My Undergrad Dissertation: Credit Expansion and the Bank of England in the Panic of 1825

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I recently completed my third and final year of undergraduate studies in Economic History at the London School of Economics. A quarter of one’s grade for the final year at the LSE takes the form of a 10,000-word undergraduate dissertation, which I have decided to share here for anyone who might be interested to look at it.

The central argument of my dissertation is that the Panic of 1825 was caused by the British banking system’s expansion of credit in the years 1822-25. This can be regarded as an application of Ludwig von Mises’ Austrian Theory of the Business Cycle to the 1825 crisis. Where my dissertation departs from the previous literature, which has occasionally already highlighted the role of credit expansion in the crisis to some degree, is in my examination of the role of Bank of England note issues as a coordinating and driving force behind the wider credit expansion, due to the legally privileged status of Bank of England notes.

I am reasonably happy with the work and research I put into this dissertation, and with how it turned out. I personally preferred the first draft, from before I received my supervisor’s comments on it, as they advised me to cut part of my beloved literature review and add the over-explaining ‘Theory, Method, and Data’ section to the final draft you see here.  Nevertheless, I was reasonably happy with it, and hope it will receive a respectable final mark. I got its provisional mark back the other day, which was 85, where 70 and above is a first class degree, and marks of 80 and above are reserved for work of publishable quality, and only awarded in exceptional circumstances. Prior to this dissertation, even the best essay of my entire academic career had only been a 78, with a handful of 75s and 74s in my record; I didn’t think a mark as high as 85 was even possible in the idiosyncratic English marking system for social sciences. The comments from my two anonymous markers were also fairly positive.

As I write this I am currently spending the summer of 2018 at the Ludwig von Mises Institute as a Fellow in Residence, where I am working on re-writing the core research of my dissertation into the format of an academic article which I hope to submit for publication with a journal. So hopefully I’ll manage to make some use of the work that went into this dissertation.

Until then, however, you can read and/or download it in PDF form by clicking this link:


My Successful Mises Fellowship Proposal – 2018



The 2018 Mises Fellows (Yours truly in the centre of the top row).


Related post: ‘My Successful Mises Fellowship Proposal – 2017’  [ link ]

Last summer, when I was fortunate enough to be accepted to the Ludwig von Mises Institute’s summer Fellowship programme, I wrote a post on this blog discussing the Fellowship and re-printing the research proposal which I had submitted with my application. Such research proposals form arguably the most important part of one’s application to the Fellowship programme, and when I was putting together my first application I remember thinking it would have been nice to have been able to read an example of a successful proposal from a past Fellow, so that I could have a better understanding of what to aim for when writing my own.

This year, I applied for the Fellowship a second time, and am happy to say that my application was accepted again, so I thought I’d repeat the tradition of sharing my successful research proposal on this blog, in the hopes that it offers guidance to any future applicants.

As I said in my equivalent post last year, although you may find it useful to read my proposal for insights into how you might like to structure and compose your own, you obviously wouldn’t get very far by simply copying what I’ve written. This is doubly true for my 2018 proposal, as you will see that I have split my space between two mini-proposals for two separate topics, whereas Fellows are typically expected to write a proposal on a single topic. For this reason, you might want to read my 2017 proposal first, for a more standard idea of what a typical successful proposal might look like.

The Mises Institute’s Fellowship programme offers around a dozen students each year (usually Masters, PhD, and post-doc level students of economics, history, political science, philosophy, or related subjects) the opportunity to spend the summer at the Mises Institute’s Auburn, Alabama campus, conducting independent research with the goal of producing an academic paper (or at minimum a presentation) on their topic of choice. Support and research-guidance is offered by the Institute’s on-site academics, who include some of the leading Austrian Economists in the world today, such as Joe Salerno, Mark Thornton, and this year also Jörg Guido Hülsmann.

For more info on the Mises Institute’s Fellowship programme, visit this link:



George Pickering 

Mises Institute Fellowship in Residence 2018 Research Proposal

   I am applying for this 2018 Fellowship in Residence at the Mises Institute in the hopes of conducting research on two separate topics: one primary piece of research which I will undertake first, and a second topic I will pursue in the event that I complete my research on the primary topic before the end of the Fellowship.

