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

Additional Considerations on the Theory of the Business Cycle 485impacted the iron, steel and coal industries and the crisis hit.It spread quickly, triggering a worldwide depression. August22, 1857 was a day of true panic in New York and many bankssuspended their operations.6. The Crisis of 1866. The expansionary stage began in 1861.The evolution of banking in England, and credit expansioninitiated by the Credit Foncier in France played a key role.Expansion drove up the price of intermediate goods, constructionand cotton-related industries and persisted at arapid pace until panic broke out in 1866, due to a series ofspectacular failures, the most famous of which was that ofOverend Gurney in London. At this time, as occurred in 1847and 1857, Peel’s Bank Charter Act was temporarily suspendedwith the purpose of injecting liquidity into the economy anddefending the Bank of England’s gold reserves. France’s firstinvestment bank, the Crédit Mobiliaire, failed. The above gaverise to a depression which, as always, affected principally thesector of railroad construction, and unemployment spreadmostly to capital-goods industries. Between 1859 and 1864,Spain engaged in substantial credit expansion which fosteredwidespread malinvestment, particularly in railroads. Beginningin 1864 it suffered a recession which reached its peak in1866. Gabriel Tortella Casares has analyzed this entire process,and although in light of our theory some of his interpretativeconclusions should be modified, the events he presents in hiswritings fit in perfectly with it. 907. The Crisis of 1873. The pattern of this crisis also closelyresembled that of prior crises. Expansion was initiated in theUnited States due to the high costs involved in the Civil War.The railroad network was dramatically enlarged and the iron90 Tortella points out, quoting Vicens, that the Spanish crisis of 1866 “wasat the origin of the Catalonian businessmen’s proverbial mistrust towardsbanks and large corporations.” See Gabriel Tortella-Casares, Banking, Railroads,and Industry in Spain 1829–1874 (New York: Arno Press, 1977), p.585. For more information on the Spanish economy during this period,see Juan Sardá, La política monetaria y las fluctuaciones de la economíaespañola en el siglo XIX (Barcelona: Ariel, 1970; first ed., Madrid: C.S.I.C.,1948), esp. pp. 131–51, and Manuel Martín Rodríguez, Análisis económicoy revolución liberal en España (Madrid: Editorial Civitas, 2009).