Pauperism and free trade. The approaching commercial crisis

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Originally Marx wrote this article and "Political Consequences of the Commercial Excitement" in German as a single article, which he sent to Engels in Manchester on October 12 to be translated into English. Engels divided the text into two independent articles. When sending the translated articles to New York, Marx dated the first article October 15, 1852, and the second October 19, 1852. In this volume some figures have been verified on the basis of the sources used by the author.

London, Friday, October 15, 1852 In a malt-house in Banbury, Mr. Henley, President of the Board of Trade, lately explained to his assembled farming friends that Pauperism had decreased but by circumstances which had nothing to do with free trade; and above all, by the famine of Ireland, the discovery of gold abroad, the exodus of Ireland, the great demand consequent thereon for British shipping, &c., &c. We must confess that "the famine" is quite as radical a remedy against Pauperism as arsenic is against rats.

"At least," observes The London Economist, "the Tories must admit the existing prosperity and its natural result, the emptied workhouses."

The Economist then attempts to prove to this incredulous President of the Board of Trade, that workhouses have emptied themselves in consequence of free trade, and that if free trade is allowed to take its full development, they are likely to disappear altogether from the British soil. It is a pity that The Economist's statistics do not prove what they are intended to prove.

Modern industry and commerce, it is well known, pass through periodical cycles of from 5 to 7 years, in which they, in regular succession, go through the different states of quiescence next improvement growing confidence activity prosperity excitement over-trading convulsion pressure stagnation distress ending again in quiescence.

Recollecting this fact, we will revert to the statistics of The Economist.

From 1834, when the sum expended for the relief of the poor amounted to £6,317,255, it fell to a minimum of J4,044,741 in 1837. From that date it rose again every year until 1843, when it reached £5,208,027. In 1844, '45 and '46, it again fell to £4,954,204, and rose again in 1847 and '48, in which latter year it amounted to £6,180,764, almost as high as in 1834, before the introduction of the new Poor Law. In 1849, '50, '51 and '52 it fell again to £4,724,619. But the period of 1834-37 was a period of prosperity; that of 1838-42, a period of crisis and stagnation; 1843-46, a period of prosperity; 1847 and '48, a period of crisis and stagnation, and 1849-1852 again a period of prosperity.

What, then, prove these statistics? In the best of cases, the common-place tautology that British pauperism rises and falls with the alternate periods of stagnation and prosperity, independently of either free trade or protection. Nay, in the free trade year of 1852 we find the Poor Law expenditures higher by £679,878 than in the year of protection, 1837, in spite of the Irish Famine, the "nuggets" of Australia, and the steady stream of emigration.

Another British Free Trade paper attempts to prove that exports rise with free trade, and prosperity with exports, and that with prosperity pauperism must decrease and finally disappear; and the following figures are to prove this. The number of able-bodied human beings doomed to subsist by parish support was:

Jan. 1, 1849, in 590 Unions, 201,644
Jan. 1, 1850, in 606 Unions, 181,159
Jan. 1, 1851, in 606 Unions, 154,525

Comparing herewith the export lists, we find, for exports of British and Irish manufacture:

1848 .......... £48,946,395
1849 .......... £58,910,833
1850 .......... £65,756,035

And what proves this table? An increase of exports of £9,964,438 redeemed above 20,000 persons from pauperism in 1849; a further increase of £6,845,202 redeemed 26,634 more in 1850. Now, even supposing free trade to do entirely away with the industrial cycles and their vicissitudes, then the redemption of the total number of able-bodied paupers would, under the present system, require an additional increase of the foreign trade of 50,000,000 annually, that is to say, an increase of very near 100 per cent. And these sober-minded Bourgeois statisticians have the courage to speak of "Utopists."—Verily, there are no greater Utopists in existence than these Bourgeois optimists.

