165-648: The Panic of 1873 was a financial crisis that triggered an economic depression in Europe and North America that lasted from 1873 to 1877 or 1879 in France and in Britain . In Britain, the Panic started two decades of stagnation known as the " Long Depression " that weakened the country's economic leadership. In the United States , the Panic was known as the "Great Depression" until
330-449: A currency crisis or balance of payments crisis . When a country fails to pay back its sovereign debt , this is called a sovereign default . While devaluation and default could both be voluntary decisions of the government, they are often perceived to be the involuntary results of a change in investor sentiment that leads to a sudden stop in capital inflows or a sudden increase in capital flight . Several currencies that formed part of
495-533: A German one, and that its inclusion would bring millions of non-Germans into the German nation state. If Greater Germany were to prevail, the crown would necessarily have to go to Franz Joseph, who had no desire to cede it in the first place to anyone else. On the other hand, if the idea of a smaller Germany won out, the German crown could of course not possibly go to the Emperor of Austria , but would naturally be offered to
660-460: A bank suffers a sudden rush of withdrawals by depositors, this is called a bank run . Since banks lend out most of the cash they receive in deposits (see fractional-reserve banking ), it is difficult for them to quickly pay back all deposits if these are suddenly demanded, so a run renders the bank insolvent, causing customers to lose their deposits, to the extent that they are not covered by deposit insurance. An event in which bank runs are widespread
825-420: A bubble is the presence of buyers who purchase an asset based solely on the expectation that they can later resell it at a higher price, rather than calculating the income it will generate in the future. If there is a bubble, there is also a risk of a crash in asset prices: market participants will go on buying only as long as they expect others to buy, and when many decide to sell the price will fall. However, it
990-507: A challenge to the epistemic norms typically assumed within financial economics and all of empirical finance. The possibility of financial crises being beyond the predictive reach of causality is discussed further within Epistemology of finance . Leverage , which means borrowing to finance investments, is frequently cited as a contributor to financial crises. When a financial institution (or an individual) only invests its own money, it can, in
1155-454: A contraction of the money available for business lending. One of the more famous private individuals who went bankrupt in 1873 was Stephan Keglevich of Vienna, a relative of Gábor Keglevich, who had been the master of the royal treasury (1842–1848) and in 1845 had cofounded a financial association to fund the expansion of Hungarian industry and to protect the loan repayments, similar to the 1870 Kreditschutzverband , an Austrian association for
1320-576: A coronation. Under Minister-President Karl Hohenwart in 1871, the government of Cisleithania negotiated a series of fundamental articles spelling out the relationship of the Bohemian Crown to the rest of the Habsburg Monarchy. On 12 September 1871, Franz Joseph announced: Having in mind the constitutional position of the Bohemian Crown and being conscious of the glory and power which that Crown has given us and our predecessors … we gladly recognise
1485-413: A days-long standoff at Camden Yards . In New York, striking workers began pelting arriving trains with thrown objects, prompting a response from local police. Pennsylvania saw perhaps the worst violence of the railroad strikes; see Pittsburgh railroad strike of 1877 , Reading Railroad massacre and Scranton general strike . In Chicago, Illinois , striking workers brought freight and passenger trains to
1650-399: A few agents encourage others to buy too, not because the true value of the asset increases when many buy (which is called "strategic complementarity"), but because investors come to believe the true asset value is high when they observe others buying. In "herding" models, it is assumed that investors are fully rational, but only have partial information about the economy. In these models, when
1815-445: A few investors buy some type of asset, this reveals that they have some positive information about that asset, which increases the rational incentive of others to buy the asset too. Even though this is a fully rational decision, it may sometimes lead to mistakenly high asset values (implying, eventually, a crash) since the first investors may, by chance, have been mistaken. Herding models, based on Complexity Science , indicate that it
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#17328525523411980-404: A financial crisis. To facilitate his analysis, Minsky defines three approaches that financing firms may choose, according to their tolerance of risk. They are hedge finance, speculative finance, and Ponzi finance. Ponzi finance leads to the most fragility. Financial fragility levels move together with the business cycle . After a recession , firms have lost much financing and choose only hedge,
2145-475: A fixed exchange rate may be stable for a long period of time, but will collapse suddenly in an avalanche of currency sales in response to a sufficient deterioration of government finances or underlying economic conditions. According to some theories, positive feedback implies that the economy can have more than one equilibrium . There may be an equilibrium in which market participants invest heavily in asset markets because they expect assets to be valuable. This
2310-561: A new railway line was extended in 1873 from the Vienna– Trieste line to Rijeka (Fiume), making it possible to go by tram from there to Opatija. The strong increase of port traffic generated a permanent demand for expansion. The Suez Canal was opened in 1869. 1875–1890 became "the golden years" of Giovanni de Ciotta in Rijeka. The opening of the Suez Canal in 1869 was one of the causes of
2475-518: A number of death penalties. The Bohemian question would remain unresolved for the entirety of Franz Joseph's reign. The main foreign policy goal of Franz Joseph had been the unification of Germany under the House of Habsburg . This was justified on grounds of precedence; from 1452 to the end of the Holy Roman Empire in 1806, with only one brief period of interruption under the House of Wittelsbach ,
2640-701: A risk of sovereign default due to fluctuations in exchange rates. Many analyses of financial crises emphasize the role of investment mistakes caused by lack of knowledge or the imperfections of human reasoning. Behavioural finance studies errors in economic and quantitative reasoning. Psychologist Torbjorn K A Eliazon has also analyzed failures of economic reasoning in his concept of 'œcopathy'. Historians, notably Charles P. Kindleberger , have pointed out that crises often follow soon after major financial or technical innovations that present investors with new types of financial opportunities, which he called "displacements" of investors' expectations. Early examples include
2805-652: A series of economic setbacks: the Black Friday panic of 1869 , the Chicago fire of 1871 , an outbreak of equine influenza and the Boston fire of 1872 , and the demonetization of silver in 1873 . The decision of the German Empire to cease minting silver thaler coins in 1871 caused a drop in demand and downward pressure on the value of silver, which, in turn, affected the US since much of
2970-411: A situation when the participants in an exchange market come to recognize that a pegged exchange rate is about to fail, causing speculation against the peg that hastens the failure and forces a devaluation . A speculative bubble (also called a financial bubble or an economic bubble) exists in the event of large, sustained overpricing of some class of assets. One factor that frequently contributes to
3135-428: A small profit could be made with little or no capital. However, when interest rates changed and the incentive for the flow was removed or reversed sudden changes in capital flows could occur. The subjects of investment might be starved of cash possibly becoming insolvent and creating a credit crunch and the loaning banks would be left with defaulting investors leading to a banking crisis. As Charles Read has pointed out,
3300-449: A standstill, leading to an order from judge Thomas Drummond that such actions were illegal. The United States Marshals Service responded by arresting dozens of strikers. In Missouri, strikers also brought rail traffic to a halt, and at least 18 people died in conflicts. In July 1877, the market for lumber crashed, leading several Michigan lumber companies to go bankrupt. Within a year, the effects of this second business slump reached all
3465-417: A weighted average of monthly percentage depreciations in the exchange rate and monthly percentage declines in exchange reserves exceeds its mean by more than three standard deviations. Frankel and Rose (1996) define a currency crisis as a nominal depreciation of a currency of at least 25% but it is also defined as at least a 10% increase in the rate of depreciation. In general, a currency crisis can be defined as
