CHAPTER VII.

Improvements in Machinery similar in their Effects to Improvements in the Skill and Dexterity of the Labourer—Do not occasion a Glut of Commodities—Sometimes force Workmen to change their Employments—Have no Tendency to lessen, but most commonly increase the Demand for Labour—Causes of Gluts—Not occasioned by a deficiency of Money, but by sudden changes in its Quantity and Value—Circumstances which occasion Miscalculations on the Part of the Producers.

Various bad consequences have been supposed to result from the extension and improvement of machinery. But, at the outset, a presumption arises that they must be in great measure fallacious, seeing that they would equally follow from an improvement of the skill and industry of the labourer. If the construction of a machine fitted to produce two pairs of stockings as cheaply as one pair was previously produced, be in any respect injurious, the injury would, obviously, be equal were the same thing accomplished by increased dexterity and skill on the part of the knitters. There is really no difference in the cases. And supposing the demand for stockings were already supplied, M. Sismondi could not, consistently with his principles,1 have hesitated about condemning such an improvement as a very great evil—as a means of throwing half the people engaged in the stocking manufacture out of employment. The questions respecting the improvement of machinery, and of the skill and industry of the labourer, are at bottom identical. The principles which govern our decision in the one case, must govern it in the other. If it be advantageous that the proficiency of the labourer should be indefinitely extended—that he should be able to furnish Edition: current; Page: [143] greater quantities of produce with the same, or a less amount of work, it surely must be advantageous that he should avail himself of such aids as may be most effectual in bringing about that result.

The better to appreciate the effect of increased skill and dexterity on the part of the labourer, or of an improvement in tools and machines, let us suppose that the powers of production are universally augmented, and that workmen in all sorts of employments can, with the same exertion, furnish twice the former quantity of produce. It is evident that this increased facility of production would, if exerted, double the wealth and enjoyments of everybody. The shoemaker who had previously manufactured one pair of shoes a-day, would now be able to manufacture two pairs; and as an equal improvement is supposed to have taken place in all employments, he would obtain twice as much of every other thing in exchange for shoes. In a country thus circumstanced, every workman would have a great quantity of produce to dispose of beyond what he had occasion for; and as every one else would be in the same situation, each would be able to exchange his own goods for a great quantity, or, what comes to the same thing, for the price of a great quantity of those of others. The condition of such a society would be vastly improved. All the necessaries, luxuries, and conveniencies of life, would be comparatively cheap and abundant.

It may, however, be asked, would the demand be sufficient to take off this increased quantity of commodities? Would their extraordinary multiplication not cause such a glut of the market, as to force their sale at a lower price than would suffice to repay even the diminished cost of their production? But to render an increase in the powers of production advantageous, it is not necessary that they should always be fully exerted. Were the labourer’s command over necessaries and comforts suddenly doubled, his consumption as well as his savings would doubtless be very greatly increased; but it is not likely that he would continue to exert his full powers. Edition: current; Page: [144] He would then be able, without endangering his means of subsistence, to give a greater portion of his time to relaxation and amusement. It is only where the powers of industry are feeble or very much loaded, where supplies of food have to be drawn from soils of inferior fertility, or where population is in excess, that workmen are compelled to make every possible exertion. High wages are advantageous only because of the increased comforts they bring along with them; and of these, an addition to the time which may be devoted to amusement is not one of the least. Wherever wages are high, and little subject to fluctuation, labourers are active, intelligent, and industrious. But they rarely prosecute their employments with the same intensity as those who are obliged, by the pressure of necessity, to strain every nerve to the utmost. They are able to enjoy intervals of ease and relaxation; and they would be censurable if they did not enjoy them.

