1, there had been
somewhat of a slump in demand for raw cotton by British manufacturers
due to an over-production of goods in the two previous years. There had
been a temporary depression in 1856-57 caused by a general financial
crisis, but early in 1858 restored confidence and a tremendous demand
from the Far East--India especially--set the mills running again on full
time, while many new mills were brought into operation. But by May,
1860, the mills had caught up with the heavy demands and the rest of the
year saw uncertainty of operations and brought expressions of fear that
the "plunge" to produce had been overdone. Manufactured stocks began to
accumulate, and money was not easy since 1860 brought also a combination
of events--deficient grain harvest at home, withdrawal of gold from
England to France for investment in French public works, demand of
America for gold in place of goods, due to political uncertainties
there--which rapidly raised the discount rate from two and one half per
cent. in January, 1860, to six in December. By the end of April, 1861,
the Board of Trade Returns indicated that the cotton trade was in a
dangerous situation, with large imports of raw cotton and decreased
exports of goods[671]. The news of war actually begun in America came as
a temporary relief to the English cotton trade and in the prospect of
decreased supply prices rose, saving many manufacturers from impending
difficulties. A few mills had already begun to work on part-time because
of trade depression. The _immediate_ effect of Lincoln's blockade
proclamation was to check this movement, but by October it had again
begun and this time because of the rapid increase in the price of raw
cotton as compared with the slower advance of the price of goods[672].

In substance the principal effect of the War on the English cotton trade
for the first seven or eight months was felt, not in the manufacturing
districts but in the Liverpool speculative and importing markets of raw
cotton. Prices rose steadily to over a shilling a pound in October,
1861. On November 23 there was a near panic caused by rumours of British
intervention. These were denounced as false and in five days the price
was back above its previous figure. Then on November 27 came the news
of the _Trent_ and the market was thrown into confusion, not because of
hopes that cotton would come more freely but in fear that war with
America would cause it to do so. The Liverpool specu