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#17328525523413630-605: Is based on the work of Thomas Tooke , Thomas Attwood , Henry Thornton , William Jevons and a number of bankers opposed to the Bank Charter Act 1844 . Starting at a time when short-term interest rates are low, frustration builds up among investors who search for a better yield in countries and locations with higher rates, leading to increased capital flows to countries with higher rates. Internally, short-term rates rise above long-term rates causing failures where borrowing at short term rates has been used to invest long-term where
3795-520: Is called a recession . An especially prolonged or severe recession may be called a depression , while a long period of slow but not necessarily negative growth is sometimes called economic stagnation . Some economists argue that many recessions have been caused in large part by financial crises. One important example is the Great Depression , which was preceded in many countries by bank runs and stock market crashes. The subprime mortgage crisis and
3960-565: Is called a systemic banking crisis or banking panic . Examples of bank runs include the run on the Bank of the United States in 1931 and the run on Northern Rock in 2007. Banking crises generally occur after periods of risky lending and resulting loan defaults. A currency crisis, also called a devaluation crisis, is normally considered as part of a financial crisis. Kaminsky et al. (1998), for instance, define currency crises as occurring when
4125-477: Is difficult to predict whether an asset's price actually equals its fundamental value, so it is hard to detect bubbles reliably. Some economists insist that bubbles never or almost never occur. Well-known examples of bubbles (or purported bubbles) and crashes in stock prices and other asset prices include the 17th century Dutch tulip mania , the 18th century South Sea Bubble , the Wall Street Crash of 1929 ,
4290-498: Is making sure institutions have sufficient assets to meet their contractual obligations, through reserve requirements , capital requirements , and other limits on leverage . Some financial crises have been blamed on insufficient regulation, and have led to changes in regulation in order to avoid a repeat. For example, the former Managing Director of the International Monetary Fund , Dominique Strauss-Kahn , has blamed
4455-501: Is scarce, potentially aggravating a financial crisis. International regulatory convergence has been interpreted in terms of regulatory herding, deepening market herding (discussed above) and so increasing systemic risk. From this perspective, maintaining diverse regulatory regimes would be a safeguard. Fraud has played a role in the collapse of some financial institutions, when companies have attracted depositors with misleading claims about their investment strategies, or have embezzled
4620-571: Is taxed by government and returned to the mass of people in the form of welfare, family benefits and health and education spending; and secondly, the proportion of the population who are workers rather than investors/business owners. Given the extraordinary capital expenditure required to enter modern economic sectors like airline transport, the military industry, or chemical production, these sectors are extremely difficult for new businesses to enter and are being concentrated in fewer and fewer hands. Empirical and econometric research continues especially in
4785-461: Is the internal structure of the market, not external influences, which is primarily responsible for crashes. In "adaptive learning" or "adaptive expectations" models, investors are assumed to be imperfectly rational, basing their reasoning only on recent experience. In such models, if the price of a given asset rises for some period of time, investors may begin to believe that its price always rises, which increases their tendency to buy and thus drives
4950-439: Is the obvious inability to predict and avert financial crises. This realization raises the question as to what is known and also capable of being known (i.e. the epistemology ) within economics and applied finance. It has been argued that the assumptions of unique, well-defined causal chains being present in economic thinking, models and data, could, in part, explain why financial crises are often inherent and unavoidable. When
5115-653: Is the type of argument underlying Diamond and Dybvig's model of bank runs , in which savers withdraw their assets from the bank because they expect others to withdraw too. Likewise, in Obstfeld's model of currency crises , when economic conditions are neither too bad nor too good, there are two possible outcomes: speculators may or may not decide to attack the currency depending on what they expect other speculators to do. A variety of models have been developed in which asset values may spiral excessively up or down as investors learn from each other. In these models, asset purchases by
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5280-743: The Reichsrat (Upper House) from 1891 to 1893 in the Young Czech Party and again from 1907 to 1914 in the Realist Party (which he had founded in 1900), but he did not campaign for the independence of Czechs and Slovaks from Austria-Hungary. In Vienna in 1909 he helped Hinko Hinković 's defense in the fabricated trial against prominent Croats and Serbs members of the Serbo-Croatian Coalition (such as Frano Supilo and Svetozar Pribićević ), and others, who were sentenced to more than 150 years and
5445-607: The 12 points that established modern civil and political rights, economic and societal reforms in Hungary. The Compromise partially re-established the sovereignty of the Kingdom of Hungary, separate from, and no longer subject to the Austrian Empire. Instead, it was regarded as an equal partner with Austria. The compromise put an end to 18 years of absolutist rule and military dictatorship which had been introduced by Francis Joseph after
5610-631: The Austrian Chancellor Prince Klemens von Metternich resigned (March–April 1848). The young archduke, who (it was widely expected) would soon succeed his uncle on the throne, was appointed Governor of Bohemia on 6 April 1848, but never took up the post. Sent instead to the front in Italy , he joined Field Marshal Radetzky on campaign on 29 April, receiving his baptism of fire on 5 May at Santa Lucia . By all accounts, he handled his first military experience calmly and with dignity. Around
5775-679: The Austro-Prussian War of 1866, which resulted in the Austro-Hungarian Compromise of 1867 . The Hungarian political leaders had two main goals during the negotiations. One was to regain the traditional status (both legal and political) of the Hungarian state, which was lost after the Hungarian Revolution of 1848 . The other was to restore the series of reform laws of the revolutionary parliament of 1848, which were based on
5940-579: The Baltimore and Ohio Railroad (B&O) cut workers' pay for the third time in a year. West Virginia Governor Henry M. Mathews sent the militia, under Colonel Charles J. Faulkner , to restore order but was unsuccessful, largely because the militia sympathized with the workers. The governor called on US President Rutherford B. Hayes for federal assistance, and Hayes dispatched federal troops. That restored peace to Martinsburg but proved controversial, with many newspapers critical of Mathews' characterization of
6105-724: The Congress of Berlin (1878). On 28 June 1914, the assassination of Archduke Franz Ferdinand in Sarajevo resulted in Austria-Hungary's declaration of war against the Kingdom of Serbia , which was an ally of the Russian Empire. This activated a system of alliances declaring war on each other, which resulted in World War I . Franz Joseph died in 1916, after ruling his domains for almost 68 years. He
6270-604: The European Exchange Rate Mechanism suffered crises in 1992–93 and were forced to devalue or withdraw from the mechanism. Another round of currency crises took place in Asia in 1997–98 . Many Latin American countries defaulted on their debt in the early 1980s. The 1998 Russian financial crisis resulted in a devaluation of the ruble and default on Russian government bonds. Negative GDP growth lasting two or more quarters
6435-778: The Franco-Prussian War (1870–1871), and major property losses in the Great Chicago Fire (1871) and the Great Boston Fire (1872) helped to place massive strain on bank reserves , which, in New York City , plummeted from $ 50 million to $ 17 million between September and October 1873. The first symptoms of the crisis were financial failures in Vienna , the capital of Austria-Hungary , which spread to most of Europe and to North America by 1873. The panic and depression hit all of
6600-597: The Grant administration to develop a coherent policy on the Southern states, and the North began to steer away from Reconstruction . With the depression, ambitious railroad building programs crashed across the South, leaving most states deep in debt and burdened with heavy taxes. Retrenchment was a common response of the South to state debts during the depression. One by one, each state fell to
