Banking Panic and a Shipwrecked Rescue

After the French Revolution, the advancing armies of France’s new militant republic distressed many in Europe and some fared far worse than the continent’s merchants during these years. Nonetheless, merchants and commerce were displaced by the wars that lasted more than two decades. Yet, whatever the destruction brought by the wars, the cities that were periodically home to this displaced commerce saw economic booms. Hamburg was among them, particularly between 1795 and 1799. The boom there ended with a commercial crisis as a trend in rising commodity prices reversed, catching many merchants unprepared. An effort to provide relief by means of a transfer of money from London was wrecked by the sinking of a ship carrying at least £1.2 million in bullion, much of it never recovered.

Trade After the French Revolution

The merchant communities of Europe, and their money, were displaced by advancing French armies in the 1790s. Nowhere was this clearer than in the Low Countries; the Netherlands were occupied by the French starting from 1795. There, the Batavian Republic was formed as a French client state. It was a disaster for the international financial and economic relevance of the Netherlands as Amsterdam lost access to goods brought by ship as the seas were still sufficiently controlled by Britain, France’s adversary in the war.

Nonetheless, in these years, numerous merchants from continental Europe found themselves in London, allowing the city to build new ties with the continent. It was crucial as the disruptions of the war meant London needed to re-wire its trade with Europe, as had other parts of the world. Trade that had gone through Antwerp, Rotterdam, and Amsterdam, cities that once served as entrepôts between northern Europe and the rest of the world, now needed to be rerouted.

Hamburg

As a venue for displaced trade, Hamburg would take up a disproportionate amount of the slack. It replaced Amsterdam as a trading city in various commodities, often from the Americas. Capital left occupied Holland for Hamburg where hundreds of new firms were founded. Two thousand ships docked in Hamburg each year after 1795. New warehouses were built as Hamburg’s existing ones were filled. Credit in the city became more widely available and rents and real estate in the city appreciated. It had nearly all of characteristics coincident with an economic acceleration.

Merchants in Hamburg realized large profits trading in commodities like sugar, coffee, and tobacco. Merchants stockpiled these goods, expecting prices to rise as they had been since the French Revolution began. The trend would not continue forever though and events were coming to a head as the 1790s came to a close. It began with one last surge in prices caused by weather. A harsh winter in 1798-99 set in early and caused Hamburg’s harbor to freeze. Prices rose as goods were unable to be taken off ships which were stuck in or just outside the city’s frozen harbor. The markets certainly weren’t frozen though and there was substantial speculation in commodity prices underway.

A 1799 Panic

A thaw came in the spring but not before the merchant firm of Lutterloh & Söhne went bankrupt. More merchant firms failed in April as prices were collapsing. In these conditions, credit was withdrawn, causing the drop in prices to accelerate. The damage was compounded by the debts taken on by Hamburg merchant firms, many of them young and not well managed. Some inventories possessed by the distressed debtors were being liquidated and the price of sugar fell 50% and tobacco by 60%. Merchants became insolvent left and right. To soften the credit crunch, the government of Hamburg made one million mark banco available in May but it was too little.

By August 1799, the city was in the midst of a financial panic. A bankruptcy came every week that month and the pace accelerated to about one every day in September. Several large firms went under between September 10 and 13 alone. The Hamburg firms of Milow, Henckel & Eimbcke, and De Dobbeler & Hesse were among the large bankruptcies that month. Showing how insignificant the support provided by the city government was, the latter two firms alone had 1.3 million and 2.5 million Hamburg mark banco in liabilities respectively.

A further two million marks of assistance was provided by the government and bankruptcy laws were amended such that failed merchants could continue to trade under the supervision of external administrators. A new bank was also formed with six million mark banco of capital in an effort to increase the provision of credit in the city. If this would have been enough to stem the commercial panic back in May, it was not enough at this point.

