Originally published in Saint Pauls (Virtue & Co.) vol.1 #4 (Jan 1868).
It is hardly too much to say that even the least observant readers of the daily papers must be aware of a great change which has of late years come over the commerce of this country. That all those who have noted this fact should be able to tell why, wherefore, and in what measure it has been brought about, would be absurd to expect; but that there has been a falling off in the character of our trading relations amongst ourselves, that abroad our credit and our great name for business integrity are not what they were, and still less what they ought to be, few who mix with their fellow men, and are even ordinarily quick to observe passing events, can have failed to remark. Indeed, has not the truth, in one respect, been brought home to most of us? How many families in the land are there who have not—either in their own persons or in those of their near relatives—suffered more or less from the mania, which was so prevalent for a time, of investing money in joint-stock company undertakings? Such speculations are in every sense of the word commercial, and the collapse of so many hundreds of them was nothing more than the result of the general recklessness in business which has latterly in another way so completely paralysed the trade of England. Of the fact that commerce is for the time paralysed, what stronger confirmation do we need than the City articles of the Times, the Daily News, or any other of the leading journals of London, Manchester, or the other great commercial towns of the kingdom? Money was never more plentiful than at the present day. The banks cry aloud for customers to borrow their thousands, tens of thousands, and millions, at two per cent. All that they ask is to receive fair commercial securities, and their wealth is at the disposition of those who will take it, to work with,—to manipulate, to turn over, to increase twenty, thirty, or fiftyfold. But the difficulty is to find those "fair commercial securities." When there is little or no trade, there are few or no good bills of exchange floating; and where such do not exist there must be a stand-still in business, an utter want of the lawful enterprise which is needful to develop the commerce of a country. But still the question remains to be answered, what has caused such an utter—and what is more important, such a very prolonged—stagnation in the trade of England; and when, if ever, is such a state of things likely to end?
The commercial business of this country may be divided under two principal heads—that of Trade and that of Finance. For our present inquiry we will examine these separately, taking first all that which comes under the head of Trade—the business and calling of merchants; and afterwards, what may be denominated Finance, or that which applies to all purely monetary transactions, and in which are included banking operations, joint-stock company speculations, or the like.
And, first, as to Trade. What has caused the total prostration of this branch of commerce? what has occasioned its prolonged depression, lengthened on from week to week and from month to month, far beyond what in former days was caused by even the most severe commercial crisis? The reply to this question may be condensed in the words with which we have headed this paper, "business at the present day." It is the business of the present day, or rather the mode by which that business is conducted, which has caused all the evils under which trade is at present suffering; and until the system which we shall presently try to illustrate shall have ceased to exist, there can be little or no hopes that prosperity, which in business is the eldest child of credit, will ever return to mercantile England.
In former times—in days when men now barely of middle age were already fighting the battle of life—if you wished to be a merchant,—to commence business,—it was deemed essential that you should have not only some commercial training, but that you should be possessed of capital more or less adequate to the wants of the commerce in which you were about to engage. We remember the period—not more than twenty-five years ago—when a young man who had served his five or seven years in a mercantile house, and who could command a capital of five or six thousand pounds, would have been thought foolhardy to begin business on his own account, except in a very small way, and that chiefly on commission, in which the risks of loss are comparatively small. In those days, for any one to write himself down a merchant, and not have the means at command to meet any loss which, humanly speaking, he might at any moment incur, would have been looked upon as nothing short of swindling; and the individual found out risking in such transactions the money of those who confided in his integrity, would have been regarded as a kind of commercial "welcher,"—a man who bets high, who takes all he wins, but who, when luck turns against him, leaves those to whom he owes money to look for his whereabouts. But how is it now? How do hundreds of men, preparing to commence trading, get the capital on which to begin? Their method is simple and easy in the extreme. Of course we do not for a moment intend to include in our condemnation the old honoured mercantile firms of England. That many such still exist, there can be no more doubt than of the fact that they hold themselves perfectly aloof from anything like trade "welching." But unfortunately they are but few when compared with the hundreds of new mushroom houses that spring up daily in every direction. And the question then naturally arises—How is it that these firms, which have no capital, manage to trade without the means on which to work?