6765-440: The House of Habsburg . Franz Joseph was troubled by nationalism throughout his reign. He concluded the Austro-Hungarian Compromise of 1867 , which granted greater autonomy to Hungary and created the dual monarchy of Austria-Hungary. He ruled peacefully for the next 45 years, but personally suffered the tragedies of the execution of his brother Emperor Maximilian I of Mexico in 1867, the suicide of his son Rudolf in 1889, and
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6930-569: The Hungarian Revolution of 1848 . Franz Joseph then acceded to the throne. In 1854, he married his cousin Duchess Elisabeth in Bavaria , with whom he had four children: Sophie , Gisela , Rudolf , and Marie Valerie . Largely considered to be a reactionary , Franz Joseph spent his early reign resisting constitutionalism in his domains. The Austrian Empire was forced to cede its influence over Tuscany and most of its claim to Lombardy–Venetia to
7095-449: The Japanese property bubble of the 1980s, and the crash of the United States housing bubble during 2006–2008. The 2000s sparked a real estate bubble where housing prices were increasing significantly as an asset good. When a country that maintains a fixed exchange rate is suddenly forced to devalue its currency due to accruing an unsustainable current account deficit, this is called
7260-694: The Kingdom of Sardinia , following the Second Italian War of Independence in 1859 and the Third Italian War of Independence in 1866. Although Franz Joseph ceded no territory to the Kingdom of Prussia after the Austrian defeat in the Austro-Prussian War , the Peace of Prague (23 August 1866) settled the German Question in favour of Prussia, which prevented the unification of Germany from occurring under
7425-468: The Latin Monetary Union in 1873 to suspend the conversion of silver to coins. The American Civil War (1861–1865) was followed by a boom in railroad construction. 33,000 miles (53,000 km) of new track were laid across the country between 1868 and 1873, with much of the craze in railroad investment being driven by government land grants and subsidies to the railroads. The railroad industry
7590-481: The League of Three Emperors ( Dreikaiserbund ) with Emperor Wilhelm I of Germany and Emperor Alexander II of Russia , who was succeeded by Tsar Alexander III in 1881. The league had been designed by the German chancellor Otto von Bismarck , as an attempt to maintain the peace of Europe. It would last intermittently until 1887. In 1903, Franz Joseph's veto of Jus exclusivae of Cardinal Mariano Rampolla 's election to
7755-509: The Principality of Transylvania would be reestablished. These events represented a clear and obvious existential threat for the Hungarian state. The new constrained Stadion Constitution of Austria, the revocation of the April laws and the Austrian military campaign against Kingdom of Hungary resulted in the fall of the pacifist Batthyány government (which sought agreement with the court) and led to
7920-507: The South Sea Bubble and Mississippi Bubble of 1720, which occurred when the notion of investment in shares of company stock was itself new and unfamiliar, and the Crash of 1929 , which followed the introduction of new electrical and transportation technologies. More recently, many financial crises followed changes in the investment environment brought about by financial deregulation , and
8085-517: The events of 1929 and the early 1930s set a new standard. The Panic of 1873 and the subsequent depression had several underlying causes for which economic historians debate the relative importance. American inflation , rampant speculative investments (overwhelmingly in railroads ), the demonetization of silver in Germany and the United States, ripples from economic dislocation in Europe resulting from
8250-650: The financial crisis of 2007–2008 on 'regulatory failure to guard against excessive risk-taking in the financial system, especially in the US'. Likewise, the New York Times singled out the deregulation of credit default swaps as a cause of the crisis. However, excessive regulation has also been cited as a possible cause of financial crises. In particular, the Basel II Accord has been criticized for requiring banks to increase their capital when risks rise, which might cause them to decrease lending precisely when capital
8415-411: The stock market (" margin buying ") became increasingly common prior to the Wall Street Crash of 1929 . Another factor believed to contribute to financial crises is asset-liability mismatch , a situation in which the risks associated with an institution's debts and assets are not appropriately aligned. For example, commercial banks offer deposit accounts that can be withdrawn at any time, and they use
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#17328525523418580-422: The world systems theory and in the debate about Nikolai Kondratiev and the so-called 50-years Kondratiev waves . Major figures of world systems theory, like Andre Gunder Frank and Immanuel Wallerstein , consistently warned about the crash that the world economy is now facing. World systems scholars and Kondratiev cycle researchers always implied that Washington Consensus oriented economists never understood
8745-566: The "state education" began, the central contents of which were "sense of duty", religiosity and dynastic awareness. The theologian Joseph Othmar von Rauscher conveyed to him the inviolable understanding of rulership of divine origin (divine grace), and therefore a belief that no participation of the population in rulership in the form of parliaments was required. The educators Heinrich Franz von Bombelles and Colonel Johann Baptist Coronini-Cronberg ordered Archduke Franz to study an enormous amount of time, which initially comprised 18 hours per week and
8910-426: The 1870s, embracing many economic interventionist policies, including high tariffs, nationalization of railroads, and compulsory social insurance. The political and economic nationalism also reduced the fortunes of the German and Canadian classical liberal parties. France, like Britain, also entered into a prolonged stagnation that extended to 1897. The French also attempted to deal with their economic problems by
9075-446: The 19th and early 20th centuries, many financial crises were associated with banking panics , and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles , currency crises , and sovereign defaults . Financial crises directly result in a loss of paper wealth but do not necessarily result in significant changes in
9240-488: The 2008 subprime mortgage crisis ; government officials stated on 23 September 2008 that the FBI was looking into possible fraud by mortgage financing companies Fannie Mae and Freddie Mac , Lehman Brothers , and insurer American International Group . Likewise it has been argued that many financial companies failed in the recent crisis because their managers failed to carry out their fiduciary duties. Contagion refers to
9405-474: The 20th century. However, Franz Joseph remained immensely respected; the emperor's patriarchal authority held the Empire together while the politicians squabbled among themselves. Following the accession of Franz Joseph to the throne in 1848, the political representatives of the Kingdom of Bohemia hoped and insisted that account should be taken of their historical state rights in the upcoming constitution. They felt
9570-399: The Austrian Empire a unitary, centralised and bureaucratically administered state. When Franz Joseph returned to constitutional rule after the debacles in Italy at Magenta and Solferino and summoned the diets of his lands, the question of his coronation as king of Bohemia again returned to the agenda, as it had not since 1848. On 14 April 1861, Emperor Franz Joseph received a delegation from
9735-425: The Austrian Empire. The next few years saw the seeming recovery of Austria's position on the international scene following the near disasters of 1848–1849. Under Schwarzenberg's guidance, Austria was able to stymie Prussian scheming to create a new German Federation under Prussian leadership, excluding Austria. After Schwarzenberg's premature death in 1852, he could not be replaced by statesmen of equal stature, and
9900-456: The Austrian territories had been suppressed by 1849, in Hungary, the situation was more severe and Austrian defeat seemed imminent. Sensing a need to secure his right to rule, Franz Joseph sought help from Russia , requesting the intervention of Tsar Nicolas I , in order "to prevent the Hungarian insurrection developing into a European calamity". For the Russian military support, Franz Joseph kissed
10065-588: The Austro-Prussian War, and had just seen their historic state rights tossed aside and their land subsumed into the "other" half of the Austro-Hungarian Monarchy, commonly called "Cisleithania". The Czech hopes were revived again in 1870–1871. In an Imperial Rescript of 26 September 1870, Franz Joseph referred again to the prestige and glory of the Bohemian Crown and to his intention to hold
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#173285255234110230-669: The Bohemian Diet with his words (in Czech): I will have myself crowned King of Bohemia in Prague, and I am convinced that a new, indissoluble bond of trust and loyalty between My throne and My Bohemian Kingdom will be strengthened by this holy rite. In contrast to his predecessor Emperor Ferdinand (who spent the rest of his life after his abdication in 1848 in Bohemia and especially in Prague), Franz Joseph
