GENERAL STATE OF AFFAIRS IN GREAT BRITAIN.
This year was one which, in many respects, tested the power and resources of Great Britain. In her colonies she had conflicts to wage of great magnitude. Ireland was smitten with famine and disease, and turbulent. In the Highlands of Scotland the hardy peasantry suffered from the scarcity of provisions caused by the failure of the potato and other crops during 1846.
The commercial embarrassments of the year were felt from the beginning, and continued, with more or less pressure, to the close. From the operations of various causes, money was dear both on the European and American continents. Early in January, so severely was this circumstance felt in Paris, that the Bank of France applied to that of England for aid, which was granted; but the consequence, of course, was a rapid rise in the rate of interest in Great Britain and Ireland. This continued until all speculative transactions were paralysed. The timely increase in the price of accommodation by the Bank of England did much to mitigate the evils of the crisis. These were produced by recent bad harvests, and the failure of the potato crop. The great extent to which railway transactions had been carried, and the consequent drainage of capital; the wild speculations which began to prevail in France, and were so marvellously developed in England, also conduced to the monetary disturbance. Besides the operation of all these causes, there was an uneasy feeling on the continent connected with political affairs, which communicated itself to England, and made capitalists timid.
During the month of September panic pervaded the monetary and commercial world. Failures in every branch of business in London and in the provinces were numerous and disastrous. The following were among the most extensive in London:—
Liabilities. Sanderson and Co...................... £1,725,900 J. and S. Woolley ..................... 90,500 Reid, Irving, and Co................... 1,500,000 Gower, Nephews........................ 450,000 Cockerell and Co...................... 600,000 Bensusan and Co...................... 60,000 Perkins, Schlusser, and Mullens...... 150,000 Luall, Brothers, and Co................ 400,000 Philips and Co......................... 150,000 Prime, Ward, and Co................... 100,000 Robinson and Co......................... 96,000 Castellain................................. 100,000 Giles and Co............................ 160,000
Some of these persons, and many others who incurred like misfortune, had been regarded as opulent merchants or bankers, and were men of position and influence. Mr. Robinson was, at the time of his failure, a governor of the Bank of England; Sir John Rae Reid had lately filled that office. Mr. Gomer and Mr. Settle were bank directors at the time of their stoppage.
The Bank of England not only raised its rate of interest to eight per cent., but contracted the time of accommodation to thirty days. The funds, always susceptible of the influence of an uneasy state of public affairs, and of violent changes in the money market, were at this juncture peculiarly so, falling as much as two per cent, in a single day. Consols were as low as eighty-four. Railway shares suffered more than any other kind of stock or scrip, becoming so depreciated in the market as to be unsaleable. A great outcry was raised against the monetary policy which had been initiated by Sir Robert Peel. “Peel’s bill” was the subject of unmeasured denunciation by all who were accustomed to obtain bank accommodation, but to whom that advantage was no longer open. Early in October a deputation from the city bankers waited upon the government for the purpose of inducing some relaxation upon the stringency of Sir Robert Peel’s bill. The deputation consisted of most influential men—such as Mr. Masterman, Mr. Abel Smith, Mr. Glynn, Mr. Bevan, Mr. Barnett. The chancellor of the exchequer addressed the deputation in terms which led them to expect that the object for which they were deputed would be accomplished. Their expectations were not disappointed, for the following letter was addressed to the governors of the Bank:—
“Her majesty’s government have seen with the deepest regret the pressure which has existed for some weeks upon the commercial interests of the country, and that this pressure has been aggravated by a want of that confidence which is necessary for carrying on the ordinary dealings of trade. They have been in hopes that the check given to transactions of a speculative character, the transfer of capital from other countries, the influx of bullion, and the feeling which a knowledge of these circumstances might have been expected to produce, would have removed the prevailing distrust. They were encouraged in this expectation by the speedy cessation of a similar state of feeling in the month of April last. These hopes, however, have been disappointed, and her majesty’s government have come to the conclusion that the time has arrived when they ought to attempt, by some extraordinary and temporary measure, to restore confidence to the mercantile and manufacturing community. For this purpose, they recommend to the directors of the Bank of England, in the present emergency, to enlarge the amount of their discounts and advances upon approved security; but that, in order to retain this operation within reasonable limits, a high rate of interest should be charged. In present circumstances they would suggest that the rate of interest should not be less than eight per cent. If this course should lead to any infringement of the existing law, her majesty’s government will be prepared to propose to parliament, on its meeting, a bill of indemnity. They will rely upon the discretion of the directors to reduce as soon as possible the amount of their notes, if any extraordinary issues should take place within the limits pi escribed by law. Her majesty’s government are of opinion that any extra profit derived from this measure should be carried to the account of the public, but the precise mode of doing so must be left to future arrangement. Her majesty’s government are not insensible to the evil of any departure from the law which has placed the currency of this country upon a sound basis; but they feel confident that, in the present circumstances, the measure which they have proposed may be safely adopted; and that, at the same time, the main provision of that law and the vital principle of preserving the convertibility of the bank-note may be firmly maintained.”
