MODERN CENTRALIZATION
In discussing the phenomena of the highly centralized society in
which he lived, Mill defined capital “as the accumulated stock of
human labour.” In other words, capital may be considered as stored
energy; but most of this energy flows in fixed channels, money alone
is capable of being transmuted immediately into any form of activity.
Therefore the influx of the Indian treasure, by adding considerably to
the nation’s cash capital, not only increased its stock of energy, but
added much to its flexibility and the rapidity of its movement.
Very soon after Plassey the Bengal plunder began to arrive in London,
and the effect appears to have been instantaneous, for all authorities
agree that the “industrial revolution,” the event which has divided the
nineteenth century from all antecedent time, began with the year 1760.
Prior to 1760, according to Baines, the machinery used for spinning
cotton in Lancashire was almost as simple as in India;[337] while
about 1750 the English iron industry was in full decline because of the
destruction of the forests for fuel. At that time four-fifths of the
iron in use in the kingdom came from Sweden.
Plassey was fought in 1757, and probably nothing has ever equalled
the rapidity of the change which followed. In 1760 the flying-shuttle
appeared, and coal began to replace wood in smelting. In 1764
Hargreaves invented the spinning-jenny, in 1779 Crompton contrived the
mule, in 1785 Cartwright patented the power-loom, and, chief of all,
in 1768 Watt matured the steam-engine, the most perfect of all vents
of centralizing energy. Hut though these machines served as outlets
for the accelerating movement of the time, they did not cause that
acceleration. In themselves inventions are passive, many of the most
important having lain dormant for centuries, waiting for a sufficient
store of force to have accumulated to set them working. That store must
always take the shape of money, and money not hoarded, but in motion.
Thus printing had been known for ages in China before it came to
Europe; the Romans probably were acquainted with gunpowder; revolvers
and breech-loading cannon existed in the fifteenth and sixteenth
centuries, and steam had been experimented upon long before the
birth of Watt. The least part of Watt’s labour lay in conceiving
his idea; he consumed his life in marketing it. Before the influx of
the Indian treasure, and the expansion of credit which followed, no
force sufficient for this purpose existed; and had Watt lived fifty
years earlier, he and his invention must have perished together.
Considering the difficulties under which Matthew Boulton, the ablest
and most energetic manufacturer of his time, nearly succumbed, no
one can doubt that without Boulton’s works at Birmingham the engine
could not have been produced, and yet before 1760 such works could
not have been organized. The factory system was the child of the
“industrial revolution,” and until capital had accumulated in masses
capable of giving solidity to large bodies of labour, manufactures
were necessarily carried on by scattered individuals, who combined a
handicraft with agriculture. Defoe’s charming description of Halifax
about the time Boulton learned his trade, is well known:--
“The nearer we came to Halifax, we found the houses thicker,
and the villages greater, in every bottom; ... for the land
being divided into small enclosures, from two acres to six or
seven each, seldom more, every three or four pieces of land had
an house belonging to them.
“In short, after we had mounted the third hill, we found the
country one continued village, tho’ every way mountainous,
hardly an house standing out of a speaking distance from
another; and, as the day cleared up, we could see at every
house a tenter, and on almost every tenter a piece of cloth,
kersie, or shalloon; which are the three articles of this
countries labour....
“This place then seems to have been designed by providence for
the very purposes to which it is now allotted.... Nor is the
industry of the people wanting to second these advantages. Tho’
we met few people without doors, yet within we saw the houses
full of lusty fellows, some at the dye vat, some at the loom,
others dressing the cloths; the women and children carding, or
spinning; all employed from the youngest to the oldest; scarce
anything above four years old, but its hands were sufficient
for its own support. Not a beggar to be seen, nor an idle
person, except here and there in an alms-house, built for those
that are antient, and past working. The people in general live
long; they enjoy a good air; and under such circumstances hard
labour is naturally attended with the blessing of health, if
not riches.”[338]
To the capitalist, then, rather than to the inventor, civilization
owes the steam engine as a part of daily life, and Matthew Boulton was
one of the most remarkable of the race of producers whose reign lasted
down to Waterloo. As far back as tradition runs the Boultons appear
to have been Northamptonshire farmers, but Matthew’s grandfather met
with misfortunes under William, and sent his son to Birmingham to seek
his fortune in trade. There the adventurer established himself as a
silver stamper, and there, in 1728, Matthew was born. Young Boulton
early showed both energy and ingenuity, and on coming of age became
his father’s partner, thenceforward managing the business. In 1759,
two years after the conquest of Bengal, the father died, and Matthew,
having married in 1760, might have retired on his wife’s property, but
he chose rather to plunge more deeply into trade. Extending his works,
he built the famous shops at Soho, which he finished in 1762 at an
outlay of £20,000, a debt which probably clung to him to the end of his
life.
Boulton formed his partnership with Watt in 1774, and then began to
manufacture the steam-engine, but he met with formidable difficulties.
Before the sales yielded any return, the outlay reduced him to the
brink of insolvency; nor did he achieve success until he had exhausted
his own and his friends’ resources.
“He mortgaged his lands to the last farthing; borrowed from his
personal friends; raised money by annuities; obtained advances
from bankers; and had invested upwards of forty thousand pounds
in the enterprise before it began to pay.”[339]
Agriculture, as well as industry, felt the impulsion of the new force.
Arthur Young remarked in 1770, that within ten years there had been
“more experiments, more discoveries, and more general good sense
displayed in the walk of agriculture than in an hundred preceding
ones”; and the reason why such a movement should have occurred seems
obvious. After 1760 a complex system of credit sprang up, based on a
metallic treasure, and those who could borrow had the means at their
disposal of importing breeds of cattle, and of improving tillage, as
well as of organizing factories like Soho. The effect was to cause
rapid centralization. The spread of high farming certainly raised the
value of land, but it also made the position of the yeomanry untenable,
and nothing better reveals the magnitude of the social revolution
wrought by Plassey, than the manner in which the wastes were enclosed
after the middle of the century. Between 1710 and 1760 only 335,000
acres of the commons were absorbed; between 1760 and 1843, nearly
7,000,000. In eighty years the yeomanry became extinct. Many of these
small farmers migrated to the towns, where the stronger, like the
ancestor of Sir Robert Peel, accumulated wealth in industry, the weaker
sinking into factory hands. Those who lingered on the land, toiled as
day labourers.
