SUPPLEMENTARY CHAPTER.

FINANCE AND TRADE IN 1907.

In the chapters which I contributed to the ANNUAL REGISTER of 1905, 1906 and 1907, I was able to deal with the notable trade expansion which began towards the end of 1904. It continued to gather force during 1905 and 1906 and did not reach its maximum till about the middle of 1907. But there set in then a rather pronounced decline, and the year closed with the signs of reaction very evident. Trade moves in oscillations of which the period is largely influenced by the world's harvests of wheat, cotton, wool, etc. The products which depend upon climate are the chief variable factors; when they are plentiful, the necessaries of life become cheap and the producing countries have large surpluses which they exchange for the manufactures of the industrial countries; when, on the other hand, they are scarce and dear we see an inevitable contraction in trade. The "boom of 1905 and 1906 was much assisted by a series of bountiful harvests nearly all over the world, and the contraction. which began in 1907 was in the first instance due to the prospects of short harvests of foodstuffs and the rapid advance in the price of wheat. As soon as there began to be a marked falling off in industrial activity, America, the land of feverish expansion and of even more feverish speculation, got into trouble. A series of financial panics were experienced, not very bad until October; but in that month the whole fabric of credit in the United States was shaken to its foundations. Although the collapse of credit was much more severe in America than elsewhere, causing as it did the suspension of the banking system for some months, yet the causes which led to this collapse were in operation in most other countries. The trade expansion of the three previous years had been more rapid than expansion in the supplies of "money." Everywhere the demands upon capital were insistent -for railways, manufactories, mills, ships, docks, etc.-and the cost of capital (the rate of interest) advanced rapidly. Those in charge of the world's capital-bankers-became uneasy, and not only were high rates of interest charged for loans, but there was a strong tendency in many countries to restrict credit and even to reduce it. In the United Kingdom, Germany and Canada this cautious process certainly had the effect of checking the trade "boom," but it had the more than compensatory advantage of saving these countries from the devastating collapse which was the fate of the United States. This collapse and the steps which were taken by British and European bankers to meet it deserve some description. The storm burst in the United States on October 22 in the shape of a run on the Knickerbocker Trust; within four days the crisis had developed to such an extent that several banks and trust companies had

failed, several Stock Exchanges had declared themselves shut until further notice, and a number of private firms had collapsed. On October 26 the Clearing-House Committee of the New York Associated Banks decided to issue clearing-house certificates, a device that has several times been resorted to before, especially in 1893. At once began a demand for gold in London, and large sums were withdrawn from the Bank of England for export to America. The Bank of England did not act till October 31, when it raised its rate to 5 per cent. It followed up this by raising the rate to 6 per cent. on November 4, a Monday. The remarkable figure of 7 per cent. was reached on November 7, so that the Bank rate had gone up by 3 per cent. in eight days. On the same day the Bank of France raised its rate to 4 per cent., and the rate of the Bank of Belgium was advanced to 6 per cent. The German Reichsbank rate had been at 7 per cent. since October 29, and other minor Continental institutions followed in the same direction to the extent their special conditions required. The American drain upon British and European gold (amounting to about 20,000,0001.) caused the Bank of England's reserve to drop to 17,694,000l. on November 6, after which date it recovered steadily; it had risen to 23,674,000l. by December 11, and after falling again to 19,681,000l. on December 24, owing to the usual holiday and end-of-the-year requirements of the public, recovered to 24,273,000l. by January 8, 1908. The crisis was over then as regards Europe, but in the United States the position was still strained, and banks which were solvent continued to suspend payments in cash.

I have referred to the scarcity and high prices of foodstuffs as one factor in the trade decline. A second and more important influence was the dearness of money and the American crisis during the autumn. And yet a third adverse influence was the advance in the cost of coal. The coal industry was slow in feeling the effects of the general trade expansion, but towards the end of 1906 the demand both at home and abroad was very active and prices began to move up. The Continental demand was especially strong, owing chiefly to the industrial expansion in Germany and France and partly, no doubt, to the removal of the British export tax of 1s. a ton. Grain and coal were almost the only commodities to be considerably higher in price at the end of December, 1907, than they were a year before, and the prices of these commodities are of the nature of trade barometers. When they are both high there must be a contraction, a large contraction, in general industry.

The decline in industrial activity had little effect on the foreign trade of the United Kingdom until quite the close of the year. Although new business, especially in the iron and steel trades and their various branches, fell off largely, works continued to be occupied with orders placed in more prosperous times. Taken as a whole, the country's export and import trade constituted a new "record," and one which will not easily

be surpassed. The volume of trade, which reached for the first time 1,000,000,000l. sterling in 1906, increased in 1907 to 1,164,080,913l., being an increase over 1906 of 95,514,595l., or 89 per cent. Imports rose in value from 607,888,5001. in 1906 to 645,904,1767., an increase of 38,015,676., equal to 6.3 per cent.; exports of the produce and manufactures of the United Kingdom advanced from 375,575,3381. to 426,204,5967., an increase of 50,629,2581., equal to 13.5 per cent.; and the re-exports of foreign and colonial merchandise advanced from 85,102,4801. to 91,972,1417., an increase of 6,869,6617., equal to 81 per cent. It is especially worthy of notice that while the imports of "articles wholly or mainly manufactured" slightly declined, there was an advance in the exports of these commodities of 36,645,000l., or 12 per cent. The greatest proportionate advance in exports (27 per cent.) was, however, in raw materials, of which nearly the whole increase was due to coal and coke. After making all allowances for the increase in the trade figures due to enhanced prices of raw materials and goods, there can be no doubt that the trade of 1907 showed a notable advance, especially in the export of British manufactures.

