happy tragedy of the assassination of Lincoln, subsequent to his re-election, the blockade was raised and peace was restored. Into the further questions concerning the restoration of peace and the abolition of slavery we shall not enter. There are, however, other economic questions of grave moment which had a direct influence on the finances and trade of the United Kingdom which must engage our attention. The finances of the United States. The finances of the United States now almost for the first time acquired an extraordinary magnitude. In 1861 the expenditure of the United States amounted only to 18,000,000l.; in 1862 it suddenly rose to 119,000,000l.; in 1863 to 187,000,000l.; in 1864 to 270,000,000l.; and in 1865 to 395,000,000l. Very soon after the rupture with the South in 1862 the New York banks suspended cash payments and began to issue inconvertible notes. The United States Government followed the example, and it also began to issue inconvertible notes. On February 20, 1862, an Act of Congress was passed authorising the treasury to issue on the credit of the United States $150,000,000 United States notes. And from that time large annual issues took place, which led to a considerable depreciation of the currency when compared with the value of gold in the first six months to the extent of only 3 per cent. but subsequently of as much as 155 per cent. The currency being so depreciated the exchanges between New York and London suffered in the same proportion. And the prices of produce calculated in paper currency rose in an equal ratio.2 Still more important were the effects of the war on the commerce between the United States and England. In 1860 our imports from the United States amounted to 44,727,000l., a large portion of which consisted of cotton. Suddenly, however, with the closing of the Southern ports a large portion of the American trade ceased, and the amount of our imports thence was reduced by more than half. In 1860 we imported altogether 1,391,000,000 lbs. of cotton, of Effect of the insurrection on trade and cotton supply. 2 The public debt of the United States in 1864 was 13,493,000l., and in 1869, 518,542,000l. The public expenditure in 1869 was 121,829,0007. The rate of exchange New York to London on January 5, 1861, was 103; on January 11, 1862, 111; on January 3, 1863, 146; on January 2, 1864, 165; on January 7, 1865, 243; on January 6, 1866, 152}; and on January 5, 1867, 1094. CHAP. II.] INDIAN COTTON. 427 which 1,115,890,000 lbs., or 75 per cent., were from the United States. In 1862 the imports of American cotton amounted only to 6,394,000 lbs. And, consequently, the average price of middling Orleans cotton, which in 1860 was 6d. per lb., rose in 1864, to 273d.3 Perplexed how to obtain the necessary quantity of cotton, India was put in motion to produce more largely than she had hitherto done. And though for manufacturing purposes Surat cotton is inferior to American cotton, gradually the manufacturers learnt how to use it mixed with other descriptions, and the importation of Indian cotton, which in 1860 was 204,000,000 lbs., rose in 1866 to 615,000,000 lbs. But the imports have since receded, and in 1870 were only 341,000,000 lbs. Much, certainly, has been done in India to improve the cultivation of cotton by the selection of indigenous seed, by the introduction of exotic seed, by a better cultivation of the soil, by the improvement of pressing bales, by the improvement of roads, and by the construction of railways. Nevertheless, it is the price that regulates the extent of cotton cultivation in India as elsewhere; and whether or not India will ever be able to compete permanently with America is doubtful. The cotton requirements of the world are estimated at nearly 3,000,000,000 lbs., the half of which is for Great Britain alone, and the other half for Europe, America, and India. It is much to be desired that every facility should be accorded to the cultivation of the article in every country in which it may be advantageously grown. To the United States the insurrection has been most injurious. Their finances have been disorganised; their commerce and navigation considerably reduced; their whole economic policy has been reversed. Would that a better counsel prevailed in the United States as to the manner of remedying their shattered fortunes! The following quotations of extreme prices of cotton from Messrs. George Holt & Co.'s circular may be useful. CHAPTER III. COMMERCIAL CRISIS. 1866. The Société de Crédit Mobilier.-Limited Liability Companies.-Finance Companies.-Finance Securities.-Large Companies and their Results.—Overend, Gurney, & Co. Limited.-Great Expansion of Trade.-Drain of Bullion to the East.-Fall of Money in London and other Places.Component Parts of the Rate of Interest.-The Supply of Capital in England.-The Demand for Capital in England.-A uniform Rate of Interest.-Policy of the Bank of England.-The Crisis of 1866.-Suspension of the Bank Charter Act.-Comparison of the Crisis of 1866 with former Crises.