

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.


Figure 1. Banque de France Share Price, 1848 to 1849

Share prices had started to rise by the time of the election on April 23, increasing to 1530 by April 27 once it was clear that the radicals had not won the elections. A second decline in price occurred during the workers’ revolt of May 15 during which share prices fell to 1275. During the revolt between June 23 and June 28 share prices fell back to 1250, but once this revolt was suppressed, the share price shot up to 1800 on July 8.

The victory of Napoleon III was clearly received well by the stock market. Share prices rose from 1455 on December 9 to 1780 on December 18 and thence to 2375 on February 23, 1849 where prices settled for the rest of the year.  There was a decline after the legislative elections of May 13, 1849, but the market soon bounced back

With the election of Louis-Napoleon Bonaparte as the new leader of France, conservative economic policies worked to modernize the French economy.  As Figure 2 shows, the French stock market staged a spectacular recovery from the French Revolution of 1848 with the index of French stocks increasing in price twelve-fold between the bottom in 1848 and the peak in 1857, mainly through the rising price of railroad shares which connected Paris to the rest of the nation.  French shares had already risen six-fold between Napoleon’s defeat in 1815 and the peak in 1848.

Although the economy continued to grow in the 1860s, the market caught its breath and moved sideways for the rest of the decade.  The stock market had a smaller decline in 1870 when France lost the Franco-Prussian War, Napoleon III was forced to resign, the Paris Commune briefly took over the city and France had to sign a peace treaty with Germany which imposed huge reparations on the country.  However, the French economy grew for the rest of the century and Paris remained the financial center of continental Europe until World War II.  Between 1815 and 1881, France had the best performing stock market of any economy in Europe.


Figure 2.  France Share Price Index, 1801 to 1899