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.
Supplement to case UV7966 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.
On October 25, 1847, British prime minister John Russell met with his cabinet to review a deepening financial crisis and to weigh proposals for government response. Chief among these were two proposals. The first was to suspend the Bank Charter Act of 1844 in order to permit the Bank of England to discount more freely and to issue banknotes in greater volume than the Act allowed. In recent days, delegations of merchants, industrialists, and country bankers had approached Russell to plead for more currency. The second was to do nothing and allow the crisis to run its course. Some members of Parliament argued that the whole point of the Act was to impose discipline at times like this, so to suspend it would make a mockery of that discipline and create moral hazard. As leaders of the Whig Party, Russell and his cabinet would need to navigate carefully through the crisis, owing to the slim majority his government held in Parliament. The A case describes five shocks that promoted the financial crisis of 1847-agriculture, railways, demand, monetary, and fiscal-as well as the complicated political situation at this time of the Irish potato famine. The B case offers an epilogue.
On October 25, 1847, British prime minister John Russell met with his cabinet to review a deepening financial crisis and to weigh proposals for government response. Chief among these were two proposals. The first was to suspend the Bank Charter Act of 1844 in order to permit the Bank of England to discount more freely and to issue banknotes in greater volume than the Act allowed. In recent days, delegations of merchants, industrialists, and country bankers had approached Russell to plead for more currency. The second was to do nothing and allow the crisis to run its course. Some members of Parliament argued that the whole point of the Act was to impose discipline at times like this, so to suspend it would make a mockery of that discipline and create moral hazard. As leaders of the Whig Party, Russell and his cabinet would need to navigate carefully through the crisis, owing to the slim majority his government held in Parliament. The A case (UV7950) describes five shocks that promoted the financial crisis of 1847-agriculture, railways, demand, monetary, and fiscal-as well as the complicated political situation at this time of the Irish potato famine. This B case offers an epilogue.
The first (or "Great") Industrial Revolution occurred in Europe from roughly 1760 to 1860, and marked the end of the centuries-long feudal era and the rise of modern capitalism. To understand the modern industrial economy, it is necessary to consider the profound structural changes that produced it in the 18th and 19th centuries. New industries replaced old systems or businesses with new technologies, products, markets, and business practices, resulting in dramatic changes in economic growth (a measure of material well-being), politics (new institutions, interests, and ideologies), and society (such as urbanization, changes in social mobility, and immigration). Anchored to the rationalist principles of the Enlightenment, the Industrial Revolution emphasized increased productivity across sectors, from agricultural labor to factory production. The Industrial Revolution encompassed and relied on dramatic changes to organizational management, capital structures, resource procurement, and political institutions, marking a culmination of societal transformation that manifested in an explosion of economic development. The word "revolution" suggests a period of radical change, a shift from an old order to a completely new one: the Industrial Revolution was such a shift. This note offers a historical overview of this hugely consequential period in economic history.
In April 1930, US Treasury Secretary Andrew Mellon reviewed recent stock market events as he prepared to enter a meeting of the Federal Reserve Board, which he chaired. In September and October 1929, the US stock market had fallen about a third, and then recovered somewhat. In response to the turmoil, the Federal Reserve (Fed) had lowered the discount rate in five steps from 6% to 3.71%, and market rates of interest across a range of debt securities had followed. Now, given the recovery in the stock market, Mellon wondered what further guidance to give to the Fed, and what actions to recommend to the president and to Congress. What were the lessons of the recent market turmoil? What policies should the Fed pursue? Answers to such questions depended on agreement about the issues to be resolved. Advice streamed in from business, politicians, the press, and pundits of all kinds, and hinged on interpretations of the recent turmoil, which ranged from a standard cyclical correction to an international crisis. This case presents the events leading up to the Great Depression and explores a range of responses and interpretations by participants, contemporary observers, and scholars of economics and history.
