Minus the novelistic coloration and the moral condemnation, the world of money and credit in Paris bears many of the same features in Jeanne Gaillard’s illuminating account of the city in the Second Empire. Although checks and notes of the Banque de France (to which we will come in a moment) were available in principle, Paris business people seem to have made little use of them through the 1850s. Most transactions were settled with commercial notes or bills of exchange, and banks, usually reluctant to lend to firms, mostly confined themselves to giving credit in exchange for discounting these forms of currency. Evidence from other parts of the country testifies to the continuing predominance of the same practices there. Even in the midst of the big real estate speculations of the Haussmann years, Gaillard uncovers an “artisanal mentality” in credit matters, corresponding to the still “artisanal structure of Paris business.” A number of banks operated almost as societies of mutual credit, preferring to endorse chiefly the notes and bills of their own shareholders. And because most people paid their suppliers with post-dated notes that the latter then used to pay their own debts, the predominance of these instruments as currency created a chain-like structure that threatened all the links with collapse when one of them broke. After 1860, as the city’s economy began to be more integrated into more distant relations, new credit facilities and new modes of payment became more common, but it was a long time before they substantially replaced the older methods.12
The persistence of privately generated forms of money in France had much to do with the suspicion many people harbored toward the state as a provider of currency. A major source of this mistrust was the disastrous history of the assignats, paper certificates issued during the Revolution, and designed to represent the value of the confiscated church (and later emigré) lands that became biens nationaux. Printed in quantities that greatly exceeded the value of the nationalized properties, they quickly lost value, ruining many people who held them. Coming on top of the state’s sordid history of financial manipulation and debt repudiation during the ancien régime, the fiasco of the assignats left many distrustful of state currency. When Napoleon founded the Banque de France in 1800, hoping it would help to revive economic activity after the disruptions of the Revolution, he set it up as a partly private, partly public institution, officially the property of its shareholders, and partially run by a council consisting of the 200 largest of them, but overseen by state officials. The Banque de France was given an exclusive right to issue banknotes, but only for Paris; elsewhere note issue was in the hands of local, and more fully private banks. The local banknotes were trusted in their regions by those who knew something about the issuers, but elsewhere they could circulate only at a discount, if at all. These arrangements make evident the quasi-public, quasi-private status of money in the early nineteenth century. In this regard the French case was much like the English, but it needs to be noted that the French Bank was the product of an attempt by a distant and often mistrusted state to intervene in the country’s economic life, whereas the English one had been founded by subjects or citizens in search of a way to regularize, and profit from, the finance of a state over which they were able to exercise considerable control.
Politics, alongside suspicion of the state as an issuer of currency, marked the history of the Banque de France and its money well into the nineteenth century. At the start no limit was placed on the amount of currency the Bank could put in circulation, but it was obliged to exchange its notes for silver or gold on demand, an arrangement that increased confidence in the paper, but that was bound to create trouble at moments of economic stringency. The crunch came in 1848. Faced with a deep economic crisis, the provisional government had no choice but to suspend the bank’s obligation to exchange its notes for specie. At the same time, in response to the failure of large numbers of provincial note-issuing banks, the government extended the Banque de France’s monopoly on emitting currency to the whole country. To prevent people from refusing the Bank’s paper, its notes were given what was called cours forcé, requiring people to take them for payment. The return of economic stability allowed the government to abrogate the cours forcé in 1850, but the Bank’s monopoly on note issue was maintained, and this situation led to a great expansion in the quantity of notes it put into circulation. The reviving economy provided a favorable environment for such changes, and this seems to have been the moment when people at least in some parts of the country began to look with more favor on the state-backed currency. Money of any sort had been in short supply in many parts of the country earlier, and François Caron writes that before 1860 “large areas of France were still deserts as far as money was concerned.” The