Chapter 12 The Great Depression of 1873

However, in the early 1870s, after the financial panic, Britain began to experience the Great Depression.This is seen as a direct consequence of Britain's free trade policy.The Free Trade Creed presupposes that Britain has the ability to influence the world's major trading nations to adopt the same economic strategy, but this is wishful thinking. After the severe panic in London's banking sector in 1857, financial institutions in the City of London (including the directors of the Bank of England) devised new strategies to stem the outflow of London banks' gold. The Panic of 1857 stemmed from foreign countries starting to run on the international gold reserves held by the Bank of England.Massive runs led to the collapse of bank credit in the City of London, and indeed in the entire country.In response to this crisis, the British government instituted a policy, a simple but dangerous central bank policy.

The Bank of England was a privately held bank, not controlled by the government at the time, but dominated by financial interests in the City of London.Trade will make Britain's gold reserves go out at any time.The Bank of England realized that it only had to increase the central bank discount, or interest rate, relative to the interest rates of its trade competitors, to a level higher than that of its trade competitors, and the outflow of gold would stop, and gold would eventually flow from Berlin, New York, Paris, and Moscow flows back to the banks of the City of London. Such an interest rate policy is a potent weapon for a central bank, giving the Bank of England a formidable advantage over its rivals, no matter how destructive such staggeringly high rates are to British manufacturing and agriculture. After the abolition of the "Corn Law" in 1846, the dominant position in British economic policy was no longer industry and agriculture, but finance and international trade.In order to maintain Britain's international banking supremacy, these bankers were willing to sacrifice domestic industry and investment. A similar situation also appeared in the United States after Kennedy was assassinated in the 1960s.However, this new interest rate policy of the Bank of England caused the entire British industry to suffer, and a Great Depression swept the entire United Kingdom from 1873 to 1896.

The financial crisis that began in the British banking sector, accompanied by the collapse of the railroad construction debt chain in North and South America, plunged the British Empire into the Great Depression.The depression brought unemployment to Britain and factory closures. From 1873 to 1896, nominal prices in Britain dropped all the way to 50% of the original level, and there were unemployed people everywhere. The underinvestment in British manufacturing was already evident at the International Exhibition of 1867.Brand new machine-made products, even textiles, come from Germany and elsewhere.This certainly reflects the stagnant state of British manufacturing technology, which was a world manufacturing pioneer just 20 years ago.British exports of iron, steel, coal, and other products also declined during this time.It was a turning point in British history.The "free trade" policy introduced 30 years ago, in order to make finance dominant in all affairs of the British Empire, combined with the repeal of the Corn Laws, to bring British industrial technology into decline.It was clear that by the 1890s Britain's era as the world's industrial leader was over.

The free trade creed of the 19th century British Empire and her Malthusian theory were doomed.The theory is based on the idea that survival requires cannibalizing the economies of the rest of the world. Only 25 years after the repeal of the Corn Laws, the British Empire fell into the worst and longest depression in its history. After 1873, the United Kingdom tried hard to spread the "British disease" virus. Adam Smith's "global economic model" of absolute free trade was obviously unsuccessful, and Germany led countries in continental Europe to carry out a series of national economic protection measures. Enabled them to achieve the fastest industrial growth in two hundred years.

In this context, how to maintain the rule and power of the empire in a rapidly changing world, British elites have launched a new round of debate on this issue.In 1882, the geopolitics of oil was introduced into this debate.The debate now is how to maintain Britain's maritime supremacy.