Last week the eyes of the world’s money changers were fixed upon the baroque façade of a four-story building in the Rue de la Vrillière in Paris. There behind the portals of the Bank of France was the solid centre of another of those swirling convulsions in French finance which off and on for years have threatened to dislodge the franc from gold. This time it looked as if the perennial prophets of the franc’s doom might at last be right. By ship, plane and train gold was pouring out of France in huge daily shipments, which have depleted that country’s gold stocks by $200,000,000 in the past fortnight, by about $500,000,000 in the past year. These sums did not represent withdrawals of foreign balances in French banks. That type of skittish liquid capital has long since sought other havens, notably London and Manhattan. French capitalists themselves were converting their wealth into gold, sending it out of the land before the new Chamber of Deputies with its heavy Leftist majority assembles next month (TIME, May 11).
Meantime the lame-duck Sarraut Government lashed about for foreign exchange speculators to tag as franc raiders, expelled one luckless Pole from the country as an example, discussed innumerable measures for the “defense” of the franc, hoped it could pass on to the incoming “Popular Front” the unpleasant task of actual devaluation. Cried Finance Minister Marcel Régnier: “So long as I am Finance Minister there will be no measures restricting the gold standard. . . . We have ample reserves for our defense and the Bank of France possesses every means of action needed.”
Principal action taken by the Bank of France last week was to boost the rediscount rate from 5% to 6%, the normal central banking method of inducing capi tal to remain in a country. But the flight from the franc continued.
As the week went on it became apparent that a good part of the fear was generated no less by the actual victory of the Popular Front than by the uproarious Rightist press, whose dire predictions on the future of France could be compared in the U. S., perhaps, to a session of the National Association of Manufacturers under the New Deal. In France, however, these die-hard fulminations were taken seriously, with the result that the Paris Bourse was in a near-panic.
Indeed, Premier Albert Sarraut called for reassurances from Leon Blum, millionaire Socialist leader of the Popular Front. Professing surprise that uncertainty surrounded his program, that cultured old Jew announced: “The entire efforts of the Popular Front aim at reviving all the sources of national activity. And such revival is impossible without large confidence from the country itself. Therefore, we would be going directly against our own aims were we to precipitate disorders and tumult.”
After a week-end caucus it was as clear as anything ever is in French politics that Socialist Blum would head the incoming Popular Front Government. In a speech to his followers which sounded not unlike President Roosevelt’s inaugural in 1933, he declared: “In a battle like the one in front of us now a chief is needed. He must have full power. . . . Let us be wise, but let us be bold.” As to financial crisis, M. Blum declared: “It is not so serious as war, unemployment or misery.” And he referred to devaluation as something “to which we always have been and to which we remain resolutely hostile.”
On the strength of that statement the franc rallied sharply at the beginning of this week, and stocks on the Bourse bounded up. Nevertheless, devaluation of the franc is implicit in any French New Deal. French foreign trade and, politically more important, French tourist trade have suffered woefully from devotion to gold. Having taken a 79% devaluation in 1928 and endured the preceding inflation, the French people, particularly its millions of small investors, hate & fear the idea of currency tampering. Lately, however, Jean Frenchman has begun to feel the terrible grind of deflation, and a shot in the economic arm, if reasonably successful, might be forgotten as quickly as dollar devaluation was forgotten in the U. S.
Except in luxury lines like lace, perfume, hosiery, jewelry, most U. S. businessmen would have only academic interest in devaluation of the franc unless Britain deliberately pushed down the pound, perhaps leading in turn to another cut in the dollar. Consensus was that no such cycle would follow, that in world conditions recovery in France would more than offset the temporary confusion caused by a franc cut loose from gold.