10395-524: The Buchlau Conference. However, Izvolsky made this agreement with Aehrenthal without the knowledge of Tsar Nicholas II or his government in St. Petersburg, or any of the other foreign powers including Britain , France and Serbia . Based upon the assurances of the Buchlau Conference and the treaties that preceded it, Franz Joseph signed the proclamation announcing the annexation of Bosnia-Herzegovina into
10560-519: The Democrats in the South, and the Republicans lost power. The end of the crisis coincided with the beginning of the great wave of immigration to the United States , which lasted until the early 1920s. After the 1873 depression, agricultural and industrial groups lobbied for protective tariffs . Conservative politicians such as Otto von Bismarck shifted from classical liberal economic policies in
10725-505: The Emperor was wounded and bleeding, the collar saved his life. Count O'Donnell struck Libényi down with his sabre. O'Donnell, hitherto a Count only by virtue of his Irish nobility, was made a Count of the Habsburg monarchy ( Reichsgraf ). Another witness who happened to be nearby, the butcher Joseph Ettenreich, swiftly overpowered Libényi. For his deed he was later elevated to the nobility by
10890-504: The Emperor-King Franz Joseph of Austria , resolved the question of the competing projects. Although the collapse of the foreign loan financing had been predicted, the events of that year were in themselves comparatively unimportant. Buda , the old capital of Hungary, and Óbuda were officially united with Pest , thus creating the new metropolis of Budapest in 1873. The difference in stability between Vienna and Berlin had
11055-508: The German economy was exacerbated by the conclusion of war reparations payments to Germany by France in September 1873. Two years after the foundation of the German Empire, the panic came and became known as the Gründerkrach or "Founders' Crash". In 1865, Keglevich and Strousberg had come into direct competition in a project in what is now Slovakia. In 1870 the Hungarian government, and in 1872
11220-610: The Habsburgs had generally held the German crown. However, Franz Joseph's desire to retain the non-German territories of the Habsburg Austrian Empire in the event of German unification proved problematic. Two factions quickly developed: a party of German intellectuals favouring a Greater Germany ( Großdeutschland ) under the House of Habsburg; the other favouring a Lesser Germany ( Kleindeutschland ). The Greater Germans favoured
11385-427: The Hungarian Revolution of 1848. Franz Joseph was crowned King of Hungary on 8 June, and on 28 July he promulgated the laws that officially turned the Habsburg domains into the Dual Monarchy of Austria-Hungary . According to Emperor Franz Joseph, "There were three of us who made the agreement: Deák , Andrássy and myself." Political difficulties in Austria mounted continuously through the late 19th century and into
11550-456: The Hungarians, who had rebelled against Habsburg central authority in the name of their ancient constitution. Franz Joseph was also almost immediately faced with a renewal of the fighting in Italy , with King Charles Albert of Sardinia taking advantage of setbacks in Hungary to resume the war in March 1849. However, the military tide began to turn swiftly in favor of Franz Joseph and the Austrian whitecoats. Almost immediately, Charles Albert
11715-404: The Italians at Custoza in late July 1848, the court felt it safe to return to Vienna, and Franz Joseph travelled with them. But within a few weeks Vienna again appeared unsafe, and in September the court left once more, this time for Olmütz in Moravia . By now, Alfred I, Prince of Windisch-Grätz , an influential military commander in Bohemia, was determined to see the young archduke soon put on
11880-575: The Ottomans, sought and obtained an agreement with Austria-Hungary. In the Budapest Convention of 1877 , the two powers agreed that Russia would annex southern Bessarabia , and Austria-Hungary would observe a benevolent neutrality toward Russia in the pending war with the Turks. As compensation for this support, Russia agreed to Austria-Hungary's annexation of Bosnia-Herzegovina. A scant 15 months later,
12045-774: The Panic of 1873 because goods from the Far East had been carried in sailing vessels around the Cape of Good Hope and were stored in British warehouses. As sailing vessels were not adaptable for use through the Suez Canal (because the prevailing winds of the Mediterranean Sea blow from west to east), the British entrepôt trade suffered. When the crisis came, the Bank of England raised interest rates to 9 percent. Despite this, Britain did not experience
12210-562: The Russian foreign minister, Alexander Izvolsky , offered Russian support, for the third time, for the annexation of Bosnia and Herzegovina by Austria-Hungary, in exchange for Austrian support for the opening of the Bosporus Strait and the Dardanelles to Russian warships. Austria's foreign minister, Alois von Aehrenthal , pursued this offer vigorously, resulting in the quid pro quo understanding with Izvolsky, reached on 16 September 1908 at
12375-561: The Russians imposed on the Ottomans the Treaty of San Stefano , which reneged on the Budapest accord and declared that Bosnia-Herzegovina would be jointly occupied by Russian and Austrian troops. The treaty was overturned by the 1878 Treaty of Berlin , which allowed sole Austrian occupation of Bosnia-Herzegovina but did not specify a final disposition of the provinces. That omission was addressed in
12540-591: The Three Emperors' League agreement of 1881, when both Germany and Russia endorsed Austria-Hungary's right to annex Bosnia-Herzegovina. However, by 1897, under a new tsar , the Russian Imperial government had again withdrawn its support for Austrian annexation of Bosnia-Herzegovina. The Russian foreign minister, Count Mikhail Muravyov , stated that an Austrian annexation of Bosnia-Herzegovina would raise "an extensive question requiring special scrutiny". In 1908,
12705-454: The United States and several European colonies caused the panic of 1873 and thus a decline in the value of silver relative to gold, devaluing India's standard currency. This event was known as " the fall of the rupee ". In the Cape Colony , the panic caused bankruptcies, rising unemployment, a pause in public works, and a major trade slump that lasted until the discovery of gold in 1886. In
12870-415: The actual risks in the economy and stop giving credit so easily. Refinancing becomes impossible for many, and more firms default. If no new money comes into the economy to allow the refinancing process, a real economic crisis begins. During the recession, firms start to hedge again, and the cycle is closed. The Banking School theory of crises describes a continuous cycle driven by varying interest rates. It
13035-666: The assassinations of his wife Elisabeth in 1898 and his nephew and heir presumptive, Archduke Franz Ferdinand , in 1914. After the Austro-Prussian War, Austria-Hungary turned its attention to the Balkans , which was a hotspot of international tension because of conflicting interests of Austria with not only the Ottoman but also the Russian Empire . The Bosnian Crisis was a result of Franz Joseph's annexation in 1908 of Bosnia and Herzegovina, which had already been occupied by his troops since
13200-673: The basic industries of coal, iron and steel, engineering, and shipbuilding, especially in 1873, 1886, and 1893. From 1873 to 1896, a period sometimes referred to as the Long Depression , most European countries experienced a drastic fall in prices. Still, many corporations were able to reduce production costs and achieve better productivity rates with industrial production increasing by 40% in Britain and by over 100% in Germany. A comparison of capital formation rates in both countries helps to account for
13365-468: The bursting of other real estate bubbles around the world also led to recession in the U.S. and a number of other countries in late 2008 and 2009. Some economists argue that financial crises are caused by recessions instead of the other way around, and that even where a financial crisis is the initial shock that sets off a recession, other factors may be more important in prolonging the recession. In particular, Milton Friedman and Anna Schwartz argued that
13530-628: The circular relationships often evident in social systems between cause and effect – and relates to the property of self-referencing in financial markets. George Soros has been a proponent of the reflexivity paradigm surrounding financial crises. Similarly, John Maynard Keynes compared financial markets to a beauty contest game in which each participant tries to predict which model other participants will consider most beautiful. Furthermore, in many cases, investors have incentives to coordinate their choices. For example, someone who thinks other investors want to heavily buy Japanese yen may expect
