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phase of commercial development, but rather in the fact of these early signs of an interdependence, often overlooked, yet of prime importance in regard to the manufacturing changes of the eighteenth century, between the commercial emporium and its industrial hinterland.

The triangular trade of 1735 between Liverpool, Africa and the West Indies has already been described, and it was previously suggested that such trade might have been in existence after the gradual relaxing of the African Company's privileges, a process which apparently became more clearly marked after 1730. Support was given to this suggestion from the accounts of the commencement of the Liverpool slave trade, given by local historians: 1 in 1730 fifteen ships were despatched, whereas before 1730 only a single small venture in 1709, on the part of a barque of 30 tons, is recorded. The African trade, however, had been opened in 1698 to those who paid certain duties to the Company, and there are now indications 2 that Liverpool ships were taking some part in the trade in 1700 and 1701, perhaps in accordance with the conditions offered, perhaps as mere interlopers. The latter is the more probable, and may account for the absence of direct evidence.

The ships which sailed in those years were specially instructed to bring home sugar and cotton from the West Indies. During the succeeding two years cotton was certainly received and marketed at Liverpool, but whether as the product of the triangular trade, or of a direct trade with the West Indies, does not appear. What was probably a typical consignment is described in a letter of 1703: "102 hhds SugTM. . . . 19 baggs cotten & 10 tuns logwood as also some matters on all yo' privat adventures." It is unfortunate that this excerpt and those that follow are taken simply from the letters received by one merchant from the three or four others who were concerned with him in his ventures, and that, therefore, though they give a fragmentary outline of the course of trade, they give no indication of its volume.

A letter of 1702 tells that “ ye Cotton men not yet come to town to pay their money," and the custom seems to have been

1 Cf. T. Baines, History of the Commerce and Town of Liverpool (1852), p. 694; J. A. Picton, Memorials of Liverpool (1875), i. p. 193.

2 Norris Papers, ii. 567. The Norris MS. are best known from the selection of the more interesting letters contained in the ninth volume of the publications of the Chetham Society (Old Series). The present quotations, however, are from some of the unpublished letters which have been hitherto passed over.

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2 lbid., ii. 264.

4 Ibid., i. 182.

for the Manchester manufacturers to come to Liverpool and make their purchases direct. It was not a business lightly to be undertaken. Even seventy years later, when coaches were running, the journey took nine hours, and manufacturers travelled one day, supplied themselves with cotton on the next, and returned to Manchester on the third day.1

The century whose close saw the dominance of an established Liverpool market saw also, at its beginning, the existence of the clumsiest conditions of buying and selling. The method of bargaining was crude, and the Liverpool merchants were evidently more accustomed to the handling of tobacco-then regarded as the staple import and sugar than of cotton. In illustration, a letter of 1703, relating to a sale of water-packed cotton, may be quoted: "I have sold about 10° [cwt.] of Dam[aged] Cotton at 7d p. lb. you'l say a poore price one of ye baggs wch was about ye bulk of a pack of Tobacco weighed 3° 2qrs it was not worth 1a per lb had it come clear of Damadge Mr Tayler would have given 12a p.lb." 2 Since cotton was reported to be 10d. per lb. in the West Indies during the earlier part of the year, it was not a very promising trade.

A letter from Mr. Edward Byrom 3 of Manchester shows the reverse side of a similar bargain, made earlier in the year: "Yesternight I returned from London to find yrs of 6 Aug Noting you Draw on mee for thirteen pounds . . . & that for the rest we shall agree amicably. I hope so too & the reason is so great on my part it strange to mee Merchts of such honnor as yr Partners are should need Persuasion to do a thing of that Reason & Equity truth is I have already paid you for more Neat Cotton than ever I read & this 13 is in great part for tare & Damaged Cotton of no account to mee." The postscript which follows is of special interest: "I Presume you are satisfyed it is the Custom in London to alow 10 p.ct upon Cernes & in yr Bill Is but 4 & afterwards you but counted it 6 p.ct to mee So judge you the matter."

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"Cerne "-literally "circle "-must here be used in the sense of "covering " or " binding,” and it may be a reasonable assumption that an allowance " upon cernes" is simply another expression for "tare." If the statement be correct that the London

1 L. H. Grindon, Manchester Banks and Bankers, p. 13.

2 Norris Papers, ii. 289.

It seems not unlikely that this was the same Edward Byrom who was a member of the famous Manchester family of merchants and linen-drapers, and was the father of John Byrom the poet.

4 Ibid., i. 227.

allowance was ten per cent., it seems excessive and over-generous; an allowance of four per cent. was probably more reasonable if the customary rate of tare was to correspond with the actual tare. On the other hand, it is unlikely that there was at that time much uniformity in the materials and methods employed in bagging the cotton. Postlethwayt's Dictionary (1766) declares that "the tare abated in the Antilles is three in the 100."

There is no further evidence of the Liverpool custom until the end of the century; an examination of some existing accountbooks of that time shows that then Liverpool brokers made allowance at the rate of one in twenty-eight. The maintenance of such a ratio depended chiefly upon its admirable simplicity: the gross weight of the consignment-less the "draft allowance of one lb. per bag—was translated into quarters avoirdupois, and abatement made at the rate of one lb. for each quarter. STANLEY DUMBELL

University of Liverpool.

