000,000. The State
could not levy ^800,000,000, or anything like that
sum, without reducing many classes in the scale of
living. There would be a revolution if any such levy
were attempted. But, limiting the ^800,000,000 as we
may, there would still be a vast amount to compare
with the taxable income of Ireland, where the practical
taxable income must be very small indeed.

Here again, as with regard to population itself, it is
quite true that Ireland is becoming less and less im-
portant to Great Britain. At the beginning of the
century there was some excuse for an expectation that
was never fulfilled — that Ireland would participate in
the burdens of the United Kinp-dom to the extent of
two-seventeenths. With a third of the population of
the United Kingdom, Ireland, it was calculated, might
contribute rather less than one-eighth to joint objects.
This was allowing that even then Ireland, man for
man, was not half as rich as Great Britain, which seemed
an extreme calculation, as both countries were then
mainly agricultural, and Ireland had quite a third of
the cultivated area. Now there is no question that
Ireland's resources in proportion, instead of being two
to seventeen, are less than one to seventeen. Its num-
bers are relatively to Great Britain not half what they
were, and the distance between the average incomes
per head of the two communities continues very great.
The taxable income and capital of Great Britain have
increased enormously, and those of Ireland hardly at
all.

To put the matter shortly, and in the roundest

43^ ECONOMIC INQUIRIES AND STUDIES

figures — there can, of course, be no exact figures of in-
come and capital — Ireland in population has sunk from
one-third to less than one-seventh ; in gross income,
from two-seventeenths to less than one-seventeenth;
in capital, from a proportion that was material to about
one-twenty-fourth only ; in taxable resources, from a
proportion that was also material, being perhaps about
one-tenth, to a proportion that is almost inappreciable
— the proportion of only one to fifty. In resources,
Ireland has no doubt increased absolutely. The Irish
people are much better off individually, partly because
there are fewer people than there were fifty years ago,
but with much the same resources; but as a community
in relation to Great Britain there is an immense de-
cline.

The relative decrease of the disaffected part of Ire-
land only is quite as remarkable. From being about
one-tenth of the United Kingdom in resources, it has
become about one-fortieth or less. As regards taxable
income, the proportion of the whole of Ireland to the
United Kingdom being only about one to fifty, that of
the disaffected part of Ireland only must be about one
to a hundred!

How small the proportion of Ireland is will also be
impressed on us more if we consider for a moment the
economic relations of Great Britain with other British
dependencies. Compared with Ireland, our interests in
India, where we have invested over ;^ 2 00,000,000, and
in Australia, where we have invested over ^100, 000,000,
are enormous. And our trade with India figures up as
^66,000,000 annually, and with Australia as^ 5 5 ,000,000
annually, as compared with a trade of about ^40,000,000
with Ireland, imports and exports together. The Indian
and Australian trades also give more employment to
our shipping in proportion than that of Ireland does.
And neither India nor Australia imposes on us any
direct charge for government, such as we shall find
Ireland does, to constitute a deduction from the profit
we derive, as a community, from the connection.

ECONOMIC VALUE OF IRELAND TO GREAT BRITAIN 439

As regards this question of resources, it will be in-
teresting to go farther and to look at the matter a little
more closely. Great Britain and Ireland have been in
close partnership for over eighty years. How does the
account stand as regards government and people ? Has
Ireland been a help or the reverse?

It is obvious, to begin with, that Ireland has not
helped as the framers of the Union expected. Accord-
ing to the Act of Union, Ireland was expected to con-
tribute to the joint expenditure of Great Britain and
Ireland in the proportion of two-seventeenths. In
point of fact, Ireland could not do so under the strain
of the enormous outlay at the beginning of the century.
Under that arrangement between 1800 and 181 5 Irish
debt increased rapidly — viz., from ^24,000,000 to
^ 1 28,000,000 — although Irish taxation was enormously
increased, viz., from three and a half to nearly seven
millions. In 18 16, the amalgamation of the exchequers
and indiscriminate taxation were recommended, because
it was quite impossible for Ireland to bear two-seven-
teenths of the joint burdens.