Possibly since the world began, no investment has ever yielded the
profit reaped from the Indian plunder, because for nearly fifty years
Great Britain stood without a competitor. That she should have so
long enjoyed a monopoly seems at first mysterious, but perhaps the
condition of the Continent may suggest an explanation. Since Italy
had been ruined by the loss of the Eastern trade, she had ceased to
breed the economic mind; consequently no class of her population could
suddenly and violently accelerate their movements. In Spain the priest
and soldier had so thoroughly exterminated the sceptic, that far from
centralizing during the seventeenth century, as England and France
had done, her empire was in full decline at the revolution of 1688. In
France something similar had happened, though in a much less degree.
After a struggle of a century and a half, the Church so far prevailed
in 1685 as to secure the revocation of the Edict of Nantes. At the
revocation many Huguenots went into exile, and thus no small proportion
of the economic class, who should have pressed England hardest, were
driven across the Channel, to add their energy to the energy of the
natives. Germany lacked capital. Hemmed in by enemies, and without
a seacoast, she had been at a disadvantage in predatory warfare;
accordingly she did not accumulate money, and failed to consolidate
until, in 1870, she extorted a treasure from France. Thus, in 1760,
Holland alone remained as a competitor, rich, maritime, and peopled
by Protestants. But Holland lacked the mass possessed by her great
antagonist, beside being without minerals; and accordingly, far from
accelerating her progress, she proved unable to maintain her relative
rate of advance.
Thus isolated, and favoured by mines of coal and iron, England not only
commanded the European and American markets, at a time when production
was strained to the utmost by war, but even undersold Hindoo labour
at Calcutta. In some imperfect way her gains may be estimated by
the growth of her debt, which must represent savings. In 1756, when
Clive went to India, the nation owed £74,575,000, on which it paid an
interest of £2,753,000. In 1815 this debt had swelled to £861,000,000,
with an annual interest charge of £32,645,000. In 1761 the Duke of
Bridgewater finished the first of the canals which were afterward to
form an inland water-way costing £50,000,000, or more than two-thirds
of the amount of the public debt at the outbreak of the Seven Years’
War. Meanwhile, also, steam had been introduced, factories built,
turnpikes improved, and bridges erected, and all this had been done
through a system of credit extending throughout the land. Credit is the
chosen vehicle of energy in centralized societies, and no sooner had
treasure enough accumulated in London to offer it a foundation, than it
shot up with marvellous rapidity.
From 1694 to Plassey, the growth had been relatively slow. For more
than sixty years after the foundation of the Bank of England, its
smallest note had been for £20, a note too large to circulate freely,
and which rarely travelled far from Lombard Street. Writing in 1790,
Burke mentioned that when he came to England in 1750 there were not
“twelve bankers’ shops” in the provinces, though then, he said, they
were in every market town.[340] Thus the arrival of the Bengal silver
not only increased the mass of money, but stimulated its movement;
for at once, in 1759, the bank issued £10 and £15 notes, and, in the
country, private firms poured forth a flood of paper. At the outbreak
of the Napoleonic wars, there were not far from four hundred provincial
houses, many of more than doubtful solvency. Macleod, who usually
does not exaggerate such matters, has said, that grocers, tailors, and
drapers inundated the country with their miserable rags.[341]
The cause of this inferiority of the country bankers was the avarice
of the Bank of England, which prevented the formation of joint stock
companies, who might act as competitors; and, as the period was one
of great industrial and commercial expansion, when the adventurous
and producing classes controlled society, enough currency of some
kind was kept in circulation to prevent the prices of commodities from
depreciating relatively to coin. The purchasing power of a currency is,
other things being equal, in proportion to its quantity. Or, to put the
proposition in the words of Locke, “the value of money, in general,
is the quantity of all the money in the world in proportion to all
the trade.”[342] At the close of the eighteenth century, many causes
combined to make money plentiful, and therefore to cheapen it. Not only
was the stock of bullion in England increased by importations from
India, but, for nearly a generation, exports of silver to Asia fell
off. From an average of £600,000 annually between 1740 and 1760, the
shipments of specie by the East India Company fell to £97,500 between
1760 and 1780; nor did they rise to their old level until after the
close of the administration of Hastings, when trade returned to normal
channels. After 1800 the stream gathered volume, and between 1810
and 1820 the yearly consignment amounted to £2,827,000, or to nearly
one-half of the precious metals yielded by the mines.
From the crusades to Waterloo, the producers dominated Europe, the
money-lenders often faring hardly, as is proved by the treatment of the
Jews. From the highest to the lowest, all had wares to sell; the farmer
his crop, the weaver his cloth, the grocer his goods, and all were
interested in maintaining the value of their merchandise relatively
to coin, for they lost when selling on a falling market. By degrees,
as competition sharpened after the Reformation, a type was developed
which, perhaps, may be called the merchant adventurer; men like Child
and Boulton, bold, energetic, audacious. Gradually energy vented itself
more and more freely through these merchants, until they became the
ruling power in England, their government lasting from 1688 to 1815.
At length they fell through the very brilliancy of their genius. The
wealth they amassed so rapidly, accumulated, until it prevailed over
all other forms of force, and by so doing raised another variety of man
to power. These last were the modern bankers.
With the advent of the bankers, a profound change came over
civilization, for contraction began. Self-interest had from the outset
taught the producer that, to prosper, he should deal in wares which
tended rather to rise than fall in value, relatively to coin. The
opposite instinct possessed the usurer; he found that he grew rich when
money appreciated, or when the borrower had to part with more property
to pay his debt when it fell due, than the cash lent him would have
bought on the day the obligation was contracted. As, toward the close
of the eighteenth century, the great hoards of London passed into the
possession of men of the latter type, the third and most redoubtable
variety of the economic intellect arose to prominence, a variety of
which perhaps the most conspicuous example is the family of Rothschild.
