There was a sharp increase in financial globalization in the 19th century and London was the home of much of this. Increasingly, foreign governments were turning to London to raise capital. These included some of the first emerging market sovereign bond issuers, the newly independent countries of the Americas.
However, government bonds were not the only Latin American investments that found good reception in London. There was also an interest in the continent’s precious metal mines and new companies were formed in Britain to operate these mines in Latin America. The result was a speculative mania fed by frothy financial conditions and the activities of unscrupulous promoters. This is the first in a two-part post on Britain’s bubble in Latin American mining companies. Read Part II here.
The investment climate after the Napoleonic Wars created the conditions that allowed a mania for Latin American mining companies to develop. The end of the war caused a decline in government borrowing in Britain. Yet, there was still surplus savings as the economy was recovering from the war years. These savings could not be absorbed by the domestic borrowings of the British government alone.
The post-war years were thus characterized by falling interest rates and bond yields as there was a capital surplus. The Bank of England cut its discount rate from 5% to 4% in 1822. There were also falling yields on the consols, Britain’s perpetual government bonds. These had fallen from a peak rate of 5.7% in 1797 to around 3% by the mid-1820s.
Yet another characteristic of this era was a growing issuance of banknotes underway despite a return to the gold standard. The Bank of England’s banknote issuance rose 25% in the three years before February 1825. The money supply was further expanded as banks in the country, outside London, issued banknotes without much gold in reserve. Though Britain returned to the gold standard in 1819, country banks were permitted to issue notes this liberally until 1832. Their note issuance rose 50% between 1822 and 1825.
Amidst these favorable conditions for borrowing, there was growth from virtually nothing in the number of foreign loans raised in London. This was entirely novel and represented the emergence of an international market for sovereign bonds. Foreign loans for France and Prussia were the first. They were followed by loans for several newly independent Latin American countries. Here too the Napoleonic Wars were crucial, as the wars fought by France in Spain and Portugal weakened the latter countries’ control over their colonies. These new countries were later in need of money but found optimistic investors in London, many of which believed Latin America would prosper as a result of independence.
Increasing awareness of Latin America were the writings of European travelers in the New World. The compositions of German naturalist Alexander von Humboldt in the Americas depicted a rich continent, one especially rich in minerals. Later, William Bullock, an English traveler in Mexico, published an account of his journey and organized an exhibition of Mexican artifacts, attended by a large paying audience in 1824. Bullock had included an account of the potential of abandoned mines in Mexico in the account of his travels. Newspapers were also paying more attention to Latin America as public interest in these countries was strong in Britain, where the public viewed these lands as shrouded in mystery and riches.
The bond offerings of Latin American countries in London began when the Republic of Colombia arranged a £2 million loan in 1822. The coupon of 7% was twice the rate offered on British consols. The prospectus for this offering described Colombia’s plentiful mines. Chile and Peru also raised money in London and found strong demand. Even a fictitious Central American country, called Poyais and ‘ruled’ by a certain Gregor MacGregor, a Scottish adventurer turned swindler, succeeded in raising money in the boom.
The prospectuses used to market Latin American bonds frequently cited the gold resources of the continent. These assurances may have helped the governments raise £3.65 million across four issues in 1822, yielding around 7-8%. The pace of new loan floatation would rise further from here; £17 million worth of securities from Latin American governments were issued in 1824-25 alone.
It was not only governments raising money. New companies seizing on investment opportunities in Latin America also raised capital in London. Some fifty companies were established in 1824-25 alone with operations mainly or entirely in Latin America. Together, they had an authorized capital of at least £35 million. Many of these were dedicating to mining operations. While the first of these were two Mexican companies formed in 1824, the Andean countries of South America were also subject to tremendous interest from entrepreneurs and investors. That said, it was three Anglo-Mexican companies, the United Mexican Mining Company, Anglo-Mexican, and Real del Monte, which raised more than any others, £775,000, £750,000, and £325,000 respectively.
Prospectuses were issued for some seventy-four Latin American mining companies during this boom. Among them was the Rio Plata Mining Association, formed in the City of London Tavern in December 1824. Its prospectus described gold so abundant within the confines of its mining concession that heavy rains sufficient to wash away a little dust from the ground would be enough to reveal the precious metal. The Rio Plata Mining Association raised £75,000 in stock sales out of £1 million authorized. The company’s objective was to mine gold and silver in the Argentine provinces of Mendoza, Córdoba, San Juan, and Tucumán under a concession granted by the country’s first President, Bernardino Rivadavia.
Another new company was the General South American Mining Association, which raised £100,000. Its prospectus ‘informed’ investors of inexhaustible amounts of gold, silver, and other valuable metals on the continent. As its name predicted, the prospectus was rather vague about the intended area of operations. Investors could not be too persnickety about the details.
Mining companies were formed between 1824 and 1825 with authorized capital of about £24 million; they were thus the most common type of firm established in the mid-1820s to conduct business in Latin America. There were other schemes though. One was a company formed to send Scottish milkmaids to Argentina to churn butter for Buenos Aires from the dairy cattle understood to be raised in the Argentine pampas. This one did not succeed as the butter did not keep; nor did it sell well as the locals preferred cooking with oil instead.