Actually at the present moment Ireland is no gain
to the exchequer of Great Britain. The facts are as
follows: Ireland's gross contributions from Customs,
Excise, and Inland Revenue generally are put down in
Thom's Almanac as about ;^7, 700,000; but of course
no such account shows exactly what Ireland's proper
contribution is. Duties are paid in Ireland on spirits
consumed in England, and duties are paid in England
on tobacco and tea consumed in Ireland. An exact
account is impossible. It seems to be believed, how-
ever, according to the return No. 36, session 1884,
that, after corrections are made on this head, about
;^6, 700,000 represents the contributions of Ireland to
imperial purposes, exclusive of Post Office, etc., the
contributions of Great Britain being nearly ten times
that amount. In other words, Ireland, while con-
stituting only about a twentieth part of the United
Kingdom in resources, nevertheless pays a tenth or

440 ECONOMIC INQUIRIES AND STUDIES

eleventh of the taxes. Ireland ought to pay about
;^3, 500,000 and it pays nearly ^7,000,000. To the ex-
tent of the difference Great JBritain is better off in the
partnership than could have been expected beforehand.

This is only a part of the account. When we look
at the other side — viz., the disposal of the taxes — we
shall see that Great Britain does not gain so much as
would appear from the revenue side only. But I ought
to explain In passing that it is not surprising, consider-
ing the nature of our imperial taxes, that Ireland should
contribute more than its proper share, although the
taxes are not merely indiscrimate, but Ireland is really
exempted from some of them. The reason is that im-
perial taxes fall so much on the common luxuries of
the poor — on spirits, tobacco, and tea. Nearly the
whole cost of the first two articles to the consumer is a
tax, and the ad valorem tax on tea is also very high.
The poor, if they are to have these common luxuries
at all, must contribute disproportionately to the ex-
chequer. Ireland as a poor country is disproportion-
ately taxed, although the taxes of the United Kingdom
are technically indiscriminate.

Turning to the other side of the account, what we
find is that the Imperial Government has, first, to gar-
rison Ireland to a degree unnecessary in Great Britain;
and, second, to pay disproportionately for the local
government of Ireland. If the home troops were to be
stationed in Ireland in proportion to the population,
the troops in Ireland would be about 12,000 only; if
in proportion to resources, about 5,000 only. Actually
Ireland has at least 24,000 troops, sometimes more,^ an
excess on the first basis of 12,000 troops, and on the
second basis of nearly 20,000. At ^150 per man,
which is the cost of the British standing army, we thus
spend in Ireland on the first basis ^1,800,000 which
we might save; and on the second basis nearly
^3, 000, 000.

' In 1884 the numbers were 24,400, out of a total of 90,000 at
home.

ECONOMIC VALUE OF IRELAND TO GREAT BRITAIN 44 I

Next, the Imperial Government spends a certain
amount of money on the internal administration of
different parts of the United Kingdom — the Civil
Service expenditure. Altogether it spends in this way
the sums shown in the following table (the particulars
being extracted from the last finance and revenue ac-
counts):

Statement of Charges on Imperial Revenues for Local Administration
in Great Britai7i and Ireland compared. From the Finance and
Revenue Accoiints, 1884-85.

[In thousands of pounds — ooo's omitted.]

Total.

Great
Britain.

Ireland.

Pensions for judicial services, pp. 52-60

Salaries and allowances, pp. 63-65 . . .

Courts of Justice salaries, pp. 66-79 . .

Civil Service, Class I. — Public Works and
Buildings (less spent abroad) ....

Civil Service, Class II. (Civil Departments)
„ Class III. (Law and Justice)
„ Class IV. (Education) . .
„ Class VI. (Non-effective) . .