improvement that had already begun by that date is suggested by Maxime du Camp’s comment that before the 1848 revolution no one in the southern city of Vichy was willing to accept banknotes, whereas by the mid 1860s no one refused them. Their usefulness was still limited to large transactions, however, because the smallest denomination, although progressively reduced from 250 francs, fell only to 50 in these years. Many transactions were settled by a system somewhere between traditional bills and modern checks, operated by discount bureaus (comptoirs d’escompte) whose number expanded from the 1850s. But suspicion of paper money preserved the country’s preference for specie. In 1873 60 percent of the money in circulation was still metallic, large numbers of new coins, especially gold ones, having been minted under the Empire.13
The French monetary system remained an uncertain mix of quasi-private and quasi-public forms for longer than the English, but the shift toward practices that presumed the public function of money took a big step forward when the Bank’s notes were made legal tender in August of 1870 (just as the Second Empire was about to fall). That this could be described as cours légal rather than the cours forcé of 1848 was a sign of the changes underway, especially given the fact that convertibility of the notes for specie was not re-established until 1877. By this date France had a public money uniform throughout the country (albeit still of limited everyday use) and resting on a metallic reserve. In contrast to the English situation, however, the French Bank was allowed to let the proportion between its reserves and the volume of notes in circulation fluctuate, relying on the assumption that the holders of paper money would never all demand to exchange their notes for precious metals at the same time. The value of the bank’s issue was guaranteed by a mix of metallic and non-metallic reserves, the latter consisting primarily of state bonds and some private bills (the latter requiring three recognized signatures as security). Observers saw the chief function of the Bank as precisely to transmute all such obligations into recognized currency with a guaranteed value; as one of them put it, the purpose of discounting commercial paper was to transform “a promise to pay at a future date (à terme) into a promise to pay to the bearer on demand (à vue et au porteur).”14
Although the slower and bumpier evolution of the French monetary system reflected the country’s lesser level of economic integration and development compared with Britain, the French arrangements with their greater state role provided certain advantages by late in the nineteenth century. During the 1850s the Banque de France began to establish provincial branches on a large scale, so that by 1900 it had offices in over 400 towns, all modeled on the central bureau in Paris, and tightly controlled by it. This made national banking a larger presence in French life than across the Channel (where the Bank of England had fewer than a dozen local branches), in contrast to the less-developed state of commercial banking there, a situation some historians have blamed for its laggard industrialization. After 1870, however, the official Bank became more involved in economic development, targeting lending to sectors its directors regarded as in need of help or encouragement. These contrasts became more salient as English banking came under greater control by the big London commercial banks that participated in the City’s money market, giving them, as noted in Chapter 5, a reduced role in industrial development just at the moment when the new technologies and bigger fi
rms of the period generated a need of greater quantities of capital. The contrast illustrates how the passage from private to public forms of money in each country was marked at once by the particular role the state played in national life and by the character and rhythm of each country’s economic development.15
Certainly this was true in Germany, where the history of money in the nineteenth century took a decisive turn with the unification. Until then the country had two separate currency systems, one based on Gulden in the south, the other on Taler in the north. Both relied primarily on coin, although convertible paper money was also in circulation (non-convertible paper was generally outlawed). For much of the first half of the century exchanges between the currencies issued by the various states were vexingly complex, since bank issues were not always accepted outside their own regions, and the proportion of precious metal required in coins differed from place to place. A series of reforms beginning in the 1830s established more uniform standards, making exchanges between the two currency regions easier, but only the unification replaced this monetary Old Regime with an integrated one, based on a new unit, the Mark, largely regulated by the Reichsbank established in 1875 as a successor to the Prussian state bank. The circulation of notes issued by other banks was now frozen, so that the Reichsbank became the sole issuer of public paper money.