In one of the mean and dirty houses of the Jewish quarter of Frankfort,
Mayer Amschel was born in the year 1743. The house was numbered 152 in
the Judengasse, but was better known as the house of the Red Shield,
and gave its name to the Amschel family. Mayer was educated by his
parents for a rabbi; but, judging himself better fitted for finance,
he entered the service of a Hanoverian banker named Oppenheim, and
remained with him until he had saved enough to set up for himself. Then
for some years he dealt in old coins, curiosities and bullion, married
in 1770, returned to Frankfort, established himself in the house of the
Red Shield, and rapidly advanced toward opulence. Soon after he gave up
his trade in curiosities, confining himself to banking, and his great
step in life was made when he became “Court Jew” to the Landgrave of
Hesse. By 1804 he was already so prosperous that he contracted with the
Danish Government for a loan of four millions of thalers.
Mayer had five sons, to whom he left his business and his wealth. In
1812 he died, and, as he lay upon his death-bed, his last words were,
“You will soon be rich among the richest, and the world will belong
to you.”[343] His prophecy came true. These five sons conceived and
executed an original and daring scheme. While the eldest remained at
Frankfort, and conducted the parent house, the four others migrated to
four different capitals, Naples, Vienna, Paris, and London, and, acting
continually in consort, they succeeded in obtaining a control over
the money market of Europe, as unprecedented as it was lucrative to
themselves.
Of the five brothers, the third, Nathan, had commanding ability. In
1798 he settled in London, married in 1806 the daughter of one of the
wealthiest of the English Jews, and by 1815 had become the despot of
the Stock Exchange; “peers and princes of the blood sat at his table,
clergymen and laymen bowed before him.” He had no tastes, either
literary, social, or artistic; “in his manners and address he seemed
to delight in displaying his thorough disregard of all the courtesies
and amenities of civilized life”; and when asked about the future
of his children he said, “I wish them to give mind, soul, and heart,
and body--everything to business. That is the way to be happy.”[344]
Extremely ostentatious, though without delicacy or appreciation,
“his mansions were crowded with works of art, and the most gorgeous
appointments.” His benevolence was capricious; to quote his own words,
“Sometimes to amuse myself I give a beggar a guinea. He thinks it is
a mistake, and for fear I shall find it out off he runs as hard as
he can. I advise you to give a beggar a guinea sometimes. It is very
amusing.”[345]
Though an astonishingly bold and unscrupulous speculator, Nathan
probably won his chief successes by skill in lending, and, in this
branch of financiering, he was favoured by the times in which he lived.
During the long wars Europe plunged into debt, contracting loans in
depreciated paper, or in coin which was unprecedentedly cheap because
of the abundance of the precious metals.
In the year 1809, prices reached the greatest altitude they ever
attained in modern, or even, perhaps, in all history. There is
something marvellously impressive in this moment of time, as the
world stood poised upon the brink of a new era. To the contemporary
eye Napoleon had reached his zenith. Everywhere victorious, he had
defeated the English in Spain, and forced the army of Moore to embark
at Corunna; while at Wagram he had brought Austria to the dust. He
seemed about to rival Cæsar, and establish a military empire which
should consolidate the nations of the mainland of Europe. Yet in
reality one of those vast and subtle changes was impending, which, by
modifying the conditions under which men compete, alter the complexion
of civilizations, and which has led in the course of the nineteenth
century to the decisive rejection of the martial and imaginative mind.
In April 1810 Bolivar obtained control at Caracas, and, with
the outbreak of the South American revolutions, the gigantic
but imaginative empire of Spain passed into the acute stage of
disintegration. On December 19 of the same year, the Emperor Alexander
opened the ports of Russia to neutral trade. By so doing Alexander
repudiated the “continental system” of Napoleon, made a breach with him
inevitable, and thus brought on the campaign of Moscow, the destruction
of the Grand Army, and the close of French military triumphs on the
hill of Waterloo. From the year 1810, nature has favoured the usurious
mind, even as she favoured it in Rome, from the death of Augustus.
Moreover, both in ancient and modern life, the first symptom of this
profound economic and intellectual revolution was identical. Tacitus
has described the panic which was the immediate forerunner of the
rise of the precious metals in the first century; and in 1810 a
similar panic occurred in London, when prices suddenly fell fifteen
per cent,[346] and when the most famous magnate of the Stock Exchange
was ruined and killed. The great houses of Baring and of Goldsmid had
undertaken the negotiation of a government loan of £14,000,000. To
the surprise of these eminent financiers values slowly receded, and,
in September, the death of Sir Francis Baring precipitated a crisis;
Abraham Goldsmid, reduced to insolvency, in despair committed suicide;
the acutest intellects rose instantaneously upon the corpses of the
weaker, and the Rothschilds remained the dictators of the markets of
the world. From that day to this the slow contraction has continued,
with only the break of little more than twenty years, when the gold of
California and Australia came in an overwhelming flood; and, from that
day to this, the same series of phenomena have succeeded one another,
which eighteen hundred years ago marked the emasculation of Rome.
At the peace, many causes converged to make specie rise; the exports of
bullion to the East nearly doubled; America grew vigorously, and mining
was interrupted by the revolt of the Spanish colonies. Yet favourable
as the position of the creditor class might be, it could be improved
by legislation, and probably no financial policy has ever been so ably
conceived, or so adroitly executed, as that masterpiece of state-craft
which gave Lombard Street control of the currency of Great Britain.
Under the reign of the producers, values had generally been equalized
by cheapening the currency when prices fell. In the fourteenth,
fifteenth, and sixteenth centuries, the penny had been systematically
degraded, to keep pace with the growing dearth of silver. When the
flood of the Peruvian bullion had reached its height in 1561, the
currency regained its fineness; but in 1601 the penny lost another
half-grain of weight, and, though not again adulterated at the mint,
the whole coinage suffered so severely from hard usage that, under
the Stuarts, it fell to about two-thirds of its nominal value. A
re-coinage took place under William, but then paper came in to give
relief, and the money in circulation continued to degenerate, as there
was no provision for the withdrawal of light pieces. By 1774, the loss
upon even the guinea had become so great that Parliament intervened,
and Lord North recommended “that all the deficient gold coin should
be called in, and re-coined” and also that the “currency of the gold
coin should, in future, be regulated by weight as well as by tale ...
and that the several pieces should not be legal tender, if they were
diminished, by wearing or otherwise, below a certain weight, to be
determined by proclamation.”[347]
By such means as this, the integrity of the metallic money was at
length secured; but the emission of paper remained unlimited, and in
1797 even the Bank of England suspended cash payments. Then prices
advanced as they had never advanced before, and, during the first ten
years of the nineteenth century, the commercial adventurers reached
their meridian. From 1810 they declined in power; but for several
preceding generations they had formed a true aristocracy, shaping the
laws and customs of their country. They needed an abundant currency,
and they obtained it through the Bank. On their side the directors
recognized this duty to be their chief function, and laid it down
as a principle that all legitimate commercial paper should always be
discounted. If interest rose, the rise proved a dearth of money, and
they relieved that dearth with notes.