127

84^

506

1,662
2,397
6,341
5,135
1,193

£
103

392

1,457
2,109'

4,IOT

4,368
1,078

£
24

42
114

205

288

2,239

767

115

Total

17,445

13,650

3,794

In addition there have been numerous grants of
loans to Ireland in the last forty years which have
never been repaid.

It is easy to see that, on any hypothesis, the Imperial
Government spends on Ireland more than its proper
share, whether measured by its resources, its popula-
tion, or its actual contributions to imperial revenues.
Out of a sum of ^17,500,000 spent out of imperial
revenues for the internal administration of Great

^ Including salary of Lord-Lieutenant and Queen's Colleges. I
have only included salaries and allowances special to Great Britain
and Ireland.

' Ireland gets the benefit of part of this sum.

442

ECONOMIC INQUIRIES AND STUDIES

Britain and Ireland, it obtains very nearly a fourth.
The following compares what Ireland would be entitled
to on these different hypotheses with what it actually
receives out of this sum of ^i 7,500,000:

—

Sum due to

Ireland from

Imperial

Revenues.

Sum actually

received by

Ireland.

Excess of

actual
Receipts.

Proportion.

Proportion to resources .

-Vth

872,000

3,800,000

2,928,000

„ population

|th

2,492,000

3,800,000

1,308,000

„ contributions

xVth

1,744,000

3,800,000

2,056,000

In any case Ireland gets more than is due to it, as-
suming in the last two cases that a contribution accord-
ing to population or on the present scale is just. In
these two ways, then, partly through excessive military
expenditure, and partly through excessive civil ex-
penditure. Great Britain spends upon Ireland a dis-
proportionate sum. Taking the resources as a measure,
the account would balance as follows:

Overspent for British troops in Ireland .
,, local administration . .

Deduct excess of receipts from Ireland
in proportion to its resources . .

£
3,000,000
2,928,000

5,928,000
3,200,000

Deficit 2,728,000

The English Government is thus a loser by Ireland
to the extent of about ^2,750,000 per annum, although
it receives from Ireland over ^3,000,000 more revenue
than Ireland, on any fair computation, ought to pay.
If Ireland only paid a fair contribution for imperial
purposes, we should be out of pocket by this ^3,200,000
more, or nearly ;i/^6,ooo,ooo. Actually, it is beyond

ECONOMIC VALUE OF IRELAND TO GREAT BRITAIN 443

question, we lose as a government nearly ^3,000,000,
while taxing Ireland over ^3,000,000 more than it
ought to be taxed.

Of course it may be said that we do not lose by the
army expenditure; that the troops being in Ireland are
available, to a certain extent, for the miscellaneous
purposes of the United Kingdom. Unfortunately, it is
beyond question that the troops are not available. The
extra 12,000 or 20,000 troops that are in Ireland, be-
yond what is necessary to garrison it in proportion to
Great Britain, are lost to us for imperial purposes. The
expenditure is pure waste.

So much for the balance of the account as far as the
Government is concerned. The question remains as
to the account of the community as a whole.

English capital, it may be said, is invested in Ire-
land, and there is a large profit to the community, if
not to the Government. I am sorry to say I can find
little foundation for this impression. There is some
profit, but not a large profit.

The whole capital of Ireland must be inconsiderable
— probably not over ^400,000,000 — the principal items
being:

Value of land (^160,000,000) and houses

{;^4o,ooo,ooo) 200,000,000

Tenants' capital 80,000,000

Railways 36,000,000

Furniture of houses and other movable pro-
perty 20,000,000

Other capital (say) 60,000,000

Total 400,000,000

What banking capital there is I include in other
capital, as part of it at least is no doubt invested by
loan or otherwise in agriculture, railways, etc., and it
ought not to be counted twice over. The ^400,000,000
is probably over the mark.

