H. M. Hyndman

Commercial Crises of the Nineteenth Century




In his booklet Commercial Crises of the Nineteenth Century, H. M. Hyndman describes and analyzes nine economic crises that took place in the course of that century in Great Britain and beyond. The common thread linking all those crises seems the amount of production that could not find a market. So investments were stopped, money withdrawn and a recession started, and it would become, in some cases, a depression.

Nothing seems to have changed from those times. So, what is needed is perhaps a change of paradigm that leads us beyond a society based on economic preoccupations (the problem of producing enough goods for everybody has been solved long time ago) to one where the individuals learn and practice the art of living.



Up to the spring of 1857, with the blindness which is peculiar to such cases, no one saw any sign of the approaching crash. The Americans took good care to let all the world know of their wonderful progress. A report, published at the commencement of 1857, stated that the year 1856 had given results of which the past had afforded no example. Enormous advance had been made; the cultivation of new territories, the produce of harvests, the extension of factories, the exploitation of mines, the exports and imports, the carrying trade, shipbuilding, the railway returns, the spread and improvement of cities - in a word, anything which can tend to the enrichment of a great country, has received such a vigorous impulse that, since the Declaration of Independence, not even the most far-seeing men had ventured to predict the attainment of such a high degree of prosperity.

"And, as a matter of fact, statistics seemed to justify this opinion. In the clearing-house affairs of New York there was an increase of 1,300,000,000 dollars or 30 per cent. The imports and exports of New York had risen in 1856 to the extent of 33 per cent., and the railway traffic from 20 to 30 per cent. Not less than 17,600,000 acres of State territories had been sold, an extent equal to that of Belgium and Holland put together. In addition, the Railway Congress had ceded to such States as later wished to build lines 21,700,000 acres of land, which makes up in all 39,700,000 acres, or about a third of entire France. Agricultural and industrial production had kept pace with the progress noted above: it had risen in 1856 to 2,800,000,000 dollars, that is, had increased three-fold in fifteen years.

Immovable property was estimated at over 11,000,000,000 dollars, and the population at 27,000,000. The public debt had been reduced in this year by 25 per cent., that is, to 30,000,000 dollars. The length of telegraph lines exceeded 50,000, English miles. The railways, of which there were upwards of 21,000 miles in 1855, were extended to 24,000 miles in 1856, and the following table shows their cost to have been the cheapest in the world:

  English Miles Cost in Dollars Cost per Mile
United States (1856)
$ 35,000
Great Britain (1855
France (1856)
Germany (1855)
Prussia (1855)
Belgium (1855)

Such a balance sheet had never before been drawn for any people, and it is not surprising that many heads were turned by it, or that the majority even of cool-headed men of business thought that, based as it was upon agricultural production, and accompanied by a great increase of population and a simultaneous reduction of the State debt, there was no reason to fear any sudden overthrow. Nevertheless, the collapse was all ready. The very increase of prosperity, not only in agriculture, but in manufacture, the development of the iron and coal of Pennsylvania, as well as the manufactures of New England; the astounding railway construction, on which the whole nation prided itself, all prepared the way for the crisis which was close at hand. Some of the causes which rendered that crisis so disastrous were common to other countries with the United States; but the banking system of America tended to make it worse when it came than elsewhere, as its great agricultural resources rendered the revival more rapid.

At this time American banks were lending in excess of all reason, and on the 22nd of August, 1857, the total loans of the New York banks actually exceeded by 12,000,000 dollars the total amount of species, notes and deposits in their coffers.

At the same time, however, the note issue was fairly sound in relation to the specie held against them. “The suspension of the banks which soon followed arose, not from the inconvertibility of notes, but from the wholesale withdrawal of deposits.” But in America also was seen the bad side of the gold discoveries. Men forgot that gold will no more feed or clothe or house labourers than an issue of assignats. But the superfluity of gold misled men of business into imaginig that an increase of currency or an accumulation of precious metals in reserve, meant that the country was really wealthier to that extent and yet more. Thus, on the one hand, the rash policy of the banks of deposit in discounting beyond reason, and, on the other, the abundance of the precious metals, deceived the world of business as to what was in store for it. This state of things was accompanied by the usual chicane and rascality, on which it is not necessary to dwell.

