(Pall Mall Gazette, May 19, 1873)
SOME time ago, writing on the financial prospects of Europe in general, we pointed out the probability that sooner or later we should witness an international crisis. We argued that panics in future were likely to be indefinitely aggravated, since speculations were no longer concentrated in great measure on the London Stock Exchange and the Paris Bourse; that countries that had no experience of heavy losses would be very apt to lose their heads altogether when they began to lose their money at all. We called especial attention to the circumstance that speculation had extended itself in Vienna and Berlin among new classes of capitalists, who had been used to save and hoard, and who had only ventured their economies in what they fancied to be certainties. We went on to predict that a convulsion in any of the older money markets would create panic among inexperienced speculators who had hitherto been “playing on velvet” and quietly counting their gains. The recent events on the Vienna Exchange seem to supply an illustration of the truth of our forebodings. In that city a week ago there was the most utter demoralization. Speculative stocks might have been had for anything, had there been any market at all for them. It was the safety of panic-stricken holders, eager in their competition to realize at any price, that no one was bold enough to buy and hold on. The journals wrote as if the end of all things was at hand; and a night’s melancholy reflection produced more gloomy articles in the morning. Baron ROTHSCHILD and some other leading capitalists were mobbed and threatened on the Burse. The panic was unmistakable; but the question that puzzled those who should have been best informed was, What originated it ? It is true that people had foreseen a reaction from the recent inflation of prices and from the extraordinary flush of speculative credit; but then a reaction has generally some immediate cause which is tolerably intelligible. It was not, perhaps the thunderstorm breaking out of an absolutely cloudless sky, for uneasiness had vaguely prevailed for a day or two before. But the only obvious and tangible reason for what can only be characterized as an absolute collapse of credit for the moment was the stoppage of a house not of first-rate importance and the throwing of a good deal of dubious paper on the market. Yet the paper, such as it was, would scarcely have been called in question before the depreciation of credit set in. Our present object is to illustrate the new danger introduced into speculation by the North Germans and the Austrians having taken their money out of their savings banks and their cupboards to stake it freely on what after all are games of hazard. As a help to comprehending the morbid sensitiveness of Vienna–which is a grand manufactory of kites and accommodation paper-we may try to imagine the effect of a similar incident on our own Stock Exchange. Conceive the sudden stoppage of one of our third-rate joint- stock banks while everything was going prosperously in general or the fact that a venturesome stockjobber had been compelled to throw a quantity of Spanish bonds or Credit shares on the market, materially depreciating the funds and the stock of the Bank of England, and rendering practically unsaleable the property in every private enterprise in any degree based upon credit! The thing is inconceivable; and it is not surprising that the Viennese journalists were at a loss to suggest the true causes of the panic. To outsiders the causes seem plain enough, and we think we indicated them beforehand some time ago. The Viennese, until very lately, had no idea of any kind of speculation, even in the most legitimate sense of the word. Of a sudden, as Liberalism began to dominate in politics, and as peace was patched up between the inharmonious sections of the empire, Austrians, Hungarians, and Czechs became alive to the vast latent resources of their country. As they broke out into the field of enterprise, they began dimly to realize its extent. The original shareholders in the sounder schemes, which were chiefly promoted by foreign capital, began to grow rich. Banks like the Anglo-Austrian paid handsome dividends and commanded large premiums. Irrigation schemes, roads, railways, canals, stimulated business and created wealth that flowed largely into the purses of the proprietors. The contagion of money-getting spread down through the middle classes. Countries which have been most used to hoarding can least resist the fascination of following the example of their neighbours in turning over their money to a great profit. A new mania broke out as fortunes were being made, and profit sought new outlets for enterprise. Works in the country which were comparatively safe in any case were exchanged for those building operations in the cities which have been extending so fast that their prudence has been becoming yearly more questionable. No doubt the jobbers in buildings have made much money hitherto. Prices of house property have been steadily on the rise, and in more than one instance the builder of a single sumptuous mansion in one of the “Rings” has made a profit of seven or eight thousand pounds in the course of a year or two. But to any one who knew the Vienna of half a dozen years since it has been a standing puzzle whence the population came who pay the fancy rents for houses and apartments in the new quarters which are springing up everywhere. The panic of last week goes some way towards answering the question. Vienna was living on gambling gains, and builders were drawing bills on the expectant prosperity of the future, as English Chancellors of the Exchequer reckon-with more justice- upon the elasticity of our revenues. It was the new building companies that went with a crash the other day, threatening to bury everything else in their ruins. One or two of them came to the ground altogether. The shares of others were depreciated in four-and-twenty hours 20, 30, 50 per cent. It became evident that if the recent rush of prosperity began to turn at all, it was likely to ebb with tremendous violence, and leave the leading speculators high and dry and helpless. It is scarcely a secret that some of the best known financiers of Austria have gone so deep into stone and lime and building operations generally that in the event of a crash they are likely to be crippled, their great resources notwithstanding. It is more than probable that these shrewd and experienced men may take warning, get rid of their illusions, cut short their losses, and extricate themselves on comparatively favourable terms. So much the worse for the weaker and more innocent investors, who have never been forced to part with any of their hard-earned money before, and who are sure to hold on to it desperately in the hope of a recovery. For it is scarcely to be doubted that this is only the precursor of a series of shocks, even supposing Vienna to be left in quiet isolation and things to be allowed to follow their natural course. But it is more likely that the natural cycle of events in Austria, and especially in over-built Vienna, will be anticipated or precipitated by a shock communicated from abroad. Viennese credit extends its roots and its fibres everywhere; and its roots strike scarcely beneath the surface. Much of its credit is tender at best, and any serious disturbance in London or Paris, in Frankfort or Berlin, would be fatal to it. This time the Viennese have been saved, by means which suggest a primitive state of finance, but which would be altogether impossible of application were risks more real or “commitments” more grave. The Finance Minister held consultations with the Committee of the Exchange. The Government authorities were appealed to, and arranged with some of the leading banks and credit establishments to provide a fund of fourteen millions of florins, to be advanced on securities that were temporarily depreciated, and could only be negotiated on ruinous terms in the open market. Certain great banking houses and dealers on the Exchange formed themselves into a combination, and agreed to receive the shares and stocks of defaulters at a fixed tariff, in order to obviate the necessity for flooding the market with unsaleable stock. It was decided to communicate at once with the Hungarian Government with regard to a temporary modification and suspension of the Bank Act. Thanks to these most exceptional measures, the crisis has been tided over, and it may be hoped that men’s minds may have time to calm themselves. But it must be remembered that it is only a passing squall which has ruined so many people who were supposed to be prosperous, and which has frightened the Government and the magnates of finance into suspending Acts of the Reichsrath and violating all ordinary rules of business.
So what?
Why is this article important for our Huelva Chronicles?
The Vienna stock market crash occurred on May 9, 1873—a day known as “Black Friday.” This event triggered the Long Depression, a period of economic stagnation across Europe and North America that lasted for the next two decades. Of particular interest to the Huelva Chronicles is that this financial turmoil served as the backdrop for the Rio Tinto prospectus. Issued on July 8, 1873, the prospectus was a bold move to raise £2,000,000 in capital despite the crumbling global markets.