I have just got hold of the documents published by the Poor Law Board. They prove indeed that we are experiencing a numerical decrease of paupers against 1848 and 51. But from these papers there follows at the same time: From 1841-'44 the average of paupers was 1,431,571—1845-'48 it was 1,600,257. In 1850 there were 1,809,308 paupers receiving in-door and out-door relief, and in 1851 they numbered 1,600,329, or rather more than the average of 1845-'48. Now, if we compare these numbers with the population as verified by the census, we find that there were in 1841-'48, 89 paupers to every 1,000 of the population, and 90 in 1851. Thus in reality pauperism has increased above the average of 1841-'48, and that in spite. of free trade, famine, prosperity, in spite of the nuggets of Australia and the stream of emigration.

I may notice on this occasion, that the number of criminals has increased also, and a glance at The Lancet, a medical journal, shows that the adulteration and poisoning of articles of food has hitherto kept up apace with free trade. Every week The Lancet causes a new panic in London by unraveling fresh mysteries. This paper has established a complete commission of inquiry of physicians, chemists, &c., for the examination of the articles of food sold in London. Poisoned coffee, poisoned tea, poisoned vinegar, poisoned cayenne, poisoned pickles everything mixed up with' poison that is the regular winding up of the reports of this commission.

Either side of the Bourgeois commercial policy, Free Trade or Protection, is, of course, equally incapable of doing away with facts that are the mere necessary and natural results of the economical base of Bourgeois society. And a matter of a million of paupers in the British workhouses is as inseparable from British prosperity, as the existence of eighteen to twenty millions in gold in the Bank of England.

This once settled in reply to the Bourgeois phantasts, who on one hand hold up as a result of Free Trade what is a mere necessary concomitant of every period of prosperity in the commercial cycles, or who, on the other hand, expect things from Bourgeois prosperity which it cannot possibly bring about. This once settled, there can be no doubt that the year 1852 is one of the most signal years of prosperity England ever enjoyed. The public revenue, in spite of the repeal of the window tax, the shipping returns, the export lists, the quotations of the money market, above all, the unprecedented activity in the manufacturing districts, bears an irrefutable testimony to this fact.

But the most superficial knowledge of commercial history from the beginning of the nineteenth century, suffices to convince anybody that the moment is approaching when the commercial cycle will enter the phase of excitement, in order thence to pass over to those of over-speculation and convulsion. "Not at all!" shout the Bourgeois optimists. "In no previous period of prosperity was there less speculation than in the present one. Our present prosperity is founded upon the production of articles of immediate usefulness, which enter into consumption almost as rapidly as they can be brought to market, which leave to the producer an adequate profit, and stimulate renewed and enlarged production."

In other words, what distinguishes this present prosperity is the fact that the existing surplus capital has thrown, and is throwing itself, directly into industrial production. According to the late report of Mr. Leonard Horner, Inspector General of Factories, there took place in 1851 an increase in cotton factories alone equal to 3,717 horse power. His enumeration of factories in course of construction is almost endless. Here a spinning mill with 150 horse power, there a weaving shed for 600 looms for colored goods, another spinning factory for 60,000 spindles and 620 horse power, another for spinning and weaving with 200, another with 300 horse power, etc. The largest, however, is building near Bradford (Yorkshire) for the manufacture of Alpaca and mixed goods.

"The magnitude of this concern, which is being erected for Mr. Titus Salt, may be inferred from the fact that it is calculated to cover six statute acres of ground. The principal building will be a massive stone edifice of considerable architectural pretensions, having a single room in it 540 feet long, and the machinery will include the latest inventions of acknowledged merit. The engines to move this immense mass of machinery are being made by Messrs. Fairbairn, of Manchester, and they are calculated to work 1,200 horse power. The gas works alone will be equal to those of a small town, and will be erected upon White's hydrocarbon system, at a cost of £4,000. It is calculated that 5,000 lights will be required, consuming 100,000 cubic feet of gas per diem. In addition to this extensive factory, Mr. Salt is building 700 cottages for the workpeople in its immediate neighborhood."

