THE COMMERCIAL SITUATION. T HE decision arrived at on Thursday by

the Bank of England again to lower their minimum rate of discount to five per cent. which is perhaps justified by the state of the Bank returns, furnishes us with a good opportunity to review the commercial state of the country during the first half of 1861, and to consider how far it is likely to improve during the remainder of the year. Hitherto the changes in the rate of discount indicate the gradual lightening of the pres- sure on the money market since the beginning of the year, as the following table sufficiently shows: Bank rate of Discount. . 6 per cent.

. 7 . 8 . 7 . 6 . 5 . 6 But we must remember that an easy money market is merely a symptom of a-prevalent disposition to lend' capital, and may indicate- either commercial stagnation or commercial pro- sperity, according as the capital so offered is chiefly derived from sources where it would usually have been productively employed, or from overflowing savings, representing a greater addition to the resources of the country than any normal ex- pansion of trade canabsorb. In the present year the gradual fall in the rate of interest since the spring must certainly be attributed' rather to the stationary or contracted character of productive operations than to any rapid increase of the margin of savings, and therefore, though its tendency as a cause is, no doubt, favourable to the commerce of the country, its significauce, as an effect, is of the opposite kind. It was estimated, full twenty years ago, by a high financial autho- rity, that even then England annually saved at least 60,000,0001., and that something like this sum might be annually added to the capital- employed in productive opera- tions. It is obvious, then, that even in years when we have suffered great losses—when a considerable portion of our capital has been wholly- neutralised or rendered unproductive, Jaimai7 1st • s 7th February 14th . March 21st . April 5th . , 11th .

May 16th . August 1st . . and the remainder „has been less productive than usual-- there must still be a margin left to seek employment in the money market, especially if the ordinary channels of produc- tion are either stationary or contracted, instead of multiplied and widened.

This has, in fact, been the commercial history of the past year. We have lost a great sum through the bad harvest of 1860, and this, taken alone, tended- not only to diminish the general revenue of the country, bub to diminish' the Capital available for loans--that is, to raise the rate of intereigt. Other causes; however, which have in fact increased the general depression of trade, hate lessened the pressure onthb money market, by setting much- capital- at liberty for lonfin that would otherwise have been productively employed by its owners. Let us look at the magnitude of both causes separately.

How much. capital has been- actually lost to the country by the deficient harvest of last year; the following fiord; will show with tolerable' accuracy: The computed real value of corn and flour of variMis kinds; that was Mnported into the United Kingdom, was : In the year 1859. 1860: 18,012,063/.- 31,671,918/.

But the loss would be Very imperfeetly measured if we stopped with the close of last year. We imported, in the first five months of the respective years, corn and flour to the following values : 1860. 1861.

5,402,162/. 15,981,537/.

Which gives, on the seventeen months between 1st January, 1860, and 1st Jane, 1861, an increase of no less than 24,209,230/. in the expenditure on grain and flour, is com- pared with the corresponding seventeen- months betwe'en 1st January; 1859, and 1st June, 1860. .And since, of counks, no less capital was sunk in agricultural operations last year than in other ordinary years; the additional cost of foreign corn caused by the bad harvest mutt be said to have been absolutely lost ; that is to say, our farmers have lost a large portion' of their profits, or even capital, while the country at large has shared the loss in the form of paying increased prices on grain and flour.

To this absolute loss of capital by the bad harvest Must be added a set of causes tending to produce similar effects: the considerable absorption of English capital and revenue, for purposes either wholly unproductive, like the Chinese expedition and the Indian army, or for the present at least unproductive, like the loans for Indian railway expenditure. When- we consider that we have during this year raited in this country for Indian purposes; two loans to the joint amount of 7,000,000/., and have just announced that another lean' of 8,000,000/. (ill all) is likely to be raised within the year' by or for the Indian railway companies, we cannot estimate- the amount of capital lost or sunk during the year as likely-re be much less than 40,000,000Z.—a large sum to be subtracted from the annual increase of the country's capital. Such being the causes which have diminished the- whole capital of the United Kingdom during the last year, let- us now look at those which have affected the amount of the special kind of capital disposable for loans, i. e. those which have acted on the money market: And in the first place it is obvious that those causes which have deterred Mr froth extended production—such as the war in America,. and the rumours of war in Europe—have, so far as they go, tended to increase the proportion of our capital available for 'omit The more uncertainty we have felt about demand for our goods, the more there have been who were to lend their capital to others on good-security rather than take the responsibility of employing it themselves. We have seen this result to some extent in the diminution of the capital embarked in our export trade, which has been marked though not very great. But this restriction on our manufac- turing energy has not told as much as it otherwise would on the loan market in consequence of the peculiar causes which have operated to oblige us to export a large portion of this capital available for- loans, in the shape of bullion to the United States. The extent of the diminution in our emporia; is seen as follows : DECLARED VALDE OP' EXPORTS FOR FIRST SIX MONTHS OF.

1859. 1860. 1861.

