City of Fog: The Night Credit Turned Back—London’s Financial Markets and the Panic of the 19th Century

In the 19th century, London grew into the financial hub of the global economy, backed by Britain’s economic dominance stemming from the Industrial Revolution, its massive volume of trade, the Port of London, its banking network, and its securities market. According to the Bank of England, London supplanted Amsterdam as the world’s financial center in the early 19th century, and from the 1850s onward, large volumes of railroad stocks and foreign securities also flowed into the London market. What Marx focused on in Volume III of *Capital* was the dual nature of credit that underpinned this prosperity. As bills of exchange, deposits, loans, and bank credit developed, the same money was used repeatedly for settlements, making massive transactions possible even with little actual cash on hand. Consequently, money capital appears to be multiplying in value on its own, detached from the production process. The attached materials also treat the credit system and money capital as key issues in capitalism. However, while credit accelerates prosperity, it works in the opposite direction during a crisis. When anxiety about repayment arises, lending shrinks, discounting bills becomes difficult, and everyone seeks cash. Marx argued that during periods of credit contraction, while ordinary transactions decline, the demand for money on the part of capitalists surges. In other words, a market that was held together by credit just yesterday transforms today into a market where people scramble for cash. A dramatic example of this is the Overland-Garnie Panic of 1866. When the company—one of the largest discount houses at the time—suspended payments on May 10, panic spread throughout London’s financial markets. The Bank of England refused to bail out the company itself but expanded its provision of funds to sound banks and intermediaries. This experience also led to the subsequent establishment of the central bank’s role as the lender of last resort. London’s prosperity served as a mechanism that bound the world together with the invisible thread of credit; the moment that thread snapped, it instantly transmitted global anxiety. Related Information Bank of England https://www.bankofengland.co.uk/about/history Marx, *Capital*, Volume III https://www.marxists.org/archive/marx/works/1894-c3/ch28.htm