RAILWAY OPERATIONS; THEIR EFFECT ON THE MONEY-MARKET, ON TRADE, AND

THE EMPLOYMENT OF LABOUR.

TO THE EDITOR OF THE SPECTATOR.

39, Heriot Row, Edinburgh, 2d October 1846. Sin—You did me the favour of inserting in the Spectator, in 1843 and 1844, several letters of mine, subscribed "A Liberal Elector," referring to these circum- stances upon which depend the employment of the working classes. I now send you another letter of a kindred nature, and having reference to railways—a sub-

ject at present exciting considerable speculation and anxiety among all those eia

i - gaged n mercantile pursuits.

According to the Times—the organ of the London moneyed interest—the rail- way acts passed last session, by authorizing the outlay of a hundred and fifty millions in three years, or fifty millions a year, will be most disastrous to the pro- sperity of the country. The Times asserts that this will create a drain in the money-market, a scarcity of money, and a derangement of the currency—will embarrass the trade and commerce of the country, and will direct the resources and energy of the people front productive to unproductive employment A great deal of nonsense has been written and talked on both sides on this topic. It may not, therefore, be unimportant at the present time to consider this subject dis- passionately upon the recognized principles of political economy, and without the declamation made use of by those who have adopted a side and seem inclined to regard it as a party question.. 'Let us first consider the question as it regards the currency, and the dud* cif

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money which it is alleged railway operations occasion. There is not the slightest doubt that great injury has frequently been done to trade by a drain in the cur- rency, or diminution of the circulation, which has created an undue tightness in the money-market, and been injurious to that system of credit by which trade and commerce is chiefly carded on. If the railway operations at present in progress could produce such a result, it cannot be denied that they would be hurtful to the prosperity of the country. Let us examine, however, if such is the case.

A diminution of the circulation takes place in two ways,—either by a drain of the gold or coin from the country for the purchase of foreign commodities, when the foragners refuse to take manufactures in exchange, or by the contraction by the bankers of their notes in circulation. The drains of gold which have occurred have been occasioned chiefly by the purchase of foreign corn in years of scarcity. i But this source of monetary derangement is now, it s to be hoped, at an end. The Corn-laws being now abolished, it is likely that a regular trade will grow up betwixt England and the corn-growing countries by which our manufactures will be exchanged for corn in place of gold. With regard to a diminution of circulation arising from a withdrawal of bank-notes, this has been principally owing to a panic among the bankers arising from an abuse of the note system. When bankers had issued as they frequently did in periods of great speculation, a larger quantity of notes than usual, they were, as was quite natural, from time to time seized with an apprehension that a demand might be made upon them on account of those

notes for more gold than they could at the moment supply, especially if the gold was at the very same time being sent out of the country to purchase corn. The

bankers then set themselves to contract as quickly as possible the amount of their note-circulation by refusing credits and to discount bills; and this, as smatter of course, threw the whole mercantile interest into confusion. But the act introduced two years ago by Sir Robert Peel, limiting the note-circulation of the whole banks throughout the empire, has, by preventing over-issue in periods of specu- lation, rendered those sudden contractions of the paper-circulation, which formerly se frequently took place, now very unlikely to occur. The construction of railways, therefore, even though fifty millions yearly should be employed, cannot act as a drain on the currency, or cause any contraction of the circulation. The whole fifty millions is spent in the country, and is never removed from the circulation; and the bankers, so far from contracting their

homes, will be induced to extend them to the utmost limit allowed by the act of Parliament, that they may reap the profit deriveable from the employment of the money required for that purpose. Tightness in the money-market, or a rise in the rate of interest, may certainly take place without any contraction of the circulation. This may arise from the

commerce, manufactures, and other industrial operations being briskly and ex- tensively carried on. When this takes place, a larger circulation is in demand to carry on the exchanges and business of the country, and a higher interest will be

paid fur the use of money. But such a pressure in the money-market, arising

from such a cause, is always a sign of prosperity. It is always accompanied by good wages, plenty of employment for the labourers and a large revenue from the taxes. It serves at the same time as a safety-drag on the spirit of specula- tion; preventing it going too fast down hill and ending in a crash. This tight- ness also acts as a cure; for money becomes of more value, and the same amount of circulation is then sufficient for a greater amount of mercantile transactions. Besides, at the same time that money. becomes of more value—now that the bankers are prohibited from issuing ad libitum their promises to pay, and de lugnig the country with paper—the circulation becomes gradually and safely in- creased by there being issued and brought into circulatiou au additional quantity of gold and silver.

