The Financial Crisis in Europe (December 1857)

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The arrival yesterday morning of the mails of the Canada and the Adriatic puts us in possession of a week's history of the European financial crisis. This history may be summed up in a few words. Hamburg still formed the center of the convulsion, which reacted more or less severely on Prussia, and was gradually reducing the English money market to the unsettled state which it seemed to be recovering from. Some distant echoes of the storm had reverberated from Spain and Italy. Through the whole of Europe the palsy of industrial activity and the consequent distress of the laboring classes are rapidly spreading. On the other hand, the comparative resistance which France still opposed to the contagion puzzled the political economists as a riddle harder to be solved than the general crisis itself.

The Hamburg crisis was thought to have passed its climax after Nov. 21, upon the establishment of the Guaranteed Discount Association, the total subscriptions for which amounted to 12,000,000 marks banco, destined to secure the circulation of such bills and notes as should receive the stamp of the Association. Still, some days later, the recurrence of some failures, and events like the suicide of the bill broker Gowa, foreshadowed new disasters. On Nov. 26, the panic again had full swing; and as at first the Discount Association, so now the Government itself stepped forward to stem its current. On the 27th, the Senate proposed, and obtained leave from the freehold burgesses of the city, to issue securities bearing interest (exchequer notes), to the amount of 15,000,000 marks banco, for the purpose of making advances upon goods of a permanent description, or upon State securities—such advances to amount to from 50 to 66 2/3 per cent of the respective value of the pawned commodities. This second effort to right the course of commerce foundered like the first—both resembling the vain cries of distress which precede a shipwreck. The guaranty of the Discount Association itself was found to need another guaranty in its turn, and the advances of the State, limited in their amount as well as the description of commodities to which they applied, became, moreover, by dint of the very conditions under which they were made, relatively useless, at the same ratio that prices were going down. To uphold prices, and thus ward off the active cause of the distress, the State must pay the prices ruling before the outbreak of the commercial panic, and realize the value of bills of exchange which had ceased to represent anything but foreign failures. In other words, the fortune of the whole community, which the Government represents, ought to make good for the losses of private capitalists. This sort of communism, where the mutuality is all on one side, seems rather attractive to the European capitalists.

On November 29, twenty great commercial Hamburg firms, beside numerous Altona houses, broke down, the discount. of bills had ceased, the prices of merchandise and securities became nominal, and all business arrived at a dead lock. From the list of failures it appears that five of them occurred in banking; operations with Sweden and Norway—the liabilities of Messrs. Ullberg & Cramer, amounting to 12,000,000 marks banco, five in the Colonial produce trade, four in the Baltic produce trade, two in the export of manufactures, two in insurance agencies, one in the Stock Exchange, one in the ship-building trade. Sweden depends so entirely on Hamburg as her exporter, bill-broker and banker, that the history of the Hamburg market is that of the Stockholm market. Consequently, two days after the collapse a telegram announced that the failures in Hamburg had led to failures in Stockholm, and that there too Government support had proved unavailable. What in this respect holds good for Sweden is still more true for Denmark, whose commercial center, Altona, is but a suburb of Hamburg. On the 1st of December extensive stoppages occurred, including two very old firms, viz.: Conrad Warneke, in the Colonial trade, especially sugar, with a capital of 2,000,000 marks banco, and extensively connected with Germany, Denmark and Sweden; and Lorent am Ende & Co., carrying on business with Sweden and Norway. One ship-owner and general merchant committed suicide in consequence of his embarrassments.

The general extent of Hamburg commerce may be inferred from the fact that at this very moment about 500,000,000 m. b. in goods of all kinds are held in warehouses and in port, on account of its merchants. The republic is now recurring to the only remedy against the crisis, that of relieving its citizens from the duty of paying their debts. A law granting a respite of one month on all bills payable at maturity is likely to be passed. As to Prussia, the distress of the manufacturing districts of the Rhine and Westphalia is hardly noticed by the public papers, since it has not yet resulted in extensive failures, the latter having been limited to the corn exporters at Stettin and Dantzig, and to about forty manufacturers at Berlin. The Prussian Government has interfered by authorizing the Berlin Bank to advance loans on goods deposited and by suspending the usury laws. The former measure will prove as vain at Berlin as at Stockholm and Hamburg, and the latter puts Prussia only on a footing of equality with other commercial countries.

