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.
Background
As a means of stabilizing the British economy, the ministry of
Robert Peel
Sir Robert Peel, 2nd Baronet, (5 February 1788 – 2 July 1850) was a British Conservative statesman who served twice as Prime Minister of the United Kingdom (1834–1835 and 1841–1846) simultaneously serving as Chancellor of the Exchequer ...
passed the
Bank Charter Act of 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 ...
. 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. Furthermore, the Act required that the supply of money in circulation could be increased only when gold or silver reserves were proportionately increased. In 1847, the Act was suspended when 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 of ...
was presented with a letter from the Prime Minister and Chancellor of the Exchequer indemnifying the Bank for a breach of the Act. The crisis in the money market ended almost immediately, without any breach of the Act.
The panic of 1847 cleared away a vast number of unsound business houses, and trade generally became much more sound and healthy; this lasted until the year 1855. The following explanation by Spanish economist
Jesus Huerta de Soto
Jesus, likely from he, יֵשׁוּעַ, translit=Yēšūaʿ, label=Hebrew/Aramaic ( AD 30 or 33), also referred to as Jesus Christ or Jesus of Nazareth (among other names and titles), was a first-century Jewish preacher and religious ...
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 completely backed by gold. Nevertheless this provision was not established in relation to deposits and loans, the volume of which increased fivefold in only two years, which explains the spread of speculation and the severity of the crisis which erupted in 1846.
See also
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Great Depression
The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
Notes
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?"
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*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).
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{{Financial crises
Economic history of the United Kingdom
19th-century economic history
1847 in the United Kingdom
Financial crises
1847 in economics