In our chapter on "France at the outbreak of the war,"
attention was centered on the bourse. The list of securities dealt in there had been weakened by prewar speculation and depres- sion. We have seen how largely they consisted of second rate issues of foreign governments, Russians, Bulgarians, Brazilians, Argentine securities, Mexican securities and the like. When to this weakness was added the frightened selling on the bourses of Vienna, Berlin and other 'centers, followed by the wild panic when war was clearly in sight, it is not surprising that the whole fabric collapsed. We saw something of the extent of the decline of representative securities and the extent of the recovery by December 7, 1914, when the bourse was reopened for cash trading only. A preceding chapter has given an account of the bourse moratorium and of the lapsing of that moratorium in October,1915.
The main story of the bourse in the four years following the outbreak of the war is best told in the accompanying charts.
Attention may be called to the divergence between the prices of shares of the Banque de France and of the other French banks.
The five banks treated in the curve for the other French banks are:
Banque de Paris et des Pays-Bas Comptoir d'Escompte
Credit Foncier
Credit Industriel (liberee) Credit Lyonnais
There has been a steady rise in the shares of the Banque de France from the last .quarter of 1915 and a decided decline in the shares of the other banks. The reasons for this have been fully stated in our previous discussions of these institutions.
The two railway shares chosen are the Midi and the Lyons, 127
128 EFFECTS OF THE WAR ON MONEY, CREDIT AND BANKING
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130 EFFECTS OF THE WAR ON MONEY, CREDIT AND BANKING
neither of which has been seriously affected directly by the German invasion. On the whole, the rails show less decline than the private banks.
Rio Tinto, a famous Spanish copper, dealt in on the London exchange as well as on the Paris bourse, is fairly representative of securities favorably affected, so far as earnings are concerned, by the war. Its moderate rise is significant of the general ten- dency of all securities to yield a higher return for given prices.
The two curves which are significant of the greatest losses to French investors are the 3 per cent rente, which has declined from 84 to about 60, though holding fairly steady since the beginning of 1916, and the Russian 5's of 1906, which have declined from over 100 to a low of 46, with a recent limited upturn. The decline in the price of the rente represents pri- marily not loss of confidence in the French Government, but scarcity of capital and a general rise in interest rates. The decline in the Russian security, however, is chiefly due, as our curve shows, to the collapse of Russia in 1917 and 1918. Many other Russian securities would show a much heavier decline, particularly Russian industrials, rails and banks. It is interest- ing to note that just prior to the Russian revolution, Russian securities were very strong. There had been an industrial re- vival in Russia and there was much confidence in France in the Russian situation.1 Nor did the revolution itself immediately lead to depression in the price of Russian securities. The Rus- sian revolution was exceedingly popular in France. Ribot, suc- ceeding Briand as Premier in March, 1917, spoke very encourag- ingly of the Russian situation.2 The general course of Russians held fairly well for some weeks, but by November, 1917, the collapse, was pretty complete. The ruble was worth only 75 centimes (about 15 cents) against a mint par of over 50 cents, and Russian securities generally were shot to pieces. By Jan- uary, 1918, it was clear that disaster threatened many small investors in Russian funds and steps were being taken by the French and British Governments to protect them. Vidal, a well
1London Economist, l\1arch 17, 1917, page '512.
2Ibid., March 31, 1917, page 586.
I
known authority on French securities, gave out a reassuring statement on the inability of a great state to remain bankrupt.
Lloyd George made the British Government responsible for the Russian Treasury bonds and commercial bills discounted under the commercial treaty of1915between the Bank of England and the Finance Ministry of Russia.! There was still a belief that the Bolsheviki would be unable to 'carry out their plans, however.
Edmond Thery, well known as a writer of French finance, gave out a statement in January, 1918, with reference to the Russian situation, which tended somewhat to restore confidence. His fig- ures served to show that the railway revenues in Russia, amount- ing to 321 million rubles, constituted 80 per cent of the interest on the Russian state debt by the close of 1912. He thought that not over12,000,000,000 francs of Russian securities of all kinds were held in France at the outbreak of the war, though other estimates2 have run as high as 20,000,000,000. About three- fourths of this 12,000,000,000 had been used, he said, in pur- chasing existing railwaysJ in creating new lines, in developing industry and agriculture and in consolidating old loans. From 1902 to 1912 there had been rapid economic developments in Russia, 'shown by the following percentage increases for various commodities:S
Per cent Per cent
Wheat 30 Iron and steel... 100
Bar~ey . . . .. 63 Imports 95 Oats 21 Exports. . . . 76
Potatoes 32 Ordinary budget receipts... 40
Coal 77 Railway receipts 80
The French Government has not assumed full responsibility for the Russian securities, but it has paid the coupons, (( transi- toirement et provisoirement,JJ4 recognizing specially its respon- sibility for loans floated since the outbreak of the war and recog- nizing that a great deal of the French capital invested in Russia was invested by patriots who foresaw the war and felt that they were strengthening an ally who would protect France against the enemy. Most of the bonds are in the hands of comparatively
1Ibid., January 26, 1918, page 118.
t Ibid.,May 2, 1918, page 915.
I Ibid., February2, 1918, page 159.
, Journal des Economistes, May 15, 1918, page 280.
132 EFFECTS OF THE WAR ON MONEY, CREDIT AND BANKING
poor people. The Russian loan of January, 1914, had been expressly sanctioned by the Finance Ministry on the ground that it was to be used for strategic railways. The total burden of interest on Russian securities would be about a billion francs a year, not easy for the French state to bear.1 In connection with the new French war loan of October, 1918, provision is made for the acceptance of Russian coupons up to 50 per cent of a subscription.2
Our curves do not show the course of French war stocks because of the difficulty in getting quotations. There have been war booms in munition shares, among them Hotchkiss and ereusot. There have been vigorous booms in oil stocks, coppers, chemicals, rubbers and other securities.
An examination of the curves for French securities from 1917 on will show comparatively slight influence of the entrance of America into the war. The main immediate effect of American entrance into the war was an improvement in French exchange on foreign countries, particularly the United States, Great Britain and Switzerland. On the whole, the bourse has not been violently affected by political events since the reopening after the first outbreak of the war. There was heavy pressure on bad Italian and Russian news in the fall of 1917. The pro- longed battle of Verdun, however, in thãe summer of 1916 left the bourse strong at the end of one hundred days. To a very considerable extent, the French bourse has been under control and violent breaks have been averted.
1London Economist, May 2, 1918, page 915.
2New York Times, September 19, 1918.
CHAPTER XII