Popular Science Monthly/Volume 29/August 1886/Causes of the Present Commercial Crisis



THE whole world has been suffering for two years under an intense commercial crisis. Hardly any country has escaped the stringency. For special reasons, France has suffered the most. But England, Belgium, Italy, Germany, and even the United States and the South American republics, have not been free from its effects. All kinds of commercial activity bear witness to a universal languor. The railroads show diminished receipts over all the European Continent and in the British Islands. The foreign commerce of France has been declining for five years, during which time the valuation of imports has diminished by sixteen per cent, and that of exports by ten and a half per cent. A part of this decrease is, doubtless, due to the general depreciation of prices, so that the falling off in the quantity of goods handled is not actually so great as the figures would make it appear; but this depreciation in prices is another cause of serious concern to economists. England, also, is struggling against difficulties of a similar character. Italy, where the financial management in later years has been most excellent, has had to pay tribute, though in smaller proportionate amounts, to the general depression. Germany has met a check in the speedy race to wealth which it proudly thought it was making. In the United States the exports have fallen $200,000,000 since 1880. The Argentine Republic, also, is obliged to struggle against grave financial and commercial embarrassment.

We may consider, then, that all nations are afflicted with commercial depression. What are the causes of this universal debility? How long will it last? What remedy can we employ to restore commercial health in the shortest possible time? The opinions as to the origin of the crisis are widely different. Some persons see in it only one of the periodical shocks, one of the "growing pains" which seem to be the accompaniment and price of all progress, and which, coming on in the natural course of events, and having a kind of character of fatality, will disappear of themselves. And some of the people of this class believe they can already see the signs of convalescence. Another class of observers pretend that the present crisis is different from any that have preceded it, that its cause is not natural but artificial, and originated in the mistakes of governments, and that a simple, easily adopted measure of policy will cause its removal at once. These are the partisans of silver, or the bimetallists, as they call themselves. Some attribute the trouble to over-production. Men are producing more than they need. If we do not raise less wheat, make fewer clothes, build fewer houses, everybody will die of hunger, or cold, or want of shelter. This is not a new doctrine, self-contradictory as it is. Then come the protectionists. The mischief is on us because we do not protect enough. All countries are suffering because they buy too much and sell too little. We must protect more. When all the different lands shall have realized that mysterious ideal of selling much to one another without buying in their turn; when they shall, by means of customs duties, have annulled the diversities of productive forces that are derived from nature or from remote antecedents; when they shall have abolished the territorial division of labor among men—the fine days will come again, and prosperous years will follow one another without interruption. Let us examine these various opinions in succession. We first take up those of the silver partisans; but, without entering into a scientific discussion of the questions at issue, we shall only speak of the actual influence of recent monetary facts on the price of goods and on commerce. There were till recently two metals, sometimes rivals and sometimes allies, contending for and occasionally sharing the monetary function of the world—gold and silver. Each of them had its peculiar territories, and they sometimes spread over into common territories. Gold reigned in England, the United States, and the Scandinavian countries; silver, in the Indies and Germany, and nominally in Austria and Russia; while both metals had undivided sway in France, Italy, Switzerland, Belgium, and Greece, or the countries of the Latin Union, where they had equal legal rights, and were rated in value at fifteen and a half by weight to one—a valuation which M. Cernuschi calls the bimetallic par. This par exists only in some countries, not in all. After the war with France of 1870-'71, Germany changed its single silver standard for one of gold. The Scandinavian states followed suit. France was restrained from following this example by the resistance of the Bank of France, which foresaw ruin to itself in such a measure. The initiative of Germany—although it had failed to make the demonetization of silver complete, as it had intended—coincided with a profound change in the monetary situation of the world. The metal silver began to depreciate and to grow less in value relative to gold. The countries of the Latin Union, being the only ones in which the two metals enjoyed a condominium at a ratio of values fixed at the beginning of the century, took alarm at these signs of a widening of the difference in values, and adopted an exclusive standard of gold. The depreciation of silver continued, at an accelerating rate, till, in 1885, it took 18.63 grains of that metal to be the equivalent of one grain of gold. Silver had lost nearly twenty-one per cent of the value which it had maintained, as a rule, till 1871. At the present writing the depreciation has reached twenty-two per cent. This depreciation is regarded by MM. Laveleye, Cernuschi, and De Soubeyran, as the result of the demonetization of silver by Germany and the Latin Union; but this demonetization, only partial in Germany, was merely an incident in the matter, and inadequate to produce so great an effect. A much more important factor is the increase in the production of silver, which has been enormous during the last fifteen years, accompanied by considerable reductions in the expense of the processes for extracting it, the effect of which is also intensified by a greatly diminished production of gold. With a tripled production of silver, which the statistics show to have taken place, and a reduction of one third in the amount of gold, also proved by the statistics, we need go no further to find the explanation of the change which has taken place in the relative value of the two metals. From 1851 to 1855 the value of gold produced exceeded that of silver in the proportion of seventy-seven and a half to twenty-two and a half; in 1884 the proportions were reversed, and the value of the silver produced was to that of the gold as fifty-seven to forty-three.

