Panic of 1847

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The Panic of 1847 was started as a collapse of British financial markets associated with the end of the 1840s railway industry boom. As a means of stabilizing the British economy the ministry of Robert Peel passed the Bank Charter Act of 1844.[1] This Act fixed a maximum quantity 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.[2] Furthermore, the Act required that the supply of money in circulation could only be increased when gold or silver reserves were proportionately increased. However, in 1847, the Peel Banking Act was circumvented when the Bank of England requested a suspension of the Bank Charter Act. This caused excessive monetary inflation due to the Bank of England and fractional reserve banking. It was this circumvention of the Peel Banking Act that caused the Panic of 1847.[3]

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 explanation by Spanish economist, Jesus Huerta de Soto, of 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 backed 100 percent by gold. Nevertheless this provision was not established in relation to deposits and loans, the volume of which increased five-fold in only two years, which explains the spread of speculation and the severity of the crisis which erupted in 1846." [4]

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References[edit]

  1. ^ See note 238 contained in the Collected Works of Karl Marx and Frederick Engels: Volume 12 (International Publishers: New York, 1979) pp. 669-670.
  2. ^ See note 238 contained in the Collected Works of Karl Marx and Frederick Engels: Volume 12 pp. 669-670.
  3. ^ See note 238 contained in the Collected Works of Karl Marx and Frederick Engels: Volume 12, p. 669.
  4. ^ http://mises.org/books/desoto.pdf