H.M. Hyndman

Commercial Crises of the Nineteenth Century

Chapter II
The Crisis of 1825

England, as a whole, speedily recovered from the industrial depression following upon the end of the great war. From the time when the Bank of England resumed specie payments completely in 1819, and indeed from the end of the year 1817, the upward movement of business became more and more rapid. A succession of good harvests helped on the revival of trade as the stocks of manufactured goods moved off; and the outcry of the agriculturists against the low price for grain was drowned by the din of the machinery in the cities working overtime, to great profit for the employers and constant employment for the “hands.” The extension of trade seemed something phenomenal; the rapid accumulation of fortunes impelled the wealthy classes to undertake vast operations in every direction.

At the beginning of 1824, therefore, instead of grumbling and discontent, murmurs of satisfaction and gleeful anticipations of enhanced gains were heard from the capitalists on every side. By this time, too, even the agriculturists, who were producing larger and larger crops to the acre, began to share in the general prosperity. The average price of wheat for the year was 62s a quarter, yet no complaints were made, for the majority of the working population were in full employment. In the iron and coal industries, as well as in the cotton and wool factories, business was exceedingly brisk. Everybody was making haste to get rich. Speculation of the most reckless character far outstripped the limits of the most adventurous trading; and, so does history in a sense repeat itself, our growing relations with the South American States pushed this speculation to an almost unprecedented height. The mania affected the whole mercantile community, and extended to all the property-holding classes.

That such exceptional prosperity could not be altogether sound seems scarcely to have been suspected even by many of those who were capable of forming a clear judgment. The improved conditions of life for the middle-class were the theme of universal contentment. Such changes had been wrought in the appearance of town and country alike as are usually the result of several generations of continuous improvement. In the country, fields better tilled, barns and storehouses better built, horses, cattle, and sheep mere numerous and of better breeds. In the towns, an improved class of dwellings, greater comfort and luxury in every middle-class household. Division of labour pushed to a greater extent alike in production and distribution. An accumulation of money in the banks as well in London as in the provincial centres. A superabundance of capital seeking employment in the riskiest ventures. Projects of every kind for the construction of canals, tunnels, bridges, tramways, roads, and so forth, eagerly entertained and accepted. All proved that the savings of the middle-class, in spite of their increased expenditure on comfort, had more than kept pace with the growth of their wealth.

A complete change in the habits of this class was taking place. The unremitting and even excessive personal attention to the details of business was giving way to a more leisurely sort of existence for those who could now afford it. Instead of living in their houses of business, and working steadily day and night at their occupations, the well-to-do men of affairs and tradesmen of good standing began that plan of living in the suburbs, and going in during the day to their offices and shops, which has obtained so great an extension in our own times; while, at the same time, the lounger towns around our coasts began to attain considerable dimensions, owing to the visits and residence of Londoners.

In small matters, as in large, the change was very remarkable. The pinching and saving of the war times had given place to a more easy and generous view of life all round for the fairly well-to-do. It was a period of universal well-being for that class, accompanied, as statistics but too clearly show, by intense and grinding overwork for the masses of the people. Few thought of this at the time. All were content to congratulate the country on the singular prosperity and contentment, the wonderful sagacity and enterprise of that class of manufacturers and merchants, capitalists, bankers, shipowners, and tradesmen, who were regarded then, and for long afterwards, as the backbone of the nation. All was apparently based on the soundest foundations; everyone was convinced that this good fortune had been honestly earned, and would be solidly maintained. So hopeful was the tone of the period, so confident the anticipation of a bright future, that the most gloomy pessimist could scarcely see a dark cloud in the sky. Tomorrow shall be as to-day, and much more abundant, was chanted in chorus by hundreds or thousands of cool, calculating men, who, in the ordinary business of everyday life, we’re shrewd and cautious enough.

