Founders' crash

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A bank run in New York in 1873

The stock market crash of 1873 is called the founder crash , specifically the collapse of the financial markets . This stock market crash, which affected Austria-Hungary more than Germany, ended the founding period in the sense of a phase of speculative company start-ups. This was preceded by an overheating of the economy, which had been favored by various factors - in Germany above all by the won war against France in 1870/1871 , the resulting reparations from France and the establishment of an empire .

The subsequent deflationary phase is known as the founder crisis . The economies of the industrializing countries entered a phase of slowed growth and deflation that lasted into the 1890s. Economic theorists of the 1920s coined the term " Great Depression " for it.

The Vienna stock market crash of 1873

Euphoria before the world exhibition

The start-up crash in Austria-Hungary started with the Vienna stock market crash. Although the end of rapprochement with the German Customs Union and the silver backing of the Austrian guilder put a strain on the Austrian economy, Austria recovered economically from the defeat in the German war , and the economy quickly grew again, combined with a great euphoria for progress. This fueled the planning of the world exhibition , which opened on May 1, 1873 in Vienna. Seven years after the defeat of Königgrätz, the German Empire wanted to present itself internationally as a progressive country with a strong economy, for which no expense or effort was spared. The press was required to report only positively in the run-up to the world exhibition, and the government's policy at this time was characterized by a decidedly liberal attitude ( laissez-faire ) towards the newly established banks and industrial companies. Only when there were major scandals were timid intervention in the economy. In 1872, for example, the kk priv. Lemberg-Chernivtsi-Jassy railway company was placed under state trustee after intolerable defects and railway accidents.

Speculative bubble

Due to the prevailing optimism, which went hand in hand with general carelessness and government reluctance to forego regulation ( laissez-faire ), a large speculative bubble arose. In the months before the world exhibition, share prices on the Vienna Stock Exchange rose to astronomical heights. Real estate prices in Vienna and other cities of the Habsburg monarchy also rose . To finance construction projects, mortgage banks recklessly issued Pfandbriefe , which often only served as collateral with half-finished houses, and later only planned houses. At that time, shares could already be acquired by depositing a partial amount (now called margin ), with the remaining amount being paid later. Even people with poor liquidity were able to build up large equity positions in this way; in the end, the assumption was that prices would rise steadily. The remaining purchase price due later should be paid from the expected price gains.

The influx of German capital further heated up the Vienna Stock Exchange. In the newly founded German Reich, the French reparation payments were mainly used by the Bismarck government to repay government bonds. As a result, private investors had to look for other, riskier forms of investment. The Frankfurt stock exchange, which was mainly focused on bonds, increasingly lost its importance in these years, and German private capital flowed to Vienna. Even then, the larger share values ​​(today one would say standard values ) were listed on several stock exchanges. The introduction of telegraphy enabled the exchange rates and purchase orders to be transmitted quickly between these trading venues, and so, for example, the kk privileged Österreichische Credit-Anstalt für Handel und Gewerbe , the kk privilegierte Österreichische Staatseisenbahn-Gesellschaft and the Vereinigte Südösterreichische, Lombardische und Central-Italienische Railway company not only in Vienna, but also in Berlin , Frankfurt and Paris , the latter also traded in London .

The economic optimism of the time and the prospect of quick profits mingled into a fateful start-up fever. Almost all areas of the economy developed brisk start-up activity. This also applied to financial services. For example, while in 1867 there were only eleven joint stock banks, including the National Bank , in the Austrian half of the empire , the number rose to 141 by May 1873. The so-called broker banks were mostly speculative and swindle banks, which Eduard März described as "the very own children of the new founding period ".

Black Friday

Black Friday on the Vienna Stock Exchange, May 9, 1873

On May 1, 1873, Emperor Franz Joseph I opened the world exhibition with the words that “Austria-Hungary was enjoying a positive upswing in all directions”. At that time, the speculative bubble was already bursting. Shortly before that, the largest bank, the kk privileged Österreichische Kredit-Anstalt für Handel und Gewerbe , had canceled all stock exchange accounts because of rumors of an impending stock exchange panic in Paris, restricted its overdrafts and sold bonds worth 20 million guilders . This led to falling exchange rates and liquidity bottlenecks, especially at the broker banks.