Lord Overstone has thus explained the system of banking which was
accepted, without question, until 1810: “A supposed obligation to
meet the real wants of commerce, and to discount all commercial bills
arising out of legitimate transactions, appears to have been considered
as the principle upon which the amount of the circulation was to
be regulated.”[348] And yet, strangely enough, even the adversaries
of this system admitted that it worked well. A man as fixed in his
opinions as Tooke, could not contain his astonishment that “under the
guidance of maxims and principles so unsound and of such apparently
mischievous tendency, as those professed by the governors and some
of the directors of the Bank in 1810, such moderation and ... such
regularity of issue should, under chances and changes in politics and
trade, unprecedented in violence and extent, have been preserved, as
that a spontaneous readjustment between the value of the gold and the
paper should have taken place, as it did, without any reduction of
their circulation.”[349]
With such a system the currency tended to fall rather than to rise in
value, in comparison with commodities, and for this reason the owners
of the great hoards were at a disadvantage. What powerful usurers, like
Rothschild, wanted, was a legal tender fixed in quantity, which, being
unable to expand to meet an increased demand, would rise in price.
Moreover, they needed a circulating medium sufficiently compact to be
controlled by a comparatively small number of capitalists, who would
thus, under favourable conditions, hold the whole debtor community at
their mercy.
If the year 1810 be taken as the point at which the energy stored in
accumulations of money began to predominate in England, the revolution
which ended in the overthrow of the producers, advanced, with hardly a
check, to its completion by the “Bank Act” of 1844. The first symptom
of approaching change was the famous “Bullion Committee,” appointed on
the motion of Francis Horner in 1810. This report is most interesting,
for it marks an epoch, and in it the struggle for supremacy between the
lender and the borrower is brought out in full relief. To the producer,
the commodity was the measure of value; to the banker, coin. The
producer sought a currency which should retain a certain ratio to all
commodities, of which gold was but one. The banker insisted on making a
fixed weight of the metal he controlled, the standard from which there
was no appeal.
A distinguished merchant, named Chambers, in his evidence before the
Committee, put the issue in a nutshell:--
_Q._ “At the Mint price of standard gold in this country, how
much gold does a Bank of England note for one pound represent?
_A._ “5 dwts. 3 grs.
_Q._ “At the present market price of standard gold of £4 12.
per ounce, how much gold do you get for a Bank of England note
for one pound?
_A._ “4 dwts. 8 grs.
_Q._ “Do you consider that a Bank of England note for one
pound, under these present circumstances, is exchangeable in
gold for what it represents of that metal?
_A._ “I do not conceive gold to be a fairer standard for Bank
of England notes than indigo or broadcloth.”
Although the bankers controlled the “Bullion Committee,” the mercantile
interest still maintained itself in Parliament, and the resolutions
proposed by the chairman in his report were rejected in the Commons
by a majority of about two to one. The tide, however, had turned, and
perhaps the best index of the moment at which the balance of power
shifted, may be the course of Peel. Of all the public men of his
generation, Peel had the surest instinct for the strongest force.
Rarely, if ever, did this instinct fail him, and after 1812 his
intuition led him to separate from his father; as, later in life, it
led him to desert his party in the crisis of 1845. The first Sir Robert
Peel, the great manufacturer, who made the fortune of the family,
had the producer’s instinct and utterly opposed contraction. In 1811
he voted against the report of the Bullion Committee, and then his
son voted with him. After 1816, however, the younger Peel became the
spokesman of Lombard Street, and the story is told that when the bill
providing for cash payments passed in July, 1819, the old man, after
listening to his son’s great speech, said with bitterness: “Robert has
doubled his fortune, but ruined his country.”[350]
Probably Waterloo marked the opening of the new era, for after
Waterloo the bankers met with no serious defeat. At first they hardly
encountered opposition. They began by discarding silver. In 1817
the government made 123 374⁄1000 grs. of gold the unit of value,
the coin representing this weight of metal ceasing to be a legal
tender when deficient by about half a grain. The standard having
thus been determined, it remained to enforce it. By this time Peel
had been chosen by the creditor class as their mouthpiece, and in
1819 he introduced a bill to provide for cash payments. He found
little resistance to his measure, and proposed 1823 as the time for
the return; as it happened, the date was anticipated, and notes were
redeemed in gold from May 1, 1821. As far as the coinage was concerned,
this legislation completed the work, but the task of limiting discounts
remained untouched, a task of even more importance, for, as long as
the Bank continued discounting bills, and thus emitting an unlimited
quantity of notes whenever the rate of interest rose, debtors not only
might always be able to face their obligations, but the worth of money
could not be materially enhanced. This question was decided by the
issue of the panic of 1825, brought on by the Resumption Act.
At the suspension of 1797, paper in small denominations had been
authorized to replace the coin which disappeared, but this act expired
two years after the return to specie payments. Therefore, as time
elapsed, the small issues began to be called in, and, according to
Macleod, the country circulation, by 1823, had contracted about twelve
per cent. The Bank of England also withdrew a large body of notes in
denominations less than five pounds, and, to fill the gap, hoarded some
twelve million sovereigns, a mass of gold about equal to the yield of
the mines for the preceding seven or eight years. This gold had to be
taken from the currency of Europe, and the sudden contraction caused a
shock which vibrated throughout the West.
