3 - The ghost and the accountant: investing in panic in Villette

Summary

The decade leading up to the writing and publication of Villette in 1853 saw drastic economic oscillations. The years 1842–43 were probably the most economically catastrophic of the century. A recovery occurred through 1845, during which time there was an increase in the building of railroads, a buildup in the iron and coal industries, expansion in the textile trades, and a rise in employment and real wages. Because of cheap lending rates, there was, as Charles Neville Ward-Perkins notes, “an orgy of speculative activity,” particularly with the explosion of railway building. The Bank Act of 1844 was instituted in part as a corrective to railway speculation, but within three years of its passing, Parliament had 1,035 railway schemes to consider authorizing, for, as Ward-Perkins argues, the financial “disturbances” of 1847 resulted from “an incredibly heavy programme of capital investment in the form of railways” and capital expenditures increased on railways by more than £221,000,000. This caused one Governor of the Bank of England to write that “Speculations were never carried to such an enormous Extent as in 1846 and the Beginning of 1847.”

Advocates of the currency school of economics, including Lord Overstone, George W. Norman, and Robert Torrens, believed that the Bank Act of 1844 would stabilize the economy and obviate crises. They could not have been more wrong. Bad harvests (including the Irish famine) and over-speculation in railways and corn caused the 1847 bank crash.