The Continental System: An Economic Interpretation

Heckscher, Eli F.
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Harald Westergaard, ed. C. S. Fearenside, trans.
First Pub. Date
Oxford: Clarendon Press
Pub. Date
21 of 30



How did the trade of Great Britain fare under the pressure of the events on the Continent described in the last chapter? With regard to the exports of manufactures, one might surmise a decline beforehand, for sales via the North Sea coast were made distinctly more difficult, and the roundabout route via the Baltic coast could not fail either to make the goods dearer for the consumer, and thus diminish sales, or, alternatively, to lower the price for the producer. As regards the trade in colonial goods, on the other hand, it was not clear, a priori, that the conditions would be greatly altered, inasmuch as the increased control and the new duties were counterbalanced by the extensive imports involved by the Trianon policy and the licences.


Nor, if one looks at the actual course of events, does that give any certain points d'appui for the connexion between cause and effect, a thing which must always to a great extent have to be solved by theoretical reasoning. At the first glance, it is true, that connexion might seem fairly obvious. For the fact is that the economic boom in England was brought to an end by a severe crisis in July and August 1810. The purely commercial difficulties, with bankruptcies occurring to an extraordinary extent among merchants, formed the beginning of this; but they abated in some degree later on in the summer of 1811 and still more from February 1812. On the other hand, the great lack of employment and the profound distress which somewhat later made its appearance, especially in the cotton industry and among workers, still continued during the greater part of 1812 and in their turn brought about serious disturbances—in particular, the 'Luddite riots', with the wholesale destruction of looms from November 1811. It was, therefore, only natural that in these events, combined with the heavy depreciation of British currency, Napoleon should see the long-desired fruit of his protracted struggle against the foundations of the enemy's economic existence. But the very fact that the crisis broke out not solely in England, but quite as much in France, and not solely in those countries, but also in Amsterdam, the Hanse Towns, Prussia, and Switzerland, and above all in New York, shows how complicated the whole connexion was. From the standpoint of the general effects of the Continental System on the economic life of the different countries, this question belongs to part IV; but the most palpable side of the question must be anticipated here.*51


Undoubtedly it was a peculiar combination of circumstances that worked together. In comparison with the systematic policy of economic blockade and the comparatively limited military results of the recent war, the Napoleonic wars exhibited a considerably greater uncertainty both in the execution of the blockade and in its range. The licensing system and the uncertainty of the customs policy against which complaints were so often raised in France, on the one side, and Napoleon's lightning conquests on the Continent and Great Britain's colonial acquisitions, on the other, could not fail to give rise to dislocations and consequently to speculative enterprises which, within the department of economic life affected by it, namely, foreign trade, transcended anything we know in our own time. So far the existence of a very general crisis during the years 1810-11 is fully explicable; and so far it has no direct connexion with the Continental System, but only the indirect connexion that follows from the influence of the Continental System in bringing about general unrest in the world. At all events, it is very obvious that we here have to do with effects that did not strike Great Britain alone or even specially.


Next, as regards the purely British crisis, what stands out as a principal cause is the all but inevitable rebound from the huge speculation, especially in South America, but also in the West Indies and the Iberian peninsula, which has been described previously;*52 that is to say, it is still a phenomenon having no direct connexion with the Continental System. In all probability it was further accelerated, as the British opposition always maintained, by an exaggerated granting of credit, caused by too extensive an issue of notes (inflation). The course of events appears to have been somewhat as follows: First of all, exporters could not get payment from their South American buyers. As early as August 1, 1810, we hear of five business houses in Manchester, with aggregate liabilities amounting to what was for that time the stupendous sum of £2,000,000, that had come to grief in this way; and at the end of the year we hear of bankruptcies in Manchester occurring not merely daily but even hourly. The inability of exporters to honour bills drawn upon them by manufacturers involved the latter also, particularly the Scotch ones, in the crisis; and later the confusion spread to the credit-giving banking houses and through them, in ever-widening circles, not only to the cotton trade but also to the hardware trade. Excessive speculations on the South American market also affected prospects of the future, inasmuch as not only was there no payment for goods already sold, but also new sales were largely rendered impossible. So far a completely adequate explanation of the dislocation is given by the South American trade. But to this there was added, as from March 1811, a new factor, which likewise lacked any direct connexion with the Continental System, namely, the unusually successful strangling of Anglo-American trade which the United States set going through the passage of the Non-importation Act. Finally, it is a self-evident matter that the sufferings caused by the crisis, and the deep traces it left among the working population of Great Britain, were largely due to the fact that the country was in the midst of the sweeping transformation to which Arnold Toynbee gave the name of 'Industrial Revolution'.


