Between 1836 and 1838, about 63 banks crashed in England. Little money was available for investment leading to increasing levels of unemployment at a time of high food prices. Much bullion had been invested in America where good returns could be made. Federal governments borrowed and Britain invested, then in 1837, President Jackson refused to re-charter the Bank of the United States, and caused a financial panic in America. In addition, the 1838 harvest was poor so bullion was exported to buy food. Industry suffered; there was massive unemployment and higher food prices. By the later 1830s, home demand, together with available export markets, was insufficient to absorb Britain’s manufactured output. By 1837 there was depression, not serious at first, but conditions worsened.
A depressed economy
Poor harvests resulted in heavy grain imports, especially in 1838 and 1839. This did little to reduce the high price of food and depressed home demand. Disillusion with foreign borrowers in the United States and elsewhere discouraged investment abroad reducing British exports. Prices had begun to fall in the cotton industry as early as 1833 when signs that over-production first became obvious. Mill owners, committed to costly plant and equipment, could not afford to limit output to keep prices up and capacity actually increased. By 1841-2, mill owners in Belgium, Saxony and Prussia, heavy buyers of British yarn, reduced their consumption. British producers pumped more and more goods into foreign markets in an effort to restore earnings with catastrophic effects on cotton prices. Similar trends were evident in other industries. By 1842, wool was in deep depression.
The coal and iron industries faced similar problems. Increased demand for coal in the early 1830s and rising coal prices stimulated capital investment. This too led to over-production. Between 1836 and 1843, coal output rose by between sixty and seventy per cent while demand increased by only thirty per cent. Attempts by colliery owners to control output using quotas failed and the industry slumped. The iron industry followed the same pattern. Output grew in South Wales and Staffordshire but most dramatically in Scotland. By 1840 the industry was increasingly unprofitable. The speculative boom in railways and shipbuilding, a major source of employment after 1836, was largely exhausted by 1840.
The problem faced by the manufacturing economy in the late 1830s was largely one of over-production that home that export markets were unable to absorb. The interconnected nature of the economy reinforced this depressed state. Coal depended on iron; iron on demand for industrial expansion at home and abroad; demand depended on an ability and willingness to invest and upon earnings. Depression in one area impacted on others. Britain’s trading policy did not help this situation. By 1840, tariffs on imports made up nearly half of total revenue. As the price of Britain’s exports fell faster than those of imports so the relative cost of imported raw materials and food increased. Between 1836 and 1840, imports stood at over £5 million a year more than exports. Far from protecting the British economy against foreign competition tariff policy depressed the workers’ capacity to consume, their incentive to work and this was reflected in the cost of the production of exports.
The Whigs and the depression
The weakness of the Whig government was obvious by the beginning of 1841. By then, the Whigs had alienated various sections of the electorate. Radical support evaporated with the cooling of Whig reforming spirit. Among the propertied classes, there was concern about the Whigs’ inability to prevent the riots and disorder of the late 1830s. The worsening economic crisis led to serious social unrest with the emergence of Chartism and in late 1839 led to confrontation with government at Newport. There was also among the electorate at large, and especially the newly enfranchised middle classes, growing doubts about the fiscal and administrative capacities of the Whigs. As the economic crisis deepened, the Whig budget deficit mounted. There were deficits in 1839 and 1840 and by 1841 it had risen to £6 with no solution in sight. The electoral alliance since 1835 with O’Connell and the Irish party was doubly unpopular for the Whigs and, in the eyes of some they were damned for consorting with both Irishmen and Catholics.
By 1840, constitutional reform may have been exhausted but changing fiscal policy was a fertile area to give the Whigs fresh impetus and rouse flagging enthusiasm. Charles Poulett Thompson, a long-term supporter of tariff reform wrote from Canada to Francis Baring, the Whig Chancellor of the Exchequer in May 1841 that fiscal policy ‘…does not meddle with religious prejudice; it does not relate to Ireland; it does not touch on any of the theoretical questions of government on which parties have so long been involved. It is a new flag to fight under.’