In France gold coinage almost ceased, and prices dropped heavily,
declining twenty-four per cent between 1819 and 1822. Yet perhaps the
most vivid picture of the distress caused by this absorption of gold,
is given in a passage written by Macleod, to prove that Peel’s act had
nothing to do with the catastrophe:--
“There was one perfectly satisfactory argument to show that
the low prices of that year had nothing to do with the Act of
1819, namely, that prices of all sorts of agricultural produce
were equally depressed all over the continent of Europe from
the same cause. The fluctuations, indeed, on the continent were
much more violent than even in England.... The same phenomena
were observed in Italy. A similar fall, but not to so great an
extent, took place at Lisbon. What could the Act of 1819 have
to do with these places?”[351]
The severe and protracted depression, while affecting all producers,
bore with peculiar severity upon the gentry, whose estates were
burdened with mortgages and all kinds of settlements, so much so
that frequently properties sank below their encumbrances, and the
owners were beggared. At the opening of Parliament, both Houses were
overwhelmed with petitions for aid. Among these petitions, one of
the best known was presented to the Commons in May, 1822, by Charles
Andrew Thompson, of Chiswick, which serves to show the keenness of the
distress among debtors owning land.
Thompson stated, in substance, that in 1811 he and his father, being
wealthy merchants, purchased an estate in Hertfordshire for £62,000,
and afterward laid out £10,000 more in improvements. That in 1812 they
entered into a contract for another estate, whose price was £60,000,
but, a question having arisen as to the title, a lawsuit intervened,
and, before judgment, the petitioner and his father had experienced
such losses that they could not pay the sum adjudged due by the court.
Thereupon, to raise money, they mortgaged both estates for £65,000.
In July, 1821, both estates were offered for sale, but they failed
to bring the amount for which they were mortgaged. Estates in other
counties which cost £33,166, had been sold for £12,000, and through the
depression of trade the petitioners had become bankrupt. In 1822 the
petitioner’s father died of a broken heart; and he himself remained a
ruined man, with seven children of his own, ten of his brother’s, and
seven of his sister’s all depending on him.[352]
The nation seemed upon the brink of some convulsion, for the gentry
hardly cared to disguise their design of effecting a readjustment of
both public and private debts. Passions ran high, and in June, 1822,
a long debate followed upon a motion, made by Mr. Western, to inquire
into the effects produced by the resumption of cash payments. The
motion was indeed defeated, but defeated by a concession which entailed
a catastrophe up to that time unequalled in the experience of Great
Britain. To save the “Resumption Act” the ministry in July brought in
a bill to respite the small notes until 1833, a measure which at once
quieted the agitation, but which produced the most far-reaching and
unexpected results.
According to Francis, the country banks augmented their issues fifty
per cent between 1822 and 1825,[353] nor was this increase of paper the
only or the most serious form taken by the inflation. The great hoard
of sovereigns, accumulated by the Bank to replace its small notes, was
made superfluous; and, in a memorandum delivered by the directors to
the House of Commons, no less than £14,200,000 were stated to have been
thrown on their hands in 1824 by this change of policy.[354] The effect
was to create a veritable glut of gold in the United Kingdom; prices
rose abnormally--fifteen per cent--between 1824 and 1825.
As values tended upward, a frenzy of speculation seized upon a people
who had long suffered from the grinding of contraction, and meanwhile
the Bank, adhering to its old policy, freely discounted all the sound
bills brought them. In 1824 prices rose above the Continental level,
and gold, being cheaper in London than in Paris, began to flow thither.
The Bank reserve steadily fell. In March, 1825, the fever reached
its height, and a decline set in, while the directors, anxious at the
condition of their reserve in May, attempted to restrict their issues.
The consequence was sharp contraction, and in November the crash came.
Mr. Huskisson stated, in the House of Commons, that for forty-eight
hours it was impossible to convert even government securities into
cash. Exchequer bills, bank stock, and East India stock were alike
unsalable, and many of the richest merchants of London walked the
streets, not knowing whether on the morrow they might not be insolvent.
“It is said” the Bank itself “must have stopped payment, and that we
should have been reduced to a state of barter, but for a box full of
old one and two-pound notes which was discovered by accident.”[355]
What happened in the Bank parlour during those days is unknown.
Probably the pressure of the mercantile classes became too sharp to be
withstood, perhaps even the strongest bankers were alarmed; but, at
all events, the financial policy changed completely. Contraction was
abandoned, the Bank reverted to the system of 1810, and in an instant
relief came. “We lent by every possible means, and in modes we had
never adopted before; ... we not only discounted outright, but we made
advances on deposit of bills of exchange to an immense amount.” The
Bank emitted five millions in notes in four days, and “this audacious
policy was crowned with the most complete success, the panic was stayed
almost immediately.”[356]
With an expansion of the currency sufficient to furnish the means of
paying debts, the panic passed away, but the disaster gave the bankers
their opportunity; they seized it, and thenceforward their hold upon
the community never, even for an instant, relaxed. The administration
fell into discredit, and turned for assistance to the only men who
promised to give them effective support: these were the capitalists of
Lombard Street, whose first care was to obtain a statute prohibiting
the small notes, which, they alleged, were the cause of the misfortune
of 1825. The act they demanded passed in 1826, and about this time
Samuel Loyd rose into prominence, who was, perhaps, the greatest
financier of modern times. Cautious and sagacious, though resolute
and bold, gifted with an amazing penetration into the complex causes
which control the competition of modern life, he swayed successive
administrations, and crushed down the fiercest opposition. Apparently
he never faltered in his course, and down to the day of his death he
sneered at the panic-stricken directors, who only saved themselves
from bankruptcy by accidentally remembering and issuing a “parcel of
old discarded one-pound notes ... drawn forth from a refuse cellar in
1825.”[357]
Loyd’s father began life somewhat humbly as a dissenting minister
in Wales, but, after his marriage, he entered a Manchester firm,
and subsequently founded in London the house of Jones, Loyd and Co.,
afterward merged in the London and Westminster Bank, one of the largest
concerns in the world. Samuel did not actually succeed his father until
1844, but much earlier he had grown to be the recognized chief of the
monied interest, and Sir Robert Peel long served as his lieutenant.
Loyd was the man who conceived the Bank Act of 1844, who succeeded in
laying his grasp upon the currency of the kingdom, and in whose words,
therefore, the policy of the new governing class is best stated:--
“A paper-circulation is the substitution of paper ... in the
place of the precious metals. The amount of it ought therefore
to be equal to what would have been the amount of a metallic
circulation; and of this the best measure is the influx or
efflux of bullion.”[358]
“By the provisions of that Act [the Bank Act of 1844] it
is permitted to issue notes to the amount of £14,000,000 as
before--that is, with no security for the redemption of the
notes on demand beyond the legal obligation so to redeem them.
