Financial Crisis and the Revolutions of 1848 (a)

On March 15, 1848, the governor of the Bank of France, Antoine d'Argout, faced the potential collapse of his institution. A cascade of agricultural and industrial shocks, rising food prices, spikes in unemployment, and currency outflows struck at the heart of the French economy. At the same time, France, and Europe more broadly, had dissolved into armed revolution. The French king's abdication in February, alongside the already teetering financial system, resulted in massive bank runs that toppled a substantial part of the Paris banking system. Dramatic monetary contraction and the collapse of credit markets choked off sources of economic growth. Across Europe, proposals for action polarized three broad coalitions—liberals, radicals, and conservatives—each of which differed about the pace and extent of democratization. With the provisional French government lacking legitimacy and even facing bankruptcy, a state bailout seemed unlikely.Faced with the threat of financial collapse and anarchy in the streets, d'Argout contemplated the situation. What had caused the crisis at the Bank of France and in the French economy? What was the connection between financial and societal distress, and could they be treated separately? How would conservative, liberal, and radical advisers interpret the crisis and suggest remedies? Given this analysis, how should d'Argout try to save his bank? Would tactical reforms save the Bank, or should d'Argout make wholesale changes?The tasks for students are to plot the causes and course of the crisis and to consider the difficult policy tradeoffs. Excerpt UVA-F-1932 Rev. Jul. 1, 2020 Financial Crisis and the Revolutions of 1848 (A) On March 15, 1848, Bank of France governor Antoine d'Argout (pronounced “DAR-goo”) faced the prospective collapse of his institution. A cascade of agricultural and industrial shocks, rising food prices, spikes in unemployment, and currency outflows struck at the heart of the French economy. At the same time, France, and Europe more broadly, had dissolved into armed revolution. The abdication of King Louis-Philippe the month before, alongside the already teetering financial system, resulted in massive bank runs that toppled a substantial part of the Paris banking system in a matter of weeks. Dramatic monetary contraction and the collapse of credit markets choked off sources of economic growth. With the French provisional government lacking popular or traditional legitimacy and facing bankruptcy itself, a state bailout seemed unlikely. Amid this Revolution of 1848, d'Argout faced an existential threat to the Bank of France. Antoine Maurice Apollinaire, Count d'Argout, had become the governor of the Bank of France in 1834 after 28 years in the French bureaucracy (see Exhibit1). As d'Argout and other authorities tried to stabilize the French economic system in January and February 1848, revolution erupted on the streets of Paris. Within a year, social unrest, riots, or full-scale revolution spread to the German and Italian states, Denmark, Sweden, the Hapsburg Empire, Spain, greater Poland, and Switzerland. A diversity of interests motivated liberals such as Alexis de Tocqueville, radicals such as Karl Marx, and conservatives such as Francois Guizot to mobilize followers over the democratization of national rule (see Exhibit2). The unrest resulted in the overthrow of monarchies in France, Denmark, and Rome, and the granting of liberal constitutions in several Italian and Ge