63,003,1591. 62,019,989/. 60,143,4251.

which would appear- to show that the capital invested in' our export trade is only diminished by about two or three millions on the half-year, or from four to six millions sterling on the whole year. Now iv sum- of much more than: that *value has been already added to our exports of the precious metals, having been sent to the United States: the account stands thus : GOLD AND SILVER BULLION IMPORTED INTO AND EXPORTED FROM THE UNITED KINGDOM, FIRST SIX MONTHS OF 1859. 1860. 1861.

Imported . . 19,958,011 10,975,056 9,627,670 Exported . . 19,372,619 10,800,886 14,081,068 showing a balance of exports of the precious metals in this year for the first time, and of no less an amount than four millions and a half, all and more than which balance has been sent to the United States alone. The large drain of floating capital in the shape of bullion to the United States has been caused by the great diminution in the American de- mand for our manufactures. The exports of the United States, partly owing to the war and partly to the new tariff, have fallen off more than one half. While the States ordinarily take from us about 20,000,0007. worth of British goods, the exports for the first five months of 1861 were only valued at 4,363,9001., or at the rate of 10,000,0001. a year, and this at a time when their exports of grain to us have been largely increased. Of course the effect has been twofold : that we have bargained with them at a disadvantage ; and that the exchanges have been turned against us ; so that instead of receiving as usual some bullion from America, we have sent not a little thither.

The causes, then, affecting English commerce during the last year may be thus enumerated : We have had consider- able losses of capital owing to the bad harvest, and the war expenditure in India and China and at home ; and we have also sunk a considerable sum, for the moment at least un- productively, in the loans for Indian railways. Hence our capital has not increased as it otherwise would have done. On the other hand, the depression of trade consequent on political troubles across the Atlantic and at home has tended to increase the sum disposable for loans, and to diminish the anxiety of borrowers, so as to diminish the pressure on the money market. This would have produced even more effect than it has but for the peculiar relations between America and England, which rendered it necessary for England rather than any other country to furnish America with the extra supplies of bullion needed to maintain her credit in the pre- sent emergency. This unusual export of bullion to the United States has tended, and still tends, to slacken the downward tendency which a stagnant coudition of commerce usually exerts on the rate of discount.

And now,. how far are these causes likely to continue their action in the future ? First, we have not much reason to apprehend this year any repetition of last year's calamity to our harvest. It will not, indeed, be remarkably abundant in England : much of the autumn wheat having been lost in the severe winter, and since been ploughed up. The spring crops are spoken of as suffering in some places from the heavy storms, but as abundant in quantity, and likely to be good in kind if the present serener weather lasts. The American harvest is reported as more than usually rich. Under these circumstances, if we have not a prosperous agricultural year, there is at least no reason to apprehend any very important loss.

And, next, without heavy losses, the annual savings of such a country as England are so large as to furnish ample means for an expansion of trade considerably more rapid than that of population. The whole value of our exports and imports in 1854, the first year for which we have complete returns, was : Imports £152,389,000 Exports 115,821,000 £268,210,000 For the year 1860 it was : Imports 2210,648,000 Exports 165,670,000 £376,318,000 —an increase of 40 per cent. in six years, while the population of the United Kingdom has only increased 6 per cent. in the last decennial period. It is obvious, therefore, that except in a year of very exceptional loss, the multiplication of British wealth is sufficient to add very largely to the capital of the country from year to year, and also ,to admit of a great increase of unproductive expenditure. With present prospects we should therefore hope that a very con- siderable increase of production may be expected if no ca- lamity intervenes .to prevent it. But thirdly, the retarding causes will no doubt be con- siderable. There is little prospect of very speedy cessation of hostilities in the United States, and a large reduction in their expenditure on British manufactures must therefore be expected for the present. Yet unless disturbances should break out on the Continent, we do not thinlothat this cause alone will be sufficient to prolong the recent depression. Al- ready the great decrease in the exports to America is being m copensated by an increased export to China and the East-, and even if this be somewhat speculative, the area of our trade is now so large that a very slight reduction of price induces other nations to take what any one nation from temporary embarrassments declines. Ten millions' worth of goods, which is about the reduction in the American demand, is after all only 6 per cent. of the value of our export trade. The only real cause for anxiety is the cotton supply. And if Sir Charles Wood's anticipation that we shall derive 1,000,000 bales from India in the coming year, should be justified, we shall at least be secure, with the other sources of supply, of half our needs. Moreover, should the Federal Government be able to seize the principal Southern ports and open them for export, we should probably have a full supply. Whether or not the immediate tendency to an easier money market will continue it is more difficult to say. Should the American foreign loan of 20,000,0001. be taken here, which is far from likely at any price that would con- tent the American Government, we shall, no doubt, be called upon to send a large part of the amount in the shape of munitions of war, and the drain of bullion to the United States may very probably prove to have nearly terminated. A more probable cause of pressure on the money market would be a continental war, which would ensure a large in- crease of unproductive expenditure, and a great discourage- ment to the investment of our savings in normal trade. But on the whole, if the harvest proves as good, as seems now probable, and no further calamity occurs on the Continent, we are disposed to anticipate a revival during the latter part of the year in the commercial enterprise of the United Kingdom.