Paralysis of the stock exchanges in Italy
«The Economist», 25 luglio 1908, pp. 167-168

More than eight months have passed since the Stock Exchange crisis in Italy reached its highest point. This crisis, though not as violent as the American one, nor comparable to it in extent and consequences, was very serious in several cities, such as Turin, Milan, and Genoa, and was followed in certain industries by a sensible shrinkage of business.

In Italy a wave of economic prosperity, increasing in volume since 1902, had been accompanied by a steady rise in the quotations of our Stock Exchange securities. This rise, slow and gradual at first, was little by little intensified, until in 1905 and 1906 the pace became very rapid, and in some cases quite furious. The magnificent dividends paid by some fortunate undertakings, the colossal gains made by the holders of shares which had gone up in value, provoked a speculative movement, which spread from the professional stock jobbers to other classes of the population, many of them entirely ignorant about investments. At Genoa, the people who spent the whole day in Piazza Banchi (the square where the Exchange is situated, near the harbour) had become a motley crowd of Exchange agents, commission agents, bankers, members of the liberal professions, tradesmen, employees, &c. The whole town was speculating on the Stock Exchange, even the men and women of the people, workmen, porters from the harbour, maidservants. At Milan, at Turin, and even at Rome the halls of the Exchanges, usually quiet and used only by professional operators, overflowed with a throng drawn from all classes of the population.

It is no wonder that in the midst of this universal excitement shares should go up in price continually. In order to put English readers in a position to estimate the serious nature of the Italian crisis, it is useful to sum up the variations in the quotations of Italian shares in the Italian exchanges. The best index for this purpose is found in an abstract published every month by the Economista d’ltalia (a financial paper published in Rome). From the data contained in these abstracts, have taken out a series of index numbers, equal to the relation between the nominal price[1] of the chief shares quoted in the Italian Exchanges at a certain date, and the actual current price of these same shares at the date indicated[2].

First of all, then, let us examine the index numbers at the end of each year from 1899 to 1904:

As this shows, after the economic crisis of 1899-1900, which had its rebound in Italy and lowered the index number of the actual current prices from 134 to 120.38, there was a continuous rise, which brought the actual price at the end of 1904 up to the high average of 148.24.

In the years following 1905 the movement was more marked, so that it seemed advisable to follow the variations in prices month by month. But it should be noted that the statistics of the Economista d’ltalia, on which we are working, do not refer to the same number of shares every year. Thus in 1905 178 shares are examined, in 1906 the shares under consideration increase to 241, in 1907 and in 1908 they rise to 243. The nominal value of these shares increases still more in proportion, because not only are new companies formed, but existing ones increase their capital. The rise in the quotations of shares in the Exchange provoked, specially in 1905, the creation of new «società anonime», and the transformation of old private enterprises and of companies under a collective name into «società anonime per azioni», or limited liability companies. We must note also that the shares under consideration are in all cases either shares of «società anonime per azioni» (which may be explained at length in English as joint-stock companies with only one set of shareholders, all with responsibility limited to capital subscribed), or, on the other hand, of «società in accomandita per azioni» (joint-stock companies with two sets of shareholders, the one with responsibility limited to capital subscribed and the other with unlimited responsibility, these latter being the managers and directors of the company). This means that the debentures, both of companies and of the State, of provinces and of towns, are excluded. With this preliminary caution, I proceed to give the results of a table I have drawn up showing the history of the quotations of shares from 1906 on.

The rise, which reached its first maximum in September, 1905, and its second in March, 1906, had, by the autumn of 1906, received a severe blow, which was succeeded, after an ephemeral attempt at recovery in February, 1907, by a real collapse, in consequence of which the quotations had fallen at the end of October, 1907, when the North American crisis was also at its worst, down to the lowest point of 129.44. At this moment a large Italian joint-stock bank, with 50 million lire of capital, the Società Bancaria Italiana, was threatened with bankruptcy; at the same time the public and the newspapers were crying out against the «black band» of bears who made the shares go down day after day. A strong association, formed under the auspices of the Banca d’ltalia, with the Banca Commerciale Italiana and the Credito Italiano at its head, intervened partly to save the Società Bancaria, which was reorganized and provided with fresh capital, and partly to prop up the price of shares, which threatened to fall to still lower levels. But when this association of banks had attained its object, which was primarily to stop the run of depositors on the banks, and to sell some of the shares of which their safes were full, the artificial stimulus which had restored shares to an average of 137.07 in December was withdrawn, and since then they have varied again between 126 and 132. The paralysis in the Italian Stock Exchanges is now complete; very little business is done at Genoa, Milan, and Turin, which are the principal exchanges in Italy, and the public, unable to recover the losses they have suffered in the past, give vent to their feelings by demanding criminal proceedings and prison for the bears, and strict regulations for the Stock Exchanges.

(To be continued)