Suppose, however, that the productive powers of industry are doubled; nay, suppose they are increased in any greater proportion, and that they are exerted to the utmost, it would not occasion any lasting glut of the market. Individuals who were most industrious might, no doubt, produce commodities which those who were less industrious—who preferred indolence to exertion—might not have the means of purchasing, or for which they might not be able to furnish an equivalent. But the glut arising from such a contingency must speedily disappear. In exerting his industrial powers, a man intends either to consume their produce himself, or to exchange it, or portions of it, for the commodities or services of others. Suppose, now, that he directly consumes every thing he produces: it is obvious that, in such case, there can be no glut or excess; for, to suppose that commodities, intended for direct consumption by the producers, may be in excess, is equivalent to supposing that you may have production without a motive, an effect without a cause! When, however, individuals, instead of directly consuming the produce of their industry, offer it in exchange to others, there may Edition: current; Page: [145] be a glut. Should A, for example, produce articles which are not wanted, instead of those that are, he will not be able to sell them, or to exchange them for those he wished to obtain, so that there will be a glut or excess of his commodities. In such case A has miscalculated; he should have produced such articles only as would have been taken off his hands by others, or have applied himself to the production of those which he really wanted. Had he done this there would have been neither glut nor excess. Errors of this sort are, however, speedily rectified; for if A find that he cannot attain his object by prosecuting his present employment, he will not fail to abandon it, producing, in time to come, such articles only as he may find a merchant for, or as he means to consume. It is clear, therefore, that a universally increased facility of production cannot give rise to a permanent overloading of the market. Suppose that the capital and labour engaged in different employments, are adjusted according to the effectual demand, and that they all yield the same nett profit: if the productive powers of labour were universally increased, the commodities produced would all preserve the same relation to each other. Double or treble the quantity of one commodity would be given for double or treble the quantity of every other commodity. There would be a general augmentation of the wealth of the society, but there would be no excess of commodities in the market; the increased equivalents on the one side being balanced by a corresponding increase on the other. But if, while one class of producers were industrious, another chose to be idle, there would be a temporary excess. It is clear, however, that this excess would be occasioned by the deficient production of the idle class. It would not be a consequence of production being too much, but of its being too little increased. Increase it more—make the idle class equally productive with the others, and then it will be able to furnish them with equivalents for their products and the surplus will immediately disappear. It was in vain that Malthus attempted to defeat this reasoning by supposing the existence Edition: current; Page: [146] of an indisposition to consume! There is no such indisposition in any country in the world; not even in Mexico, to which he referred.1 The indisposition there is not to consume, but to produce. In Mexico, as elsewhere, no one can command the products or services of others unless he furnish them with equivalents; and the Mexican would rather be without the articles or services he might procure by means of labour than undertake that labour. Malthus mistook this indisposition to produce for an indisposition to consume; and, in consequence, was led to deny that effective demand depends upon production.

Malthus has justly stated, that the demand for a commodity depends “on the will combined with the power to purchase it;” that is, on the power to furnish an equivalent for it. But who ever heard of a want of will to purchase? If it alone could procure necessaries and luxuries, every beggar would be as rich as Crœsus, and the market would constantly be understocked. The power to purchase is the real desideratum. It is the inability to furnish equivalents for the products necessary to supply our wants, that “makes calamity of so long life.” The more, then, that this inability is diminished, or, which is the same thing, the more industrious individuals become, and the more the facility of production is increased, the more will the condition of society be improved.

It is not to increased facilities of production, but to new political combinations, changes in the quantity and value of money, restraints on the freedom of trade, and so forth, that the difficulty, sometimes experienced, of disposing of commodities in foreign markets, is, in most cases, to be ascribed. But it may be confidently expected that the frequency and violence of revulsions will in future be diminished. We have not, it is true, any right or power to interfere in such matters with other countries. But our example will, probably, have a good deal of influence; and, at all events, the many improvements Edition: current; Page: [147] in our commercial legislation made during and since the administration of Sir Robert Peel, more especially the increased stability given to our monetary system by the measures of 1844, and the introduction of a free trade in corn, cannot fail to give additional security to industrial undertakings, and to deepen and enlarge the channels of commerce.

Still, however, it has been urged, that, under a free commercial system, we may not only manufacture too much of one, but of all commodities demanded by foreigners. But this is a rather extravagant supposition, though there would be no good ground for doubting, even were such the case, that an increase of the powers of production could be otherwise than advantageous. If foreigners are unable or unwilling to furnish equivalents for the products we send abroad, we must relinquish their production, and produce, in their stead, those we intended to import, or substitutes for them. Now, the real question comes to be—if a question can be raised on such a subject—Whether it is advantageous that we should have the means of producing these commodities cheaply, or not? Foreign trade is beneficial, because a country may, by exporting the produce of the industrial departments in which it has an advantage, import the produce of those in which the advantage is on the side of others. But, to ensure this benefit, it is not necessary that the whole capital of the country should be vested in those particular departments. England furnishes better and cheaper cottons than any other country; but it is not, therefore, contended that she should produce nothing else. Were she able to furnish the same supply of cottons as at present with half the capital and labour, would not her means of producing all other commodities be prodigiously augmented?

