windowthroughtime

A wry view of life for the world-weary

Double Your Money – Part Thirteen

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The Panama Canal Scandal (1892)

The Panama Canal is a 48 mile man-made waterway which connects the Pacific and Atlantic oceans and when it opened in 1914 it substantially reduced journey times and avoided the necessity of sailing the treacherous seas around Cape Horn. But its construction was far from plain sailing and was only completed when the Americans acquired the rights from the French.

The original French project was the brainchild of Ferdinand de Lesseps who on the back of his success with the Suez Canal was able to raise substantial amounts of money to fund the construction work which began on 1st January 1881. Many of the investors were private individuals, some 800,000 in total of whom 15,000 were single women, and over the course of nine stock issues a total of 1.8 billion gold francs was raised.

The project was bedevilled by poor planning and hostile terrain. The jungle through which the canal was to be cut was rife with venomous snakes and mosquitos who could not resist the temptation of fresh blood. Yellow fever, malaria and other tropical diseases made inroads into the workforce. In 1884 the death rate was over 200 a month. Obviously, the high death-toll made it difficult to recruit and retain experienced engineers. Much of the machinery, state-of-the-art steel shovels and diggers rusted quickly due to the damp, humid climate.

De Lesseps kept raising money through share issues but the project was eating cash and not making the projected progress. The inevitable happened and on 4th February 1889 the Tribunal Civil de la Seine ordered the winding up of the Canal Company which had spent $287m on a project which had cost some 22,000 lives. But the French government were reluctant to liquidate the company for fear of the impact on the investors and tried desperately to interest American companies in taking over the operation.

The extent of the scandal became apparent in 1892 when French nationalists accused a large number of ministers of accepting bribes from de Lesseps in 1888 to permit the last stock issue, even though it was obvious to those in the know that the company’s finances were perilous. Some 510 members of parliament were accused of receiving bribes from the Company to conceal its financial position from the public. De Lesseps, his son, Charles, the chief engineer Gustave Eiffel – heard of him? – and other members of the management were tried and sentenced to five year imprisonment, although this was later annulled.

One of the ministers, Bethaut, was sentenced to five years, of which he served three, and the main agent for the bribes, Baron Reinach, committed suicide. Some fled to England while de Lesseps slipped the mortal coil in 1894.

All of this was little consolation to the 800,000 investors who had lost their chemise as a result of the over optimistic promises of a speculator and the avarice of their legislators. The consequences were that there was a period of political instability and public trust in politicians was severely dented. Some commentators suggest that as two of the prominent characters in the scandal – Baron Reinach and Cornelius Herz – were Jewish it helped stoke up the nascent French antisemitism movement.

In 1894 a new French company was set up to continue the work on a smaller scale and eventually in November 1903 under the Hay-Bunau-Vanilla Treaty the United States took over its lease, shares and assets.

 

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