The Uncertainties of the 1860s and the Crisis of 1866

Charles Read ()
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Charles Read: University of Cambridge

Chapter Chapter 7 in Calming the Storms, 2023, pp 199-245 from Palgrave Macmillan

Abstract: Abstract This chapter describes how the crisis of 1866, which saw the demise of Overend, Gurney & Co., resulted in the Bank of England changing its use of monetary policy under the influence of the Banking School. Usually, the crisis of 1866 is seen as the event in which the Bank of England first adopted its role as ‘lender of last resort’ under what later came to be known as ‘Bagehot’s dictum’. Instead, this chapter provides a new narrative of the events surrounding the crisis of 1866 that emphasises the problem caused by the Bank’s sharp rises in interest rates to protect its bullion reserves. In its aftermath, the Bank used smaller, prompt changes in interest rates to quell speculative bubbles and bullion drains before they got out of hand, a policy that prevented another crisis of the size of 1847, 1857–1858 and 1866 occurring in the rest of the century.

Keywords: Bank of England; Bagehot’s dictum; 1866 financial crisis; Overend; Gurney & Co.; Walter Bagehot; Orissa famine; Bank of Bombay (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palscp:978-3-031-11914-9_7

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DOI: 10.1007/978-3-031-11914-9_7

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