The question now arises whether the relative rarity of gold has been adequate to exercise a sensible influence on prices and on the commerce of the world as a whole. Many writers insist that the two phenomena are connected, because they are simultaneous. It is also worthy of remark that the production of gold fell off at the very time when a considerable number of nations turned to that metal as the basis of their monetary circulation; when the United States and Germany resumed specie payments in gold and Italy began to hoard it. The reasonings of these persons contain some facts mingled with conjectural inductions. Times of commercial crisis are always characterized by depression of values. In making our comparisons we should be careful to set off ordinary years against ordinary years, and not let peculiarly exceptional years, such as sometimes occur, slip into one side of the comparison to exaggerate the apparent difference. The depreciation of values, moreover, which is spoken of now, is not universal; but many articles have escaped it, or have been only feebly affected by it. A considerable number have held their own, or have risen in price, during the past twenty-five years. Tin has fallen but slightly; the same is the case with soap and bottles. In alimentary products the great depreciation which is talked of is hardly visible, except in wheat, coffee, and sugar. Salt, beer, butter, and pepper have risen. Meat falls but slowly, if at all, and hides are dearer than they were between 1861 and 1870. Through the list as a whole, the tendency to depreciation, it is true, is dominant, but the exceptions are numerous and important. When we turn to human services, of whatever kind, whether professional or those of common laborers, we find that salaries and wages have risen all around. Now, if the cause of the present crisis were the increase in the value of gold, the prices of everything, without exception, would have fallen. They have not done so, and we must look for other causes. If we look without prejudice, they will not be hard to find. Two conditions may be discovered existing in combination in the cases of all articles the price of which has fallen—that the production has become remarkably more abundant and the expenses of it have notably diminished. We find both these conditions existing in wheat, cotton, coffee, iron, cast-iron, copper, and everything else that is cheaper.

