Karl Marx and Friedrich Engels: Neue Rheinische Zeitung Revue (1850): The years 1843-5 were years of industrial and commercial prosperity, a necessary sequel to the almost uninterrupted industrial depression of 1837-42. As is always the case, prosperity very rapidly encouraged speculation. Speculation regularly occurs in periods when overproduction is already in full swing. It provides overproduction with temporary market outlets, while for this very reason precipitating the outbreak of the crisis and increasing its force. The crisis itself first breaks out in the area of speculation; only later does it hit production. What appears to the superficial observer to be the cause of the crisis is not overproduction but excess speculation, but this is itself only a symptom of overproduction. The subsequent disruption of production does not appear as a consequence of its own previous exuberance but merely as a setback caused by the collapse of speculation....
The extension of the English railway system had already begun in 1844 but did not get fully under way until 1845.... The heyday of this speculation was the summer and autumn of 1845. Stock prices rose continuously, and the speculators' profits soon sucked all social classes into the whirlpool. Dukes and earls competed with merchants and manufacturers for the lucrative honour of sitting on the boards of directors of the various companies; members of the House of Commons, the legal profession and the clergy were also represented in large numbers. Anyone who had saved a penny, anyone who had the least credit at his disposal, speculated in railway stocks.... Not enough engineers could be found, and they were paid enormous salaries. Printers, lithographers, bookbinders, paper-merchants and others, who were mobilized to produce prospectuses, plans, maps, etc; furnishing manufacturers who fitted out the mushrooming offices of the countless railway boards and provisional committees — all were paid splendid sums.... Hundreds of companies were promoted without the least chance of success, companies whose promoters themselves never intended any real execution of the schemes, companies whose sole reason for existence was the directors' consumption of the funds deposited and the fraudulent profits obtained from the sale of stocks.
In October 1848 a reaction ensued, soon becoming a total panic....
[T]he whole credit system collapsed at the very moment when the corn prices were at their highest, in April and May 1847, and the money market was completely ruined. The corn speculators nevertheless held out through the fall in prices until 2 August. On this day the Bank raised its lowest discount rate to 5 per cent and, for all bills of exchange over more than two months, to 6 per cent. Immediately a series of most spectacular bankruptcies ensued on the Corn Exchange, headed by that of Mr Robinson, Governor of the Bank of England. In London alone, eight great corn merchants went bankrupt, their total liabilities amounting to more than £1 1/2 million....
We now come to the commercial crisis proper, the monetary crisis. In the first four months of 1847 the general state of trade and industry still seemed to be satisfactory, with the exception of iron production and the cotton industry. Iron production, given an enormous boost by the railway bubble of 1845, suffered proportionately as this outlet for the excess supply of iron contracted.... The bad cotton crop of 1846, the rise in prices for both raw material and finished commodity, and the consequent reduction in consumption, all increased pressure on the industry. In the first few months of 1847 production was cut back considerably throughout Lancashire, and the cotton workers were hit by the crisis.
On 15 April 1847 the Bank of England raised its lowest discount rate for short-term bills to 5 per cent... the reserves of the Banking Department had dropped to £2 1/2 million. The Bank had therefore taken the above measures to stop the drain of gold from its vaults and to replenish its cash reserves.... The Bank's decisions, and the news of the low level of its reserves, immediately produced pressure on the money market and a panic throughout English commerce matched in intensity only by that of 1845. In the last week of April and the first four days of May almost all credit transactions were paralysed.... A few months later, however, at the beginning of August, the bankruptcies mentioned above occurred in the corn trade. Lasting until September, they were hardly over when the general commercial crisis broke out with concentrated force, particularly in the East Indian, West Indian and Mauritian trade. The crisis broke simultaneously in London, Liverpool, Manchester and Glasgow. During September twenty concerns were ruined in London alone, their total liabilities amounting to between £9 and £10 million. 'There were uprootings of commercial dynasties in England not less striking than the fall of those political houses of which we have lately heard so much,' said Disraeli on 30 August 1848 in the House of Commons....