But if it is clear that many factors independent of the Continental System were at work, it would nevertheless be a great mistake to regard the crisis as entirely uninfluenced by the policy of Napoleon. Externally the situation was, almost to the extent that the Emperor himself might have desired, one that must inevitably have led to 'the conquering of England by excess'. The year 1810 was characterized by unprecedented imports of raw materials and colonial products. This appears from the following table, which gives a convenient summary of the gross imports of those goods from the outbreak of war in 1803 to the final peace in 1815. (See next page.)


Table. Click to enlarge in new window.


This table shows that the figures for 1810, with only two exceptions, are in general much higher than the even high figures for 1809; and in the two most important items, cotton and sugar, they are higher than in any other year during the whole period. The explanation of this fact is stated to be, first, that the payment for exports to South America, so far as there was any payment, was made in colonial goods; and, secondly, that the great warehouses at the London docks had led to a great storing of all the products of the world and consequently to extensive speculation in them by middlemen. It is self-evident, too, that a great and expressly acknowledged part in this development was played by the trade with the United States, which was quite unimpeded in 1810, as well as by the conquest of the French and Spanish colonies, and also, so far as wool is concerned, by the British successes on the Iberian peninsula. When a stoppage of sales took place, therefore, the situation had unusually large chances of becoming serious.


Accordingly, there followed in rapid succession during the summer and autumn of 1810 the events we all know about. As early as the spring (April and May) the signs of a crisis had really shown themselves in France, a crisis which might possibly have reacted on Great Britain; but far more important was the incorporation of Holland, in the beginning of July, by which, according to British evidence, there was, at least for the moment, a complete interruption of the trade between the two countries which had been going on throughout the reign of King Louis. At the beginning of August there followed the Trianon tariff;in October, the intensified blockade of the German North Sea coast, the Fontainebleau decree, and the persecution of British and colonial goods in all Napoleon's vassal states; and at the same time six hundred trading vessels were wandering around the Baltic. It was also in the sphere of colonial trade that the first blow occurred, in that one of the foremost dealers in West Indian products became insolvent and dragged down with him his bankers, who in their turn dragged after them the provincial banks with which they were associated. A meeting of London merchants and representatives of the Scottish manufacturing districts in February 1811, summed up in proud and somewhat exaggerated terms the situation in its connexion with the Continental System by saying that Great Britain had become 'the emporium of the trade, not only of the Peninsular but also of the Brazils, of Spanish settlements in South America, of Santo Domingo, the conquered colonies of Guadaloupe, Martinique, &c., but even of countries under the direct influence of the enemy', inasmuch as the latter had wished to take advantage of the protection of British justice and the honesty of British merchants. 'The measures of the enemy having been especially directed toward preventing the exportation of the immense quantities of merchandize of all descriptions thus accumulated, the consequences are that the goods became a burthen.' The following remarks of the FrenchAmerican, Simond, upon his visit to the West Indian docks in August 1811, are in full accord with this: 'At present...the giant receives, but sends nothing away. The warehouses are so full that it has been necessary to hire temporary ones out of the docks. The export district is literally deserted.'


The connexion with the Continental System thus seems to be manifest; and to judge by all English sources, the difficulties connected with the disposal of colonial goods were at first even greater than in the case of exports of manufactures. During 1810, for instance, the trade statistics give practically unaltered figures for the exports of British goods, though, of course, it is possible that in the first half year there was a rise which made up for the decline in the second half year; on the other hand, they show a decline of 19¼ per cent. for foreign and colonial goods, and it was not until 1811 that the exports declined more or less parallel for both groups. From this one may safely conclude that the Trianon and Fontainebleau policy practically had the effect, at least for the moment, of making things more difficult by the stricter control than of making them easier by the fiscal customs and licensing system. As regards the effect of the different markets on the development, we may possibly make cautious use of the trade statistics, although their reliability is undoubtedly limited even with regard to the legitimate trade, and of course much more dubious with regard to the legitimate trade and of course much more dubious with regard to smuggling into the Continent. We are here concerned with 'real', that is to say, declared, values; but the decline is no less marked as regards the 'official' values, in which changes of price have been eliminated.*53 (See opposite page.)


Table. Click to enlarge in new window.


We note immediately the pronounced decline in 1811—for colonial goods partly even in 1810—for the northern part of the Continent, which, together with the almost complete disappearance of exports to the United States and the substantial diminution in the figures for South America explains the great decline in the totals. On the other hand, it is remarkable how little the Mediterranean trade was disturbed, which indicates the importance of the Balkan peninsula as a port of penetration for the new trade route through Vienna. The relatively strong rise for Portugal in 1811 indicates a transformation at this point, which was favoured by Wellington's military successes. This increase in the trade with Portugal, which is confirmed from other sources, constituted the first sign of the limitation of the crisis in the sphere of foreign trade as early as the spring and early summer of 1811.