But it is contended, that these means would not be put in requisition; and that it is impossible so great a saving of labour could take place in a branch of industry employing a million of people, with any rational prospect of such an increase in the demand for labour in other employments, as would take up the hands that would be thrown idle. As this Edition: current; Page: [148] is an objection which has been reproduced in a thousand different shapes, and on which much stress has been laid, it may be proper to examine it somewhat in detail.

In the first place, it may be observed, that an improvement which reduced the price of cottons, or of any other article, a half, that is, which enabled half the capital and labour engaged in their manufacture to furnish the same quantity of goods that is now furnished, would not throw the other half wholly out of employment. The demand for cottons, instead of remaining stationary, would, under such circumstances, be very greatly increased. Those who subsist by their labour, and whose command over necessaries and luxuries is always comparatively limited, form an immense majority of the population of every country. And any considerable reduction in the price of an article in general use, has been uniformly found to extend the demand for it in a still greater proportion. Cheap goods never fail of making their way through every barrier, per medios ire satellites amant. In the words of Sir Josiah Child, “They that can give the best price for a “commodity, shall never fail to have it by one means or other, notwithstanding the opposition of any laws, or interposition of any power by sea or land; of such force, subtlety, and violence, is the general course of trade.”1

But, in the second place, it is easy to show that the advantages attending the introduction of machinery do not, as many suppose, depend on the circumstance of the market extending proportionally to the reduction in the price of commodities. They are very great when no such extension can take place. Suppose the price of cottons were reduced a half; if the demand for them were not at the same time extended, half the individuals engaged in their manufacture would, no doubt, be thrown out of that employment; but it is demonstrable that there would, under such circumstances, be a Edition: current; Page: [149] corresponding increase in the demand for the products of other employments. The wealth of the buyers of cottons would not be impaired by their production being facilitated and their price reduced. They would still have the same capitals, and the same revenue. The only difference would be, that they would now purchase with one sovereign, as large a supply of cottons as they previously purchased with two, and that the surplus sovereign would be applied to the purchase of other things. That it would be so applied is certain; for, though we may have enough of one commodity, we can never have what we reckon enough of all sorts of commodities. There are no limits to the passion for accumulation:

• Nec Crœsi fortuna unquam nec Persica regna
• Sufficient animo—

The revenue set free by the fall in cottons would not be permitted to lie idle in our pockets. It would be applied to purchase, either directly by the parties themselves, or indirectly by those to whom they might lend it, an additional quantity of something else. The total effective demand for labour, or the produce of labour, would not, therefore, be in the least degree impaired. Employment would be found for the capital and workmen disengaged from the cotton manufacture in the production of the articles for which an equivalent increase of demand had taken place; so that, after the lapse of such a period as would permit of their transfer to new businesses, labour would be in as great demand as before, at the same time that every individual would get twice the former quantity of cottons for the same quantity of labour, or of any other commodity whose cost had remained constant.