What, then, follows this enormous investment of capital for immediate industrial production? That the crisis will not come? By no means; but on the contrary, that it will take a far more dangerous character than in 1847, when it was more commercial and monetary than industrial. This time it will fall with its heaviest weight upon the manufacturing districts. Let the unequaled stagna¬tion of 1838-'42 be recalled to mind, which, too, was a direct result of industrial over-production. The more surplus capital concen¬trates itself in industrial production, instead of dividing its stream amongst the manifold channels of speculation, the more extensive, the more lasting, the more direct will the crisis fall upon the working masses and upon the very élite of the middle class. And if, in the moment of revulsion, the whole overwhelming mass of goods on the market already takes at once the form of lumbering ballast, how much more must this be the case with these numerous enlarged or newly-erected factories, just far enough advanced to begin to work, and for which it is of vital importance to set to work at once? If every time when capital deserts its habitual commercial channels of circulation, this desertion creates a panic which reaches even into the parlor of the Bank of England, how much more so a similar sauve qui peut in a moment when an immense amount has thus been turned into fixed capital in the shape of mills, machinery, etc., which begin to work only at the outbreak of the crisis, or which partially require further sums of circulating capital before they can be got into workable condition.

I take from The Friend of India another fact significative of the character of the approaching crisis. From a statement of the commerce of Calcutta in 1852 therein contained, it results that the value of cotton goods, twist and yarn imported into Calcutta in 1851, amounted to £4,074,000, or nearly two-thirds of the whole trade. In this year the whole amount of these imports will be larger still. The imports into Bombay, Madras, Singapore, are not even comprised herein. But the crisis of 1847 has given such revelations of Indian trade, that nobody can retain the slightest doubt of the final results of an industrial prosperity, in which the imports of "our Indian Empire" count for two-thirds of the whole.

So much as to the character of the state of convulsion which is to follow in the wake of the present state of prosperity. That this convulsion will come down in 1853, is prognosticated by many symptoms, especially the plethora of gold at the Bank of England, and the particular circumstances under which this large influx of bullion takes place.

At this moment there are £21,353,000 in bullion in the vaults of the Bank of England. It has been attempted to explain this influx by the surplus production of gold in Australia and California. A simple glance at facts proves the incorrectness of this view.

The increased quantity of bullion in the Bank of England represents, in reality, nothing but the diminished import of other commodities; in other words a large surplus of exports over imports. The last trade lists show, in fact, a considerable decrease of imports in hemp, sugar, tea, tobacco, wines, wool, grains, oils, cocoa, flour, indigo, hides, potatoes, bacon, pork, butter, cheese, hams, lard, rice, and almost all the manufactures of the European continent and of British India. There was an evident over-importation in 1850 and 1851, and this, as well as the increased price of bread-stuffs on the Continent in consequence of a bad harvest, tends to keep down imports. The imports of cotton and flax alone show an increase.

This surplus of exports over imports explains why the rate of exchange is favorable for England. On the other hand, the balancing by gold of this excess of exports, causes a large portion of British capital to lie idle and to go to increase the reserves of the banks. The banks as well as private individuals hunt up every means to invest this idle capital. Hence the present abundance of loanable capital and the low rate of interest. First-class paper is at 1¾ and 2 per cent. Now, if you compare any history of trade, say Tooke's History of Prices, you find that the coincidence of these symptoms: unusual accumulation of bullion in the cellars of the Bank of England, excess of exports over imports, favorable rate of exchange, abundance of loanable capital, and low rate of interest, regularly opens, in the commercial cycle, that phase where prosperity passes into excitement, where on one hand over-trading in imports, on the other, wild speculations in all sorts of attractive bubbles, is sure to begin. But this state of excitement itself, is only the precursor of the state of convulsion. Excitement is the highest apex of prosperity; it does not produce the crisis, but it provokes its outbreak.

I know very well that the official economical fortune-tellers of England will consider this view exceedingly heterodox. But when since "Prosperity Robinson", the famous Chancellor of the Exchequer, who in 1825, just before the appearance of the crisis, opened Parliament with the prophecy of immense and unshake¬able prosperity—when have these Bourgeois optimists ever foreseen or predicted a crisis? There never was a single period of prosperity, but they profited by the occasion to prove that this time the medal was without a reverse, that the inexorable fate was this time subdued. And on the day, when the crisis broke out, they held themselves harmless by chastising trade and industry with moral, common-place preaching against want of foresight and caution.

The peculiar state of politics created by this momentary commercial and industrial prosperity, will form the subject of my next letter.