In the morning hours of May 9, 1873 the dam broke. The first to announce his insolvency was Adolf Petschek , who was known as the “king of brokerage”. The bankruptcy of his bank and commission house forced the temporary suspension of stock market trading and gave the signal for a general collapse. That same morning, 120 more bank insolvencies followed. The police closed the exchange at 1 p.m. This day also went down in the history of the Vienna Stock Exchange as “ Black Friday ”.

Expansion of the crisis

Then a prolongation crisis set in , which means that short-term loans were no longer extended, which made other investors insolvent. More and more investors and bank customers became suspicious, sold their securities and "cleared their accounts" for fear of losing value. As a result, a lot of money was withdrawn from the capital market, which spread the crisis to more and more European and US stock exchanges .

On September 19, 1873, the crisis reached New York, where the bankruptcy of the banking house Jay Cooke & Company, which invested primarily in railways and real estate, caused panic. The New York Stock Exchange then closed for the first time in its history - until September 29th.

In October 1873, when the Quistorp'sche Vereinsbank collapsed , Berlin was also affected. As a result, other stock exchange, stock and speculative companies collapsed. At the same time the last war contribution from France was made to Germany . This type of source of capital was therefore not available for German industry in the future.

In Austria-Hungary, a large part of the banks and around half of the joint-stock companies founded in the years before disappeared due to the founder crash.

An economic crisis followed. At the end of 1873, the interest on loans rose sharply, which put railway companies in particular trouble. Production fell in industry, there were extensive layoffs and wage cuts. There was a general decline in demand, purchasing power, consumption, investment and prices ( deflation ). The market value of 444 German stock corporations fell from December 1872 to December 1874 by about two billion marks . Revelation oaths , suicides and family tragedies increased.

From today's perspective, the “start-up crisis” is seen as stagnation and not as a depression , since during this time the growth rates - which had been excessive in previous years - were evened out. The entire period from approx. 1873–1890 was not, as many contemporaries perceived, a great depression, but rather a time of fluctuating economic growth . The immediate crisis lasted about four years in the US and six in the European countries affected. From 1879 there was again slight economic growth.

Founding years and deflation in Germany

The period from 1870 onwards in Germany was marked by the establishment of numerous companies and, in particular, stock corporations , the strong expansion of industrial production and the expansion of the railway network , which in the German Empire was largely operated by the railway pioneer Bethel Henry Strousberg . This growth was caused by several factors and favored by a general euphoria in connection with the establishment of an empire.

French reparations payments

One factor was the victory in the Franco-Prussian War , which had a number of effects. Initially, through the Peace of Frankfurt, French reparations payments of about five billion francs (which corresponded to about 4.5 billion marks) flowed to Germany, of which about 2.5 to 3 billion francs went directly to the German capital market (credit institutions and stock exchanges). This is often seen as one of the reasons for the overheating of the economy , which was rectified by the start-up crash. Hans-Ulrich Wehler emphasizes, however, that the effect of the reparations was primarily psychological. It had no great influence on the amount of money , which had already risen considerably since 1867, especially since a considerable part was reinvested as "war treasure" in the Juliusturm , used to cover the newly introduced mark or used to repay debt. In addition, the money was only fed into the German payment cycle relatively slowly, so that its effect in 1873 may even have been anti-cyclical , but without being able to stop the economic crisis.

Furthermore, during the wars of unification between 1864 and 1871, a large part of industrial production was oriented towards the war, so that civilian projects that were long overdue could now be implemented. The upswing only offset the decline in industrial production in previous years. The more intensive connection of most of the states of the German Customs Union through the establishment of the Reich also had a stimulating influence on the economic situation.

Upswing in public companies

Another reason for the economic growth was that in Germany in 1870 the license requirement for stock corporations was lifted and the establishment of companies was exempted from strict legal restrictions (see freedom of trade ). The result was the establishment of 928 joint stock companies in the period from 1871 to 1873 in the Kingdom of Prussia alone . As a result, more and more private capital was invested in the economy. 61 new banks were established. The economy grew rapidly; the prices of the shares also rose. This created confidence in the market and prompted more shareholders to buy shares.

Speculation and overproduction

At this point in time, the stock exchange became the scene of rampant speculation , with the increases in value also increasing the appetite for speculation. This led to the fact that the principles of serious financing were soon disregarded and long-term loans were also granted that were de facto financed by short-term capital and, as a result, no longer covered. In general, the naïve way of thinking was that banks could provide more and more capital. Many stocks were overvalued.