John Law had fled to safety in Brussels, Belgium, in December 1720. His furtive exit from France confirmed for many people that he was a criminal. Yet only months before, he had been hailed as a financial genius and the second most powerful person in France. In four years, he had managed to refinance the nearly bankrupt government of France and in the process created new markets, institutions, and securities. Then a bubble and crash in France's markets turned public opinion against him. In advance of petitioning for a return to Paris, Law needed to prepare a defense. To sustain a return, he would need to assert that the collapse of the Mississippi Company bubble was a matter of external circumstances and bad luck rather than mismanagement or fraud. On what circumstances could he pin the rehabilitation of his reputation?
Supplement to case UV7544. From 1721 to 1723, John Law hovered near to France, hoping to receive a message from the regent to return and repair his system. Throughout his exile, Law maintained an amicable relationship with the regent and always hoped to return to France. Meanwhile, the French political pendulum continued to swing to the right, in favor of the financial system of the ancient regime. In short, the new regime deconstructed Law's system: institutions closed, monopolies redistributed, and government debts renegotiated or repudiated. The government sharply limited the granting of corporate charters and development of the banking industry.
In October 1720, John Hanger, governor of the Bank of England (BoE), and his fellow directors confronted the imminent collapse of the South Sea Company (SSC). The SSC directors urgently appealed to the BoE for funds to prevent collapse. Should the bank rescue the SSC? The answer to this question hinges upon an assessment of the origins of the market bubble, Britain's strategy of creating trading monopolies, the development and role of the new BoE, and Britain's jockeying to be a major power.
Supplement to case UV7532. In October 1720, John Hanger, governor of the Bank of England (BoE), and his fellow directors confronted the imminent collapse of the South Sea Company (SSC). The SSC directors urgently appealed to the BoE for funds to prevent collapse. Should the bank rescue the SSC? The answer to this question hinges upon an assessment of the origins of the market bubble, Britain's strategy of creating trading monopolies, the development and role of the new BoE, and Britain's jockeying to be a major power. The B case presents an epilogue.
In June 1788, James Madison prepared to attend a convention in Virginia to consider ratification of the proposed Constitution for the United States. The recent depression (1784-87) had triggered a major civic reaction over the weaknesses of the Articles of Confederation and inflamed differences among various groups in the country. As an architect of the new Constitution, Madison needed to prepare to defend it in the ratification convention. Vigorous opponents sought to prevent ratification and the loss of states' power to a central government. How should Madison make his case? Madison's dilemma occurs in the midst of a dramatic regime shift in American politics. The social reaction to the depression had inflamed divisions throughout the country: urban versus rural, farmers versus merchants, wealthy versus poor, and so on. Outbreaks of civil unrest mark 1784-87 as a historic pivot point. It is useful to consider how the depression of those years contributed to that pivot and how the subsequent civic reaction responded to the depression conditions.
On December 5, 1791, Secretary of the Treasury Alexander Hamilton presented to Congress his "Report on the Subject of Manufactures," which proposed significant government support for nascent American industry through tariffs, subsidies, and other incentives. It seemed that Hamilton's politico-economic vision for America had substantial political momentum, yet James Madison and his circle viewed Hamilton's proposals with alarm, and a financial panic in August-September, 1791, raised new anxieties about the rapid political and economic changes occurring in the United States. In the face of these concerns, would Congress sustain its support for Hamilton's vision?
Supplement to case UV7332. On December 5, 1791, Secretary of the Treasury Alexander Hamilton presented to Congress his "Report on the Subject of Manufactures," which proposed significant government support for nascent American industry through tariffs, subsidies, and other incentives. It seemed that Hamilton's politico-economic vision for America had substantial political momentum, yet James Madison and his circle viewed Hamilton's proposals with alarm, and a financial panic in August-September, 1791, raised new anxieties about the rapid political and economic changes occurring in the United States. In the face of these concerns, would Congress sustain its support for Hamilton's vision? This B case explores the reactions to and events following Hamilton's Report on Manufactures.