Tradition tells of how Tom Smith of London invented crackers in 1847. He created the crackers as a development of his bon-bon sweets, which he sold in a twist of paper (the origins of the traditional sweet-wrapper). As sales of bon-bons slumped, Smith began to come up with new promotional ideas. His first tactic was to insert "love messages" into the wrappers of the sweets (cf. fortune cookies). 
Smith added the "crackle" element when he heard the crackle of a log he had just put on a fire. The size of the paper wrapper had to be increased to incorporate the banger mechanism, and the sweet itself was eventually dropped, to be replaced by a trinket: fans, jewellery and other substantial items. The new product was initially marketed as the Cosaque (i.e., Cossack),but the onomatopoeic "cracker" soon became the commonly used name, as rival varieties came on the market. The other elements of the modern cracker—the gifts, paper hats and varied designs—were all introduced by Tom Smith's son, Walter Smith, to differentiate his product from the rival cracker manufacturers which had suddenly sprung up.  
Tom Smith merged with Caley Crackers in 1953. 
A memorial water fountain to Tom Smith and his family stands in Finsbury Square, London. 

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