It has, however, been contended,1 that when machinery is employed to perform work that was previously performed by work-people, the price of the produce is seldom or never diminished to such an extent as to render the reduction of price equivalent to the wages of the labourers thrown out of Edition: current; Page: [150] employment. The invention of machinery, says Sismondi, by which cottons could be supplied five per cent. below their present prices, would occasion the dismissal of every cotton spinner and weaver in England; while the increased demand for other commodities, occasioned by this trifling saving, would barely afford employment for five per cent., or one-twentieth part of the disengaged hands; so that were an improvement of this kind to take place, the vast majority of these persons must either be starved outright or provided for in the workhouse. But, in making this statement, Sismondi neglected one most important element—he did not tell how his machines were produced. If, as he tacitly assumed, they cost nothing; if, like atmospheric air, they were the free gift of Providence, and required no labour to procure them—then, instead of prices falling five per cent., they would fall to nothing; and every farthing formerly applied to purchase cottons would be set at liberty, and made available for the purchase of other things. But if, by stating that the introduction of new machinery reduced the price of cottons five per cent., Sismondi meant, as he must have done, that £20,000 vested in an improved machine will produce the same supply of cottons as £21,000 employed in the payment of wages, or in the machinery now in use, it is plain that twenty out of every twenty-one parts of the capital and labour formerly employed in the production of cottons will henceforth be employed in the production of machinery, and that the other part will be employed in producing the commodities for which, owing to the fall of five per cent. in the price of cottons, a proportionally greater demand will be experienced. In this case, therefore, it is plain that, instead of twenty out of every twenty-one labourers engaged in the cotton manufacture being thrown out of employment, there would not be a single individual in that situation. But as this reasoning proceeds on the supposition that the machines would last only one year, it might be contended, that supposing them to be fitted to last ten or twenty years, there would be a deficiency of employment. The truth, Edition: current; Page: [151] however, is, that the reverse holds; and that, instead of being diminished, the demand for labour would be increased, according to the greater durability of the machines. Suppose profits are ten per cent.: when a capital of £20,000 is vested in a machine fitted to last one year, the goods produced by it must sell for £22,000, viz. £2,000 as profits, and £20,000 to replace the machine itself. But were the machine fitted to last ten years, then the goods produced by it, instead of selling for £22,000 would only sell for £3,254, viz., £2,000 as profits, and £1,254 to accumulate as an annuity for ten years, to replace the original capital of £20,000. Hence it appears that by introducing a machine constructed with an equal capital which should last ten years instead of one year, the price of the commodities produced by it would be-sunk to about one-seventh part of their former price. Hence the consumers of cottons would, by means of their equally increased demand for other articles, afford, in future, employment for six-sevenths of the disengaged labourers. Nor is this the only effect that would be produced. The proprietor of the machine would have, exclusive of the ordinary profit on his capital, at the end of the first year, an additional stock of £1,254, or one-sixteenth part of the value of his machine, which he must necessarily expend in some way or other in the payment of wages; at the end of the second year, this additional revenue or stock would be increased to about one-eighth part of the value of the machine; and in the latter years of its existence, it is plain that, instead of having declined, the demand for labour would have very nearly doubled.

It is further to be observed that in these statements we have not taken into account the influence of improved machinery in extending among new classes of purchasers the demand for its products and for labour. We have seen that, independent of any such extension, it is highly advantageous. But when the price of any article suited for general use is reduced, either by the employment of more perfect machinery or otherwise, not only is the demand of the former consumers of the article increased, but it is brought within the command Edition: current; Page: [152] of other and more numerous orders of consumers. And hence the extraordinary increase in the demand for articles fitted for general use of which the price has been much reduced. The cotton manufacture affords a striking illustration of this statement. Such and so extraordinary has been the progress of machinery and improvement in that department of industry, that cotton goods are said to be at present produced for less than a twentieth part of what they cost at the accession of George III. And yet the demand for them and the number of persons employed in their manufacture have increased in a still greater proportion; and this in a less or greater degree is uniformly the case. All new inventions or discoveries by which the production of necessaries and conveniencies is facilitated, add to the numbers as well as to the comforts of those by whom they are used.

But while every improvement in machinery increases the aggregate demand for labour, it may sometimes, though rarely, be immediately injurious to the labourers in particular departments, and oblige a greater or smaller number of them to change their employments. In the majority of business, this is not, perhaps, so great a hardship as might at first be supposed; for, as already seen, they have, for the most part, so many things in common, that a workman who has attained to any considerable proficiency in one, has seldom much difficulty in employing himself in another. There are no doubt a few cases in which a change of employments may be productive of serious hardship. The case of the hand-loom weavers is, unluckily, one of this description. The facility with which the art of weaving is learned, the lightness of the work, and the freedom from surveillance of those engaged in it, make it, notwithstanding the lowness of wages, be followed by a large class of persons, many of whom are of weakly constitutions, and ill-fitted, from the nature of their employment, for engaging in anything else. But the probability is, that the spread of power-looms will, in the end, effect the all but total destruction of the weaving business; and there can Edition: current; Page: [153] be no question that society in general, including the weavers, will be materially benefited by the change. In the meantime, however, the latter have strong claims on the public sympathy; and every practicable means should be tried that may seem most likely to abridge and facilitate the painful state of transition in which they have been involved, by introducing their children to other businesses, and by assisting their emigration, or otherwise.