This series of bankruptcies, unprecedented in the history of commerce, was caused by general over-speculation and the resulting excess import of colonial produce.... On 1 October the Bank raised its lowest discount rate for short-term bills to 5 1/2 per cent, and declared at the same time that it would henceforth make no more advances against government stocks of any kind. The joint stock banks and private bankers were now no longer able to withstand the pressure. The Royal Bank of Liverpool, the Liverpool Banking Company, the North and South Wales Bank, the Newcastle Union Joint Stock Bank and others were ruined, one after the other, within a few days.... The crisis reached its peak between 22 and 25 October, when all commercial transactions had come to a standstill. A deputation from the City then brought about a suspension of the Bank Act of 1844, which had been the fruit of the deceased Sir Robert Peel's sagacity. With this suspension, the division of the Bank of England into two completely independent departments with separate cash reserves instantly came to an end; another few days of the old arrangement and the Banking Department would have been forced into bankruptcy while £6 million in gold lay stored in the Issue Department....
[I]t is certain that the commercial crisis contributed far more to the revolution of 1848 than the revolution to the commercial crisis. Between March and May England enjoyed direct advantages from the revolution, which supplied her with a great deal of continental capital. From this moment on the crisis can be regarded as over in England; there was an improvement in all branches of business and the new industrial cycle began with a decided movement towards prosperity. How little the continental revolution held back the industrial and commercial boom in England can be seen from the fact that the amount of cotton manufactured here rose from 475 million lb. in 1847 to 713 million lb. in 1848.
In England this renewed prosperity developed visibly during 1848, 1849 and 1850. For the eight months January-August, England's total exports amounted to £31,633,214 in 1848; £39,263,322 in 1849 and £43,851,568 in 1850. In addition to this considerable improvement, manifest in all branches of business with the exception of iron production, rich harvests were gathered everywhere during these three years. The average price of wheat in 1848-50 was 36s. per quarter in England, 32s. in France. This period of prosperity is characterized by the fact that three major outlets for speculation were blocked. Railway production had been reduced to the slow development of a normal branch of industry, corn offered no opportunities due to a series of good harvests, and, as a result of the revolution, government stocks had lost the reliable character without which large speculative transactions in securities are not possible. During every period of prosperity capital accumulates. On the one hand increased production generates new capital; on the other, capital which was available but idle during the crisis is released from its inactivity and unloaded onto the market. With the lack of speculative outlets this additional capital was forced during these years to flow into actual industry, thus increasing production even more rapidly. How apparent this is in England, without anyone being able to explain it, is demonstrated by this naive statement in the Economist of 19 October 1850:
It is remarked that the present prosperity differs from that of former periods within recollection, in all of which there was some baseless speculation exciting hopes that were destined not to be realized. At one time it was foreign mines, at another more railways than could be conveniently made in half a century. Even when such speculations were well founded, they contemplated a realization of income, from raising metals or creating new conveniences, at the end of a considerable period, and awarded no immediate reward. But at present our prosperity is founded on the production of things immediately useful, and that go into consumption nearly as fast as they are brought to market, returning to the producers a fair remuneration and stimulating more production...
Cotton manufacturing, the dominant branch of industry, provides the most striking proof of the extent to which industrial production has increased in 1848 and 1849. The United States cotton crop of 1849 produced a higher yield than in any previous year, amounting to 2 3/4 million bales, or about 1,200 million lb. The expansion of the cotton industry has kept pace with this increase in imports to such an extent that at the end of 1849 stocks were lower than ever before, even after the years of the crop failures. In 1849 over 775 million lb. of cotton were spun, as against 721 million lb. in 1845, the year of the greatest prosperity hitherto. The expansion of the cotton industry is further shown by the great rise in cotton prices (55 per cent) resulting from a relatively minor loss in the 1850 crop. At least the same progress can be seen in all other branches, such as the spinning and weaving of silk, shoddy and linen. Exports in these industries have risen so considerably, particularly in 1850, that they have produced a large increase in the total export figures for the first eight months of this year (£12 million above the corresponding figure for 1848, £4 million above that for 1849), even though in 1850 the 294 export of cotton products has dropped noticeably as a result of the bad cotton crop. In spite of the considerable increase in wool prices, which seems to have been caused by speculation in 1849, but which has now levelled out, the woollen industry has expanded continuously, and new looms are continually being brought into operation. The export of linen textiles in 1844, the highest previously, amounted to 91 million yards, at a value of over £2,800,000, while in 1849 it reached 107 million yards at a value of over £3,000,000...
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