The one feature of the Popular Front program that stirred the most alarm was a vague proposal to nationalize the Bank of France. Founded in 1800 by Napoleon, the Bank of France is not only a sacred symbol of French capitalism; it is to an astonishing degree French capitalism itself. It is a private institution owned by more than 40,000 stockholders. Yet it holds all of France’s enormous gold hoard except that privately stored in mattresses and old socks. The French Government owns not a centime of monetary metal. The Bank of France has the sole privilege of issuing bank notes, banks the Government’s money, is always one of the biggest creditors of the French Govern ment and has the power, often used, of shutting off Government credit when it does not like the Government’s policies. Unlike Federal Reserve Banks, which are bankers’ banks, the Bank of France also does a regular commercial business, with 20 offices in Paris, 159 in the provinces. 84 auxiliary branches and 399 circuit offices opened when enough business accumulates in those particular communities. It makes money good years and bad, pays steady dividends on its 183,500 shares of stock and is completely dominated by a small group of great French bankers and industrialists.
This control is perpetuated by as neat a charter as lawyers ever drew. Only the 200 largest stockholders are allowed to vote at annual meetings. The rest, mostly small investors with one or two shares, have no voice in the bank’s management at all. With only one vote, regardless of the number of shares owned, the first 200 stockholders represent virtually all the great French families, both the old aristocracy and the middle class that rose under Napoleon. These 200 “Families of France” elect representatives who sit in the Council of Regents of the Bank of France and run the tightest oligarchy in the world today.
In U. S. terms a regent of the Bank of France would be a Morgan partner, a du Pont and a working Vanderbilt all rolled into one. Six of the 15 elected regents are private bankers. Baron Hottinguer’s banking family has had a mem ber in the Council of Regents since 1803. Ernest Mallet is the thirteenth regent of that family. Most famed banker in the Council is Baron Edouard de Rothschild. There has been a regent named Rothschild since 1855. A familiar figure in the best Parisian clubs and salons, a breeder and racer of horses, president of the great privately-owned Nord Railway, Baron Edouard de Rothschild is the symbolic punching bag for all good French demagogs.
The industrial element of the Council of Regents has a strong chemical flavor, but over them all looms Frangois de Wendel, President of the Comité des Forges, Senator from Moselle, owner of the Journal des Débats and part owner of Le Temps, a traditional mouthpiece of the French Government. For rabble-rousing purposes, Frangois de Wendel serves as an even better symbol than Baron de Rothschild, for he speaks for the greatest armorers in France (TIME, March 5, 1934)
For these masters of France the weekly meetings of the Council of Regents is just one more place to discuss their problems. By twos and threes they sit on the boards of big corporations that account for more than one-half of all French industry. Because they are Central bankers as well as private bankers and industrialists, their power over French economics is enormous. The Governor General of the Bank of France and his two assistants, Government appointees, have never been able to thwart the will of the other regents elected by the 200 “Families of France.” Even the three regents elected primarily to guard the Government’s money are chosen by these same families.
The present Governor, Jean Samson Tannery, an erudite, book-collecting, ambitious fiscal expert trained in the Finance Ministry, was appointed early in 1935 to introduce some liberal light to the Council of Regents. The only light Governor Tannery was able to let in was by having the traditional heavy double drapes removed from the Bank’s windows. A few months after he took office the regents deliberately upset the mildly-reflationist Government of Pierre Etienne Flandin by shutting off Government credit at an embarrassing moment, thereby stimulating another flight from the franc. No steps were taken to halt the gold drain until M. Flandin capitulated to the Bank of France, thereby cooking his political goose. Thereupon Pierre Laval took office with a deflationary program dictated by François de Wendel and his fellow regents, and the Bank promptly offered special rediscount rates for Government paper.
The regents can, and often do, take care of onetime governors with soft jobs in their banks or corporations, notably the Compagnie Universelle du Canal Maritime de Suez, favorite sinecure for loyal politicians. Another thing that tends to weaken the resistance of governors is the fact that many of them have to borrow money to buy their 100 qualifying shares. In boom days 100 shares of Bank of France stock was worth, at present parity, more than $150,000 and last week, after a 50% decline in the past year, more than $30,000. The regents or their banks are only too willing to lend a governor the sum he needs.
Whether Socialist Blum can break the power of the Bank of France is open to serious question. It is even questionable whether the average Frenchman wants to see it broken. What the discontented Frenchman really wants is to be cut into the game, and the Popular Front may be able to do that by reforming the charter to the extent that small stockholders get a voice in the Bank’s management, and the Government some co-operation in its fiscal policies.
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