Joint-stock companies can be blamed for the surge in bankruptcies in the late 19th century but the disaster of the early 1990s was due to a lethal combination of factors.
'It has long been my deliberate judgement that all bankrupts, of whatsoever denomination, civil and religious, ought to be hanged.' So wrote essayist Charles Lamb in the early 19th century. Lamb's prescription may not be meted out to the modern insolvent, but a declared bankrupt still has quite a hard time of it: directorships, property ownership, and borrowings over £10 (that is, without revealing his bankrupt status) are all beyond him.
Annual figures for personal bankruptcies go as far back as 1700, when records for England and Wales began; statistics for the UK as a whole start in the late 18th century. At that time the number was low and stable. It wasn't until the late 19th century that bankrupts appeared in significant numbers.
Professor John Armstrong of Thames Valley University offers a range of reasons. 'In the 1880s and 1890s a surge of joint stock companies were being registered, agricultural prices were low, and a lot of overseas investment was taking place,' he says. 'These foreign investments were often problematic, a greater number of companies meant that more went under, and those with land were losing out to imports.' This relatively high level persisted more or less until the first world war, mainly as a result of steadily increasing economic activity.
If it is true that war is good for business, this is certainly borne out by the precipitous fall in bankruptcies during both the first and second world wars. Companies found an insatiable demand for their output, unemployment was negligible and enforced austerity at home meant that the scope for personal consumption - or, rather, over-consumption - was severely curtailed.
When peace returned in 1945, levels of personal bankruptcy rose, but very slowly: the buoyant post-war economy ensured that it would be 20 years before they regained their pre-war levels. Even these, however, were exceeded by the peak produced by the financial turmoil of the mid-1970s. The level declined again later in the decade, but this fall was to be short-lived.
In the late '80s and early '90s the number of bankrupts spiralled, rocketing from 3,745 in 1980 to 42,950 in 1992. The causes are well-documented; the loosening of credit controls and subsequent boom in consumer spending, rising salaries, and with them an increase in personal net worth, largely on the back of a property market. Accordingly, many found themselves entering recession with a level of debt they were unable to service.
The 1980s also saw an unprecedented number of business start-ups, which, when boom turned to bust, meant an unprecedented number of business failures. A further factor, suggests Professor David De Meza of Exeter University, was the low inflationary climate of the early '90s. Previous recessions were often accompanied by high inflation, which conveniently wiped out some of the debtor's liabilities, curbing bankruptcy. This time, inflation remained unforgivingly low.
Yet, as the graph shows, the number of bankruptcies registered over the past three years has fallen sharply. Equally, the combination of factors which led to the recent bankruptcy boom seems unlikely to recur. But financial memories are famously short. When the next boom comes around, the lessons of the last - on the dangers of easy money and, conversely, the wisdom of living within your means - may be long forgotten.