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CURRENCY AND BANK CREDIT

It is highly interesting to readers of the ECONOMIC JOURNAL to have before them the views of Prof. Cannan and Mr. Keynes on an acute problem of the day; and disconcerting to find that while as might be expected from the high standing of the controversialists—there is nothing one would venture to describe as incorrect in either article, they lead to contradictory conclusions. May I, with due diffidence, offer a contribution which, starting from a different point, seems to suggest a partial reconciliation?

The point of departure is to ask, What are the dangers from which we have to protect ourselves? Are we thinking of an indefinite inflation such as that which took place in Germany; or that which France is now endeavouring, with doubtful success, to avoid? or of an exaggerated and disastrous trade boom such as that of 1919-20? or are we thinking of plans to minimise the disturbance due to trade cycles of the moderate character known to the nineteenth century? The intimate correlation between bank credit and the supply of cash is not in dispute; it is rather a question of initiative, and perhaps the question in the minds of the two writers is not quite the same, on account of the practical application which is subconsciously present to each of them.

If we were afraid that the British Government would embark on a career of extravagance, and finance itself by the use of the

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printing press, it is just possible that the conservatism of the financial world might put up an effective barrier. It is, of course, more likely that the usual consequences, artificial stimulation of business, and sham prosperity, would follow; but just as the Federal Reserve Board has carried on a policy of keeping the money-spending power" of America from rising in proportion to the stock of gold in that country, so it is conceivable that the Bank of England, and the commercial banks, by a severe limitation of credit, might restrict the consequences of governmental over-issue of paper money, at least if the inflation did not go too far. In this case ought we not to say that it is the total stock of means of payment, three-quarters of which is in the form of bank credit, that controls the level of prices?

But let us take another and more likely contingency. Recently the dockers struck for higher wages; the employers conceded this after a slight resistance, and promptly raised their charges to meet the cost. Then the London tramway men struck, and their demands having been conceded, a rise in tram fares will no doubt follow. If the same happens all round, the rise in prices will cause a demand for loans that the banks will be unable to resist, even if they wished to. They will, let us say, allow Treasury bills to run off, in order to secure more legal tender.

It

Is the Government going to insist on the Cunliffe limit? is not likely that the chairmen of the Big Five will be called upon to come with candles and white robes to do penance before the Financial Secretary: it is more likely that they will be applauded for their efforts to keep a trade revival. A new competition between rising wages and rising prices like that of 1919-20 may set in. If the gold standard were in use, this vicious inflation would soon be stopped; in the absence of that safeguard, the best we can hope for is that the common sense of the Government and country will recognise in time whither the movement is leading, and will maintain a limitation of legal tender strict enough to check the inflation setting in from the side of commerce.

In this case we may reasonably say that the supply of legal tender currency is the important factor in the situation.

Mr. Keynes does well to stress the fact that a demand for legal tender springs up as a result of contracts already entered into, and so is a late feature in the trade cycle. To impose an absolute limit to the supply of legal tender might easily create a crisis; half a century ago crises due to inelasticity of money supply in a gold-using system had to be met by suspending the Bank Charter Act, i.e. by removing the rigid limit. Undoubtedly, if

our currency system is to be regulated consciously, it must be in accordance with all the economic circumstances, and not by a simple fixed rule. At the same time we might remember that the gold standard did work, and fairly well, although it is much harder to get new supplies of gold in an emergency than to persuade Government to rescind a Treasury minute.

Johannesburg,
April 1924.

R. A. LEHFELDT

THE TENTH ANNUAL REPORT OF THE FEDERAL RESERVE

BOARD

AMONG the many contrasts presented by the authorities respectively responsible for credit policy in this country and the United States, none is more marked than that between the reticence of the Bank of England and the communicativeness of the Federal Reserve Board. Either attitude has much to recommend it, but that of the Federal Reserve Board undoubtedly presents the greater advantages to the student of monetary theory.

In this Report the Board takes the public more fully into its confidence than ever before. The Report deals ostensibly with the year 1923, but it refers freely to the proceedings of 1922 and preceding years.

Anyone who has studied the weekly returns of the Federal Reserve Banks in recent years will be aware that the most striking movements have been those in the distribution of earning assets between rediscounts and open market assets. The fundamental difference between these two classes of assets is that the rediscounts are brought to the Federal Reserve Banks by the member banks on their own initiative, in order to maintain their statutory reserve proportions, whereas the others are composed of bank acceptances or Government securities bought on the initiative of the Federal Reserve Banks themselves. Every asset is balanced by a liability. When the Federal Reserve Banks buy open market assets, their liabilities, whether notes or deposits, are increased by an equal amount; this represents an increase in the cash resources of the member banks, and enables them either to diminish their rediscounts or to create more credit. On the other hand, when the Federal Reserve Banks sell open market assets, they curtail the cash resources of the member banks and drive them either to contract credit or to replenish their reserves by rediscounting.

No. 134.-VOL. XXXIV.

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