The consequences of the rapid economic growth were, among other things, overproduction and the creation of overcapacities that exceeded demand . From May 1873 the share prices fell.


The newly founded German Reich (in contrast to Austria-Hungary, for example) continued to benefit from the French reparations received, so that production continued to rise despite deflation .

Population, production, commercial value 1872 1878 modification
population 41,228,000 44,211,000 0+ 7.2%
Coal and ore mining [t] 49.904 58,288 + 16.8%
Commercial value of mine production [Mark] 415,668,000 324,267,000 -21.9%
Metallurgical production [t] 2,178 2,458 + 12.8%
Commercial value of smelter production [Mark] 314,814,000 224,879,000 -28.8%

Housing construction kept pace with rapid population growth. The later increase in dwellings per 1000 inhabitants is to be seen in connection with the decrease in the number of children.

Ten year comparisons 1871 1880 1890 1900 1910
Apartments 8,732 9,652 10,618 12,126 14,347
Apartment per 1000 inhabitants 213 214 215.6 218.7 322.2
Railway network [km] 21,482 33,838 41,818 49,878 59,013
Network growth [km / 10 years] 11,356 7,980 8,060 9,135

The transport infrastructure improved rapidly, and the German railway network experienced the largest annual growth in its history between 1872 and 1879.

Year comparisons 1871 1872 1873 1874 1875 1876 1877 1878 1879 1880 1881 1882 1883 1884 1885 1886 1887 1888 1889 1890
Railway lines [km] 21,482 22,437 23,901 25,498 27,981 29,316 30,729 31,504 33,322 33,838 34,382 35,081 35,993 36,779 37,572 37,967 39,082 40.008 40,920 41,818
annual growth [km] 955 1,464 1,587 2,487 2,335 1,413 1,787 1,818 514 544 701 912 786 793 395 1,115 926 912 898

As an expression of the favorable international economic situation, German emigration overseas decreased drastically.

Emigration from the German Empire
via Hamburg, Bremen, Antwerp and (only statistically recorded from 1874) Stettin
1871 1872 1873 1874 1875 1876 1877 1878 1879
75,912 125,650 103,638 45.112 30,773 28,368 21,964 24,217 33,327

Consequences of the start-up crisis

The protective tariff policy and its effects

The founding crisis meant that the state intervened more in economic processes again and thus said goodbye to economic liberalism . In concrete terms, this meant turning away from the idea of free trade . It was also the beginning of neo- mercantilism and Bismarck's protective tariff policy : the state should now, in contrast to economic liberalism, intervene again to a limited extent in economic control. So you led protective tariffs on foreign imported goods to protect the German market. In the German Empire the price level was artificially kept above the world market level. These duties were imposed on raw materials and finished goods as well as on agricultural products.

In fact, this increased the prices of industrial goods, but the long-lasting upward movement did not materialize. The overcapacities created during the founding years ultimately still existed and could not yet be sold abroad, as many other European countries also resorted to protectionist measures.

Because of the import duties, the cost of living rose in the following period; food and industrial goods in particular became more expensive. Before the import duties were imposed on grain, it was considerably cheaper to import from abroad. Due to the rising tariffs, imports fell. At the turn of the century, the prices of bread and other grain products were around 130% of the world market level, while agriculture was at full employment.

It is true that the prices for industrial goods also fell in the German Reich. However, the price reductions on the world market were much higher, so that one can speak of a price increase relative to the world market level. Nonetheless, about 80% more was spent on industrial goods in 1886 than in 1871. This was due to the fact that such goods were consumed more and more frequently and the population had grown, to which, in addition to the birth surplus, the decline in emigration contributed. From 1879/1880, the economy developed positively again, also measured in terms of value added in industry and craft, capital stock and overall economic growth.


The economic sectors affected by the crisis supplemented the state measures with their own cartels and similar alliances were founded in order to enter into anti-competitive agreements that were supposed to protect against further price drops. Prices of products, production figures and sales areas were negotiated between the companies. Interest groups came together to enforce demands against the government. Employers' associations were established; on the other hand, more and more unions emerged .

The lost belief in liberal economic policy was also expressed in the fact that the National Liberal Party was represented in the German Reichstag in 1871 with 125 seats (around 31%), but in 1881 with 47 seats, it only had a share of around 12%.

