17 February 1866. N. 1173.

Money market.

Oriental demand for silver very much diminished. Supplies of gold coming to the Bank. Continental exchanges improving … we certainly hope that perhaps, even next week, the Directors of the B. o. E. will be able to diminish their rate of discount.

The Report of the American Commissioners on Revenue (appointed by the President) (Blue Book.)

1) Effects of war on people: „the consumption of coffee in the U. St. decreased from the annual average of 200 Mill. pounds in 1860 to less than 80 Mill. pounds in 1863. During the same period consumption of sugar decreased from 31 to 19 pounds per capita; and of tea for the whole country about 23%.“ the rise of price caused by the immense issues of Gvt paper money greatly straitened all classes mit small fixed incomes. Even now the Commissions estimate 60l. before the war as equal to 100l. now. Such a diminution of effectual income contemporaneous mit immense increase of taxation.

2) The original parts of American finance are breaking down. Z. B. die Yankees erfanden wӓhrend des Kriegs 6% tax on the industrial products of the country, subject to some exceptions and modifications. Nun question: What is a product? The law decided that a thing was produced when it was „made“. Of course when it is completed, and the only test of its completion is its being sold. But owing to the division of labour many articles produced in a 100 places, and the result which the consumer gets is the aggregate of a 100 previous sellings and makings. The law could make no distinction between articles sold to a manufacturer and a consumer. It would have been baffled by wholesale evasion. It taxed all „makings“ 6%. The Commission describes the curious result: „Under the operation of this law the Gvt. now levies and collects from 8 to 15%, in some instances 20%, on almost every finished industrial product. … A good illustration … is presented in the manufacture of umbrellas and parasols, as carried on in the cities of New York and Philadelphia. It was formerly the practice of umbrella-makers to manufacture the main constituents of their product as one business; but now the business of an umbrella-maker is rather to assemble the various constituents of an umbrella or parasol, which are made separately and in different parts of the country. Thus, f. e., the sticks, when of wood, are made in Philadelphia and in Connecticut; part of native and part of foreign wood, on which last a duty may have been paid. If the supporting rod is of iron or of steel, it is the product of still another establishment.In like manner the handles of carved wood, bone or ivory; the brass runners, the tips, the elastic band, the rubber, of which the band is composed, the silk tassels, the buttons, and the cover of silk, gingham or alpaca, are all distinct products of manufacture, and each of these constituents, if of domestic manufacture, pays a tax when sold of 6% ad valorem, or its equivalent. The umbrella manufacturer now aggregates all these constituent parts, previously taxed, into a finished product, and then pays 6% on the whole. It is, therefore, evident that under the existing excise system, all the parts of the umbrella are taxed at least twice, and, in some cases, three times, thus adding from 12 to 15% on the umbrella direct; while we may feel certain, moreover, that each separate manufacturer makes the payment of the 6% tax on his special product an occasion for adding from 1 to 3% additional to its cost price, in some instances over 6%.“

„Again, in the case of books, pamphlets etc, it is claimed that, including licenses and income tax, the finished book and its constituent materials pay from 12 to 15 distinct taxes before reaching the reader. Every separate item that enters into the bookpaper, cloth, boards, glue, thread, gold-leaf, leather 20 and type material – pays from 3 to 6% in the first instance, and then 5% on the whole combined; and this not upon the cost of the manufactured article, but upon the price at which it is sold.“

The effect of this tax, in appearance so equitable and simple, has been to impose a burden differing almost in every instance upon the different industries of the country.

