TOPICS OF THE DAY.
CORN AND MONEY.
ONE of the worst evils connected with a commercial crisis is the ignorance which prevails, at such a time, among the great mass of sufferers, as to the real cause and extent of the pressure on the money-market. While trade is brisk, there is always a disposition to believe that the prosperity rests on a much more solid basis than that of any former period ; and any one who tries to warn the public against impending danger may day his account with being set down as a croaker. In such a case, it is useless for him to point to former years of commercial prosperity for the purpose of showing how they were invariably followed by great reverses. That, as he will be told, was simply owing to some absurd mis- take committed by the merchants and capitalists of the day, which they are not likely to repeat. It is always assumed, before each successive crisis, that they have learned wisdom at last ; and should any gloomy symptoms make their appearance on the com- mercial horizon, there is no difficulty in accounting for them in such a way as to remove all present uneasiness. The popular theory by which the commercial world has lately been trying to persuade itself that the drain of gold from the Bank of England, to the extent of between six and seven millions sterling since the end of last year, ought not to excite any appre- hension, is, that it has been mainly caused by the legitimate ex- tension of trade; and that, consequently, " the rise in the rate of interest is the indication of an extended prosperity, and as such is fkrbe regarded as a national advantage.', This is a very pleasant view of the matter, nor is it without a considerable amount of plausibility. In 1851, our exports were 71,367,000/. in value ; this year, we are told they will be 91,000,0001., an increase of nearly p0,000,000/. in two years. To carry on that increased trade, our merchants require a much larger amount of capital. They give credit, we are told, to all the world, in the case of our exports, and have to pay ready money in the case of our imports. This causes an extraordinary demand for money for a time; and hence the rise in the rate of interest.
The theory will not bear very close examination. It rests upon the assumption that a large expansion of our export-trade, though of ever so sound and healthy a character, must necessarily lead to an adverse state of the exchanges, and, consequently, to an ad- vance in the rate of interest such as we have witnessed during the last nine months. Let us try, then, how it will apply to the state of trade and the money-market during the last four years. If the rule is correct with relation to the present state of things, it must be equally so with regard to former years.
In 1848 the declared value of our exports was 48,946,000/., and in the following year it rose to 58,910,0001. ; but as it had been brought down 'below the average at the former period by the state of the Continent, and other extraordinary causes, we shall com- mence with 1849. For the last four years, then, the declared value of our exports has been-
In 1849 £58,910,000 1850 65,766,000 1851 71,367,000 1852 78,076,000 Here we find a steady expansion of our foreign trade-" greatly extended commercial operations" to the extent of upwards of nine- teen millions sterling ; and yet, at the end of 1852, the quantity of bullion in the Bank, instead of decreasing, had risen to upwards of twenty-one millions, while the rate of interest had fallen to 2 per cent. How can we reconcile such a state of the money-market with the theory that a large increase of commerce creates so brisk a demand for capital as to cause an advance in the rate of interest? Again, if we go back to 1842, a year of great commercial dis- tress, we find that our exports were only 47,381,0237.,-six mil- lions less than they had been in 1836; and yet, low as our export- trade had been reduced, the quantity of bullion in the Bank in 1842 was little more than half what it is at present. In thiee years afterwards our exports had risen to 60,111,000/. ; but during that period we do not find any symptoms of an increasing tight- ness in the money-market, as the new theory would lead us to ex- pect. Instead of that, the bullion in the Bank rose to upwards of sixteen millions in 1845; and most persons will remember, that, along with the large increase of our foreign trade which then took place, the money-market was remarkably easy throughout the whole of that year,-too much so, indeed, for the very susceptible mercantile world of England, which suffered itself to be carried off its feet by the golden flood, as it had been before on many a similar occasion.
