No. 25.
Mr. Badeau to Mr. Seward.

No. 798.]

Sir: Referring to my annual report on the commercial condition of the United Kingdom, and to your circular marked “Separate,” and dated August 16, 1877, desiring consuls to report from time to time suggestions as to the method by which trade with the United States may be judiciously fostered, I have the honor to forward copies of leading articles from the London Times and Standard of December 10, instant, on the excess of imports into the United Kingdom over exports; and to suggest whether the anxiety indicated by these repeated discussions on the part of British writers is not a proof that the “excess” has deeper causes than they are willing to admit, causes which may be in part owing to the advancement of United States manufactures and other kindred interests.

I beg, also, referring more particularly to the circular previously mentioned, to call attention to the portion of the Times’ article referring to the United States, in which it is distinctly admitted that American manufactures of “tools locomotive-engines, and many other kinds of hardware” are now “obtained in Canada and Australia almost exclusively from the United States;” while it is also stated that not only do we produce at home almost all the manufactured goods we at one time bought from England, but that we have been able to exclude British manufactures from foreign markets.

In view of these admissions it may be thought advisable to direct the attention of home manufacturers, especially of “tools, locomotive-engines, and other kinds of hardware,” to the Canadian and Australian markets.

I am, &c.,


[Inclosure 1 in No. 798.]

The general depression of trade which has now prevailed for a considerable period and the fact, to which attention has recently been called in many quarters, that our imports have of late years been exceeding our exports by an annually increasing amount, have served, when taken together, to produce a certain degree of apprehension with regard to the possible significance of these circumstances as indications of waning national prosperity. In our outer sheet on Friday there were published some figures, and some inferences based upon them, which should be sufficient to show that, although there may be much reason for caution, there is certainly no ground for alarm; and the argument which was there stated may even be pushed somewhat further with advantage. It must be conceded all hands that the country was never more prosperous than during the year 1872, and that this prosperity continued with little if any abatement up to the end of 1874, although by that time the increasing preponderance of our imports over our exports had become well established. From 1873 to 1876 the value of our imports varied only within a few millions, and, if we correct the official returns by adding 10 per cent. to our exports on account of freights and incidental charges, which are included in the estimate of the imports, we shall find [Page 82]that the balance against us amounted to about twenty-nine millions in 1873, that it rose to forty-nine millions in 1874, to sixty-four millions in 1875, to ninety-four millions in 1876, and that this year, calculating the total upon the scale of the first ten months, it can hardly be less than one hundred and twenty millions. It is urged by alarmists that this increasing excess of imports means a constantly increasing amount of debt to foreign countries—a debt which can only be met by drawing upon our savings or investments at home—and hence that we must every year become poorer by the amount of the difference. To argue in this way is to assume, of course, that our imports consist entirely of perishable commodities; although it is quite conceivable that they may consist largely of things which are not perishable, and which are bought as investments for a portion of our surplus wealth. Among imports of this class may be named works of art of various kinds, articles of taste or of vertu, and many other things which will readily suggest themselves; but it may, nevertheless, be conceded that imports of the perishable class bear a considerable proportion to the whole. The true explanation of the matter is that the excess of our imports is a temporary condition, arising out of circumstances which have disturbed the pre-existing course and balance of trade, and which may eventually guide certain forms of industry into new channels.