   The primary topic I hope to pursue will be the Panic of 1825: a British financial crisis which not only had a major economic impact at the time, but which subsequently gained significance due to its influential use as an historical argument for increases in the power of the Bank of England, and of central banks in general. The reason I expect to finish work on this topic before the end of the Fellowship is that the Panic of 1825 is also the subject of my final year undergraduate dissertation (due May 2018), meaning that much of the necessary background research on this topic will already have been completed by the start of the Fellowship programme. My hope is that, with the resources available to Mises Institute Fellows, I will be able to refine, augment, and adapt the research I will already have done on this topic into the format of an article suitable for submission to an academic journal. (I will summarise and justify why I feel re-working my prior research in this way is necessary and worthwhile below.)

   After the completion of this hopefully not insurmountable goal, I would use the remainder of my time as a Fellow to begin work on a paper on the topic of the Great Bullion Famine, a supposed scarcity of monetary metals in Europe in the 15th century which has been blamed for the slump in the English economy during that period and the simultaneous trading crisis across northern Europe, and which has more generally been used as evidence of the supposed weaknesses of a commodity money system. 

   Due to this twofold nature of my research ambitions, I will divide the rest of my space here between two short research proposals, which will hopefully each be sufficient to justify these as worthwhile topics for study as a Mises Institute Fellow in Residence without being so long as to exceed the specified 5-page limit when taken in combination. 


Primary Topic: The Role of British Monetary Policy in the Advent of the Panic of 1825

   In 1821 a Scotsman named Gregor MacGregor, who had spent much of the previous decade fighting as a soldier of fortune in various Latin American wars of independence, returned to London and initiated arguably the most audacious confidence scheme in history. Through a series of elaborate means, MacGregor managed to convince the community of London bankers that local Central American rulers had granted him the right to form his own country in that region, supposedly named ‘Poyais’. At the time, demand to invest in the government bonds of newly independent Latin American countries was booming amongst London bankers, enabling MacGregor to raise over £200,000 from respectable London banks by selling Poyaisian ‘government bonds’, in addition to the money he raised by selling land certificates and Poyaisian paper money to prospective settlers. By the time those settlers did indeed arrive at their destination in late 1823, only to discover that they were in fact in Honduras and ‘Poyais’ did not exist, MacGregor had taken the money and run, leaving behind him a calamity which foreshadowed the eventual bursting of the wider Latin American bond bubble and the subsequent financial Panic of 1825, which saw widespread bank collapses in Britain and also impacted the European, Latin American, and US economies. 

   Such larger-than-life historical anecdotes surrounding this crisis have tended to obscure its underlying causes, a fact not helped by its relatively small number of in-depth scholarly studies. Indeed, when it is mentioned at all, the Panic of 1825 has often been described only very tersely as simply due to an irrational boom of speculation in early railroads, the textile industry, and Latin American bonds, whose crash was exacerbated by a belated and over-zealous contraction of credit by the Bank of England (Kynaston, 2017). Other historians have blamed the crisis on asymmetrical information causing a rise in interest rates which pushed high-quality borrowers out of the market (Neal, 1997). More perceptive studies have noted that over-issuance of fiduciary media and consequent lowering of interest rates by the British government caused the boom to begin with, as such low rates led speculators to turn to ever more risky investments (Andréadès, 1966). Analysis of this sort comes close to the Austrian understanding of the business cycle, and such Austrians as Jesús Huerta de Soto and George Selgin have already identified the Panic of 1825 as a clear example of the processes described by the Austrian Business Cycle Theory. 

   However, there has not yet been an in-depth study of this crisis from an Austrian perspective, a gap in the literature which I hope to be able to fill if given the opportunity to pursue this topic as a Mises Institute Fellow this summer. Furthermore, even those studies which have recognised the harmful role of the expansion of the money supply in the early 1820s have tended to blame it on the inflationary tendencies of the small ‘country banks’. My paper on this topic will instead highlight the role of fiduciary media production by the Bank of England itself, in addition to monetary policy decisions by the British government, both of which are causes of the crisis which, in my view, have not yet been sufficiently emphasised by previous studies. 