The cardinal defect in the theory to which we have been refer-
ring is, that it leaves out of sight the most important element in all questions relating to the money-market and the exchanges- the fluctuations in the price of corn ; the effect which cheapness of food has in making money plentiful, and which dearness has in making it scarce. In 1842, when the bullion in the Bank was only 8,000,0001., and when our exports were six millions less than they had been in 1836-the last of three years of abundance-the average price of wheat was 578. 3d. a quarter, and previously it had ranged from 60s. to 70s. Daring the next three years, the average price of wheat was about 50s. ; and our exports rose, as we have already stated, from 47,381,023/. to 60,111,000/., while the bullion in the Bank more than doubled. Here was cause and effect, -moderate prices of food, consequent abundance of money, a large increase in our export-trade, and great improvement in the condi- tier) of the labouring classes. All this was healthy ; but it was followed by the railway mania, which, wild as it seems to us in looking backward, was warmly advocated at the time by many theorists, as " a legitimate extension of domestic enterprise "— e the indication of an extended prosperity, and as such to be re- garded as a national advantage." Passing over the three years of commercial collapse, dearth, and European revolutions, we find that
wheat was only 448. 3d. in 1849, and that our exports that year
rose ten millions above those of 1848. Throughout 1850-'1-'2, the price of food continued remarkably low ; capital was conse- quently abundant, one result of which was that our export-trade expanded with unexampled rapidity ; yet all the while the rate of interest continued falling, till it reached the astonishingly low rate of 2 per cent in April 1852; at which point it remained without alteration all the rest of last year. This great abundance of money, the thriving state of our home trade, and the prevailing impression that the large supplies of gold from Australia would place the com- mercial world above all fear of deficiency of capital in future, led to a still more rapid increase of our exports during the present ear. Mills and weaving-sheds were built or extended, land was tight at greatly enhanced prices, and thousands of houses were erected, many of them by means of borrowed capital, and on the faith that money would always continue as cheap as it had been last year; • sanguine speculators even predicted that the rate of in- terest would ultimately fall to one per cent. This great increase of trade, coupled with the decrease of the population by emigration, led to a scarcity of labour which soon manifested itself in a general demand for higher wages ; and these were generally conceded, even in cases where the rate of profits did not warrant any advance. Such was the state of things when the tide of prosperity which bad risen so high, and which had, as usual, led to a larger exten- sion of trade than the real amount of capital in the country war- ranted, first began to show symptoms of declining. The rainy autumn of 1852, which prevented wheat-sowing to the usual extent, began to tell upon Mark Lane towards Christ- mas. By that time the averages had risen about 20 per cent above their lowest point; and this amounts to a large sum on a weekly expenditure of more than a million. Just at the time when in- creased consumption and extended trade were requiring a larger a- mount of capital than at any former period, it was found that the sum absorbed weekly in what Jonathan would call " bread-stuff trans- actions " had risen 20 per cent above what it had been last autumn, with a prospect of rising still higher unless the harvest of 1853 should prove unusually abundant. It was at this time that the Bank of England began_ to advance the rate of discount, first to 21 per oent on the 6th of jannary, and then to 3 per cent on the 20th. Between that time and the beginning of harvest only one other advance took place, although our export-trade was rapidly extend- ing all through the summer. On the 1st of September, the aver- ages having by that time risen to 50s. 4d.-30 per cent above the lowest point—and the bullion having declined five millions below its highest point, the Bank raised the rate of interest to 4 per cent. Two. weeks later, the averages had risen to 56s. 7d.; the bullion had declined to 15,860,0001.; the private securities had ad- vanced to 16,180,0001.; and the Bank raised the rate of interest to 41 per cent. Since that time wheat has risen to 60s. ; and the rate of interest, having advanced another step, is now 5 per cent ; so that the merchant must pay 150 per cent more for the loan of money than he did nine months ago. If this is to be considered a proof of " extended prosperity," our merchants and manufacturers ought to look anxiously forward to each meeting of the Bank Di- rectors in the hope that they will raise the rate of discount a little higher. Instead of lamenting over the decreasing amount of bul- lion in the Bank, they must look upon the drain of gold as only another proof that our foreign trade is in a state of healthy expan- sion, and learn to calculate how large a return that portion of our "floating capital" will bring at some future period.
Taking a less imaginative view of the question, however, we much fear that the state of the grain-market, and the necessity of large importations of wheat and flour during the next eight or ten months, will continue to exercise so adverse an influence upon the exchanges as must force the Bank to resort to much more stringent measures than it has yet adopted. For some years past we have imported about 10,000,000/. worth of grain and flour annually. This year we shall probably require from 25,000,000/. to 30,000,0001. worth ; an increase of 150 to 200per cent above the average i
amount expended. If this estimate is not greatly exaggerated, we shall therefore require nearly half a million sterling for our weekly purchases of foreign grain. Can any one suppose that this will not tell seriously upon the exchanges ? Nor is this the only influence which the deficiency of food is likely to exercise upon the money- market. The advance of upwards of 50 per cent in the price of bread, which has already taken place, must withdraw a large amount of capital from other channels of trade, and thereby make money more scarce and the home demand for manufactures less active. Taking the average weekly consumption of the whole population of the United Kingdom at the very moderate sum of 10d. per head, an advance of 50 per cent in the price of bread amounts to nearly 600,0001. a week. Let any one calculate what effect the with- drawal of that sum weekly from the purchase of clothing, furni- ture, and other articles, must have on the demand for manufac- tured goods, and he will begin to see, that, notwithstanding the abolition of the Corn-laws, the state of grain-market in a coun- try like this, where the great bulk of the people spend so large a portion of their income in the purchase of bread, is the first thing to be considered in all speculations relating to the money-market.
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