If we compare the condition of this country with that of our principal competitors, and, in the first place, with that of France, we find that the great bulk of French exports which come to us consists of cereals, wine, fruit, and other products, the supply of which is dependent upon a harvest, and that only by this condition can the irregularities of the supply be fully explained. We, on the contrary, export mainly such articles as coal, iron, and manufactured goods; and it will be found on examination that the reduction in the amount of such exports has been less in quantity than in value. In order to produce the quantity nearly the same number of hands, and nearly the same amount of capital, have been employed as in former years; but the profits realized by the masters and, although in a less degree, the wages received by the workmen have both suffered diminution. Notwithstanding this, but possibly by means of greater economy, the manufacturing classes have not only lived, but have saved something out of their earnings, insomuch that the sums paid to savings-banks have increased every year in spite of the depression of trade. It must, however, be borne in mind that we no longer possess monopolies which once were sources of great profit. At the close of the great European war sixty years ago England held a position of extraordinary and exceptional advantage. Poor as compared with our present riches, we were yet far richer than any continental nation, and our domestic institutions had remained untouched. We were the first to make any large use of steam power for manufacturing purposes, and we had coal and iron in abundance at our feet. These advantages, turned to the best account by the accumulated capital, the manufacturing experience, and the superb energy of our population, placed England upon a pinnacle, of greatness which made us at once the admiration and the envy of the world. Aided by the start which we had thus gained in the race, we pushed on for many years without interruption, and almost without serious competition, until the close of the civil war in the United States, when the Americans, who also have coal and iron, and Anglo-Saxon energy, and who were relieved from the incubus of slavery, began to strain every nerve to become a great manufacturing nation. Having surrounded their country with a barrier of protective duties, and being temporarily strengthened by a large immigration of trained workmen from the old centers of industry, they applied themselves to the improvement of machinery, and to the production at home of almost all the manufactured goods which they had formerly bought from us. In many departments they so far succeeded in cheapening production—often, it must be admitted, at the cost both of quality and of profit—that they have been enabled to exclude our manufactures from foreign markets, and even from our own colonies, a fact of which, perhaps, the best illustration is that Canada and Australia obtain tools, locomotive-engines, and many other kinds of hardware, almost entirely from the United States. Germany, again, has come actively into competition with us, and has raised capital in artificial ways for the establishment of factories which thus far have met with considerable and well-merited success.

The facts are, therefore, that our manufacturers, within the last few years, have been subjected to a previously unexampled amount of competition, and to competition of a character which has required all their knowledge and all their ingenuity to enable them to hold their own. The immediate result has been a reduction of profits and of wages, and this reduction, following upon a period of great prosperity, which had produced among all classes, and especially among the workingmen, a highly increased degree of luxury of living, became a source of almost angry surprise to those who were the first to suffer from its effects. The operatives, feeling the pinch and ignorant of its causes were too often persuaded by professional agitators to engage in strikes, which, in so far as they became sources of embarrassment to masters, still further increased the difficulties against which they had to contend. Competition led, naturally, in the first instance, to overproduction, since many makers were pouring goods into [Page 83]the markets which a smaller number had previously supplied, and the expectation of war led to the curtailment even of customary demands. England has been compelled to sell less, or to sell at lower and scarcely remunerative prices, but has been unable to import less food than formerly; and it is for these reasons mainly that the balance has for a time been so much against us. As we showed on Friday, the amount of the deficit, if so it may be called, is utterly insignificant when compared with the entire trade of the country, and it has not prevented the steady increase of accumulations at home. We must not forget, however, that a considerable part of these accumulations, such as houses, furniture, plant, and so forth, has no available value in competition with foreign countries, and that their value at home depends absolutely upon the trade profits which enable us to obtain and to enjoy them. The true interpretation of the facts around us is that we are witnessing a great change or displacement of some of the conditions under which the results of certain farms of industry have hitherto been produced or distributed, and that we must wait patiently for the readjustment which time cannot fail to bring. We are even now suffering less than any of our neighbors or rivals, because we have a larger accumulated capital, and are, therefore, better able to work for a time at a diminished rate of profit. We retain, absolutely, if not relatively, all our former advantages, and, as soon as peace is re-established, and the excess of manufactured goods now existing has been cleared away, there can be no doubt that we shall once more enjoy our full share of the world’s prosperity. Much of the competition against which we have to contend is even now spasmodic and self-destructive; and, when some of our rivals have ruined each other in their determination to undersell us, we shall still possess the capital, the knowledge, and the energy which helped to give us our old pre-eminence, and these will have ample scope under a constitution which combines the most abs olute stability with the largest possible measure of individual freedom. The only shadow in our path is cast by that increased luxury of living, in all classes, which militates so powerfully against the accumulation of wealth by saving; and it is much to be wished that those among us whose acts are accepted as examples would seriously consider whether it would not be possible for them to set a fashion of economy. There are but few families in which expenditure might not be curtailed without diminution of enjoyment, and the nation at large would be at once richer and better for the change.

