THE COMMERCIAL HISTORY OF 1864.

Press, Volume VII, Issue 805, 30 May 1865, Page 3

THE COMMERCIAL HISTORY OF 1864.

*. "■ —. ;> • - : [From the £oo*omut.'} j> • . .!&• formation—or rather the projection of Hew has proceeded in 1864 on even a larger k anfetiaa in 1863. Details are giVen at a subsequent ?■ pif* from which it appears that 283 new companies asking foe 106 million of capital and 12* millions of '.= deporita were advertised in 1864; against 263 comasking £» 78 millions of capital and nine : affion* of deposits in 186*. Besides these 282 new eompaaiet, there were in 1864 extensions, Ac of old - «oepsiuee,mTolTing 35 nulliona of farther capital, ? «■! eai&wftr 12 millions in deposits and prenaran». V 8o that between tbe new and oH projects of 1864, ttepabfic vereinTited to suhwaibe 141 mOhons of capital and pay 24 millions in bard caefr as depoeite -andprwaiome. In the two years, 1863 and 1864, it «ea»to be true that ttie British pnbhe haye had Wow them joint etockeehemee implying the : arasptanee of fature engagements to the amount of •t least 200 millions, and present payments fiw * jhrnnrili sad vnmianw of about 40 millions sterling. I Tkactirity of 1863 and 1864 in this deeeripfion ■• Wlamisu baa teen equal to twice the figures which represent the same results fat the whole.of ti*^eeron f ' : durine which the Jinrited uability tar I* », <* «ur«, ■£*&* contended or bettered that in two years 200 Jmn been eon ; i*«eW to and new jg %mpm*} wocf&rii wDmm of aetaal eapieal

has been paid over to the projectors of these schemes in order to apt them in motion. It is quite true, however, that to the extent of some large fraction of these figures, the English public have embarked in the lost two years in joint stock enterprises ; and it does not admit of a doubt tliat many of the phenomena presented by the money market in 1564, and at the present time, can be explained only by inrestigatmg the effects prodaeed by this prodigions and eudden derelopment of a new kind of investment.

- Tlie conclusive historical guide, in such an investigation, would be the experience of this country during the great period of Eatl way Construction in 1816-50 —that is, the five years which followed the excited season of 1844-5. During those five years the resources and eavings of the mercantile and middle classes were taxed to the utmost to provide the capital required for completing the lines of railway projected in the sanguine days of the mania when people thought nrach of present premiums, and little of the steady pertinacity with which one call could follow another as the earthworks and buildings proceeded. The effect was that scarcely anybody had a spare eixpense for anything. A man whose means might hare prudently afforded £1000 for railway calls spread over fire years had bound himself to find £10,000, —and was consequently driven to starve his business and himself—to sell whatever was saleable at the earliest moment, and at any price—to live from hand to mouth—to borrow of every one and lend to none. 2fo wonder that during these dismal five years markets of all sorts were depressed almost beyond former experience, and that enterprise of all kinds, except railway making, was at a standstill :—Now for the qualifications of the comparison as between the 1846-50 and the present time —and these are vital. The continued and almost unrelieved nature of the pressure of 1846-50 arose from the circumstance that railway works once fairly begun must be finished, under the penalty of sacrificing nearly all the previous expenditure. A piece of railway embankment or railway viaduct standing by itself was as useless and unmarketable as the great pyramid. The line must be finished from end to end before it could possibly earn any revenue. The shareholders once in the hands of the engineer and contractor could not withdraw, could not stand still, but must go on. The schemes of the last two yeara are only to a small extent railways. They are banks, finance and trading companies, hotels, steamship lines, mines, foreign land and investment companies, and the like—schemes fer the moet part, in which if the shareholders so please, they can stop the whole concern at a week's notice —call in the auctioneersell any assets that may be left —take whatever minute dividend the sale may bring—and after indulging in the usual vehement and disorderly meeting which celebrates the break up of a company— retire with the solemn resolution never to lose another farthing at all events in that particular sort of venture.