444 ECONOMIC INQUIRIES AND STUDIES

And most of this capital must be held locally. The
trading and farming capital is so held. The banking
capital is so held; out of the ^400,000,000 of resources
of the Irish banks, capital and deposits together, the
share owned by English people must be very small,
for the deposits are necessarily those of the locality,
and Irish bank shares, I know, are held locally. Part
of these resources finds its way to London, and is in-
vested in London. Irish railway shares are also, for
the most part, held in Ireland. There remains only
the real property, which is said to be mortgaged largely
to English insurance companies, and so on. But
English insurance companies only hold a little over
^70,000,000 of mortgages altogether, and I should
doubt if a fifth part of these mortgages are in Ireland.
The mortgages there, all told, can hardly exceed
,^50,000,000, of which only a part would be held in
England. There are, of course, the landlords who re-
side in England. Per cotitra, however, residents in
Ireland hold English securities, not inconsiderably, I
believe, in proportion to the resources of Ireland, and
this holding, putting the two communities against each
other, is a set-off to Irish securities held in England.

Ireland, as a field for English capital, does not seem,
therefore, to count for much. But, if we allow that
even a sum equal to a fourth part of the nominal agri-
cultural rent of Ireland, which appears to be under
^10,000,000, finds its way to England on balance in
the shape of mortgage interest, etc., deducting what is
received in Ireland on similar account from Great
Britain, the English community as a whole. Govern-
ment and people together, would still have very little
out of Ireland. The gain to the community, whatever
it is, would be balanced, pro tanto, by the deficit on
Government account. If Ireland were only to be taxed
according to its resources, there would be a very large
deficit.

It is quite clear, it may be added, that, as compared
with the enormous capital and income from capital

ECONOMIC VALUE OF IRELAND TO GREAT BRITAIN 445

which the community of Great Britain enjoys, the share
due to the Irish connection, even if the whole nominal
rental of Ireland were to be remitted to Great Britain,
would be inconsiderable. Our income from capital is
over ^400,000,000 annually, to which a contribution of
^10,000,000 would not be very material. What has
been said above as to the superior importance to us of
India and Australia has a bearing on this point. There
are many parts of the world which are more important,
economically, to Great Britain than Ireland is.

Next, it may be said, we gain by the trade of Ire-
land. Ireland is a good customer of Great Britain, and
we get conveniently from Ireland much of what we re-
quire. It will follow, however, from what has been
said, that, as the income of Ireland altogether is about
^75,000,000, only, the trade with Ireland must be
limited (i) by the surplus which Ireland can afford to
export out of that sum, and (2) by the proportion of
that surplus which Ireland can afford to spend on the
produce and manufactures of Great Britain.

The total exportable surplus of Ireland cannot be
very large. The exports and export value of cattle,
sheep, and pigs, valuing them at about the average
given by " Thom " for Irish live stock in general in
1884^ are as follows (average of three years 1881-83) :

Value per head.

Cattle 630,000 ;Q\2 ;«^7, 560,000

Sheep 530,000 ^2 35. ^1,220,000

Pigs 450.000 £z ^1,350,000

Total ;^io, 130,000

And the export of butter and cheese, allowing that
the produce available for export from each milch cow
is about ^4 per head, would not be more than about
;^6,ooo,ooo.

Adding these two sums together, the total agricul-
tural exports of Ireland would be about /" 16,000,000

' Thorn's Almanac for 1885, pp. 692-694.

44^ ECONOMIC INQUIRIES AND STUDIES

only; of course at lower prices the exports would be
less.

In addition, there are the exports of the linen manu-
facture, the Belfast shipbuilding trade, the spirits and
porter of Dublin and Belfast, the produce of Irish
fisheries, and other miscellaneous productions, amount-
ing in all, I should say, to about other ^5,000,000 —
total _^ 2 1,000,000. The calculation is necessarily very
rough.

The imports on the other side would more than
balance, I think, but they are largely of articles which
are not the produce and manufactures of England.
Grain of different kinds is a principal item. There are
no returns of imports now, but in 1874 they amounted
from foreign countries only, principally grain and flour,
to ;^ 1 0,000,000. At recent prices the same quantity of
imports would of course be of less value.

