Financial Crisis and the Revolutions of 1848 (A)

Case Solution

Robert F. Bruner, Scott Miller
Darden School of Business ()

On March 15, 1848, the governor of the Bank of France, Antoine d’Argout, faced the possible collapse of his institution. A cascade of agricultural and industrial shocks, rising food prices, unemployment and outflows of foreign exchange hit the heart of the French economy. At the same time, France and Europe in the broadest sense had dissolved in an armed revolution. The abdication of the French king in February, along with the already volatile financial system, sparked massive bank runs that toppled a substantial part of the Parisian banking system. The dramatic contraction in the money supply and the collapse of credit markets stifled the sources of economic growth. Across Europe, the proposals for action polarized three broad coalitions: Liberals, Radicals and Conservatives, differing in the pace and extent of democratization. Given that the French Provisional Government lacked legitimacy and was even facing bankruptcy, a state bailout seemed unlikely. Given the impending financial collapse and anarchy on the streets, d’Argout reflected on the situation. What caused the crisis in the Bank of France and in the French economy? What was the connection between economic and social difficulties? Could they be treated separately? How would conservative, liberal and radical advisers interpret and solve the crisis? Given this analysis, how should d’Argout try to save the bank from him? Would the tactical reforms save the bank or should d’Argout make sweeping changes? Students’ tasks are to identify the causes and course of the crisis and weigh difficult political compromises.

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