'The construction of railways, like any other industrial operations where a large outlay is required, may eertainly create a demand for money, but not more so than if the same amountivas expended in manufactures and commerce; and we shall afterwards point out, that in proportion as there is a greater demand for money for railway operations, there is so much less required for the other indus- trial operations of the state. A great deal is written and said at the present time about railway operations being the means of converting floating intofixed capital; and also of those opera- tions being of advantage by absorbing our superabundant and accumulating capi-

tal. This is most incorrect. The money expended on railways, by which the Economist means, I presume, our floating capital, is not converted into fixed capital by being so expended. It remains as much a part of the circulation as

eVer,—as much so as if it had been expended on manufactures instead of railways. Ancl with regard to what is said about getting rid of or absorbing by means of railway operations our accumulating and superabundant capital—a favourite

theory of the Courant of Edinburgh—this is equally absurd. There is no doubt that the capital of England is always increasing. But this increase is not that

of floating capital or money, but of our fixed capital, viz, the houses, mills, manufactures, productiveness of land, railroads, canals, &c.; all which constitute the real wealth of a country, by enabling the proprietors of this fixed capital and the inhabitants generally to produce a greater quantity of commodities at a less cost of labour than would otherwise be done; and by this means not only to sup-

ly cheaply with those commodities, but to command whatever pro- ductions of other countries they may desire. Now, this fixed capital can never

become superabundant; on the contrary, the more it increases, the more wealthy and powerful the state becomes, and the more prosperous the condition of the people. With regard to the money, or circulating medium, this has not increased, or at least only to that degree necessary to carry on our mercantile transactions, extending every year with an increasing wealth and increasing population. It is money which is made use of for the payment of railway labourers; but this money

is not got rid of, as supposed by the Courant. It is applied for the time to the employment of labour; is as couch as ever a part of the circulation; and when the railway operations are completed, will be as serviceable as ever for the pur- poses of trade and commerce. When the Economist of London and Courant of Edinburgh write about con- verting floating capital into fixed capital, and of absorbing the superabundant

and increasing capital of the country, they appear to imagine that there is such a

flowing in of gold and silver as embarrasses us to make use of, and that it is necessary to get rid of the superabundant coin by the making of railways. Those papers write as if gold and silver was made use of in the sleepers and rails—as if there was an actual consumption of the precious metals in the con- struction of railways!

Having discussed the effect of railway operations upon the currency, let us now consider their effect upon trade and the employment of labour. If fifty millions a year be spent on the construction of railways this, as a mat- ter of course, will give a great stimulus to out-of-door labour, and will improve

the condition of that class of workmen; affording an increase of employment and a rise of wages, not only in railway work, but in agricultural and out-of-door employment of every kind. And such we find has been the result. During the three last years, the wages of agricultural labourers, colliers, miners, masons, &c., have been greatly increased; and there last this moment a scarcity of labourers Of this class. Farmers are deterred from draining their land and making other improvements, in consequence of the difficulty of procuring labourers and the Meant of wages they are obliged to give. But the farmers have been in some degree compensated for this by the great rise which has taken place in the mice of cattle, in consequence of the great quantity of meat consumed by the railway and other out-of-door labourers; who, when wages are high, are perhaps those who consume per man the largest amount of butcher-meat.