But the main causes of the collapse were the same as ever: the incapacity of the heads of the capitalist system to regulate the amount of capital expended on the development of different branches of industry. Over-speculation in every direction was accompanied also by a tremendous accumulation of goods in the warehouses, in anticipation of the higher prices which seemed certain from the success hitherto attained in disposing of commodities. Much of the goods thus stored had been obtained upon credit from Europe. At the first serious shake, therefore, down must come the entire edifice on both sides of the Atlantic. At the beginning of August, a time of year when the city of New York is out of season, and men of business are as far as possible away on their holidays, the crisis commenced with a few small failures. A week later money was so tight, owing to withdrawals of deposits, and the hoarding of gold and silver, that business was carried on with difficulty. On the 24th of August a great bank of high repute suspended payment. Then the panic began in grim earnest. Bankers, merchants, financiers and stock-jobbers all lost their heads together. The banks restricted their advances and called in their loans; the rate of discount ran up to 25 per cent.; bank shares, railway shares, and, bonds were unsaleable; and bank failures, mercantile failures, and traders bankruptcies were rather the rule than the exception.

By the month of October business was at a standstill, and the most necessary trade could be carried on, though the warehouses, as usual at such periods, were glutted with goods that nobody could buy. The rate of interest ran up to 60, to 100, per cent. Nobody could melt his bills. Utter consternation set in, aggravated by the great excitability which Americans evince at such times, A run on the soundest banks began such as had never before been experienced. The run began on the 9th. By the evening of the 13th, eighteen banks had come down with an indebtedness to depositors of about 21,000,000 dollars. Remittances could no longer be made to the West, and a fall in prices of commodities from 10 to 35 per cent. had taken place all along the line. Fourteen great railway companies, whose names are well known in London, such as the Illinois Central, the Philadelphia and Reading, the New York and Lake Eric, and many more also suspended payment.

The influence of the crisis upon industry was as bad as it was upon trade, finance, and speculation.

Mill after mill had to close or work short time, seeing that after having worked double tides in order to take advantage of high prices and a good market, the manufacturers now found themselves face to face with a shrinkage in the prices of manufactured goods of 15 to 20 per cent. below what it had cost them to produce the goods. Nor was there any prospect of immediate improvement, inasmuch that, owing to the falling off of the demand for cotton for the English mills, the price of the raw material seemed likely to fall farther rather than to rise. Miners of all sorts were likewise hard put to it to live; and, most monstrous irony of all, the finest harvest ever known in the United States, unfortunately, fell in with one of the best harvests ever garnered in Europe. Wheat was consequently unsaleable, and hundreds of millions of bushels were wasted; while men who badly wanted them were discharged from work. In every branch of industry similar phenomena were to be observed. America had the honour of commencing the worst crisis of the century.

It was no long time before England felt the effects of the American crisis, though in this country, as on the other side of the Atlantic, men of business, who ought to have been specially capable of forecasting the course of events, imagined that the difficulties would be trifling, that only American business would be seriously influenced, and this only for a time. While everyone prophesied smooth things, the conditions which rendered a storm inevitable had been prepared.

The tremendous fall in American securities, and the shrinkage in the price of commodities all round, seem nowadays quite sufficient to have warned the whole mercantile and financial community that the abnormal extension of industrial enterprise had been carried far beyond the point of safety, and that, in particular, the export trade had been pushed far in excess of what could be immediately absorbed. Similar causes had been at work in England, also, to those which occasioned the collapse in America. Though the mileage of English railways constructed had been small in comparison with those built in the United States, the amount of capital sunk had been much greater, and, unlike that invested in America, had not been borrowed from abroad. In addition, the great gold supply from California and Australia had engendered a feeling of over-confidence, based on the gold itself as capital.

Further, though the English banks were sound in comparison with the American, the conclusion of peace after the Crimean War had brought about, on a smaller scale, similar results to those which were noted after the peace of 1815. The war had been a good customer for trade. The money borrowed, and the taxes levied, had been spent unproductively, it is true, but not more so than if they had been thrown away in commanding the production of luxuries for the rich. On the other hand, the war had given a great deal of employment to the working-classes in various departments, and had created a demand for commodities which now ceased. At the same time, also, the war with China, and the mutiny in India, upset the Eastern trade. Looking back, therefore, at all the circumstances as they are baldly set forth in the chronicles of the time, the wonder seems to be not that the crisis of 1857 proved so disastrous, by reason of the blunders which were made and the want of foresight displayed, but that it did not result in a still more widespread calamity. The record of the imports into New York alone show the lengths to which overtrading from Europe had been carried.

