While on holiday in the United States in 1881, H. M. Hyndman read a copy of Karl Marx's Das Capital. Hyndman was deeply influenced by the book and decided to form a Marxist political group when he arrived back in England. The Social Democratic Federation (SDF) became the first Marxist political group in Britain and over the next few months Hyndman was able to recruit trade unionists such as Tom Mann and John Burns into the organisation. Eleanor Marx, Karl's youngest daughter became a member, and so did the artist and poet, William Morris. Other members included George Lansbury, Edward Aveling, H. H. Champion, Theodore Rothstein, Helen Taylor, John Scurr, Guy Aldred, Dora Montefiore, Frank Harris, Clara Codd, John Spargo and Ben Tillet. Hyndman became editor of the SDF's newspaper, Justice.
Paul Thompson argues in his book, Socialist, Liberals and Labour (1967) that it was the publication of the book, Progress and Povery by Henry George that increased the popularity of the SDF: "The real socialist revival was set off by Henry George, the American land reformer, whose English campaign tour of 1882 seemed to kindle the smouldering unease with narrow radicalism. This radical voice from the Far West of America, a land of boundless promise, where, if anywhere, it might seem that freedom and material progress were secure possessions of honest labour, announced grinding poverty, the squalor of congested city life, unemployment, and utter helplessness." By 1885 the organisation had over 700 members.
Ben Tillett was very impressed by H. M. Hyndman: "H. M. Hyndman was an arrogant intellectual possessing a mind, forensic, exact and ruthless, with a patience and a capacity for details devastating to an opponent. He was in many ways our chief intellectual prize. He seemed to us a mental giant. He was a schoolmaster and teacher, but he lacked the softer human quality which senses the needs as well as the weakness of humanity. In debate, he brooked but little discussion and no opposition at all. He failed specifically because of this intellectual attitude."
Bruce Glasier had doubts about Hyndman's approach to politics: "Racy, argumentative, declamatory, bristling with topical allusions and scathing raillery, it was a hustings masterpiece. But it was almost wholly critical and destructive. The affirmative and regenerative aims of Socialism hardly emerged from it. There was hardly a ray of idealism in it. Capitalism was shown to be wasteful and wicked, but Socialism was not made to appear more practicable or desirable."
In the 1885 General Election, Hyndman and Champion, without consulting their colleagues, accepted £340 from the Conservative Party to run parliamentary candidates in Hampstead and Kensington. The objective being to split the Liberal vote and therefore enable the Conservative candidate to win. This strategy did not work and the two SDF's candidates only won 59 votes between them. The story leaked out and the political reputation of both men suffered from the idea that they were willing to accept "Tory Gold".
In 1886 the SDF became involved in organizing demonstrations against low wages and unemployment. After one demonstration that led to a riot in London, three of the SDF leaders, H. M. Hyndman, John Burns and H. H. Champion, were arrested but at their subsequent trial they were acquitted.
Some members of the Social Democratic Federation disapproved of Hyndman's dictorial style and the way he encouraged people to use violence on demonstrations. In December 1884 William Morris and Eleanor Marx left to form a new group called the Socialist League. H. H. Champion, Tom Mann and John Burns also left the party. Although the membership was never very large, the Social Democratic Federation continued and in February 1900 the group joined with the Independent Labour Party, the Fabian Society and several trade union leaders to form the Labour Representation Committee.
The Labour Representation Committee eventually evolved into the Labour Party. Many members of the party were uncomfortable with the Marxism of the SDF and Hyndman had very little influence over the development of this political group. In August 1901 the SDF disaffiliated from the Labour Party.
H. M. Hyndman eventually established a new group, the British Socialist Party (BSP). The BSP had little impact and like the SDF, failed to win any of the parliamentary elections it contested. Hyndman upset members of the BSP by supporting Britain's involvement in the First World War. The party split in two with Hyndman forming a new National Socialist Party. The Social Democratic Federation continued as a separate organisation until 1939.