13695-502: The conflict between the Hungarian parliament and Francis Joseph. The Austrian Stadion Constitution was accepted by the Imperial Diet of Austria , where Hungary had no representation, and which traditionally had no legislative power in the territory of Kingdom of Hungary; despite this, it also tried to abolish the Diet of Hungary (which existed as the supreme legislative power in Hungary since
13860-533: The constitutional concessions he had made, especially as the Austrian parliament meeting at Kremsier had behaved—in the young Emperor's eyes—abominably. The 1849 constitution was suspended, and a policy of absolutist centralism was established, guided by the Minister of the Interior, Alexander Bach . On 18 February 1853, Franz Joseph survived an assassination attempt by Hungarian nationalist János Libényi . The emperor
14025-416: The crash of the dot com bubble in 2001 arguably began with "irrational exuberance" about Internet technology. Unfamiliarity with recent technical and financial innovations may help explain how investors sometimes grossly overestimate asset values. Also, if the first investors in a new class of assets (for example, stock in "dot com" companies) profit from rising asset values as other investors learn about
14190-446: The current financial system . Franz Joseph of Austria Franz Joseph I or Francis Joseph I ( German : Franz Joseph Karl [fʁants ˈjoːzɛf ˈkaʁl] ; Hungarian : Ferenc József Károly [ˈfɛrɛnt͡s ˈjoːʒɛf ˈkaːroj] ; 18 August 1830 – 21 November 1916) was Emperor of Austria , King of Hungary , and the ruler of the other states of the Habsburg monarchy from 2 December 1848 until his death in 1916. In
14355-448: The cycle restarts from the beginning. Mathematical approaches to modeling financial crises have emphasized that there is often positive feedback between market participants' decisions (see strategic complementarity ). Positive feedback implies that there may be dramatic changes in asset values in response to small changes in economic fundamentals. For example, some models of currency crises (including that of Paul Krugman ) imply that
14520-413: The dangers and perils, which leading industrial nations will be facing and are now facing at the end of the long economic cycle which began after the oil crisis of 1973. Hyman Minsky has proposed a post-Keynesian explanation that is most applicable to a closed economy. He theorized that financial fragility is a typical feature of any capitalist economy . High fragility leads to a higher risk of
14685-484: The deteriorating financial conditions created solvency problems for life insurers. The common factor of the surviving companies was that all marketed tontines . The failure of Jay Cooke's bank and soon afterward of Henry Clews ' set off a chain reaction of bank failures and temporarily closed the New York Stock Exchange . Factories began to lay off workers as the country slipped into depression. The effects of
14850-508: The different industrial growth rates. During the depression, the British ratio of net national capital formation to net national product fell from 11.5% to 6.0%, but the German ratio rose from 10.6% to 15.9%. During the depression, Britain took the course of static supply adjustment, but Germany stimulated effective demand and expanded industrial supply capacity by increasing and adjusting capital formation. For example, Germany dramatically increased investment of social overhead capital , such as in
15015-564: The dollar. The railroad industry in the United States had seen major growth in the decades before 1873, driven in part by strong European interest in bonds issued by railroad companies. The failure of Jay Cooke & Co., heavily invested in railroad bonds, triggered a crisis in the railroad industry. In 1877, steep wage cuts led American railroad workers to launch the series of protests and riots later dubbed Great Railroad Strike . Initial protests broke out in Martinsburg, West Virginia , after
15180-409: The domestic money supply , raising interest rates and hurting farmers and others who normally carried heavy debt loads. The resulting outcry raised serious questions about how long the new policy would last. The perception of US instability in its monetary policy caused investors to shy away from long-term obligations, particularly long-term bonds . The problem was compounded by the railroad boom, which
15345-627: The early part of his reign, his realms and territories were referred to as the Austrian Empire , but were reconstituted as the dual monarchy of the Austro-Hungarian Empire in 1867. From 1 May 1850 to 24 August 1866, he was also president of the German Confederation . In December 1848, Franz Joseph's uncle Emperor Ferdinand I abdicated the throne at Olomouc , as part of Minister President Felix zu Schwarzenberg 's plan to end
15510-545: The economy. These theoretical ideas include the ' financial accelerator ', ' flight to quality ' and ' flight to liquidity ', and the Kiyotaki-Moore model . Some 'third generation' models of currency crises explore how currency crises and banking crises together can cause recessions. Austrian School economists Ludwig von Mises and Friedrich Hayek discussed the business cycle starting with Mises' Theory of Money and Credit , published in 1912. Recurrent major depressions in
15675-616: The effect that the French indemnity to Germany flowed into Austria and Russia, but the indemnity payments aggravated the crisis in Austria, which had benefited by the accumulation of capital not only in Germany but also in England, the Netherlands, Belgium, France, and Russia. Recovery from the crash occurred much more quickly in Europe than in the United States. Moreover, German businesses managed to avoid
15840-471: The emperor and became Joseph von Ettenreich. Libényi was subsequently put on trial and condemned to death for attempted regicide . He was executed on the Simmeringer Heide. After this unsuccessful attack, the emperor's brother Archduke Ferdinand Maximilian called upon Europe's royal families for donations to construct a new church on the site of the attack. The church was to be a votive offering for
16005-457: The emperor himself effectively took over as prime minister. He was one of the most prominent Roman Catholic rulers in Europe, and a fierce enemy of Freemasonry . The 1850s witnessed several failures of Austrian external policy: the Crimean War , the dissolution of its alliance with Russia, and defeat in the Second Italian War of Independence . The setbacks continued in the 1860s with defeat in
16170-408: The form of wages) than the value of the goods produced by those workers (i.e. the amount of money the products are sold for). This profit first goes towards covering the initial investment in the business. In the long-run, however, when one considers the combined economic activity of all successfully-operating business, it is clear that less money (in the form of wages) is being returned to the mass of
16335-484: The fundaments of modern civil and political rights, economic and societal reforms in the Kingdom of Hungary. The crucial turning point of the Hungarian events were the April laws which was ratified by his uncle King Ferdinand, however the new young Austrian monarch Francis Joseph arbitrarily "revoked" the laws without any legal competence. The monarchs had no right to revoke Hungarian parliamentary laws which were already signed. This unconstitutional act irreversibly escalated
16500-507: The funds cannot be liquidated quickly (a similar mechanism was implicated in the March 2023 failure of SVB Bank ). Internationally, arbitrage and the need to stop capital flows, which caused bullion drains in the gold standard of the nineteenth century and drains of foreign capital later, bring interest rates in the low-rate country up to equal those in the country which is the subject of investment. The capital flows reverse or cease suddenly causing
16665-547: The hand of the tsar in Warsaw on 21 May 1849. Tsar Nicholas supported Franz Joseph in the name of the Holy Alliance , and sent a 200,000 strong army with 80,000 auxiliary forces. Finally, the joint army of Russian and Austrian forces defeated the Hungarian forces. After the restoration of Habsburg power, Hungary was placed under brutal martial law . With order now restored throughout his empire, Franz Joseph felt free to renege on
16830-545: The head of the largest and most powerful German state outside of Austria—the King of Prussia . The contest between the two ideas, quickly developed into a contest between Austria and Prussia . After Prussia decisively won the Seven Weeks War , this question was solved; Austria lost no territories to Prussia as long as they remained out of German affairs. In 1873, two years after the unification of Germany, Franz Joseph entered into
16995-442: The idea that financial crises may spread from one institution to another, as when a bank run spreads from a few banks to many others, or from one country to another, as when currency crises, sovereign defaults, or stock market crashes spread across countries. When the failure of one particular financial institution threatens the stability of many other institutions, this is called systemic risk . One widely cited example of contagion
17160-464: The implementation of tariffs. New French laws in 1880 and in 1892 imposed stiff tariffs on many agricultural and industrial imports. The U.S., still in the period after the Civil War , continued to be very protectionist . Financial crisis Heterodox A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. In
17325-413: The inclusion of Austria in a new all-German state on the grounds that Austria had always been a part of Germanic empires, that it was the leading power of the German Confederation , and that it would be absurd to exclude eight million Austrian Germans from an all-German nation state. The champions of a lesser Germany argued against the inclusion of Austria on the grounds that it was a multi-nation state, not
17490-480: The industrial nations. A similar process of overexpansion took place in Germany and Austria-Hungary, where the period from German unification in 1870 and 1871 to the crash in 1873 came to be called the Gründerjahre ("Founders' Years"). A liberalized incorporation law in Germany gave impetus to the foundation of new enterprises, such as Deutsche Bank , and the incorporation of established ones. Euphoria over
17655-499: The initial economic decline associated with the crash of 1929 and the bank panics of the 1930s would not have turned into a prolonged depression if it had not been reinforced by monetary policy mistakes on the part of the Federal Reserve, a position supported by Ben Bernanke . It is often observed that successful investment requires each investor in a financial market to guess what other investors will do. Reflexivity refers to
17820-499: The innovation (in our example, as others learn about the potential of the Internet), then still more others may follow their example, driving the price even higher as they rush to buy in hopes of similar profits. If such " herd behaviour " causes prices to spiral up far above the true value of the assets, a crash may become inevitable. If for any reason the price briefly falls, so that investors realize that further gains are not assured, then
17985-619: The introduction of the gold mark on 9 July 1873 as the currency for the newly united Reich, replacing the silver coins of all constituent lands. Germany was now on the gold standard . Demonetization of silver was thus a common element in the crises on both sides of the Atlantic Ocean . On 9 May 1873, the Vienna Stock Exchange crashed since it was unable to sustain the bubble of false expansion, insolvencies, and dishonest manipulations. A series of Viennese bank failures ensued, causing
18150-564: The king was alive and unable to do his duty as ruler, a governor (or regent, as they would be called in English) had to assume the royal duties. Constitutionally, Franz Josef's uncle Ferdinand was still the legal king of Hungary . If there was no possibility to inherit the throne automatically due to the death of the predecessor king (since King Ferdinand was still alive), but the monarch wanted to relinquish his throne and appoint another king before his death, technically only one legal solution remained:
18315-507: The late 12th century.) The new Austrian constitution also went against the historical constitution of Hungary, and even tried to nullify it. Even the territorial integrity of the country was in danger: On 7 March 1849 an imperial proclamation was issued in the name of the Emperor Francis Joseph, according to the new proclamation, the territory of Kingdom of Hungary would be carved up and administered by five military districts, while
18480-459: The long personal union between the Kingdom of Hungary and other Habsburg ruled areas, the Habsburg monarchs had to be crowned as King of Hungary in order to promulgate laws there or exercise royal prerogatives in the territory of the Kingdom of Hungary. From a legal point of view, according to the coronation oath, a crowned Hungarian king could not relinquish the Hungarian throne during his life; if
18645-426: The management of electric power transmission lines, roads, and railroads, thereby stimulating industrial demand in that country, but similar investment stagnated or decreased in Britain. The resulting difference in capital formation accounts for the divergent levels of industrial production in the two countries and the different growth rates during and after the depression. The discovery of large quantities of silver in
18810-440: The military victory against France in 1871 and the influx of capital from the payment by France of war reparations fueled stock market speculation in railways, factories, docks, steamships; the same industrial branches that expanded unsustainably in the United States. In the immediate aftermath of his victory against France , Bismarck began the process of silver demonetization. The process began on 23 November 1871 and culminated in
18975-506: The modern equivalent of this process involves the Carry Trade, see Carry (investment) . Some financial crises have little effect outside of the financial sector, like the Wall Street crash of 1987 , but other crises are believed to have played a role in decreasing growth in the rest of the economy. There are many theories why a financial crisis could have a recessionary effect on the rest of
19140-565: The money supply and thus raising interest rates made matters worse for those in debt. Businesses were expanding, but the money they needed to finance that growth was becoming scarcer. Cooke and other entrepreneurs had planned to build the second transcontinental railroad, the Northern Pacific Railway. Cooke's firm provided the financing, and ground for the line was broken near Duluth, Minnesota , on 15 February 1870. The railroad had borrowed more than $ 1.5 million from Cooke & Co, but
19305-428: The money they lend. Therefore, they are ready to lend to firms without full guarantees of success. Lenders know that such firms will have problems repaying. Still, they believe these firms will refinance from elsewhere as their expected profits rise. This is Ponzi financing. In this way, the economy has taken on much risky credit. Now it is only a question of time before some big firm actually defaults. Lenders understand
19470-416: The mother of the young Archduke "Franzi" brought him up as a future emperor, with emphasis on devotion, responsibility and diligence. For this reason, Franz Joseph was consistently built up as a potential successor to the imperial throne by his politically ambitious mother from early childhood. Up to the age of seven, little "Franzi" was brought up in the care of the nanny ("Aja") Louise von Sturmfeder. Then
19635-403: The nation's railroads had failed, and another 60 had gone bankrupt by the first anniversary of the crisis. Construction of new rail lines, formerly one of the backbones of the economy, plummeted from 7,500 miles (12,100 km) of track in 1872 to just 1,600 miles (2,600 km) in 1875, and 18,000 businesses failed between 1873 and 1875. Unemployment peaked in 1878 at 8.25%. Building construction
19800-590: The panic were quickly felt in New York (where 25% of workers became unemployed) and more slowly in Chicago, Virginia City, Nevada (where silver mining was active), and San Francisco. In New Hampshire, state coffers were so depleted by lost tax revenue the state government turned to private interests including tea and gunpowder manufacturer D. Ralph Lolbert for financial support. The New York Stock Exchange closed for ten days starting on 20 September. By November 1873, some 55 of
19965-556: The papacy was transmitted to the Papal conclave by Cardinal Jan Puzyna de Kosielsko . It was the last use of such a veto, as the new Pope Pius X prohibited future uses and provided for excommunication for any attempt. During the mid-1870s a series of violent rebellions against Ottoman rule broke out in the Balkans, and the Turks responded with equally violent and oppressive reprisals. Tsar Alexander II of Russia , wanting to intervene against
20130-417: The parliament had the power to dethrone the king and elect a new king. Due to the legal and military tensions, the Hungarian parliament did not grant Franz Joseph that favour. This event gave to the revolt an excuse of legality. Actually, from this time until the collapse of the revolution, Lajos Kossuth (as elected regent-president) became the de facto and de jure ruler of Hungary. While the revolutions in
20295-589: The periphery, the Ottoman Empire 's economy also suffered. Rates of growth of foreign trade dropped, external terms of trade deteriorated, declining wheat prices affected peasant producers, and the establishment of European control over Ottoman finances led to large debt payments abroad. The growth rates of agricultural and aggregate production were also lower during the Long Depression than the later period. The general demonetization and cheapening of silver caused
20460-410: The population (the workers) than is available to them to buy all of these goods being produced. Furthermore, the expansion of businesses in the process of competing for markets leads to an abundance of goods and a general fall in their prices, further exacerbating the tendency for the rate of profit to fall . The viability of this theory depends upon two main factors: firstly, the degree to which profit