But, how severe soever, cases of this sort cannot be of permanent duration. In the instance under consideration, the means of those who buy the products of the power-looms are not affected by the change; and whatever, therefore, they may save through the reduction of their price will be laid out on other things, the production of which will, in the end, fully absorb the unemployed hand-loom weavers, at the same time that the demand for the cheaper products, which are brought within the command of new classes of purchasers, will be proportionally increased; and this, as already seen, will open a new field for the employment of additional hands in the construction of machinery, and in the subordinate departments connected with the manufacture. It is not, in fact, possible that the improvement of machinery should be in the end otherwise then beneficial to all classes.1

It must be admitted that individuals who are obliged to move their capital from one business to another, necessarily lose the profits derived from such portions of it as cannot be transferred. But the introduction of improved machinery is not to be prevented because the machinery previously in use may be superseded, and in part destroyed. Individuals may lose; but society always derives an accession of wealth from the adoption of every device for saving labour. We have seen, that neither the power nor the will to purchase commodities is affected by the introduction of improved machines; and as Edition: current; Page: [154] the employment of workmen depends on the amount of circulating capital which may, in all cases, be withdrawn without loss, it is not diminished by their introduction. Wages, therefore, continue as high as before, while the fall of prices effected by the reduced cost of production, makes them exchange for a greater share of necessaries and comforts, and occasions a more rapid accumulation. Hence it appears, however much it may be at variance with popular opinion, that improvements in machinery are generally more advantageous to the labourers, regarded as a class, than to the capitalists. In particular cases they may reduce the profits of the latter, and destroy a portion of their capital; but they never diminish the average wages of labour, while they lower the value of commodities, and improve the condition of the working classes.

It is further to be observed that the extensive construction and employment of machinery, which is at once a cause and a consequence of the extension and improvement of manufactures, can hardly fail to be of great advantage to the labouring classes in other respects than those already alluded to. It introduces them to a higher species of employment. In manufacturing machines they become acquainted with natural powers, and learn in how great a degree the action or influence of one portion of matter may be augmented, or modified by that of another. The minds of those who are familiar with such phenomena are expanded. Their curiosity is awakened, and instead of confining themselves to the application of rules laid down by others, they endeavour to simplify and improve existing processes, and to contrive and invent others that may better answer their ends. In this way the position of the work-people in highly manufacturing countries is progressively elevated. Their higher faculties are cultivated and improved, and the labour of the head is made to lighten that of the hands and make it more powerful.

History shows that such is the case. As society improves the more onerous and slavish employments of rude ages come Edition: current; Page: [155] to be in great part performed by machinery or by the lower animals. The grinding of corn by hand mills, which used to be so very oppressive, has for a lengthened period been everywhere performed by mills worked by water or wind; the laborious and irksome employment of thrashing out corn is now in many parts of England all but unknown, the machines employed for the purpose executing the work better and far more expeditiously; wool, flax, and cotton instead of being spun by the hand, are now spun for a tenth-part of the cost, in factories constructed for the purpose; weavers have been superseded by power looms; and it is next to certain that the cutting down of the crops and the ploughing of land will all, or mostly all, be shortly executed by steam or other engines. In these respects, therefore, the introduction and extension of machinery appears to be productive of a double advantage. By teaching the labourers to avail themselves of the powers and resources of nature, it improves their intellectual capacities at the same time that it raises their position. It makes them a sort of quasi-engineers instead of drudges; for it partially engages them in scientific occupations, at the same time that it relieves them of much severe work and of some of the most disagreeable duties necessary to the existence of society.

