The Latin America Loan Bust

The displacement was genuine and enormous: Spain’s American empire had broken apart, and a dozen new republics needed money. London had it. Government bonds paid little after Waterloo, and investors who had spent a decade in safe consols went looking for yield.

The mechanism was the loan contractor, who bought a republic’s issue wholesale and sold it on to the public — earning a fee at the moment of sale, whatever happened afterwards. Nobody in the chain was paid to ask whether Peru could service its debt, and the distance made checking impractical anyway. Mining companies followed the bonds, floated on the promise of Andean silver that mostly stayed in the ground.

The mania’s most famous product was Poyais, a country that did not exist. Gregor MacGregor, styling himself its Cazique, sold both its bonds and passage to settlers, over two hundred of whom sailed to a stretch of empty Honduran coast and landed to find no town there; most of the dying came later, after the settlement was broken up and the survivors were carried to Belize. That a fictional nation could raise money in London says everything about how little the paper’s buyers were checking.

The reckoning came in 1825. The Bank of England, belatedly alarmed at its own reserve, tightened — and the country banks that had funded the speculation began to fail, more than sixty of them in weeks. What makes the episode matter to the book is the response: the Bank eventually lent “by every possible means, and in modes we never had adopted before,” as one director put it afterwards. It was the crudest possible version of Bagehot’s rule, arrived at forty years before Bagehot wrote it down.

What it cost

Poyais is usually told as a mass death on the Mosquito Coast, and the settlers’ own published account does not support that. James Hastie, a sawyer who sailed on the Kennersley Castle, counted three children and five men dead during the whole stay at Black River, plus one man who shot himself. The dying came afterwards, at Belize, where the survivors were carried from May 1823 and where, he wrote, “many were weekly carried off to their graves.”

• ~230 people who sailed for a country that did not exist, by Hastie’s count: about 170 on the Kennersley Castle out of Leith on 22 January 1823, and about 60 who had gone ahead under Governor Hall on the Honduras Packet; Clavel counts over two hundred sailing in four ships between 1822 and 1823, adding the Skeene and the Albion Hastie, Narrative of a Voyage in the Ship Kennersley Castle, from Leith Roads to Poyais, Edinburgh, 1823; Clavel, What’s in a Fraud? The Many Worlds of Gregor MacGregor 1817–1824, Enterprise and Society, 2020
• 9 deaths at the settlement during the settlers’ whole stay there, by Hastie’s count; when they embarked for Belize the sick numbered thirty or forty Hastie, Narrative of a Voyage in the Ship Kennersley Castle, from Leith Roads to Poyais, Edinburgh, 1823
• £16m what the £21m of Latin American bonds sold in London in 1822–25 actually raised for the borrowing governments, after an average discount at issue of almost 25 per cent della Paolera and Taylor, Sovereign Debt in Latin America, 1820–1913, NBER Working Paper 18363, 2012

Hastie was engaged at £20 for the first year and allowed, at his own entreaty, to bring his wife and children. They landed at Black River on 22 March 1823 to find no town, no houses and no people — only tents and huts of bamboo. At the end of the first month the governor told the men he had nothing but paper to pay them with. One of Hastie’s children died at the settlement and another in the hospital at Belize. He reached Leith at the end of October 1823 and was given £5, his share of a subscription raised in London.

What followed

Nobody was punished. Six returning settlers, Hastie among them, swore before the Lord Mayor of London on 22 October 1823 that the blame lay with MacGregor’s agents rather than with MacGregor. Parisian police held him for months over a second Poyais scheme and he was declared innocent the following year; he sailed for Venezuela in 1838, drew a pension there for his services to the revolutions, and died in 1845. The republics paid longer. Of the 1820s London issues only Brazil’s default was settled quickly, in 1829; Chile resumed service in 1842, Peru in 1849, Buenos Aires in 1857.

Hastie’s Narrative, 1823, for the affidavit; Clavel, What’s in a Fraud? The Many Worlds of Gregor MacGregor 1817–1824, Enterprise and Society, 2020; della Paolera and Taylor, NBER Working Paper 18363, Table 1 · when Buenos Aires borrowed again

Phases on show: displacementboomeuphoriapanic