The Panic of 1772
Economic hardship. Crossdressing. Nothing is new under the sun. Due to lending more than they should, creditors in London went bust on plantation loans in the Americas and around the world in 1772, resulting in the Tea Act, the Boston Tea Party, and the American Revolution.
Following victory in the 7 Years War (French-Indian War) in 1763, the British empire was booming. Like today, lenders had low standards, simply trusting that historically good investments would be good- no due diligence required. People simply invested in the brand name of banking houses- the 18th century version of investment banks.
Instead of using the commodities gold and silver as money, banking houses would use credit for gold and silver, and credit for other commodities from plantations, such as tea, tobacco, or cotton, as money. Then they would create credit for credit for commodities as money. Basically, this was 18th century version of crypto currency. For example, bitcoin is credit for paper dollars which was credit for gold/silver dollars.
Plantations in America and around the world would produce commodities such as tea, tobacco, and cotton, export to Britain and Europe, and Britain and Europe would use the commodities to manufacture goods that the plantations wanted to buy with their profits. Basically, it was commodity backed credit, but no one checked to see if the plantation owners had one loan, three bad loans, or if any of the banking houses were simply gambling instead of investing.
Everyone was gambling/investing. The Scots were particularly noted for inventing new productive farming tools. The Ayr Bank in Edinburgh, Scotland was created to finance these inventions. Then there was a bad harvest. People couldn’t afford to simultaneously gamble and buy food. Some loans weren’t paid back. People lost their investments.[1]
While researching the Panic of 1772, the author came across the Virginia Gazette, published July 9, 1772, which proves that there is nothing new under the sun. After talking about food riots in Britain, the newspaper talks about a crossdresser.[2]
To quote,
“A letter from Exeter, dated April 12th, mentions that Provisions of all Kinds are become excessive dear, occasioned by the poor People assembling in large Bodies and preventing it being brought to that City and that they have seized on several waggons loaded with Flower, etc, which they have sold at a low Price.
In the Country of Suffolk, as well as Essex, the Poor have committed many Outrages in Regard to the high Price of the Necessities of Life. The Magistrates in Ipswich have had all the Locks taken off the Muskets belonging to the Militia, as the Mob, it is said, intended to have seized upon them, in Case they have been attacked by a military Force; but as the Legislature have taken Measures to reduce the Price of Provisions, it is hoped these riotous Proceedings will soon be at an end.
Thursday and Express was sent to the War Office from Chelmsford, for a military Aid to protect the Provision Carts travelling to the Markets and the Mills in that Country from the Outrages of the Populace, who have committed great Excesses.
A Letter from Chelmsford mentions that several of the Rioters were taken up at Witham, and six of them committed to that Jail.
A Letter from Norwich mentions that a Subscription has been entered into by the Corporation and Merchants of the City for reducing the Price of Meat, and that it is now sold to the Poor for a penny Helfpeny [sic] that Pound less than they gave for it a few Days ago.
Orders are issued from the Admiralty for twelve Ships of the Line to rendezvous in the Down, and it is reported the Command will be given to Lord Howe.
In the 16th Instant died at ‘Streatham Elizabeth Russel, aged one Hundred and eight.’ Upon stripping the Body of the Deceased, to the great Surprise of the Beholders the Characteristicks of Manhood were found in goodly Proportion. The Manner of the Deceased’s Life furnishes strong Hints for what Purpose the feminine Appearance was assumed. Fortune telling as the chief Business of this hic vei haec Homo.”