Bearing in mind that happily we are not bound down as were the railway subscribers of twenty-yeara ago, still the financial effects of the excessive jointstock speculation of 1863-4 are precisely the same in kind as those of the excessive railway speculation of 1844-5. At the present time there are thousands of cases of persons in and out of trade who have committed themeelves to joint stock engagements greatly beyond their means. Where these errors hare been fallen into by merchants, manufacturers, and people in business, the consequence are either a sacrifice of the surplus shares at any price, or a contraction of the ordinary scale of their operations. Hence arises the state of things we have seen for some months past. The public have lost all appetite for new schemes, or rather the surplus capital in the hands of the public waiting to be employed in new schemes'has been all absorbed. The markets for most kinds of shares, especially the more recent descriptions, are weak and depressed, because borne down by continuous sales ; and failures are frequent, in which it appears, on investigation, that the chief cause of embarrassment has been losses on joint stock speculations. j The public hare now had the benefit of a year s experience of the Mn»nce companies and Banks started in such, profusion in 1863, and they are beginning to discover that the warnings given by prudent people were not unneeded. One or two of the finance companiea h*¥e apparently established themselves on a sound : foundation —that is to say, they hare found out a class of customers who want the sort of assistance the companies can give, who can afford to pay for it at high rates, and, what is still more important, can replace the principal at something near the stipulated date. Prior to the monetary pressure in the autumn, a good deal of attention was directed to what were called " finance bills," then to be met with rather abundantly in the London market. These bills came into existence in the following way:— Contractor A came to Company B, and applied for, say £50,000 for twelve months on the security of debentures issued by a railway company in process of construction, but expected to be finished and open within nine or ten months. B said in reply, "Yes : we will lend you the £50,000, not in cash, but in our own acceptances to your order at six months. These acceptances you can take into the market and discount, and in that way procure the ready money you require." In other words, the lender B not having £50,000 in cash waiting to be employed, but expecting to have it at the end of cix months by the collection of some of its loans or the sale of some of its assets, desired in the meantime to make a profat by the use of its name and credit. Naturally enough the authorities of the money market refuse to encourage this eystem of lending. A sound bill of exchange is a bill drawn against merchandise sold and delivered, and on its way to the actual consumer, and the price paid by the consumer will provide for the payment of the bill at its maturity. Here the basis of the document is clear and specific. But a "finance" bill such as we have described has no such foundation. It is neither more nor less than a speculation on the state of the monay market for six months to come, and upon the degree in which two or three parties, all trading on acceptances and credit, may be able to fit their engagements one into the other. The finance bills, therefore, met with so much discouragement, that for a time they have disappeared,—but only for a time. They will revive by and by, and produce mischief. . ; The only solid resources of the finance companies are their capital, subscribed and paid up, their deposits, and their reserve fund. The deposits they do or should hold at long notice. If they can ob? tain a large command of capital in that form, and at moderate rates of interest, and avoid investments at too long dates, they will succeed. But the fabulous dividends of 25 and 30 per cent, must not be exnected The opportunities for making huge lumps ofmoney as commission, &c., oc?ur but seldom. The negotiation of foreign loans is as often a failure as a success: the hostile influences are so many, and the competitors, home and foreign, so keen ;— and sooner or later the finance companies who understand their business will become, as is inevitable, a gpecies of institution between a bank and an insurance office. J, The New Banks have, on the whole, not done so well as the finance companies. The banks exclusively or most largely dealing in exchange and credits have done the worst. Several of them have formed combinations, and some have disappeared entirely. Still the effect of the banking enterprise of the last two or three years has been to estaWisli several new and prosperous institutions, and not before they were needed by the growing trade of the country. There has been in 1864 further progress in the fusion of the smaller private bankers in London either with leading joint stock, or with larger private, banks. It is probable that the process will go forward until the number of private banks in London isreduoed to under a dozen strong and powerful firms; and assuming these firms to be vigorously managed, they will be able to preserve and attract quite as much business as they can get through. The stoppage of the Leeds Banking Company on the 17th Sept (1864) was the most notable failure of the year. The bank itself was of thirty years' gfawttW, and had a large and profitable business, and until within * year or so of the catastrophe had been prudently managed. All sound maxims ofbmmesseeemtohavelbeen then laid aside. Itissaid the jirvTT" l officer fimnd means of aUjing