We shall next request attention to the effect of railway operations upon trade and manufactures. In the first place, let us consider where the money comes from which is expended on the construction of railways. The required amount. is raised by what are termed calls on the shareholders. The shareholder, when he pays his call, is obliged to save the amount by expending &airmail loss of hie in- come. He makes a saving of a part of his income just in the same way as if he laid it up in the bank in order to derive an interest from it. In paying railway calls, he denies himself the present enjoyment of spending it, in order that he may have apermanent benefit by having a regular dividend paid upon the amount of his savings. A railway shareholder, saving part of his income to answer the calls made upon him, acts precisely as the oonnay gentleman, who, instead of spending the whole income of his estate, saves part of it for draining and other improve- ments, in order that the land may become more valuable and yield a higher rent. But, say the op.ponents of railways' the demand for money to answer railway calls will make an injurious pressure in the money-market, and cause an embarrass- ment to trade, by rendering it more difficult to raise the SLIM necessary to nuuiti. facture the commodities required for consumption. We have already partly re- ferred to this point, but shall now point out fully that this cannot take place. We have already shown that the shareholder, in order to pay his calls, must save in something else; for be cannot both save money for railroads and spend it. In proportion, therefore, as money is required for railway work, there must be less consumption of manufactures, and those commodities which had been pre- viously made use of by the shareholders of the lines which are being constructed. The manufacturer, therefore, does not require so much money to carry on his trade. The amount of consumption of his manufacture is reduced; and he must reduce his produce, otherwise he will accumulate stook; which every manufac- turer ought to avoid. There cannot, therefore, be any pressure in the money- market occasioned by railway operations, as the increased demand for money tor one set of operations is balanced by a diminished demand for another set of opera- tions. Accordingly., we find that the Bank of England has actually of late— at a time when railway operations are carried on to a greater extent than they ever were previously—reduced the rate of discount from 311 to 3 per cent. This has astonished many persons; but it is easily explained by taking into considers tion what we have just been stating. The effect of railway operations must—there can be no mistake about this— have a tendency to diminish the consumption of manufactures. And, accord- ingly, we find by the statistical tables which have been published, that consider- ably less manufactured goods have been consumed last year than in many pre- vious years. If fifty millions a year is spent by the consumers of manufactures on railway operations, fifty millions less must of necessity be spent on commodi- ties. But this ought not to be looked upon as any falling off in the prosperity of the country. If less employment be given to manufacturing workmen, more will be given to out-of-door labourers. Railway contractors and their labourers will gain what is lost by the manufacturers and their workmen. And the factory syatene is still quite sufficiently extended. We perceive by the accounts from the manu- facturing districts, that the manufacturers are beginning to work short time, while ruilway contractors are advertising for additional hands from Ireland. This proves that the proportion betwixt manufacturing labourers and out-of-door abourers is not yet properly adjusted to meet the change in the industrial sys- tem of the country caused by railway operations. But it will soon be brought about . by working short time, which will cause a number of workmen to leave the fac- tories for out-of-door occupation. The trade and industry of the country has been in a completely healthy state ever since the passing of Peel's bill for re- stricting the banks from an unlimited issue of paper. And all that is at present required, we repeat, is a proper adjustment of labour, and an understanding among mercantile men that they must lay- their account with a considerable diminution in the consumption of manufactures during the progress of railway-. operations. We have now shown that the effect of the railway operations at present carried, on cannot cause any drain or contraction of the currency; that they do not even create a pressure in the money-market. And we have pointed out that the real effect of those operations, and of the expenditure of large sums of moneyincarrying them on is to cause a less consumption of manufactures and a diminished de- rnand fur manufacturing labour; balanced, however, by a greater demand for out- of-door labour; thus leaving the aggregate amount of labour the same. There is one other point which remains to be considered, and to which we request at- tention. The Times' and the other periodicals opposed to railways, maintain that the money expended on railway operations is unprofitably expended; that it iit taken from manufactures, which are the source of present watt and present ad- vantage, to be uselessly squandered on works which make no return, at least for a number of years. We answer, that there is nothing which tends so much to increase the wealth and prosperity of a country as railways. The advantages of railways are not to- be-viewed merely as a source of profit to the shareholders; the advantage which the public derives from them is ten times greater than that which is gamed by the promoters. If we take into consideration the immense saving of time and ex- pense to passengers, the greatly-diminished cost of carriage in the conveyance of provisions, manufactures, coals, and goods of every description, it will be seen that railways at the present time are perhaps the most profitable investment of labour which has ever yet taken place. By railways, there is hardly any perma- nent property or fixed capital which does not become greatly increased in value. is it not, therefore, absurd to say that the money laid out on railways is unpro- ductive expenditure as compared with that laid out on manufactures? The very opposite 113 the case. That which is expended on manufactures is lest to the country when the manufacture is consumed and is of no further use; whereas+ what is laid out on railways is so much saved labour, so much increase of na- tional capital, which will be a permanent profit to the country. If a man for instance, lays out 51.a year on an additional coat, he undoubtedly gives a certain amount of employment to the tailor and the manufacturer of cloth; but after the coat is worn out there has been no gain to the country. Now if the same individual contents himself with two coats in the year instead of three, and lays out the Si. saved in contributing to the construction of a railroad, he not only lays out the money in what will afford him a permanent yearly return, but he increases in a still greater degree the capital of the nation; and the money is. equally expended in giving employment to labour. We shall take one other case. Let us suppose that a country gentleman has, on account of the railway shares which he holds, to contribute 100/. a year to railway operations, and that in order to provide for this he saves to this amount in his wine account—that he expends 100L a year less in claret. The claret is brought from France, we shall nay, in exchange for cotton-twist—one of the principal articles of exportation from this country to France. If 1001.5 year less of claret is consumed in this country, there can be no doubt that there will be 1001. less cotton-twist spun and exported to be used by Frenchmen. But can any one doubt, that the 1001. saved in claret' and expended by the country gentleman on railroads will be a gain to the country, After the claret has been drunk nothing remains, and the labour expended in pro- curing it has been altogether lost. After the 1001. has been expended on rail- roads, on the other hand, so far from the labour bought with it being thrown away, it has been expended in a permanent investment, profitable to the share- holder and of advantage to the whole community.