The same nation which had gone through the great war against France with a determination and stolid persistence that astonished the world, which had stood up stoutly for its freedom at home, and had passed through the crisis already briefly sketched with comparatively trifling difficulty, now to all appearance lost its head entirely. All the best characteristics of the middle-class seemed to be swamped in one overmastering lust for gaming. The bubbles of the previous century were reblown in more glittering and fantastic shapes. The follies of 1824 and 1825 surpassed every previous financial folly. Classes of the population which had never before followed the-will-o’-the-wisps of speculation tumbled over one another in their eagerness to put salt on the tails of these flitlings of the financial marsh. It was highday and holiday for the Dousterswivels and John Laws, for unscrupulous schemers and half-insane enthusiasts. Everybody speculated in something: not only the world of business, but the entire population were swept along in the craze of gamblers. Old and young, men and women, rich and poor, noble and simple, one and all, were drawn into the throng. Even when all the purely absurd and swindling projects are eliminated, and only those are taken account of which have a reasonable claim to solidity, even then the scale of the commitments entered into by Great Britain are upon an astonishing scale – a scale rather suitable to the end than the beginning of the nineteenth century, and certainly more fitly representing the investments of twenty years than of two.

The amount of loans to foreign States, negociated in London or transferred to the London market during this period, in addition to a quantity of external loans, which were bought in England, but not being paid in London, were not quoted on the Stock Exchange, reached no less a total than £86,000,000.

Over and above these vast sums invested abroad, the following companies were established among others in 1824 and 1825:



20 Companies to build Railways,



22 Bank and Insurance Companies,


11 Gas Companies,


17 Foreign Mining Companies,


8 English and Irish Mining Companies,


9 Companies for the construction of Canals, Docks, Steamers,


27 Different Companies for various industrial businesses,


The total amounting to 114 companies, with a gross capital of upwards of one hundred millions sterling. The shares of most of these companies stood at first at a high premium, and, in particular, the mining companies of Mexico and South America ran their shares up to a preposterous height; the Real del Monte with shares of a nominal value of £400, of which only £70 were paid up, were sold on the 2nd January, 1825, at £1,350 a share – that being two and a half times their quoted price only a month before.

The following passage might almost be read as referring not to 1824 but to 1889. “In the spring of 1824, when heavy payments had to be made on account of the South American loans and mining companies, so large an amount of gold and silver bullion was exported to South America that a sensible deficiency was caused in the available currency of Great Britain, and during the whole of the year 1824 and the first three months of 1825, the Bank of England materially increased its note circulation.” At the same time the provincial banks, under a mischievous Act of Parliament passed in 1822, swamped the whole country with paper money, which found a ready outlet in that time of rising prices and universal speculation. In 1825 there were nearly thrice as many such notes out as there were in 1822, while between June, 1824, and October, 1825, from £10,000,000 to £12,000,000 of coined money was issued from the Mint. Every step was thus taken to encourage speculation to the point of actual danger to the State, and to inflate the existing inflation beyond all precedent.

So long as money could be obtained at a low rate of interest, and interest was maintained at a low rate by the enormous issue of small banknotes, the speculation went on; and, as has been said, all classes and both sexes took an active part in the scramble for wealth.

Few took into consideration the fact that the solid loans and enterprises undertaken called for more capital than the country had saved or could dispose of. The mania for fresh undertakings spread far and wide. In the single session of 1825, 438 applications were made for bills for private companies, and 286 charters were granted; in not a few cases causing grave suspicions to be aroused as to the uprightness of members of the House of Commons.

Canning had called in the New World to redress the balance of the Old, and English loan-mongers, merchants and promoters, as we have seen, put their own interpretation on the epigram. All considerations of geography, climate, native character, and disposition were thrown to the winds. Money was to be lent at good interest, merchandise was to be shipped to large profit, mines were to be opened to pay an unheard-of percentage in countries concerning which little or nothing was known to the majority of the speculators. The most ridiculous blunders were made by the class which was supposed to be carrying on business for the general benefit. Warming-pans were shipped to cities well within the tropics, and Sheffield carefully provided skaters with the means of enjoying their favourite exercise in regions where ice had never been seen. The best glass and porcelain were thoughtfully provided for naked savages, who had hitherto found horns and cocoa-nut shells quite hollow enough to hold all the drink they wanted.

One company was formed to provide the inhabitants of the River Plate with fresh butter, at a time when none but the wildest of wild cattle could be found from the Atlantic Ocean to the Andes; and a tribe of luckless Scotch dairymaids were shipped to Buenos Ayres, in order to milk cattle a trifle more savage than the Gaucho cowboys who herded. them. When the inconceivable difficulties of getting milk and cream in such circumstances had been at length overcome, and something in the shape of butter was provided, it was suddenly discovered that the misguided inhabitants preferred oil. Similar absurd blunders, sometimes with very tragic results alike for the unfortunate small investors as well as for the deluded emigrants, were of everyday occurrence. Such folly and madness would seem incredible did we not ourselves witness their recurrence in some form on each return of a period of prosperous trade. The wealth derived from the labours of the workers and the increased power of man over nature was played ducks and drakes with in every quarter of the globe, while at home, in England, this was perhaps the blackest time for the toilers and their children since the dark days of the sixteenth century.

