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Communications Media and the Global Financial Crisis of 1873

Dwayne Roy Winseck

Last modified: 2010-07-05

Abstract


This paper aims to add financial crises to the study of politico-military crises and culture that have held pride of place in media historiography. It will do so by examining the role of the ‘global media’ in the financial crisis between 1873 and 1876. This event deserves scholarly study because it was the first truly global financial crisis (Kindleberger, 1978; Kindleberger & Laffargue, 1982). Economic historians have made passing reference to the role of communications media in such events, while media scholars have ignored them completely. The event is also important because it reveals that telegraphic news did not just harmonize markets by shrinking the barriers of time and space, as James Carey (1989) and some economic historians (Hoag, 2006; Field, 1992) have claimed, and as the New York Times (1866) originally imagined it would, but because communications media may have propagated disturbances further and faster than might have otherwise been the case.

The transition of submarine cables and telegraph news from risky ventures into a mature and complex technological system by 1870 fits the conditions that give rise to a bubble economy remarkably well (Kindelberger, 1978; Minsky, 1982; Schiller, 2000). The sharp leap in the amount of capital that poured into the industry after 1869, at least in Britain, is one indictor. The boom in submarine cable construction from 1869 to 1875 is another. The sharp rise in the share prices of submarine cable firms on the London Stock Exchange offers further evidence. The high capitalization of submarine telegraph firms listed on the Stock Exchange during this time was far greater than their weight in the ‘real economy’, or relative to other sectors of the economy. The creation of novel methods to recapitalize well-established ventures, notably the Anglo American Telegraph Company, and the creation of others such as the Globe Telegraph & Trust Company provides more evidence still. Press coverage of the industry spiked, then waned, in lock-step fashion with the fortunes of the industry. The Times’ (London) also spawned a new ‘league table’ just for submarine and telegraph cable stocks in 1870. As firms’ stock prices rose, and a flurry of new firms were created, the list grew longer. After the crash, the ‘league table’ receded into insignificance. Lastly, a protracted debate in The Times (London) and the Economist from December 1873 until April 1875 pitted Reuters against investors, bond-holders, journalists and editors, with the latter alleging that the poor quality of Reuter’s South American news service was aggravating market instability. Beyond fitting “the anatomy of a typical crisis” remarkably well, these points remind us that the flipside of tightening interdependence is greater vulnerability and risk (Beck, 2005). Ultimately, the point of this paper is that the role of the media in the context of financial crisis deserves far more scholarly attention that than they have so far received.

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