Those persons who have not been behind the scenes of that great mercantile theatre called the City during the last three or four years, will find it extremely difficult to believe how much falsehood, how much paper credit, and how little substantial foundation, appertain to a vast number of our mercantile houses. Bank managers, bill-brokers, and the partners in the great discount houses in London, could make disclosures in this respect which would prove far more sensational reading than anything which has gs yet appeared in the pages of our novels. Not that even the cleverest and most experienced of these gentlemen can always detect the rogue in the plausible so-called merchant; nor are they always able to distinguish the true metal from the mere electro-plated article, which often looks more valuable than the silver or gold which it is meant to copy. But the worst of the present condition of the trading world is the lowered—the greatly lowered—moral tone with which the influx of rascality has gradually leavened almost the whole mass of traders. Those who mix much with business men in private life will understand best what we mean. Of late years, even amongst merchants who commenced trade upon a bonâ-fide capital, there exists but too often a reckless spirit of adventure—based on the assumption that all commerce is now-a-days mere or less dishonest, but that they must float with the stream—which is, to say the least of it, most painful to witness. We do not affirm that all commercial men have become rogues, but we maintain that unclean hands, slippery ways, and a general character of what Americans term "smartness" in business, are not. looked upon with the same horror and detestation as they once were. A City man may in these days be known to be a rogue, his fellow-traders may be perfectly aware that he has done things which ought to have brought him before the Lord Mayor; but so long as he can hold his own, and put a fair face upon his questionable transactions, no man is bold enough to throw the first stone; and other so-called merchants of a like stamp, seeing how well he gets on, follow in his footsteps, and add to the number of those who have already succeeded to no small extent in ruining the commercial character which England has until lately enjoyed for integrity and honest dealing.
To illustrate our meaning with regard to the many firms that are endeavouring to make bricks without straw,—to make profits without any capital to work upon,—and which, under the pretext of trading, are really playing the—to them—profitable game of "heads I win, tails you lose," we will relate two cases of business of the present day, both of which have recently come under the immediate observation of the present writer.
Some three or four years ago a Scotchman, whom for distinction we will call John Adams, arrived in London. He was a man in the prime of life, but with a baldness of head and a decided tendency to grey in his whiskers which added greatly to the respectability of his appearance. In a financial point of view, this gentleman's antecedents were not favourable. As a young man he had served five or six years in one of the Scotch banks, and had left that employment to take a better-paid situation in a large Glasgow commission house. After ten or twelve years in the latter capacity he had, with a capital of five hundred pounds, commenced business on his own account; but at the end of two years had failed for about five thousand pounds. There had been some difficulty about getting over the process of whitewashing, which after considerable delay had been surmounted, and a relative had made him a present of one hundred pounds, advising him to proceed to Australia and commence life there as a squatter; in any case—such was the condition on which he was given the money—he was not to show himself north of the Tweed again for the next ten years. But Mr. Adams had considerable misgiving respecting the success he was likely to have as a sheep-farmer at the antipodes, and so he came to London, determined to set up for himself as a merchant.
His first act was to obtain, by some means or other, an introduction to a fourth-rate bank. In those days—we speak of two and a half or three years ago—there were many banks only too glad to secure customers, and who looked upon any one who opened an account with a hundred pounds as something to be proud of, and to be mentioned at the next board-day meeting. Having thus laid the foundation of "respectability" by being able to talk of "his bank" and "his banking account," Mr. Adams hired a small office in the very centre of business-land, and had his name painted on the door, taking care to add the words "and Company." "John Adams and Company, Merchants and Commission Agents," looked well in Brook Court, and still better in the Post-Office Directory. The next thing was to get a couple of clerks without having to pay wages; and to obtain these, one pound of the hundred pounds' capital was expended in advertisements, addressed to parents and guardians who wished a commercial training for their sons. Not only did our friend obtain the services of one young man gratis, but he actually had a premium of fifty pounds paid by the father of another; and no small addition did this sum make to his somewhat scanty capital. With five or six pounds spent upon second-hand office-furniture, about half as much upon ledgers, daybooks, and stationery, the office, with two clerks in the outer room, was complete, and Mr. Adams began to look around him for business.
