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Popular Science Monthly/Volume 35/September 1889/Recent Economic Changes

< Popular Science Monthly‎ | Volume 35‎ | September 1889


THE readers of "The Popular Science Monthly" will remember the interesting series of papers communicated to its pages during the years 1887 and 1888 by Mr. David A. Wells; in which were traced out, and exhibited in something like regular order, the causes and extent of the wonderful industrial and social changes and accompanying disturbances which have especially characterized the last fifteen or twenty years of the world's history. It is safe to say that no economic papers have been published in recent years, on either side of the Atlantic, that attracted more attention or were read by so many persons with such interest and profit.

It affords us pleasure now to state that, since their original publication in this journal, these papers have been in great part rewritten by the author, and in all revised and brought up to the latest date; and are now nearly ready for publication in book form by Messrs. D. Appleton & Co., under the title of "Recent Economic Changes, and their Effect on the Production and Distribution of Wealth and the Well-being of Society."

From advanced sheets we are enabled to lay before our readers the following illustrations of the quality of the new material that Mr. Wells has incorporated in his forthcoming volume.—Editor.

It was formerly a general assumption that, when price no longer equaled the cost of production and a fair profit on capital, production would be restricted or suspended; that the less favored producers would be crowded out, and by the relief thus afforded to the market normal prices would be again restored. But this doctrine is no longer applicable to the modern methods of production. Those engaged in great industrial enterprises, whether they form joint-stock companies or are simply wealthy individuals, are invested with such economic powers that none of them can be easily pushed to the wall, inasmuch as they can continue to work under conditions that would not permit a small producer to exist. Examples are familiar of joint-stock companies that have made no profit and paid no dividends for years, and yet continue active operations. The shareholders are content if the plant is kept up and the working capital preserved intact, and, even when this is not done, they prefer to submit to assessments, or issue preference shares and take them up themselves rather than go into liquidation, with the chance of losing their whole capital. Another feature of such a condition of things is, that the war of competition in which such industrial enterprises are usually engaged is mainly carried on by a greater and greater extension of the market supply of their products. An illustration of this is afforded in the recent history of the production of copper. When in 1885 the United States produced and put on to the market seventy-four thousand tons, as against forty thousand tons in 1883, the world's prices of copper greatly declined. A large number of the smaller producers were compelled to suspend operations, or were entirely crushed; but the great Spanish and other important mines endeavored "to offset the diminution of profit on the unit of quantity" by increasing their production; and thus the price of copper continued to decline until it reached a lower figure than ever before known in history.

Under such circumstances industrial over-production—manifesting itself in excessive competition to effect sales, and a reduction of prices below the cost of production—may become chronic; and there appears to be no other means of avoiding such, results than that the great producers should come to some understanding among themselves as to the prices they will ask; which in turn naturally implies agreements as to the extent to which they will produce. Up to this point of procedure no exception on the part of society can well be taken. But such an agreement, once perfected and carried out, admits of an almost entire control of prices and the establishment of monopolies, in the management of which the rights of the public may be wholly ignored. Society has practically abandoned—and from the very necessity of the case has got to abandon, unless it proposes to war against progress and civilization—the prohibition of industrial concentrations and combinations. The world demands abundance of commodities, and demands them cheaply; and experience shows that it can have them only by the employment of great capital upon the most extensive scale. The problem, therefore, which society under this condition of affairs has presented to it for solution is a difficult one, and twofold in its nature. To the producer the question of importance is. How can competition be restricted to an extent sufficient to prevent its injurious excesses? To the consumer. How can combination be restricted so as to secure its advantages and at the same time curb its abuses?

Another cause of the so-called over-production is undoubtedly due to an agency which has never before in the history of the world been operative to the extent that it is at present. With the great increase of wealth that has followed the increased control over the forces of nature and their utilization for production and distribution, there has come a desire to convert this wealth into the form of negotiable securities paying dividends or interest with regularity, and on the recipiency of which the owner can live without personal exertion or risk of the principal. Hence a stimulus for the undertaking of new enterprises which can create and market such securities; and these enterprises, whether in the nature of new railroad, manufacturing, or mining corporations, once developed, must go on producing and selling their products or services with or without a profit in order to meet their obligations and command a share of previously existing trade. Production elsewhere, as a consequence, is interfered with, displaced, and in not a few cases, by reason of better conditions, permanently undersold. And the general result is appropriately recognized by the term "over-production."