The Bank directors passed resolutions consequent upon this letter, which were of great importance to the trading community. These resolutions were conveyed to the government by a letter from the governor and deputy governor of the Bank:—
Bank Resolutions.
“Resolved,—That this Court do accede to the recommendation contained in the letter from the First Lord of the Treasury and the Chancellor of the Exchequer, dated this day, and addressed to the Governor and Deputy Governor of the Bank of England, which has been read;
“That the minimum rate of discount on bills not having more than 95 days to run be 8 per cent;
“That advances be made on Bills of Exchange, Stock, Exchequer Bills, and other approved securities, in sums of not less than £2000, and for periods to be fixed by the Governors, at the rate of 8 per cent, per annum.”
The immediate effects of this measure can be most briefly shown by the following reference made a few days afterwards by an authority in such matters:—“As soon as the correspondence between the Bank of England and the Government was made public, a rise of nearly two and a half per cent, immediately ensued. Consols on Saturday left off at 80 3/4 to 7/8, and on Monday 83 1/2 5/8. Several fluctuations, however, occurred in the course of the day; and a fall of one per cent, on the announcement by the Bank broker of the truth of the correspondence alluded to above, excited much surprise. On Tuesday, the market was very unsettled, operations being nearly confined to Consols. The opening quotation was 83 5/8, and the highest quotation 84 3/8, with numerous fluctuations. A tendency to reaction was visible on Wednesday; the first price was 83 1/4 for money, which declined to 82 3/8, but afterwards rallied to 82 1/2-3/4, at which price they closed. On Thursday, there was scarcely any fluctuation until towards the close of business. The news of a banking failure in the West of England caused a fall of nearly 1/2 per cent.; and, at closing, 82 1/4 for Money, to 82 3/8 to 1/2 for Time, were the current quotations. Exchequer Bills have considerably fluctuated during the week; about 20s. dis. for large bills is the closing quotation. Bank Stock has rather improved, but India Bonds continue very much depressed, quoting about 30s. dis.”
The prevailing feeling among political economists was unfavourable to the measure; and there were many effects attending upon it which vindicated their judgment. In the provinces banks gave way, and mercantile houses of eminence were closed; a general apprehension among the more skilful financiers was entertained that no ultimate benefit, but considerable ultimate injury, would ensue. The judgment of this class of persons may be best combed in the following review of the event:—“On this resolve being generally circulated, nothing could exceed the agitation that prevailed. Everywhere it became the engrossing subject of conversation; and, while many who were favourable to the ‘expansion’ objected to the high rate of interest, others, more experienced, remembering 1825 and 1836, with all the train of evils that resulted upon the withdrawal of the notes then issued, loudly expressed their disapprobation of this invasion of the most valuable clause in the Bank charter bill. Its mere relaxation, it was observed, robs the measure, at once and for ever, of the powerful check to over-trading that a knowledge that, under no circumstances whatever, a relaxation would be resorted to, was calculated to produce. The immediate effect in Liverpool has been to raise the value of cotton one per cent. This is a direct hindrance to manufacturing, and Manchester, Leeds, &c., consequently suffer. It is remarked at Liverpool that eight per cent., although high, is nothing in comparison with being obliged to sell. It follows, therefore, that, when sold, all the charges incident to withholding must be paid by the purchaser, and ultimately by the consumer. From Manchester, advices have been received of the failure of Messrs. Fairbridge and Mr. Robert Gardner (the latter is greatly regretted); from Leeds, of a firm it would be premature to mention. In the meantime, money in London is rather dearer than cheaper. Discount houses, and the joint-stock banks, are taking money repayable at short dates at six percent., five having hitherto been the current rate. Good bills will not be done under eight per cent., and second-rate at scarcely any price. The Directors of the Bank of England at present have not been subject to any great demands since Monday; the difficulty of offering good security being at once an obstacle to firms partially insolvent. At present, it is almost premature to judge, but doubts are entertained whether the benefits resulting, even for the present, from the ‘relaxation,’ will at all balance the baleful effects anticipated.”
The government did not expect that such opinions would be entertained by so large and influential a portion of the public, and were desirous to retrace their steps as soon as they could do so with a good grace, for before a month had passed measures were taken to that effect. The following letter was addressed by the cabinet to the governors of the Bank:—
“Her majesty’s government have watched with the deepest interest the gradual revival of confidence in the commercial classes of the country. They have the satisfaction of believing that the course adopted by the Bank of England on their recommendation, has contributed to produce this result, whilst it has led to no infringement of the law. It appears, from the accounts which you have transmitted to us, that the reserve of the Bank of England has been for some time steadily increasing, and now amounts to £5,000,000. This increase has in great measure arisen from the return of notes and coin from the country. The bullion exceeds £10,000,000, and the state of the exchange promises a further influx of the precious metals. The knowledge of these facts by the public is calculated to inspire still further confidence. In these circumstances it appears to her majesty’s government that the purpose which they had in view in the letter which we addressed to you on the 25th October has been fully answered, and that it is unnecessary to continue that letter any longer in force.”