Did he get any—was he able to trade or traffic in goods or produce? Of course he was. He went to Manchester, and bought for cash small parcels of prints suitable for the Constantinople market. These he shipped to a Greek firm in that city, drawing upon them for the value, and obtaining in return orders to purchase other merchandise, as well as to sell sundry lots of madder roots, oil, and various articles produced in the East, which they consigned to his care. He was a man thoroughly well versed in all the details of business life, not a great talker, always well, but not loudly, dressed, and eminently "respectable" in his looks and habits. Little by little he got a business, the foundation of which was stamped paper; for it was by bills, and bills only, that he could live in a commercial sense. In the City he had a friend who did business on commission for an iron company; this friend accepted bills for him, and he returned the compliment. These documents were artistically got up, and bore all the appearance of bonâ-fide mercantile paper. If Mr. Adams, of the firm of John Adams and Company, walked into the manager's room of the Incontestable Bank, and offered for discount bills drawn by his own house upon Messrs. James Mincing and Co., Iron Brokers, of Jude Lane, and duly accepted by that firm, could the said manager of the Incontestable refuse to discount them? Not on any account: had he done so, his bank would at once have lost a customer. There was only one thing which the friends who thus played into each other's hands had to be careful of, which was that "the paper" of John Adams and Co. and that of James Mincing and Co. should never be offered for discount at the same establishment; and this was very easy indeed to avoid. And when to these two "dummy" firms was added a third—William and Peter Cracks, also Commission Agents—which accepted and drew bills, and helped the others, of course the transaction became all the more easy. Not to make too long a story, it is only needful to say that the second year our friend was in business in London he "turned over" twenty-five thousand pounds in the course of twelve months; and that when the smash came,—when the facilities for obtaining money upon flash bills ceased,—he "cracked up," as a Yankee would say, for upwards of sixty thousand pounds, and went through the Bankruptcy Court with flying colours. It is needless to say that of these sixty thousand pounds he is generally supposed to have quietly invested something very comfortable in Consols; and when business in the City gets brisker, he will be quite ready to begin again.
The second instance we shall give of business as done in the present day is that of a shipowner. This gentleman, who shall go by the name of Johns, began life as—and was until four or five years ago—a steward of a large passenger steamer which "went foreign" out of an English provincial port. He had saved about three hundred pounds, and having married, aspired to be something higher in the world than a mere head-waiter in a floating hotel. His wife's father was a retired and pensioned clerk of a large shipowner, and between these two relatives there was concocted a scheme which soon floated them into the ocean of wealth. They commenced by purchasing an old ship which was sold by auction for a mere trifle, some eight hundred pounds. Of this they paid a third in cash, and gave a bond upon the ship, with an insurance policy in the event of her being lost, for the balance. How they found the means to provision or to man her, the god of credit and the spirit of mercantile accommodation bills alone can tell. It is enough for us to know that they not only did so, but that they also freighted her on Government account to one of the colonies, and that the advance they obtained for her hire was enough to clear off the debt still remaining upon her. In her second voyage—out and home to Bombay—they not only paid their expenses, but made a profit sufficient to enable them to purchase and pay in part for another vessel, which they also freighted to Government, and which they also soon freed from debt. Had their operations ceased here, they might still have paid their way, and even have made a modest living out of the two ships they owned. But about the time of which we write the mania for speculations in cotton was at its height, and these shipowners went largely into that most risky trade. In order to obtain funds with which to pay for the cotton they bought, they mortgaged their vessels to their full value. So long as prices kept up all went well; but when cotton which they had bought in Egypt at from one and sixpence to two shillings a pound, could hardly be sold in London for eightpence, they, as a matter of course, were unable to meet their engagements; and after struggling on for a short season, went into the Bankruptcy Court to get rid of more than fifty thousand pounds' worth of debts and liabilities, all of which had to be borne by, and were a dead loss to, some person or persons somewhere in the mercantile world.
Are these two instances,—both of them actual facts, as we said before, which have occurred within the knowledge of the present writer, and are told exactly as they happened in all respects except that the names are changed,—are these two instances in any way exceptional? are they selected because they are extraordinary and out-of-the-way cases of mercantile recklessness? By no means. Saint Pauls Magazine might be filled with similar instances of men without a shilling of capital to begin upon doing a large business, and failing for fabulous sums. Nor are English men of business by any means the cleverest adepts at this work. To do foreigners—and particularly Greeks, Levantines, and all the various trading classes that hail from the East—but justice, the grand discovery of working and trading upon bills, and bills only, was made in classic lands. It is a means of commerce which was first invented in the Levant, and only of late years brought to a certain degree of perfection in England. The results of this art we are now enjoying, but we cannot claim to be the original discoverers of the science. Like many other luxuries, it came originally from the East; and the following story will show how it has been worked in this country by those who brought it with them from other countries.