Allowing for the temporary inconveniences resulting in rare cases from changes of employments, the previous statements have shown that the greatest improvements of machinery, and the utmost facility of production is sure to prove advantageous for all classes. “Augmenter la reproduction annuelle, la porter aussi loin qu’elle peut aller, en debarrassant de toutes entraves, et en animant l’activité des hommes, voilà le grand but que doit se proposer le gouvernement.”1 An excess of a particular commodity, or of a few commodities, may be occasionally produced; but it is not possible that they should be all in excess. Setting apart for the moment the influence of Edition: current; Page: [156] sudden changes in the value of money, and of political regulations, if the market be encumbered and a difficulty be experienced in effecting sales, we may be satisfied that the fault is not in producing too much, but in producing articles which do not suit the tastes of the buyers, or which we cannot ourselves consume. If we attend to these two grand requisites, and produce such things only as may be taken off by those to whom they are offered, or such as may be directly available for our own use, we may increase the power of production ten or twenty times, and be as free of all excess as if we diminished it in the same proportion. A glut never originates in an increase of production; but is, in every case, a consequence of the misapplication of the ability to produce, that is, of the producers not properly adapting their means to their ends. Let this error be rectified, and the glut will disappear. In no case can an increase of productive power, provided it be properly exerted, be attended with inconvenience. We might as well pretend that we should be inconvenienced by an increased fertility of soil, or an increased salubrity of climate. Such commodities as are carried to market, are produced only that they may be exchanged for others; and the fact of their being in excess, shows that there is a corresponding deficiency in the supply of those they were intended to buy, or to be exchanged for. A universal glut of all sorts of commodities is impossible: every excess in one class is sure to be countervailed by an equal deficiency in some other class. “To suppose that there may be a production of commodities without a demand, provided these commodities be of the right species, is as absurd as to suppose that the revenues of the several individuals composing the society may be too great for their consumption.”1

Edition: current; Page: [157]

Before dismissing this subject, it may be observed, that gluts are not unfrequently ascribed to a deficiency of money. But though the quantity of money in circulation determines the price of commodities, or their value estimated in money, it does not exercise the smallest influence over the quantity of other commodities for which any one in particular will exchange. It is, however, the acquisition of those others, and not of money, that is the end which every man has in view who carries any thing to market. The money that individuals receive for what they sell, is immediately laid out by themselves, or by those to whom they lend it, on purchases: and if it should happen that the produce which one has to dispose of is redundant, while that which he wishes to procure is deficient, he will experience loss and inconvenience. But these, it is obvious, are circumstances that are wholly independent of the value of money. And whether it bear a permanently high or low value, is in as far as the occurrence of gluts is concerned, of no importance.

It may further be observed, that though no complaint be more common, than that of a scarcity of money, there is hardly one so uniformly ill-founded. Like other valuable products in universal demand, money will always be scarce to those who cannot afford to buy it, and who are destitute of credit. But when any one who has really valuable produce is unable to get it disposed of, he will, in the vast majority of instances, find the cause in something else than a scarcity of money,—in changes of fashion, in its having been thrown in too great quantities upon the market, or in some political consideration; none of which circumstances would be affected by an increase of currency. However rich, individuals purchase no more of an article than is required to supply their wants; and if more be produced, the surplus must either lie on the hands of the producers, or be sold at a reduced price. Edition: current; Page: [158] It is, therefore, to no purpose to ascribe gluts and revulsions of the market to a permanent deficiency of money. A whist-player might as well ascribe his losses to a deficiency of counters. The miscalculation of producers is, in the absence of fluctuations in the value of money, their real cause; if they produce such articles as others are able and willing to buy, or as they can themselves make use of, there will be no glut; and if they do not, there will be a glut, though a Potosi were discovered in every county.

At the same time it is most true that sudden and extensive changes in the value of the money of any great commercial country, or in the credit of its merchants, always exercise a powerful influence, and frequently, indeed, occasion great derangement in the channels of mercantile intercourse. An increase in the quantity of money occasions, by lowering its value, an increase in the prices of commodities, at the same time that it affords additional facilities for obtaining credit, and for indulging in speculation. But a contraction and consequent rise in the value of money, being usually accompanied by a sudden collapse of credit, has an opposite and commonly a much more decided influence, and leads sometimes to very extensive revulsions. Such changes cannot, indeed, take place without entailing the most serious losses on all who have on hand considerable stocks of produce; they are also very apt to involve those who have been carrying on their business by the aid of borrowed money in serious difficulties; and if the rise in the value of money be considerable, the influence of the shock given to industry, and the disturbance in commercial channels, may be such as materially to abridge the power of the society to make their accustomed purchases; and may thus occasion a glut of the market, not only in the country which is the seat of the revulsion, but also in those countries whence she has been accustomed to draw any considerable portion of her supplies.