“Some months before the present failures broke out, the entire stagnation of the most current West-India produce of coffee and sugars should have put the Mercantile Public on its guard, to calculate and estimate the chances of speculation, sales, and consumption. The principal merchants pretty well knew the extent and overflow of the market, together with the extent of their engagements, or their acceptances running thereon.” – Reporting by The Times of London, October 19, 1799

Consequences in London

The very substantial run up in the trade of that city during the preceding few years meant that the panic underway in Hamburg was not confined to that place. In the context of the war, it was a concern for governments across Europe. The financial crisis was imperiling Britain’s alliance with the various states that would later form Germany. The crisis had spread to Bremen and Denmark before the end of September and was extending still further.

Of further relevance to Britain, German merchants in London, of which numerous would have had particularly deep links with Hamburg, were also going bankrupt. Germans made up the largest immigrant group in London at that time. So, London merchant houses failed too, including the Anglo-German firms Persent & Bodecker and Cox & Heisch. The former had more than £200,000 in liabilities and the latter another £100,000.

Persent & Bodecker had eighty business partners in Hamburg, including firms that had just gone under: Henckel & Eimbcke and De Dobbeler & Hesse. The firm also had exposure to business in Bremen which was also under stress. Rather than a minor disturbance of limited relevance, this was becoming a concern for Britain generally. These failures, both in September, were followed by those of firms that were outside the German immigrant community of London. The pound, then able to float freely as the gold standard had been suspended, lost 30% of its value. Within the first few days of October, the dire situation was discussed in Parliament, culminating in a government bailout of afflicted Liverpool sugar merchants and Caribbean planters. The repercussions were clearly felt far from Hamburg.

HMS Lutine

Private actors were arranging a bailout of their own. At least £1.2 million, perhaps more, of precious metal specie was being cobbled together by London merchants. On October 9, 1799, this hoard was shipped to Hamburg on the HMS Lutine, a ship that had been launched for the French Navy before being handed over to the British at the 1793 Siege of Toulon.

News that the shipment was being prepared reached Hamburg too late to prevent a wave of bankruptcies in early October, including the firm of Berend Roosen with liabilities of 1.5 million marks. As it happens, HMS Lutine would fail to arrive altogether. During a storm the very night it left port, the ship was carried by tides onto a sandbank where it was wrecked on the Frisian Islands off the Dutch coast; there it sank. All but one of the crew died and the rough seas, which didn’t let up for some time, meant that little of the gold and silver bullion aboard was recovered quickly. Much of it would not ever be found or was only recovered in salvage attempts decades later.

Exactly what the ship was doing so close to the Dutch coast wasn’t clear; some believe HMS Lutine was also on a secret assignment to deliver pay to British troops. If this was the case, it was kept secret, perhaps so the ship could successfully obtain insurance. Indeed, the ship’s cargoes were insured by underwriters at Lloyds of London which paid the resulting claim in two weeks and, as it happens, another ship delivered bullion to Hamburg before news of the Lutine wreck even arrived. Yet, the financial crisis underway in that city still failed to be brought to an end and the crisis spread still further.

Resulting Depression

By November, 82 bankers failed and 152 people had gone bankrupt in Hamburg, including tradesmen, craftsmen, and professionals. There is considerable evidence that the financial crisis had negative effects on the economy overall. For instance, orders for industrial products, like textile orders by German buyers, fell by as much as 50%. If this is anywhere near true, it would be no surprise that one English source said in 1800 that manufacturing towns in England were in a state of ‘idleness and starvation, never before experienced’. In Hamburg specifically, spending on poor relief shot up from 1798-1800.

Lesson

The efforts of merchants and states to respond to the brewing panic may have been insufficient in size or too slow in timing. And just as the crisis altogether was at least partially the result of a weather event, foul weather also drove a meaningful rescue off course with the sinking of HMS Lutine. Yet, whatever the result, the responses were correct in intention. The solvency of some merchants might never have been restored but at some point, the Hamburg panic of 1799 became a credit crisis as bankers and merchants suspended the provision of credit, whether willingly or as a result of their own failure. In commercial cities, whether London or Hamburg, the effect of this needed no explanation.

More from the Tontine Coffee-House

Read about Hamburg’s links with London, embodied through the Schröder banking family, and Napoleon’s ‘Continental System’ to strangle British trade. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts.