One of the severest commercial crises ever known in Great Britain will make the months of May and June, 1866, memorable in the history of banking and finance. The crash that caused so many goodly and solid-seeming commercial and financial structures to topple over and collapse in irretrievable ruin was the natural reaction after a period of feverish, over-sanguine, and partly unsound speculation. The year 1865 had witnessed the launch on the money market of a vast number of new undertakings, carried on by companies offering the advantage of limited liability to their shareholders, and professing to hold out to the fortunate investor opportunities of enriching himself beyond the wildest dream of avarice. As the spring of 1866 wore on, the solvency and utility of some of these speculations came seriously into question, and a tendency to realise manifested itself. There was one immense financing firm which in the magnitude of its discounts had no equal in London. This was the Limited Liability Company of Overend, Gurney, and Co., the shareholders of which had, as a great privilege, purchased the goodwill of the business of the well-known firm of Overend and Gurney the year before, for the sum of £500,000. At the time they thus sold their business, the firm, as the subsequent judicial investigation proved, was hopelessly insolvent to the extent of many millions. The representatives of the new company must have been either quixotically confiding, or culpably remiss, or financially incompetent, not to have obtained some inkling, at the time of the negotiations for the purchase, of the real state of affairs; it seems certain, however, that their ignorance was as complete as that of the world outside. In March or April it became known that certain firms and companies, with which Overend, Gurney, and Co. had had large transactions, were in difficulties or had suspended payment; a feeling of uneasiness arose; the shares of the company, which had been quoted at a good premium, fell below par; and some of the new shareholders, becoming alarmed, commenced to sell out. An immediate further depreciation of the shares was, of course, the consequence; this led to increased alarm and to pressure from the company's creditors. The directors, perceiving ruin to be imminent, sought assistance from the Bank of England; but the authorities of that establishment, after investigating the affairs of the company sufficiently to convince themselves that no slight or temporary measures of relief would be of the least avail, declined to grant the accommodation requested. Meanwhile, the run upon them was increasing, and the price of the shares continually falling; and on the afternoon of May 10th the company had no choice but to close its doors and suspend payment. The liabilities were stated at the enormous sum of £11,000,000; the assets, it was feared, and with great reason as the events proved, would, even if realised in the most favourable circumstances, leave an enormous margin of indebtedness. Friday morning ushered in a day of universal panic and consternation in London city, such as had not been seen since the disastrous year of 1857. The multitude of buyers and sellers, bulls and bears, knaves and dupes, brokers and investors, who swarm during the business hours of the day in the streets surrounding the Royal Exchange, consented together, as if by a tacit understanding, to call the day "Black Friday." Every half-hour some well-known firm or company, which but the day before had presented a smiling and prosperous front to the world, was announced to have suspended payment. Crowds of despairing depositors collected round the door of Overend, Gurney, and Co., in Lombard Street, and discussed in tones of anger or despondency the prospects of the bankruptcy. Upon all the private banks the run was intensely severe; the managers of these sought assistance from the Bank of England, and, when the securities were unexceptional, were in no instance refused. But the consequence was that the Bank, whose reserves at the beginning of the day were close upon £7,000,000, although it charged 9 per cent. all day for accommodation, found itself, when the business of the day was over, with the reserves reduced to little over £3,000,000. What measures the Bank authorities were driven to in face of this alarming reduction will presently be related. The crash of falling houses was resounding all day in the financial ear. The English Joint-Stock Company was one of the first to go, dragging down with it thirty-one provincial branches in its fall. Failures for less than half a million were so comparatively unimportant as to arouse little attention. The convulsion reached its climax towards the close of the day, when the stoppage of the great firm of railway contractors, Peto, Betts, and Co., with liabilities exceeding £4,000,000, was announced. The authorities of the Bank of England communicated to the Treasury, as in duty bound, the drain that menaced the exhaustion of their reserves. The emergency was so serious that Lord Russell and Mr. Gladstone, after conferring with a great number of bankers and directors of finance companies, agreed to allow the credit of the country to be employed, though the permission involved an infringement of the law. Late on Friday night Mr. Gladstone announced in the House of Commons that an authority would be sent next morning from the Treasury to the Bank, to continue discounting good bills, even though their reserves should thereby be reduced below the minimum required by law, provided that they made no such discounts at a lower rate of interest than 10 per cent. The panic in the City was greatly allayed when the decision of the Government was made known; confidence began to revive; and eventually the Bank did not find it necessary to infringe the law. Yet one more gigantic failure occurred before the crisis passed. This was the stoppage of Agra and Masterman's Bank, a house of old standing, and with a most extensive Indian connection, the business of which, as in the case of Overend and Gurney, had been lately transferred by its former proprietors to a limited liability company. The run on this particular bank was so persistent that in the four weeks which intervened between the beginning of the crisis and their own stoppage, they paid away more than £3,000,000 over the counter, yet were unable to avert the catastrophe.
In consequence of the disasters thus described, and many other minor failures that we have not noticed, numbers of families found themselves reduced from affluence to poverty; many had to descend to a lower position in society, and an extensive contraction of expenditure took place, the effects of which were felt through all the channels of trade, and especially by those who minister to the amusements and luxuries of the affluent. It was remarked that the principle of limited liability, which, when first introduced, was held to confer so great a boon upon investors, inasmuch as it sheltered the individual proprietors of any joint-stock adventure from that awful responsibility for the whole debts of the concern, which the law, as it formerly stood, imposed upon them—had come to be so worked in practice as to make this immunity from risk, in numberless cases, illusory. It had become customary to announce a new company with a nominal share capital of large amount, but to state in the prospectus that only one or two pounds would be called up on each share, and skilfully to induce the belief, by glowing accounts tending to impress the reader with a sense of the safe and lucrative character of the speculation, that no further calls would require to be made. Suppose there to be five new companies, each coming out with a share capital of £200,000, in £20 shares, and calling up £1 per share, with an intimation that it was not probable that any further call would be necessary, but that in no possible circumstances, so certain was the prospect of speedy and ample profits, could the calls exceed £3 per share. A man who had saved £3,000 might think he was following a wise and safe course by investing part of that sum in the shares of the five companies, buying, let us say, two hundred shares in each, on which he would have to pay up £1,000, and supposing that, if the worst came to the worst, he would not be called upon for more than his £3,000. But a commercial crisis arrived; the companies got into difficulties; they had, perhaps, launched out into expense far exceeding the amount paid upon the shares, and every one who had a claim upon them turned round and pressed for his money. In such circumstances, whether the companies suspended payment or not, they were obliged to make fresh calls upon the unpaid portion of the shares. Thus our imaginary investor might find himself, in an extreme case, called upon to furnish £20,000 upon his shares, instead of the £3,000 which he had fondly fancied to be the utmost that would ever be demanded of him. It was in this way that the shareholders of many limited liability companies found themselves, unless persons of large capital, face to face with ruin, because they had unthinkingly entangled themselves in a liability which, limited as it was, yet, when pressed to its full extent, was more than they could sustain.
A variety of minor incidents falling under the year 1866 may here be briefly noticed. The House of Commons gave proof of its unabated loyal attachment to the House of Hanover by voting to the Princess Helena, on the occasion of the announcement of her intended marriage to Prince Christian of Schleswig-Holstein-Sonderburg-Augustenburg, an annual allowance of £6,000 a year, and a dowry of £30,000—a donation similar to that which had been granted to the Princess Alice. The marriage took place at Windsor Castle on the 5th of July. Another marriage, which excited much popular interest—for the well-known geniality and good-nature of the bride made her a universal favourite—was that of the Princess Mary of Cambridge, at Kew, on the 12th of June, to the Duke of Teck. The great Banda and Kirwee prize-money case was argued, and decided in this year. From the magnitude of the booty which was the subject of litigation, and the number and position of the claimants, the pleadings were followed with interest. In the course of the campaign of 1858 in Central India, which stamped out the last remains of the mutiny in that region, General Whitlock had led a British force to Banda, driven out the Nawab, and taken possession of a rich booty in gold and jewels collected there, the value of which was estimated at not less than £800,000. The question to be decided was—to whom did this booty of right belong? Ought it to be awarded to General Whitlock's force exclusively, by which Banda was taken—or were other divisions, even though serving at a distance, entitled to their share, on the ground that it was by their co-operation that the taking of Banda was rendered possible? The family of Lord Clyde, who was Commander-in-Chief in India at the time, also appeared as claimants. Dr. Lushington delivered judgment in the case on the 30th of June. He included under the description of "General Whitlock's forces," to whom he awarded the sum in litigation, "any troops left by General Whitlock on his march, but which at the time of the capture formed a portion of his division, and were still under his command." Lord Clyde and his staff were also declared entitled to share in the booty captured at Banda and Kirwee; but the claim of Sir Hugh Rose and his army, employed at the time in the important collateral operation of the siege of Jhansi, but which had never effected an actual junction with General Whitlock, and all other claims, were disallowed. The foundering of the London, a large iron steamship, in the Bay of Biscay, in the January of this year, with a loss of two hundred and twenty lives, including Dr. Woolley, the principal of the new Sydney University, and the well-known actor, Gustavus Brooke, was memorable for the calm courage displayed by the captain, Captain Martin, who sent off his chief engineer in the only boat that could be launched, saying that his own duty was to stay by the ship. This boat, with nineteen persons on board, was picked up by a passing vessel. The wonderful procession of meteors, radiating from a point in the north-eastern sky, seen on the night of the 13th of November, though not a proper subject for a political and social history, could never be forgotten by any that witnessed it. A deficient harvest deepened the painful impression which the monetary disasters of 1866 had left on the minds of the people. In the critical months of August and September the weather was unusually wet and stormy, and the wheat crop suffered much in consequence. A great deal of corn was housed in bad condition and no inconsiderable portion wasted or spoiled. The result was a yield considerably below the average and the prices of grain were consequently much enhanced. The prices of other necessaries were also raised; although this was probably to a great extent due to a permanent cause, with which the bad harvest had nothing to do-viz. that gradual rise in the price of all articles of necessary consumption, which, commencing from the discovery of the gold-fields of California, the continual influx of gold, in quantities before unknown, into the markets of the world, slowly but surely effected. These untoward circumstances, combined with a contraction of the demand for labour, arising from commercial failures and discredit, made the winter of 1866-67 a period of considerable suffering to the poor in England.
The state of Ireland in 1866 was such as to excite grave and sorrowful reflections. We have described in a former chapter the circumstances in which Stephens, the chief head-centre, effected his escape from confinement in 1865, and how a special commission was appointed, in order to try Fenian prisoners. During January the Fenian trials were going on in Dublin before Mr. Justice Keogh, and a number of the accused were sentenced to terms of penal servitude, varying from ten to five years. But the terrors of the law, and the grave and solemn tones of ermined justice, reprobating the guilt and folly of the Fenian conspiracy, were contumaciously set at naught by many of the prisoners. Patrick Hayburne, of the "Emmet Guard," in the Fenian brotherhood, a young man, the only support of his mother, on being found guilty, requested the judge to sentence him to a term of penal servitude rather than to two years' imprisonment. Mr. Justice Keogh expressed his pity for the misguided youth, and passed the latter sentence, on which the prisoner exclaimed, "I will have the same principles afterwards." In Dublin, and still more in Limerick, the populace loudly cheered Fenian prisoners as they were being taken to gaol. A number of strangers continued to arrive in Dublin, many of them betraying by their military bearing that they had seen service in the field, whom the police knew to be in communication with those suspected of Fenianism, but who were careful to commit no overt act that would bring them within the grasp of the law, and, on being questioned, said that they were come to Ireland to see their friends. Arms of all kinds were continually being seized; even three pieces of artillery were discovered, just on the point of being despatched to Drogheda. The attempts to seduce soldiers from their allegiance, in spite of the severity of the Special Commission against this particular offence, were found to increase in frequency. In addition to the former reward of £1,000 offered by the Government for the apprehension of Stephens, a further sum of £1,000 was now offered for such private information as should lead to his capture; but no informer came forward. All this was generally known before the meeting of Parliament; but the despatch of the Lord-Lieutenant, dated February 14th, proposing the suspension of the Habeas Corpus Act, proved that matters were more grave than the public had any idea of. Lord Wodehouse wrote:—
THE MARRIAGE OF PRINCESS HELENA.
FROM THE PAINTING IN THE ROYAL COLLECTION, BY C. MAGNUSSEN.
"The state of affairs is very serious. The conspirators, undeterred by the punishment of so many of their leaders, are actively organising an outbreak, with a view to destroy the Queen's authority. Sir Hugh Bose details the various plans they have in contemplation, and he draws no exaggerated picture. There are scattered over the country a number of agents, who are swearing in members, and who are prepared to take the command when the moment arrives. These men are of the most dangerous class. They are Irishmen, imbued with American notions, thoroughly reckless, and possessed of considerable military experience, acquired in a field of warfare [the Civil War in America] admirably adapted to train them for conducting an insurrection here. There are 340 such men known to the police in the provinces, and those known in Dublin amount to about 160, so that in round numbers there are 500. Of course, there are many more who escape notice. This number is being augmented by fresh men constantly arriving from America. In Dublin itself there are several hundred men (perhaps about 300 or 400) who have come over from England and Scotland, who receive 1s. 6d. a day, and are waiting for the time of action. Any one may observe these men loitering about at the corners of the streets. As to arms, we have found no less than three regular manufactories of pikes, bullets, and cartridges in Dublin. The police believe that several more exist. Of course, bullets are not made unless there are rifles to put them in. The disaffection of the population in some counties, such as Cork, Tipperary, Waterford, and Dublin, is alarming; and it is day by day spreading more and more through every part of the country. But the most dangerous feature of the present movement is the attempt to seduce the troops. Are we to allow these agents to go on instilling their poison into our armed force, upon which our security mainly depends?" Lord Wodehouse concluded his despatch by declaring that he could not be responsible for the safety of the country if power was not forthwith given to Government to seize the leaders; on that condition he hoped still to avert serious mischief.
ROBERT LOWE (AFTERWARDS LORD SHERBROOKE).