Another consequence of the stock market crash was the “theater crash” or the theater crisis in the entire German-speaking area - the collapse of the theater scene as a result of the absence of visitors.


The founder crisis led not least to conspiracy theories that were linked to criticism of high finance and thus to a widespread spread and radicalization of anti-Semitism , which became a widespread undercurrent in the 1880s. In this perception, there was a separation into, on the one hand, the “scrapping” finance capital and the “creating” production capital . The “good”, “down-to-earth”, “German” factory owner was turned into the “rapacious”, “greedy”, “bloodsucking”, “Jewish” finance capitalist in this stereotype by anti-Semitic agitators (e.g. by Alexander Pinkert or Theodor Fritsch ) Form of " plutocrat " and " usurer " opposed. In the public debate in Germany, there was the Berlin anti-Semitism dispute from 1879 to 1881, in which the so-called “ Jewish question ” was raised and about “the influence of Judaism”.

The founder crash in literature

Occasionally, the events found their way into literature, for example in the case of E. Marlitt's novel In the House of Commerce Council (1876), where they play a central role in the plot.

Individual evidence

  1. ^ Die Presse: Financial Crisis: Just like back then with the founder crash. July 11, 2009
  2. ^ Markus Baltzer: European financial market integration in the Gründerboom and Gründerkrach. Evidence from European cross-listings Österreichische Nationalbank, Working paper 111, Vienna 2006.
  3. Peter Eigner, Helmut Falschlehner, Andreas Resch: History of Austrian private banks. Springer-Verlag, 2017, p. 66.
  4. 30 selected financial crises, from the 16th century until today (p. 10.) MoneyMuseum , accessed on June 25, 2020.
  5. ^ Erwin Christian Lessner: The Danube. The Dramatic History of the Great River and the People Touched by Its Flow. Doubleday, 1961, p. 466.
  6. ^ Siegfried Pressburger: The Austrian Music Institute. 1816-1966. Austrian National Bank Vienna, 1966, p. 1131.
  7. ^ The privileged Austrian National Bank. “The bank files” of 1862 and the “Great Crash” of 1873. Oesterreichische Nationalbank, accessed on June 22, 2020.
  8. ^ Claudio Franzetti: Investment banks. Business areas, actors and mechanisms. Springer-Verlag, 2018, p. 20 f.
  9. ^ Aeiou lexicon: Black Friday
  10. ^ Friedrich-Wilhelm Henning: Handbook of the economic and social history of Germany. Volume 2: German economic and social history in the 19th century. Schöningh, Paderborn u. a. 1996, ISBN 3-506-73862-3 .
  11. For example Fritz Stern : Gold und Eisen. Bismarck and his banker Bleichröder. Ullstein, Berlin / Frankfurt am Main 1978, p. 239; Michael Stürmer : The restless empire. Germany 1866-1918 . Siedler, Berlin 1994, p. 84; Heinrich August Winkler : The long way to the west Vol. 1: German history from the end of the Old Reich to the fall of the Weimar Republic. CH Beck, Munich 2000, p. 226.
  12. ^ Hans-Ulrich Wehler: German history of society . Vol. 3: From the “German Double Revolution” to the beginning of the First World War 1849–1914 . CH Beck, Munich 1995, p. 98 f.
  13. a b General Handbook by Dr. Richard Andree, Velhagen & Klasing, Leipzig 1881, explanatory text p. 21/22.
  14. Historical statistics: Inventory of buildings and apartments  ( page no longer available , search in web archivesInfo: The link was automatically marked as defective. Please check the link according to the instructions and then remove this notice.@1@ 2Template: Dead Link /  
  15. a b German Historical Museum: The Railway Network in the German Empire 1871-1933
  16. ^ Georg Wacks: The Budapest Orpheum Society - A Varieté in Vienna 1889-1919. Verlag Holzhausen, Vienna 2002, ISBN 3-85493-054-2 , p. 2 f.
  17. Matthias Piefel: anti-Semitism and racial movement in the Kingdom of Saxony from 1879 to 1914 . V&R unipress, Göttingen 2004, ISBN 3-89971-187-4 ( Reports and Studies No. 46 of the Hannah Arendt Institute for Totalitarian Research eV at the Technical University of Dresden ).
  18. ^ Gerhard Hanloser : Crisis and Anti-Semitism. A story in three stations from the early days through the global economic crisis to today. Unrast, Münster 2004, ISBN 3-89771-423-X .