The proportion of metal currency compared to other forms, which had remained at more than half the total circulation until around 1860, began to fall after that date, and declined rapidly from the mid 1870s, as economic activity expanded much faster than the supply of coin. The Bank’s notes now made up a significant proportion of the money supply. But their quantity was limited, by the strict proportion legislated between the volume that could be issued and the Bank’s reserves, consisting of both metal and highly trusted paper instruments. As a result, the largest part of the money in use still consisted of commercial paper and notes deposited in banks, rather than any fully public currency. The ability of people to utilize these obligations as money was greatly eased by a system of endorsements (a “Giro” system) through bureaus rather like the French comptoirs d’escompte, but centrally run by the Bank, and which allowed those who deposited a small sum as guarantee to send and receive payments between branches. The transfers effected through this network grew at around 8 percent per year between 1873 and 1913, creating ever-closer relations between the central Bank and the world of private money transactions, adding significantly to the money supply, and quickening its tempo of circulation. The result was still far from the uniformity we take for granted today, but like England in the 1830s and 1840s, and France after 1850, Germany was clearly in motion from a system of local and in some ways privately generated currency to one that recognized money as a public function on a national scale.16
Banking and finance: persons and institutions
The rhythm of development of these monetary systems had a revealing counterpart in the history of bank financing, both of state activity and commercial development. Here too the nineteenth century witnessed an evolution from a situation largely dominated by private and personal relationships to one where activities and transactions increasingly took place in a wider public arena. The pattern has been recognized by a number of historians, and concisely described by Ron Chernow as The Death of the Banker: The Decline and Fall of the Great Financial Dynasties and the Triumph of the Small Investor. Chernow’s formula, like the book whose title it provides, concentrates largely on America, but much of his account fits European developments too. He notes that what allowed bankers such as the Rothschilds, who began almost as servants of the princes in whose employ they were able to accumulate their great wealth, to become figures of great power and importance in their own right during much of the nineteenth century, was that only the webs of personal connections they controlled could provide means sufficient to mount armies and assemble the capital for large industrial projects. They lost their central position as wider, thicker, and more impersonal networks developed, linking firms in search of funds to a scattered legion of middling individuals with savings to invest, and as more democratically organized states (even if still dominated by elite individuals and groups) increasingly relied on taxpayers rather than financiers to pay for wars and other projects. As Louis Bergeron puts it, the big bankers at the beginning of the century operated in “a circle of people they knew – family, relations, friends, colleagues, meetings in circles and so on.” But the changes the century brought, “railroads, urbanization, the revolution in marine transport, the new scale of mining and metallurgical industries, colonial enterprises … made a different organization of credit necessary, a mobilization of savings in depth, reaching out to different social strata,” drawing in more ordinary people whose participation constituted “an infinitely more modest kind of capitalism” (although closely tied to the larger-scale and more ambitious kind). Where bankers had previously moved in a world of personal relations, they now worked with a much larger number of anonymous clients; investors who once relied on insiders to place funds began to learn about investment opportunities through more public sources of information (newspapers, advertising), and “the use made of funds in bank accounts became a matter of distant and global strategies.”17
The story of the most famous nineteenth-century bankers, the Rothschilds, illustrates these broad developments very well. The Rothschild bank was a private family bank, operating with its own capital; it neither accepted deposits from other people nor sold shares to the public. That the family could become so prominent and serve as a symbol of money’s power in modern life while operating in this way is a sign of the particular and still-limited ways in which both state and private finance was carried on in the early nineteenth century. When James Rothschild, son of Meyer Amschel, arrived in Paris from Frankfurt in 1812, the family was already involved in a number of activities, including currency exchange, commodity trading, and private loans, but the chief source of its wealth was handling the finances of princes and governments. In Frankfurt they had served as agent for the Landgrave of Hesse, who like other rulers at the time preferred sources of income that offered little opening for his subjects to meddle in state business, in his case hiring out soldiers and collecting an excise tax on salt. In Paris the Rothschilds would expand their connections to government finance, becoming part of the so-called Haute Banque of houses – a number of them also immigrants to France, including both other Jews and Swiss Protestants – engaged chiefly in lending to the state. To this business the Rothschilds introduced an important innovation, based on the family’s network of branches in London, Vienna, Frankfurt, and Naples. Like others, when the Rothschilds made loans to states, they parceled them out in amounts small enough to be sold (at a profit to be sure) to other investors. Having their branches in a number of cities allowed them to issue the bonds simultaneously in all of them, denominating them in local currencies. The people to whom they sold them were regular and well-off associates who formed a limited circle of connections; there was as yet no general and open offering of such securities. All the same as Niall Ferguson observes, the Rothschild system marked the first creation of “a truly international bond market.” Operating in this way gave them the advantage that helped them outdistance their competitors, leading Heinrich Heine to write that they represented a new power: “Money is the god of our time, and Rothschild is his prophet.”18
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