The amount of territory in cultivation in wheat has increased enormously: in Europe, thirty-four per cent in less than thirty-five years; in the United States, by nearly tripling in thirty-four years and doubling in fourteen years; in the British colonies outside of India, nearly as much. Contrary to the predictions of Malthus and Ricardo, the last quarter of a century has seen food-substances, through the whole civilized world, multiplying much more rapidly than the population. M. de Neumann-Spallert, a statistician of high reputation for accuracy, has shown that the trade of the civilized world in cereals more than doubled between 1869 and 1879. Since then it has suffered a slight recoil. The production of cotton, which was estimated at 1,192,000,000 pounds in 1840, and 2,474,000,000 pounds in 1860, remained nearly stationary—increasing only about three and a half per cent—between 1860 and 1870, on account of the American civil war; but between 1870 and 1880 the crop of the United States rose from 1,540,000,000 to 3,161,000,000 pounds, and the crop of the whole world to 4,039,000,000 pounds, showing an increase of about sixty-seven per cent in ten years. But this is insignificant by the side of the increase that has been realized in the production of wool. A commercial circular, issued by one of the principal brokers of Antwerp, has recently established in the most striking manner the relations of the price to the quantity of wool imported into Europe. Taking into consideration the stocks of colonial wools coming from the three principal producing countries, Australia, the Cape Colony, and La Plata, we shall find that in 1864 the importations amounted to only 458,000 bales; in 1868 they had nearly doubled, and reached 879,000 bales. The price then fell to one franc eighty-five centimes (about twenty-five cents), and for a short time in 1869 to eighty-five centimes (or about seventeen cents), the lowest price that had then been known. For five or six years the importations remained stationary, or only increased a little, and prices stiffened. But in 1877 the importation was much more considerable, amounting to 1,272,000 bales, or forty per cent more than five years previously, and prices fell in nearly a corresponding proportion. For the next two or three years the colonial importations were stationary, and prices rose. But the increase in production was resumed; the importation of wools into Europe was estimated at 1,740,000 bales in 1885, and prices descended correspondingly.[1] A considerable increase, though not so great, has taken place in the production of coffee, which has risen from 321,000 tons in 1855 to 588,000 tons in 1881, or sixteen per cent. This is not very great, but the increase in the use of coffee is still slower. The production of sugar has increased more rapidly. The increase in the production of cane-sugar in 1882 amounted to about one third in five years, and that of beet-sugar in 1883 to forty per cent in three years. Since these dates the production seems to have taken a new start.

A glance at the statistics of metal-working ought also to convince a reasonable man that the cause of the fall in prices should be sought in the conditions of the production of each article. Fine copper is one of those metals which have fallen most within fifteen years. The production of it, which was only 45,250 tons in 1850, and 67,370 tons in 1860, reached 82,120 tons in 1870, and over 120,000 tons in 1880, and this figure was passed in the following years. The case is not different with lead, the production of which, 104,000 tons in 1830 and 170,500 tons in 1850, passed 379,000 tons in 1880, or was more than doubled in thirty years. The production of iron has doubled in ten years, and that of coal increased about 145 per cent in twenty years.

We might pursue this enumeration almost to infinity. If, however, instead of studying the special and precise cause of the depression in the price of each article, we seek the more general causes, they are easy to find. The question of the metal silver is foreign to them. The general causes may be reduced to the following: The whole world is much better explored than it was twenty years ago, and all the natural riches, the best lands, and the best deposits, are better known. Capital, having become more abundant, is more mobile and more active, bolder, more ready to change places, and more transportable than it was a quarter of a century ago, so that the simple announcement of the discovery of a new source of wealth at any place in the world almost immediately induces attempts to make it available. The rise of anonymous business societies, or companies, has an importance of which we are hardly yet beginning to take account; the substitution of this powerful collective force for the molecular forces of personal and isolated capital has transformed and sometimes decupled the efficacy of investment. Men also have become less sedentary, and eagerly follow their capital wherever it calls them and promises them remuneration. The progress of industry, manifested by inventions, discoveries, improved processes, and even workmen's slights, is contributing daily to this incessant development of production and cheapening of prices. The last factor, and not the least energetic one, is the improvement of the means of transportation, especially by sea, during the last fifteen years, by virtue of which it is calculated that every English ship can now carry twice as much freight as in 1870, three times as much as in 1860, and four times as much as in 1850.

These are the general and incontestable causes which have acted, and are continuing to act, upon the provisioning of the world. To seek the explanation of the fall of prices anywhere else is willfully to close one's eyes. It is vain to pretend that the fall of silver, which amounts to twenty-two per cent of the value given it in our monetary tariff, gives the Indies an advantage in exportation. Amid phenomena so vast and striking, this is only an insignificant detail. The greater part of the goods which have drooped in price are not produced in countries having a silver standard. The great marts of production of copper, for example, are not in the East, but in the West—in Spain and the United States. So with iron and with wool, which is peculiarly the product of countries having a gold standard. Sugar and cotton, also, are most largely produced in countries where the fall in silver can have no direct influence.