It is also of interest to follow the development at closer range, so to speak, with regard to the most important domestic articles of export, namely, the products of the cotton industry. On this point only 'official' values are available:*54

Year Manufactures Yarn

1803 £6,442,037 £639,404
1804 £7,834,564 902,208
1805 £8,619,990 914,475
1806 9,753,824 736,225
1807 9,708,046 601,719
1808 12,503,918 472,078
1809 18,425,614 1,020,352
1810 17,898,519 1,053,475
1811 11,529,551 483,598
1812 15,723,225 794,465
1814 16,535,528 1,119,858
1815 21,480,792 808,850


In full accordance with the preceding table we here find almost the same position in 1810 as in 1809 contrasting with a huge decline in 1811—quite independent of the change in prices, be it noted—a decline which for woven goods amounts to 35½ per cent., and for yarn to no less than 54 per cent.


Practically all pronouncements on the question of the causes of the crisis, especially in 1811, are also agreed in attributing it to the scarcity of sales and the closing of the continental ports. The main factors are very well summarized in a letter from Liverpool, dated November 22, 1810, reprinted by Tooke, from which we may quote the following paragraph:

The effects of a vast import of colonial and American produce, far above the scale of our consumption at the most prosperous periods of our commerce and attaining a magnitude hitherto unknown to us, have, in the present cramped state of our intercourse with the Continent, developed themselves in numerous bankruptcies, widely spreading in their influence, and unprecedented in extent of embarrassment. It is but fair, however, to ascribe a portion of these evils to the consequences of a sanguine indulgence of enterprise, in extensive shipments of our manufactures to South America, which so confidently followed the expedition to La Plata, and the removal of the government of Portugal to Brazil. They are further aided by the speculations which prevailed during the various stages of the American non-intercourse, and which, unfortunately, were not confined to the duration of the circumstances which excited them.


The effect of all this was a fall in prices in England, especially for colonial goods; and this, in consideration of the high prices for the same goods on the Continent, served Napoleon as a decisive proof of the success of his policy. Thus, for instance, the prices of coffee, according to Tooke's price statistics for four different points of time in each year, showed a downward tendency as early as July and November 1810, and fell with a crash in March 1811; e.g. the price of 'St. Domingo, for exportation' fell from 96-105s. per cwt. in January 1810 to 36-42s. per cwt. in March 1811;and for 'British Plantation, in bond, inferior' the fall was from 70-112s. to 25-52s. per cwt. in the same period. For sugar the decline was somewhat less pronounced, but the price had reached its lowest level somewhat earlier, namely, for most grades, as far back as November 1810. Thus for 'Havannah White, for exportation' there was a fall from 60-75s. per cwt. in July 1810 to November; and for 'East India, Brown, in bond', from April to November. As regards cotton, of course, there were numerous quotations for the many different qualities, and the general effect is somewhat varied during 1810; but the spring of 1811 shows, almost without exception, figures that are about half of those that held good a year previously. Thus, 'West India, Surinam' fell from 22-27d. to 9-15d. per pound; South American (Pernambuco) from 25-27d. to 14-15d.;and the most important kind of all, North American cotton (intermediate quality, Bowed Georgia), fell, according to Daniels' Liverpool figures, from 21-22d. in January 1810 to 10½-12¼d. in June 1811; while Tooke's figures here reveal a still heavier fall—from 17-19d. in April 1810, to 7-9d. in April 1811, respectively. The same was the case with Spanish wool, which between the same two points of time sank from 13-14s. to 7-8s. per pound.

Notes for this chapter

For the United Kingdom (and in part other countries): Report of the Select Committee on the State of Commercial Credit, Mar. 7, 1811 (Hansard, vol. XIX, pp. 249 et seq.); also the debates and petitions on the subject (Hansard, vol. XIX, pp. 123, 327, 416, 493, 529, 613, 662; vol. XX, pp. 339, 431, 608, 744); Simond, Journal of a Tour, &c., vol. II, pp. 48-9, 265; Tooke, op. cit. (extracts from the Monthly Magazine), vol. I, pp. 300 et seq.; vol. II, pp. 391, 393 et seq. (tables); Smart, op. cit., vol. I, pp. 203-4, 226-7, 263 et seq.
See ante, p. 176.
Hansard, vol. XXII, app. 1, cols. 1xi-1xii (the total figure for 1806 being corrected). As usual, the figures are for Great Britain only, not for Ireland.
After a table in Baines, op. cit., p. 350. To avoid mistakes, it might be well to utter a warning against the natural conclusion that it is possible to read from the figures the relation between manufactures and yarn in the exports; to judge by the years when there are 'real values' available, a doubling of the figures for yearn would give an approximately correct notion of this.

Part III, Chapter VI

End of Notes

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