The crisis began in America in August. A little more than two months later, the Liverpool City Bank closed its doors, and then the crash began in earnest in England. Houses connected with the American trade began to fall one after the other in the early days of November. On the 9th of November, 1857 - the date is even still too well remembered in Scotland - the Western Bank of Scotland, with a paid-up share capital of £1,500,000, and deposits to the extent of £5,000,000, suspended payment, and with it fell its ninety-eight branch banks. Then ensued a panic of the same nature as had been seen in New York, but affecting the whole population. The savings not only of the well-to-do of the trading and shopkeeping classes, but of the small farmers and workers in all parts of Scotland, had been placed on deposit in these branch banks. Such deposits were transmitted in great part to Glasgow, to be lent on bills and securities. No sooner did the alarm commence than the local depositors in the Western Bank and other banks began to demand the immediate repayment of their deposits. It was out of the power of the bank, though its shareholders were among the richest people in Scotland and the liability was unlimited, to meet this sudden rush; the directors could not get the assistance they asked for, and down came the bank, to the utter ruin of many at the moment, and to the serious injury of the whole country for a long time.

On the occurrence of a succession of bankruptcies, the Bank of England found itself exposed to a drain of its gold to Scotland, Ireland, and America, which, rushed its rate of discount up in hot haste from 6 per cent, on the 8th of October to 8 per cent. on the 19th, to 9 per cent. on the 5th of November, 10 per cent. on the 10th, and 12 per cent. on the 18th. On the 11th of November the banking department was reduced to £1,462,153, and its securities held against advances amounted to £26,113,453. On the 18th its reserve fund stood at £1,552,686, and the securities at over £30,000,000. The universal panic which set in at this juncture it is needless to describe. All the now familiar features were reproduced on a larger scale than ever. Money seemed likely to become unattainable at any price, and ruin stared even wealthy firms in the face.

It is said that the great firm of Overend, Gurney, & Co., threatened failure on their own part unless some steps were at once taken to give them immediate accommodation. Such a failure at such a time would have involved ruin to so many, and would have brought about such a widespread terror, that the Governor and Directors prayed the Government to suspend the Bank Act of 1844, and permit the issue of bank-notes in excess of the amount of bullion to support them.

This was permitted on the evening of November 12th on condition that the bank rate was maintained at 10 per cent. An over-issue of £1,000,000 followed, and in spite of all gloomy forecasts, the financial situation at once began to improve. Thus, for the second time since its enactment thirteen years before, had the Bank Act of 1844 to be suspended, and Government securities to be transferred from the banking to the issue department of the Bank of England, in order to forestall a total collapse of credit.

But the great crisis of 1857 still lingers in the memory of those who lived through it. The numerous houses which failed just before the suspension of the Bank Act, felt that in some way they had been very hardly treated; while those which survived had, like the greatest of all, undergone a shake that seriously imperilled and in some cases eventually wrecked them. Such is the insecurity of this system of production based upon the constant antagonism between gold and commodities, this system of credit based upon anticipation of profits, this system of banking based on lending deposits made at a low rate of interest at a higher rate of interest. And such is the futility of attempting to reconcile the antagonism which lies still deeper in this our modern, society, and of which all the rest is but an excrescence, by tinkering with a Bank Act. Palliatives of such a system there may be, but remedy without complete transformation there is none. So long as companies carry out great public works for private profit, and the necessary goods for society are produced solely for individual gain, so long will such, ups and downs periodically recur.

Again for the fourth time in the century was the incapacity of the capitalist class to handle the growing powers of man over Nature to the advantage of society clearly exhibited. For the failure of banks and mercantile houses involved the discharge and starvation of workpeople, who for the fourth time in about forty yeas witnessed the very wealth which they created rise up before them as a monster, dooming them to wretchedness for a time at any rate. In Staffordshire the failure of a bank stopped work in the potteries, and threw 30,000 workers out. In Northumberland the failure of another bank brought collieries and iron-works to a standstill. “The mischief by no means stopped short at the handful of speculators and merchants at the great trading and shipping ports, but extended to the manufacturers whose establishments were brought to a standstill for lack of orders, while the value of their warehoused goods constantly diminished - extended to the carrying trade, since the foreign trade was in utter stagnation - extended to thousands of workers who were thrown out of work - extended even to the shopkeepers whose business was curtailed owing to the greater thriftiness of their customers.” In short anarchy had full swing in our industrial order, and the organisers of industry threw the whole business machine out of gear.