It has again and again been asked if this country could afford to expend fifty millions a year on railroads. Fifty millions is less than the amount of our public taxation; and we have no doubt that England can well afford to save and expend this sum on railroads. Fifty millions additional of taxation would most certainly be a grievous burden; but as a voluntary tax, imposed by individuals on them- selves for a future benefit, we conceive that it could easily be raised. Mr. Porter, in his Progress of the Nation, estimates our home and foreign trade at about nine hundred millions a year. The expenditure,"therefore, of fifty millions a year

an railroads, would only be the taking off from our trade one-eighteenth part; and this could not do any injury to our manufacturing and commercial system. But it is unnecessary to argue this point further, since it is quite evident that if the shareholders cannot afford to lay fifty millions aside from their annual expendi- ture, that sum will not be laid out. Instead of those lines for which acts have been obtained, and which will require an expenditure of a hundred and fifty millions to complete them, being finished in three years, the period for completing them will be prolonged to six or ten years, if necessary. The railway acts are not imperative on the shareholders; they merely empower the shareholders to proceed with the works should they wish to do so.

We repeat, however, that we have no doubt that England can well afford to lay, out fifty millions a year on railroads. In order to do so, however, all classes of shareholders would require to make a sacrifice of present enjoyment for future benefit. It would be necessary for the higher classes to economize in their wine, their horses, their servants, and ostentatious, and the lower classes of shareholders in their tobacco, their gin, their whisky, and their beer. Railroads, and other permanent increase of capital, can only be effected by the savings of individuals. Now, every political economist, from Adam Smith to M'Culloch, points out that the wealth and capital of a state have their origin in the savings of individuals from their personal expenditure; and that there is nothing Which SO much tends to promote the prospenty of every class of inhabitants as those savings by which the fixed capital of the country is increased, and by which a permanent revenue is afforded to the proprietors, and an augmentation created in the productiveness of labour. The railway movement, therefore, is a national impulse in the right direction, which promises to be of immense advantage to the country by increas- ing its wealth and developing its resources, and by fostering a spirit of saving and economy in all classes of the community.