THE CHARACTER OF THE PRESENT INDUSTRIAL CRISIS.
FROM THE REVUE GENERALE.
Every one agrees that “business is bad”; but how many give themselves the trouble to look for the causes of this persistent stagnation? Some are distressed, others astonished, by it. The calmer observers—those who are not dismayed beyond measure by a deceptive view from the bank of the river of fortune—seek for comparisons in the crises of 1837, 1848, and 1866.
A gifted writer, who conducts with deserved success a technical magazine of our country, the “Monitor of Material Interests” (Le Moniteur des Intérêts Matériels), has examined this interesting subject in a series of remarkable articles. M. George de Laveleye—who must not be confounded with his relative, the professor at Liege—maintains that the present crisis is not transient. He attributes to it a permanent character. If the reader will follow attentively the summary that we are about to give of the argument of M. De Laveleye, he will not be too alarmed at his conclusion.
Generally, these crises have had the effect of rarefying the capital by which the great industrial enterprises were fed; these, then, deprived of the food which enabled them to live, seemed to hesitate; then they shook and fell. But to-day what do we see? Entirely the reverse. Money, floating capital, unused funds, are more abundant than ever; the cash-boxes overflow; the large banks literally sweat with gold; and this excess, this plethora of unemployed capital causes the public funds to advance and the price of money to decrease. It is business that is wanting; it is the employment of capital that is in default.
Whence comes this accumulation of savings and this inertia of capital, and how does it happen that new and tempting enterprises do not attract it, notwithstanding its apparently low price? M. De Laveleye thus instructs us:
“All these tempests,” says he, speaking of the crises of 1837, 1848, 1857, and 1866, “which reproduced themselves at almost equal intervals, were periods of settlement which marked the impatience of the industrial speculation over-excited during a period of forty years; each time that it had abused credit, each time that there was a disproportion between the engagements entered upon and the available resources, industrial, commercial, and financial Europe received a warning; credit vanished suddenly; there was a series of commercial or industrial failures; there was a violent contraction in the stock exchanges and in business; there was a slackening of new enterprises or of those already in hand; there were more losses than one could reckon. But at each of these momentary and transitory crises a remedy was very quickly found. Thus we had free trade and the upward movement of commercial relations; we had the play of free joint-stock companies; we had the war of secession, which, from a European point of view, was a powerful derivative; finally, during this long period we had the discovery of gold and silver mines, coming annually to swell the stock of metal at the disposal of business and of speculation. Thus these crises were not of long duration. It sufficed to let the overworked market have time to assimilate the stocks of paper or of merchandise from which it suffered, to re-establish the equilibrium between the current debts, circulating capital and credit, and immediately industrial and commercial Europe resumed her progressive march; the new enterprises which presented themselves obtained public favor; the warning was forgotten; the play of credit renewed itself; and after a period of enforced quiet, which never exceeded three years, we felt vibrating anew that febrile activity which, in forty years, has caused a veritable transformation of the world.”
This was always the course of these crises in the past. To-day there is nothing like this; on the contrary, “if there be a disproportion between undertakings and resources, it is absolutely the reverse of that which marked the preceding crises: the undertakings are almost null, and the resources are exaggerated.”
Why? Because the present crisis is not merely a transitional crisis: it is a permanent, final one; the origin of the evil from which the industry and the commerce of Europe suffer is to be traced to other causes than those commonly attributed to it. The true origin of the crisis, says M. De Laveleye, is the withdrawal of capital from the operations in which it had been employed, and the inactivity and unproductiveness to which it has been since doomed. At the beginning of the crisis of 1873 a general panic was produced among the lenders, whose confidence was profoundly shaken, and they exerted themselves all at once to realize their money. The bankers and the money-lenders of Europe were seized, by a unanimous accord, with a desire to have their capital, or that which remained of it, in their hands—“to see their money again,” as M. De Laveleye says. They realized their foreign securities; they retired en masse from the industrial enterprises in which they were engaged abroad; and, above all, they cut off credit. The countries and the establishments which lived on credit and on outside capital saw their resources cut off and suspended their activity, believing, however, that the crisis would be only temporary. The three principal lending countries—England, France, and Holland—realized their money, at the price of heavy losses on more than one occasion; and, under the influence of the panic, they contented themselves with keeping it under lock and key in their cash-boxes. From this resulted a great and rapid decline in the rate of interest. Bank paper fell to one per cent., and the lenders upon short bills, with incontestable securities, got but a half per cent. This was the result of the return of the capital drawn back from the foreign countries to which it had been lent; the capitalists had but one ambition: they wished to be certain that their money was running no risk whatever.