In the cotton factories the depreciation could not be put at less than £500,000, and in the woollen and silk manufactures, on account of the costly nature of their machines, it can be reckoned at no smaller amount. The last factory reports of April, 1850, gave the total of persons employed in the cotton mills at 370,000, and in October, 1857, in consequence of the increased production, the number may be taken at 390,000, who received an average weekly wage of 10s. 6d. per head. During the last three months of the year 1857, the working-hours throughout this entire district did not exceed 36 hours a week, which involved a loss of £1,064,000 in wages, to which must be added close on £500,000 lost through the decrease in the iron trade, in the consumption of coal, oil, and other materials, as well as what was lost by the stagnation in the retail trade. The loss to the woollen and silk workers was probably still greater, since, although this industry employed fewer hands, far more hands employed were deprived of the means of earning their bread. The condition of the iron districts was no better. The Staffordshire Advertiser published a list of 69 blast furnaces which ordinarily gave employment to 28,000 persons in these districts. On the 31st of December they were all out of work. On the same day there were 41 blast furnaces blown out in Scotland, and 16,000 workmen discharged. In South Wales, were the mining industry was carried on as actively as in the above-named districts, a third of the blast furnaces were shut door, wages were reduced 20 per cent., and numerous strikes of the miners took place; while the closing of works in Yorkshire and Durham diminished the wages paid in these counties by £5000 a week. Local newspapers, in every part of the country present the same picture. In Birmingham orders were so scarce that the workmen were not employed more than two or three days in the week. In one region the employers discharged part of their workers, in another short time, that is a few days a week, was worked. Public meetings of workers were held to devise means for alleviating the distress, soup kitchens were set on foot, the people were set to work on the public roads, and a vast mass of folk were relieved outside the work-houses. The Poor Law Reports show a significant increase of the poor relieved." (Max Wirth)

It was the same story everywhere. Even the heavy fall in prices could not tempt buyers, though between the beginning of September and the beginning of December Scotch pig-iron fell from 84s. to 48s. a ton, tin from £140 to £114 a ton, cotton twist 18 to 24 per cent., silk 31 per cent., cotton 33 per cent., hides 30 to 37 per cent., wool 16 per cent., sugar 20 to 28 per cent., coffee 16 to 23 per cent., tea 16 per cent. The exports fell off in the months of November and December £5,000,000. At the same time the fall in nearly all sorts of securities was phenomenal. Yet gold was still coming from California and Australia in constantly increasing quantities; the import of gold into England alone from these two countries being upwards of £22,500,000 in this very year 1857. Needless to add that the power of production and distribution, owing to the great and continuous improvement in machinery and means of transport, was even greater than it had been during the years of the highest prosperity. The liquidation of course showed that credit had been carried to a monstrous excess, and that firms with a capital of £10,000 failed with actual liabilities of ten and twenty times that amount.

But the question remains to this, day unanswered by the orthodox economists and their successors: Why this inflation yesterday? Why this stagnation to-day? Why this excess of exports last year? Why this diminution this year? Why are the workers in full employment this week? Why are they workless and hopeless the next?

That the answers should never have been correctly given by them is the more surprising, since the crisis of 1857 affected far more seriously and obviously than either of the preceding crises every country in the civilised world. Thus France, which by the revolution of 1848 had given an impulse to political agitation and social discontent throughout Europe, in the intervening nine years, entered into the whirlpool of international capitalism and credit to an extent which she never had before. Marx’s predictions in his masterly pamphlet entitled “XVIII Brumaire” were fulfilled to the letter. The French bourgeoisie had triumphed, first in the establishment by wholesale bloodshed of the middle-class republic, and then in the establishment of the empire by the cold-blooded massacre of December 2nd, 1851. The stagnation and distrust which had set in with the year 1848 and had since continued now gave place to complete restoration of confidence and credit among the classes in possession. The rate of discount fell, the interest on State loans was reduced, and everything was made ready for that great development of industries, railways, banks, credit establishments and general speculation which completely changed the general character of French business.

