Manchester, 11 December 1857 

Dear Moor, 

Still very busy with bad debts and price reductions. 

Never before has overproduction been so general as during the 
present crisis, and there’s no denying that this applies to colonial 
produce and also to corn. That’s what’s so splendid, and is bound 
to have tremendous consequences. After all, so long as over- 
production was confined to industry :the thing was only half-way 
there, but as soon as agriculture is also affected, and in the tropics 
as well as in the temperate zone, it will become spectacular. 

The outward and visible sign of overproduction is more or less 
always expansion of credit, but this time it’s especially kite-flying: 
This system of making money by means of drafts on bankers or 
‘bill-brokers’, which are either met or not before maturity 
according to how the thing has been arranged, is the rule on the 
Continent and among the continental houses in England. The 
commission houses here all do it. The system was taken to the 
most enormous lengths in Hamburg, where bills amounting to 
more than 100 million banco marks were in circulation. But there 
was some fearful kite-flying elsewhere and it was because of this 
that Sieveking, Sillam, Karr, Josling & Co., Draper, Pietroni & Co. 
and other London houses went under. For the most part they 
were the drawees in this tine. Among the manufacturing businesses 
over here and in the Home Trave the thing was so arranged that 
instead of paying casH in a Month the fellows negotiated bills on 
themselves at 3 months and paid the interest. In. silk 
manufacturing the practice increased proportionately to the rise in 
the price of silk. In short everyone operated in excess of his 
resources, OvERTRADED. Admittedly overtrading is not synonymous 
with overproduction, but it amounts to exactly the same thing. A 
MERCANTILE COMMUNITY which has a capital of £20,000,000 thereby 
possesses an ability to produce, trade and consume measured by 
this sum. If, on this capital and as a result of kite-flying, it does 
business presupposing a capital of £30,000,000, production will 
rise by 50% and consumption will also rise as a result of 

prosperity, but by no means to the same degree, disons* 25%. At 
the end of a certain period there will inevitably be an accumula- 
tion of goods of an order 25% in excess of bona fide, ie. of 
average requirements, even at a time of prosperity. This alone would 
be bound to precipitate the crisis, even if the money market, the 
weathercock of trade, were not already pointing in that direction. 
All that’s needed is a crash and then, in addition to this 25%, a 
further 25% at least of stocks of all necessaries will become a DRUG ON 
THE MARKET. The present crisis provides an opportunity for a 
detailed study of how overproduction is generated by the 
expansion of credit and by overtrading. There’s nothing new about 
the thing as such, save for the remarkably clear-cut lines along 
which it is now developing. In 1837-42 and 1847 they were by no 
means so clear-cut. 

That is the pretty situation in which Manchester and the cotton 
industry now find themselves. Prices are low enough to permit of 
what the philistines call 4 sound business. But as soon as there is the 
slightest increase in production, cotton will start going up, since 
there’s none to be had in Liverpool. So they'll have to carry on 
working short TIME, orders or no orders. Now admittedly there are 
orders, but they’re from places that have not yet felt the intensity of the 
crisis; the commission houses know this and so they aren’t buying, 
for to do so would involve endless wrangles, and bad debts into 
the bargain. 

Today the market was again very depressed. Yarn worth 14 to 
14'/od is offered at 11'/4d and anyone offering 10°/,4d can have it. 
The Indians are out of the market. The Greeks are stuck with 
their corn—almost all of them deal in this, it being their chief 
return freight (from Galatz and Odessa). The Germans can’t buy 
for the reasons just mentioned. The Home Trade houses have 
forbidden their suvers to order anything at all. America ouT OF THE 
question. Italy is suffering from the general fall in price of her raw 
materials. Another month, and there'll be a very nasty situation 
here. Small spinners and manufacturers are going under every 
day. 

Mercks in Hamburg only survived because of the 15 mill. 
advance from the government and on one day at least their house 
here sent away the spinners whose accounts were due. Mercks’ 
head man in Hamburg is the ex-imperial minister Dr Ernst Merck, 
a lawyer but also partner. 

a let’s say 

Kindest regards to your wife and children. There’s been no time 
today to go into your letter about France, etc., etc; il faudrait trop 
réfléchir? 

Your 
F. E.