Furthermore, in anticipation of such consequences, the tendency and the interest of every successful manufacturing combination are to put the prices of its products down to a figure where it will not pay for speculators to form new competitive stock companies to be bought off or crushed by it. For, if it did keep up high profit-assuring prices, one of two things would eventually happen: either new factories would be started; or the inventive spirit of the age would devise cheaper methods of production, or some substitute for the product they furnished, and so ruin the first combination beyond the possibility of redemption. And hence we have hence another permanent agency, antagonistic to the maintenance of high and remunerative prices.


The record of extreme changes in prices, by reason of circumstances that are acknowledged to have been purely exceptional, is also most instructive, and removes not a few commodities from the domain of any controverted economic theory respecting monetary influences.

The price of manufactured Mediterranean coral—the trade in which is extensive—has been greatly depressed in recent years by reason of the discovery of new banks of coral on the coast of Sicily, from which the raw material has been obtained most cheaply, and in large excess of demand. The consequent decline in prices has, however, opened new markets in Africa, where the natives now purchase coral ornaments in place of beads of Venetian and German manufacture.

Few commodities have fluctuated more violently in price in recent years, or more strikingly illustrate the degree to which supply and demand predominate over all other agencies in determining price, than the vegetable product hops. In 1881 there was an almost universal crop failure, and the highest grade of English hops (East Kent) commanded 700s. per cwt. In 1886 the German Hop-Growers' Association estimated the quantity grown throughout the world at 93,340 tons, and the annual consumption at only 83,200 tons, so that there was an excess of production over consumption for that year of nearly 10,000 tons. As might have been expected, there was a notable decline in the world's prices for hops, and the same quality of English hops which commanded 700s. per cwt. in 1882 sold for 74s. in 1887, and in June, 1888, for 68s. Later in the year, with unfavorable harvest reports, the price advanced to 147s.


The recent price experience of diamonds is in the highest degree interesting. Diamonds were first discovered in South Africa about the year 1868, and a business of searching (mining) for them immediately sprang up. At the outset the mining was conducted by individuals, but, in consequence of the expense, the work gradually and necessarily passed into the control of joint-stock companies with command of large capital; and it was not until 1880 that operations on a great scale were undertaken. The result of this improved system, conjoined with underground mining, was such an increase in the output of diamonds that an oversupply to the market and a serious reduction in price became imminent; and the period of 1883-'84 was, in fact, one of falling prices and intense competition among the various producing companies, during which the leading companies paid little or nothing to their shareholders, and some entirely suspended operations.[1] Continued disaster was, however, finally arrested through a practical consolidation of all the companies for the purpose of controlling product and prices; and a revival in demand having occurred about the same time, average prices were advanced between 1885 and 1887 from 20s. 5d. per carat to 23s. 712d.

The value of the diamonds exported from South Africa since the first discovery of the mines, or from 1868 to 1887, is believed to have been between £40,000,000 and £45,000,000 ($200,000,000 to $225,000,000), of which about £15,500,000 ($77,500,000) represents the value of the output from 1883 to 1887. Very curiously, this large export of value—nearly all in the first instance to England—seems to find no distinctive place in the columns of British imports, although they have served in a large measure to enable South Africa to pay for her imports of British and other foreign products. If the export of diamonds from South Africa to Europe has aggregated £45,000,000 ($225,000,000) in the rough, the process of cutting may be regarded as having increased their market value full one hundred per cent, or to £90,000,000 (or $437,000,000)—a greater value than the yield of the world during the two preceding centuries. The aggregate weight of the entire diamond product of the South African mines up to 1887 is estimated at 38,000,000 carats, or over seven and a half tons.

Of this immense product there is good reason for believing that a very large proportion found a market in the United States. According to the customs returns, the value of the unset diamonds which were imported into the United States, and paid duty, from 1877 to 1887 inclusive, was in excess of $50,000,000; and it can hardly be doubted that an equal or larger import in the form of unset stones and jewelry escaped during the same period the cognizance of the revenue officials. The value of the present annual import of precious stones not set—mainly diamonds—is about $10,000,000. In 1868 the annual value of a corresponding import was about $1,000,000. These data, imperfect as they are, afford some indication of the rapid increase in wealth in recent years among the people of the United States.