   The method of my study will be predominantly historical, using both historical evidence and a theoretical understanding of the Austrian Business Cycle Theory to produce an account which emphasises how that theory does indeed explain the causes of both the Panic of 1825 and the unsustainable boom which preceded it. In addition to the secondary sources listed below, my work will also be informed by data on interest rates, Bank of England notes in circulation, and money supply estimates sourced from various research datasets which the Bank of England makes available online. 

   While it is true that I will already have completed a significant amount of research on this topic for my undergraduate dissertation before the start of the Fellowship programme, I nevertheless feel that spending a certain amount of time re-working it before submitting it for publication would be a worthwhile endeavour. Aside from adapting my prior research into the format and style of an academic article, I would also like to partially re-write it to offer a more unambiguously pro-Austrian perspective, compared with my dissertation in which it will be expedient to feign a certain amount of even-handedness. In addition to this I hope that the importance of the Panic of 1825 as a subject itself will justify my pursuing it as a Mises Institute Fellow despite my prior study. The ease of misinterpreting the Panic of 1825, as many have done — attributing it to the adoption of the gold standard by Britain in 1821, or to the lack of a central bank monopoly on note issue, or to a failure of 19th century capitalism more generally — has the potential to lead not only to errors in historical understanding but also to undesirable policy conclusions for the present. It is for this reason that I feel that producing for publication an article-length study of this crisis from an Austrian perspective would be a worthy endeavour for a Mises Institute Fellow in Residence this summer.

Selected sources to be used in my paper on The Panic of 1825: 
Andréadès, A. 1966. History of the Bank of England 1640-1903, Fourth Edition. Routledge.
Bordo, Michael D. 1998. ‘Commentary’, Federal Reserve Bank of St. Louis Review Vol.80 No.3
Dimsdale, Nicholas and Anthony Holston (ed.). 2014. British Financial Crises Since 1825. Oxford University Press
Fetter, Frank W. 1967. “A Historical Confusion in Bagehot’s Lombard Street”, Economica, New Series Vol.34 No.133. pp: 80-83
Gayer, Arthur D., W.W. Rostow and Anna J. Schwartz. 1953. The Growth and Fluctuation of the British Economy, 1790-1850. Oxford: Clarendon Press
Kynaston, David. 2017. Till Time’s Last Stand: A History of the Bank of England, 1694-2013. Bloomsbury Publishing, London
Neal, Larry. 1997. The Financial Crisis of 1825 and the Restructuring of the British Financial System. Prepared for the 22nd Annual Economic Policy Conference at the Federal Reserve Bank of St. Louis October 16-17, 1997
Powell, Ellis T. 2017. The Evolution of the Money Market 1385-1915: An Historical and Analytical Study of the Rise and Development of Finance as a Centralised, Co-ordinated Force, Routledge
Selgin, George. 1992. “Bank Lending ‘Manias’ in Theory and History”, Journal of Financial Services Research 2. pp. 169-186
Silberling, Norman J. 1923. ‘British Prices and Business Cycles, 1779-1850’. Review of Economics and Statistics V, Suppl. 2


Secondary Topic: The Causes and Consequences of the ‘Great Bullion Famine’: Did Commodity Money cause the Economic Slump of the 15th Century?

   During the 15th century, and especially between 1457-64, much of Europe found itself struck by an acute downturn in the quantity of precious metals, particularly silver, circulating as money. The causes and consequences of this mysterious ‘Bullion Famine’ have since been a source of some debate amongst economic historians, with the scarcity having been blamed variously on a slump in European mining output and trade deficits with the Near East (Munro, 1983), or on the decline in population and agricultural output after the Black Death and the Hundred Years’ War (Dyer, 2003). Despite the seemingly arcane nature of this topic, misinterpretation of the Bullion Famine and its associated economic slump has the potential to lead to unfortunate policy conclusions: allowing opponents of a commodity money system to impugn it as unpredictable and inherently tending to undersupply consumers’ demand for money. Furthermore, misinterpretations of this monetary contraction as a cause of the concurrent ‘Great Slump’ in the English economy and in Northern European trade generally, emboldens those who fear deflation as a significant economic danger and endorse government inflation of the money supply as its antidote. 

