Speculation and crash: the railway crisis of the 1870s

The collapse of railway share prices

The Zurich exchange building was designed and begun during the worst crisis that Swiss railway securities experienced in the nineteenth century. The international crash of 1873, which began in Vienna and spread to Berlin and New York, hit Swiss railway companies at a moment when many of them were committed to costly new lines. The Nordostbahn, the most important Zurich issuer, had expanded aggressively, in part to fend off competition from the Nationalbahn project. The Historisches Lexikon records that the price of the Nordostbahn share fell from 670 francs to 53 francs between 1871 and 1878, during the general economic crisis.¹ The commentary of the Alfred Escher letters edition gives a still more precise picture. It places the ordinary shares at about 600 francs in early March 1874 and records an absolute low of 47.50 francs on 8 October 1878. The shares only rose above par again in 1888.²

A fall of more than ninety per cent in the leading local share was a severe test for a young market. It destroyed the savings of many investors who had bought railway shares as a safe and patriotic investment. It also discredited the “Escher system” of private railways financed through the Kreditanstalt, which is discussed in Chapter D.I. The same commentary shows how the crisis worked through the balance sheets. The interest payments of the Nordostbahn rose from 2.04 million francs in 1871 to 6.37 million francs in 1878, while operating surpluses remained roughly constant. Ordinary shareholders received no dividends during the crisis years. Payments were resumed only in 1887 with a modest two per cent.³ On 2 March 1877 the company asked for relief from its construction obligations. On 14 February 1878 the Federal Assembly confirmed a moratorium that postponed the construction of further lines until the company’s finances recovered.⁴

The Nationalbahn and the limits of democratic railway finance

The second Zurich railway disaster of the decade was the collapse of the Schweizerische Nationalbahn. This line was the project of the democratic movement, directed against Escher’s Nordostbahn and financed in large part by public bodies. Formed on 5 April 1875 by the merger of two predecessor companies, it received about 5 million francs of share capital from the Canton of Zurich and interested municipalities. Four guarantor towns, Winterthur, Zofingen, Baden and Lenzburg, stood behind its bond issues in the proportions 7:5:3:3. By January 1878 the company could no longer pay the interest on its bonds. On 20 February 1878 the Federal Supreme Court ordered its compulsory liquidation. At the second auction, on 15 March 1880, the western section went to the Nordostbahn for 750,000 francs and the eastern section to the Eidgenössische Bank for 3.15 million francs. In the end the Nordostbahn acquired the assets for just under fourteen per cent of their original value.⁵

For the exchange the Nationalbahn affair had a double lesson. Private railway finance under Escher had produced a spectacular fall in share prices, while public railway finance under the democrats had ended in insolvency and in losses for the taxpayers of the guarantor towns. Neither model offered investors security. The crisis also showed how dependent Swiss railways were on foreign capital. Once the domestic capital market was closed to them after 1873, the Nordostbahn and the Centralbahn turned to Paris, where they obtained funds through the Comptoir d’Escompte on unfavourable terms. The Escher edition speaks of low issue prices and high interest rates and commissions.⁶ Zurich could organise a market for local securities, but it could not yet absorb the volumes that the railways required in a crisis. The international character of railway capital is taken up in Chapter D.VI on the Gotthard railway.

Speculation, usury and the public mood

The losses of the 1870s changed the political climate in which the exchange operated. Zurich was the canton of the democratic movement, which had won a new cantonal constitution in 1869, created the Zürcher Kantonalbank in 1870 and championed the Nationalbahn (see Chapter D.V). Its supporters regarded the “Herren” of the Kreditanstalt and the Nordostbahn with suspicion, which made it easy to identify the exchange with the world of the Escher system. On 27 May 1883 the voters of the canton approved a law against usury (Gesetz gegen den Wucher) by a majority of 88.61 per cent.⁷ The usury law belongs to the history of credit. Even so, the scale of the majority shows how widely the voters wanted the state to police financial transactions that they saw as exploitative. In this climate, the regulation of the exchange by the canton became a political project as well as a commercial one.

Notes

1. HLS, Hans-Peter Bärtschi, “Schweizerische Nordostbahn (NOB)”, version of 30.11.2011, https://hls-dhs-dss.ch/de/articles/042011/2011-11-30/. ↩
2. Bruno Fischer, “Private Eisenbahngesellschaften in der Krise: Die 1870er Jahre”, overview commentary in the Alfred Escher Briefedition (ed. Joseph Jung), https://www.briefedition.alfred-escher.ch/kontexte/uberblickskommentare/Eisenbahngesellschaften_in_der_Krise. ↩
3. Fischer, “Private Eisenbahngesellschaften in der Krise”, https://www.briefedition.alfred-escher.ch/kontexte/uberblickskommentare/Eisenbahngesellschaften_in_der_Krise. ↩
4. “Schweizerische Nordostbahn”, Wikipedia (German), https://de.wikipedia.org/wiki/Schweizerische_Nordostbahn. ↩
5. “Schweizerische Nationalbahn”, Wikipedia (German), https://de.wikipedia.org/wiki/Schweizerische_Nationalbahn. The guarantor towns bore operating deficits and unpaid bonds and coupons of about 6 million francs, a burden that weighed on Winterthur’s finances for decades. ↩
6. Fischer, “Private Eisenbahngesellschaften in der Krise”, https://www.briefedition.alfred-escher.ch/kontexte/uberblickskommentare/Eisenbahngesellschaften_in_der_Krise. ↩
7. “Liste kantonaler Volksabstimmungen des Kantons Zürich”, Wikipedia (German), https://de.wikipedia.org/wiki/Liste_kantonaler_Volksabstimmungen_des_Kantons_Z%C3%BCrich, entry for 27.05.1883. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.