20625-430: The position of Bohemia within the Habsburg monarchy should have been highlighted by a coronation of the new ruler to the king of Bohemia in Prague (the last coronation took place in 1836). However, before the 19th century the Habsburgs had ruled Bohemia by hereditary right and a separate coronation was not deemed necessary. His new government installed the system of neoabsolutism in Austrian internal affairs to make
20790-545: The price up further. Likewise, observing a few price decreases may give rise to a downward price spiral, so in models of this type, large fluctuations in asset prices may occur. Agent-based models of financial markets often assume investors act on the basis of adaptive learning or adaptive expectations. As the most recent and most damaging financial crisis event, the Global financial crisis, deserves special attention, as its causes, effects, response, and lessons are most applicable to
20955-402: The proceeds to make long-term loans to businesses and homeowners. The mismatch between the banks' short-term liabilities (its deposits) and its long-term assets (its loans) is seen as one of the reasons bank runs occur (when depositors panic and decide to withdraw their funds more quickly than the bank can get back the proceeds of its loans). Likewise, Bear Stearns failed in 2007–08 because it
21120-463: The protection of creditors and the interests of its members in cases of bankruptcy. That made it possible for a number of new Austrian banks to be established in 1873 after the Vienna Stock Exchange crash. In Berlin, the railway empire of Bethel Henry Strousberg crashed after a ruinous settlement with the government of Romania , bursting the speculation bubble in Germany. The contraction of
21285-581: The public into silver coins , but it would still mint silver dollars for export in the form of trade dollars . The Act had the immediate effect of depressing silver prices, hurting Western mining interests, who labeled the Act "The Crime of '73", but its effect was offset somewhat by the introduction of a silver trade dollar for use in Asia and the discovery of new silver deposits at Virginia City, Nevada , that resulted in new investment in mining activity. The Act also reduced
21450-408: The real economy (for example, the crisis resulting from the famous tulip mania bubble in the 17th century). Many economists have offered theories about how financial crises develop and how they could be prevented. There is little consensus and financial crises continue to occur from time to time. It is apparent however that a consistent feature of both economic (and other applied finance disciplines)
21615-595: The recognition of separate Bohemian state rights for which they had hoped. Bohemia remained part of the Austrian Crown Lands . In Bohemia, opposition to dualism took the form of isolated street demonstrations, resolutions from district representations, and even open air mass protest meetings, confined to the biggest cities, such as Prague. The Czech newspaper Národní listy complained that the Czechs had not yet been compensated for their wartime losses and sufferings during
21780-660: The resulting income. Examples include Charles Ponzi 's scam in early 20th century Boston, the collapse of the MMM investment fund in Russia in 1994, the scams that led to the Albanian Lottery Uprising of 1997, and the collapse of Madoff Investment Securities in 2008. Many rogue traders that have caused large losses at financial institutions have been accused of acting fraudulently in order to hide their trades. Fraud in mortgage financing has also been cited as one possible cause of
21945-693: The rights of the kingdom and are prepared to renew that recognition through our coronation oath. For the planned coronation, the composer Bedřich Smetana had written the opera Libuše , but the ceremony did not take place. The creation of the German Empire , domestic opposition from German-speaking liberals (especially German-Bohemians ) and from Hungarians doomed the Fundamental Articles . Hohenwart resigned and nothing changed. Many Czech people were waiting for political changes in monarchy, including Tomáš Garrigue Masaryk and others. Masaryk served in
22110-471: The safest. As the economy grows and expected profits rise, firms tend to believe that they can allow themselves to take on speculative financing. In this case, they know that profits will not cover all the interest all the time. Firms, however, believe that profits will rise and the loans will eventually be repaid without much trouble. More loans lead to more investment, and the economy grows further. Then lenders also start believing that they will get back all
22275-425: The same thing they expect others to do, then self-fulfilling prophecies may occur. For example, if investors expect the value of the yen to rise, this may cause its value to rise; if depositors expect a bank to fail this may cause it to fail. Therefore, financial crises are sometimes viewed as a vicious circle in which investors shun some institution or asset because they expect others to do so. Reflexivity poses
22440-454: The same time, the imperial family was fleeing revolutionary Vienna for the calmer setting of Innsbruck , in Tyrol . Called back from Italy, the archduke joined the rest of his family at Innsbruck by mid-June. It was here that Franz Joseph first met his cousin and eventual future bride, Elisabeth, then a girl of ten, but apparently the meeting made little impression. Following Austria's victory over
22605-470: The scale of financial mayhem seen in America and Central Europe, perhaps forestalled by an expectation that the liquidity-constraining provisions of the Bank Charter Act of 1844 would be suspended as they had been in the crises of 1847, 1857, and 1866. The ensuing economic downturn in Britain seems to have been muted – "stagnant" but without a "decline in aggregate output". However, there was heavy unemployment in
22770-580: The sort of deep wage cuts that embittered American labor relations. There was an anti-Semitic component to the economic recovery in Germany and Austria, as small investors blamed Jews for their losses in the crash. The Neuer Social-Demokrat newspaper of the ADAV published several articles blaming Gerson von Bleichröder for the stock market crash. An October 29 article called Bleichröder "Bismarck's Jew". Soon, more luxury hotels and villas were built in Opatija , and
22935-425: The spiral may go into reverse, with price decreases causing a rush of sales, reinforcing the decrease in prices. Governments have attempted to eliminate or mitigate financial crises by regulating the financial sector. One major goal of regulation is transparency : making institutions' financial situations publicly known by requiring regular reporting under standardized accounting procedures. Another goal of regulation
23100-512: The strikes as an "insurrection", rather than an act of desperation and frustration. One notable paper recorded a striking worker's perspective that he "had might as well die by the bullet as to starve to death by inches". Within a week, similar protests had erupted in other cities. In Baltimore, Maryland where strikers set fire to buildings owned by B.& O. Railroads and an outnumbered militia guard division opened fire when they were surrounded by rioters, killing 10 and injuring 25 more leading to
23265-456: The subject of investment to be starved of funds and the remaining investors (often those who are least knowledgeable) to be left with devalued assets. Bankruptcies, defaults and bank failures follow as rates are pushed high. After the crisis governments push short-term interest rates low again to diminish the cost of servicing government borrowing which has been used to overcome the crisis. Funds build up again looking for investment opportunities and
23430-420: The sudden emergence of Lajos Kossuth 's followers in the Hungarian parliament, who demanded the full independence of Hungary. The Austrian military intervention in the Kingdom of Hungary resulted in strong anti-Habsburg sentiment among Hungarians, thus the events in Hungary grew into a war for total independence from the Habsburg dynasty . On 7 December 1848, the Diet of Hungary formally refused to acknowledge
23595-511: The supply of silver was mined there . As a result, the US Congress passed the Coinage Act of 1873 , which changed the national silver policy. Before the Act, the US had backed its currency with both gold and silver and minted both types of coins. The Act moved the United States to a de facto gold standard , which meant it would no longer buy silver at a statutory price or convert silver from
23760-533: The survival of the emperor. It is located on Ringstraße in the district of Alsergrund close to the University of Vienna , and is known as the Votivkirche . The survival of Franz Joseph was also commemorated in Prague by erecting a new statue of St. Francis of Assisi , the patron saint of the emperor, on Charles Bridge . It was donated by Count Franz Anton von Kolowrat-Liebsteinsky , the first minister-president of
23925-558: The tendency for the rate of profit to fall borrowed many features of the presentation of John Stuart Mill 's discussion Of the Tendency of Profits to a Minimum (Principles of Political Economy Book IV Chapter IV). The theory is a corollary of the Tendency towards the Centralization of Profits . In a capitalist system, successfully-operating businesses return less money to their workers (in