[Inclosure 2 in No. 798.]

The extraordinary rate at which the excess of our imports over our exports has increased during the past four years has naturally been exciting of late much attention, and not a little uneasiness. It is no new thing indeed to find the value of our purchases from the outside world surpassing that of our sales to it. The phenomenon has long been constant and progressing, and since the beginning of the present depression of trade the difference between the two sides of our commercial transactions has assumed a magnitude that alarms many sober-minded business men. During the fifteen years ending with 1873, for example, the excess of the value of the imports over that of the exports annually averaged £56,000,000; in 1874 it rose to £72,000,000; at the end of the present year it will probably be not much short of £142,000,000; that is to say, in the three years it has increased some seventy millions. Explain the facts how we may, these figures are indisputably startling. In a period of exceptionally bad trade how have we afforded to augment so enormously our consumption of foreign goods? Still more difficult to answer is the question, how do we manage to pay for the hundred and forty millions’ worth of commodities against which there are no exports to set off? The first reply to be given to this latter query is that the excess of imports is really not so large as it looks. The value of the exports, as given in the Board of Trade returns, is their value at the ports from which they are shipped. Before they reach the foreign consumer, however, the cost of carriage across sea will have to be added, as will also the marine insurance, and so likewise will agents’ commissions and other charges. Speaking generally, these additions to the cost of the goods are earned by British ship-owners, underwriters, and agents. Therefore, the real price received by this country for its exports is the declared value plus the several charges enumerated above. On the other hand, the value of the imports given in the Board of Trade returns is their value when they have arrived in our ports, and when, consequently the above charges have been earned. It is a moderate estimate that three-fourths of these charges fall to this country. Consequently, from the payment to be made by us to foreigners there have to be deducted at least three-fourths of the freights, insurance premiums, and agents commissions. How much these various charges amount to there are no means of accurately calculating. Some authorities estimate them at two hundred [Page 84]millions; others think half the sum too high. But, whatever the real amount, it is abundantly evident that when they have been added to the one side and subtracted from the other they leave the balance of our foreign trade much more nearly even than at first sight would appear possible from an inspection of the Board of Trade returns. Assuming, however, that the imports really do exceed the exports in value to some indeterminate extent, we come back to the question—How is the excess paid for? As the payment has to be made to persons resident abroad it must be sent out of this country in some shape or other, or else it must be made by means of funds belonging to English people, but held abroad. It plainly cannot have been sent out of the country in the shape of bullion or goods, else it would appear among the exports. Consequently, it must either have been transmitted by means of which the Board of Trade takes no cognizance, or it must have been effected by a transfer of British property abroad to foreigners. Now, British ship-builders construct a large number of ships every year for foreign governments and foreign ship-owners, and the price of these ships, instead of being transmitted here, might be paid over abroad to our foreign creditors without the transaction ever appearing among the exports. Moreover, this country has the largest carrying trade in the world, and the freights, underwriting, and other charges earned might likewise be used to settle debts abroad. Lastly, we have for generations been investing capital in all sorts of undertakings all over the world. Many of these investments have, indeed, been unfortunate, but the great majority have proved profitable, and now return us annual interests which in the aggregate must be immense. Here is one other mode of payment which would not appear in the Board of Trade returns. Persons owing money abroad need but buy from the ship-builders, ship-owners, and investors the price of the ships they had built, the freights they had earned, and the dividends that were accruing, and they could settle their foreign debts by the mere transmission of a bill, draft, or order.