Some years ago there came to Liverpool a Greek gentleman who set up in business as the correspondent of two firms—one at Constantinople, the other at Alexandria. The house he established in England went by the name of Messrs. Acapulos and Co.;[1] that at Constantinople was called Acapulos Brothers; and the one at Alexandria, Spesa and Acapulos. Of these names, all save the one name in each house was nothing more than a pleasant fiction. The one only partner in the three houses was Mr. Demetrius Acapulos, the enterprising individual who had come to Liverpool, taken an office, and written himself down Acapulos and Company. In due time this gentleman commenced to buy what are called Manchester goods suitable for the Levantine markets. He was wary and cautious in his dealings, and evidently extremely grasping in his desire to make good bargains. But so far from causing him to be thought any the worse of, these peculiarities only made the Manchester manufacturers and spinners believe him to be a man who had money, and was anxious to turn it to the best possible advantage. In Manchester it is the custom to pay for goods fourteen days after delivery; but many purchasers avail themselves of the discount allowed for cash, and pay for what they buy on receipt. Mr. Acapulos followed the latter plan, which had not only the advantage of giving him greater profit, but made those he dealt with believe him to be a man with considerable funds at command.
It soon became known to those who cared to inquire concerning his means that Mr. Acapulos used to receive remittances from abroad, and that both by specie shipped from Alexandria to Liverpool, and by bankers' or other good bills from Constantinople, his balance at the bank where he kept his account was always maintained at a highly respectable figure. All this increased his local credit. Once put a mercantile firm upon the proper groove, and it will run as quickly and as smoothly towards the terminus of a good name as it otherwise does upon that railway of discredit which leads to insolvency. Demetrius knew this: he acted in conformity with his knowledge. And we would draw particular notice to the manner in which he put himself in funds,—a method simple in the extreme, of purely Hellenic origin, but which of late years has found many imitators in England amongst English merchants of the lower class, and which has been one of the great, if not the one great, reason of the present collapse of credit in the mercantile world. "Don't talk to me about capital," a French mercantile adventurer once said to the present writer, who shared a cabin with him from Marseilles to Constantinople some years ago,—"don't talk to me of capital! It is the bugbear of you Englishmen. With good management, pen, ink, and bill-stamps (papier timbré), a man of business ought to have at his command any amount of capital he requires." Demetrius Acapulos had evidently heard of, and had appreciated, this maxim.
Demetrius was not a man of capital, but he was a man of business. The firms at Constantinople and Alexandria were, as we have said before, mere dummies; they had no real partners, but were simply conducted by clerks who were cousins and brothers of the mastermind at Liverpool, and entirely under his directions. When he wanted money he advised one or other of those houses,—say, that at Constantinople,—the manager of which immediately drew upon the house at Alexandria, discounted the bill of exchange, and transmitted the proceeds to Liverpool, either in specie or bankers' bills. Nor was this difficult to effect. Messrs. Acapulos Brothers, of Constantinople, being known to have branch houses at Alexandria and in Liverpool, and being able to show letters authorising them to draw upon one or other of these firms, found no difficulty in selling their bills. The house on which they invariably drew, as a matter of course, accepted their drafts, no matter to what amount; and when these were about to fall due, they put themselves in funds by drawing on another house of the same partnership. To make this very simple transaction the clearer to non-mercantile minds, we will say that when A wanted money he drew upon B, and when B had to pay the bill he drew upon C, who to obtain funds drew again upon A, and thus the game went round. So long as money was plentiful, credit easy, and there were not too many "firms" who did business in this way, all went smooth, and the profits were immense, the more so as all the money coming in was interest upon no capital whatever: the system was a gold mine, a veritable California, without the fatigue of hard labour, or the danger of a bad climate. At one time Messrs. Acapulos and Company, of Liverpool, were "turning over" little short of three hundred thousand sterling per annum; and could not be making less than thirty to forty thousand a year clear profit. But unfortunately they could not preserve the monopoly of such a business. Other wise men came from the East, and set up in the same line. More and more followed in the same track. Not only Liverpool, but Manchester, Leeds, Bristol, and even London, by degrees became inundated with firms who conducted business on a similar paper basis. Many of our own countrymen were only too apt in learning this newly-found way of making bricks without straw, until mercantile men who really worked upon a capital of their own were the exception and not the rule.