It would be well if we could come to an understanding of the real effect of a depreciated currency upon the external commerce of a large country. It is often asserted of India that the depreciation of silver has given it a great advantage, because it can sell its goods at a price which calculated in gold would be less than that charged by competing countries; but, on the other hand, nearly all the finance officers of India and England are suffering from the embarrassments inflicted upon the Indian treasury by this very decline. If we admit the principle that a depreciated currency is an advantage to a country, we should conclude that Russia is never more prosperous than when its ruble declines, the Argentine Republic and Brazil than when their forced paper loses another fraction of its nominal value; and that those countries, like Italy and the United States, which exerted themselves to pass from the régime of paper money and resume specie payments, committed a false step, because, in substituting a strong and stable currency for a weak and variable one, they made exportation more difficult. It may be acknowledged that a slow and gradual depreciation of the value of money may at first aid to a certain extent in the development of exportations. But this is only a transitory phenomenon. All prices will soon come to a level, and salaries and wages will rise; and the temporary advantages accruing to producers and exporters will vanish. If the foreign commerce of India has sensibly expanded within the last fifteen years, we can point out more palpable, precise, and certain causes for the increase than the fall of silver, in the development of the network of railways, the operation of the Suez Canal, with the continual reductions in its tolls, and the cheapening of marine freights. Railroads and steamboats are the great levelers of prices. Add to these the effect of all the improved processes for loading and unloading, such as grain-elevators and all the new port facilities, and we shall find in this whole of circumstances so varied and yet so concordant a cause for the cheapening of goods much less problematical than the depreciation of silver.

There is another consideration to be taken account of when we refer the fall in prices to the diminished production of gold. It is not correct to suppose that it is indispensable for the maintenance of prices that the quantity of the precious metals which form the standard shall be increased in proportion to the extension and volume of commerce. Numerous recent discoveries contribute to permit economy in the circulation of the precious metals. Submarine telegraphs, for example, more exact knowledge of the ocean-currents, the cutting of isthmuses, and improvements in the steam-engine are diminishing the use of these metals in international commerce. If we wish to send a million dollars in bullion from America to England, it will only take six or seven days now against the twelve or fifteen days that it took twenty years ago. Specie can be sent now from Australia to Great Britain in thirty-five days, where it took ninety days a quarter of a century ago. This shortening of the time required for the transmission of gold is really equivalent to an increase in the available quantity of it. Furthermore, the methods of payment by balances between one market and another have become more varied and abundant. The simple development of international credit permits us to transfer funds from one country to another without a grain of gold being moved. Bank-notes circulate among all classes of the population in all countries, and checks have become everywhere a more usual means of payment. Piled up in the great banking-houses, the precious metals suffer less diminution by wearing, by material loss, and by hoarding. The whole world is thus managing to make less and less actual use of metallic money. To all the causes of decline we have passed in review may be added another cause, accidental and temporary, but effective while it continues in operation—the check to speculation. Speculation is as necessary to commerce as Achilles was to the army of the Greeks. It is that which gives life to trade, sustains prices, and fills the heart with hope. Without it everything languishes.