Then the banking houses needed to pay back their other bad bets. To quote The Failure of the Ayr Bank by Henry Hamilton,[3]
“The collapse of the banking house of Neale, James, Fordyce and Downe, in London, with which the Ayr Bank had extensive dealings, on Monday, 8 June 1772, ‘set fire to the mine, which at once blew up the whole traffic of circulation that had been carrying on for a number of years’.2 Many houses which had accepted Scots bills found it impossible to discount the remittances made for their reimbursement, and they too were forced to stop payment. Within less than a fortnight no less than ten banking houses had failed. News of the collapse of Neale, James, Fordyce and Downe reached Edinburgh on Friday, 12 June, and since most of the private bankers of Edinburgh had dealings with that house, consternation prevailed. In the following week a number of merchant and banking houses, of which the most prominent was William Alexander and Sons, put up their shutters. There was panic in the Scottish capital. People rushed to cash their notes and the Ayr Bank was the object of special attention. The directors attempted to reassure the public and a deputation was sent to London to negotiate with the Bank of England. Knowing the substantial resources of its partners, the Bank of England offered to extend facilities up to £300,000, but the terms were so stiff that no agreement was reached.* Meantime the Ayr Bank, overwhelmed with demands for specie, was forced to suspend payments on 25 June.”
Thomas Jefferson’s friend Alexander McCaul wrote to him about the credit crisis in a July 8, 1772 letter. To wit,[4]
“There has been in the course of this last Month a sad revolution among many of the Merchants in both Kingdoms. It has it seems been long a practise with Many to support their Credit, or rather to stretch it further than their Capitals would admitt off by drawing and redrawing Bills. This the Bank of England saw (for they have every thing in their power) and were resolved to crush it. This they Effectually did by refusing to discount Bills. The Consequence was that many Houses in London esteem’d eminent and Wealthy failed and they brot along with them many in Edh. [Edinburgh] and some in this City. We however have escaped pretty well, as there is only one House of any Note failed. However it has thrown a damp on Publick Credit, and it will be some time before it is perfectly restored. Every body of property rejoices that the iniquitous practice of drawing fictitious Bills for the purpose of raising Money is now at an end—tho many innocent and Knowing will be much injured. The Publick papers however will give you a distincter Account of this then I can by a letter. It is happy for the Natives of Brittain, they have such a resource as No. America for there, if they happen to be reduced, they may always have bread with Industry. The Virga. Planters may thank their Starrs they have so good a Country to Cultivate, tho many of them are not sensible of the happiness they enjoy.”
As a consequence of the East India Company (EIC) losing money, gamblers in Parliament passed the Tea Act on May 10, 1773, which monopolized the tea trade from India in the British empire so that the EIC could make up their losses at colonial expense in America. As a result, colonists in Boston, Massachusetts would have a tea party to dump the tea in the harbor.[5]
Expensive food and bad loans are the recipe for revolution.
Sources:
[1] Henry Hamilton, The Failure of the Ayr Bank, The Economic History Review 1956: Vol 8 Issue 3, Page 414. https://archive.org/details/economic-history-review_1956_8_3/page/414/mode/2up
[2] The Virginia gazette (Williamsburg [Va.]), July 9, 1772, Page 1. Sourced from the Library of Congress. https://www.loc.gov/resource/sn84024739/1772-07-09/ed-1/?sp=1&st=image&r=0.611,0.398,0.462,0.213,0
[3]Henry Hamilton, The Failure of the Ayr Bank, The Economic History Review 1956: Vol 8 Issue 3, Page 412. https://archive.org/details/economic-history-review_1956_8_3/page/414/mode/2up
Footnote 2. Forbes, Memoirs of a Banking House, pp. 40-1. The leading partner, Alexander Fordyce, had made a large fortune on Change Alley, and when he became deeply involved in speculation in East India stock he used his bank deposits to pay his losses. The Bank of England, alarmed at the growth of speculation, adopted a policy of selective limitation of its discounts. This applied particularly to Jews with Amsterdam connexions and later to Scots paper. The immediate cause of Fordyce’s ruin was the refusal of the Bank of England to discount his bill on an Amsterdam Jew (J. H. Clapham, The Bank of England (Cambridge, 1944), 1, 245 n.; C. Wilson Anglo-Dutch Commerce and Finance in the Eighteenth Century (Cambridge, 1941), p- 178).
[4]https://founders.archives.gov/documents/Jefferson/01-01-02-0066
[5]https://www.hamiltonmobley.com/blog/6jqurheonyl6gd0p6zp8dp3mvgamad
