A Nation of Deadbeats by Scott Reynolds Nelson

Author:Scott Reynolds Nelson [Nelson, Scott Reynolds]
Language: eng
Format: epub
ISBN: 978-0-307-96105-1
Published: 2012-09-03T16:00:00+00:00

“IT IS NOT THE OAK”

ODESSA GRAIN MERCHANTS saw the change first. Britain, the biggest importer of wheat, shifted to the cheap American stuff quite suddenly around 1871.14 By 1872 kerosene and manufactured food were rocketing out of America’s heartland, undermining prices for rapeseed, flour, and beef, Austria-Hungary’s biggest exports.15 Europeans would later call this the American “Commercial Invasion.” A new industrial superpower had arrived, one whose low costs threatened European trade and Europeans’ way of life.

Russian banks, many just chartered in the late 1860s, were the first to fail. Somewhat different from the banks of the three empires, these Russian banks lent money directly to thousand-acre estates in Russia’s breadbasket. While the black soil of southern Russia (now Ukraine and Moldova) supported enormous wheat estates along the rivers that emptied near Odessa on the Black Sea, the sudden appearance of bank credit led to a banking bubble in 1871 and 1872. “The projectors of these establishments,” wrote Richard Clayton Webster, Britain’s representative in southern Russia, “would have delighted [the eighteenth-century speculator] John Law.” All had access to paper money, including “every person who had a house, or even a hovel.” Besides mortgages, Russian bankers discounted short-term loans but based the loans on the most extravagant expectations about wheat prices. Every nobleman signed the bills of his neighbors as a guarantee against default. If noble families appeared overextended, Webster complained, “they might get their coachmen to sign their bills.” When the harvest came in October 1872, Russian banks proved unable to collect the interest on most of their loans to Russian noble families.16 Foreclosures on mortgages caused nearly six thousand estates to come up for sale. Buyers, however, were few.17 The London Times called the Russian failure the “great stagnation.”18 It was a portent of things to come.

The novelist Victor Hugo predicted the failure of the liberal revolution in Europe, noting that, like the Russian banking boom, it was built on promises that could not be fulfilled. Ridiculing the exploits of France’s Louis Napoleon, who sought to ape the first Napoleon, he wrote, “The toadstool sprouts at the foot of the oak, but it is not the oak.”19 Louis Napoleon’s building was based on no real capital, Hugo asserted. The toadstool growth of the founder period could not last. May 9, 1873, the day of Anton Cermak’s birth, became noteworthy for the events of the afternoon. In the morning, news arrived that the stocks and bonds of one hundred insolvent investors would be sold on the Vienna Stock Exchange to cover their debts. Prices wobbled in the morning and crashed in the afternoon.20

By midday on Anton’s birthday traders were crowding the Ringstrasse outside the Vienna Stock Exchange, shouting to sell off thousands of shares in public railways and banks. One bondholder grabbed a well-known financier by the throat, demanding his money. Late in the afternoon, after a few such scuffles, the exchange stopped all trading.21 Thereafter, Anton’s birthday would be known throughout Europe as Black Friday.

The Krach, or crash, of 1873 caused a money crunch that would make the Vienna Exposition an object of ridicule.

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