The reader may now be ready to infer from this review that an excess of production is the cause of the crisis. We are producing too much, and mankind is poor because of its wealth. Men are troubled to get enough to eat, to dress themselves, and to find lodging, because we are producing too much food, making too many clothes, and building too many houses! It can hardly escape any one that this explanation, when presented in this straightforward way, has a queer look. Have we really produced too much? Can we produce too much? At any rate, can it ever happen that an excess of production will engender misery? Such an hypothesis, at least in respect to the production of articles of subsistence, can hardly be admitted. Humanity has so many wants, natural or artificial, that it will never be satisfied, and we shall always have work to do for it. The old needs are extensible, and new ones are arising every day. When the man is warmly clad and he can not put on more clothes without loading himself down, he thinks about putting carpets on his floors and pictures on his walls. Consumption has unlimited appetites. It may, however, be admitted that there can be over-production of particular articles. Some humorous fellow, for instance, has suggested that we might make too many coffins, and, be they ever so cheap, the demand for them would not increase. But even in this case, perhaps, the taste would be stimulated for finer and more expensive coffins, and manufacturers would still have something to do. So there are a few other articles of which the number or quantity capable of being made useful is limited, but the quality of which is capable of indefinite expansion. In articles of personal use, like shoes and clothing, more abundant production and cheapening are apt to have the effect of causing us to change them often and to be more careless about having them repaired, and thus open the way to a larger demand for them. There are also articles not essential, but serving as instruments of labor of which there might be too many made. We might conceive of an excess of needles, or of looms, or spinning-wheels, or locomotives, or steamboats. But these are exceptional cases. Of most of the articles that are made for direct consumption we may say, as a rule, that they can not be offered in absolute excess. The world is never likely to have too much cloth, or sugar, or coffee, or meat, or wheat, or even too many houses. A great many people in comfortable circumstances, to say nothing of those who are poor, would have many more carpets and paintings, would use more sugar, would take coffee more frequently, would eat more meat, and enjoy more costly food, and would live in better houses, if it were not for the expense and for the habits they have already formed under the restraint of the cost of living. There can not really be an excess of any of these articles. If the supply is at any time in excess of the demand, it is not because this is not capable of increase, but because the increase is restrained for the time by circumstances which will prove to be only transitory. Take the case of houses in Paris. They say there have been too many built. Too many, it is true, for the builders to sell immediately at a profit; but not too many for the population who are all the time complaining of being lodged in too close quarters, and would gladly exchange their two rooms for three, and their three for four or five, if they could afford it.

We sometimes say of children or young people that they have grown too much. The expression is inexact, for we do not mean that we should wish to see them smaller again; but we mean that they have grown up so quickly that their bodily functions and their carriage have not had time to adapt themselves to the new and unaccustomed size. The case is very similar with what we are accustomed to call crises of over-production. Taken in a general sense, this expression too is inexact. We must not conclude from its use that men should try to go back and produce less. It is only a "growing-pain," the result of a useful phenomenon being produced too abruptly, before there has been time to modify habits, establish new agencies, and adapt society to the new conditions, which operations have to take place gradually. Time and the course of events will furnish effectual remedies for the momentary inconvenience.

We must be on our guard against the empirics and charlatans who are continually besieging the public powers of suffering nations. First among these are the protectionists. "The world," they say, "is producing too much; we have to struggle against universal competition. We have the remedy in our hands. We must proscribe foreign goods and encourage our own." This kind of reasoning has lately come into new credit. Nothing can be more unreasonable. Protectionism is, in fact, largely responsible for the present crisis. Let us judge of its effects by a few examples. Among the articles that are most largely produced and have suffered the greatest decline in price are steamboats, railroad-iron, metals, and sugar. These very articles are the most highly protected ones in nearly every country. Too many steamers have been built, and freights have fallen below a paying price. What is there strange about that, when England has gone into the business with all the acquired advantages and prestige of her maritime supremacy, and most of the other nations are encouraging the building of ships with all their might by means of direct appropriations, differential duties, subventions, or special postal privileges? To make the disproportion still greater, protectionism is now at pains to reduce as much as possible the amount of freight which this surplus of ships will have to carry. By its discriminating duties, it tries to restrict, or even completely to prevent, the importation of foreign goods. If you will have a marine, and go to the extent of subsidizing it, you ought to have something for it to carry. Now, it can carry nothing but goods coming from abroad or going abroad. The protectionist policy of most of the countries practicing it can be reduced to the maxim, "Get by means of subsidies and prizes, as large a marine as possible, and secure for it, by protection and prohibitory duties, as little freight as possible"!

