There were a large number of joint-stock companies formed for the following projects, viz.: banks, railways, canals, gas, mining, insurance, etc. During the years 1836-1837 between 300 and 400 companies were formed.

In America there was a great deal of speculation, which led to the failure of 250 houses in 1837.

The Bank of England was censured for its conduct during this crisis. It refused to discount all bills bearing the indorsements of joint-stock banks. It also sent orders to Liverpool stating that no merchants dealing with the United States were to be allowed to have their bills discounted. This action on the part of the Bank of England intensified the panic. The bullion in the Bank rapidly decreased:

Synopsis Of Crisis Of 1837

This crisis was followed by another in 1839. A succession of bad harvests, the financial condition of America, and the bad state of credit all over Europe were the cause of it.

In September of that year the bullion in the Bank of England was reduced to £2,816,000, and the Bank was obliged to borrow £2,000,000 from the Bank of France in order to strengthen its position. The rate of discount rose from 3 1/2 per cent. to 6 per cent. (October).

Prior to the passing of the Bank Act of 1844, it was the custom of the Bank to keep one-third of its liabilities in gold. When the Act was passed in 1844, it was supposed that all these commercial disasters which had affected banker and trader alike would entirely disappear. Unfortunately, three years later it was discovered that panics, destruction of capital and high rates of interest would occur from time to time, just as was the case prior to the passing of the Act.

Some people believed that the laws regulating the issue of bank notes were the cause of those events which affected the trade of the country. They believed that if the note circulation was placed on a satisfactory basis, no more panics, etc., would occur. The real cause of these disasters was, unfortunately, not studied. We have already mentioned that many errors have arisen in consequence of questions relating to banking and currency being treated together.

This was shown in the crisis of 1847, when Sir Robert Peel's Act was attacked on all sides. No doubt the opposition was partly due to its promoters. They stated that the Act would work wonders and completely alter the commercial transactions of the country.

The crisis of 1847 was very similar to those which had previously occurred. A great accumulation of capital led to a great want for new investments. This increase of capital was shown by the large amount of bullion in the Bank of England, Government Stock being at par, and also by low rates of interest.

The following were the rates :7th September, 1844, to 11th October, 1845 = 2 1/2 per cent.; then 3 per cent., 3 1/2 per cent, back to 3 per cent., and rising to 4 per cent., 23rd January, 1847.

Mr. Cotton, the Governor of the Bank of England, stated that the true cause of the crisis was the great number of investments in speculative enterprises, more than the capital of the country would permit, the proportion of fixed to floating capital being far too great.

These speculative enterprises were chiefly in railways, cotton and iron. The failure of the potato crop in Ireland and a deficient harvest in this country required more capital, but owing to the previous lock up there was a deficiency.

The large imports of grain from abroad caused a sudden fall in prices and led to the failure of many houses in Mark Lane. The Bank of England refused to lend money on stock or exchequer bills, and credit was very much shaken. This led to the failure of many banks, including the Royal Bank of Liverpool, the Liverpool Banking Co., and the Union Bank of Newcastle.

The London merchants asked the Government to suspend the Bank Act, and when this was agreed upon, the mere announcement had the desired effect in restoring confidence, although no infringement of the Act occurred. It seems to be the best policy for the Bank of England to lend freely during times of commercial crisis. If people know that money can be obtained at a price, they are not so eager to get accommodation. By such means a crisis may not develop into a panic.

The Bank of England raised its rate from 5 per cent. to 5 1/2 per cent., and finally to 8 per cent. The discounts of that institution increased to an enormous extent:-

The reserve was reduced from £3,409,000, 2nd October, 1847, to £1,176,000, 30th October, 1847.

Synopsis Of Crisis Of 1847

Prices Of Railway Iron

Consols fell to 85.

The next crisis occurred in 1857. This was principally due to merchants who had speculated far beyond their capital by means of fictitious credit. Money was obtained from the bankers by means of accommodation bills, or bills supposed to be drawn against value received.

There was also a great deal of speculation in America, and the failure of many houses in that country directly affected those banks in the United Kingdom which held American bills. No less than 150 banking houses in America failed, and this was the cause of many banks suspending payment in this country. The Boro' Bank of Liverpool, the Western Bank of Scotland, the City of Glasgow Bank, Sanderson & Co., and Dennistoun & Co., closed their doors.

The directors of the Bank of England appealed to the Government for a suspension of the Bank Act. When this was done on 12th November, 1857, the mere announcement had a good effect, because it was the means of restoring confidence. Although the Act was suspended, the notes issued in excess, without any reserve of bullion, only amounted to £800,000. This shows that the suspension of the Act did not in itself do any good, but it was the means of allaying the wild alarm that existed in the country. The loans advanced by the Bank of England on private securities increased from £20,404,000 to £31,350,000. A high rate of interest was charged, to prevent those who really did not require advances from obtaining loans. The reserve of the Bank was reduced from £4,606,000, 3rd October, 1857, to £957,000, 14th November, 1857.