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Henry Oliver on The Panic of 1825 and the ways in which it modeled crises to come and shaped the modern world…

… the Panic of 1825… wasn’t like panics of the past. There was no external cause of this bubble — no war, no weather, no pandemic. It was not a speculative mania. It took place in many fragmented investments — loans, insurance policies — made by individuals, often in good faith, in the new economic system. At the end of the Napoleonic Wars, Britain had introduced a new gold standard. To avoid a sudden stop in loans and note issues (after running the war on cheap money) the Bank designed a transition. First, they hoarded gold like Smaug, to keep prices high and prevent a run. Second, they brought out new low-yield stocks. Third, the government issued new bonds and started a big infrastructure programme. With all the extra money in the system, backed by gold, people started investing, post-war prosperity flourished, and George IV could yap complacently about the success of the economy. Now that gold payments resumed, the market for precious metals boomed. Hence all those investments in South American gold mines. That all sent capital overseas, and so the currency was becoming, in reality, a paper system. Letters and warnings were published in The Times, but all in vain. And so when the bank drew in its horns, the crash was inevitable.

This wasn’t, then, a rampant speculative bubble. It was a diversification crisis. So many people invested in so many different things and none of them knew enough about the rest. Many investments were sound. Many participants were not speculators. “The fundamental problem in the market,” as one scholar has written, “was not that investors were over-extending themselves but rather that they did not have enough information to appreciate how over-extended everyone else already was.” After the crash, the finance system started to be centralised, to avoid such situations in the future.

1825 is known as the first modern financial crisis. No single group could be blamed for what happened. It was a systemic event. It demonstrated, quite firmly, that there is no place or person at the centre of things, no-one who runs the market. 1825 was, in some senses, the year the modern economy started. But it wasn’t just in economics that 1825 changed the world. Politics and literature were reinvigorated too…

More (including the role of Disraeli) at “1825: the first modern financial crisis,” from @HenryEOliver.

[Image above: source]

* Kim Stanley Robinson, The Ministry for the Future

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As we ponder precedent, we might recall that it was on this date in 1867 that the first stock ticker was introduced.

The advent of the ticker ultimately revolutionized the stock market by making up-to-the-minute prices available to investors around the country. Prior to this development, information from the New York Stock Exchange, which has been around since 1792, traveled by mail or messenger.

The ticker was the brainchild of Edward Calahan, who configured a telegraph machine to print stock quotes on streams of paper tape (the same paper tape later used in ticker-tape parades). The ticker, which caught on quickly with investors, got its name from the sound its type wheel made.

History

Calahan’s ticker (source)