We venture to think that the several funds we have now enumerated more than suffice to discharge all our liabilities to foreign countries. Such, however, is not the conclusion of many persons whose opinions are entitled to great weight. Notably, Mr. Rathbone, in a letter to the Economist which has attracted wide attention, contends that they do not suffice, and argues, on the contrary, that we are wasting our substance and using up our capital in paying for consumable articles. To the objection that if so we should experience a regular drain of gold, and should also witness a vast increase of pauperism, Mr. Rathbone answers that exceptional circumstances have prevented these results for the present, but that, doubtless, we shall feel them before long. The exceptional circumstances which so far have favored us are two. Every one who gives any heed to the doings of the stock exchange is aware that, as a nation, we have been exporting securities of late. For more than a year we have been steadily selling Russian bonds to German, Dutch, and French buyers. We have also been getting rid of Egyptians when possible; and we have been disposing of a good deal of American securities. Mr. Rathbone holds that the securities so exported have been used to pay for our imports. Now, it is quite true that bonds do, or at least ought to, bear interest, and, therefore, represent capital. Yet it does not follow that if they are used to pay for imports we are diminishing our capital. As a general rule the reason why we are selling out our foreign securities is that they have fallen into discredit in consequence of the repudiations of so many governments and the apprehended difficulties of others. The holders, that is to say the capitalists, are simply transferring heir capital to some home undertaking in which they have more confidence. To satisfy ourselves on the paint we have only to look at the steadily-rising price of British railways. As a rule they yield now only 4 per cent. where some years ago they returned 5 or even 6 per cent. Equally marked is the upward movement in the value of houses. As for the fact that the sold bonds are sometimes used to discharge import liabilities, that simply proves that occasionally they can be employed more conveniently than bills or bullion. The purchaser of imports buys them with the money he owns, but the money is not transmuted into capital because he puts it into a bond rather than into a bill.

The second mode of payment to which Mr. Rathbone refers, no doubt has also been made use of to a greater or less extent. Before the opening of the Suez Canal a vast British capital was employed in distributing the Eastern trade. British merchants bought tea in China, coffee in Ceylon, cotton, indigo, and jute in India, and wool in Australia, and brought these commodities home in British ships. The Continental merchants and manufacturers came here then and purchased the supplies they needed. The sums thus earned by our countrymen, in the form of profits, commissions, and freights, were very large. Since the opening of the Suez Canal, however, the traders of France, Germany, Italy, and Austria find it more economical to order the goods they require directly in India, China, or Australia, and have them sent to themselves without British intervention. Both time and money are thereby saved. The consequence is that the large British capital formerly employed in this trade has gradually been set free, and the general depression which prevails, Mr. Rathbone contends, has prevented a new outlet being found for it. Some of this, he goes on to argue, has been [Page 85]used to pay tor imports, and as thereat present exists no need for it in trade, the abstraction has not been felt. Mr. Rathbone, however, fails to explain why capitalists, because they are temporarily unable to find a remunerative business, should proceed to consume their capitals. Usually persons so circumstanced retrench instead of launching into extravagance. Then, again, it is a poor assumption that no profitable employment can be found for this capital. The Madras and Bombay famine, to go no further, has been grappled with by British enterprise. And the rapid growth of the cotton manufacture in Bombay, of the jute Industry in Bengal, and of tea-cultivation in Assam and Kumaon, is only possible because British capital is being invested in them. It appears to us, then, that the honorable member for Liverpool has entirely failed to make out his case. Indeed, it might much more reasonably be argued that the excess of imports which alarms him is a proof of chastened wisdom on the part of capitalists, and a promise of greater prosperity in the future. In the years before this excess reached its present proportions we were lending recklessly to penniless governments and bankrupt trading societies. The money we thus advanced enabled them to take large exports from us but, as we have since learned to our cost, those exports were really paid for out of our own pockets. Clearly it is, not impoverishment to have stopped a trade of that nature. Furthermore, the increase of imports is partly due to the same distrust of foreign ventures. Capital which was unprofitably employed abroad is being called home; some of it is coming in the shape of bullion, some in that of goods, but in neither case is it wasted or destroyed.