But all fluctuations in the amount of notes issued beyond
this £14,000,000 must have direct reference to corresponding
fluctuations in the amount of gold.”[359]
Thus Loyd’s principle, which he embodied in his statute, was the
rigid limitation of the currency to the weight of gold available
for money. “When ... notes are permitted to be issued, the number in
circulation should always be exactly equal to the coin which would
be in circulation if they did not exist.”[360] In 1845 the Bank Act
was extended to Scotland, except that there small notes were still
tolerated; the expansion of provincial paper was prohibited, and
England reverted to the economic condition of Byzantium,--a condition
of contraction in which the debtor class lies prostrate, for, the legal
tender being absolutely limited, when creditors choose to withdraw
their loans, payment becomes impossible.
Perhaps no financier has ever lived abler than Samuel Loyd. Certainly
he understood as few men, even of later generations, have understood,
the mighty engine of the single standard. He comprehended that, with
expanding trade, an inelastic currency must rise in value; he saw
that, with sufficient resources at command, his class might be able to
establish such a rise, almost at pleasure; certainly that they could
manipulate it when it came, by taking advantage of foreign exchanges.
He perceived moreover that, once established, a contraction of the
currency might be forced to an extreme, and that when money rose beyond
price, as in 1825, debtors would have to surrender their property on
such terms as creditors might dictate.
Furthermore, he reasoned that under pressure prices must fall to a
point lower than in other nations, that then money would flow from
abroad, and relief would ultimately be given, even if the government
did not interfere; that this influx of gold would increase the quantity
of money, by so doing would again raise prices, and that, when prices
rose, pledges forfeited in the panic might be resold at an advance. He
explained the principle of this rise and fall of values, with his usual
lucidity, to a committee of the House of Lords, which investigated the
panic of 1847:--
“Monetary distress tends to produce fall of prices; that fall of prices
encourages exports and diminishes imports; consequently it tends to
promote an influx of bullion. I can quote a fact of rather a striking
character, which tends to show that a contracting operation upon the
circulation tends to cheapen the cost of our manufactured productions,
and therefore to increase our exports.” He then stated that during
the panic he had received a letter “from a person of great importance
in Lancashire,” begging him to use his influence with the ministry
“to be firm in maintaining the act,--to be firm in resisting these
applications for relaxation,” because in Lancashire the manufacturers
were struggling to “resist the improperly high price of the raw
material of cotton.” “That letter reached me the very morning that the
letter of the government was issued [suspending the act], and almost
immediately the raw cotton rose in price.”
_Q._ “The writer of that letter was probably a man of
considerable substance, a very wealthy man, with abundant
capital to carry on his business?
_A._ “He had recently retired from business. I can state
another circumstance that occurred in London corroborative
of the same results. Within half an hour of the time that
the notes summoning the Court of Directors ... were issued,
parties, inferring probably ... that a relaxation was about to
take place, sent orders to withdraw goods from a sale which was
then going on.”[361]
The history of half a century has justified the diagnosis of this
eminent financier. As followed out by his successors, Loyd’s policy
has not only forced down prices throughout the West, but has changed
the aspect of civilization. In England the catastrophe began with the
passage of the Bank Act.
No sooner had this statute taken effect than it necessarily caused a
contraction of the currency at a time when gold was rising because of
commercial expansion. Between 1839 and 1849 there was a fall in prices
of twenty-eight per cent, and, severe as may have been the decline,
it seems moderate considering the conditions which then prevailed.
The yield of the mines was scanty, and of this yield India absorbed
annually an average of £2,308,000, or somewhat more than one-sixth.
America was growing with unprecedented vigour, industrial competition
sharpened as prices fell, and the year of the “Bank Act” was the year
in which railway building began to take the form of a mania.
The peasantry are always the weakest part of every population, and
therefore agricultural prices are the most sensitive. But the resources
of a peasantry are seldom large, and, as the value of their crops
shrinks, the margin of profit on which they live dwindles, until they
are left with only a bare subsistence in good years, and with famine
facing them in bad. The Irish peasants were the weakest portion of the
population of Great Britain when Lord Overstone became supreme, and
when the potato crop failed in 1845 they starved.
Although the landlords had lost their command over the nation in
1688, they yet, down to the last administration of Peel, had kept
strength enough to secure protection from Parliament against foreign
competition. By 1815 the yeomanry had almost disappeared, the soil
belonged to a few rich families whose revenue depended on rents, and
the value of rents turned on the price of the cereals. To sustain the
market for wheat became therefore all-important to the aristocracy, and
when, with the peace, prices collapsed, they obtained a statute which
prohibited imports until the bushel should fetch ten shillings at home.
This statute, though frequently amended to make it more effective,
partially failed of its purpose. A contracting currency did its
resistless work, prices dropped, tenants went bankrupt, and, as the
value of money rose, encumbered estates passed more frequently into
the hands of creditors. Thus when Peel took office in 1841, the Corn
Laws were regarded by the gentry as their only hope, and Peel as their
chosen champion; but only a few years elapsed before it became evident
that the policy of Lombard Street must precipitate a struggle for life
between the manufacturers and the landlords. In the famine of 1846
the decisive moment came, and when Sir Robert sided, as was his wont,
with the strongest, and abandoned his followers to their fate, he only
yielded to the impulsion of a resistless force.
As a class both landlords and manufacturers were debtors, and, by
1844, cheap bread appeared to be as vital to the one as dear corn was
to the other. With a steadily falling market the manufacturers saw
their margin of profit shrink, and at last Manchester and Birmingham
believed themselves to be confronted with ruin unless wages fell
proportionately, or they could broaden the market for their wares by
means of international exchanges. The Corn Laws closed both avenues of
relief; therefore there was war to the death between the manufacturers
and the aristocracy. The savageness of the attack can be judged
by Cobden’s jeers at gentlemen who admitted that free corn meant
insolvency:--
“Sir Edward Knatchbull could not have made a better speech for
the League than that which he made lately, even if he were paid
for it. I roared so with laughter that he called me specially
to order, and I begged his pardon, for he is the last man in
the world I would offend, we are all so much obliged to him.
