Saturday, August 31, 2019

"French Investors and the Revolution of 1848"

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....