The day of reckoning came slowly, but it came surely. When eighteen months ago the thaw came which melted into water the thin ice on which so many mushroom banks and discount companies were built, it was somewhat difficult for these concerns to get back their capital, for it had nearly all been lent upon paper which was not worth the stamps on which the bills were drawn. When a merchant ships bonâ-fide goods to another country, and draws upon his correspondent or agent for the value of those goods, leaving a certain margin for the casualties of any depreciation which may take place in their value, the bills which he then puts into the market have an actual value. They represent the price of, or money paid for, the goods which he has sent off. This is legitimate trading, and until within the last ten or fifteen years, no other way of doing business was known in England. The illustrations of trading in the present day afforded by the anecdotes we have related, will afford some clue by which even non-business men can understand why our credit at tome, and our good name abroad, are now things of the past.
And when to utter recklessness—not to call it worse—in trade, is added great extravagance in living, can we wonder at the present condition of commercial England, which, as the Times lately said, and said truly, "has no precedent in our financial history?"
If from what we may term the ordinary legitimate trade of the country we turn to the Joint Stock Company jobbery which for two or three years was the prevalent madness of England, we shall find additional reason for not being surprised at the utter want of credit which now exists. The history of this branch of speculation is unfortunately but too well known amongst all classes of the community, and the results, from which we are now suffering, are but the natural effects of the proceedings which in 1863-4 enriched a few rogues, and left so many confiding men and women to lament the money, and the comforts which money brings, now gone where last year's snow is.
And yet, can we absolve from blame that very public which has lost so much? Let us look our faults boldly in the face, and answer honestly the question whether "promoters" and other schemers and traders in the good faith of shareholders could ever have made the profits they did, if those who trusted in them had not been actuated by the enormous greed of gain, which has been almost a disease amongst us for the last few years. Take, for instance, a class that is said to have suffered in proportion to their numbers more than any other, by the rascalities of the joint stock company jobbers—namely, that of retired pensioned Indian officers, civil as well as military. All these gentlemen may be said to have had the means to live in comfort, some even in luxury. They all had pensions earned by years of hard toil in the land of heat and fevers. But they were not content with their modest incomes. No sooner did the Limited Liability Act come into full play, than, to use a vulgar but expressive phrase, they "went in for it" with a vigour and an earnestness—we may with justice add a recklessness—which has now reaped its fruit. And in proportion as they risked their own property, they induced others to risk theirs. Thrice happy was Robert Macaire—the fashionably dressed, smart spoken, vulgar promoter of the Invincible Financial Banking Company, Limited—if he could get Major-General Dupeman, late Deputy Adjutant-General at Berhampore, to "join the direction" of that excellent undertaking. Not only was the unfortunate officer plucked bare of every feather on his body, but he afterwards served as a decoy-duck by which others were induced to join the same concern. Dupeman was known to be an honest, honourable, simpleminded soldier. Of business he knew nothing beyond how to make his income and his expenditure tally at the end of the year. He believed all that Mr. Macaire told him. He became a director of the Invincible, and thereby induced Brown, the ex-judge of Palampore, and Jones, formerly magistrate at Goernuggur, to do the same. Seeing these well-known names on the direction, Robinson, and Smith, and Mrs, Wilson the widow, and Smalls the retired chaplain, took shares in the concern, and until the smash came, they believed that they were getting a fabulous percentage on the money they had paid for their shares. The result we all know. Dupeman, instead of living in London on £2,000 a-year, is vegetating at St. Malo upon £150; Brown has had to go through the Bankruptcy Court; Jones is in hiding from his creditors; Mrs. Wilson has opened a lodging-house in Brompton; and Smalls was last week arrested and put into Whitecross Street. We may, and we do, pity greatly all these people, but did not the universal greed for money—or rather the belief of being able to make money without capital—cause all this misery? The mania, we grant, was almost universal, so much so that it was difficult to avoid catching the infection. But did not those who caught it suffer from their own determination to gain money without labour and without capital, a thing which, as a rule, no man ever yet did—although now and then there have been exceptions—without paying the penalty.