The deplorable effects of the protectionist régime are no less evident in general metallurgical industries. Protection is given everywhere by means of extravagant duties. In France, the duties represent from fifty to sixty per cent of the current value of the goods. Yet these industries are among those that are languishing the most. This is because the effort has been made everywhere by means of customs duties to stimulate them to excess. In the United States, Russia, Austria, Italy, Spain, and France, the people have been persuaded that they can not build enough furnaces and machine-shops; and the result has come about that Spain has by great exertions succeeded in sending a locomotive to England, the very home of steam-engine making, for sale. All countries are taxing their ingenuity to build up their export trade. Formerly this was the branch of business which returned proportionately the most profit; now it returns the least.

In no industry does the absurdity of the protectionist system make a clearer exhibition of itself than in the trade in sugar. France, Germany, Austria, Italy, Belgium, Holland, and Russia, are each laboring to make their national sugar industry the greatest in the world. Each of them gives premiums, by ingenious devices, upon exportation. The consequence of their efforts is, that this sugar industry, the object of extraordinary favors, has gone entirely astray from its natural ways. Production is pushed everywhere. The cost price is not considered, but only the export price; and the point has been reached that so much sugar is made in every country that the price is going down every day. Governments are induced by this fact to increase their favors, and then the price takes another fall.

While it has a less palpable influence in the generality of cases, the protectionist policy is not less unfavorable to industry as a whole. If the market for most of our export products is restricted, one of the causes for it is to be found in the fact that between 1878 and 1880 France converted most of the nations to protectionism; we set them the example and they followed it. We repel foreign wheat, cattle, and cotton-thread, and they repel our articles de Paris, silks, furniture, and wines. The principal factor in the disproportion between the production and consumption of certain articles is the customs tariff. It acts in two ways: by depriving the export trade of the markets to which it has been accustomed, and by stimulating new manufactures which are destined in their turn to find no market. Finally, commercial treaties having no longer a real existence, because they are almost reduced practically to a clause conferring no fixed rights—the most-favored-nation clause—there results a great instability in tariffs, and consequently in international relations.

Another factor of the crisis may be found in the extravagant public works undertaken by states. The whole European Continent and some distant countries have plunged up to their ears in vast enterprises which are supposed to be of public utility. The thought that great works can not be indefinitely carried out, that their efficacy is limited, that beyond a certain point they do harm to one another, and bring no more aid, no durable stimulus to industry, simple and true as it is, has become strange to the light heads that rule parliamentary countries and democracies. A large country may derive much profit from half a dozen first-class ports; but what real advantage can come from turning the thousand creeks which indent the shores into ports? It would be about the same thing if a man, instead of having one or two outside doors to his house, should cut up his whole first floor into doors. The case is the same with roads and canals. Beyond a certain extent, they serve no other purpose than to withdraw the land they occupy from cultivation. In a country of 500,000 square miles, the first 20,000 miles of railroad are very useful; the next 5,000 miles much less so, while 5,000 miles more would be an excess, a luxury to which we might perhaps afford to apply our surplus profits, but which it would be foolish to pay for out of the capital fund. Every new mile of railway opened in France produces a small income, but three fourths of it is simply so much revenue diverted from other roads, and not the product of a new traffic. This unreasoning activity in constructing useless public works which prevails in many countries adds at once to the burdens upon industry and to its instability. It has contributed to withdraw masses of laborers from the regular cultivation of the soil, to cause abrupt rises of wages, and to make workmen more exacting and more refractory to discipline; it has given a factitious development to metallurgical industry, and it has cast disorder into budgets, hollowed out deficits, necessitated enormous imposts, and increased public debts or postponed the day when they will be paid. Many light heads are still eager to. come to the relief of suffering workmen by modifying legislation and opening mines. If these counselors would take the trouble to reflect, they would see that all intervention of the state in the economical domain is essentially disturbing. It is an element of instability, disorder, and waste. With their customs laws which they are constantly making and unmaking; with the changes with which they threaten mining property, sometimes funded property; the free exercise of industries and the freedom of contracts, with the inconsiderate public works they undertake; the loans they contract; the new places they create, and the parasitism they develop, governments, while they are no more useful than flies on a carriage-wheel, count for a great deal in the existing economical crisis. They contributed to bring it about, and they are contributing to prolong it.