himself, without the knowledge of the board, with a small knot of reckless men who, aided by the resonrce3 and credit of the bank, launched into the mo3t improvident speculations. A short time sufficed to involve the bank past redemption. For a few weeks before suspension, money was raised in the London and other markets by re-discounting local bills and especially the bills of the reckless customers. But this was a process which soon excited suspicion and tended to hasten the final break down. The causes of the failure, stated generally, were precisely the same as in the notorious instance of the Western Bank of Scotland in 1857 —that is to say, excessive adraaces made to a few desperate and penniiess gamblers. Iα appendix (51) a list is given of the principal failures in 1864. The names in the last four months of the year are very numerous. In the cotton districts the number of failures of manufacturers and spinners in September, October, and November was about 120, with liabilities of more than a million sterling. In London and Liverpool the proximate cause of failure was in a large class of cases the severe fall in the markets for produce, especially cotton, sugar, jute, rice, and fruit. The almost complete derangement of credit in Spain reacted extensively on English houses connected with that country ; and the violent fluctuations of exchange at New York, coupled witli the vicissitudes of all trading operations in the States and Canada in sympathy with the varying probabilities of peace, produced great loss and uncertainty.

The variations in the cotton market in 1864 are in themselves a history, and in the elaborate circular quoted hereafter a very full account of them will be found. There was first a gradual decline from January to April;—then a steady advance to the end of July ; —then a rapid fall to the middle of October ; —and lastly a marked recovery to the end of December. From July to about the close of October the average fall on long staple cotton 3 was about 30 per cent.; in Smyrna sorts, 47 per cent.; in Dhollera and China, 43 per cent.; and in Bengal, 50 percent. These extreme rates of depreciation as compared with the highest prices of July were recovered to the extent of nearly onehalf before the end of the year. The full in the prices of cotton yarns md piece goods during the panic in October was as great as in the case of the raw material. In cloth and yarns the fall was rather over 30 per cent, as compared with July. The circular referred to computes as follows the value of the raw cotton imported, the exported, and consumed, in the United Kingdom during the six years 1859-64 :— Aver. Price.

It must be borne in mind that these import values are founded on the price of the article at the port of entry, and include therefore the freight, charges, and importers' profits. In 1864, for example, we did not really pay to India, Egypt, and other cotton-producing countries 84 millions sterling for raw cotton. How much we really did pay them cannot be ascertained with any degree of precision from published tables. We may aproximate, however, towards it by the employment of another method ; and arrive by that method at conclusions which will illustrate some other parts of the case of an interest and importance of their own. The following table gives in outline the imports and exports of merchandise and gold and silver to to India and the Levant (including Egypt) for the four years 1861-4: —

We see from these figures that in 1863 aud 1864 an export of 23 millions of treasure sufficed to settle a balance which, on the face of the. return, showed an excess of 29 millions in 1863, and 27 millions in 1864, after all exports of goods and treasure were enumerated—that is to say, in 1863 we are put down as having imported 75 millions, and sent away in goods and treasure 56, leaving, as we have just said, an apparent debt of 29 millions unliquidated for 1864. We know, however, from the state of the exchanges, that there is no such large unliquidated demand against this country pressing on the Eastern markets. The explanation consists in the simple circumstance that the value at the foreign port of shipment of the goods sent to this country and put down in our own Customs returns as 86 millions in 1864 was some sum very considerably smaller —so much smaller, indeed, that we are able to balance the account by eending 59 millions sterling of merchandise and treasure combined.

