From the data wizards at Global Financial Data:
The Revolution of 1848 in Paris produced the most dramatic drop in
the price of stocks and bonds in French history. The stock market
dropped in value over 70% when prices collapsed like a waterfall. It
took years of political stability for the market to recover from this
collapse.
GFD has daily data on the behavior of Banque de France stock,
France’s 5% Consolidated bonds and other shares which enable us to
analyze how the market responded to the Revolution. What we discovered
was that the events of the Revolution of 1848 directly impacted the
market, driving it up and down as the Revolution spread through Paris.
The Revolution of 1848
Louis Phillipe gained power in 1830 after Charles X was forced to
flee when the king abolished the freedom of the press, reduced suffrage
by 75% and dissolved the lower house. Louis Phillippe was supported in
France by the financial aristocracy of bankers, stock exchange magnates,
railroad barons, mine owners and other capitalists. Although France
prospered in the 1840s, it fell into a financial crisis with bad
harvests in 1846 and a depression in 1847. Many French felt that the
financial crisis was due, in part, to government corruption.
Industrialists with monopolies and other government permits were able to
take advantage of protectionism. They succeeded because of the
government’s protection, not because of their success in the market.
Political gatherings were banned in France in 1847, so citizens led
fund-raising banquets as a way of exercising their political rights.
When the government realized its citizens were using these banquets to
promote their political agenda, the banquets were outlawed in February
1848. This led to an open revolt. The French took to the streets on
February 22, 1848 and manned the barricades. As a result, on February
23, Prime Minister Guizot resigned and a crowd gathered outside the
Ministry of Foreign Affairs. An accidental discharge by one soldier
caused other soldiers to fire on the crowd leading to the deaths of 52
people. On February 26, the liberal opposition formed a provisional
government which they referred to as the Second Republic. Elections for
a constituent assembly were scheduled for April 23. At that point, only
landowners, representing about 1% of the population could vote, but
universal male suffrage was introduced on March 2, 1848. The hope was
that extending the vote would produce a better representation of
citizens in the constituent assembly.
However, the elections returned the conservatives to power. Few
radicals were elected. Workers invaded the assembly on May 15, but they
were quickly suppressed by the National Guard. The workers revolted
between June 23 and June 26 and with a force of over 120,000 soldiers,
Cavaignac suppressed the revolt. On June 28, Cavaignac was appointed
head of the French state and remained in power for the next six months. A
new constitution was finished on October 23, and elections were held on
December 10, 1848. Louis-Napoleon Bonaparte won the election by a
landslide and became the new leader of France. Napoleon III staged a
coup in 1851 and remained in power until 1870.
The Collapse of the Paris Bourse
The price of shares in the Banque de France is illustrated in Figure
1. You can use this chart to follow the events discussed above. Banque
de France shares were at 3180 on February 23 when Prime Minister Guizot
resigned. This caused the price of shares to collapse for the next
three weeks, hitting 1295 on March 15, bounced back for the next three
days, then fell down to 995 on April 8. Clearly, the uncertainty over
the events in the streets of Paris cost shareholders two-thirds of their
money in the greatest decline in Parisian share prices since the
collapse of the Compagnie des Indes bubble in 1719....
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