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The Panic of 1866 was an international financial downturn that accompanied the failure of Overend, Gurney and Company in London, and the ''corso forzoso'' abandonment of the silver standard in Italy. In
Britain Britain most often refers to: * The United Kingdom, a sovereign state in Europe comprising the island of Great Britain, the north-eastern part of the island of Ireland and many smaller islands * Great Britain, the largest island in the United King ...
, the economic impacts are held partially responsible for public agitation for political reform in the months leading up to the
1867 Reform Act The Representation of the People Act 1867, 30 & 31 Vict. c. 102 (known as the Reform Act 1867 or the Second Reform Act) was a piece of British legislation that enfranchised part of the urban male working class in England and Wales for the first ...
. The crisis led to a sharp rise in unemployment to 8% and a subsequent fall in wages across the country. Similar to the "knife and fork" motives of
Chartism Chartism was a working-class movement for political reform in the United Kingdom that erupted from 1838 to 1857 and was strongest in 1839, 1842 and 1848. It took its name from the People's Charter of 1838 and was a national protest movement, w ...
in the late 1830s and 1840s, the financial pressure on the British working class led to rising support for greater representation of the people. Groups such as the Reform League saw rapid increases in membership and the organisation spearheaded multiple demonstrations against the political establishment such as the Hyde Park riot of 1866. Ultimately the popular pressure that arose from the banking crisis and the recession that followed can be held partly responsible for the enfranchisement of 1.1 million people as a result of Disraeli's reform bill.Malcolm Pearce and Geoffrey Stewart, ''British Political History 1867–1990'', published 1992 The Panic decimated shipbuilding in London, and the Millwall Iron Works holding company collapsed. Less than 17% of the joint-stock banks formed since 1844 weathered this tumult. The
Companies Act 1862 The Companies Act 1862 (25 & 26 Vict. c.89) was an Act of the Parliament of the United Kingdom regulating UK company law, whose descendant is the Companies Act 2006. Provisions *s 6 'Any seven or more persons associated for any lawful purpose ma ...
created a financial boom which laid the groundwork for the larger banks of British finance during the latter half of the 19th century. The primary importance of the expansion of credit was its role in foreign trade. Historians P. J. Cain and
A. G. Hopkins Antony "Tony" Gerald Hopkins, FBA (born 21 February 1938) is a British historian specialising in the economic history of Africa, European colonialism, and globalisation. He is Emeritus Smuts Professor of Commonwealth History at the Universit ...
note that "gentlemanly capitalism" (a class-conscious form of white-collar work in finance, insurance, shipping and the Empire) was the key to the growth of the Empire and its economic growth beginning in 1850. Historian
David Kynaston David Thomas Anthony Kynaston (; born 30 July 1951 in Aldershot) is an English historian specialising in the social history of England. Early life and education Kynaston was educated at Wellington College, Berkshire and New College, Oxford, fr ...
notes the shift in the discount bills in the 1860s, particularly to finance supplies for the American Civil War, and Richard Roberts describes the 1860s, 1870s and 1880s as the "internationalisation of the discount market". According to a 2022 study, "countries exposed to bank failures in London immediately exported significantly less and did not recover their lost growth relative to unexposed places. Their market shares within each destination also remained significantly lower for four decades."


Bank of England

The Panic of 1866 provides the key event recognising this shift. In the 12 May 1866 issue of '' The Economist'', Walter Bagehot noted that the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker, and still one of the bankers for the Government o ...
's refusal to lend with Consol bonds as collateral was troubling. The following week he also wrote that this refusal had caused further panic, as well as that the bankers did not consider the Bank of England to be a government agency. By issuing its letter suspending the
Bank Charter Act 1844 The Bank Charter Act 1844 (7 & 8 Vict. c. 32), sometimes referred to as the Peel Banking Act of 1844, was an Act of the Parliament of the United Kingdom, passed under the government of Robert Peel, which restricted the powers of British banks ...
, however, it revealed its backing by the Government and was "confirming the popular conviction that the Government is behind the Bank, and will help it when wanted". On 12 May 1866, Bagehot wrote that the panic now meant "a state in which there is confidence in the Bank of England and in nothing but the Bank of England", highlighting the conflict between the Bank's role in maintaining the liquidity of the domestic market and in maintaining its reserves to guarantee convertibility for foreign currency exchange. In a panic, not only did the need to maintain reserves mandated by the Bank Charter Act 1844 lead to hesitation by the Bank, but also the suspension of its requirements confused foreign investors, who believed the Bank had suspended payments, which led to concurrent massive foreign withdrawals. The Bank of England adopted Bagehot's solution, which was an explicit policy of free offers to lend at high discount rates. This policy rebuilt the Bank's reserves. The Bank of England's response to the 1866 financial crisis helped make the sterling pound an international currency.


See also

* List of banking crises


Further reading

* Baxter, Robert. ''The Panic of 1866; with its Lessons on the Currency Act.'' London, Longmans, Green (1866); New York: B. Franklin (1969). *Elliott, Geoffrey. ''The Mystery of Overend and Gurney: Adventures in the Victorian Financial Underworld.'' London, Methuen (2006). *Kindleberger, Charles P. ''Historical Economics: Art or Science?'' University of California Press, 1990, p. 310

* * Benjamin Scott, Scott, Benjamin. ''A Statistical Vindication of the City of London; or, Fallacies Exploded and Figures Explained.'' London, Longmans, Green (1867); 3rd edition, 1877.


References

{{Financial crises Economic crises in the United States Economic history of the United Kingdom 19th-century economic history Financial crises 1866 in economics 1866 in the United Kingdom 1866 in the United States