Hitherto the French people, the great majority of whom were hard-working, stingy, frugal agriculturists, had conducted their affairs with the greatest caution and prudence. Speculation had been restricted within the narrowest bounds. The object of the Imperial coterie, as well as of the men of business immediately interested, was to change this. To give the workers plenty of work, and the middle-class plenty of business and profit, was the best way to bring about forgetfulness of the past and to establish confidence for the future. The Bank of France, an institution of the soundest character, managed under State control on the most cautious and conservative lines, was soon surrounded by institutions of a very different character, and that influence of the corrupt and greedy German Jews, whom M. Drumont and others have of late so bitterly, but not unjustly, denounced, was firmly established in Paris under the special patronage of the Emperor’s most intimate associates, Morny and Persigny. In view of what has occurred since 1870, the rascalities of the Emperor’s entourage seem less abominable, comparatively, than they did at the time; and, at any rate, they were, like other financial rogueries, a mere embroidery upon the main substance of capitalistic chicane. Such institutions as the Crédit Mobilier and the Crédit Foncier had powers far exceeding those of any ordinary bank or credit establishment. They necessarily were the outcome of an expansion of the system of loans and credit, and themselves pushed to an extreme the tendency of which they were the result.

The idea at the time was that they were in nowise subject to the influence of political or financial crises as even the Bank of France necessarily was, and they started off on their career of fostering the industries and increasing the development of France with an amount of success which justified their foundation. Their means for carrying out their operations of founding industrial undertakings, of selling and buying all sorts of enterprises and their shares by the issue of their own shares, and for conducting banking business of every description, were the paid-up capital of £2,400,000, the issue of bonds, and their deposits and current accounts. This Crédit Mobilier paid 10 per cent. the first year, 1853; 13 per cent. in 1854; 47 per cent. in 1855; 24 per cent. in 1856 – and then came the crash. During the interval vast sums were invested in France in railways, and numbers of great industrial companies were formed to carry out every sort of business, and that rebuilding of Paris was begun which entirely changed the appearance of the city at the cost of millions sterling. On French railways £20,000,000 were spent in 1855 and £21,000,000 in 1856. For France, like England, suffered comparatively little from the Crimean War, to all appearance, while it lasted. Over 1,100 miles of railroad had been built, and in addition to the war loans and expenditure on the development of home industry, millions sterling had been lent to foreigners. When, therefore, the crash came in England, France followed on the same line, and Paris and the other great French cities felt that stagnation of trade, that discharge of workmen, that general glut of commodities which had already manifested themselves in England and the United States.

But precisely the same phenomena were exhibited in Germany, in Prussia, in Austria, in Belgium, in Italy, and even in Scandinavia. No country escaped from this new form of epidemic. For in each and all, according to their degrees, the development of industry had favoured the growth of banks and credit establishments, and again the foundation and growth of these credit establishments had unduly enhanced production viewed from the standpoint of profit-making. The shrinkage of prices which now occurred in one market was felt in all. Manufacturers who had been turning out goods on one level of values had suddenly to accommodate themselves to another and lower scale. The crisis was only more noteworthy in Hamburg than in other German cities, because Hamburg, like Liverpool, was more closely connected with the American trade. The silver mining countries were no more exempt from the consequences of the universal overtrading and undue development of credit than were those which had a gold standard. From Europe the effects of the crisis spread even to Asia. India, and China, as well as the Australian colonies, and South America, underwent a period of bad trade by reason of the disturbance at the centre of the commercial system of the world.

In all the European countries and in America the same results were observable. Republic, constitutional monarchy, or despotism, all suffered alike. Forms of government, banking systems, silver or gold standard were equally of no avail against the industrial crisis. Lack of currency could not be urged as a reason for dull times, when millions of gold a month were coining forward to be minted. Insufficient facilities of credit could not be claimed as the cause of the mischief, when banks and discount houses were wildly competing for mercantile bills. Deficient transport and means of communication could no longer be pointed to as the manifest occasion of a local glut. The civilised world could produce more wealth with less labour than ever before, and still society in 1857, as in the three previous decades, had been overmastered by its own productive forces and compelled to go into liquidation for a time.

It is this which lends special significance to the crisis of 1857, that even a superficial analysis of the circumstances leads to the elimination of currency, of banking, of credit merely as credit, of political forms, of lack of agricultural land, of protection or free trade, as the primary cause of crisis.


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