The Economic Crisis in Europe (1856)

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What distinguishes the present period of speculation in Europe is the universality of the rage. There have been gambling manias before corn manias, railway manias, mining manias, banking manias, cotton-spinning manias – in short, manias of every possible description; but at the epochs of the great commercial crises of 1817, 1825, 1836, 1846-’47, although every branch of industrial and commercial enterprise was affected, one leading mania gave to each epoch its distinct tone and character. Every department being invaded by the spirit of speculation, every speculator still confined himself within his department. On the contrary, the ruling principle of the Crédit Mobilier, the representative of the present mania, is not to speculate in a given line, but to speculate in speculation’, and to universalize swindling at the same rate that it centralizes it. There is, besides, this further difference in the origin and growth of the present mania, that it did not begin in England, but in France. The present race of French speculators stand in the same relation to the English speculators of the above-mentioned epochs as the French Deists of the Eighteenth to the English Deists of the Seventeenth Century. The one furnished the materials, while the other produced the generalizing form which enabled deism to be propagated over the whole civilized world of the eighteenth century. The British are prone to congratulate themselves upon the removal of the focus of speculation from their free and sober island to the muddled and despot-ridden Continent; but then they forget the intense anxiety with which they watch the monthly statement of the Bank of France as influencing the heap of bullion in the sanctum of the Bank of England; they forget that it is English capital, to a great extent, which supplies the great arteries of the European Credits Mobiliers with the heavenly moisture; they forget that the “sound” over-trading and over-production in England, which they are now extolling as having reached the figure of nearly £110,000,000 of exports, Is the direct offspring of the “unsound” speculation they denounce on the Continent, as much as their liberal policy of 1854 and 1856 is the offspring of the coup d’état of Bonaparte. Yet it cannot be denied that they are innocent of the breeding of that curious mixture of Imperial Socialism, St. Simonistic stock-jobbing and philosophical swindling which makes up what is called the Crédit Mobilier. In strong contradistinction to this continental refinement, English speculation has gone back to its coarsest and most primitive form of fraud, plain, unvarnished and unmitigated. Fraud was the mystery of Paul, Strahan & Bates; of the Tipperary Bank of Sadleir memory; of the great City operations of Cole, Davidson & Gordon; and fraud is the sad but simple tale of the Royal British Bank of London.

For a set of directors to eat up a company’s capital, while cheering on its shareholders by, high dividends, and inveigling depositors and fresh shareholders by fraudulent accounts, no high degree of refinement is necessary. Nothing is wanted but English law. The case of the Royal British Bank has caused a sensation, not so much on account of the capital as on account of the number of small people involved, both among the shareholders and depositors. The division of labor in this concern appears to have been very simple, indeed. There were two sets of directors, the one content to pocket their salary of £10,000 a year for knowing nothing of the affairs of the Bank and keeping then, consciences clear, the other intent upon the real direction of the Bank, only to be its first customers or rather plunderers. The latter class being dependent for accommodation upon the manager at once begin with letting the manager accommodate himself’. Beside the manager they must take into the secret the auditor and solicitor of the Company, who consequently receive bribes in the shape of advances. In addition to advances made to themselves and relatives in their own names, the directors and manager proceed to set tip a number of men of straw, in whose names they pocket further advances. The whole paid-up capital amounts now to £150,000, of which £121,840 were swallowed directly and indirectly by the directors. The founder of the Company, Mr. McGregor, M.P. for Glasgow, the celebrated statistical writer,” saddled the Company with L7,362; another director and Member of Parliament, Mt.. Humphrey Brown of Tewkesbury, who used the bank to pay his electioneering expenses, incurred at one time a liability to it of £70,000, and appears to be still in its debt to the tune of £50,000. Mr. Cameron, the manager, had advances to the amount of £30,000.

Every Year since the bank went in operation, it had been losing £50,000, and yet the directors came forward every year to congratulate the shareholders upon their prosperity. Dividends of six per cent. were paid quarterly, although by the declaration of the official accountant, Mr. Coleman, the shareholders ought never to have had a dividend at all. Only last Summer, fallacious accounts to the extent of over £370,006 were presented to the shareholders, the advances made to McGregor, Humphrey Brown, Cameron & Co., figuring under the abstract head of Convertible Securities. When the bank was completely insolvent, new shares were issued, amid glowing reports of its progress and a vote of confidence in the directors. This issue of new shares was by, no means contemplated as a desperate means of relieving the position of the bank, but simply to furnish fresh material for directorial fraud. Although it was one of the rules of the charter that the bank was not to traffic in its own shares, it appears to have been the constant practice to saddle it, by way of security’, with its own shares whenever they had become depreciated in the directors’ hands. The way, in which the “honest portion” of the directors pretend to have been duped, was told by one of them, Mr. Owen, at a meeting of’ shareholders, as follows:

“When all arrangements for starting this concern had been made, Mr. Cameron was appointed our manager, and we soon found out the evil of having a manager who had never previously been connected with any, bank in London. By reason of that circumstance arose a number of difficulties. I will state what occurred two years and some months ago when I left the bank. Why, shortly, before that time, I did not know that there was a single shareholder indebted to the bank to the amount of £10,000, either for discount or advances. I at one time heard a whisper of some complaints that there was a large sum due by one of them on account of discounts, and I asked one of the bookkeepers as to the matter. I was told that when I shut the parlor door I had nothing to do with the bank. Mr. Cameron said that no director must bring his own bills to be discounted before the Board. He said that such bills should go to the general manager, for if they were brought before the Board we should never get merchantile men of high character to bank with us. In this ignorance was I until one occasion, when Mr. Cameron was taken so dangerously ill that he not expected to recover. In consequence of his illness, the Chairman and some of the other Directors made some inquiries which disclosed to us that Mr. Cameron had a hook with a private key which we had never seen. When the Chairman opened that book we were all indeed astonished.”

It is due to Mr. Cameron to say that, without waiting for the consequences of these discoveries, he, with great prudence and promptitude, expatriated himself from England.

One of the most extraordinary and characteristic transactions of the Royal British Bank was its connection with some Welsh Iron Works. At a time when the paid-up capital of the Company amounted to but £50,000, the advances made to these Iron Works alone reached the sum of £70,000 to £80,000. When the Company first got possession of this iron establishment it was an unworkable concern. Having become workable after an investment of something like £50,000, we find the property in the hands of a Mr. Clarke, who, after having worked it “for some time,” threw it back upon the bank, while “expressing his conviction that he was throwing up a large fortune,” leaving the bank, however, to bear an additional debt of £20,000 upon the “property.” Thus, this concern kept going out of the hands of the bank whenever profits seemed likely to come in, and kept coming back to the bank when fresh advances were required to go out. This practical joke the Directors were endeavoring to continue even at the last moment of their confession, still holding up the profitable capacities of the works, which they say might yield £16,000 per annum, forgetting that they have cost the shareholders £17,742 during every year of the Company’s existence. The affairs of the Company are now to be wound up in the Court of Chancery.’ Long before that can be done, however, the whole adventures of the Royal British Bank will have been drowned amid the deluge of the general European crisis.