Ireland in addition takes sugar, tea, and other articles
of tropical produce, principally imported from Great
Britain, probably to the amount of /^ 5,000,000, giving
a much smaller quantity of tea and sugar per head than
is consumed in the United Kingdom generally.

Adding these two amounts together, the total is
^15,000,000, and the difference between this sum and
the total required to balance the estimated exports
only amounts to ^6,000,000. Ireland probably im-
ports somewhat more; the particulars I cannot give,
except for coal, of which Ireland imports 3,000,000
tons, worth, say, including freight, rather more than
^2,000,000. The other articles which Ireland must
import, including textiles, would necessarily contain a
large amount of raw material. Altogether, it may be
doubted whether Ireland is a customer for British
labour to the extent of more than a few millions per
annum.

When it is considered that even complete separation
need not involve loss of trade, and partial separation,
by which I mean any tolerably comprehensive scheme
of local self-government, would not involve loss of trade

ECONOMIC VALUE OF IRELAND TO GREAT BRITAIN 447

at all, except through Ireland falling into anarchy, it
cannot be said that the risk to our trade is a very serious
element in the question of the loss or gain which the
separation of Ireland, and a fortiori a mere alteration
of the form of the political connection, would involve.

I have been looking at the question exclusively from
the British point of view. The view presented, when
looked at from an Irish standpoint, is somewhat differ-
ent. The precise interest of Ireland in the connection
requires a little explanation.

1. On the direct Government account, Ireland would
probably gain by separation or by a revisal of present
arrangements. It would have about ;^7,ooo.ooo of
revenue to dispose of, which it now contributes to the
Imperial exchequer, and out of the difference between
this sum and the sum of ^3,800,000 it gets back from
the Imperial Treasury for internal administration, it
would have to defray its army and navy, if any, its
share of the Imperial debt, and any expenses of that
sort. Assuming economy in spending for the purposes
on which the ^3,800,000 is now spent, Ireland might
get on very well, the scale of expenditure all round
being lower than in Great Britain. For less than a
million a year Ireland could have a very tolerable force
to maintain internal order; its share of the imperial
debt, proportioning that share to its resources, would
not cost more than ^1,500,000 per annum ; there
would remain over ^4,000,000 for all the miscellaneous
purposes of internal administration, which is more than
what is now spent. Ireland would thus gain by the
severance; while Great Britain, which loses now, al-
though extracting over three millions more from Ireland
than its proper share of taxation, would decidedly gain.
Both sides would gain, assuming no political danger
to arise, because the present government of Ireland by
England involves very serious waste.

2. Ireland would lose indirectly by the withdrawal
of English troops. English army expenditure in Ire-

44^ ECONOMIC INQUIRIES AND STUDIES

land now recoups a part of the loss inflicted on Ireland
by disproportionate taxation.

3. Separation, if it should bring about an interrup-
tion of trade between Ireland and Great Britain, would
be disastrous to Ireland. The ^20,000,000 which Ire-
land exports find almost their sole market in Great
Britain. If more capital is to be invested in Ireland,
the capital must come from England. In this respect
Great Britain is indispensable to Ireland.

On balance the direct advantages to Ireland from
complete or partial separation are apparently so little
that they cannot compensate the danger involved in
anything like complete separation. Of course in isola-
tion and hostility to Great Britain, Ireland would be
lost. It is utterly without resources to maintain such
an attitude. On the other hand, the advantage to Ire-
land of a partial separation, involving a settlement of
the direct accounts, and leaving to it all the advantage
of forming part of the United Kingdom, would be
enormous.

I have thus answered the question with which I
started, or nearly so. The conclusion is that Great
Britain has not much to lose in dissolving partnership,
while Ireland has.