-Effect of the Government Letter on Credit at Home and Abroad. Mr. Watkins' Motion for a Royal Commission negatived. de Crédit ONE of the first objects which the Emperor Napoleon had at heart, after he strengthened his position, by the restoration of The Société the empire, in 1852, was the revival of industry and mobilier. commerce in France, which had long been languid and depressed, and for that purpose he greatly encouraged the formation of railways, and the incorporation of trading companies. Many were therefore the enterprises thereafter started, and great was the activity thereby introduced. Prominent, however, among the companies then formed was the Société de Crédit Mobilier,' the objects of which were to subscribe and acquire stock and shares in industrial enterprises, especially railways, canals, &c. ; to issue obligations of the society to the extent at least of the amount invested by the companies formed for such purposes; to sell or give on security for advances the shares acquired by the society; to undertake loans, to lend on public securities, to open credits; to pay interest and dividends; in short, to do for itself all that could be done by a number of companies, and to become immediately interested in and almost responsible for the success of enterprises undertaken by any CHAP. III.] FINANCE COMPANIES. 429 other company whose shares they acquired. The capital of the Société de Crédit Mobilier was fixed at 2,400,000l. and its issue of circulating paper at ten times that amount. The Société went vigorously to work. Many companies which would never otherwise have seen the light came into existence under its auspices. And for several years its profits were so very large, its deposits so considerable and its annual reports so enticing that it did seem as if France had discovered a new branch of business in the shape of finance companies well worthy of imitation in this country.' liability As we have seen, the principle of limited liability, long advocated as a means for encouraging the investment of capital in commercial adventures, was for the first time admitted Limited by the English law in 1855; and certainly if we can companies. test the success of legislation by the readiness with which it is adopted and acted upon by the community here is a case where the reform seemed to meet a decided want. Before 1856 almost every company formed was on the principle of unlimited liability. From that date scarcely any company was constituted but with limited liability. An immense stimulus was given to joint-stock enterprises by the very fact that the losses could never exceed the amount which the investors at the time intended to risk. From 1856 to 1868 there were formed 7,056 companies, involving in the aggregate the nominal investment of 893,000,000l. And of these 6,960 with a capital of 883,000,000l. were with limited liability, and 96 with a capital of 10,000,000l. were with unlimited liability. Many a private partnership was then formed into a limited company, and many companies with unlimited liability were converted into companies with limited liability. 6 Finance Many of these companies, styled as the International Financial,' the London Financial,' the Imperial Mercantile Credit,' the Crédit Foncier et Mobilier,' the Joint6 Stock Discount,' and others, were founded for purposes companies. similar to those of the Société de Crédit Mobilier' of Paris, and adopted not a few of its objectionable features. Before this new agency came into existence no public works could be un See an able article 'On the Recent History of the Crédit Mobilier' by Mr. Newmarch, F.R.S., Journal of the Statistical Society, Vol. XXI., p. 444. dertaken until shares were actually sold and sufficient capital was obtained for the purpose. But by the intervention of the finance companies the projectors of public works no longer needed to wait until the savings of the people were gathered. No sooner was a project started involving investments of millions, at home or abroad, than the finance companies agreed to indorse the bills of such companies, and debentures, bonds, stock, and preference shares were created and circulated as if the company had been actually in operation and the works were already in progress. The understanding of course was that the bills would be renewed from time to time; but what if by a sudden collapse of credit such bills could not be discounted? Finance securities. And on what were such bills founded? They represented no real value. As the Economist' stated: 'Such securities were a pure speculation on the future, and a speculation subject to one principal and many smaller casualties. Take the case of a railway; the line must be finished and placed in actual working before the obligations representing its cost can have any ascertained value at all. An unfinished railway or dock has no value whatever. In the second place the line must not only be finished and actually worked, but in order to impart value to the bonds and shares there must be a positive profit surplus. The difference between securities such as these, wholly dependent on future and uncertain events, to happen at distant and irregular dates and liable to become worthless by the premature stoppage of the undertaking, and the class of securities which long experience has shown to be best suited to the requirements of bankers and money dealers is not marked in its character, but so wide and glaring as to prepare any prudent person to expect mischief." panies, and The magnitude of the projects afloat was moreover sufficient to create alarm. From 1856 to 1868 as many as 300 companies Large com- were formed in the United Kingdom with a nominal their results. capital of 1,000,000l. and upwards each, or an aggregate of 504,000,000l. But what became of them? Many existed only in the imagination; a fifth of them were abandoned before starting, and 87 more were speedily wound up. In a short time, out of 300 companies as many as 178 ceased |