24090-567: The throne. It was thought that a new ruler would not be bound by the oaths to respect constitutional government to which Ferdinand had been forced to agree, and that it was necessary to find a young, energetic emperor to replace the kindly but mentally unfit Ferdinand. By the abdication of his uncle Ferdinand and the renunciation of his father (the mild-mannered Franz Karl), Franz Joseph succeeded as Emperor of Austria at Olmütz on 2 December 1848. At this time, he first became known by his second as well as his first Christian name. The name "Franz Joseph"
24255-492: The title of the new king, "as without the knowledge and consent of the diet no one could sit on the Hungarian throne", and called the nation to arms. While in most Western European countries (like France and the United Kingdom) the monarch's reign began immediately upon the death of their predecessor , in Hungary the coronation was indispensable; if it were not properly executed, the kingdom remained " orphaned ". Even during
24420-477: The uniform of a military officer. Franz Joseph was soon joined by three younger brothers: Archduke Ferdinand Maximilian (born 1832, the future Emperor Maximilian of Mexico ); Archduke Karl Ludwig (born 1833, father of Archduke Franz Ferdinand of Austria ), and Archduke Ludwig Viktor (born 1842), and a sister, Archduchess Maria Anna (born 1835), who died at the age of four. During the Revolutions of 1848 ,
24585-515: The very worst case, lose its own money. But when it borrows in order to invest more, it can potentially earn more from its investment, but it can also lose more than all it has. Therefore, leverage magnifies the potential returns from investment, but also creates a risk of bankruptcy . Since bankruptcy means that a firm fails to honor all its promised payments to other firms, it may spread financial troubles from one firm to another (see 'Contagion' below). For example, borrowing to finance investment in
24750-588: The way to California. The depression ended in the spring of 1879, but tension between workers and the leaders of banking and manufacturing interests lingered on. Poor economic conditions also caused voters to turn against the Republican Party . In the 1874 congressional elections , the Democratic Party assumed control of the House for the first time since the Civil War. Public opinion made it difficult for
24915-399: The world economy at the pace of 20 and 50 years have been the subject of studies since Jean Charles Léonard de Sismondi (1773–1842) provided the first theory of crisis in a critique of classical political economy's assumption of equilibrium between supply and demand. Developing an economic crisis theory became the central recurring concept throughout Karl Marx 's mature work. Marx's law of
25080-479: The yen to rise in value, and therefore has an incentive to buy yen, too. Likewise, a depositor in IndyMac Bank who expects other depositors to withdraw their funds may expect the bank to fail, and therefore has an incentive to withdraw, too. Economists call an incentive to mimic the strategies of others strategic complementarity . It has been argued that if people or firms have a sufficiently strong incentive to do
25245-405: Was chosen to bring back memories of the new Emperor's great-granduncle, Emperor Joseph II (Holy Roman Emperor from 1765 to 1790), remembered as a modernising reformer. Under the guidance of the new prime minister, Prince Felix of Schwarzenberg , the new emperor at first pursued a cautious course, granting a constitution in March 1849 . At the same time, a military campaign was necessary against
25410-415: Was decisively beaten by Radetzky at Novara and forced to sue for peace, as well as to renounce his throne. Unlike other Habsburg ruled areas, the Kingdom of Hungary had an old historic constitution , which limited the power of the crown and had greatly increased the authority of the parliament since the 13th century. The Hungarian reform laws ( April laws ) were based on the 12 points that established
25575-450: Was expanded to 50 hours per week by the age of 16. One of the main focuses of the lessons was language acquisition: in addition to French, the diplomatic language of the time, Latin and Ancient Greek , Hungarian , Czech, Italian and Polish were the most important national languages of the monarchy. In addition, the archduke received general education that was customary at the time (including mathematics, physics, history, geography), which
25740-574: Was halted, wages were cut, real estate values fell, and corporate profits vanished. In 1874, Congress passed "the Ferry Bill" to allow for the printing of currency, increasing inflation and reducing the value of debts. The bill was vetoed by President Grant. The following year, Congress passed the Specie Resumption Act of 1875 , which would back United States currency with gold. Backing American currency with gold helped curb inflation and stabilize
25905-516: Was incapable of paying it back. An expanding funding gap became harder to resolve due to the Credit Mobilier scandal . Due to the financial crises in Europe, Cooke could not sell the securities abroad. Just as Cooke was about to swing a $ 300 million government loan in September 1873, reports circulated that his firm's credit had become nearly worthless. On 18 September, the firm declared bankruptcy. Many US insurance companies went out of business, as
26070-417: Was later supplemented by law and political science. Various forms of physical education completed the extensive program. On his 13th birthday, Franz Joseph was appointed Colonel- Inhaber of Dragoon Regiment No. 3 and the focus of his training shifted to imparting basic strategic and tactical knowledge. From that point onward, army style dictated his personal fashion—for the rest of his life, he normally wore
26235-546: Was never crowned separately as king of Bohemia. In 1861, the negotiations failed because of unsolved constitutional problems. However, in 1866, a visit of the monarch to Prague following defeat at the Battle of Königgrätz was a huge success, testified by the considerable numbers of new photographs taken. In 1867, the Austro-Hungarian compromise and the introduction of the dual monarchy left the Czechs and their aristocracy without
26400-619: Was succeeded by his grandnephew Charles I & IV . Franz Joseph was born on 18 August 1830 in the Schönbrunn Palace in Vienna (on the 65th anniversary of the death of Francis of Lorraine ) as the eldest son of Archduke Franz Karl (the younger son of Francis I ), and his wife Sophie, Princess of Bavaria . Because his uncle, reigning from 1835 as the Emperor Ferdinand , was disabled by seizures, and his father unambitious and retiring,
26565-456: Was taking a stroll with one of his officers, Count Maximilian Karl Lamoral O'Donnell , on a city bastion , when Libényi approached him. He immediately struck the emperor from behind with a knife straight at the neck. Franz Joseph almost always wore a uniform, which had a high collar that almost completely enclosed the neck. The collars of uniforms at that time were made from very sturdy material, precisely to counter this kind of attack. Even though
26730-417: Was the largest employer outside agriculture in the US and involved large amounts of money and risk. A large infusion of cash from speculators caused spectacular growth in the industry and in the construction of docks, factories, and ancillary facilities. Most capital was involved in projects offering no immediate or early returns. A period of economic overexpansion arose from the northern railroad boom before
26895-730: Was the spread of the Thai crisis in 1997 to other countries like South Korea . However, economists often debate whether observing crises in many countries around the same time is truly caused by contagion from one market to another, or whether it is instead caused by similar underlying problems that would have affected each country individually even in the absence of international linkages. The nineteenth century Banking School theory of crises suggested that crises were caused by flows of investment capital between areas with different rates of interest. Capital could be borrowed in areas with low interest rates and invested in areas of high interest. Using this method
27060-618: Was then in its later stages. In September 1873, the US economy entered a crisis. In September 1873, Jay Cooke & Company , a major component of the country's banking establishment, found itself unable to market several million dollars in Northern Pacific Railway bonds. Jay Cooke 's firm, like many others, had invested heavily in the railroads. Some investment banks were then anxious for more capital for their enterprises, US President Ulysses S. Grant 's monetary policy of contracting
27225-449: Was unable to renew the short-term debt it used to finance long-term investments in mortgage securities. In an international context, many emerging market governments are unable to sell bonds denominated in their own currencies, and therefore sell bonds denominated in US dollars instead. This generates a mismatch between the currency denomination of their liabilities (their bonds) and their assets (their local tax revenues), so that they run
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