Catherine Davies, FernUniversität in Hagen
When thinking about the interrelationship between the urban and the global, stock exchanges may yield valuable insights. A quintessentially urban locale, they were often seen as institutions that brought global events home with much force and immediacy. Describing British society during the Napoleonic Wars, the narrator in William Thackeray’s Vanity Fair (1847/48) observes that the City of London, work place of stock broker William Sedley, was a ‘stirring place in those days, when war was raging all over Europe, and empires were being staked … Old Sedley once or twice came home with a very grave face; and no wonder, when such news as this was agitating all the hearts and all the stocks of Europe.’
London was then the largest and most important securities exchange in Europe. But the late eighteenth and early nineteenth centuries saw a proliferation of exchanges on the Continent, too. In Vienna, Empress Maria Theresia had announced the establishment of an exchange in 1761. In 1805, regular trading in government bonds began in Berlin; in 1816, the city of Frankfurt followed suit. Initially, the vast majority of securities listed were bonds issued by states. With the advent of railways, however, joint-stock companies proliferated and their shares were traded on exchanges in large numbers.
Although booms in railroad securities turned to bust with some frequency in the nineteenth century, stock exchanges on the whole grew more popular. The Berlin exchange saw an upsurge in business in the 1860s, and the private body in charge decided to move to new, larger premises in 1863. These also for the first time in the bourse’s history included a telegraph station connecting Berlin to the world’s major exchanges, further reinforcing its function as a transmission belt for global developments. In a sign of the developing boom, the number of visitors during this period grew rapidly – in Berlin, unlike in other cities, anybody could trade on the exchange provided they paid the entrance fee. To accommodate the new investors and traders, the administration reduced the seating area, and as the boom gathered steam, the number of certified brokers rose from 37 in 1871 to 110 in 1873.
What motivated this growing appetite for securities? Not just in Germany the 1860s were a period of rapid market integration and economic growth. The growing accumulation of capital in turn stimulated investment and spurred the development of new technologies and commodities; steamships and railroads were being constructed at a rapid pace. In Germany alone, more than 5 000 km of tracks were laid between 1870 and 1873. At the same time, following a legislative reform in 1870, the number of newly incorporated companies listed on the Berlin stock exchange rose from 32 in 1870 to a high of 275 just two years later. Next to railroad securities, those of industrial companies and banks were the most numerous.
This speculative boom, then, was the result of a number of factors, some of worldwide significance, others, such as economic reforms, more specific to the German situation. On a psychological level, the German victory over France in the Franco-Prussian war left many observers and investors jubilant. In March 1872, the Frankfurt financial journal Aktionär (Stockholder) remarked that ‘[e]nterprise and the association of capital have, since the glorious end of the war in France, achieved impressive things’, and attributed Germany’s economic rise to the ‘course of world history’. ‘Berlin wird Weltstadt’ (Berlin is becoming a global city), a slogan coined by publicist David Kalisch, neatly encapsulated a prevalent feeling. At the same time, the city was changing physically. A large influx of migrants from rural areas led to a shortage of housing, and several companies listed at the Berlin bourse began buying up land and launching large-scale construction works. Construction could not keep up with rising demand, however, and many Berliners of little means saw themselves forced to move into shanty towns on the city’s outskirts.
The boom in securities trading was not a wholly German affair. As more and more shares flooded German markets, the more enterprising speculators began snapping up bonds of American railroads listed on the Berlin and Frankfurt bourses. So great was their eagerness that at one point, the Prussian Minister of Commerce weighed in. He had received an anonymous letter from New York warning German investors of dubious local railroad securities, he told the Berlin Board of Trade. The body’s directors dutifully relayed this warning to the public, and banned one particular security from trading. But, echoing a widespread belief that the exclusion of foreign securities would appear incompatible with the institution’s cosmopolitan character, they declined to take further measures.
The following year, however, American railroad bonds began falling out favor with German investors, a sign of things to come. In late 1872, the bourse in Berlin entered into a period of protracted decline; in May 1873 the stock market in Vienna crashed. When the American bank Jay Cooke & Co. failed in September, the mood at the Berlin exchange, already depressed, turned into an “almost complete panic”, the Berliner Börsen-Zeitung, the city’s foremost financial publication, reported on September 20. So intense was the shock at Cooke’s failure that the ensuing scramble for cash among Berlin traders sent prices tumbling; once again, the stock exchange acted as a conduit for distant events. Having reached Berlin, news of the panic and the accompanying financial and economic woes quickly spread outwards; soon, failures and bankruptcies were being announced all over Germany, ushering in the most protracted period of economic stagnation the world had yet seen. In 1875, the banker Baron Meyer Carl von Rothschild observed that all European bourses were similarly depressed and concluded: “The whole world has become a city”. In this imagery, stock exchanges were no longer just nodes connecting cities and nations; they had combined into a single city, seemingly eliminating nations, even the world, in the process.
Catherine Davies is assistant professor of history at FernUniversität Hagen. She earned her PhD at FU Berlin in 2015 and is currently working on a book that explores the 1873 financial crises in a transnational perspective.