The harvest of 1847 was such as to restore confidence in some degree, and from that and other causes, especially the cessation of all speculative undertakings, money became easier. The government, however, claimed credit for their plan, which, in the opinion of so many qualified to judge, did more harm in some directions than it did good in others. If the number and magnitude of the different commercial failures were to be taken into account, there appeared as much necessity for the government measure when it was withdrawn, as when, twenty-eight days before, it was introduced. The following were announced to the end of November:—
IN GLASGOW. Liabilities. Campbell of May......................... £600,000 A. and J. Bournie...................... 200,000
IN LIVERPOOL. Ashburner ............................ 30,000 Napier of Camlachie..................... 40,000
IN NEWCASTLE. Carrand Co.............................. 70,000
IN MANCHESTER. David Ainsworth ..................... 30,000
IN BLACKBURN. Roget and Co............................. 76,000
IN LONDON. Freemanand Cook.......................... 350,000 Sargeant, Garden, and Co................. 150,000 Thurbonand Co............................ 120,000 Coates and Co............................ 100,000 Leaf, Barnet, and Co..................... 100,000 Farmer and Ward......................... 55,000 Ryder, Wimbolt, and Co.................. 50,000 Pemberton and Co........................ 30,000 Abbot and Co............................ 30,000
Besides the great number of mercantile firms which failed, several banks were reduced to the same necessity: the West India, the Shrewsbury, Market Drayton, and the Honiton, were among the principal. Many foreign mercantile establishments which had connections with British houses also stopped payment, adding to the distress and alarm.
During the ensuing month large imports of bullion arrived from the continent and America, and the aspect of affairs became more hopeful.
Throughout the year the English populace experienced much distress, and bore it with patience; still there were food riots and disturbances of various sorts, which had to be put down by the strong arm of the law.
Notwithstanding the gloomy condition of all monetary and mercantile transactions, there were men of enterprise, who contemplated future undertakings of great magnitude. Among these projects was one proposing the formation of a ship canal across the Isthmus of Suez, which, however, was not carried into effect. The French government and people were very desirous to have such a work accomplished; but English politicians regarded it with jealousy, especially Lord Palmerston, then the highest authority in England on foreign affairs. By him the measure was regarded as impracticable, at all events, as a pecuniary speculation; and in its political tendency, likely to separate Egypt from Turkey, and to give France, as a great Mediterranean power, an undue preponderance. He also regarded it as endangering, and not remotely, English empire in India. At all events, Mr. Stephenson, the great English engineer, investigated the subject, and surveyed the line through which certain French speculators proposed that the canal should be cut. As the subject is technical, Mr. Stephenson’s views are given in his own words, used ten years afterwards:—
“In 1847, in conjunction with a French and Austrian engineer, he investigated the matter, feeling how important would be the establishment, if possible, of a communication between the Red Sea and Mediterranean. The levels given by a French engineer, who visited Egypt in 1801, during the French invasion, indicated a difference between the Red Sea and the Mediterranean of something like thirty-two feet. It was suggested that if the old canal of Ptolemy were opened again, a current might be established between the Red Sea and the Mediterranean, which would not impede steam navigation, and would at the same time scour the canal and enable a perfect channel to be maintained. However, after investigation, he and the other engineers found that, instead of there being thirty-two feet difference of level between the Red Sea and the Mediterranean, there was no difference at all, though the notion of that difference of level had been entertained for upwards of fifty years. While that notion existed it was believed by professional men that a canal, or a new Bosphorus, as it was called, might be maintained between the Red Sea and the Mediterranean; but the difference of level being found to be nil, the engineers with whom he was associated abandoned the project altogether, and he believed justly. Since that time he had walked over the district, at some considerable inconvenience, and investigated the feasibility of opening a canal between the two seas, assuming them to be on a level, and supposing the canal to be supplied with water from the higher level of the Nile, but he had come to the conclusion that the thing was, he would say, absurd, were it not that other engineers, whose opinion he respected, had been to the spot since and declared it to be practicable. He coincided in opinion with the first lord of the Treasury. Money, it was true, would overcome any difficulty, but, commercially speaking, he must frankly declare that he believed this scheme to be unfeasible. Whatever its political import might be, he believed it to be an undesirable scheme, speaking as an engineer. In his opinion, the railway now nearly completed would be more effective, as far as India and postal arrangements were concerned, than this new Bosphorus between the Red Sea and the Mediterranean.”