Many economists identified the crisis of 1825-1826 as the first modern financial crisis. The real cause, unlike the exogenous causes of previous speculative bubbles, was the “diversification of the finance economy into tiny investment units offered as seemingly responsible ways to maintain credit and generate capital” (Dick, 2021). Such that when the market did crash, no single organization could be held accountable. Reflecting on the crisis, commentators began to realize the capitalism and market economy had transformed from an ideology to a condition in which all parts of the society lived and by which they were sustained.
The Latin Americas also played a role in this event. As London replaced Amsterdam as the financial capital of Europe, English capital took a great interest the newly independent South American countries. Domestic mining firms took part in the fervor and formed joint stock enterprises to exploit South America’s mineral interests. The stock price of such a company often rocketed in a very short time. However, information flow between the continents was slow and scarce, making it difficult to assess risks and inviting frauds. One example was Gregor MacGregor, Scottish adventurer, who invented the mythical Central American state Poyais and toured the wealthiest drawing rooms of London with his convincing story. So successful was Gregor’s fraud that he managed to float a large bond issue on the London Stock Exchange in 1822.
In his vocation of “writing for the public”, Mill wrote an elaborate essay on the Commercial Crisis. Examining the workings behind the crisis might help in understanding Mill’s mindset as a political economist. Would he also detect the connection to the newly independent Latin America?
Sources:
1. Dick, Alexander J. “On the Financial Crisis, 1825-26.” BRANCH: Britain, Reprsentation and Nineteenth-Century History. Ed. Dino Franco Felluga. Extension of Romanticism and Victorianism on the Net. Web. [February 21, 2021]
2. Morgan, Donald P., and James Narron. “Crisis Chronicles: The Panic of 1825 and the Most Fantastic Financial Swindle of All Time.” Liberty Street Economics, Federal Reserve Bank of New York, 10 Apr. 2015, libertystreeteconomics.newyorkfed.org/2015/04/crisis-chronicles-the-panic-of-1825-and-the-most-fantastic-financial-swindle-of-all-time-.html.