He said they could not do without this Corn Law, because, if
it were repealed, they could not pay the jointures, charged on
their estates. Lord Mountcashel, too (he’s not over-sharp) said
that one half the land was mortgaged, and they could not pay
the interest unless they had a tax upon bread. In Lancashire,
when a man gets into debt and can’t pay, he goes into the
_Gazette_, and what is good for a manufacturer is, I think,
good for a landlord.”[362]
In such a contest the gentry were overmatched, for they were but
nature’s first effort toward creating the economic type, and they
were pitted against later forms which had long distanced them in the
competition of life. Bright and Cobden, as well as Loyd and Peel,
belonged to a race which had been driven into trade, by the loss
of their freeholds to the fortunate ancestors of the men who lay at
their mercy in 1846. Peel himself was the son of a cotton-spinner, and
the grandson of a yeoman, who, only in middle life, had quitted his
hand-loom to make his fortune in the “industrial revolution.”
In modern England, as in ancient Italy, the weakest sank first, and the
landed gentry succumbed, almost without resistance, to the combination
which Lombard Street made against them. Yet, though the manufacturers
seemed to triumph, their exultation was short, for the fate impended
over them, even in the hour of their victory, which always overhangs
the debtor when the currency has been seized by the creditor class.
By the “Bank Act” the usurers became supreme, and in 1846 the potato
crop failed even more completely than in 1845. Credit always is more
sensitive in England than in France, because it rests upon a narrower
basis, and at that moment it happened to be strained by excessive
railway loans. With free trade in corn, large imports of wheat were
made, which were paid for with gold. A drain set in upon the Bank, the
reserve was depleted, and by October 2, 1847, the directors denied all
further advances. Within three years of the passage of his statute,
the event Loyd had foreseen arrived. “Monetary distress” began to force
down prices. The decision of the directors to refuse discounts created
“a great excitement on the Stock Exchange. The town and country bankers
hastened to sell their public securities, to convert them into money.
The difference between the price of consols for ready money and for the
account of the 14th of October showed a rate of interest equivalent to
50 per cent per annum. Exchequer bills were sold at 35s. discount.”...
“A complete cessation of private discounts followed. No one would part
with the money or notes in his possession. The most exorbitant sums
were offered to and refused by merchants for their acceptances.”[363]
Additional gold could only be looked for from abroad, and as a
considerable time must elapse before specie could arrive in sufficient
quantity to give relief, the currency actually in use offered the only
means of obtaining legal tender for the payment of debts. Consequently
hoarding became general, and, as the chancellor of the exchequer
afterward observed, “an amount of circulation which, under ordinary
circumstances, would have been adequate, became insufficient for the
wants of the community.” Boxes of gold and bank-notes in “thousands
and tens of thousands of pounds” were “deposited with bankers.” The
merchants, the chancellor said, begged for notes: “Let us have notes;
... we don’t care what the rate of interest is.... Only tell us that we
can get them, and this will at once restore confidence.”[364]
But, after October 2, no notes were to be had, money was a commodity
without price, and had the policy of the “Bank Act” been rigorously
maintained, English debtors, whose obligations then matured, must have
forfeited their property, since credit had ceased to exist and currency
could not be obtained wherewith to redeem their pledges.
The instinct of the usurer has, however, never been to ruin suddenly
the community in which he has lived: only by degrees does he exhaust
human vitality. Therefore, when the great capitalists had satisfied
their appetites, they gave relief. From the 2d to the 25th of October,
contraction was allowed to do its work; then Overstone intervened, the
government was instructed to suspend the “act,” and the community was
promised all the currency it might require.
The effect was instantaneous. The letter from the cabinet, signed
by Lord John Russell, which recommended the directors of the Bank to
increase their discounts, “was made public about one o’clock on Monday,
the 25th, and no sooner was it done so than the panic vanished like a
dream! Mr. Gurney stated that it produced its effect in ten minutes! No
sooner was it known that notes _might_ be had, than the want of them
ceased!”[365] Large parcels of notes were “returned to the Bank of
England cut into halves, as they had been sent down into the country.”
The story of this crisis demonstrates that, by 1844, the money-lenders
had become autocratic in London. The ministry were naturally unwilling
to suspend a statute which had just been enacted, and the blow to Sir
Robert Peel was peculiarly severe; but the position of the government
admitted of no alternative. At the time it was said that the private
bankers of London intimated to the chancellor of the exchequer that,
unless he interfered forthwith, they would withdraw their balances from
the Bank of England. This meant insolvency, and to such an argument
there was no reply. But whether matters actually went so far or not,
there can be no question that the cabinet acted under the dictation
of Lombard Street, for the chancellor of the exchequer defended his
policy by declaring that the “act” had not been suspended until “those
conversant with commercial affairs, and least likely to decide in
favour of the course which we ultimately adopted,” unanimously advised
that relief should be given to the mercantile community.[366]
There was extreme suffering throughout the country, which manifested
itself in all the well-known ways. The revenue fell off, emigration
increased, wheat brought but about five shillings the bushel, while
in England and Wales alone there were upwards of nine hundred thousand
paupers. Discontent took the form of Chartism, and a revolution seemed
imminent. Nor was it Great Britain only which was convulsed: all
Europe was shaken to its centre, and everything portended some dire
convulsion, when nature intervened and poured upon the world a stream
of treasure too bountiful to be at once controlled.
In 1849 the first Californian gold reached Liverpool. In four years the
supply of the precious metals trebled, prices rose, crops sold again
at a profit. As the farmers grew rich, the demand for manufactures
quickened, wages advanced, discontent vanished, and though values
never again reached the altitude of 1809, they at least attained that
level of substantial prosperity which preceded the French Revolution.
Nevertheless, the fall in the purchasing power of money, and the
consequent ability of debtors to meet their obligations, did not
excite that universal joy which had thrilled Europe at the discovery
of Potosi, for a profound change had passed over society since the
buccaneers laid the foundations of England’s fortune by the plunder of
the Peruvian galleons.
To the type of mind which predominated after 1810, the permanent rise
of commodities relatively to money was unwelcome, and, almost from
the opening of the gold discoveries, a subtle but resistless force
was working for contraction--a force which first showed itself in the
movement for an uniform gold coinage, and afterwards in general gold
monometallism. The great change came with the conquest of France by
Germany. Until after the middle of the nineteenth century, Germany held
only a secondary position in the economic system of Europe, because of
her poverty. With few harbours, she had reaped little advantage from
the plunder of America and India, exchanges had never centred within
her borders, and her accumulated capital had not sufficed to stimulate
high consolidation. The conquest of France suddenly transformed these
conditions. In 1871 she acquired an enormous booty, and the effect upon
her was akin to the effect on England of the confiscations in Bengal;
the chief difference being that, unlike England, Germany passed almost
immediately into the period of contraction.