Just when everything seemed most prosperous, the crisis – the first important international crisis of the capitalist epoch – was close at hand. Nine-tenths of the foreign ventures, it was soon apparent, would produce no return whatever, at any rate, for many years. Goods which had been thrown upon the market, as the inevitable result of working the new machinery at full power, and goods which had been kept off the market in the hope of prices being screwed up higher and higher yet, were suddenly found by their owners to be unsaleable at the prices even then ruling. Further advances were then sought from the bankers, who, the bank rate of discount being still low, at first stretched their resources to oblige their clients by discounting their paper at long dates. Then the calls upon the unpaid capital of the new issues began to come due, while no profits, of course, were as yet realised or likely to be realised. This led to further demands for accommodation. Men of business began to awaken from fancy to fact. The Bank of England, which had maintained its rate of discount low during the whole of the period of wild speculation, only raised it from 4 to 5 per cent. on the 17th December, 1825, when one great bank failure followed by others gave unmistakable warning of the coming crash.

And then the crash came. The very same people who had aggravated the over-speculation by their false and almost fraudulent finance, now rendered the collapse more disastrous by their panic-stricken precautions against the dangers they had themselves helped to evoke. In every direction the note issue was reduced, and credit was restricted to such an extent that even the bills of perfectly sound houses were rejected. Of course, in such circumstances the glut of unrealisable commodities on the market exceeded all limits. Prices fell all round with such alarming rapidity that even the most venturous buyers held aloof. Not only were speculators forced to relinquish their holdings, but the manufacturers, whose continual production necessitated realisations in cash, were compelled, failing further bank accommodation, to try to find the means of meeting their own bills by forced sales on the open market, or otherwise to close their mills and go into liquidation. The Stock Exchange could afford no relief; for shares which stood at an inconceivable premium yesterday were utterly valueless to-day. Everybody wanted to realise at once, and each was anxious to get out on the shoulders of his neighbour. Panic reigned supreme alike in finance and in business. The first great international crisis of the nineteenth century had begun.

In six weeks no fewer than seventy provincial banks failed. In London and in the country commercial houses fell one on the top of the other like a house of cards whose support is removed. Credit was almost at a standstill. It was impossible to say what constituted wealth for the purpose of carrying on business or meeting liabilities. The distrust was as profound as the confidence had but now been overweening. Whoever had loans out called them in; whoever had money in hand refused to part with it on any terms. From one end of Great Britain to the other people looked blankly in one another’s faces, not knowing whence had arisen this sudden tornado of financial despair. Little else was discussed in the Exchange or on the market-place. While some said that the whole thing was purely imaginary, the result of foolish fears and scandalous rumours, others maintained with equal vigour that the crisis was but the beginning of the end, and that the downfall of our whole industrial and financial system was close at hand.

London endeavoured to check the panic by a great meeting of wealthy merchants and bankers, who declared with the unanimity of the citizens of Ephesus that confidence would speedily be restored if people would only be confident. But the losers of the provinces refused to be comforted by the assurances of metropolitan magnates; and their practical reply to the blessed words of the greatest organisers of industry was a heavy run upon the great London banks. The anarchy of liquidation was as miserable a spectacle as the anarchy of speculation. The getting out was as disorderly and as disgusting as the getting in. Business got worse and worse, until the very productive power of the country was threatened with serious limitation by the uncertainty which weighed upon the entire community. Unless credit were in some way restored and the ordinary channels of trade accommodation were cleared, the winter of 1825 must prove unprecedentedly disastrous to the working population.