A year which was marked by a still active trade with its demand upon capital, and by a first-class monetary crisis in the United States, was inevitably bad for Stock Exchange business. During the autumn, indeed, London had to deal with one of the biggest liquidations of securities known in modern times and came through the ordeal without a single failure of first-class importance. But the depreciation in the value of securities was, in many cases, terrible. The American market had, of course, the worst shocks to sustain, and here one sees such falls as 61 in Union Pacific Railroad to 1233, of 42 in Chicago Milwaukee to 110, and of 40 in Canadian Pacific shares to 160. Consols and other British Government Stocks were fairly steady -Consols showed a range of 6 on the year and closed 24 lower than a year before-but Home Railway stocks dropped heavily, partly owing to the labour difficulties which threatened a general strike. These difficulties were overcome, if not permanently, at least for some years, by the courage and skill of Mr. LloydGeorge, President of the Board of Trade, at whose instance conciliation boards have been set up by all the railway companies and their servants. The greatest fall in Home Railway stocks was shown by London and Brighton Deferred, which declined 38 to 83, but Metropolitan dropped 19 to 41 after being as low as 31. The railways and omnibus companies which serve London's huge population have all been in trouble on account of the excessive competition between them and the lowness of the fares charged. Steps are being taken by combination and agreement to improve their position by advancing the fares if possible, and reducing competition. Foreign railway securities also fell very much; and among miscellaneous securities there were striking drops such as 40 in Hudson's Bay

to 76, and 14 in Peruvian Corporation Preferred to 313. Rio Tinto fell 23 to 66 as the result of the collapse in the copper market.

The year was marked by very wide fluctuations in the prices of commodities. During the first five months prices moved almost continuously upwards, continuing the advance which began in 1905, and in May the average was higher than it had been for twenty-five years. This large advance contributed much to the expansion of the figures of foreign trade. But in May the decline set in, except in foodstuffs, which advanced rapidly, and the course of most commodities, more particularly of metals, was steadily downwards. Coal and cotton, it is true, ended 1907 at a higher level than at the close of 1906, but these exceptions made the movements of other prices the more conspicuous. It was to some extent the advance in foodstuffs which caused the industrial raw materials to fall, but the most potent cause was the American financial panic and the falling off in industrial activity in America, Germany, and to some extent in the United Kingdom. In metals the movements were beyond calculation. Copper ranged between 110l. 12s. a ton and 551. 10s. and closed at 601. 15s. Straits tin was quoted at as much as 2001. a ton and closed at 1191. Pig iron (Cleveland) reached a level of 62s. 6d. a ton and fell to 48s. 9d. Among textile materials cotton alone advanced. Coal reached the highest level in September, but in spite of a subsequent fall closed from 2s. to 3s. a ton higher than at the end of 1906. In grain there was a notable advance, as has already been mentioned. At the top wheat had an advance of 10s. 6d. per quarter for English and 12s. to 14s. for foreign, and flour was up about 9s. a sack. Maize, barley and oats were also up, but not quite to the same extent as wheat, and tea and coffee materially advanced. This advance in foodstuffs was, unfortunately, made use of in political controversy, a proceeding which must be deplored by all fair-minded persons, though it was the inevitable outcome of the unhappy manner in which intricate trade questions have come to be handled by party politicians of both sides. who do not in the least understand them.

In the iron and steel trades, the year 1907 was one of disappointed hopes ending in depression. And if the United Kingdom suffered less than its great rivals, it was because of the greater prudence of its manufacturers who had the sense to see that the expansion of 1905 and 1906 could not continue for ever. One of the certain disadvantages of a protective system is that it leads to too great stimulus of production in times of prosperity, a course which makes the reaction in duller times the more sudden and violent. The British manufacturers are fairly well supplied with orders which will last for some months, but there has been a great reduction in the amount of new business coming forward. Especially is this the case with the national industry of shipbuilding, which looks as if a very slack period was before it.

The majority of the yards depend for their existence on the building of trading liners and cargo tramps, a class of vessels already much over-supplied. Indeed the shipping industry, in spite of the immense expansion in the ocean-carrying trade of the past three years, has obtained little good from it. Tonnage has all through been in advance of the requirements of commerce, and the enormous output of new steamers has made the situation worse, especially as the world's trade is now on the down grade.

It

It will be seen that the year 1907 was of exceptional interest to the observer, but one of great difficulty to most traders. has been a period of violent fluctuations-in the value of money, in the movement of securities, in the prices of the staple commodities. It has marked the top of the trade cycle, and no one can say for how long the downward movement will continue. In these modern days, when trade is so closely international and the whole world instantly feels a weakness or a strength in any one country, trade oscillations tend to become shorter. A boom lasts for less time than it once did; on the other hand, a depression is more quickly lived through.

F. HARCOURT KITCHIN.

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