For a permanent cheapening of the cost of production a third factor should be reckoned upon—improvement in workmanship. It would be puerile to ignore the fact that the workmen of Western countries, well endowed as they are in other respects, have become infatuated with the new conditions of their life. A too rapid increase of wages, superficial instruction, the sudden possession of political and civil rights which their fathers had not, concentration in cities with a corresponding withdrawal of workmen from the country, all together have contributed to exalt the conceit of a great number of workmen, and especially of their leaders. The results are a seeking for extravagant wages, habits of partial idleness, and a general looseness in the matter of days' works. It would no doubt be a most desirable consummation if the general condition of mankind were such that we could pay even unskilled laborers such wages as they are sometimes able to command in the great cities. But it is not the case. In the world at large nine tenths of the industrious classes are at a long distance from such conditions. Western workmen, especially in the United States, England, and France, forget that by reason of exceptional circumstances they constitute a kind of aristocracy of labor. Like all aristocracies, they have at last given way under their exaltations to the point of losing the taste for labor and the practice of doing their work conscientiously; and their leaders are trying to draw them still further away from the feelings and habits which enter into the make-up of the good and solid workman. Western civilization is incurring a great peril from this source. When China is fairly opened to the world and has become a country of railroads and factories, it will become necessary to make a new adjustment of wages and holidays all over the world, as has already been done with the prices of goods. The exceptional wages of the day, and the two or three "off days" a week, can not survive the approaching competition of the extreme East. The reform that it is desirable to make should not await the coming of this imminent event, or the conversion may be too late. As capitalists have been obliged to accept the situation and resign themselves to a gradual diminution of their profits, so workmen, the unfaithful ones at least, among Western peoples, will have to recover the habits of regular and conscientious work, which were formerly in honor, but upon which they are now trying to cast discredit. Possibly, most of the additions to wages that have been made in later years will have to be reduced; but this will be compensated for by the greater regularity of work and the general cheapening of the necessaries of life.

In addition to the factors we have described, a new arrangement of commercial agencies is needed to the full bringing about of the equalization of consumption with production. In most countries the economical organism is complicated with superfluous wheels. The curiously abnormal situation is presented that, while the producer gets lower prices, the consumer pays no less. The number of middle-men also grows quite as fast as the difference between wholesale and retail prices, so that they too make no great profits. Two evils results from these conditions: many persons are lost from work on the farm or in the shop; and the consumer, not profiting or profiting but little by the cheapening of prices, does not extend his consumption. No equilibrium can be established between a production that is increasing and a consumption that remains nearly stationary. The state has no part in this situation; but producers and consumers sin by indifference to one another; and the remedy for the result should be brought about by their joint action in creating market depots at which they can be brought into more direct relations. The state may best facilitate such arrangements by leaving the parties at perfect liberty. Its interference in any way would be a blunder, and only a hindrance to the accomplishment of the desired end.

The present crisis has a much more general character than any of the crises that have preceded it, because it is a part of an abrupt transformation in the production and circulation of the whole world. For the same reason it is destined to last longer. Nevertheless, if governments have wisdom and foresight enough not to interfere with the course of events, an era of improvement may shortly begin. Those persons who occupy their minds with plans to induce interference by the state in the interest of labor and enterprise, whether by the purchase or establishment of works, stimulation by bounties, discriminating taxes, or by rules for the regulation of the relations between workmen and their employers, show more zeal than wisdom, and are asking what will only aggravate the evil. The action of the state in such matters is essentially disturbing, and can never be regulative. All that we should ask of it is not to interfere, but to retrench its own expenses, to contribute by economical administration to the reduction of costs of production, and by a calm and wise attitude to the revival of confidence.—Translated for the Popular Science Monthly from the Revue des Deux Mondes.

  1. See this circular in "l'Économiste français," February 7, 1886.