   In my own paper on this topic I hope to depart from previous studies by attributing the problems with the European money supply primarily to interference by governments across the continent, mainly through the imposition of ‘mint ratios’ which fixed the prices which mints were able to pay for bullion to be coined. This led to effects similar to those described by Gresham’s Law, as the metals which mints undervalued were hoarded or exported and hence removed from the money supply. For example, in the decade 1400-09 England’s mint-ratio overvalued gold and undervalued silver to such an extent that only 2.8% of the money produced took the form of the silver coins so necessary for medium-sized transactions. The opposite scenario of mint ratios over-valuing silver tended to have equally undesirable consequences, such as in the cases of the Flanders and Brabant mints, which overvalued silver to such a great extent after the 1380s that they drained silver coins out of circulation in other adjacent areas (Munro, 1983). 

   It is true that previous studies on this topic have to some extent acknowledged that mint-ratios did factor into the Bullion Famine, and the data concerning mint-ratios collected by these studies will provide a valuable resource for my own paper. However, by identifying the imposition of mint-ratios as the primary cause of problems with the European money supply at the time, my own paper will nevertheless offer a perspective not yet covered by the existing literature. I will also devote some attention to disputing the significance of other more innocuous factors as key causes of the bullion famine. For example, it will be worth addressing the idea that trade deficits with the Near East were a primary cause of the Bullion Famine, given that Europe had experienced almost permanent trade deficits with the East since the ancient Classical period, and furthermore those trade deficits were actually shrinking at the time of the Bullion Famine (Day, 1978). Similarly, the argument that a slump in European mining output was the main cause should also be brought into question, given the relatively insignificant extent of European mine output even at its previous peak compared with the pre-existing bullion stock and the ongoing bullion imports from Africa (Munro, 1983).

   The method of my paper will primarily be historical, especially when historical evidence is required to dispute the conclusions of previous studies concerning which causes of the Bullion Famine were most significant. I will also employ an understanding of economic theory to discuss such aspects of the problem as the Gresham’s Law effects of mint ratios, and the extent to which deflation of the money supply can be regarded as a key cause of the economic slump in northern Europe at the time. 

Selected sources to be used in my paper on the ‘Great Bullion Famine’:
Chilosi, David and Oliver Volckart. 2011. “Money, States, and Empire: Financial Integration and Institutional Change in Central Europe, 1400–1520”, The Journal of Economic History, Volume 71, Issue 3
Day, John. 1978.“The Great Bullion Famine of the Fifteenth Century”, Past and Present No. 79
Dyer, Christopher. 2003. Making a Living in the Middle Ages: The People of Britain 850–1520. Yale University Press
Hatcher, John. 2002. “The Great Slump of the Mid-Fifteenth Century”. In Britnell, Richard; Hatcher, John. Progress and Problems in Medieval England: Essays in Honour of Edward Miller. Cambridge University Press.
N.J. Mayhew, 1974.“Nuministic Evidence and Falling Prices in the Fourteenth Century”, Economic History Review vol.27
John Munro. 1983. “Bullion Flows and Monetary Contraction in Late-Medieval England and the Low Countries”, Precious Metals in the later Medieval and Early Modern Worlds, edited by John F. Richards
W.C. Robinson. 1959.“Money, Population and Economic Change in Late Medieval Europe”, The Economic History Review New Series Vol. 12 No. 1
Murray N. Rothbard. 1995. An Austrian Perspective on the History of Economic Thought, Volume I: Economic Thought Before Adam Smith. Auburn AL: Ludwig von Mises Institute
Nathan Sussman, 1998. “The Late Medieval Bullion Famine Reconsidered”, The Journal of Economic History Vol. 58 No. 1



   Despite the necessary brevity of these two proposals, I hope I have demonstrated the potential for fruitful re-interpretations of both of these topics from an Austrian perspective. Not only are both of these significant events in economic history in their own right, which have both been misinterpreted by previous accounts, but in both cases the result has been historical misunderstandings which could superficially be used as counterexamples to the conclusions of Austrian economic theory. It is for these reasons that I feel that producing studies of these two topics, informed by a proper understanding of economic theory, would be an especially worthy endeavour for a Mises Institute Fellow in Residence, and I hope that I will be fortunate enough to be offered the opportunity to do so this summer.