By 1849, after the Bank of England suspended the Bank Act, and introduced liquidity, the money panic ended, and economic activity quickly rebounded. The economic prosperity continued for several years into the 1850's, despite the fact that the increased capacity pushed up the price of cotton, which became in short supply, for certain types used, “in spinning low numbers of cotton yarns, or manufacturing heavy cotton goods.” (p 127)
But, even during this period of general prosperity, the market is characterised by sharp disjunctions of overproduction so that one year there is a boom, the next year a bust. Once again, this kind of alternation cannot be explained in terms of either under-consumption or of a falling rate of profit, leading to capital reducing investment. On the contrary, it is high profits, in boom periods, that cause a burst of investment that leads to markets being physically overstocked, which then leads to the kind of interruption in the circuit of capital described above.
In fact, as Marx details there, shifts could occur within a matter of months. April 1853 is described as great prosperity, but by October of the same year, there is a depression in the cotton industry. By April the next year, business is brisk again.
Marx's analysis of the effects of the cotton famine once again link back to his summary, in Volume II, of the various causes of economic crises and the breakdown of the circuit of capital. It is titled “American Civil War. Cotton Famine. The Greatest Example of an Interruption in the Production Process through Scarcity and Dearness of Raw Material” (p 128)
In 1860, economic conditions were favourable, despite the high price and scarcity of material. By 1861, the price of raw material had become so high that it was choking off demand for manufactured goods.
““Raw material is high. In almost every branch of textile manufacture it is above the price at which it can be manufactured for the masses of the consumers." (Reports of Insp. of Fact., April 1861, p. 33.)” (p 129)
In 1863, the factory inspectors reported that it had taken 3 years to absorb the overproduction of 1860, in world markets. In order to cut costs as the price of material rose, spinners would use size to add weight to the yarn, i.e. they would coat the threads with flour. As was stated earlier, this is one reason the industrialists pressed for the Repeal of the Corn Laws. The Repeal of the Corn Laws also brought repeal of other duties on cotton. Both materials were used heavily in the textile industry.
They also experimented with other material such as talcum and gypsum, both of which were injurious to the workers health when breathed in. But, also the use of size made the fibres brittle and therefore more likely to break. The more they broke, the more often production had to stop to knot the threads, which meant that wages fell. Workers resisted with strikes, but, in worsening economic times, they lacked the economic power to win. Then they faced not only wage cuts, but also shorter hours.
By 1862, 50.7% of cotton workers in Lancashire and Cheshire were unemployed, 38% were on short-time, and only 11.3% were working full-time. A large part of the crisis would have been felt by the small firms that had set up during the more prosperous period of the 1850's. Most of these were set up by former workers, and lacked sufficient capital.
In 1863, unemployment again stood at around 50%, and the employers began to use Surat cotton as an alternative to US cotton. However, its poorer quality again meant that wages fell even when working full-time, by around 50%. Not only was time lost due to breakages, but the machines had to be run more slowly. As another means of reducing the material cost, cotton waste was also added, and this contributed to the problems.
““Another difficulty the weavers have sometimes to contend with is, that they are expected to produce well-finished cloth from inferior materials, and are subject to fine for the flaws in their work." (Reports of Insp. of Fact., Oct. 1863, pp. 41-43.)” (p 133)
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