The only point I have left untouched is the question
of the indirect political danger in separation and the
loss it may involve. This is almost too remote a specu-
lation for such an inquiry as I have been making.
It is obvious, however, still keeping strictly to the
economic question, that the sum of ^2,750,000, the
amount of the deficit we now incur on account of Ire-
land, would go some way towards the expense of extra
military and naval preparation which the presence of
a hostile Ireland near us might involve. I should like
further to ask the question why a State like Ireland
beside us, if completely separate, should add sensibly
to the dangers we incur from States like Belgium and
Holland, which are just about as populous and much

ECONOMIC VALUE OF IRELAND TO GREAT BRITAIN 449

richer, and almost equally near. The question is one of
military strategy; but, without being dogmatic, I would
suggest that the experience of past times, when France
tried to use Ireland against us, does not wholly apply.
In past times Ireland was useful positively to Great
Britain, because of the relative magnitude of its re-
sources in both men and wealth. The loss of it would
have been a great loss to Great Britain in the life-and-
death struggles in which it was engaged. Further,
Ireland hostile might in former times have been a real
danger to England for two reasons — the first, its relative
magnitude, already referred to; and next, the necessity
or convenience, in the days of sailing-ships, of using as
the basis of hostile operations against a State which
was to be reached by sea a place near to that State, so
that a Power like France mioht have grained some-
thing by "enveloping" Great Britain. Now all the
circumstances have changed. Ireland is so poor in re-
sources that the loss of it positively would hardly count.
Even as a recruiting ground it is no longer required,
because a State like Great Britain with 31^ millions of
men, not to speak of its colonial reserves, can have as
many men for soldiering as its finances can afford out
of its own numbers. Negatively also we can keep mili-
tary possession of Ireland much more easily than was
formerly the case; it is an easier task than it was in
proportion to our resources; and just because it is
easier, it is less worth the while of an opponent to seek
to overcome us through Ireland. In these days of
steam also a great Power meaning to attack us could
do so as easily, or nearly as easily, from Antwerp or
Hamburg or Havre, or even Cadiz, as from Dublin or
Belfast; to attempt to reach us through Ireland would
not be worth while. To guard against accidents, it is
prudent and best for both countries that we should
keep military hold of Ireland; but it would seem to be
conceivable that Ireland, even if disposed to be hostile,
would not " count " when separate, if we were only to
put forth our strength. If we lose command of the sea,

I. G G

450 ECONOMIC INQUIRIES AND STUDIES

we shall be liable to be assailed directly by a military
Power; if we keep the command, Ireland will not count.
There is less need, however, to discuss a point like
the last, because there is no question, under any scheme
of local self-government or Home Rule that I have seen,
of permitting to Irish local authorities an army or a
navy. Many of those who are in favour of Home Rule
appear to admit as a possibility that the Irish local
authorities may attempt illegally and covertly to raise
a military force. But the cost of guarding against such
a risk, which is the economic aspect of the question,
ought not to be very material. Would it conceivably be
necessary to keep more troops in Ireland than we now
do."* I consider myself precluded from fully discussing
the latter question. It involves those moral and poli-
tical considerations from which I have endeavoured to
disentangle the economic problem. But it would seem
just at least to notice, economically, that Ireland, even
if separate, would have overwhelming motives to be on
good terms with Great Britain.

I propose to leave the question of the economic
value of Ireland to Great Britain at this point. As I
have stated at the beginning, and as I have just been
repeating, there are moral and political considerations
to be taken into account after the economic aspect of
the question has been studied. For historical reasons,
for the sake of the connection between Ulster specially
and Great Britain, for the sake of a minority who have
been encourao-ed to trust to Enorlish law administered
by an English Parliament, neither separation nor any
form of Home Rule for Ireland may be desirable or
possible. To discuss all these matters would take me
into regions which, for many reasons, even if I de-
sired to do so, I must avoid. I may venture to express
the hope, however, that the facts I have stated are of a
tendency to mitigate apprehensions which are gener-
ally entertained. If Ireland in a business view hardly
counts in a question of force against Great Britain, we

ECONOMIC VALUE OF IRELAND TO GREAT BRITAIN 45 I

can afford to arrange its destinies and its relations to
Great Britain in any way that may be politically found
expedient. Having practically omnipotent power, we
should discuss with reasonable coolness how Ireland is
to be governed.