Nor is this all. The tax of 6% on domestic products has led to the oddest results when compared with the tariff on imports. That tariff is necessarily a tariff on consumable articles: not on the bits and components of such articles. Umbrellas or books come by ship as wholes, and must be taxed as wholes. How then is an Excise-duty to be made equal to the Customhouse system, and no more than equal to the Custom-duty? The Commission describe the present contrast:

„In the case of the umbrella and parasol manufacture, the cover, as a constituent element of construction, represents from 1 2 to 2 3 the entire cost of the finished article. The silk, the alpaca and Scotish gingham, of which the covers are made, are all imported, the former paying a duty of 60% and the latter two about 50% ad valorem, the variation being slight on the quality of the texture. The manufactured umbrella, covered with the same material, whose constituent parts are not taxed, either on the material used in their fabrication or on their sale, are, however, admitted under the present tariff at a duty of 35% ad valorem, or at a discriminating duty against the American and in favour of the foreign producer of from 15 to 25%. If we make allowance for the various U. St. internal revenue taxes, it is claimed by the American manufacturer that the discrimination in favour of the foreign producer is fully equal to 40%. It needs hardly to be added that, during the past 6 months imported umbrellas have been sold at auction in New York and Boston, with the original cost, duty, freight and charges paid in gold, for a less price than the American article can be manufactured; or that the business of making umbrellas and parasols in New York and Philadelphia, involving a capital of 2,000,000 dollars and employing the labour of some 5000 persons, a majority of whom are females, is threatened with utter destruction. In two instances cited to the Commission, umbrella manufactures have closed their factories in the U. St., and, with a view of exporting to this country, have transferred their capital and skill to Europe. In a communication submitted to the Commission by a committee of umbrella manufacturers, they state that, unless relief is speedily obtained, we can perceive no other possible course to pursue but the alternative of retiring entirely from the field, and leaving it entirely to foreign hands.“

Ebenso mit books.

„The Commission would add that at the present time the one article which, above all others, would seem to be a peculiar product of American industry, viz. Webster’s Spelling Book, is now being printed in large quantities in London for the use of American schools.“

In practice no system of Excise pressing on all commodities can be made equal to a tariff pressing on all commodities. The home imposts cannot be too small, or they will not be worth collecting; the Customs duty must not be too large, or it will be a prohibition unproductive to the revenue and useful only to the smuggler.

Repairs: The Americans put a tax of 3 6 10 % on the repairs of every article if the cost of that repair exceeded 10% on the value. Aristocratic legislation. A repair of trifling cost is more than 10% of an article of small value; much less than 10% on articles of great value: hence, expensive articles of luxury can be repaired without a tax, but cheap articles of common use must pay a tax. „If“, say the Commissioners, „the worker in wood repairs a wheelbarrow worth 1 dollar by adding 10 cents to the value, it is taxable; but if he repairs a carriage or piano worth 500 dollars, no tax accrues unless he adds 50 dollars to the value.“

It is amusing to think that the American financiers should have established a system so favourable to articles of luxury as well as to articles of foreign manufacture.

21 3) The great revenue now to be raised will necessarily bring about in America a great political change. (Hierüber kohlt aber „Economist“ nur das Oberflӓchliche der Commission nach über die Nothwendigkeit stehende skilled collectors zu haben u. dem finance minister neue Stellung zu geben.)

On the whole, the finance management of America is falling back into the old humdrum inevitable channels of Europe, just as the finance itself is falling back. Money can only be got by certain modes and by certain men, whether on the eastside of the Atlantic or the West.

The Bill authorising loans for the Construction of Houses for the Poor.

One half the population of Gr. Brit. now lives in towns. The Metropolis has a population equal to that of Scotland, twice that of Denmark, necessarily 3 × that of Greece. London receives new inmates at the estimated rates of 300 a day. This packing has now reached a point at which it threatens to be destructive – typhus has become endemic in London … The railways become a swath of erased houses, until it is officially calculated that, within this single year, 16 000 houses have been marked for destruction, and upwards of 80 000 persons will be thrown upon quarters already overburdened. This cannot go on without one or 2 results – pestilence or an attempt on the part of the dispossessed to obtain a remedy by force … . Besides, a population so overcrowded must deteriorate in virtue, civilization, and in the capacity for works.