The Hamburg collapse is a conclusive answer to those imaginative minds which presume the present crisis to have originated in prices artificially enhanced by a paper currency. In regard to currency, Hamburg forms the opposite pole to this country. There, there is no money but silver. There exists no paper circulation at all, but a medium of exchanges purely metallic is boasted of. Still the present panic not only rages there most severely, but since the appearance of general commercial crises—the discovery of which is not so old as that of the comets—Hamburg has been their favorite arena. Twice during the last third of the eighteenth century it exhibited the same spectacle as at present; and if it is distinguished by one characteristic feature from other great commercial centers of the world, it is by the frequency and violence of the fluctuations in the rate of interest.

Turning from Hamburg Jo England, we find that the tone of the London money market was progressively improving from Nov. 27 to Dec. 1, when again an opposite current set in. On November 28 the price of silver had actually declined, but after Dec. 1 it again recovered and will probably advance, large amounts being required for Hamburg. In other words, gold will again be withdrawn from London to buy Continental silver, and this renewed drain of bullion will call for the renewed action of the Bank of England screw. Beside the sudden demand at Hamburg, there is looming in a not remote future the Indian loan, which the Government, however it may try to shift off the evil day, must necessarily resort to. The occurrence of fresh failures had also contributed after the 1st inst. to dispel the delusion that the money market had seen its worst. As Lord Overstone (the banker Lloyd) remarked in the opening session of the House of Lords:

"The next occasion of pressure upon the Bank will probably occur before the exchanges are rectified, and then the crisis will be greater than that which we have shrunk from meeting on the present occasion. There are serious and formidable difficulties hanging over this country."

The catastrophe at Hamburg has not yet been felt at London. The greater easiness of the loan market had favorably affected the produce market; but, irrespective of the eventual new contraction of money, it is evident that the great fall in the prices of produce in Stettin, Dantzig and Hamburg cannot but bring down the London quotations. The French decree rescinding the prohibition of the export of corn and flour immediately compelled the London millers to reduce their quotations by three shillings per 280 pounds, in order to stem the influx of flour from France. Several failures in the corn-trade have been reported, but they have been confined to smaller houses and operators in grain for distant delivery.

The English manufacturing districts exhibit no novelty, except that cotton goods adapted to the Indian demand, such as brown shirtings, jaconets, madapolams, as well as yarns suitable for the same market, fetch, for the first time since 1847, remunerative prices in India. Since 1847, the profits made by the Manchester manufacturers in that trade have been derived, not from the price realized on the sale of their goods in East India, but only on the sale in England of their East Indian returns. The almost total suppression of Indian export since June, 1857, occasioned by the revolt, has allowed the Indian market to absorb the floating English goods and even to open itself for new supplies at enhanced prices. Under ordinary circumstances such an event would have given extraordinary liveliness to the Manchester trade. At present, as we are informed by private letters, it has hardly raised the prices of the privileged articles, while it turned such an amount of employment seeking productive power to the manufacture of these particular articles as would suffice to overstock three Indias on the shortest notice. Such has been the general enlargement of productive power in the British manufacturing districts during the last ten years, that even the reduction of labor to less than two-thirds its previous amount can only be sustained by the mill-owners accumulating in their warehouses a large surplus stock of fabrics. Messrs. Du Fay & Co., in their monthly Manchester trade report, say that "there was a pause in business during the month; very few transactions took place, and prices were altogether nominal. Never before was the sum total of a month's transactions so small as in November."

It is, perhaps, proper here to call attention to the fact that in the year 1858 the repeal of the British Corn Laws will first be put to a serious test. What with the influence of Australian gold and industrial prosperity, what with the natural results of bad harvests, the average price of wheat during the epoch from 1847 to 1857 ruled higher than during the epoch from 1826 to 1836. A keen competition of foreign agriculture and produce will now have to be sustained concurrently with a decline in the home demand; and. agricultural distress, which seemed buried in the annals of British history from 1815 to 1832, is likely to appear again. It is true that the advance in the price of French wheat and flour, following upon the Imperial decrees, has proved but temporary, and vanished even before any extensive export to England took place. But with a further pressure on the money market of France she will be forced to throw her corn and flour into England, which will be at the same time assailed by forced sales of German produce. Then in the spring the shipments from the United States will come forward, and give the British corn market its finishing blow. If, as the whole history of prices warrants us in supposing, several good harvests are now to follow each other in succession, we shall see fully worked out the true consequences of the repeal of the Corn Laws for the agricultural laborers in the first instance, the farmers in the second, and the whole framework of British landed property in the last.