The Whigs relied heavily on indirect taxation that was vulnerable to economic slump. In 1840, Baring, faced with a projected deficit of £2 million reversed the trend towards ‘cheap government’ and increased Customs and Excise duties by 5 per cent and 10 per cent on Assessed Taxes. However, this did not relieve the slide in the budgetary deficit. Faced with a bankrupt fiscal policy, the Whigs suddenly became coverts to free trade and tariff reform. Francis Baring had contemplated the resumption of the Peel-Huskisson economic reforms of the late 1820s almost as soon as he became Chancellor in 1839. There were three main reasons why this appeared to be a shrewd political move. First, it was recognised that one way to stimulate commercial growth was to reduce the level of indirect taxation. Secondly, tariff reform was bound to please a wide range of manufacturing interests and Corn Law reform had been an issue in middle class (ands not only radical) circle for some years. Finally, radical activity had shifted away from constitutional issues after the threats to public order posed by Chartism and was now fixed on the issue of tariff reform. The appointment of Joseph Hume’s Select Committee on Import Duties in May 1840 was the vehicle to do this. Whigs support for tariff reform might lead to a revival of Radical support for the government.
Baring was able to persuade the leading Whigs to swallow a low fixed duty on corn, for reasons of political pragmatism if not principle. Some doubters may have been won over by Edward Ellice’s prediction that ‘Sir R. Peel will move on it, if we do not’. The result was that Baring’ free trade budget was the major measure of the 1841 session. It embraced both a general tariff reform and a further reduction in the Corn Laws. He suggested raising the duty on imported colonial timber from 10s to 20s per load (50 cubic feet), but lowering it on foreign timber by 5s to 50s per load. This would equalise somewhat the Baltic and the hitherto more favoured Canadian timber imports. Secondly, he proposed retaining the duty on colonial sugar imports at 24s per hundredweight while reducing it dramatically on foreign sugar imports from 63s to 36s per hundredweight. Again the effect would be to equalise imports. Brazil would be able to compete more readily with the traditional colonial suppliers in the West Indies. Even with the revision of the sugar and timber duties, there would still be a deficit of some $400,000. Baring aimed to remove this by abolishing the sliding scale (as established by the Corn Law of 1828) and replacing it with a moderate fixed duty on corn, proposed at 4s per quarter.
The budget offered the Conservatives a number of targets for the proposed budget hit simultaneously at the shipping, West Indian colonial timber and agricultural interests. They decided to focus on the issue of the sugar duties that the Manchester Guardian noted on 12th May 1841 as a ‘crafty move’ since it allowed the Conservatives to bring a moral tone to their opposition. They could argue that the reduction in foreign sugar import duties might encourage, not merely the continuance but the expansion of slavery in countries such as Brazil and Cuba. This enabled to Conservatives to gain the support of powerful anti-slavery groups outside parliament and gain the moral high ground. The debate began on the Commons on 7th May and lasted eight evenings. In addition to their criticisms of the sugar duties, the Conservatives poured scorn on the perilous state of the Whigs’ fiscal position. The result was a Whig defeat by thirty-six votes, followed by defeat on a vote of no confidence in June that precipitated the general election.
It would be unfair to suggest that Baring’s attempt to fiscal reform was the cause of the Whigs’ electoral defeat in 1841 but for many people it characterised the bankruptcy of the administration. Many manufacturers were not convinced by the sincerity of the Whig conversion to tariff reform. As middle class interests swung from political to commercial reform, Peel seemed a more responsible and credible leader than members of the Whig aristocracy.
 R.C.O. Matthews A Study in Trade-Cycle History: Economic Fluctuations in Great Britain 1833-1842, Cambridge, Mass., 1967 remains a valuable study of the depression in the late 1830s and early 1840s.
 Assessed Taxes aimed to tap the income of the rich by taxing signs of conspicuous spending and display such as male servants, windows, carriages and pleasure horses.