Carroll Quigley - Tragedy and Hope - A History of the World in Our Time

The loss of political influence by the heavy industrialists after 1871 reduced their profits, and drove them to ally with the Catholic bankers. Thus, the struggle between financial capitalism and monopoly capitalism which appeared in most countries was replaced in France by a clash between two economic blocs, both of which were interested in both industry and banking and neither of which was prepared to accept the unorthodox banking procedures which become one of the chief goals of monopoly capitalism. As a result, monopoly capitalism appeared late in France and, when it did, arose between the two great blocs, with ramifications in both, but largely autonomous from the central control of either. This new autonomous and rather amorphous group which reflected the rise of monopoly capitalism may be called the Lille-Lyons Axis. It rose slowly after 1924, and took over the control of France after the defeat of 1940.

The rise of financial capitalism in France, as elsewhere, was made possible by the demand for capital for railroad building. The establishment of the Crédit Mobilier in 1852 (with 60 million francs in assets) may be taken as the opening date for French financial capitalism. This bank was the model for the credit banks established in Germany later, and, like them, conducted a mixed business of savings accounts, commercial credit, and investment banking. The Crédit Mobilier failed in 1867, but others were founded afterward, some mixed, others more specialized on the British or American pattern.

Once begun, financial capitalism in France displayed the same excesses as elsewhere. In France these were worse than those in Britain or Germany (after the reforms of 1884), although they were not to be compared with the excesses of frenzy and fraud displayed in the United States. In France, as in Britain, the chief exploits of financial capitalism in the nineteenth century were to be found in the foreign field, and in government rather than in business securities. The worst periods of delirium were in the early 1850’s, again in the early 1880’s, and again in much of the twentieth century. In one year of the first period (July 1, 1854 to July 1, 1855) no less than 457 new companies with combined capital of 1 billion francs were founded in France. The losses to security buyers were so great that on March 9, 1856, the government had to prohibit temporarily any further issue of securities in Paris. Again in the period 1876 to 1882 over 1 billion francs of new stocks were issued, leading to a crash in 1882. And finally, in the whole period 1900-1936, financial capitalism was clearly in control in France. In 1929 a Paris newspaper estimated that in a period of thirty years (from the Humbert embezzlement of 1899) more than 300 billion francs (equivalent to the total public and private debt of France in 1929) had been taken from the French people by worthless securities.

The center of the French economic system in the twentieth century was not to be found, as some have believed, in the Bank of France, but, instead, resided in a group of almost unknown institutions—the private banks. There were over a hundred of these private banks, but only about a score were of significance, and even in this restricted group two (Rothschild and Mirabaud) were more powerful than all the others combined. These private banks were known as the Haute Banque, and acted as the High Command of the French economic system. Their stock was closely held in the hands of about forty families, and they issued no reports on their financial activities. They were, with a few exceptions, the same private banks which had set up the Bank of France. They were divided into a group of seven Jewish banks (Rothschild, Stern, Cahen d’Anvers, Propper, Lazard, Spitzer, and Worms), a group of seven Protestant banks (Mallet, Mirabaud, Heine, Neuflize, Hottinguer, Odier, and Vernes), and a group of five Catholic banks (Davillier, Lubersac, Lehideux, Goudchaux, and Demachy). By the twentieth century the basic fissure to which we have referred had appeared between the Jews and the Protestants, and the Catholic group had split to ally itself either with the Jews or with the forces of monopolistic heavy industry. None the less, the various groups continued to cooperate in the management of the Bank of France.

The Bank of France was not the center of French financial capitalism except nominally, and possessed no autonomous power of its own. It was controlled until 1936, as it had been in 1813, by the handful of private banks which created it, except that in the twentieth century some of these were closely allied with an equally small but more amorphous group of industrialists. In spite of the fissure, the two blocs cooperated with each other in their management of this important instrument of their power.

The Bank of France was controlled by the forty families (not two hundred, as frequently stated) because of the provision in the bank’s charter that only the 200 largest stockholders were entitled to vote for the members of the board of regents (the governing board of the bank). There were 182,500 shares of stock outstanding, each with face value of 1,000 francs but usually worth five or ten times that. In the twentieth century there were 30,000 to 40,000 stockholders. Of the 200 who could vote for the twelve elected regents, 78 were corporations or foundations and 122 were individuals. Both classes were dominated by the private banks, and had been for so long that the regents’ seats had become practically hereditary. The chief changes in the names of regents were caused by the growth of heavy industry and the transfer of seats through female lines. Three seats were held by the same families for well over a century. In the twentieth century the names of Rothschild, Mallet, Mirabaud, Neuflize, Davillier, Vernes, Hottinguer, and their relatives were consistently on the board of regents.

The Bank of France acted as a kind of general staff for the forty families which controlled the nineteen chief private banks. Little effort was made to influence affairs by the rediscount rate, and open-market operations were not used until 1938. The state was influenced by the Treasury’s need for funds from the Bank of France. Other banks were influenced by methods more exclusively French: by marriage alliances, by indirect bribery (that is, by control of well-paying sinecures in banking and industry), and by the complete dependence of French banks on the Bank of France in any crisis. This last arose from the fact that French banks did not emphasize gold reserves but instead regarded commercial paper as their chief reserve. In any crisis where this paper could not be liquidated fast enough, the banks resorted to the unlimited note-issuing power of the Bank of France.

In the third line of control of the French economy were the investment banks called “banques d’affaires.” These were dominated by two banks: the Banque de Paris et des Pays Bas set up by the Rothschild group in 1872 and the Banque de l’Union Parisienne founded by the rival bloc in 1904. These investment banks supplied long-term capital to industry, and took stock and directorships in return. Much of the stock was resold to the public, but the directorships were held indefinitely for control purposes. In 1931, Paribas held the securities of 357 corporations, and its own directors and top managers held 180 directorships in 120 of the more important of these. The control was frequently made easier by the use of nonvoting stock, multiple-voting stock, cooptative directorships, and other refinements of financial capitalism. For example, the General Wireless Company set up by Paribas distributed 200,000 shores of stock worth 500 francs a share. Of these, 181,818 shares, sold to the public, had one-tenth vote each while 18,182 shares, held by the insider group, had one vote each. A similar situation was to be found in Havas stock, also issued by Paribas.