What did Mr. Gradgrind do wrong when raising his children in Hard Times?

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The fact-based upbringing provided by Mr. Gradgrind resulted in Louisa and Tom becoming emotionally stunted and detached. The complete lack of any kind of encouragement to help them imagine and develop any of their more sensitive characteristics resulted in Louisa's emotional inaccessibility towards everyone and Tom's bad character. It is interesting that when Mr. Gradgrind tells Louisa of Mr. Bounderby's proposal, that he again returns to facts and how these should be the only influence upon Louisa's decision, rather than appealing to her feelings and emotions. One of the most poignant and moving moments of this excellent novel, in my opinion, comes towards the end of the story when Mr. Gradgrind realises some of his mistakes and has to confront Bounderby with them as well:

"I think there are... I think there are qualities in Louisa, which--which have been harshly neglected, and--and a little perverted. And--and I would suggest to you, that--that if you would kindly meet me in a timely endeavour to leave her to her better nature for a while--and to encourage it to develop itself by tenderness and consideration--it--it would be better for the happiness of all of us."

Here we see a man bowed down with the realisation of how he has impacted his children's lives for the worse, and trying desperately to salvage something beneficial from the situation now but also recognising how much damage he has actually done and how hard it will be to repair it.