The spoliation of India went on for twenty years, that of France
was finished in a few months, and, while in England the “industrial
revolution” intervened between Plassey and the adoption of the
gold standard, in Germany the bankers dominated from the outset.
The government belonged to the class which desired an appreciating
currency, and in 1873 the new empire followed in the steps of Lombard
Street, and demonetized silver.
Germany’s action was decisive. Restrictions were placed on the mints
of the Latin Union and of the United States, and thus, by degrees,
the whole stress of the trade of the West was transferred from the old
composite currency to gold alone. In this way, not only was the basis
of credit in the chief commercial states cut in half, but the annual
supply of metal for coinage was diminished. In 1893 the gold mined fell
nearly nine per cent short of the value of the gold and silver produced
in 1865, and yet, during those twenty-eight years, the demand for money
must have increased enormously, if it in any degree corresponded with
the growth of trade.
The phenomena which followed the adoption of the gold standard by
Western countries were precisely those which had been anticipated by
Loyd. Lord Overstone had explained them to an earlier generation.
In one of his letters on the “Bank Charter,” as early as 1855, he
developed the whole policy of the usurers:--
“If a country increases in population, in wealth, in
enterprise, and activity, more circulating medium will probably
be required to conduct its extended transactions. This demand
for increased circulation will raise the value of the existing
circulation; it will become more scarce and more valuable, ...
in other words--gold will rise....”[367]
By the action of Germany, Overstone’s policy was extended to the whole
Western world, with the results he had foreseen. Gold appreciated,
until it acquired a purchasing power unequalled since the Middle Ages,
and while in the silver-using countries prices remained substantially
unchanged and the producers accordingly prospered, prostration
supervened in Europe, the United States, and Australia. As usual the
rural population suffered most, and the English aristocracy, who had
been respited by the gold discoveries, were the first to succumb. They
not only drew their revenues from farming land, but, standing at the
focus of competition, they were exposed to the pressure of Asia and
America alike. The harvest of 1879 was one of the worst of the century,
land depreciated hopelessly, and that year may probably be taken as
marking the downfall of a class which had maintained itself in opulence
for nearly three hundred and fifty years.
This Tudor aristocracy, which sprang up at the Reformation, was one
of the first effects of the quickened movement which transferred the
centre of exchanges from Italy to the North Sea. They represented
sharpening economic competition, and they prospered because of an
intellectual gift, an aptitude they enjoyed, of absorbing the lands
of the priests and soldiers amidst whom they dwelt. These soldiers
were the yeomen who, when evicted, became pirates, slavers, commercial
adventurers, religious colonists, and conquerors, and who together
poured the flood of treasure into London which, transmuted into
movement, made the “industrial revolution.” When by their efforts,
toward the beginning of the nineteenth century, sufficiently vast
reservoirs of energy in the shape of money had accumulated, a new race
rose to prominence, fitted to give vent to this force--men like Nathan
Rothschild and Samuel Loyd, probably endowed with a subtler intellect
and a keener vision than any who had preceded them, financiers beside
whom the usurers of Byzantium, or the nobles of Henry VIII., were
pigmies.
These bankers conceived a policy unrivalled in brilliancy, which made
them masters of all commerce, industry, and trade. They engrossed the
gold of the world, and then, by legislation, made it the sole measure
of values. What Samuel Loyd and his followers did to England, in 1847,
became possible for his successors to do to all the gold standard
nations, after 1873. When the mints had been closed to silver, the
currency being inelastic, the value of money could be manipulated like
that of any article limited in quantity, and thus the human race became
the subjects of the new aristocracy, which represented the stored
energy of mankind.
From the moment this aristocracy has determined on a policy, as,
for example the “Bank Act” or monometallism, resistance by producers
becomes most difficult. Being debtors, producers are destroyed when
credit is withdrawn, and, at the first signs of insubordination, the
bankers draw in their gold, contract their loans, and precipitate a
panic. Then, to escape immediate ruin, the debtor yields.
Since 1873 prices have generally fallen, and the mortgage has tended to
engulf the pledge; but, from time to time the creditor class feels the
need of turning the property it has acquired from bankrupts into gold,
and then the rise explained by Overstone takes place. The hoards are
opened, credit is freely given, the quantity of currency is increased,
values rise, sales are made, and new adventurers contract fresh
obligations. Then this expansion is followed by a fresh contraction,
and liquidation is repeated on an ever-descending scale.
For many years farming land has fallen throughout the West, as it
fell in Italy in the time of Pliny. Everywhere, as under Trajan, the
peasantry are distressed; everywhere they migrate to the cities, as
they did when Rome repudiated the denarius. By the census of the United
Kingdom taken in 1891, not only did it appear that over seventy-one per
cent of the inhabitants of England and Wales lived in towns, but that,
while the urban districts had increased above fifteen per cent since
the last census, the population of the purely agricultural counties had
diminished.[368]
Moreover, within a generation, there has been a marked loss of
fecundity among the more costly races. The rate of increase of the
population has diminished. In the United States it is generally
believed that the old native American blood is hardly reproducing
itself; but, in all social phenomena, France precedes other nations
by at least a quarter of a century, and it is, therefore, in France
that the failure of vitality is most plainly seen. In 1789 the
average French family consisted of 4.2 children. In 1891 it had
fallen to 2.1,[369] and, since 1890, the deaths seem to have equalled
the births.[370] In 1889 legislation was attempted to encourage
productiveness, and parents of seven children were exempted from
certain classes of taxes, but the experiment failed. Levasseur, in his
great work on the population of France, has expressed himself almost
in the words of Tacitus: “It can be laid down as a general law that,
if in such a social condition as that of the French of the nineteenth
century, the number of children is small, it is because the majority of
parents wish it should be small.”[371]
Such signs point to the climax of consolidation. And yet, even the
rise of the bankers is not the only or the surest indication that
centralization is culminating. The destruction, wrought by accelerated
movement, of the less tenacious organisms, is more evident below than
above, is more striking in the advance of cheap labour, than in the
evolution of the financier.