But in the long history of the cheating, which is comprised in the financial history of the past three years, there is nothing half so astonishing as what a late parliamentary return has brought to light. To take up in detail the company-creation work of 1864 and 1865, would be but to repeat a story which every one has heard again and again. We all know how scheme upon scheme, imposition upon imposition, and swindle upon swindle, followed each other in close succession. Few can forget—many of us, indeed, have sad cause to remember—how one after another of these undertakings collapsed, were knocked down, and fell like so many nine-pins, to be carried away and chopped up for firewood, with which solicitors, official liquidators, accountants, and other functionaries, were to warm their houses and make merry. All this we know had happened, but few of us thought it was still going on. Most persons thought that with the fall of Overend, Gurney, and Co., the joint stock company mania received its death-blow. But a recently printed return from the Board of Trade has completely dispersed this idea. So far from the manufactory of joint stock companies having stopped, it appears to be going on almost as incessantly as before. Between the 1st June, 1866, and the 81st of May, 1867, no fewer than 543 new companies were registered, and of these 589 were formed under the Limited Liability Act. It would, however, be wrong to say that all these 548 undertakings were mere financial bubbles, although the exceptions are certainly few. Some of the nominally new schemes are merely the resuscitation of old companies, which were brought down last year more by the systematic working of the "bears" on the Stock Exchange than by any intrinsic weakness of their own. But notwithstanding this, a very large proportion of the new companies are the wildest speculations it is possible to conceive; and the fact that of the 548, upwards of 150 appear to have no offices at all, and only about as many more have offices within five miles of the General Post-Office, shows that a vast majority of these new schemes are merely biding their time until the present distrust has died away, and hope at some future period to spring into existence as full-blown absorbers of money. But it is not the less a bad omen for the future to find that, far from being dead, the spirit of illegitimate speculation is only sleeping, and is ready, with all its many swindles ready cut and dried, to reassume its old function as a means not only of ruining those who trust in it, but also of encouraging speculators without means to again "try their luck" at the gambling-tables, where shares are used in the same way as counters are on the green-cloth tables of Homburg or Baden.
What is the remedy for this state of things? When may we expect it to come to an end? When may we look to see trade and finance resuming their legitimate kind of business? These questions are not easy to answer without extending this paper far beyond its proper limits. This much, however, may be safely assumed, that the cure for the present depressed state of commerce does not lie so much with the legislature, as with the merchants of England themselves. There are no laws half so efficient in repressing the evils which affect a class as the rules and regulations made by those who are by position the leading men of that class. The honourable merchants, the legitimate speculators, and the solvent banks in this country, are of themselves more than powerful enough so to rule and regulate trade, as to make it very difficult for the mere adventurer without funds to enter their circle and play at the game at which, if he wins, the gains are his, while if he loses the loss falls on his neighbours who trust him. Surely if bakers, butchers, wine merchants, and other tradesmen can combine in what are called Trade Associations, for the purpose of preventing would-be swindling customers from obtaining credit to which they are not entitled, merchants and bankers might very easily enter into similar unions, by which men who have neither means nor character to trade should be prevented from doing so; while rules might be made by which no manufacturer would sell them anything unless for cash, no banker discount their bills, no broker buy goods or sell produce on their account. Tho guilds and city companies of older days were originally constituted for the very purpose of keeping trade free from those who had no right to traffic because they had not the means of doing so; and to something of the same sort we shall have to revert, in order to restore commercial credit to its proper state. For our merchants now to do this as one body would be impossible, for the simple reason, that where there was formerly one, there are now forty or fifty traders. But there is no reason why it should not be done by Commercial Clubs, or Chambers of Commerce. There might very easily be enacted rules by which no person should be considered a merchant unless he belonged to an association of the kind; and each such body could be considered responsible for the respectability of its own members, and obliged to ascertain, before they admitted any one into their body, that he had something more than what bill-brokers call "mere pig-upon-bacon"
1. Although the anecdote is strictly true, we need hardly say that this name, like all the others in this paper, is purely fictitious.
2. "Pig-upon-bacon" bills are drafts such as Mr. Acapulos drew, which although apparently drawn upon, and accepted by another party, are really drawn upon the individual who draws them.