Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

484 Money, Bank Credit, and Economic Cyclesbegan to shoot up. The crisis came to a halt when banks decidedto stop increasing their loans in light of the fact that they werelosing more and more gold reserves, which were leaving thecountry, headed mainly for the United States. Starting in 1836prices plunged and banks failed or suspended payments. Theresult was a deep depression which lasted until 1840.4. The Crisis of 1847. As of 1840 credit expansion resumedin the United Kingdom and spread throughout France and theUnited States. Thousands of miles of railroad track were builtand the stock market entered upon a period of relentlessgrowth which mostly favored railroad stock. Thus began aspeculative movement which lasted until 1846, when economiccrisis hit in Great Britain.It is interesting to note that on July 19, 1844, under the auspicesof Peel, England had adopted the Bank Charter Act, whichrepresented the triumph of Ricardo’s Currency School and prohibitedthe issuance of bills not backed 100 percent by gold. Neverthelessthis provision was not established in relation to depositsand loans, the volume of which increased five-fold in only twoyears, which explains the spread of speculation and the severityof the crisis which erupted in 1846. The depression spread toFrance and the price of railroad stock plummeted in the differentstock exchanges. In general profits decreased, particularly in thecapital goods industries. Unemployment grew, especially in thesector of railroad construction. It is in this historical context thatwe should view the (clearly working-class and socialist) revolutionwhich broke out in France in 1848.5. The Panic of 1857. Its structure resembled that of previouscrises. The panic originated in a prior boom which lasted fiveyears, from 1852 to 1857, and which rested on widespreadcredit expansion of worldwide consequences. Prices, profitsand nominal wages rose, and a stock market boom took place.The boom especially favored mining companies and railroadconstruction companies (the most important capital goodsindustries of the period). Moreover speculation became generalized.The first signs of the end of the boom appeared with thestart of the decline in mining and railroad profits (the stagesfurthest from consumption); and the increase in productioncosts weakened profits further. Subsequently the slowdown