Panic of 1847

The Panic of 1847 was a minor British banking crisis associated with the end of the 1840s railway industry boom and the failure of many non-banks.[1]

Background

As a means of stabilizing the British economy, the ministry of Robert Peel passed the Bank Charter Act of 1844.[2] This Act fixed a maximum quantity of bank notes that could be in circulation at any one time and guaranteed that definite reserve funds of gold and silver would be held in reserve to back up the money in circulation.[3] Furthermore, the Act required that the supply of money in circulation could only be increased when gold or silver reserves were proportionately increased. However, in 1847, the Act was suspended when the Bank of England was presented with a letter from the Prime Minister and Chancellor of the Exchequer indemnifying the Bank for a breach of the Act.[4] The crisis in the money market ended almost immediately without any breach of the Act.[5]

The panic of 1847 cleared away a vast number of unsound business houses,[citation needed] and trade generally became much more sound and healthy;[citation needed] this lasted until the year 1855.[citation needed] The following explanation by Spanish economist Jesus Huerta de Soto of the Austrian School is based in Austrian Theory of the Business Cycle:

As of 1840 credit expansion resumed in the United Kingdom and spread throughout France and the United States. Thousands of miles of railroad track were built and the stock market entered upon a period of relentless growth which mostly favored railroad stock. Thus began a speculative movement which lasted until 1846, when economic crisis hit in Great Britain.

It is interesting to note that on July 19, 1844, under the auspices of Peel, England had adopted the Bank Charter Act, which represented the triumph of Ricardo’s Currency School and prohibited the issuance of bills not backed 100 percent by gold. Nevertheless this provision was not established in relation to deposits and loans, the volume of which increased five-fold in only two years, which explains the spread of speculation and the severity of the crisis which erupted in 1846. [6]

References

  • Mike Anson, David Bholat, Miao Kang, Kilian Rieder and Ryland Thomas. 2019. “The Bank of England and central bank credit rationing during the crisis of 1847: frosted glass or raised eyebrows?”
  • Evans, David Morier (1849). The Commercial Crisis, 1847-1848: Being Facts and Figures. London.
  • Glasner, David (1997). “Crisis of 1847”. In Glasner, David; Cooley, Thomas F. (eds.). Business cycles and depressions: an encyclopedia. New York: Garland Publishing. pp. 125–28. ISBN 0-8240-0944-4.
  • Michael Bordo (2003). Stock Market Crashes, Productivity Boom Busts and Recessions: Some Historical Evidence.
  • Arthur Crump, The English Manual Of Banking, Longmans, Green & Co, 2nd edition (1877).
  • Kynaston, David (2017). Till Time’s Last Sand: A History of the Bank of England, 1694–2013. New York: Bloomsbury. pp. 145–152. ISBN 978-1408868560.

 

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