Nothing would be easier, were it needed, than to quote instances from the history of most commercial countries, illustrative Edition: current; Page: [159] of what has now been stated. Here they have been especially numerous and on a grand scale. Not to go farther back than 1825, it is enough to refer to the revulsion of that year, and to those of 1847 and 1857. But it would be useless to dwell on the history of events that are so well known to all who take an interest in these matters; and it may suffice to observe that the measures for the regulation of the currency adopted in 1844 have had a powerful influence in reducing the number and violence of revulsions occasioned by sudden changes in the quantity and value of money.1

But, apart from fluctuations in the value of money, it is clear, from the previous statements, that the miscalculation of producers, or the misapplication of productive power, is the great cause of gluts; and such being the case, we may shortly inquire into the circumstances which most commonly occasion this miscalculation or misapplication. In a practical point of view this is an inquiry of much importance.

Miscalculations seem generally to originate in some previous change in the usual proportion between the supply and demand of commodities. Every exertion of industry involves a certain degree of speculation. The individual who buys raw cotton or raw silk, in the intention of manufacturing it into articles of dress or furniture, supposes that the articles, when manufactured, will sell for a price sufficient to indemnify him for his expenses, and to leave the customary profit on his capital. There is, however, a good deal of risk in an adventure of this sort: were the fashion to change while the articles are in preparation, it might be impossible to get them disposed of, except at a considerable loss; and were new facilities given in the interim to the commerce with countries whence similar articles might be procured, or any discovery made which diminished the cost of their production, their price would fall, and the Edition: current; Page: [160] speculation be unprofitable. But how singular soever, it will be found that miscalculations and gluts are more frequently produced by an increase than by a decline in the demand for produce. Suppose that, owing to the opening of new markets, to a change of fashion, or to any other cause, the demand for hardware is suddenly increased: the consequences of such ncreased demand would be, that its price would immediately rise, and that the manufacturers, and those having stocks on hand, would realize comparatively high profits. But, unless monopolies prevent or counteract the influence of competition, the rate of profits cannot continue for any considerable period to be higher or lower in one employment than in others. As soon, therefore, as this rise in the price of hardware had taken place, additional capital would be employed in its production. Those engaged in the trade would endeavour to extend their business by borrowing fresh capital; while some of those engaged in other businesses would withdraw from them, and enter into it. Unluckily, however, it is next to certain that this transfer of capital would not stop at the point when it would suffice to produce the additional supply of hardware at the old prices, but that it would be carried so much farther as to produce a glut, and a consequent revulsion. A variety of causes conspire to produce this effect: the advantages which any class of producers derive from an increased demand for their peculiar produce, are uniformly exaggerated, as well by that portion of themselves who are anxious, in order to improve their credit, to magnify their gains, as by those engaged in other employments. The adventurous and sanguine, who are particularly disposed to take omne ignotum pro magnifico, crowd into a business which they readily believe presents a short and safe road to wealth and consideration; at the same time that many of that generally numerous class who have their capitals lent to others, and are waiting until a favourable opportunity occurs for vesting them in some industrial undertaking, are tempted to follow the same course. It occurs to few that the same Edition: current; Page: [161] causes which impel one or two to enter into a department that is yielding comparatively high profits, are most probably impelling thousands. Confident in his own good fortune, the adventurer leaves a business to which he had been bred, and with which he was well acquainted, to enter as a competitor on a new and untried arena; while those already engaged in the advantageous business stretch their credit to the utmost, to acquire the means of extending their concerns, and of increasing the supply of the commodity in unusual demand. The result that every unprejudiced observer would anticipate, almost invariably takes place. A disproportionate quantity of capital being attracted to the lucrative business, a glut of the market, and a ruinous depression of prices, unavoidably follow.

Those who investigate the history of industry, in this or any other country, will find, that a period of peculiar prosperity in any one branch is the almost uniform harbinger of mischief. If we turn, for example, to the history of agriculture, the alternation between periods of high prices and great agricultural prosperity, and of low prices and great agricultural distress, is so striking, that it cannot fail to arrest the attention of every one. The high prices of 1800 and 1801 gave an extraordinary stimulus to agricultural industry. Nearly double the number of acts of parliament were passed in 1802 for the enclosure and drainage of land that had been passed in any previous year; and a considerable extent of old land was at the same time subjected to the plough. This extension of cultivation, co-operating with the improvements that were then entered upon and completed, and with favourable harvests, increased the supply of corn so much, that, in 1804, prices sunk considerably below their previous level; and an act was then passed, in consequence of the representations made by the agriculturists of their distressed condition, granting them additional protection against foreign competition. The high prices of 1810, 1811, 1812, and 1813, had a precisely similar result. They attracted so much additional capital to the land, and occasioned such an Edition: current; Page: [162] extension of tillage, that we grew, in 1812 and 1813, an adequate supply of corn for our consumption. And, under such circumstances, the unusually abundant harvest of 1814 must inevitably have reduced the price of corn, though the ports had been entirely shut against importation.