I shall only, then, permit myself one or two remarks
appearing to verge on politics, because they arise di-
rectly out of a consideration of the economic and busi-
ness aspects of the Irish problem.

The first of these remarks is that all claim of Ireland
to be represented in Parliament, if it really contributes
nothing material to the strength of the empire when
properly taxed, is taken away. At present it is unpro-
fitable to us, because, though it is overtaxed, the cir-
cumstances are such that it absorbs the surplus taxation.
If it were to be taxed properly, and the present system
of government were to continue, it would be still more
unprofitable. It appears, then, to be an intolerable
anomaly that such a State should be represented in
the Imperial Parliament, helping to vote the taxes
which another community pays, and meddling in all
the affairs of that community. The anomaly might be
endurable if the representatives returned happened to
be friendly or to be sensible of deriving advantage from
the imperial connection. But to admit into the Imperial
Parliament representatives of a State which can be no
contributory to imperial needs ; which could not bear
the strain of an imperial emergency ; which requires
for its own internal administration all the taxable in-
come it can spare, and which, moreover, sends repre-
sentatives avowedly hostile, with no other mission than
to make imperial government impossible, is nothing less
than the rediictio ad absurdiun of Parliamentary govern-
ment. The affairs of an empire like that of England can-
not possibly go on upon such conditions. The enormous
reduction or absolute extinction of the Irish representa-
tion in the Imperial Parliament, with or without terms
of Home Rule for Ireland, is a measure on which both
parties in Great Britain might justifiably unite.

452 ECONOMIC INQUIRIES AND STUDIES

Another remark I have to make is with reference to
a certain scheme which appeared in the " Statist " news-
paper, and which became known as " Economist's "
plan of settling the Land and Home Rule questions in
Ireland. There is no reason why I should not assume
responsibility for a suggestion which I was encouraged
to ventilate, when I first put it forward in conversation,
by official and political friends, although for obvious
reasons I am most anxious to keep out of political con-
troversy, and could take no part, either in my own
name or anonymously, in the incessant discussions of
the last few months. What I should like to point out
is that the idea of buying out Irish landlords at the ex-
pense of the imperial exchequer, and of handing over
a rent-charofe to Irish local authorities in lieu of the
present imperial payments for the internal administra-
tion of Ireland, is closely related to the view of Ire-
land's economic position which I have set forth in this
paper. It is all based on the notion that Ireland is a
comparatively small State which has gained a footing
in the imperial system of Great Britain to which it is
not entitled, and for which, therefore, another system,
excluding Irish representatives wholly, or nearly so,
from the Imperial Parliament, must be devised. If
Irish local authorities can be set up amicably, and with
the consent of Ireland's representatives, so much the
better ; if no such authorities can be set up, then it will
be necessary still to exclude hostile Irish representa-
tives from the Imperial Parliament, and set up local
authorities of a non-popular kind. As far as I can
see, there is no getting out from between the horns of
this dilemma. In either case a settlement of the land
question seems expedient, in order to give the new
authorities a chance, and in order to disentangle the
imperial and Irish exchequers. No merely Irish author-
ities could buy out the landlords, because they would
not have credit enough. If the exchequers are not
disentangled, the Irish people would have the apparent
grievance of being taxed without representation, whereas

ECONOMIC VALUE OF IRELAND TO GREAT BRITAIN 453

in some form or other they could be represented in
local councils. It is, therefore, expedient at the same
time at once to buy out Irish landlords effectively,
which can be done by the imperial exchequer, and to
give the new local authorities a revenue which they
could collect and administer themselves, and which
would be the equivalent of the contributions to the im-
perial exchequer they would continue to make under
existing taxes, deducting a certain fixed proportion as
due from them for the imperial protection. Subject
to the condition that the Imperial Parliament imposed
no new taxes on Ireland, which it is not worth while
doing, there would be no injustice in such an arrange-
ment, and the Irish people could not then say they
were taxed without representation. But the existing
intolerable anomaly would be got rid of, and Great
Britain would cease to be o-overned in a larore decjree
by a hostile faction coming from a country which con-
tributes nothing to imperial strength.