We have, therefore, in this experience, the phenomenon of the strangely persistent value of a comparatively useless gem, during a period when the prices of most other commodities were diminishing by leaps and bounds, as well as the extraordinary concurrent absorbent power of the world for a greatly increased product. But the demand for diamonds latterly is thought not to have kept pace with their increasing production; and it is said that the stock of diamonds in the hands of dealers in 1888 was fully twenty-five per cent in excess of their requirements. To meet and neutralize the influence of this condition of affairs, the South African diamond-mining companies have limited production, which for the time has advanced prices. But the tendency obviously is for diamonds to decline in value; and the wonder, indeed, is that this has not happened at an earlier date. "One thing, furthermore, seems certain, and that is, that when the breakdown of speculation and prices does occur, the consequences will be singular and far-reaching. For it is to be remembered that for the most part the use of diamonds is a mere whim of fashion, that may change at any time. There is no way of stimulating the demand for them, except by lowering prices, and, of course, if prices were materially reduced, the wealthy votaries of fashion would inevitably cease to wear diamonds, and would take up some other form of personal adornment."[2] The price experience of diamonds in the near future promises, therefore, to be even more interesting than it has been in the recent past.

In the United States during recent years there has been a remarkable decline in the price of hides and in certain descriptions of leather; "Buenos Ayres" hides having sold in May, 1889, at the lowest figures for thirty years, while the leather trade generally has been depressed and unsatisfactory. The agency occasioning the first result is ascribed to the great increase in the supply of domestic hides consequent upon a notable extension of the American (Western) cattle industry; and, in the case of the second, to an over-production and decline in demand for upper-leather, in consequence of a change in fashion, whereby lighter grades of foot-wear have supplemented the use of "leg-boots."


The improvements in recent years in the production of sugar from the beet, and the artificial encouragement of this industry in the continental states of Europe through the payment of large bounties, have in turn compelled the large producers of cane-sugars in the tropics to entirely abandon their old methods of working, and reorganize this industry on a most gigantic scale as a condition of continued existence. Thus, for example, although the business of cane-sugar production was commenced more than three hundred years ago on the island of Cuba, the grinding of the cane by animal or "wind" power, and the boiling and granulating by ancient, slow, and wasteful methods, were everywhere kept up until within a very recent period, as they still are by small planters in every tropical country. But at the present time, upon the great plantations of Cuba and some other countries, the cane is conveyed from the fields by a system of railroads to manufacturing centers, which are really huge factories, with all the characteristics of factory life about them, and with the former home or rural idea connected with this industry completely eliminated. In these factories, where the first cost of the machinery plant often represents as large a sum as $200,000 to $250,000, with an equally large annual outlay for labor and other expenses, all grades of sugar from the "crude" to the "partially refined" are manufactured at a cost that once would not have been deemed possible. In Dakota and Manitoba the employment on single wheat estates of a hundred reapers and an aggregate of three hundred laborers for a season has been regarded as something unprecedented in agricultural industry; but on one sugar estate in Cuba—"El Balboa"—from fifteen hundred to two thousand hands, invariably negroes, are employed, who work under severe discipline, in watches or relays, during the grinding season, by day and night, the same as in the large iron-mills and furnaces of the United States and Europe. At the same time there are few village communities where a like number of people experience the same care and surveillance. The male workers occupy quarters walled and barricaded from the women, and the women from the men. There are in every village an infirmary, a lying-in hospital, a physician, an apothecary, a chapel, and priest. At night and morning mass is said in chapel, and the crowds are always large. There is of a Sunday less restraint, though ceaseless espionage is never remitted. On these days and in parts of holidays there are rude mirth, ruder music, and much dancing. This picture is given somewhat in detail, because it illustrates how all-pervading and tremendous are the forces that are modifying society everywhere, in civilized, partially civilized, and even barbarous countries, conjointly with the new conditions of production and consumption.


The English Society for Promoting the Growth of Industrial Villages has been formed to counteract the tendency of workingmen to huddle themselves in the slums of cities, and to encourage suburban settlements. Its report cites, in illustration of the practical working of this thought, the example of a manufacturing firm in London, which has placed many of its hands in the country, and sends out material to them to be returned manufactured, paying them full wages.
  1. The "Kimberly Central Company"—the leading organization—which from 1880 to 1883 increased its dividend from ten to thirty per cent, paid nothing to its shareholders during 1884 and 1885, and at the close of 1886 was only able to declare a dividend of five per cent. The other great diamond-mining company, the "De Beers," was more fortunate, and paid for 1884 to 1886 an average of about eight and a half per cent; but most of the companies paid nothing during the same period, and some entirely suspended mining.
  2. London "Economist."