Panic of 1847
Encyclopedia
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. 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. Furthermore, the Act required that the supply of money in circulation could only be increased when gold or silver reserves were increased 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.
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 [sic - should refer to the United Kingdom, not Great Britain].
It is interesting to note that on July 19, 1844, under the auspices of Peel, England [sic - should refer to the United Kingdom] 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."
Robert Peel
Sir Robert Peel, 2nd Baronet was a British Conservative statesman who served as Prime Minister of the United Kingdom from 10 December 1834 to 8 April 1835, and again from 30 August 1841 to 29 June 1846...
passed the Bank Charter Act of 1844. 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. Furthermore, the Act required that the supply of money in circulation could only be increased when gold or silver reserves were increased proportionately increased. However, in 1847, the Peel Banking Act was circumvented when the Bank of England
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, it is the second oldest central bank in the world...
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.
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 [sic - should refer to the United Kingdom, not Great Britain].
It is interesting to note that on July 19, 1844, under the auspices of Peel, England [sic - should refer to the United Kingdom] 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."