Conditions in the Other Industrial Nations at this Period

The business conditions in Great Britain, which at this time produced about one half of the pig iron consumed in the world, and was the greatest industrial nation at that period, are very instructive. The panic precipitated by the failure of Overend, Gurney & Co., on May 12,1867, had about spent its force by the end of the year. During the greater part of 1868-1869 and 1870 prices ruled low, and the industries revived rapidly. The years 1870, 1871, and 1872 comprised a period of wonderful activity in the industries and prices of labor, and construction materials advanced enormously. The Franco-Prussian war, which broke out so suddenly in July, 1870,had but little depressing effect. The interest rate was 3| per cent. on July 21, 6 per cent. August 4, and 2 1/2 percent. September 29. A tremendous amount of construction was undertaken in 1871 and the first part of 1872.The unnoticed and mysterious down-turn in the industrial tide came early in 1872, and although prices made their final and greatest advance in 1873, the actual volume of the industries was much less in 1873 than in 1872, and less in 1872 than in 1871. A reduction in wages, considered imperative before the close of 1872, brought on a serious strike. The Bank of England's rate was advanced from 3 per cent. August 21, to 4 per cent. September 25, and 9 per cent. November 1, which was contemporaneous with the financial panic. Thus that country experienced the premonitory symptoms of a down grade in the industries a year before the symptoms of a down grade in the finances, and realized the actual and visible effect of the down grade in the industries a year before the visible effect of the down grade in finances became apparent; yet the industrial depression in Great Britain has erroneously gone down in history as the result of the financial panic.

This universal error is the result of failure to recognize that finances and industries are two separate and distinct forces, that each can be affected by the other, but that each has such different qualities that it may for a time move entirely independently of the other.

Turn now to the relative conditions of France and Germany (then a united empire). France had recently paid Germany the enormous war indemnity of 5,500,000,000 francs. With this, Germany paid her national debt, making money abnormally abundant in Germany and correspondingly scarce in France. As a result, the industries in Germany were keenly stimulated; bankers actually had their agents out, soliciting manufacturers to take loans for the enlargement of their industrial enterprises at 1 per cent. per annum, and even as low as f of 1 per cent. The demand for labor and materials rose to unheard-of figures. The microbe of industrial depression (high prices of construction) was at work with great vigor. The down-turn in the tide of industrial prosperity came and grew rapidly, while money was so plentiful that it was begging for borrowers. The motive  which controls the volume of the industries in all lands and at all tunes — "the instinctive desire for gain" stimulated the industries to an enormous extent while prices were low, but it checked them to an enormous extent soon after prices commenced to advance, in spite of the great abundance of idle money and the abnormally low interest rates.

The check to the production of factories, stores, and other enterprises resulted in an enormous accumulation of the materials ordinarily consumed in these enterprises. The accumulation of unsold goods resulted in a continued great fall in prices, and many failures followed. As Germany's industries had by this tune grown to great proportions, so she suffered greatly from the industrial depression which followed. For years, all her industries remained in a badly crippled condition, and did not show signs of recovery until 1879.

Now turn to the relative condition of France during his same period. Her finances were crippled by the stupendous war indemnity she paid to Germany. Her whole population made haste to pour their savings into the treasury of the nation. The war indemnity was paid more quickly than any one supposed possible. It left the people cramped for means, and in consequence there was no great revival in the industries. Prices rose moderately, it is true, but it was largely in consequence of the demand for materials from the prosperous nations about her. The moderate advances in prices had their due effect, but this effect was commensurately small, as the revival of the industries had been small. The result was that the industries of France, during this period, suffered less than the industries of any one of the great industrial nations. In fact, statistics show very little change in the volume of her industries at any time during this period. She suffered from a financial panic in 1873,but this was to be expected in her crippled financial condition.

Now turn to Belgium, small in size but proportionately great in her industries. She was the only one of the five industrial nations that did not experience a financial panic during this period. On the contrary, she suffered from a plethora of capital. Interest on deposits fell to 1/4 of 1 per cent. per annum, and good commercial paper was taken eagerly at 3/4 of 1 per cent. and 1 per cent., and yet she suffered very seriously from an industrial depression, which lasted from 1873 to 1879. She experienced the same condition of extraordinary prosperity to her industries in 1870, 1871, and 1872, with consequent abnormally high prices, but notwithstanding the great congestion of money in her bank vaults, her captains of industry showed the same inclination to pour their money into all lands of industrial enterprises when prices were low, and to hold on to their money when prices were high. They possessed the same "instinctive desire for gain" that other people have, and "that ever-present motive" worked with them in the same way that it did with other people, but they did not suspect it, nor recognize it as the cause of the depression.

The citizens of Belgium who wrote upon economic questions at that time appear to have been very much embarrassed in their efforts to account for this industrial depression. In the United States, Great Britain, France, and Germany it was apparently a simple matter, for when the financial panics, which occurred in each of those four countries, had subsided, they had simply to attribute the industrial depression which continued to the financial panic. The great mass of the people accepted this explanation, and it has so gone down in history.

In Belgium, however, people were driven to account for it in some other way. Georges de Laveleye, editor of the Moniteur des Interests Materiels, of Brussels, declared that the long-depressed period and the accumulation of money was the consequence of a definite stage of industry having arrived, which was never before reached, namely, that "the industrial activity of the last half-century had resulted in fully equipping the civilized countries of the world with economic tools, and that the work of the future must necessarily be repair rather than construction. " What would M. de Laveleye have thought if he could have imagined the industrial growth which occurred in all the industrial nations thirty years later, represented by a volume of construction, in some of the nations, from 500 to 1000 per cent. greater than the construction which he predicted would never again be equaled?

It would be hard to find a period in modern times when general and financial conditions were so radically different in these five nations. Many of the contributory causes of prosperity and depression were pulling in opposite directions in these nations, but there was one condition, high prices of construction, which existed in all of them, and in the degree which this existed in each it checked construction in each. In the exact degree that construction was checked, each suffered from industrial depressions. This was a rare opportunity to have discovered true cause of these mysterious industrial depressions. If any one had taken the tune to analyze all the business conditions in each of these five nations, he must necessarily have discovered the one cause which existed in all of them and brought industrial depression to all.