It is right, however, to add that such alternations in the price of agricultural produce, and in the condition of the agriculturists, can no longer take place. Since the abolition of the corn laws in 1849, a deficient harvest is prevented from having its former influence over prices by the increased imports that are immediately poured into our markets, at the same time that our average prices being nearer the general level, their fall in years of abundance is not so great.—(See post.)

But, without insisting on peculiar circumstances, like those now alluded to, it may be laid down generally that the greater and more signal the peculiar prosperity of any one department, the greater invariably is the subsequent recoil. Such an increased demand for any commodity as served to raise its price 10 per cent. above the common level, would certainly make it be produced in excess, and occasion a revulsion; but were the price to rise to some 30, 40, or 50 per cent. above that level, the temptation to employ additional capital in its production would be so great, that the revulsion would take place sooner, and be incomparably more severe.

Revulsions of the sort now described will necessarily occur, to a greater or less extent, under all systems of public economy, and perhaps, there is not a single branch of industry that has not afforded proofs, more or less striking, of their operation. There is nothing probably that will tend so much to lessen their frequency and violence as the determination on the part of government to withhold all relief, except in extreme cases, from those who have the misfortune to be involved in them. It must, indeed, be acknowledged that this seems, at first sight, a harsh doctrine; but, on examination, it will be found to be the only safe and really practicable line of conduct that can be Edition: current; Page: [163] followed. Some most objectionable restrictions and prohibitions have originated in government stepping out of its proper province and interfering to relieve those who had got themselves entangled in difficulties; and much of the industry of this and other countries was consequently placed on an insecure foundation. The natural responsibility under which every man should act, was weakened in the case of large classes of producers, who became less considerate because of their trusting to the support usually afforded by government in the event of their speculations giving way. Were it possible, indeed, to grant such assistance without injury to the rest of the community, none would object to its being granted; but as this cannot be done, it would appear, not only that sound policy, but also that real humanity, dictates the propriety of its being systematically withheld.

The establishment of a free commercial system is the next best thing that can be done to prevent improvident speculations. Under such a system, nations engage only in those branches of industry in which they have an advantage, or in which they expect to be able to maintain, at all events, a competition with others. The silk trade in this country was formerly fenced round with prohibitions. The monopoly of the home market that was thus secured to the manufacturers, went far to paralyse their energies, at the same time that its limited extent led to frequent and violent revulsions. The inconveniences of this state of things at length became obvious. The prohibition against the importation of silks was abolished in 1825; and the duties having been reduced and finally repealed (1860), an entirely new state of things has been the result. The silk manufacture has been vastly improved and extended; it maintains a successful competition with that of France and other countries, and revulsions are comparatively unknown; for if, on the one hand, there should, through a change of fashion, or any other cause, be a sudden increase of demand, the competition of the foreign manufacturers, by preventing prices attaining any extravagant Edition: current; Page: [164] height, prevents both the inordinate extension of the manufacture and its subsequent recoil; and if, on the other hand, the demand for silks in this country should happen to decline, the various foreign markets to which our manufacturers may resort, gives them the means of disposing of their surplus goods at a much less reduction of price than would take place were they confined to the home market.

This reasoning is consistent with the most comprehensive experience. Restrictions and prohibitions are uniformly productive of uncertainty and fluctuation. Every artificial stimulus, whatever may be its momentary effect on the department of industry to which it is applied, is immediately disadvantageous to others, and ultimately injurious even to that which it was intended to promote. No arbitrary regulation, no act of the legislature, can add anything to the capital of the country; it can only force it into artificial channels. And, after a sufficient supply has flowed into them, a reaction commences. There can be no foreign vent for their surplus produce; so that, whenever changes of fashion occasion a falling off in the demand, the warehouses are filled with commodities which, in a state of freedom, would not be produced. The ignorant and the interested ascribe such gluts to the employment of machinery, or to the want of sufficient protection against foreign competition. The truth is, however, that they are most frequently the results of an artificial and exclusive system, by which the natural and healthy state of the public economy is vitiated and deranged.

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