Letter to Friedrich Engels, December 25, 1857

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To Engels in Manchester

[London,] 25 December 1857

Dear Frederick,

Since our first task now is to get a clear idea of conditions in France, I have been re-examining all my extracts on French commerce, industry and crises and reached certain conclusions which I shall briefly outline for you:

1. English, North European and American crises have never directly given rise in France to a ‘French crisis'; rather the effects have been entirely passive — chronic distress, limitation of production, stagnation of trade, and general uneasiness. The reason: France has a favourable balance of trade with the United States, the Hanseatic towns, England, Denmark. With Sweden and Norway the balance is unfavourable, but this is more than offset by Hamburg. Consequently these crises can never generate a drain of bullion from France and hence will not create a properly so-called monetary panic there. If the Bank, notwithstanding, increases the bank rate, as has happened this time, it does so merely to prevent the capitalists from placing their money more advantageously in those countries. But so long as the export of bullion is the inevitable consequence, not of the balance of trade but simply of the avarice of the profitmongers, it can, as Bonaparte has now once more demonstrated, be stopped by the gendarmerie. If the country with the favourable balance of trade has not granted long-term credits or accumulated produce for the export to the centres of the crises — and both are repugnant to the pedlar — like nature of your French manufacturer and merchant — it will have to endure losses, etc., but not an acute crisis. Louis Philippe, too, was misled by the apparent good fortune with which France emerges from the first phase of a general crisis. In his inaugural address before the Chambers on the eve of the February revolution, he congratulated ‘la belle France’ upon this privilege.

2. Admitting all this, the first phase of the crisis has already affected French industry and commerce more seriously than on any similar occasion in the past.

3. In France the first effect of the crisis — agreeable to the nature of the crapaud — is the timorous curtailment of expenditure and business. Hence an accumulation of money in the Bank of France coinciding with a huge drop in the circulation of bank discounts. Hence — owing to the circumstance that crises always happen in the autumn and that every French government fears political disturbances at the year’s end should the bank rate be high at the settlement of accounts — reduction of the bank rate in December. In December 1847 Louis Philippe ordered the Bank to reduce the bank rate to 4%.

4. The greater availability of capital in commerce and industry simultaneously gives rise to greater buoyancy on the Bourse. This has been the case under Boustrapa to an even greater extent than under Louis Philippe because he compelled the Bank by the Decree of 1852 to make advances on railway securities and fonds and Crédit foncier papiers, to rediscount the speculative bills discounted by the Comptoir National d'escompte, and likewise to make him a further advance on the securities on which that institution had made advances already. Hence, e.g. the high price of French railway shares and bonds although the receipts of the French railways since the outbreak of the crises in England have fallen disproportionately more than those over here. E.g. Orleans Railway receipts dropped by 24% between 29 October and 26 November and subsequently even further. Nevertheless on 22 December Orleans Railway was quoted at 1,355 whereas on 29 October it was at 2,985. It also emerges from the monthly report of the Bank Of France for December that, while Discounts in December have dropped by 94,236,520 frs compared with October and 49,955,500 compared with November, advances on railway securities have risen.

5. The French crisis proper does not break out until the general crisis has attained a certain level in Holland, Belgium, the Zollverein, Italy (including Trieste), the Levant and Russia (Odessa), because in these countries the balance of trade is distinctly unfavourable to France; hence the direct effect of pressure is monetary panic in France. Once it has hit France, it recoils on those countries d'une manure vraiment admirable. With Switzerland, France is on the same footing as the United States with England. The short-term balance of trade is consistently in France’s favour. But since France is substantially in debt to Switzerland, the latter is always apt heavily to draw upon it in times of crisis.

6. When the French crisis proper breaks out, it will play the very devil both with the security market and the security of that market, the State. (This will also tell upon England, which at the present moment is again gambling in foreign securities in a manner splendid to behold.) The swindling, which in Hamburg, England, the United States has been the province of private capitalists, is practised in France by the State itself, and the French pedlars in trade were all of them gamblers on the Bourse. The recoil from the Anglo-American crisis sufficed to bring the railways to a deadlock. What does Mr Bonaparte do? Compels the Bank to become in fact a railway contractor and to make advances to the fellows on the bonds they were authorised to issue by the settlement of 30 November 1856. In 1858 these bonds will run to about £9 million. Thus the Crédit mobilier, which on 3 December was up to its ears in trouble, is preparing to amalgamate with the Crédit foncier and the Comptoir National d'escompte. Why? Because both the latter are legally entitled to receive advances from the Bank on their securities and to have. their discounts rediscounted. So Boustrapa’s plan is clear, namely to make the Bank Of France the entrepreneur for all his fraudulent schemes with the help, not of its own capital, but of the capital which it has merely on deposit and which will drain away on the first signal given in the neighbouring countries, in fact, this is also an admirable way of ruining the Bank. However it would hardly occur even to Mr Bona to have the calls of the shareholders paid by the Bank Of France. In 1858 these calls will amount to over £10 million for French railways alone under the settlement of 30 November 1856. They will run to at least £30 million for the host of speculative concerns such as the Merchantile and Industrial Co of Madrid (Rothschilds), the French-American Shipping Company, the Victor Emmanuel Railway, Herserange Ironworks Co., Austrian Railways, Saragossa Co., French-Swiss Railway, Lausanne.-Fribiurg Railway, Nassau Company, Société Générale des Tanneries, Compagnic de la Carbonisation des Houilles, Chimay to Marienbourg Railway, Lombard-Venetian Railway, South American Steam Navigation Co., etc. The French haven’t an earthly hope of paying these calls. Moreover the Germans, Hollanders, Swiss, the large holders of French securities, will sell them at any price on the Paris Bourse at the first sign of serious alarm, be it in France or due to pressure at home. So it seems that Boustrapa will hardly be able to extricate himself in 1858 unless he holds out for a bit longer with the help of martial law and assignats. The whole rotten old structure is falling to pieces and the ludicrously rash surge hitherto manifested by the security market in England, etc., will likewise end in disaster.

Salut.

Your
K. M.

Pieper arrived today on a visit.

As regards the Comptoir National d'escompte de Paris be it also noted that this institution, which was set up by the provisional government for the purpose of making bills discountable on the basis of only two signatures and similar less stringent requirements, was empowered by Boustrapa in 1851, only a day or two after the coup d'état, to make advances on Rentes Françaises, les actions et obligations industrielles ou de crédit constitutes en sociétés anonymes. Advances on these securities amounted to £940,000 in 1854/55 and nearly £1,500,000 in 1855/56. Moreover, in 1851 it was given the right to establish un ‘Sous Comptoir des Chemins de Fer’, whose sole business was to make advances on railway shares and bonds. At the end of June 1852 its advances were £520,000, at the end of 1852 £1,240,000, 1852/53 — £3,600,000; at the end of 1854: £4,560,000, i.e. about 9 x the advances in 1851. It’s the same delectable business that broke the neck of the Scotch Exchange Banks in 1846/47.

• Has Dr Borchardt not yet suspended his payments?*

I trust you won’t go out tippling too much during the holiday and these exciting times in Manchester and that you'll pay due attention to your health. Warmest regards to Lupus.

What is ‘Friend Charley’ about? and Old Hill?