But there is this further point. In four years the imports from India and the Levant have certainly doubled in value. These are countries of exceedingly backward civilisation. Hitherto, the native cultivators have had few wants, and have been so ignorant of the real principles of trade as to regard goia and silver as precious beyond all other things, and as fit only to be buried in secret hoards instead, of being sent away as rapidly as possible in exchange for articles of use and enjoyment. A trade, therefore, of imports from these countries suddenly doubled in volume, necessarily implied the transmission of a large part of the price in specie and bullion ; and so it actually happened. The average annual export of treasure to India *and the Levant for the last five years, 1857-61, was \%\ millions sterling; the average export of 1863-4 was 23 millions. The meaning of these figures is this, that so potent is a free and vigorous commerce to arrive rapidly at a state ol things in which trade, even with very backward countries, becomes the barter of one set of commodities for another set of nearly equal exchangeable value, that in the course of two years we have made great progress towards overcoming the tendency of the sudden import of cotton from the East to carry away excessive quantities of gold and silver. The probability seems to be that in 1865 the action of the Eastern demand for bullion remittances will be on a much more limited scale than in 1863-4; and \ that the taste'lalreadyexcited in those countries for articles of English production will have laid the solid foundation of a commerce as regular as that with America or France. We may learn fr?m this extreme case the immense value to the growing commerce of the country of a central cash reserve of sufficient magnitude to bear the loss of a few millions without damaging our system of credit, and raising the rate of interest suddenly and to a high point. Wβ repeat that no precautions can be devised which will under all circumstances prevent financial pressure or even financial panic— gtill less which will prevent variations in the rate of interest. But nothing can be plainer than that the most direct means for increasing both panic and pressure is for a country carrying on a vast foreign bade to cripple ita central bank in the acquirement and command of an adequate cash reserve. We have seen that the average annual export of treasure to the East in the two years 1863-4 was 23 millions sterling, against an average of 13* millions for the five years 1557-61. But apart from the supplies of gold famished by the new.sourcee in Cmlifowua and Australia, opened fifteen years ago, it is hard to understand in what way toe transference of the cotton trade from the Western to the Eastern hemisphere could haw been aeeomplahed without

producing a commercial convulsion beyond all modern experience. The consignments of gold from Melbourne and San Francisco have constantly comto hand at tho most critical junctures, and have one abled us to m-et the Eastern demand with a readiness and fscilirj boyond the capacity of any other means of relief. In "vnpendix. (i 7) ample evidence will be fonr.d of the production of gold and surer in the countries of oil and new supply during the fifteen years 1849-63. Of that evidence the following table is a summary : — AirsUAir AvsßAGE—Total Production of Gold and Silver, in Periods of Years, 1849-63. Summary of Table (48) in Appendix.

Noth —The total production shown by these figures in the fifteen years 184(9-63, is of Gold from old sources, 215 millions ; from new sources, 297 millions; Silver from all sources, 248 millions. It is plain from these figures that for the last seven years the new sources of supply have yielded year by year a diminishing quantity of gold ; and that the old soiircee of supply have done little more than maintain the former rate of production. As regards silver, the increase throughout the fifteen years has been, if not very great, still so as to represent at present a production 20 per cent, larger than in 1849-51. But in the case of gold the present annual production from all sources is 13 per cent, less than in the five years 1852-6. {To be continued in our next.)

Tears. 1864 1863 1862 1861 1860 1859 I [mportcd. E Mln.£ 84.0 ... 59.0 ... 31.6 ... 38.7 ... 34.4 ... 310 ... le-exported. llln.£ 220 ... 18.6 ... 12.0 ... 7.5 ... 5.1 ... 3.7 ... I. Cnsind. Mln£ . 53.8 . 44.4 . 271 . 31.4 . 25.9 . 25.4 per lb d 22£ 20| 14| 7% 5* 6i >.

Impi IBTS. ijExp^ »KTS. ! TOTAI. Teaks. i: I! p i' I ->A... 1! « t «3 to.« s. ; A. 1 es J. L86i ... 1862 ... 863 ... L864 ... jMln 1 £ i. 26 .! 39 " 53 i 60 Mln.! £ 13 17 22 26 i Mln. £ 17 i 17 22 ! ; 22 ' Mln. 1 £ I 6 i 7 I li ! 14 i Mln. i £ 1 39 56 75 86 Mln. £ 23 24 33 36 Mln. £ 10 18 23 23

Gold SEuVBB. Old NewAll Periods of Sources Sources. Total. Sources, Years. Mln. £ Mln. £ Mia. £ Mln. £ 1849-51...(3) 13.5 ... 10.3 1852-6 ...(5) 14.0 ... 24.7 23.9 ... 38.7 ... , 15.5 . 16.1 1857-9 ...(3) 14.6 ... 21.9 . 1860-3 ...(4) 15.3 ... 18.3 . 36.5 ... 33.5 ... . 17.1 . 18.2