I desire, likewise, to call special attention to the
fact which has come out incidentally that Ireland is
overtaxed in comparison with Great Britain. It con-
tributes twice its proper share, if not more, to the im-
perial exchequer. The taxation in one view is not
reprehensible; it is levied in the shape of indirect taxes,
mainly on spirits and tobacco. The Irish masses could
untax themselves by the simple expedient of consuming
less spirits and tobacco. This is the easy view which
has often been acted upon when the subject has come
up in the Imperial Parliament. Long ago, in 1864,
when there was a Committee on Irish Taxation, Mr,
Lowe embarrassed an able witness, Mr. E. Senior, a
Poor-law Inspector in Ireland and well acquainted with
Irish poverty, by putting this very point (see No. 513.
Session 1864). But it is not the right view. How
much of the expenditure of the Irish people on spirits
and tobacco is really wasteful is not certainly known.
People who have so little taxable income have at any
rate a claim to have the money thus taken from them

454 ECONOMIC INQUIRIES AND STUDIES

by the Government applied for their special benefit. At
present, nearly the whole taxable income of the Irish
people is, in fact, absorbed by the State. The taxable
income being about ^15,000,000 only, the Imperial
Government, as we have seen, takes nearly ^7,000,000,
and the local taxes are over ^3,000,000 more, or about
;!^ 1 0,000,000 in all. So large a proportion of taxation
to taxable income would be a serious fact for any
country, and there can be little accumulation in Ireland
under such conditions. Considerations like these, which
are so material, have, however, made no impression in
the Imperial Parliament hitherto, and that this has
been the case is one reason, among many others, why
on this side of St. George's Channel we should speak
with some modesty of the Imperial Parliament being
capable of dealing with Irish affairs. Here is certainly
a matter on which, with no intention to be unjust,
with an apparent willingness to be more than fair to
Ireland, as is shown by the exemption of Ireland spe-
cially from certain taxes, we have nevertheless acted
unjustly and to the injury of Ireland. I may commend
Mr. Senior's evidence on this head, in the Blue Book
of 1864 already referred to, to those who care to study
the subject. Surely the whole blunder clearly suggests
the expediency of devising some form of government
for Ireland, under which the special needs and circum-
stances of the country and people would receive more
and better attention than they do under present ar-
rangements, although the attention which they do get
disturbs and disorganizes the management of Imperial
affairs themselves.

[This essay was originally prepared for a discussion at the Political
Economy Club early in 1886, when the agitation about Home Rule
was at its height. At this distance of time I may be allowed to ex-
plain, what I could hardly have said at the time, owing to my position
in the Civil Service, that I was not, and have never been, a Home
Ruler in the sense of favouring a separate Parliament and executive
for Ireland. The question of the relative overtaxation of Ireland has
since been much discussed, and formed the subject of inquiry by a
Royal Commission presided over by Mr. Childers, before which I

ECONOMIC VALUE OF IRELAND TO GREAT BRITAIN 455

gave evidence as to the resources of Ireland, though not as to taxa-
tion, which was ofificially done by Treasury experts. The subject of
late years has lost its practical interest, in consequence of Government
grants to compensate for Irish overtaxation, which have been accepted
by Irish representatives as such compensation. This arrangement for
meeting the grievance does not commend itself to me, and I opposed
it in my evidence to Mr. Childers's Commission; but the matter is
obviously in a different position from what it was when this paper was
written.]

END OF VOL. I,

CHISWICK PRESS : PRINTED BY CHARLES WHITTINGHAM AND CO.
TOOKS COURT, CHANCERY LANE, LONDON.

^^ 000 546 490

ii !

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