Mr. Childers’ bill, sanctioned by Gladstone, authorises the Commissioners of Public Work Loans to lend money at 4% to municipalities, vestries, companies and private persons to construct dwellings for the poor, the security being the buildings, and the duration of the loan 7 years.

Dwellings for Working Classes.―Mr. Torrens’ Act.―

The last Act of the late session was to provide better dwellings for artizans and labourers. The preamble states that it is expedient to make provision for taking down or improving dwellings occupied by working men and their families which are unfit for human habitation, and for the building and maintenance of better dwellings for such persons. The Act is to apply to the metropolitan and other districts of the United Kingdom as set forth in the schedule. The mode of procedure under this statute is very simple. It provides for the appointment of officers where necessary, and if in any place to which the Act applies the officer of health finds that any premises therein are in a condition or state dangerous to health so as to be unfit for human habitation he is to report the same, and notice forthwith is to be taken to remove or to improve the same. Action is to be taken by local authorities on the report of surveyors against the owners to make them comply with the directions, subject to an appeal to the Quarter Sessions. On four or more householders living in or near to any street representing in writing to the officer of health that any premises in or near that street are in a condition or state dangerous to health he is to inspect them and report, but the absence of any such representation is not to excuse him from inspecting any premises and reporting thereon. In the event of the local authority declining or neglecting for the space of three months after receiving such report to take any proceedings to put the Act in force, the householders who signed the representation may address a memorial to the Secretary of State, and he may direct the local authority to proceed under the Act. On the owner of premises being required to execute the works, and in his default, the local authority may either order the premises to be shut up or to be demolished, or may themselves 22do the work. Where the local authorities execute the works they may apply to the Quarter Sessions for an order charging on the premises the amount of all costs and expenses in and about the execution of the works, and the Quarter Sessions, when satisfied of the amount so expended, is to make an order charging the property with the amount and 4 per cent. interest which charge is to have priority over all other charges, and to be deemed a mortgage. If the requirements of the order involve the total demolition and not the improvement of the premises, the owner is within three months after service of the order to remove the same, and if he fails then the local authority is to execute the order and pay him any balance that may remain after the expenses from the sale of the materials. Instead of effecting the improvements required by the local authority, the owner may take down the premises. Where an owner executes the work required by a local authority he is to have an annuity as compensation for the expenditure incurred by him in the shape of a charging order. The annuity is to be £6 for every £100, and to be payable for 30 years. Every charging order on premises in Middlesex and Yorkshire is to be recorded in the Registry-office. With the view of a general adoption of the Act–and there are many places where the working classes “most do congregate”―the Public Loan Commissioner may make advances, and the local authorities may borrow money for the purposes mentioned. Many public improvements are being carried out and contiguous to the same are wretched dwellings; they could be improved or demolished, and the principle involved in the preamble that they were unfit for working men and their families as “human habitations” could be easily established.―Times.

The Social Economist. (London). October 1,1868.

James Rothschild on Banks and Currency (als Zeuge vor dem französischen Bank Enquête Committee)

„As to the order of making the B. o. France invest money in foreign securities … the gravest fault it could commit. Such a measure a constant menace to foreign banks, and a cause of serious disquietude and distrust. If, f. i., the B. o. F. had in its portfolio 3 Mill. St., it might at a given moment throw them on the market, and produce a great perturbation in commerce. In presence of that eventuality, if the rarity of money were felt by the B. o. England, and it were forced to raise its rate of discount, it would have to raise it higher and more rapidly than if that circumstance had not existed.“

Financial shares: The apprehension felt and expressed concerning some of the financial cos, has been in part dispelled by the former appearance of the money market. Speculators had entered too ready into operations for the fall. The very considerable decline that has taken place followed by a reaction influenced by the re-purchases of some holders: indisposed to transfer their holdings, and by the efforts of bears to cover their outstanding sales of shares. … Diffusion of the shares of the various cos. over a larger area … one of the results.

  • 1866 „The Economist“ (Jahrgang 1866) vol. XXIV.
  • The „Money Market Review“. Jahrgang 1866.