Book Around the Corner

L’argent by Emile Zola. 1891. (Money).

Disclaimer: I have probably made mistakes on the business terms I use in this post. I had to check them in the dictionary and it can be perilous. Moreover, there are spoilers in this billet but I’m not sure it would really ruin the suspense of the book for someone who hasn’t read it.

As I mentioned in my previous entry about Money by Zola, I was engrossed by the business details described in the book and I wanted to research a little bit the laws for banking in the Second Empire. I’ve had trouble finding sources but I eventually found information on Wikipedia and stumbled across a very useful essay.

The underlying question was: is Zola accurate in his descriptions of the financial circles at the time or when he depicts of the speculation? The answer is yes. I’m not saying that he got all the details right, I don’t have time to check that thoroughly. From what I’ve read, I think he picked details in different episodes that occurred from 1850 until the time he wrote the novel and painted an accurate overall picture.

Why a volume about banking?

I’ve read that the 1850-1860s were the years of big changes in the banking world. Most of today’s French banks were founded at the time. With the development of railroad, steel industries and other industries requiring large funds to be launched, it appeared that the circulation of money wasn’t satisfactory. Before the Second Empire, banks were run by families upon their own fortune and they were responsible of the debts of the bank on their own money. In Great-Britain, the banking system had already gone through important changes (first “modern” bank in 1834) and the business circles in Paris wanted to do the same in France. In 1863, just a year before the story of Saccard starts, the regulation for founding a Société Anonyme (a Plc) became more flexible. As long as the capital wasn’t over 25 million Francs, you didn’t need a State authorization to found the bank. With a Société Anonyme, the shareholders of the company are no longer obliged to reimburse the losses on their own fortune. It’s not a surprise that the Banque Universelle starts with 25 million francs; Saccard doesn’t need a clearance from the government, and thus from his brother, the powerful Rougon, to start his bank.

Was the Société Anonyme of the 1860s very different from today’s?

I was very interested in the information Zola gives on the articles of incorporation of the Banque Universelle. Some regulations already existed but no controls were done and the rules were breached. For example, just as today, all shares must be subscribed to complete an increase in capital; a company isn’t allowed to own their own stock, the shares must be paid at least up to 25% at the moment of the subscription. (And, I guessed, the rest of the cash needed to be paid within 4 years.) This hasn’t changed. I thought the Board of Directors had too many members for proper governance. How do you run a company with a Board of 20 people? There was already a control of the accounts, done by two auditors.

Although the English word is auditor, it is clear in French (commissaires censeurs) that these two persons don’t have the same independence and the same right to investigate as today’s commissaires aux comptes. (also auditors). When I was reading, the structure of the 1864 Société Anonyme sounded familiar; there are more controls today and more regulations but the general framework is the same. The controls are more efficient, even if they aren’t perfect.

Saccard and the white collar crimes committed in Money.

A few weeks before reading Money, I attended a fascinating conference by a commissaire detached from the police force to the service of the AMF, the French SEC. He was presenting all the criminal offences a CFO could commit and well, Saccard made them all: bankruptcy, paper dividends, fraudulent financial statements, insider trading. He also explained how the AMF monitors stock exchanges to detect abnormal changes in stock market prices, sometimes leading to an investigation. Any time a big event is announced for a company (a merger for example), the AMF checks out the stock market price on the few days or weeks before the announcement. There is no such control in Money. The financial circles perfectly know that the stock market prices are manipulated. Big investors use the Bourse to fight personal battles and ruin companies. Investors also play for their own profit. The battle between bulls and bears at the Bourse really occurred in these years, causing havoc in the economy.

Money, the scandals at the Bourse and the collapse of the Union Générale in 1882

According to Wikipedia, the climate around banks was really the one described in Money. A Jules Mirès used the press to manipulate the opinion and attract investments on certain stock. The press was linked to the business circles in unethical ways. In Money, Saccard buys a newspaper and advertises a lot about the profits and the activity of the Banque Universelle. An Achille Fould who wasn’t on speaking terms with his brother, used his position as a minister to fight against the liberalization asked by the business circles. Saccard isn’t on speaking terms with Rougon, who is still in the government. Rougon takes the opportunity to kill Saccard when he has the chance.

The Union Générale was a Catholic bank founded in 1878 by Eugène Bontoux. It went bankrupt in 1882, it lasted four years, like the Banque Universelle in Money. The pope’s secretary was involved in the capital, it invested in North Africa and in Egypt. In Money, the Banque Universelle, a similar name to Union Générale, is close to Catholic investors. Saccard and Hamelin want the Banque Universelle to help settle the pope back in Jerusalem and meanwhile it invests in Turkey and Lebanon.

The value of the Union Générale grows until January 1882 when it collapsed. It came from an overcapitalization of the company, bad governance as the company owned their own shares and from a deadly fight between bulls and bears. Many small investors were involved through brokers and lost their fortunes. It generated a violent recession with social consequences. It’s exactly what happens in Money. Bontoux fled to Spain; Saccard immigrates to Holland. At the time, the opinion reacted strongly to this scandal because of the speculation that happened, the involvement of clergymen in the capital of the bank. It inspired Zola who had the genius to link the speculation on properties in the wake of the transformation of Paris by Haussmann to the speculation on stock markets. Saccard is the link as he is a participant in both frenzies. It shows an atmosphere of thirst for money that was, from what I read, a reality in those years.

Money and the anti-Semitism

Money was published before the Dreyfus Affair started and we all know what role Zola played in it. Zola already describes the rampant anti-Semitism of the business circles, especially in the bank industry. I was ill-at-ease when I read Saccard’s outbursts against Jewish bankers. Sadly, it appears it was accurate; Catholic bankers made a point to fight against Jewish ones. The roots for the Dreyfus Affair are there and it confirms what Proust depicts in In Search of Lost Time. It grows slowly but strongly; it shows that Vichy could happen because there were strong roots for anti-Semitism before the war.

The little research I’ve done proves that Zola is accurate in the description of the events, of the climate of that time. I found Money fascinating because it’s really the creation of modern capitalism. I have to say I’m not satisfied with this billet because I would have liked to dig a little bit more. I don’t have time for this, unfortunately. So it goes.