Product Overview

On March 15, 1848, the governor of the Bank of France, Antoine d'Argout, faced the potential collapse of his institution. A cascade of agricultural and industrial shocks, rising food prices, spikes in unemployment, and currency outflows struck at the heart of the French economy. At the same time, France, and Europe more broadly, had dissolved into armed revolution. The French king's abdication in February, alongside the already teetering financial system, resulted in massive bank runs that toppled a substantial part of the Paris banking system. Dramatic monetary contraction and the collapse of credit markets choked off sources of economic growth. Across Europe, proposals for action polarized three broad coalitions—liberals, radicals, and conservatives—each of which differed about the pace and extent of democratization. With the provisional French government lacking legitimacy and even facing bankruptcy, a state bailout seemed unlikely. Faced with the threat of financial collapse and anarchy in the streets, d'Argout contemplated the situation. What had caused the crisis at the Bank of France and in the French economy? What was the connection between financial and societal distress, and could they be treated separately? How would conservative, liberal, and radical advisers interpret the crisis and suggest remedies? Given this analysis, how should d'Argout try to save his bank? Would tactical reforms save the Bank, or should d'Argout make wholesale changes? The tasks for students are to plot the causes and course of the crisis and to consider the difficult policy tradeoffs.

Learning Objectives

1) Survey the history of the financial crisis of 1848, and its relation to the revolutions of that year. 2) Consider the impact of monetary reform as a policy response to financial and civic crisis. This case documents the rise of the Bank of France as the nation's central bank, and of its banknotes as the official paper currency of the country. In addition, this is an early instance of intervention by a central bank as the lender of last resort. 3) Profile the main ideological positions of actors during the crisis, and relate those positions to propose remedies for the crisis. 4) Understand the symbiotic relationship between social and financial crises. While this relationship is complex, this case presents a clear situation in which social unrest and political instability did not simply follow the financial meltdown but rather sparked and fueled the crisis itself. 5) Assess the thesis of Daron Acemoglu and James A. Robinson that liberal institutions act as shock absorbers in crisis. When used in combination with "The Financial Crisis of 1847 (A) and (B)" (UVA-F-1930 and UVA-F-1931), this case on the revolutions of 1848 confronts students with the question of why revolution came to France and other nations on the European continent but not to Britain.