Whatever was done had to be done quickly. The Bank of England, whose directors were, as usual in trying times, at their wits’ end, applied now to the Chancellor of the Exchequer to help them to remedy a state of things in part brought about by their own incompetence and want of foresight. The directors urged that unless they could give facilities for discount, which in existing circumstances they did not see their way to do, the crisis must continue, and ruin would overtake even the most sound and cautious establishments. Then, apparently for the first time in all this turmoil of excitement and hopeless confusion, the facts of the situation were faced. It was recognised that there was no reason why, because the greater part of the well-to-do classes and their hangers-on had hopelessly lost their heads, the ordinary business of the country should not again be placed on a sound basis. Excessive speculation and production, backed up by inflation of the currency and undue facilities for borrowing, had brought about the crisis: excessive restriction of the currency and refusal of reasonable accommodation had aggravated it when it came. The nation had not lost its means of producing wealth, or of providing its members with the means of subsistence.

No sooner were the facts faced, so far as they were then understood, than the height of the crisis had passed. The Bank of England was permitted to issue one pound and two pound notes, the Mint was set to work to coin bullion as rapidly as possible, gold was obtained from abroad in considerable quantities, and by the end of the year, which had begun amid universal content and general jubilation, the despairing people had decided that they might yet be able to meet their losses and pull through. Notwithstanding the enormous scale of the undertakings and commitments in comparison with the population and realised wealth of the Great Britain of that day, the bankruptcies after all were not numerous. The actual loss was not nearly so great as men in their panic had thought. Savings had been swept away to a large extent, and the bitter cry of the small investor, the subdued wail of the widow and the orphan, was heard in the land. But from the economical point of view, and as regarded the interests of the mass of the people, the greatest mischief was caused by the glut of commodities, which Fourier, following the lead of Robert Owen, pointed to as the peculiar feature of this trade crisis in every country affected by it. That glut of commodities was increased by the anxiety of the middle-class and the wealthy to make up by economy for the losses which they had sustained; and men and women were again thrown out of work as before by the fact that their power to produce wealth was being continually enhanced, while they themselves had as little control over the ownership or the distribution of the wealth which they produced as they had over the raw material, machinery, and tools by which through them it was created.

Again, therefore, as a result of causes over which they had no control, Great Britain was overrun by workless people, and disturbances and riots were the rule rather than the exception; for Englishmen had not yet accepted the doctrine that it was their duty to starve in silence and contentment because the managers of modern industry had made fools of themselves. They saw that, no matter how successful the speculations of the well-to-do might have been, the wage-earners would have in nowise benefited from the profits realised; and it seemed to them – this was sixty-seven years ago, and before the schoolmaster was fairly abroad – that they should scarcely be called upon to pay in the shape of starvation and misery for themselves, their wives, and their children, because the ruling classes had staked and lost the national wealth at the international gambling table of finance and commerce. They even went so far as to translate their opinions on this subject into action, were duly shot down, hanged, and imprisoned for their ignorant misconception of the truths of middle-class political economy, and were taught a rude lesson as to the advantages of law and order even to a starving people under modern social conditions.

In the meantime, the Government was carefully considering what seemed to them the far more important question of the regulation of the Bank of England. One pound and two pound notes were now finally given up in England, though their circulation was still permitted in Scotland, and the Bank of England was authorised to establish branches in several of the great provincial cities. It was hoped that these measures would materially lessen the probability of the recurrence of crisis, and would limit its injurious effect if it took place. How far this anticipation was realised will shortly be seen.

The crisis of 1825 had a considerable effect on all the foreign markets which, in some cases, felt the results of it after Great Britain herself had recovered from the shock. English goods, unsaleable at home, were thrown in masses on the foreign markets, depressing prices to a great extent, as the previous rise in England had maintained values. The financial crash which followed, however, though it was felt throughout the civilised world, did not have the same influence as similar disturbances produced later. International financial and commercial relations had not yet become so closely intertwined as they afterwards became, and even the United States, temporarily affected as they were by the outrageous speculation carried on in raw cotton during 1825, experienced nothing which could be called a serious crisis, intimately connected as the interests of the two countries now were.

Those who witnessed the crisis of 1825 and the series of events which led up to it, ought to have been able to prepare for and provide against similar social catastrophes. The early portion of the present century produced many Englishmen, who saw as clearly as did Owen that the increased power to create wealth had become in the hands of the dominant class a direct means for the manufacture of poverty. But, unfortunately, their warnings passed unheeded, the doctrine of non-interference was at this time raised to the level of an indisputable religious dogma, and, consequently, the economical evolution was left to work itself out at the expense of much loss to the country, and of endless suffering to the victims of the system. The truth, of course, being that, though the evils might have been palliated, the form of the development was inevitable.

Last updated on 29.7.2007