Agents distributing Latin American bonds during the expansion in international lending were enriched by their arrangements with governments. Bankers typically made between 4% and 8% of the face value of securities sold. Considering that many bonds were issued at significant discounts to face value, this was a particularly large fee in proportion to the amounts raised. Some of these merchant bankers also participated in raising funds for new mining companies. However, many such companies were promoted by different men.
One such promoter, John Diston Powles, was deeply involved in the establishment of new mining companies and raising capital for them. He commissioned the future novelist and politician Benjamin Disraeli, only twenty-one years old and then a solicitor’s clerk, to write promotional literature about South American mining companies.
Disraeli anonymously published a roughly one-hundred-page pamphlet titled ‘Lawyers and Legislators: or Notes on the American Mining Companies’, one of his three anonymous compositions on the subject. He dedicated this extended work of advertisement, dismissing the concerns of skeptics, to a fellow future Prime Minister, George Canning, who, as foreign secretary, conferred Britain’s recognition of independence on the Latin American countries. Canning had previously contributed to Britain’s efforts in the war against France in Spain and Portugal and had served as Ambassador to Portugal. To a large extent, his diplomatic actions helped inaugurate the boom in the first place.
“When we see the wisdom of judges and the policy of senators, the denunciations of Law and the invectives of Parliament, alike arrayed against us, we should be tempted to believe that our judgment was erroneous. … [but] We conceive that the opinions which have been expressed on the American Mining Companies in the late discussions, both in Courts of equity and Houses of parliament, originate in some instances from possessing erroneous information, and in others, from possessing no information whatever.”Benjamin Disraeli, ‘Lawyers and Legislators: or Notes on the American Mining Companies’, 1825
The pamphlet rejected any parallels between this boom and the infamous South Sea Bubble of just over a century earlier. Such comparisons were popular with skeptics of the mania, such the The Times newspaper. This mania helped develop financial journalism as newspapers were increasingly interested in financial news and commentary. They dedicated significant coverage to Latin American news during the boom.
“… never was an age in which effects, similar to those which resulted from the Mississippi and the South Sea schemes, are less likely to be experienced than the present.”Benjamin Disraeli, ‘Lawyers and Legislators: or Notes on the American Mining Companies’, 1825
Disraeli was more than just an evangelist; he borrowed £2,000 sometime in the last few weeks of 1824 to speculate in these shares himself. By April 1825, Disraeli valued his portfolio of mining company shares at £6,000 and insisted to his stockbroker that they would be worth £12,000 by year-end.
Generally, share prices for British-organized Latin American mining companies were rising rapidly. The surviving share price data shows that £100 invested in such companies in August 1824, near the start of the boom, would have turned into £511 by February 1825, more-or-less the peak, a stunning 400% return in just six months. While other new share issues did well also, they did not rise as much, and higher quality established investments saw no rise overall. Leaving the tremendous issuances of government bonds aside, as far as equity investments are concerned, this was first-and-foremost a boom in companies associated with the previous metal riches of Latin America.
The boom in the market for Latin American mining shares was not remarkable for the amounts of money raised. The amounts raised for these companies were miniscule compared to the size of the government bond market for example. However, the scale of the run-up in share prices was extraordinary, as extraordinary as that of the South Sea Bubble a century earlier. Since, whatever the increasing interest, Latin America was still a rather mysterious land to these investors, the power of promoters to enter the void and popularize what are at best exaggerations and at worst fabrications is illustrated vividly by this particular episode in financial history.
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Read Part II of this post here. Also, learn about the larger boom and bust in emerging market sovereign bonds at this same time as well as the Panic of 1890, which ensnared both Argentina and Britain. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts.
1. Chancellor, Edward. “Chapter 4: Fool’s Gold: The Emerging Markets of the 1820s.” Devil Take the Hindmost: A History of Financial Speculation, Farrar, Straus, Giroux, New York, NY, 2000, pp. 96–121.
2. Crosthwaite, Paul, et al. “Chapter 2: Navigating the Market (1800–1870).” Invested: How Three Centuries of Stock Market Advice Reshaped Our Money, Markets, and Minds, The University of Chicago Press, Chicago, 2022, pp. 41–88.
3. Dawson, Frank G. The First Latin American Debt Crisis: The City of London and the 1822-25 Loan Bubble. Yale University Press, 1990.
4. Disraeli, Benjamin. Lawyers and Legislators, or, Notes on the American Mining Companies. John Murray, 1825.
5. Head, Francis Bond. “An Address to the Directors of the Rio Plata Mining Association.” Reports Relating to the Failure of the Rio Plata Mining Association, John Murray, London, 1827, pp. 3–44.
6. Quinn, William. “Chapter 3: Marketability Revived: The First Emerging Market Bubble.” Boom and Bust: A Global History of Financial Bubbles, Cambridge University Press, 2021, pp. 39–57.
7. Rippy, J. Fred. “Latin America and the British investment ‘boom’ of the 1820’s.” The Journal of Modern History, vol. 19, no. 2, June 1947, pp. 122–129.
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